Robert Boyer - The Future of Economic Growth

The Future of Economic Growth
This page intentionally left blank
The Future of Economic Growth

As New Becomes Old
Robert Boyer
Senior Researcher at the Centre National de la Recherche Scientifique (CNRS), Professor (Directeur dtudes) at the cole des Hautes tudes en Sciences Sociales (EHESS) and Economist at the Centre dtudes Prospectives dconomie Mathmatique Appliques la Planification (CEPREMAP), Paris, France
THE SAINT-GOBAIN CENTRE FOR ECONOMIC STUDIES SERIES
Edward Elgar
Cheltenham, UK Northampton, MA, USA
The Saint-Gobain Centre for Economic Studies 2004 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Boyer, Robert, 1943 [Croissance dbut de sicle. English] The future of economic growth : as new becomes old / Robert Boyer. p. cm. (Saint-Gobain Centre for Economic Studies) Translation of: La croissance dbut de sicle. 1. Economic development. 2. Information technology. 3. Economic forecasting. 4. Economic history20th century. I. Title. II. Saint-Gobain Centre for Economic Studies (Series) HD83.B69313 2004 338.9dc22 2003049260 ISBN 1 84376 606 X (cased) ISBN 1 84376 607 8 (paperback)
Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall
Contents
List of Figures List of Graphs and Boxes List of Tables Preface to the English edition Acknowledgements Introduction A shared vision Beyond the myths A kaleidoscopic approach 1 A social construct and an analytical challenge Introduction The American economy in the 1990s was no longer the same as that in the 1960s Combining micro- and macroeconomics, history and geography The difficulty of analysing structural changes in real time Conclusion 2 Microeconomic instability and an uncertain organizational model Introduction Digitalized information and redundant networks The three figures of the new economy The search for an organizational model for the new economy Conclusion 3 A growth regime driven by information and communications technology? Introduction The new and the old economies: a conjunction of two virtuous circles? The Solow paradox has not been entirely resolved yet Faster potential growth: problems with forecasting The new economy has had different effects on different sectors Conclusion
v
viii ix x xi xvii 1 1 2 3 5 5 5 8 9 13 14 14 14 17 19 25
26 26 26 28 33 36 42
vi
The future of economic growth
4 Genealogy of the new economy: the institutional change at the heart of the US trajectory Introduction 19732000: the long search for successors to the Fordist growth regime An early deregulation of the product market Increasingly competitive labour markets ICT as a way of overcoming management problems in large companies The peace dividend A new architecture for economic policy Multiform financial innovations Internationalization underpinned internal US dynamics Should other countries adopt the institutional architecture of the USA? Conclusion 5 The geography of the new economy: the diversity of institutional architectures Introduction ICT at the heart of the technological change process Pre-conditions for virtuous growth: two configurations Was the US configuration exemplary or just singular? Three institutional configurations Is it necessary to produce ICT in order to know how to use them? Conclusion 6 20002002: reassessing the potential of ICT-driven growth Introduction The Internet bubble: from boom to burst Traders and economists forget the lessons of history at their own peril Consecutive technological paradigms do not resemble one another Conclusion 7 The long-term historical outlook after the Internet bubble Introduction Overestimating ICTs role The end of three major myths Inequalities within and between countries: down with technological determinism An uncertain mode of regulation
44 44 44 51 53 55 57 58 60 62 63 64
65 65 65 68 70 71 73 75 77 77 77 86 90 99 101 101 101 105 107 109
Contents
vii
The opposition between the old and the new economy is obsolete Conclusion 8 The emergence of an anthropogenetic model Introduction ICT as the vector of real-time management? Moving towards a network economy? The transition towards a knowledge economy? In the long run: an anthropogenetic model Conclusion 9 Conclusion The future lasts for a long time Behind the success of the new economy: a crisis already in the making Multiform institutional changes rather than technological determinism The geography of the new economy actually includes the Nordic countries ICT is already a mature industry The power of Wall Street instead of Silicon Valley Altered competition but no return to mythical competitive markets Between speculation and utopia: the anthropogenetic model Bibliography Index
115 118 120 120 120 124 128 136 143 145 145 145 147 147 148 149 150 151 153 168
Figures
1.1 The difficulty in describing structural change 3.1 A growth regime that results from the conjunction of two virtuous circles 3.2 A number of different factors have contributed to the recovery in productivity 3.3 Corporate reorganizations as a necessary pre-condition for reviving productivity 6.1 Birth and death of the new economy 7.1 Even an electronic market is based on the assumption that a whole set of public institutions and legal rules exist 8.1 The new economys path towards an anthropogenetic regime 12 27 31 32 79 114 129
viii
Graphs and Boxes

GRAPHS
4.1 Adjusted and annual variations in growth rate of total US productivity, 19651999 4.2 Comparative changes over two cycles in real wages and productivity 4.3 ICT is primarily used for professional purposes 4.4 Unlike Japanese stocks, US share prices have been tracking the diffusion of ICT 4.5 19962000: the evidence of a financial bubble 5.1 The economies that were part of a virtuous circle of growth regime 5.2 Is there any link between the production and the utilization of ICT? 6.1 By 1998 profits were already starting to erode 6.2 A capital structure that has become increasingly heavy 8.1 A comparison of trends in household spending on durable goods and on health 9.1 Does belief in a new era herald the advent of a crisis? 52 54 55 61 62 66 74 85 85 138 146
BOX
8.1 Access to information is no substitute for competency and knowledge 133
ix
Tables
1.1 The new economy: a whole variety of characterizations and 10 approaches 2.1 The likelihood that market competition will lead to the 15 domination of one particular firm or technology 2.2 The strategies available to ICT in response to positive externalities 20 2.3 The different uses of the Internet 22 3.1 Productivity gains are concentrated in information-related durable 29 goods 3.2 Can ICT generate a strong and durable recovery in productivity? 34 3.3 The many different factors underlying the adoption of e-commerce 38 3.4 E-commerces probable impact on industrial organization various 39 sectoral patterns 3.5 Productivity has accelerated at a very different rate depending 41 on the sector 4.1 The growth regimes that were supposed to succeed Fordism: 46 many candidates, but few victors 6.1 Most new economy start-ups do not have viable share prices 82 6.2 Putting ICT in a historical perspective 92 6.3 A taxonomy of the shift from traditional trade to electronic 96 commerce 7.1 What the new economy promised and what it actually achieved 102 7.2 The mode of regulation that is implicit to ICT does not entail 111 perfect competition 8.1 ICTs impact on the emergence of a new form of company: 122 the real-time company 8.2 Information, networks, knowledge: three distinct growth regimes 126 8.3 The United States has been redeploying its research efforts to 142 emphasize the health sector
Preface to the English edition

This is a translation of a book that was originally published in France in 2002. It examines the driving forces behind growth during the previous decade, paying particular attention to the strengths and weaknesses of the new economy. How has the new economy become old? In retrospect, what is the future of economic growth? These are two questions that this book addresses. The Anglophone reader may well question the relevance of such a book. What can a French researcher contribute to the analysis of a phenomenon which primarily took place in the USA? Why dwell on the concept of a new economy that many people now consider to be a thing of the past? Do not a number of events that have taken place since the publication of this book in French invalidate some of its findings? These are questions to which this Preface seeks to respond.
THE ILLUSIONS OF THE NEW ECONOMY MAY RE-EMERGE

One of the aims of this book is methodological and focuses on whether economists learn from their mistakes. During the late 1980s and subsequently, many economists became convinced by the emergence of a new growth regime, one driven by information technology. The drastic increase in share prices which took place at this time was seen to herald future growth patterns and future profits in the ICT-producing sector. The numerous adverse signals to the effect that this was a typical financial bubble that would eventually burst served little purpose. Such signals included massive capital investment in loss-making firms possessing little or no business experience; dramatic surges in share prices; and a reluctance on the part of public watchdogs to exercise their powers. One of the fundamental messages of this book hinges on a paradox: in an era supposedly dedicated to the rationality of entrepreneurial and financial strategies and to maximizing shareholder value, the actions undertaken by the financial community and by investors were in fact governed by blind faith and by the tendency to mimic others. The shift in stock market prices, indeed, was so complete that in some cases many people no longer showed any regard for macroeconomic constraints or for long-established principles of business management.
xi
xii
At the root of the collective errors of judgment which resulted in so much capital loss was the lack of time available for actors to step back and take stock of events. People believed that what was a new phenomenon for them and their contemporaries had no connection to long-term trends and international history. In reality, the dot.com fever was part of a long succession of speculative periods brought into being by a supposedly radical innovation. The short-term horizon of finance is not the long-term one of technological innovation. We also need to ask how it was that sensible members of the financial community came to be convinced by promises of large and constant increases in profits without giving serious consideration to the uncertainties that mark all economic activity. Even before the collapse of Enron, suspicions about dubious accounting methods were widespread. How is it possible that a large community consisting of trained and experienced professionals could turn its back on its own teachings? In part, the explanation comes down to a lack of historical and comparative understanding. Would not such understanding have been the best antidote to an over-zealous prediction of a historical break from the past? The fact is analysts simply failed to put the new economy into its larger framework and context. This book will have achieved its aim if it successfully encourages the reader to critically reconsider periods in which seemingly typical economic rationality gave way to blind faith, and resulted in instability and later on crashes. History during the course of the last three centuries is rife with examples of this type. Clearly, todays actors are in danger of repeating the mistakes of their predecessors if they do not actively seek to learn from this history.
THE SEDUCTIVE AND DANGEROUS NATURE OF TECHNOLOGICAL DETERMINISM

Fundamental to the belief in the new economy was a vision which reflected technological determinism. Many actors sincerely believed that technological breakthroughs in information processing and dissemination would lead to more efficient production methods and to product innovation, and that all of this would send profits soaring. However, the economics of technical change has long taught us that all innovations initially thought to herald the beginning of a new era do not result in viable ventures, nor sectors that are sufficiently important to generate growth at the macroeconomic level. It is now apparent that computerization went through its formative stages at the end of the Second World War. Microelectronics, consequently, is simply an extension of a long-run trend which seeks to facilitate information processing within firms. That is why the financial gains achieved by such innovations did
xiii
not reach their expected levels. As will be discussed in Chapter 7, ICTs are generic technologies inasmuch as they can be successfully disseminated through a wide range of business activities and sectors, yet they do not themselves constitute a radical innovation capable of creating a whole sector and increasing productivity and profits across entire economies. This book provides the reader with a series of analyses that demonstrates the inadequacy of arguments of a technologically determinist kind. To elaborate, electronic markets cannot operate without a specific set of rules, conventions and institutions ensuring their viability. Easy transmission of information is merely one of the material requisites for electronic business, not its unique condition. This point is all the more important when we realize that some technologies now considered to be outdated can actually be more efficient than more recent, and expensive, ones. This explains the widespread difficulties encountered regarding the measure of productivity of informational hardware and software capital. To assume, as does the methodology of growth accounting, that the productivity of informational capital is measured by the price of equipment ignores the costs involved in reorganizing the flow of production as well as the informational and decision-making structures needed if the full benefits of ICT are to be achieved. Down with technological determinism then! This is one of the main themes running through this book.
THE UNSUNG SUCCESS OF CERTAIN EUROPEAN COUNTRIES

Most research into the new economy has focused on the USA during the 1980s and the outstanding performances it clocked up in terms of growth and employment. Consequently, the institutions of a market-led capitalism that followed the US model were considered essential if a growth regime driven by information technology was to be achieved. Certain countries which lagged behind chose to create new financial markets in order to fund young, start-up firms. Such markets favoured stock options as incentive mechanisms, and in some cases even sought a relaxation of workers social rights in order to facilitate greater flexibility in employment adjustments, work schedules and pay. This one economic model led people to believe that the greater the adoption of typical institutions of market-led capitalism, the better a countrys macroeconomic performances would be. A paradox lies in the fact that the comparative data compiled to support this view highlights at least two additional institutional configurations which underpin good macroeconomic performances. The first can be found in Finland,
xiv
Sweden and Denmark where the high quality and large democratization of education and training have considerably facilitated the implementation of ICT and helped shape production in at least some of these social-democratic countries. The institutional infrastructures of these nations are very different from those prevailing in the United States, yet their results are as good as, or even better than, the latters, the reason being that total productivity factors result in high growth and low unemployment. It is therefore possible to achieve economic efficiency at the same time as maintaining social solidarity. This is a very different configuration from the United States where social inequalities are large. The second configuration exists in those countries which lag behind. Such nations can benefit from internationalization and from the possibilities created by ICT by forging institutional perspectives compatible with the new environment. They are not hindered by the inertia engendered by the adhesion to a previous successful growth model. Ireland, and to a lesser extent Portugal, occupy this category. These three different models have managed to coexist for a long period of time because the resilient institutional architecture on which they are built lies at the heart of their competitiveness. Herein we find the third of the books messages: this is that in an age of internationalization a large variety of capitalisms exists.
FINANCIALIZATION AND ITS DANGERS

