#119. The New Economy

Posted on | The Agurban
The New Economy

A recent report from The Information Technology and Innovation Foundation and the Ewing Marion Kauffman Foundation entitled The 2007 State New Economy Index – Benchmarking Economic Transformation in the States has identified indicators to determine each state’s readiness and ability to compete in the New Economy. First, we need to define what exactly is The New Economy.

Today’s transformation to the New Economy is equivalent in scope and depth to the emergence of the factory economy of the 1890’s (the first wave of migration from the farms to the urban areas) and the mass production, corporate economy of the 1940s and 1950s (the second wave of migration from the cities to the suburbs). This New Economy is the third wave of migration in the United States – the movement of populations from the suburbs to the agurbs.

The New Economy refers to changes that in the last 15 years have transformed the structure, functioning and rules of the economy. The New Economy is a global, entrepreneurial and knowledge-based economy in which the keys to success lie in the extent to which knowledge, technology and innovation are embedded in products and services.

Today’s economy is global. More nations have joined the global marketplace, more goods and services are traded, and more of the production process is interconnected in a global supply web. Since 1980, global trade has grown 2.5 times faster than global gross domestic product.

Today’s economy is entrepreneurial. Entrepreneurial growth, market dynamism and competition have been features of the American economy since the colonial days, but the center of gravity seemed to shift to entrepreneurial activity after the 1990s. The underlying operation of the economy accelerated to a new speed and became more customized and innovative. For example, in the 60 years after 1917, it took an average of 30 years to replace half of the 100 largest public companies. Between 1977 and 1998, it took an average of 12 years. From 1980 to 2001, all of the net US job growth was from firms less than five years old, while older firms actually lost jobs.

Finally, today’s New Economy is knowledge dependent. Managerial and professional jobs (knowledge jobs) increased as a share of total employment from 22 percent in 1979 to 34.8 percent in 2003. In contrast, about one in seven workers, or 14.3 percent, is employed as a production worker in manufacturing, and even there, knowledge and continual skills enhancement is becoming more important.

As the New Economy enters adolescence, it will continue to restructure and reshape global and national economies, as well as those of the 50 states.

Next week we will discuss the Formula for Success in the New Economy and define nine key strategies that states can employ to foster success. We will conclude the following week with a list of the top states.