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Where, and how, to look for the New Economy

Amanda Rowlatt, Tony Clayton and Prabhat Vaze

Economic Analysis and Satellite Accounts Division

Office for National Statistics

e-mail: info@statistics.gov.uk

PART I

What is a new economy?

There have always been ‘new economies’- the concept is not tied to time or technology. For centuries there have been periods when changes in technology or social organization brought:

- Radical changes to market boundaries, expanding scope to exploit intellectual capital;

- Access to new products and services for major sections of society as new consumers;

- Significant changes in the interactions and operating processes of enterprises;

- Redefinition of the relationships between customers and suppliers.

Examples include:

- Printing, permitting knowledge to be reproduced and accessed in the 14th century;

- Steam power, enabling knowledge embedded in engineered products to replicate itself on a mass production scale in the 19th century;

- Canals and railroads, which created large integrated markets in many countries, opening access to products to millions of people previously restricted to subsistence living;

- Birth of mass media and organized sport in the 19th century;

- Canals and railroads, which created large integrated markets in many countries, opening access to products to millions of people previously restricted to subsistence living;

- Birth of mass media and organized sport in the 19th century, bringing entertainment as a ‘product’ to a huge new audience;

- TV as a one-way medium of communication, giving individuals a global view of products and services;

- And now developments in information communication and technology (ICT), which have the potential to make global information, entertainment and access to products available on an individual, interactive, basis.

Each of these events changed both the structure of economies and relationships in society; none of them was a purely ‘economic’ phenomenon. But each one enabled the commercial exploitation of intellectual capital, brought new products or services to new consumers, changed the way enterprises work, and changed both economic and social behavior. In the examples above, the sequence leads from an initial step, making available a limited amount of intellectual capital to a small but growing audience, to a state where information can be made available to all. When ‘next step’ leads is an interesting question, but our task for the moment is to help explain this one.

PART II

What is this new economy?

The ‘new economy’ we face at the start of the 21st century has three main aspects, present a challenge to measurement and understanding:

1. The infrastructure necessary to assemble, analyse, communicate and manage information, which rests in ‘computer mediated networks’;

2. Transactions for the purchase of goods and services which are carried out by electronic means either by Electronic Data Interface which has been around for 25 years between firms, or over the internet which brings electronic purchasing to individual consumers;

3. Interactions which transfer information between enterprises or individuals, which are not themselves purchases, but which add value in some way.

In measuring this new economy there are specific methodology problems, which the Office of National Statistics (ONS) is tackling in each of these areas:

- How to define and measure the infrastructure investment in products (both physical and intangible) which are changing rapidly as technology changes, and whose prices fall as capabilities rise?

- How to measure transactions for goods and services which do not go through traditional markets or channels of distribution, and whose suppliers are often not tied to specific countries?

- How to gauge the economic impact of a large volume of new activity which goes on within firms, between firms, between firms and consumers, and involving government, which are not purchase transactions but which support commercial activities or deliver valuable information?

This three-way split in measuring the ICT new economy, first set out by the US Center for Economic Studies, has been developed in a number of ways, OECD and Eurostat, and forms the basis for work now under way by ONS.

© Crown copyright 2002

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Adapted from Amanda Rowlatt, Tony Clayton and Prabhat Vaze, “Where, and how, to look for the New Economy” Economic Trends, No. 580 March 2002, accessed June 01, 2010 from http://www.statistics.gov.uk/articles/economic_trends/new_economy.pdf