This book insists that the synergy between new financial instruments and technological innovations is the factor explaining the rapid expansion and subsequent collapse of the Internet bubble. The financial communitys readiness to endorse the new economy was largely responsible for US macroeconomic trends during the latter half of the 1990s. Indeed, without the enormous elasticity of supply of capital, the ICT sector would never have experienced its massive surge, nor its later devastating crash. Since the start of 2000 a number of events have served to emphasize the role played by financial innovation and by the new instruments it has created. The quest for higher financial gains, along with increased risk-taking and speculation, have affected most sectors of the economy. The fatalities of Enron, Tyco, Worldcom and other distribution companies demonstrate, however, how greed and the lure of managers gains served to govern company behaviour over and above efficient management of corporate assets and competencies. Experience has shown with regard to the stock option mechanism, for example, that far from harmonizing the objectives of managers and shareholders, it actually serves to encourage creative accounting and the misrepresentation of financial results. The same applies to the numerous mega-mergers, acquisitions and alliances based on the big is
xv
beautiful motto that became so fashionable during the 1990s. We have since realized that in the majority of cases such operations had detrimental, rather than positive, effects on the value of businesses. Financial logic clearly triumphed over rigorous analyses of complementarities and synergies between industrial activities and services. Farewell then to the transparency that good governance and incentives such as stock options were supposed to produce. The US crisis that started with the bursting of the Internet bubble in March 2000 allowed for a double evaluation of the emergent growth regime. Firstly, it revealed that financial impatience stood in the way of a smooth development of technological innovation, something which normally takes place over decades. (This is another reason for demystifying the illusion of short-term technological determinism.) Secondly, it highlighted the instability peculiar to financial markets resulting precisely from their depth and liquidity. A growth regime led by finance is not only unlikely to correspond to the configuration of non-US economies, but is likely to endogenously spark further crises. Events that have taken place since the publication of this book in France have confirmed the diagnosis that was then only implicit: namely that the 1990s were more about finance than about an information and real growth economy.
THE PROSPECTS FOR AN ANTHROPOGENETIC GROWTH MODEL

One might initially be led to believe that the main purpose of this book is to indulge in criticism. The suggestions made in the final chapters demonstrate otherwise. They indicate that the next growth regime could centre on education, training, health, leisure activities and urban planning. This view is based on an analysis of long-term changes in US household expenditures. On the one hand, the proportion of durable manufactured goods in relation to total consumption has stabilized owing to the relative fall in prices which spurred demand for mobile phones, microcomputers and other electronic goods. On the other hand, because apparent productivity gains are not observed in the service sector, particularly within areas of education and health, households have had to spend an increasingly larger percentage of their budgets as a means of satisfying their needs. This phenomenon is all too apparent from the viewpoint of the financial difficulties involved in social security cover and public budgets which regrettably overshadow the significance of a model based on human capital (to borrow the language of neo-classical theory). It would be more accurate, however, to describe the phenomenon as one that requires the production of humans by humans and in the process to prolong and actually reverse the classical
xvi
approach that viewed the economy as the process of producing commodities by commodities. In more analytical terms, we could describe the challenge facing contemporary economics as being an anthropogenetic one. We perceive the importance of such a model on a daily basis, if only by default. Virtually every month we hear about the misreporting and financial troubles of firms belonging to the new economy. By contrast, governments in almost every country are currently seeking to curb increases in health and pension expenditures by, for example, introducing reduced access to healthcare in those areas where provision and funding mostly rest in public hands. Hence the strikes by medical personnel and the moves of the North to import specialists from countries in the South as a means of compensating for staff shortages. One would be hard pushed to find a better homage to the anthropogenetic model, although it is currently seen alas in terms of costs rather than benefits. This book calls for some sort of response to its in-depth analysis from civil servants who seem more concerned with budgetary equilibrium than with meeting emergent social needs, particularly in areas pertaining to health and education. Beyond information technology lies knowledge economics, a concept which international institutions, such as OECD and World Bank, are only now beginning to take seriously. This, however, is merely part of a much wider development involving the production of humans by humans. I very much hope that readers of this book will find sufficient food for thought about contemporary developments, far away from the succession of fads that often obscure, rather than illuminate, social discussions. It will be left to the reader to decide whether the book successfully achieves what it sets out to do: that is, to make its song heard above the great cacophony of the new economy and to bring some incisive and original analysis to what has effectively been la grande illusion.
Acknowledgements
Helping me to shape my thoughts in ways which led to the present volume were the following: John Zysman of the Berkeley Roundtable on the International Economy (BRIE) who invited me to participate at the conference which took place at the University of California on 2829 April 2000; Bruno Thret; Pascal Petit; Philippe Moati; Jean-Louis Beffa; Jean-Philippe Touffut; Xavier Ragot; Moncef Kaabi; Nicolas Canry; and Devin Stewart. The manuscript would never have seen the light of day had it not been for the assistance of Jacqueline Jean who gave unfailingly of her skill, energy and insight. Grateful thanks also go to Alan Sitkin for the translation, and to Vanessa Rubin and Derek Edgell for editing the text. To all of the above I extend my heartfelt and warmest appreciation. It goes without saying that the views expressed in this book are mine alone and that none of the above bears responsibility for matters either of commission or of omission. Robert Boyer, Paris April 2003
xvii
This page intentionally left blank
Introduction
Which factors during the first decade of the twenty-first century will be the ones to drive economic growth? Has the success of ICT (Information and Communications Technology) already given us a glimpse of the shape that will be assumed by the productive paradigm at the heart of emerging regimes? If so, how should the respective national positions of different countries be redefined? Should we expect fewer, or greater, inequalities between and within countries in terms of those that master the new technologies and those that have no access to them? Have these transformations already created an economic dynamic that is powerful and steady, or should we be worrying about the possibility that globalized finance, which used to be the ally of ICT producers, may in the end destabilize national economies around the world, both North and South.
A SHARED VISION
During the late 1990s the response to all of these questions was relatively unanimous. Depending on the community of views to which they adhered, experts and political leaders believed that the marriage of information and telecommunication techniques (best exemplified by commercial usage of the Web) would pave the way for a durable recovery in productivity gains; ensure strong growth in markets conquered by the more traditional industries (in activities such as materials transformation, logistics or services); and/or facilitate corporate management by adjusting production digitally to the slightest variation in demand. This was expected to transform the economic cycle, and maybe even eliminate it in countries that were capable of mastering the emerging technological paradigm. At the same time people were warned about a digital divide if education and training failed to facilitate access to ICT, this being considered a first step towards the fulfilment of the knowledge economy. There was little confidence in those countries that had been unable to come to grips with the information revolution because they had not adopted the collective institutions and organizations that seemingly underpinned the success of a place like Silicon Valley: namely, close relationships between university staff and company
1
founders; a sufficient quality and volume of venture capital; liquid and deep financial markets (to allow start-ups to float their capital on the stock market within a very short period of time); highly mobile individuals bearing requisite competencies; and little taxation on capital gains and profits. Governments would therefore have a simple task: to acclimatize, as best and as quickly as possible, the equivalents of the organizational and institutional discoveries that were shaping the US economys longest growth phase of the post-1945 era.
BEYOND THE MYTHS

This book subjects such propositions to critical dissection. Few emerge unscathed. It contests the relevancy and generality of the various propositions, basing its criticism on a detailed examination of the hypotheses on which they were built. From the very outset, the new economy aggregates under one and the same title a whole range of activities embracing a wide array of characteristics, even if they all involve ICT. It is no surprise that this fiction of the new economy ultimately imploded during the 20012002 recession in the USA. Adopting ICT is not a sufficient condition for improving corporate productivity. There needs, in addition, to be a reorganization of the information and decision-making channels of companies so that firms can benefit from the production of public goods in research, education and those infrastructural forms that ensure the competitiveness and adaptability of private agents. Forecasting errors do not necessarily decrease as a result of ICT, nor does the macroeconomic cycle disappear. Over-accumulation and the speculation that accompanies it, as well as belief in a new era rather than rational calculations and expectations all of these factors have quite logically led to a recession. Prognoses by many experts and financiers, as witnessed by new market share prices, have been cruelly refuted. Europe is not uniformly and irretrievably lagging behind the USA. Small and open social-democratic economies such as Finland and Denmark have posted excellent results thanks to the way in which they control the usage and/or production of ICT. This is so even though their institutions are very different from those found in the USA. In these countries, prevailing strategies are based on cooperation rather than the fomentation of radical competition. Such strategies do not harm their international competitiveness; far from it, especially as it now seems that new financial markets are not really necessary. All in all, there is nothing inevitable about the digital divide. It is true that inequalities can worsen in economies where the logic of competition prevails, notably in the United States. But the Scandinavian economies are there to remind us that this danger is not inherent to ICT. Instead, it is directly
Introduction
conditioned by ambient notions of social justice, by institutional arrangements that govern the distribution of income and, more generally, by forms of solidarity. Down with technological determinism! Economic and social policies have to account for the possibility of innovation-related constraints; but these are certainly not solely determined by innovation. Some countries will benefit from the new technological possibilities, using them to forge suitable institutions. They will do so through negotiation and by political compromise itself a vector of innovation for rules and interventions. Some countries may find it easier to fit into emerging growth regimes than those suffering from inertia resulting from success during preceding phases of growth: examples include Ireland, and to a lesser extent Portugal. In other words, the line of demarcation between development and non-development is not set once and for all. The US economy snowballed during the 1990s, and this may have created the illusion of a virtuous circle between financial innovation and ICT. Market traders believed that this sector was destined for a glorious future, and took large buying positions in it. Reciprocally, start-ups found it easy to turn to stock market funding. Far from ensuring an efficient allocation of capital, however, this synergy led to a speculative snowball effect, one that was doomed to collapse at some time due to the over-accumulation it caused, and notwithstanding the best efforts of the US Central Bank (the Federal Reserve). In actual fact, irrational exuberance was the correct thesis, not market efficiency or the disappearance of cycles.
A KALEIDOSCOPIC APPROACH
These conclusions reflect the convergence between a series of varied approaches that have tried to discern emerging growth model issues in a complementary fashion. To begin with it is important to determine the conditions in which the new economy theme emerged, because it was this that induced technological change and industrial economics specialists, along with network analysts, macroeconomists and historians, to come up with a whole host of approaches and analyses (Chapter 1). One of this books main arguments is that excluding the network infrastructure hardware, computer and software-producing sectors, ICT affects a companys management before it impacts on its production or distribution processes (Chapter 2). It is only after this has been understood that we can attempt to ascertain the circumstances and mechanisms that contributed to the recovery of productivity, particularly in the USA (Chapter 3). During the 1990s, benchmarking comparisons focused on other national economies instead of on other companies, with the US economy usually
depicted as the ostensibly obligatory point of reference. However, if we were to define this benchmark in a much broader manner, perhaps by asking whether the country in question had entered a virtuous circle of growth, our conclusions would be quite different. The geography of the new economy is rich in lessons about the nature of the institutions that allow for renewed growth (Chapter 4). An international comparison of the main OECD countries is particularly enlightening with regard to the specific US path taken between 1991 and 2000. Many transformations took place in areas such as competition, industrial relations, financial organization, taxation and social protection. When combined with technological innovation, they played a part in shaping an institutional architecture that was very different from the one that had prevailed during the golden age of growth after 1945 the so-called Trente glorieuse (30 glorious years) or even that which had existed during the 1980s (Chapter 5). Many lessons can be drawn by observing the chain of events that took place between March 2000 and January 2003. Some of the founding myths of the new economy were quickly reassessed to the extent that nowadays the term itself is often used only in reference to the past. Although the recession did not put paid to the diffusion of ICT, it reminds us of some of the key lessons of economic history. There may be a succession of financial crises associated with the innovations that allegedly typify each era, but these crises are all different (Chapter 6). Lastly, although we can accept that ICT has brought about fundamental changes in the way that companies (and public administrations) are managed, questions need to be raised about the meaning of abandoning the distinction between old and new economies for the future development of the different productive models that continue to coexist, depending upon sector or country (Chapter 7). My analysis goes on to present, and to take a critical look at, the likelihood of several prognoses relating to the redeployment of information technology. In the process, I assess whether this helps identify potential successors to the model envisaged by the proponents of the new economy. This will be a chance to situate the transformation of the 1990s against the backdrop of the long history of the US economy, and by so doing come up with a prediction as to the probability of an anthropogenetic approach to growth (Chapter 8). A brief conclusion will draw out some general lessons. This is in the hope that they will help both private actors and public decision-makers to decipher the complex developments which characterize the emergence of original growth regimes for which ICT is the instrument and point of passage, but not the driving motor.
1. A social construct and an analytical challenge

