On the Economy
Economy may be "new," but it's hardly improved
We don't hear much about the New Economy now. The term seems so 1990s — a much-hyped victim of the 2001 tech bust, best left in the...
Special to The Seattle Times
We don't hear much about the New Economy now. The term seems so 1990s — a much-hyped victim of the 2001 tech bust, best left in the pre-9/11 memory drawer along with the Y2K bug, DVDs of the television show "Millennium" and Monica Lewinsky.
Yet even as some recall the 1930s looking at the housing crash and credit crisis, the broad concepts of the New Economy are still with us. In many ways, they have simply become the economy. The term, shed of its hype, meant much more than the next big thing in tech. It was shorthand for a series of radical changes in business and working. Among them: globalization, deregulation, a broad investor middle class, dynamic markets, innovation, knowledge work and new ways of organizing the workplace.
Sounds like the way we live now. Yet these concepts, which were widely celebrated during the booming 1990s, are back in our national conversation amid controversy and second thoughts. It may not be new anymore, but the economy wrought around the turn of the century is very much with us. And its clear that it has created losers as well as winners.
Some of the losers are obvious. Millions of homeowners at risk of foreclosure or who have already lost their houses can thank two major initiatives of the '90s: deregulation of the banking industry and the proliferation of exotic, complex financial instruments, including those that bundled mortgages and resold them on Wall Street. The now-reviled mortgage lender Countrywide Financial, recently bought by Bank of America, was hailed in the late 1990s and early 2000s as a leading innovator in creating the home-loan boom.
High gasoline prices? One major factor behind the pain is another revolution bundled into the term New Economy: the entry of 3 billion new capitalists into the world economy, especially in China and India. They are buying cars and seeking to replicate American suburban lifestyles, causing an exponential increase in demand for limited oil.
Along with the assurance of Dow 36,000, another New Economy canard that died hard in 2001 was the notion that the business cycle was obsolete. But the business cycle has arguably been changed by real New Economy forces. The expansion after the 2001 downturn was by many measures the weakest of the post-World War II era, especially in its effect on average people.
What happened? Globalization kicked into high gear. With the entry of China into the World Trade Organization and the general economic rise of Asia and other developing countries, Americans saw unprecedented competition for their jobs. Companies closed U.S. factories to open plants paying cheaper wages offshore. The government reports that 383,000 manufacturing jobs were lost over the past year alone. Nor is this merely a basic manufacturing phenomenon: major technology firms have opened major research operations in China and India. And advanced manufacturing, including aerospace, is shifting offshore.
Meanwhile, the economy values knowledge work, backed by information technology, in advanced countries, and the resulting gap between haves and have-nots is wide. Nimble, well-educated technology workers tend to do well. The textile and apparel jobs that once provided a decent blue-collar living in North and South Carolina are mostly gone, replaced in many cases by lower-paid service jobs.
Now the nation struggles with land mines that would have caused an outright recession in the old business cycles — a banking crisis, housing meltdown and rising fuel prices — yet gross domestic product continues to expand. Part of that, too, is because of globalization. U.S. exports are booming, thanks to the weak dollar. But it may also be that the changes of the past two decades have simply made the old measures obsolete, or at least inadequate.
Another snapshot comes from the Ewing Marion Kauffman Foundation's State New Economy Index.
The latest, in 2007, showed Washington ranked fourth nationally, using 26 measures of such things as knowledge jobs, export orientation, fast-growing companies, and research-and-development dollars. Massachusetts ranks No. 1, with West Virginia last. Washington held the same rank in the 2002 survey.
(One warning sign in the survey: Washington ranked 33rd nationally in foreign direct investment, an increasingly powerful tool for economic development. No. 1 was South Carolina, with its huge German industrial complex, anchored by BMW.)
Hooray for us, but this doesn't diminish the rising ranks of losers nationally in this dramatic economic transformation. Among them are the angry blue-collar voters being courted by both John McCain and Barack Obama in Michigan, Ohio and Pennsylvania.
In Seattle, we lament the loss of affordability in a city that was once heavily working-class. Blame the New Economy.
And it's unclear whether the political process can allow a New Economy safety net, including health care for displaced and uninsured workers.
Is there any going back? Rising fuel prices are causing some companies to rethink their global supply chains. But the size of the Asian market makes any major repatriation of factory jobs to America unlikely. Even trade skeptics among the Democrats are loath to be labeled protectionists in an integrated global economy. And the huge U.S. debt to China means that any destabilization in the relationship could threaten a global depression.
Faced with that reality, it's unfortunate that Americans are paying less attention to the competitive aspects of the real, as opposed to the hyped, New Economy.
Our educational performance is slipping, especially in the greatest wealth-creating areas. For example, the United States ranks 29th worldwide in the percentage of 24-year-olds with math or science degrees. Overall federal spending on research and development is falling, while it is increasing among overseas rivals.
The Kauffman report also laments lack of a national strategy designed to explicitly win in global competition for high value-added production.
Somehow I don't think the report writers had the housing bubble in mind as a national strategy.
Jon Talton is a journalist and author living in Seattle. For more than 20 years he has covered business and finance, specializing in urban economies, energy, real estate and economics and public policy. You can reach Jon Talton at email@example.com.
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