INTRODUCTION
All concepts, particularly within the field of economics, have a genesis and a history. This is because they result from intellectual and social constructs. The new economy does not escape this rule. It is therefore appropriate to spend a little time remembering why it is that this term first arose during the latter half of the 1990s. At the beginning when there was general enthusiasm for the new economy (and not only in financial or ICT circles), we find a conjunction of three factors that played a crucial role in spreading the idea that the US economy entered a new phase during the mid-1990s. Note that most of this action transpired in the United States, which therefore became a mandatory point of reference for analysis, with other countries subsequently being compared and benchmarked in reference to the dynamism observed here. This was no coincidence. The US economy had been the first to explore previous growth regimes and to undergo the crisis of Fordism. As such, it is worth retracing the circumstances and factors that enabled the birth and subsequent diffusion of the belief that an unprecedented growth regime emerged between 1995 and 1997.
THE AMERICAN ECONOMY IN THE 1990s WAS NO LONGER THE SAME AS THAT IN THE 1960s
From the early 1970s to the mid-1990s US growth was marked by a break with the Fordist era when, thanks to institutionalized compromises inherited from the New Deal and especially from the post-Second World War period, dynamism in productivity and rises in living standards went hand in hand (Boyer and Juilliard, 1992, 1995). In contrast, during the 1980s semi-stagnant total factor productivity was accompanied by an increase in inequalities as the rich became richer and the poor became the working poor. The 1990s constituted a change that manifested itself through a number of different, yet converging, indications, with the multitude of structural transformations that had taken place since 1971
5
finally sustaining a vigorous growth regime. Three major changes lent themselves to the birth of the new economy. Silicon Valley Replaced the Japanese Model First of all, an original productive paradigm based on the production and intensive utilization of information and communications technology (ICT) emerged in California (Aoki, 2002). From the mid-1990s onwards Silicon Valley became a mandatory point of reference, fulfilling the role that the socalled Japanese model had played during the preceding decade. Analysts had long believed in a Japanization of western productive systems, but in an ironic turn of events of the kind to which history is accustomed, it was in fact the abandonment of Star Wars after the collapse of the Soviet Union that resulted in Californian high-tech companies looking to convert microelectronics to civilian uses. Firms that had been working for the defence sector found a model to follow with the development of the Web, which had evolved from early academic and military beginnings to widespread commercial usage after 1995. Every new era needs some sort of symbol. Silicon Valley, contrasting with the Fordist eras model of the large international company, provided an example of how an entity that once would have been referred to merely as an industrial district could modernize itself and adapt to the requirements of contemporary finance. The extraordinary speed of revenue growth in firms contributing to the ICT boom provided the first indications that a new era had arrived, one that was entirely novel in terms of its industrial organization and which seemed to comprise, as some saw it, a whole new stage of capitalism (Castells, 2000). Surprisingly, Productivity Accelerated Even As the Cycle Was Coming to an End In all likelihood, this transformation would not have sufficed had it not been accompanied by a second change that was observed at a macroeconomic level. This was the unprecedented configuration of the 1990s cycle, unmatched by anything witnessed during the previous two decades. During these earlier cycles, the expansion phase came up against increasing inflationary pressures that stemmed from a lack of productive capacities and from the correlated fall in productivity. This was an outcome that also had the negative side-effect of exacerbating conflicts over the distribution of income, themselves a product of the breakdown between wages and profits (hence inflation). Those observers who up until this point had been the most sceptical about the United States entrance into a new era would, however, become converts to the new economy thesis when official statistics revealed that productivity had accelerated during the seventh and eighth years of the expansion phase (Zarnowitz, 2000). Here
A social construct and an analytical challenge
was proof that the enormous investments that had been made in computers, software and servers were finally bearing fruit. In turn this led to the reemergence of a theme that has cropped up time and again in the history of economic theory, namely the idea that the United States has discovered an economic regime that is totally free from the cycles that have succeeded one another in various forms ever since industrial capital first emerged. In any event, inflation remained moderate and conflicts over income distribution were partially resolved thanks to something equivalent to a shared economy, whereby an ever-greater proportion of employees income is linked to corporate financial performance indicators (Pontvianne, 2001). The Financial Markets were Betting on the New Economy There was also a third structural change, one that related to financial innovation. The deregulation of financial systems preceded the emergence and blossoming of ICT. Space thus opened up for competition, and experimentation gave birth to new financial instruments and practices. Banking intermediation was replaced by securitization, leading to a rising regime of disintermediation. This first affected larger companies before impacting on high-tech sector start-ups as a result of a whole range of innovations. During the latter half of the 1990s, the goal of venture capitalists, business angels and ultimately the markets themselves was to provide capital often substantial to the young entrepreneurs who supposedly heralded the wave of the future. Moreover, the whole financial community (particularly in the USA) enthusiastically embraced the idea that the old economy was doomed to be replaced by the new one. Of course, the modalities of this process remained relatively unknown, but it was assumed that they justified dispensing with previous criteria of financial valuation. This led to the creation of what, before March 2000, was known as the Internet convention, a new method for valuing start-ups and telecom companies. Until then, only a few financial analysts believed that the Dow Jones, and even more so the NASDAQ, would be the settings for, and imminent victims of, a financial bubble that would inevitably burst (Shiller, 2000). Even Alan Greenspan, who before 1998 had denounced the dangers of irrational exuberance, became a proponent of the new economy. He used this thesis to explain the virtual disappearance of inflationary risks, the dollars strength against the euro and even the contrasting macroeconomic fortunes on both sides of the Atlantic and the Pacific (Greenspan, 2000). This period dates the birth of the new economy. It was a time when the best-informed economic, financial and academic minds agreed that the world was entering a new phase of industrial organization. At a wider level, a new form of society was anticipated, with frequent references made to the risk that a digital divide could result from unequal access to ICT.
After this brief review, it would be tempting, although possibly cruel, to describe how the period following the bursting of the Internet bubble destroyed the notion of an entirely ICT-driven growth regime (see Chapter 7). However, before doing this, we need to establish a set of analytical tools and corroborate them in light of different national economic trajectories.
COMBINING MICRO- AND MACROECONOMICS, HISTORY AND GEOGRAPHY

Much can be gleaned by adopting a more analytical approach to this topic. Firstly, it is important to explain the difficult methodological issues involved in assessing a supposedly major and historical structural change in real time. The multitude of views, the diversity of verification tools and the contrasting nature of possible conclusions, all need examining. As such, what we have to do is apply those contemporary microeconomic theories that seem to account for the most important and typically stylized facts of the new economy. Informational goods represent an area of significant positive externalities, and this contradicts the naive optimism displayed by the proponents of the new economy. Such naivety was reflected in belief in the existence of a viable organizational model, and in the stability of an economic regime governing the production of informational goods. Because the new economy also refers to a regime of growth, it is essential that we revisit the history of the institutional and structural transformations that have marked the US economy since the early 1970s. This is one way of verifying whether it is really true that the emergence and subsequent diffusion of ICT was the crucial factor in transforming the institutional forms inherited from Fordism. If it transpired that a whole set of a priori and interdependent structural transformations were responsible for creating an original configuration following a process of trial and error, then we would need to tone down and reconsider the implicit technological determinism underlying many discussions concerning the new economy. It is also important to ask whether the same transformations took place in other industrialized countries, and to what extent such countries have lagged behind the United States. For example, what does it mean to have varying rates of equipment in informational goods? What we will be trying to demonstrate is that the geography of the new economy is not just limited to Silicon Valley, it affects a number of European countries. The question then is whether these countries display the same configuration as the United States or whether they have developed either functional equivalents or else original forms of ICT implementation and promotion. Once again, the hypothesis that all phases of
technological change correspond to a single organizational and institutional configuration is challenged. It is only after taking all these steps that we will be able to draw conclusions concerning the events that occurred after March 2000. Surprisingly for new economy proponents and propagandists, these events are compatible with the lessons that are customarily derived from microeconomic theory and from analyses of equivalent historical episodes. New economic regimes are emerging, or possibly have already emerged. They are determined either by a certain complementarity between institutions or else by an institutional hierarchy in which finance, and not ICT determinism, plays a major role.
THE DIFFICULTY OF ANALYSING STRUCTURAL CHANGES IN REAL TIME

The new economy is a phenomenon that raises an interesting methodological question (Docks, 2000; Boyer, 2001a), namely, how to analyse an innovation that is reputed to be radical, and which is supposed to have a long-term effect on a whole economy and society? A Wide Spectrum of Interpretations Modern economic theory does not provide a proper answer to this question. This is because much of the progress made in this field stems from the hypothesis that recurrent exogenous, and specifically technological, shocks interact with behaviours deemed to be invariable in the long run (Lucas, 1983). If we accept this perspective, it would mean that ICT needs to be dealt with in the same way as any other technological innovation. Yet computer and telecommunications specialists, and even some social sciences researchers, insist that the radical nature of the ICT-associated innovation system infers the complete reconfiguration of an economy and society over time (Castells, 2000). According to this thesis, a long-term transformation would occur in the following areas: the organization of companies; education and training programmes; public infrastructures; the definition of intellectual property rights; taxation; and organization of the credit system. In actual fact, a complete spectrum of interpretations can be identified between these two extremes. Because theoretical vision guides empirical analysis, it is striking to note the interdependency between the theoretical aspect and the actual characterization of the new economy. Neo-classical economists (Lucas, 1983) are not the only ones to consider whether ICT needs analysing as though it comprised a repeat performance of
10
previous innovations and can thus be explained in terms of old methods. As for neo-Keynesians, they often conclude their empirical analyses by focusing on minor, or even non-existent, changes in macroeconomic patterns played out over the long term (Gordon, 2000a, 2000b). The neo-Schumpeterian school of thought shares the belief that the approach which the Viennese economist came up with nearly a century ago (Schumpeter, 1911) still remains valid. This is because it depicts radical innovation first and foremost as a factor of economic growth, and then of a slump whenever a wave of imitators reduces the oligopolistic rents achieved by the first entrants to the new industries (Freeman and Soete, 1994). For some researchers, however, novelty is not the key issue they think it is possible to comprehend ICT as if it were part of a culmination of previous industrial revolutions (Freeman, 1987). Others consider that the ICT effect has had unprecedented impact and that it requires among other things the creation of a new discipline, one that deals explicitly with the relationships between information and economics (Soete, 2001b). To a certain extent, this represents a modernization of Schumpeters final studies (Schumpeter, 1954), whereby the intensity and direction of innovation is dependent on the configuration of economic and social relationships. This variety of approaches is illustrated by Table 1.1. Table 1.1 The new economy: a whole variety of characterizations and approaches
The new economy is an extension of contains a phenomenon past patterns number of new
is radically new
features
Theory should
remain unchanged
Neo-classical and NeoSchumpeterian Keynesian macroeconomics theory I The microeconomics of increasing returns and product differentiation
NeoSchumpeterian theory II Knowledgedriven endogeneous growth theory
re-jig the tools it uses
develop totally original concepts
Digital society theory
11
This research approach does not meet with unanimous approval; quite the contrary. It has been fiercely criticized by some microeconomists who feel it is too risky to try to discern future trends, and of little help to invent new terms, particularly those that include the prefix cyber. They consider it more useful to apply microeconomic analytical tools such as increasing returns and imperfect competition to the various components of the new economy (Shapiro and Varian, 1999). In such a view of things, what is required to produce new findings that throw light on the present situation is to use the tools currently available in a different manner. Endogenous growth theory comes under this heading. It is a conception that takes from Schumpeterian theory the basic idea that innovation and growth are closely related; and that in an economy based on private property and market competition, innovation is endogenous and serves as the dynamic driver. Under certain hypotheses, specifically those relating to the cumulative nature of knowledge, the emphasis is on demonstrating that permanent growth is feasible even in the absence of any recurrent positive and exogenous productivity shocks. The production of commodities by commodities tends to be hampered by decreasing returns. But this no longer applies when the issue is about using the ideas of predecessors to generate innovations (Romer, 1990). Others argue that where radical innovations undermine both the usefulness of previous knowledge and the competencies of those who once produced the corresponding goods, the emergence of such innovations will generally serve to trigger a period of expansion and then quite endogenously a depression (Aghion and Howitt, 1998). Uncertain Prognoses It is evident that the implicit coupling of theoretical vision and the phenomenons characterization, however multi-form this might be, does not facilitate the convergence of research findings. Moreover, a plethora of research exists on ICT, and more generally on the current impact of technological changes on the economy. From one school of thought to another, interpretations of developments between 1995 and 2001 vary greatly. Certainly, many indications exist to identify the mid-1990s as the start date for a number of significant phenomena: the emergence of the worldwide Web; its commercial usage; recovery in US productivity; and the deepening of the interrelationships between ICT and internationalization. The prognoses, however, continue to contradict each other (Figure 1.1). For some macroeconomists (Brender and Pisani, 1999, 2001; Artus, 2001), the remarkable performance of the US economy between 1995 and 2001 resulted largely, if not entirely, from a conjunction of favourable shocks relating to changes in dollar or raw material prices, or alternatively to a transitory improvement in productivity. In this view of things, it would be a mistake to
12
Total factor productivity
A permanent recovery in growth rates
The emergence of a productive paradigm
A permanent shock A transitory shock
1985
1995
2000
Time
Figure 1.1
The difficulty in describing structural change
extrapolate previous trends in total factor productivity into the first decade of the twenty-first century, especially as the dynamism of investments in electronicized goods cannot continue at the same rate as that during the 1990s. For other analysts (R. Duval, 2000), competition and labour market fluidityrelated transformations associated with significant research and development (R&D) efforts, mean it is acceptable to extrapolate from the nearly ten years of economic performance recorded since 1995. As for neo-Schumpeterian approaches, they emphasize that the diffusion of a technological paradigm, in this case one driven by a generic technique like ICT, deploys along the same lines as a logistical curve. Hence the conclusion reached is the opposite of the preceding one. In this view, what should be expected is an acceleration in total factor productivity. In other words, we should wait until the necessary ICTenhancing infrastructure investments enable the organizational forms and (still) embryonic technologies of the late 1990s to express themselves fully (David, 2000; Soete, 2001a). Lastly, there is one view that is even more extreme, even if it derives more from theory than from observation. This is the notion of endogenous growth. If we postulate that ideas produce ideas and that they can be accumulated without any long-term lowering of returns, this means that nothing precludes a long-term pursuit of the total productivity trends that were observed in the United States at the end of the 1990s.
13
CONCLUSION
The circumstances surrounding the emergence of the new economy theme derived from the conjunction of a series of transformations that had an effect on innovation, industrial organization and the length of the economic cycle. In addition, we need to remember the crucial role played by financial markets and by monetary authorities who justified their behaviour and actions by the allegedly radically new nature of the developments observed in the United States during the 1990s. One should avoid viewing the structural transformations that took place as merely a side-effect of ICT. The mode of regulation, the nature of actors expectations and even beliefs are also relevant, not just the type of innovation. Hence the wide range of analyses and stances to which this phenomenon gave birth. On the one hand, observers who prefer to stress the theme of continuity disagree with those who emphasize the radical nature of the breakthrough in ICT. On the other hand, a macroeconomist might say that the speed at which ICT disseminates depends on an economic policy which allows for a long period of growth. At the same time, neo-Schumpeterian technological change analysts would argue that it is the productive dynamic that best accounts for the exceptional nature of American growth. How can we assess the relevance of these various interpretations if we have not first defined, a posteriori and with greater precision, the true nature of the new economy?
2.
Microeconomic instability and an uncertain organizational model
INTRODUCTION
The issues in this respect basically revolve around the role that information plays in the following areas: corporate management; consumer behaviour; educational methods and curriculum; and the management of public services. All of these are factors capable of affecting economic performance (Brousseau and Rallet, 1999). It would be wrong to say that the importance of information was only discovered in 1995. With the historical rise of commercial, and subsequently of industrial and, even more importantly, financial capitalism, information became a key component in the organization of trading and production, and in the functioning of credit and securities markets. For a long time now, commodities have typically been produced using other kinds of commodities, labour and information. The best way to defend the market economy is not by invoking the two fundamental theorems of well-being economics (Ingrao and Israel, 1990), but by extolling the virtues of marketbased trading. In other words, by the fact that it socializes information even in the absence of any organization responsible for centralizing such information (Hayek, 1945).
DIGITALIZED INFORMATION AND REDUNDANT NETWORKS

Two technological novelties have arisen in recent years. The first relates to the digitalization of information which made it possible to codify a vast set of data and knowledge economically. In turn, this made it possible to build up synergies between areas that were once disconnected: for example, the press, publishing, television, economic and technical information, music, images and, more generally, artistic creation. Clearly, ICT constitutes a generic technique whose applications first diffuse through the information-production sector and then throughout most of the economic system. The second novelty pertains to communications infrastructures themselves. In the past, information systems were
14
15
organized according to a hierarchical principle within each firm or financial/industrial group. Communications with the outside world were strictly filtered, and often transmitted by means of a physical medium, usually paper. Nowadays information processing is organized as a network, both inside and outside of production units. This can be seen from the fact that a worldwide information exchange network exists (McKnight and Bailey, 1998). In addition, the systems dynamism and reliability is predicated on a proliferation of networks that both compete and communicate, the end effect being a greater possibility of developing relationships between units possessing few, if any, previous interconnections. Information transmission vehicles dematerialized, and associated costs tended towards zero once the networks were set up and as long as their capacities were not saturated. Major Investments, Low Marginal Costs What these two innovation novelties have in common is the way they impact on information and network management. In both cases, massive investment was needed to build the channels through which information could pass and/or to digitalize it before reproducing and transmitting it for zero cost (Shapiro and Varian, 1999; Varian, 2000). In this original form of increasing returns, substantial investments and fixed costs allow for marginal costs that will tend towards zero. This very simple consideration explains many of the properties of the information economy (Table 2.1). Table 2.1 The likelihood that market competition will lead to the domination of one particular firm or technology Economies of scale Demand for variety (scope) Low Low High
Diversity of technologies/firms Likelihood that technologies/firms will coexist
Tendency that one particular firm/technology will dominate Configuration is predicated on existing conditions
High
The example of informational goods (financial data, software, books, newspapers, magazines, music, images, films, logos and the like) illustrates the potential imbalances that are associated with the new economy. This is because
16
such products make it difficult if not impossible for a pure, and perfectly competitive, market to function. With regard to production, information is costly to produce, but very easy to transmit and reproduce. This type of increasing returns either leads to a natural monopoly or else makes it impossible for an information market to exist. This is because it is in each producers interest to try to capture the market by lowering prices, even though a generalization of this process to all market participants would logically lead to prices that are so low as to tend toward the non-existent. This would not permit a proper return on investment and, as a consequence, would cause the ruin of almost all other market participants. On the demand side, information is a good like no other because it is so difficult for users to assess its usefulness before taking advantage of it. This is what microeconomic theory calls an experience good. The Competition Paradox A producer therefore has to invoice for his or her services not on a cost basis but in such a way as to reflect their value for each user. It is important that this value is revealed through a differentiated rate schedule, for example by varying charges according to whether the information being provided is up-to-date or complete, whether it pertains to financial, industrial or economic data, and so on. Market equilibrium will only occur if there is a differentiated price system that has been specially designed. This makes it possible to reveal the value of information for each user category, and where technical or legal mechanisms are in place, to preclude communications between each of the different user categories, thus enabling a durable segmentation of the market. ICT therefore creates a paradox at the very heart of the new economy. On the one hand, it cannot be managed according to the tenets of an ideal market involving pure and perfect competition. This raises questions about the preservation of competition or the acceptance of partially oligopolistic powers. On the other hand, an easy comparison of product prices (and quality too where possible) tends to erode the rents that traditional producers once incurred. These were derived from imperfect information and from markets that were often fragmented along geographical lines or in contrast to the operations of the Web suited to networks of a tangible kind (Porter, 2001). If our analysis were to stop here, we would conclude that the new economy created possibilities for new monopolies or oligopolies in information-related sectors, and that it simultaneously ate away at the rents being pocketed by the more traditional sectors, such as those involved in more than just the production and circulation of information. Is this why the US financial community showed so much faith in the new economy start-ups to the detriment of betterestablished (and often more profitable) industries? This is probably the wrong
17
way to formulate the question, however, as what is at stake involves, first and foremost, a transformation of competition, the distinction between the new and the old economy being a misleading issue, one of little relevance indeed.
THE THREE FIGURES OF THE NEW ECONOMY

It is important to distinguish at least three sub-sectors within the vast array of activities that relate more or less directly to the issue of information. This is because different principles of economic analysis apply to each, which is something that explains the developments which have been observed since the Internet bubble burst in March 2000. Increasing Returns and Learning Curve Effects: Hardware and Infrastructure The first category comprises the physical infrastructure of the networks and the hardware that enable information processing to take place. Here can be found different kinds of servers, microprocessors, cables and networks. This is a sector that expanded very rapidly after 1995, recording strong productivity growth that was driven by the combined effects of increasing returns (the product of major up-front investments in R&D or in productive capacities) and of learning curve effects. Mutatis mutandi, this sector posted gains that owed nothing to the information economy per se, as the trends being observed merely extended the same factors that had characterized the explosion of demand following invention of the Model T car in the 1900s (Raff, 1988) or of the Liberty ships during the Second World War (Lucas, 1993). The fall in relative prices that resulted from such developments fostered a virtuous circle of demand growth in accordance with the tenets of a highly classical mechanism. Network Effects: Standards and Software Software, standards and procedures have pursued another logic. For example, the attractiveness of a software package depends on its power and user-friendliness, and on its ability to exchange documents with the greatest possible number of users. The canonical model is one of increasing returns of adoption, based on a model of inter-standard competition (Arthur, 1994); the reference being the network economy (Curien, 2000) and not the technological change economy (Freeman, 1987). The property shared by the corresponding models is that they differentiate between inter-standard competition on the one hand and competition within an already chosen standard on the other.
18
This distinction explains, for example, the European success of firstgeneration mobile telephones. Here operators agreed in advance to adopt a common standard. By so doing, they were fully able to mobilize network and learning effects within the framework of a single standard. Conversely, the USs relative failure in this area stems from the coexistence of different and incompatible standards that compete with one another, thus hindering returns to scale. This created the possibility of path dependency (David, 1991, 2000) and also explained the strategy of many start-ups which long accepted the need to sell at a loss in the hope of gaining market share, thereby ensuring the domination of their standard, or product, over time. However, we should remember that irreversibility can only be partial and transitory (Porter, 2001). Whenever equipment is renewed because of rapid obsolescence, a period commences when competitive positions are redefined. The contrast between second- and third-generation mobile phones exemplifies this lesson. Altering Forms of Competition: Portals E-commerce and marketplaces comprised the third component of the new economy. This aspect attracted a great deal of attention (Coppel, 2000; Smith et al., 2000; Fraumeni, 2001; Baily and Lawrence, 2001; Porter, 2001; Bar, 2001; BRIE, 2001). It was tempting to view the confrontation of an anonymous and aggregated set of supply and demand propositions as the next step towards an ideal Walrasian type of market. This is one that is transparent, cannot be manipulated and which openly reveals all the relevant information that is disseminated to all actors (Docks, 2000). This was the conjectured view, although closer examination reveals a situation that was quite different in kind (BRIE, 2000). For example, when automakers worked together to build a market platform, they forced standardized product manufacturers to compete with one another. Instead of establishing a competitive market equilibrium, what they were doing was manipulating the various actors respective bargaining strengths in such a way as to benefit transaction principals. Similarly, consumer e-business portals clearly stem from a form of competition in which readily available software permits comparisons of prices for a given product. At the same time, by regrouping the services they offer (through subscriptions, preferred rates for derivative products, loyalty bonuses and the like) companies can try to ensure customer loyalty. Even better, thanks to information processing capacities and the accumulation of data on a given individuals transactions, a company can tailor its offer price to each persons means. In short, ICT networks make it possible for product suppliers to extract information. By so doing, suppliers can cream off consumers surpluses, not least because such a procedure allows for an unparalleled level of differentiation in their marketing strategies (Lorenzi, 2000). As such, the Internet economy
19
changes the forms of competition and redistributes bargaining strengths. It does not, however, lead to a definitive erosion of all of the other sources of rents, including information-related rents, which companies previously enjoyed.
THE SEARCH FOR AN ORGANIZATIONAL MODEL FOR THE NEW ECONOMY

The aforementioned microeconomic foundations illustrate another major issue, which is that the radical novelty of ICT has necessitated a corporate organizational model that is different from the one inherited from the past. This works to the advantage of start-ups and to the detriment of conglomerate-like companies which tend to be weighed down by methods inherited from the era of traditional mass production of products (Hobin and Jovanovic, 2001). Such start-ups have specialized in a variety of segments relating to the production of, and physical infrastructure used by, networks, hardware, software and standards, these being the major components of the new economy. This argument merits further analysis and discussion. Grosso modo, what we learn here is that the specificity of such goods has resulted in a number of problems concerning the markets functioning and persistent competition. This is despite the fact that, symmetrically, it is not at all clear that ICT has completely altered current corporate organizational models. Indeed, information-processing costs only account for a very small fraction of the total costs of producing and distributing traditional goods. A Wide Variety of Strategies What choices does a company operating within the confines of a network economy face? We know that this kind of firm is characterized by the existence of positive retroactions stemming from experience effects; from the returns to scale that are inherent to fixed investment; from advantages relating to the size of the market; and from the many different interrelationships between the participants in a network (Shapiro and Varian, 1999). The strategies that have been observed have revolved around a number of main choices. Should the company be focusing on the pure performance of hardware, or should it be playing on whatever compatibility exists between current techniques and products? Should the company be trying to control and protect its technique or software, or should it be looking to open them to competition, thereby increasing the size of a growing global market that the company was prepared to share with competitors (Table 2.2).
20
Table 2.2 The strategies available to ICT in response to positive externalities Option Objective Compatibility Controlled migration (Windows 2000, Microsoft) (Pentium IV, Intel) Performance becomes the sole area of concern (Zip, Iomega) (Games, Nintendo)
Source: Shapiro and Varian (1999), pp. 2046.
Control
Opening
Open migration (Fax, modem, Hewlett-Packard)
Performance
Discontinuity (Audio CD, consortium of producers) (GSM, consortium of European companies)
None of these four strategies is risk-free and entirely certain to deliver good results. If a company opts for compatibility and openness, it has to excel in the production of the corresponding technique so that it can maintain its competitive advantage rather than creating one for its competitors. IBMs inability to benefit from the breakthrough of the PC illustrates the uncertainties to which such a strategy can fall prey. Conversely, in the cases of faxes and modems, the success of a company such as Hewlett-Packard hinged on a strategy which exploited rising compatibility. If on the other hand the firm is seeking maximal improvement in performance based on radical innovation and use of its own technology, the risks of failure are also maximized. Moreover, even where this strategy is successful, the gains will be proportionate to the risks that have been taken, as witnessed by the breakthrough of Iomega data compressors or of Nintendo game consoles. Another strategy consists of keeping control of technology within the company itself, but ensuring its compatibility with earlier products, software or technology. We can find examples of this, something that Shapiro and Varian call controlled migration. One is Microsofts success with follow-on versions of Windows; another is Intel with its various generations of Pentium microprocessors. In order to preserve competition, state authorities might seek to charge a company with abusing its dominant position. This has specifically occurred in the case of Microsoft. That suit, brought in the United States by the Department of Justice, is no accident, rather it is the expression of the increasing yields and lock-in effects that are typical of informational goods.
21
A further strategy has arisen with the combined choice of performance and openness. However, phone operators and hardware manufacturers have sought to create a consortium in order to develop a shared standard. This was GSM, born out of the sharing of a range of patents. A rapidly expanding market was opened up by this particular joint activity which worked to the advantage of all (Malerba, 2002, pp. 2369). However, the 2001 turnaround in demand revealed the instability of a configuration which, when faced with overcapacities, worked to the advantage of more competitive equipment manufacturers such as Nokia (The Economist, 2000), and against weaker ones such as Alcatel and Motorola. Let us not forget that the follow-on UMTS generation did not enjoy the same favourable conditions. Replicating a strategy that worked in the past is no guarantee of future success. The rise of ICT has renewed the uncertainties that lie at the heart of choices relating to strategies and organizational models. An Experimental Phase The rate of ICT development, itself a reflection of competition pressures and the volume of R&D (Aghion and Bloom, 2002), has periodically tended to undermine the competitive advantages of various actors, qualifying in the process the merits of whatever organizational model was deemed to symbolize the new economy. We arrive at a similar conclusion if we analyse the Internet economy according to the way in which ICT is used in the organization of trading (Table 2.3). This third component of the new economy has created just as many problems as the others have. Here organizational decisions relate to the choice of electronic medium (auction, marketplace, electronic portals, computerassisted design, creation of networks, forum); the type of commercial relationship (between companies or with consumers); and the sort of good (standardized products, customized products, typical good or informational good). Such issues hark back to the viability of intermediation activity. It is a problem that has long been neglected in economic theory (except by Alfred Marshall), but which has generated renewed interest in transaction cost theory (Coase, 1937; Williamson, 1985), in analyses that draw their inspiration from evolutionist theory (Lesourne, 1991) and in contract and market theories (White, 1981; Stiglitz, 1987). For example, it would be interesting to analyse the viability of an electronic marketplace. The requirement here would be that the intermediary responsible for running the market should be able to live in the medium or long term from the informational rents derived from organizing a relationship between sellers and buyers. This rent has to be sufficient to enable the intermediary to keep a large enough proportion over time to recoup the fixed costs of the investment. If it is too easy to copy the procedures that the innovator has implemented, new companies will be tempted to become
Table 2.3
The different uses of the Internet

Types of uses Auction Marketplace E-portal Parallel product Networking Provision of development and free paid services services (e-mail, forum)
Actors B2B (Business-to-business) Common supplies Standardized components Very typical products B2C (Business-to-consumer) Typical goods Informational goods Ex. music Ex. software Ex. Web access Finance e-Bay 22 The buyer takes the initiative Covinsint The producer takes the initiative
Toyota and first-tier subcontractors Amazon.com Dell. com MP3 LINUX Hotmail Electronicization of stock exchanges e-banking AOL
23
competitors by offering access conditions that are more advantageous than the ones offered by already established companies. Logically, over the long run, this will cause the informational rent to disappear. This is what the pure mechanism would look like in the absence of any heterogeneity or institutional or legal barriers. For example, when different carmakers create an alliance (Covinsint) to force their various standardized component suppliers into competition with one another, their purpose is to capture the associated intermediation gains. However, this could push the market into a situation of monopsony (the monopoly of a single buyer), violating the competition principle and making it seem as if the modernity of the electronic marketplace is nothing more than a way of masking the entirely traditional strategy of establishing a dominant position. History suggests that in such situations, the interest groups being harmed (principally subcontractors and consumers) will look to state authorities to restore greater equality to the organization of transactions. Another configuration is that of an already established and institutionally recognized monopoly, for example, one that quotes securities prices. Electronicizing such transactions will erode certain rents, without eliminating them entirely. The Electronic Portal: Useful But Not Crucial With the creation and subsequent proliferation of electronic portals, we have an example of a crucial aspect of the Internet economy. Amazon.coms trajectory seems to give reason to believe that only the firm which succeeds in acquiring the biggest possible market share can survive in the book or music markets (and by extension in the markets for associated products). To believe in the success of such a company is to assume that the main competitive factor in the book business is user-friendliness, in the form of one-click shopping. However, this would neglect costs such as storage, transportation, after-sales service or products that are returned following processing errors. As such, a strategy based on selling at a loss, which commercial law prohibits in the traditional economy, will of course make it possible to conquer market share. This does not, however, necessarily ensure victory over rivals such as Barnes & Noble or Borders, firms that have equipped themselves with an electronic portal and which thereby combine the traditional advantages of a retail network with the latest form of client access. In this example, the new economy is applied to traditional goods and merges with the old economy, the latter extending its management methods to the World Wide Web. Another example is Dell. This companys success is not only due to its userfriendly electronic order portal. That is only one of several devices driving the integration of the firms subcontractor relationships and encouraging it to manufacture products on request, in the process minimizing stock levels and offsetting
24
product devaluation arising from the rapid rate of obsolescence of computer hardware (Kenney and Curry, 2001). The synergy between the capturing of demand and the extremely high level of rationalization of production and decision-making channels is what produces the outcome here, not merely the quality of the electronic management system or the fact that Dell is part of a global network. There are two final examples where economic performance is not determined by the quality and modernity of information systems. For many economists, the Web is the ideal vector for implementing a model of pure competition in a market that has been rendered completely transparent. This makes it all the more significant that Toyota, instead of participating in Covinsint (the businessto-business Internet exchange), preferred to deepen collaborations with its first-tier subcontractors (Shimizu, 1999). It chose, for instance, to move ahead on the simultaneous engineering of components and functions thanks to a shared computer-assisted design electronics system. Here what the Web facilitated was an exchange of drawings and projects rather than a transmission of prices on standardized products; in the process it introduced another dimension to informational goods. Moreover, the fact that each actor benefits from collaborations with other members in a network means that the natural form of an organization is not the capitalist firm; rather, it is an association of producers, as in the ideal model of socialist, and even communist, firms. The fact that Linux, whose growth has been based on the principle of volunteer work, is seen as the most serious competitor to Windows monopoly shows that this vision is not merely theoretical, but actually accounts for some of the phenomena currently at work in the new economy (Weber, 2001). More mundane issues, such as straightforward copying and pirating activities along the lines of the model that MP3 once offered to the music industry, remain in the air. What has happened, however, is that a bonus has been given to those firms capable of supplying encoding software, even though they are competing with one another for the particular standard that will eventually triumph in the security of transactions across the world. An Uncertain Future These examples once again demonstrate the uncertain and unbalanced dynamics that drive the Internet economy. There is no need to mention the many new firms whose founding gave birth to the Internet bubble. Here we had entrepreneurs possessing little experience in financial management who were usually content to duplicate organizational forms that featured almost no imitation costs whatsoever, and which were therefore lacking in any real future. As noted accurately by the few management specialists who kept their wits about them even during the worst part of the era of irrational exuberance, the
25
new economy simply displaced and recombined the factors that determine a companys competitiveness and viability. Indeed, the intensity of the competition, the entry barriers, the danger that substitute products might emerge, the bargaining strengths of suppliers and customers all of these factors are at the heart of the viability and long-term performance of companies (Porter, 2001). Finally, those sites that supplied free services in exchange for advertising revenues were the first to suffer from the crisis and go bankrupt once belief in the future of the new economy imploded and well-established firms returned to more traditional foundations. Those companies that had accumulated neither funds nor information on their clients or users were the first victims of the postMarch 2000 turnaround in trading conditions. By way of contrast, a company like AOL which, by principle and from the very outset, billed the services it provided and tried to generate a loyal customer base, was able to prosper even as other forms of organization in the new economy were collapsing around it. Is this not a principle as old as the traditional economy itself a philosophy that has simply been extended to a new area, one relating to on-line services?
CONCLUSION
This initial overview provides a number of preliminary lessons. Far from constituting a homogeneous entity, the new economy assembled under one and the same heading a variety of widely contrasting products, techniques and strategies. As such, it is no surprise that corporate trajectories have changed so much since the March 2000 bursting of the bubble, even more than would have been justified by a general reconsideration of the perspectives opened up by ICT. The advent of ICT seems to have given a bonus to those start-ups that freed themselves from the inertia that characterizes established firms operating in mature markets. And yet the production and diffusion of pure informational goods (texts, statistics, music, films, stock market information and the like) has run up against the obstacle of increasing returns, which means that instability and monopolistic tendencies are inherent attributes in this sector. Given the diversity of cost structures, market conditions, competitive intensities and public regulations, it is not surprising that no canonical organizational model has emerged to represent the new economy. As was the case with earlier radical innovations, the advent of ICT has increased uncertainty rather than reduced it. We need therefore to qualify the myth according to which a fall in information processing and transition costs would imply the quasi-disappearance of forecasting errors.
3.
A growth regime driven by information and communications technology?
INTRODUCTION
The organizational and microeconomic aspects reviewed so far have taken on increasing importance as people start to recognize the specificities of informational goods. Two leading economists have estimated, for example, that the main effects of the new economy will be more microeconomic than macroeconomic, inasmuch as they will be inducing deep-seated changes in fields such as property rights, institutional arrangements and the rules orienting a market economy (DeLong and Summers, 2001). It remains the case that the initial response of macroeconomists to the recovery observed in US productivity during the countrys exceptionally long period of non-inflationary growth, was to reason that it had a direct effect on the growth regime. Their research and analytical efforts, therefore, concentrated at first on three main questions: What are the relationships between the hightech sectors and the rest of the economy? Can these sectors be the locomotive for an emerging growth regime? And should we consider that a new type of capital, one involving information and knowledge, has replaced traditional capital goods and is generating an original form of technological change?
THE NEW AND THE OLD ECONOMIES: A CONJUNCTION OF TWO VIRTUOUS CIRCLES?
Analyses have led to the view that ICTs impact on a growth regime is the product of two relatively distinct mechanisms. The first virtuous circle has impacted on the returns to scale and the learning and network effects that are an inherent part of informational goods (Figure 3.1). The intensity of the mechanism at work here is unique and the technical medium used is definitely not the same, although it remains the case that, on the whole, this mechanism is relatively similar to the one which lies at the heart of a mass production regime. From Adam Smiths famous example of the division of labour in pin manufacturing through to the Ford Model T assembly lines, economic history
26
Venture capital
Quality of the relations between research and industry
Businessfriendly environment
Production of ICT
Use of of ICT
Is information processing crucial?
Yes
Should users be reshaping their organization?
Yes, and this is what is being done
Software Hardware
Demand is saturated
No New sources of growth in sectors aside from ICT Significant increases in productivity

First virtuous circle Statistical indicators ICT sector output
Investment in ICT
Figure 3.1 A growth regime that results from the conjunction of two virtuous circles

Second virtuous circle Proportion of total spending represented by informational costs Diffusion of organizational change (France/USA) Estimation of production function in the light of the capital equipments diversity
27
New sources of returns to scale Fall in relative prices
28
is rich in episodes of this sort. It has specifically offered us one very precious lesson: new goods whose relative prices undergo a dramatic fall do not comprise an entire economy. If nothing else, this is because people still have to feed themselves, get dressed, take journeys, stay healthy, educate themselves, have fun and so on. All such activities rely on other sectors, ones that are not, at least for the foreseeable future, part of the same technological revolution. Such goods are often incorrectly described as obsolete, even though most have already been subject to an intensive technological process (agriculture, high-speed transportation, medical research, therapies, teaching methods and the like). One important challenge for the new economy is whether the lower information processing costs on which it is based will help launch a second virtuous circle within traditional industries. Ideally, this would begin with a lowering of ICT utilization prices and, at a more basic level, increased competition resulting from greater transactional transparency. This is why many researchers have tried to come up with a new kind of capital, one that adds an information processing-related product capital to existing capital stocks made up of buildings in productive use, machines and human capital (Asknazy, 2000; Bassanini et al., 2000; Cohen and Debonneuil, 2000; R. Duval, 2000; Gordon, 2000a; Greenan, 2001; Jorgenson and Stiroh, 2000; Oliner and Sichel, 2000). The central hypothesis of the new economy proponents is simple it is that ICT usage allowed for higher productivity in the United States after 1995. Moreover, if Europe lagged behind the US in growth terms, it was due to the slowness of ICT diffusion in the Old World. Specifically, it was the result of a whole range of fiscal, or social, institutional barriers (Rexecode, 2000; OECD, 2001b). The shift from informational microeconomics to the macroeconomics of technological change was supposed to happen in this manner. Given that the new economy concept was born in the United States, it is methodologically sound to begin our analysis with that country. This will be the subject of the next chapter, as it will be to some extent the following one. We will, however, come back to the issue of European singularity in Chapter 5.
THE SOLOW PARADOX HAS NOT BEEN ENTIRELY RESOLVED YET

As we know, during the late 1960s productivity began to slow in the United States. The growth rate fell even more markedly following the first oil shock of 1973. Business sector officials and public decision-makers devised a variety of strategies (whose history is recounted in the next chapter) before focusing, around 1995, on the idea that the entire American economy was ICT driven. In
A growth regime driven by ICT?
29
fact, hourly productivity statistics confirm the recovery in productivity. It went from an average annual growth rate of 2.6 per cent for 195072 to 1.1 per cent for 197295 before returning to 2.2 per cent in 199599. The latter figure represented a level that was almost equivalent to the one that had characterized the period which some see as the economic golden age (Table 3.1). Table 3.1 Productivity gains are concentrated in information-related durable goods Per-hour productivity of labour in the United States, 195099 (average annual rate of increase in %) Periods 1. Non-farm business 2. Manufacturing 2.1. Durable goods computer hardware other durable goods 2.2. Non-durable goods 3. Services
Source: Gordon (2000a).
195072 2.6 2.6 2.3 n.s 2.2 3.0 2.7
197295 1.1 2.6 3.1 17.8 1.9 2.0 0.8
199599 2.2 4.6 6.8 41.7 1.8 2.0 1.5
An ICT-oriented Virtuous Circle An initial sectoral breakdown of these developments provides some interesting points about the two virtuous circles described in Table 3.1. Firstly, the resurgence in the productivity growth rate is greater in the industrial sector (4.6 per cent after 1995 compared with 2.6 per cent over the two preceding decades) than in the service sector (1.5 per cent versus 0.8 per cent). However, within the industrial sector itself, it was durable goods production that recorded a notable acceleration, propelled by computer sector goods. For 199599 the latter posted an annual growth of 41.7 per cent, more than doubling its rise over the period 197295 when it was already expanding at a very fast pace (17.8 per cent per annum). On the other hand, non-durable goods production did not show any increase in productivity gains. Lastly, above and beyond the difficulty of measurement of volumes, it appears that productivity did accelerate slightly in the service sector after 1995. Nevertheless, average productivity gains remained lower than they had been in this sector between 1950 and 1972 (1.5 per cent compared to 2.7 per cent). We can draw two lessons from these statistical indicators.
30
The paradox discovered by Robert Solow We see computers everywhere, except in American productivity statistics (1987) begins to provide a partial explanation. It was not until the mid-1990s that productivity gains started to materialize. This is because effects that are favourable to a change in the technological paradigm will manifest themselves over a period of a decade or more, which is in line with the impact that the diffusion of the electrical motor had on industrial dynamics (David, 2000). This is a partial estimate in the sense that although ICT did initiate a virtuous spiral in the ICT-producing sector, it did not spill over into other industrial sectors. In the service sector it had a definite, but limited, effect, with productivity growth rates not reaching the same levels as during the 1960s. This is somewhat surprising given that ICT is often considered to be a generic technology that can be applied to almost any productive activity (Brynjolfsson and Hitt, 2000). One possible interpretation might be that IT had already begun to penetrate the production function back in the 1960s and 1970s, showing up in manufacturing branches such as steel, heavy chemicals and automobiles. Conversely, in service activities such as banking, finance, healthcare, research, travel and consulting, computers and later on servers could in the future play a role equivalent to the one digitalized machine tools, robots and production computers previously fulfilled in manufacturing industries. Is This More of a Cyclical than a Structural Phenomenon? We could further extend the analysis and break the average recovery in labour productivity down into several different factors in order to make it easier to predict the impact that ICT diffusion will have on productivity (Figure 3.2). If we were to follow Robert Gordons analyses (2000a, 2000b), we would have to adjust the raw data on the post-1995 acceleration of productivity to account both for this periods particularly strong growth rate and for the fact that traditionally there is a delay between adjustments in employment and number of hours worked. These latter factors lag behind changes in production, along the lines of the so-called productivity cycle mechanism. By itself, this one factor, a reflection of the economic climate at a given moment in time, could account for up to 0.54 per cent of the productivity rate. If we were to analyse productivity by means of a book accounting method (which assumes that prices are capable of measuring each factors contribution to production), we would discover that the growth in per capita computer capital accounts for 0.33 per cent of the recovery in hourly productivity. To this figure, we should add the 0.29 per cent acceleration in the total factor productivity of computer production. The other production sectors in durable goods also experienced the same acceleration in total productivity.

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 0.2 0.4 Comparison of non-farm private sector 19951999 vs. 19721995
31
Acceleration in hourly productivity
Cyclical effect
Quality Acceleration Acceleration Acceleration Deceleration of work in computer in total in total factor in total and price capital computer productivity productivity measurement productivity for other for other (nondurable farm) nongoods durable goods
Note: The variance between Table 3.1 and Figure 3.2 with regard to the post-1995 acceleration in hourly productivity (1.1% vs. 1.35%) is due to Figure 3.3s inclusion of three additional quarters for the year 1999. (Final bar is negative to 0.4 level in the figure). Source: Gordon (2000b).
Figure 3.2 A number of different factors have contributed to the recovery in productivity So it is quite easy to characterize the benefits of ICT. They were mainly manifested in the production of ICT goods and did not have the expected spillover effects on the rest of the economy where total factor productivity fell by 0.28 per cent during the latter half of the 1990s. But should we rely on a diagnostic that is as surprising as this one seems to be? Firstly, a number of analysts have noted the paradox of using a productivity cycle concept to explain why productivity rose again during the US economys sixth year of expansion. After all, traditionally this mechanism only accounts for the accelerations in productivity that occur during recovery phases (dArvisenet, 2001). Remember that the new economy concept itself was partially born out of paradoxical developments in productivity (Chapter 1). A comparison with the trends observed during the 1930s confirms the particularity of the 1990s (see Graph 4.2, Chapter 4). Organizational and Institutional Changes Only Emerge over the Long Term A second criticism derives from the fact that the marriage between computers and telecommunications is basically a recent event. Given that it was only around 1995 that the Web began to be used commercially, it will be at least a decade before all the corresponding benefits materialize (DeLong and Summers, 2001). This prognosis is based on the precedent of the electrical motor and the impact this particular innovation had on industrial organization and productivity (David, 1991). Of course, we could object that in the manufacturing
32
industry, production computerization actually began during the 1970s when it was associated with that particular eras centralized computer systems, especially IBMs. Thus the validity of the argument that ICT is something new mainly applies to the service sector, and to small companies that are innovative or which operate in high-tech sectors. A third response would focus on the interdependency between technological and organizational changes. Data on different sectors of activity (Asknazy, 1999, 2000) or on companies (Brynjolfsson and Hitt, 2000; Bresnahan, 2002) show that the potentiality of ICT materializes when the internal organization of a firm and its relationships with the outside world are reconsidered in the light of lower information processing and transmission costs. This result holds for the United States and for France (Greenan, 2001), and even for Great Britain (Caroli and Van Reenen, 2001). For the American economy, corporate restructuring seems to have had a clear effect after 1990 and, as Asknazy has shown (Figure 3.3), the gains derived have become increasingly important over time.
Differences in growth rates for total factor productivity in reorganized vs. non-reorganized industries (19791996)
1.2 1 0.8 0.6 0.4 0.2 0
Source:
Figure 3.3 Corporate reorganizations as a necessary pre-condition for reviving productivity (expressed in per cent per annum) Finally, when we shift from the firm to the macroeconomic environment, what we discover is that earlier industrial revolutions required an overall
1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
For the whole of the manufacturing sector Manufacturing sector ex. hardware production
Asknazy (2000), p. 33.
0.2
33
readjustment in economic institutions. This was the case regardless of whether this involved technical norms, public infrastructures, education or credit and tax systems. What was true for the electrical motor should also hold for PCs and for the Web (David, 1987, 1991). The same should apply to information technology, something most analysts have acknowledged since the Internet bubble burst (OECD, 2001b; Guellec, 2002; Pilat, 2002; Zysman and Weber, 2002; DeLong and Summers, 2001). Once again, we see how difficult it is to carry out a real-time analysis of a phenomenon that is said to be a conduit for radical change. The lack of consensus regarding the future of the new economy therefore comes as no surprise, even though the viewpoints of optimists and pessimists have converged somewhat since March 2000.
FASTER POTENTIAL GROWTH: PROBLEMS WITH FORECASTING

In an attempt to forecast trends for the new decade, an ever greater number of studies have sought to assess the reasons for the recovery in US productivity (Bassanini et al., 2000; Brynjolfsson and Hitt, 2000; Jorgenson and Stiroh, 2000; Baily and Lawrence, 2001; Litan and Rivlin, 2001; Fraumeni, 2001; OECD, 2001b; Hansen, 2001). All agree that certain changes have taken place in the American economy, although no consensus exists with respect to the consequences for potential growth. And yet productivity did play a key role in US dynamics during the 1990s, leading to a moderation in production costs; a rise in real wages; and freedom for the Central Bank (the Federal Reserve) from having to expend all its energy staving off cost inflation. This latter point had been the Achilles heel of expansion phases during the 1960s and 1970s. In turn, the dynamism of growth enabled a return to semi-full employment. This return was all the more significant because the recovery in productivity had it become a durable phenomenon might have lowered the threshold of joblessness beyond which inflation accelerates. These observations are what converted Alan Greenspan to the new economy thesis towards the latter part of the 1990s (Greenspan, 2000). A synthesis of the arguments used at the time demonstrates the uncertain nature of the attempts made to extrapolate potential growth from hypotheses regarding technological change and changes in the working population (Table 3.2). The Uncertain Shape of the New Economy At a conceptual level certain writers (Litan and Rivlin, 2001) have expressed doubts about whether productivity is an appropriate key indicator for analysing
34
Table 3.2 Can ICT generate a strong and durable recovery in productivity?
Impact Nature of the argument Relevancy of the indicator Productivity measures feasibility of raising living standards Considered a boon at an aggregate level but possible under-estimation of informational goods and services (Litan and Rivlin, 2001) From 1995 to 2000 there was a relative convergence in evaluations (Hansen, 2001) Investment and productivity clearly accelerated after 1995 (OECD, 2001a) ICT plays a crucial role in investment (Stiroh, 2001) Corporate profitability and consumer well-being become increasingly relevant Very sensitive to method of development: hedonic or other types of indices; inputs vs. investment (Triplett, 1999) The productivity cycle has as much effect as structural change does (Gordon, 2001) Non-viability of the ICT investment trends observed between 1995 and 2000 (Gordon, 2001) There can be no productivity gains in the absence of organizational change (Asknazy, 2000, 2002) Alternatively, thanks to the differentiation of products this will have a favourable impact on growth ICT is not as significant as preceding industrial revolutions were (Gordon, 2000b) Pro Con
Quality of the measurement
Method of evaluation
Growth accounting terms
Sectoral analysis/individual data
International comparison
Investment in ICT is a necessary precondition for reviving productivity (Boyer, 2001b) After the railroad, the automobile and electricity, ICT has become the vector of an industrial revolution (David, 1991)
Technical history
the benefits of ICT. Their reasoning is that production measurement is problematic with respect to information-related goods. Indeed, what has come from case studies and microeconomic analyses is the idea that these technologies improve the responsiveness of firms to unforeseen events, thus enabling an optimization of profitability changes. They also broaden consumer choice and, most importantly, facilitate the delivery of new goods that are better adapted to the requirements of both companies and consumers. This argument is re-transcribed in the quality of the statistics that ultimately turn into productivity indicators. Computer performances doubling almost every
35
18 months led, in accordance with Moores law, to an explosion in peoples estimations of the volume of services that could be derived from hardware. As a result, and depending on whether the indexes used were based on hedonic prices or on production statistics, an element of uncertainty was introduced into measurements of the performance of the producing sector in computer goods. Now we are aware that this sector was the key to recovery in US productivity (Triplett, 1999). Similarly, the rapid obsolescence of hardware blurs the demarcation between intermediary consumption and investment. Comparisons between the United States and Europe are difficult to make because of accounting differences (Lequiller, 2001). Symmetrically, free access to a vast set of information was often not being incorporated into national accounting statistics either in Europe or in the USA. This could easily have led people to underestimate the advantages of Web-inspired diffusion of informational goods. This is a good explanation of why the recovery in service sector productivity has not matched the hopes that the new economy had raised (BRIE, 2000). Reassessing the 1990s It is difficult to produce an exact breakdown of the various explanatory factors for the post-1995 acceleration in productivity growth. Specifically, it is hard to distinguish between the cyclical effect and the ongoing recovery in productivity. Even if we believe that Robert Gordons method overestimates cyclical factors, it would be wrong simply to extrapolate the observed 19952000 increase in ICT investment rates into the new decade. The economic slowdown that began in the third quarter of 2000 led firms to re-evaluate their hardware investment strategies, with rationalization efforts looking to use existing equipment better as a means of sustaining profitability, rather than accelerating the renewal rate. In the first quarter of 2001, investment in ICT (hardware and software) decreased for the first time, at an annual rate of 6.5 per cent in volume, as opposed to a rise of 25 per cent between 1995 and 2000. This indicated a correction of previous overinvestment, sometimes assessed by professionals as equivalent to an order of two years (The Economist, 2001a, p. 83). We should therefore anticipate a slowing down of the substitution of hardware for labour; and probably a net deceleration in the sectors productivity as well, given the close short-, and medium-term, interrelationship between growth and productivity. Three other arguments give reason to believe that productivity will be lower in the medium term than it was during the period 19952000. Firstly, the American slowdown has created the feeling that there is a greater need for organizational reform. This will probably happen in those firms or sectors where until now such reforms were considered too difficult, or were simply postponed. Secondly, it may well be the case that an analytical focus on productivity is only justified on the hypothesis that the mass production of standardized
36
products will continue in its current form. One of the main virtues of ICT is that it specifically allows for better synchronization of production and the satisfaction of new demand by means of quality and innovation-based differentiation (Bresnahan, 2002). Finally, as Chapter 7 will explore further, ICT may be a generic technique that is no match for the steam-engine, the electrical motor or the automobile and may have less impact than medical progress (Gordon, 2000b, pp. 5766). In this sense, ICT may have already entered a zone of decreasing returns, unless a series of new and hitherto unknown applications arise following a recombination of the advances that have already been made. Up until now, optimistic analysts have stressed that computer performances have always exceeded initial expectations (DeLong and Summers, 2001). Thus throughout the past two decades the productive bases of modern economies have been restructured and, although ICT has contributed to this development, it is hard to discern the long-term potentialities of ICTs maturation. Is the recovery in productivity permanent or merely transitory? One of the most sophisticated econometric studies on this issue could not find an answer (Hansen, 2001, p. 127). Prudence is even more appropriate when the relationships between microeconomic analyses and macroeconomic impacts are analysed on a sector-by-sector basis.
THE NEW ECONOMY HAS HAD DIFFERENT EFFECTS ON DIFFERENT SECTORS

Many of the foregoing developments implicitly assume that informationprocessing and transmission costs are a key element in corporate competitiveness, regardless of the activity in question. Yet one initial comparative study of the Internets potentialities, which focused among other things on microprocessor manufacturing, PCs, finance, transportation and the distribution of durable or non-durable products, shows that this is not in fact the case (BRIE, 2000). This is because at least three elements have contributed to the formation of unitary costs: production costs, distribution costs (including logistics) and information-processing costs. What this means is that cost structures are typically not homogeneous between different branches of activity. Corporate innovation strategy should therefore concentrate on those factors that are better rewarded within the total value added. Furthermore, a priori they should explore trajectories that are varied and even potentially quite contrasting. Information Provides the Core of Many Service Activities ICT can be expected to have the greatest effect in activities that relate directly to information processing. This means finance and banking (Betbze, 2000); tax
37
collection and general public administration (Boyer and Didier, 1998); insurance and healthcare (Litan and Rivlin, 2001); and even education, wherever innovative teaching methods are used (Boisivon, 2000; Goolsbee, 2001). Such activities all make up the tertiary sector, yet most studies continue to focus solely on the manufacturing sector, which was already being computerized decades ago. In the United States, for example, the service sector uses more than 70 per cent of all ICT equipment (Baily and Lawrence, 2001, p. 311). Production volume measurements can be highly imperfect in many such sectors. Indeed, in order to calculate activity volume indexes, some national accounting systems simply multiply factor volumes by a lump productivity growth rate. On the other hand, where material transformation costs are of crucial importance, it is not at all evident that the latest generation of hardware will make a major contribution to improvements in productivity. One exception is the hardware-producing sector itself, as this seems to have fostered a very particular virtuous circle. Lower hardware prices and the proliferation of software and applications are all factors that have led to the generalization of standards for components, routines and procedures. A prime example is Dell or, back when it was successful, Cisco, both of which pioneered highly integrated production and demand operations as a result of the efficiency of their information management systems (Kenney and Curry, 2001). An ostensibly equivalent virtuous spiral seems to have presided over the electronicization of financial markets, which can now be accessed by the smallest and newest firms as a result of constantly improving processing speeds and reduced transaction costs. This explains the birth of the new markets on which new economy company assets have been trading. How e-Commerce Fits into Sectoral Trajectories A second comparative study, of 11 OECD countries this time, sought to ascertain the determinants and probable consequences of e-commerce. Its conclusions are quite useful for the present chapter (Desruelle and Burgelman, 2002). The various sectors that were chosen (textiles, automobiles, banking and travel agencies) do not share the same interests in e-commerce, nor the same reasons for relying on it (Table 3.3). The first lesson is that this type of mediation is not perceived as a competitive advantage per se, but only when used in conjunction with reorganization and new strategies that enable e-commerce to take place. Similarly, the only sectors which are under pressure to globalize as a result are those that had previously operated on a national basis, namely textiles and travel agencies. Industrial organization is an obstacle when the sector is composed of a myriad of mostly independent companies, as in the case of the textiles industry. Conversely, it serves as a strong catalyst when, as in the automobile sector, production is
38
already extremely concentrated and internationalized. Of the necessary factors that can lead to a modicum of homogeneity, the most important ones are costcutting and value-chain coordination. Once again, the automobile sector is atypical as it adheres to the tenets of lean production, stressing quality and market responsiveness. Nevertheless, it is not at all certain that e-commerce enables the same sort of cost-cutting in all sectors. Table 3.3 The many different factors underlying the adoption of e-commerce Sectors Factors General environment: Globalization Regulation Impact of the industrial structure Strategies and objectives: Position vs. competition Coordination of the value chain Cost cutting Quality and speed
Note: Source:
Textiles Automobile Banking Travel
++ ~ ~ ++ + ~
~ + ++ ~ + +++ ++
+ ~ ~ ~ + ++ +
++ ~ ~ ~ ++ ++ +
The +, ~ and signs capture the intensity of the impact of a given factor for each sector. Desruelle and Burgelman (2002), p. 7.
These factors explain why, in 2002, the automobile and travel sectors were the ones that began to implement the potentialities of e-commerce dynamically. When the studys authors tried to predict probable configurations beyond 2005, however, they came up with contrasting prognoses (Table 3.4). Sectors that are not particularly well organized, such as textiles, might develop in a number of different ways, ranging from consolidation of the current configuration through to a major brand-driven vertical integration movement; or else to the potential emergence of structures ensuring a coordination of myriad small companies working together within the confines of a regional, or professional, space. Conversely, where concentration levels are very high, the prognosis is for a shift from a series of sectoral marketplaces to a centralized structure which regroups many of the actors involved, along with a wide range of products. In the banking industry problems stem from the diversification of the financial and insurance services offered to customers more than from actors reactions to new bank entrants seeking to operate solely by means of the Net. Once again, several models can be envisaged, depending on whether electronics encourages well-established banks to diversify and subcontract, or whether
Table 3.4
E-commerces probable impact on industrial organization various sectoral patterns Textiles Automobile Banking Organization focused on typical banking services Diversification into new financial products, insurance New entrants Travel Atomization of traditional product offer Emergence of firms whose operations are Internet-based
Shared platform Integration of the value chain by several models companies Sectoral marketplaces Firms are extremely heterogeneous
39
Reinforced vertical integration for the major brands But also a possible coordination of small firms thanks to electronics
The entire branch is moving towards centralized marketplaces E-commerce will facilitate this centralization
New model combining Marginal redefinition of traditional intermediversification and diaries role: extension economies of scale of services E-commerce to Electronic platforms facilitate offering integrated diversification and products subcontracting of management Possible emergence of large integrated companies
Source: Desruelle and Burgelman (2002), p. 7.
40
an original configuration bearing little relation to previous forms of organization is likely to emerge one day. The outlook for the travel sector remains up for grabs too, given that the emergence of new firms which use the Web intensively might lead to a redefinition of the strategies adopted by more traditional firms. That is to say, it might induce firms to try to ensure customer loyalty through quality service, or else to build platforms that offer integrated products. Equally, the possible emergence of large integrated companies cannot be ruled out. This sectoral diversity is one explanation for the relatively mediocre productivity gains and performance improvements achieved outside of the ICTproducing sectors. It also accounts for the accentuation in sectoral disparities during the 1990s. Highly Differentiated Productivity Gains Data on the US economy partially confirm this sector-based hierarchy of productivity gains (Baily and Lawrence, 2001). In terms of productivity dynamism during the latter half of the 1990s, the list is topped by the wholesale trade, followed by the production of durable goods, finance, retail trade and air transport (Table 3.5). These outcomes can be corroborated through observation as well as on the basis of available sectoral studies (see, for example, Malerba, 2002). Not surprisingly, the performance of the durable goods sector is largely explained by the computer industry. The dynamism of the wholesale and retai1 trade sectors is much less obvious, notwithstanding the findings from early studies on the diffusion of just-in-time methods which showed that the main impact of this management method is on distribution activities, and to a lesser extent on industrial activities per se (Greenan, 2001). In the distribution sector, the utilization of the Web represents the culmination of a series of initiatives aimed at standardizing product codes, generalizing bar-code sensors and integrating inventory management, billing and cash-flow optimization activities. The remarkable performance of this sector is explained by the codevelopment of all of these factors (Bresnahan, 2002, pp. 290305). Some think this confirms analyses that are expressed in terms of super-modularity. This suggests that only the conjunction of a whole set of complementary organizational, technological and economic innovations can enable a shift from a mass production paradigm to one based on responsiveness, quality and product differentiation (Milgrom and Roberts, 1990, 1992). Have Oligopolies been Eroded and/or Reconstituted? The financial sector recorded a significant acceleration in productivity. Information after all, lies at the heart of financial intermediation activities. Here
41
Table 3.5 Productivity has accelerated at a very different rate depending on the sector (annual rates in %) Periods Sectors Private sectors Agriculture Mines Construction Manufacturing industries Durable goods Non-durable goods Transportation road air other Communications Utilities (electricity-gas) Wholesale trade Retail trade Finance, Insurance, Property finance insurance property Services to private individuals to companies healthcare misc. ICT-intensive sectors Less ICT-intensive sectors 0.88 0.34 4.56 0.10 3.18 4.34 1.65 2.48 2.09 4.52 1.51 5.07 2.51 2.84 0.68 1.70 3.18 0.28 1.38 1.12 1.47 0.16 2.31 0.72 2.43 0.10 2.31 1.18 4.06 0.89 4.34 6.84 1.07 1.72 0.73 4.52 2.14 2.66 2.42 7.84 4.93 2.67 6.76 0.44 2.87 0.19 1.09 1.69 1.06 0.71 4.18 1.05 198095 199599 Acceleration after 1995 1.43 0.84 0.50 0.79 1.16 2.51 0.59 0.76 2.82 0.0 0.63 2.41 0.09 4.99 4.25 0.97 3.58 0.72 1.49 0.93 2.55 1.85 1.26 0.01 1.75 1.15
Note: Average annual rate of change in gross domestic income per employee on an equivalent full-time basis. The accounting standards are not the same as in Table 3.1. Source: Baily and Lawrence (2001), p. 3, Table 1.
ICTs potential is being fulfilled as a result of the automation of a number of activities. In the past this was the case for the diffusion of electronic money. However, looking only at the magnitude of the productivity gains that were realized in 199599, air transportation achieved remarkable results. Better planes and better flight occupation rates contributed to this performance, as did the optimization of air connections resulting from increasingly sophisticated
42
usage of an electronic reservation system initially designed for only modest objectives (Brynjolfsson and Hitt, 2000). Once again, note that radical innovation did not itself trigger higher productivity, rather it was a tentative strategy that sought to combine a whole set of initially unrelated tools. Thanks to lower information processing costs, such tools could be unified and integrated by means of shared interfaces, this being one explanation for the optimization of airline companies overall profitability. In addition, competition clearly eliminated many of the airline companies which had entered the sector in response to deregulation. It did this without completely eroding the profit margins of the oligopoly that resulted once the concentration and merger process was completed, this being due to the persistent rents guaranteed by the sectors entry barriers (Porter, 2001). The situation here was very different from sectors where ICT had encouraged new competitors, leading in the long run to lower rents and benefiting consumers to the detriment of shareholders (DeLong and Summers, 2001). To this list should be added personal and corporate services where productivity gains, albeit modest, were much higher than they had been during the previous 15 years. In addition and as mentioned earlier, the mediocrity of the gains may in fact have been due to the difficulty of measuring service output. To take just one example: when the Encyclopaedia Britannica moved from paper format to an annually renewable, electronic version whose basic services could be accessed free of change, the increased service to users was only partially captured by the statistics. In this case, the observed improvement in productivity only occurred in those areas where the product could be measured in an independent manner.
CONCLUSION
Many studies suggest we reassess the hypothesis that ICT generates as fast and steady a growth regime as the one which operated during the 1960s. It is certainly true to say that the ICT sector itself enjoyed considerable returns to scale. It also rose a long way up the learning curve and permitted a rapid diffusion of informational goods as the relative price of the latter dropped rapidly. And yet only very few sectors have been able to use these tools in ways which improve performance. This can partly be explained by the difficulty of reorganizing a firm and also indeed mostly by the major inter-sectoral variations in the amount of information processing and transmission required. There is every reason to believe that the specificity and cost structure of a given environment will continue to give rise to innovation strategies that make differentiated use of ICTs potentialities.
43
Hence it would be wrong to extrapolate anything from the productivity and growth rates that were observed between 1995 and 2000. After all, the recovery in the productivity growth rate was due to the snowballing effect in the ICTproducing sector and the beneficial effects of the productivity cycle. There is little doubt that the initial impact of new informational technology was microeconomic in nature, and that it was then and only in the longer term that IT influenced the growth regime. These developments confirm previous conclusions concerning the analysis of strategies available to firms as a result of ICT progress and diffusion. This is not just a technological issue. It also touches on a variety of transformations relating to market organization, types of public regulations, credit and skillbased employment. This provides an opportunity to reassess the different stages of the transformation of the US economy from the demise of Fordist mass production to the widespread belief in a new economy.
4.
Genealogy of the new economy: the institutional change at the heart of the US trajectory
INTRODUCTION
It must be remembered that the United States was the first country to have explored a growth regime based on mass production that both enhanced mass consumption and synchronized with it (Aglietta, 1976). Not surprisingly, it was also the first to have experienced, from the mid-1960s onwards, a deceleration in overall productivity. This phenomenon has been widely analysed, but still remains somewhat mysterious (Federal Reserve Bank of Boston, 1980). This turnaround marks the growth regimes entrance into a period of crisis (Weisskopf et al., 1983; Boyer and Juillard, 1992). To overcome the hurdles encountered, a variety of different strategies were deployed. It would be methodologically sound to review these strategies in order to ascertain the reasons why they did not produce the expected regime. Predictions of an ICT-driven growth regime should be questioned the US economy during the early years of the twenty-first century is not the same as it was in the 1970s. At least seven major structural transformations have taken place, each potentially influencing the growth regime that emerged during the 1990s. One conclusion that can be drawn from all of this is that the role of technological determinism needs qualification.
19732000: THE LONG SEARCH FOR SUCCESSORS TO THE FORDIST GROWTH REGIME
As a number of research studies have shown (Aglietta, 1976; Boyer and Juillard, 1992, 1995), the origins of the imbalances in the US economy date back to the late 1960s. Despite dynamism in investment, productivity slowed and income distribution-related tensions materialized in the form of inflationary pressures validated by an accommodative type of monetary policy. The configurations financial fragility was revealed for all to see by a number of spectacular bankruptcies, as well as by the abandonment of the gold standard in 1971. Raw
44
Genealogy of the new economy
45
material prices skyrocketed, followed by oil prices, all of which interrupted strong economic growth and led to an unexpected combination of accelerating inflation and major recession. This episode was seen at first as something that was sectoral and/or transitory; it was construed as being nothing more than an energy crisis (1973), with some people believing that once adjustment costs had been properly distributed (with consumers having to accept lower living standards in order to pay for higher energy bills), the economy would be able to renew its earlier growth trajectory. This hope was crushed as time passed because the second oil crisis (1979) meant that ecological limits to growth had to be taken into account. However, this was only the first of many potential growth regimes contemplated by economists (Table 4.1). Diversification of the US Economy, Delocalization of Mature Industries Because the United States owned much greater oil resources than Japan or Germany, energy savings and/or nuclear-for-oil substitution programmes were much less widespread than was the case in other industrialized countries. Nevertheless, the two oil shocks did mark a double change in strategy. On the one hand, mature industries which consumed energy intensively (for example steel works) and/or were highly labour-intensive (such as textiles), began to migrate south. Some of the nations that benefited, such as Mexico, wanted to convert their oil rent into massive investments, thus launching or re-launching their industrialization. The acceleration in the internationalization of production lines dates from this era. On the other hand, US conglomerates furthered their diversification drives into new sectors (electronics, services), trying to offset a decline seen as inevitable in some of the industries that had fostered growth during the 1960s. There were already early indications of the model that would come to symbolize the 1990s. Developed countries held on to low-polluting industries, and those which offered a great deal of value-added as well as a high level of skills. Meanwhile, developing countries focused on goods requiring heavy investment capital and a great deal of unskilled labour. From the early 1980s onwards, this model was presented as a possible exit route out of the Fordist crisis, leading to the emergence of worldwide value chains. This strategy ran into two symmetrical obstacles, however. The de-industrialization process which occurred in the US caused a persistently high level of unemployment and generated great socioeconomic inequalities. Highly qualified jobs were created, but at the same time workers were downgraded in industries previously covered by collective bargaining and there was a rise in poorly paid service jobs. A trade deficit developed that persisted for nearly three decades. Given that the dollar is the pivot of the international system and that waves of portfolio investment washed up on American shores, the imbalance was not considered to be problematic.
Table 4.1 The growth regimes that were supposed to succeed Fordism: many candidates, but few victors
Characteristics Drivers Regime A form of economic growth that saves energy and natural resources Domestic diversification; delocalization of Fordist industries Cost-cutting; energyrelated innovations Restoration of profitability and competitiveness Expected outcomes The indices that Obstacles faced support the diagnostic Succession of oil crises; exhaustion of resources Endogenous reversal in energy price increases Assessment in 2002 Innovations and exploration have created a lower expectation of shortages Increased interdependence between countries current economic situations Contribution to growth during the 1990s Less elastic to energy prices
Search for low-wage zones; wage moderation in the domestic space
Easing of inflationary Dynamism of Mexico, Domestic depressures; rise of Brazil and Southeast industrialization; Newly Industrialized Asia successive NIC crises Countries (NIC) Redeployment of workforce; support for entrepreneurship and innovation Dynamism of deregulated sectors (air transport, telecoms); higher growth in the US than in Europe The Japanese economys performance during the 1980s Accentuation of inequalities; tensions related to social spending
Significant up until 1997 (Asian crisis)
Market deregulation; Increasingly fierce increased flexibility of competition in all labour markets, inc. the labour market
Crisis in the United Significant in the ICT States (and Great sector Britain) due to deregulation of certain sectors (finance, energy) The lengthy Japanese crisis attests to the erroneous nature of this diagnostic Doubts as to the models viability: huge bankruptcies, insider trading Some of the productivity gains only related to shortrun factors Mainly through Japanese transplants
46
Acclimatization of Japanese methods, modernization of Fordist industries Shareholder value, reform of mode of corporate governance Information revolution Restoration of Production resynergy between launched in mature returns to scale and industries product differentiation Rationalization of management in large companies Investment in ICT as a source of competitiveness Production of ideas by ideas (software, logos, decoding of human genomes, etc.) Rapid, stable and inflation-free growth Knowledge economy
Slowness in US companies learning processes Mergers and acquisitions that destroy as much value as they create A speculative bubble External imbalances
Resurgence in returns Stock market boom on invested capital. Extent of restructuring Shareholders become operations wealthy Length and characteristics of 19912000 growth
Mainly through the diffusion of a shareholder type of behaviour Significant, i.e. around 0.6% to 1% per annum Difficult to quantify, but probably significant
Income growth Area of excellence for through the rethe American creation of innovation economy rents
Conflicts over A project (a utopia!) intellectual property for the 21st century rights; greater internal and international inequalities
47
Deregulation and Conservative Policies In reality, even though certain industrial activities relocated outside the United States, and notwithstanding attempts to diversify into those sectors best sheltered from competition, it was impossible to overcome the macroeconomic imbalances that continued to afflict the US economy. Inflation remained high, unemployment persisted and productivity did not regain the sort of levels last experienced during the 1960s. At the same time there was an erosion in the power wielded by both Keynesian policies and by both private and political actors. Not least, there was increasing awareness of the unsuitability of institutions inherited from the era of strong growth. The first changes involved upheavals in central bankers conceptions of monetary policy. Reacting to the persistence of inflation and the fragility of some sectors within the financial system, the prototype of the conservative US central banker was born. Here was a person completely dedicated to maintaining price stability regardless of the consequences for short-term activity. Henceforth and this constituted the second major change in public policy unemployment would only be attributed to the poor functioning of the labour market, itself a product of union power and overly generous unemployment benefits. The authorities thus encouraged the deregulation of a whole variety of sectors including air travel, electricity, local public services and telecommunications, the goal being to stimulate production and jobs as a result of lower oligopolistic rents. The most spectacular acts were probably demonstrations of union weakness. One was Ronald Reagans mass firing of air traffic controllers; another involved measures to promote decentralized and individualized wage-setting. All in all, Reagans conservative agenda was based on a conception of the foundations of growth that was diametrically opposed to the vision that had prevailed during the boom years. It entailed a synergy between the development of output and mass consumption, together with Keynesian macroeconomic stabilization policies. Increased flexibility in labour markets and renewed competition were meant to get employees to work harder and to encourage savings, thereby restoring investment rates. A tax system that was favourable to entrepreneurship was presented as being the vector of innovation and growth. As this growth regime was meant to be driven by greater competition, it constituted a break with the preceding logic of a US economy propelled by compromises regarding the share-out of productivity gains. The new Republican presidency tried hard to implement its competition-oriented programme, but the expected benefits had not materialized by the mid-1980s. Not only had lower taxes and an ambitious arms programmes aggravated the budget deficit, but the loss of industrial competitiveness was causing persistent unemployment and a large trade deficit. In contrast, the Japanese and German economies
48
seemed better adapted to the competitive environment, and their institutional organization sparked much interest on the part of leading US executives. In short, the idea that growth should be driven by renewed competition led to a series of institutional transformations which failed to create a model capable of resolving the problems the US economy had been experiencing since the late 1960s. The time had come to experiment with another strategy. The Modernization of Mass Production, or the Mirage of the Japanese Model The 1980s were marked by the remarkable performances of the Japanese and, to a lesser extent, the German economy. Many specialists and corporate executives in the United States began to realize that coordination mechanisms which did not necessarily follow a market path could nevertheless be highly efficient. By seeking to enhance product differentiation and/or quality and by responding better to current trading conditions, such mechanisms could help modernize mass production. One of the lessons drawn from all this was that an overly strict application of the antitrust laws penalized US companies, preventing them from sharing the results of their research findings. Such a shift in competition policy was to impact a decade later on the emerging and rising power of the information technology sector in the United States. During the 1980s, the desire to understand the basis of the dynamism characteristic of Japanese automobile and electronic firms resulted in the publication of a book written by a number of MIT experts looking to popularize lean production (Womack et al., 1990). The application of such methods of production would supposedly allow the success of large corporations and identify the foundations for development of national economies in the twentyfirst century. One consequence of this conception was the raising of doubts about the intrinsic superiority of US capitalism. Based as they were on principles of competition, American institutions tended to undermine the cooperative bases needed if mass production was to be renewed by means of the search for quality, innovation and market adaptation. Part of the emerging growth model involved the arrival of Japanese and European multinationals in the United States and their successes there. However, on the whole the American economy was only partially transformed. Firstly, the only really striking performances made by the transplants were in the automobile and consumer electronics sectors. The strategies used by major Japanese groups did not achieve similar levels of success in areas like banking or leisure. Also, lean production methods only enjoyed a modicum of universality. This was shown in 2002 by the still very significant gaps in quality and productivity between US manufacturers and their Japanese rivals (once again in the automobile sector).
49
The disappointment could be felt at a much more basic level. The Japanization of the US economy was expected to allow the latter to recreate its sources of competitiveness in those sectors that had nurtured growth during the postwar years. Few experts could have anticipated that a conjunction of this emulation of the Japanese example and the fallout from Star Wars would lead, one decade later, to renewed innovation in the ICT sector. Shareholder Value and Finance-driven Growth A different growth strategy developed during the 1990s. Several changes contributed to a strong growth in financial assets, including the long path followed by financial innovation; the deregulation trend that broke down barriers between traditional banks and investment banks; and the reform of the US retirement system following enactment of the ERISA (Employment Retirement Income Security Act) laws. In a sense, however, these were nothing more than an extension of measures that had been taken during the 1980s to encourage financial deregulation. They were initiatives which spread from the United States to the rest of the world and which turned New York into the worlds main centre of international financial intermediation. Note with regard to internationalization trends that financialization developed more quickly than either foreign direct investment or exports. The concomitant loss of employees collective bargaining power led them to accept forms of pay that were increasingly dependent on company performance, particularly with respect to financial earnings. Employment relationships were also splintering into a series of contracts based on how essential an individuals portable competency was to a firm. Pay systems for top-notch professionals became increasingly predicated on stock market performance. The social protection system and the pension system in particular began to use private forms which looked to the organization of competition between different service providers. If we lump all these structural transformations together, we have the outline of an original growth model whose central variable is none other than the price of securities. This variable is supposed to determine the production and investment choices of companies. Specifically, it is meant to encourage stable or growing profits as well as to maximize capital savings, for example by subcontracting all along the value chain. In addition, the value of a households wealth determines access to credit and to decisions concerning the buying and/or consuming of durable goods and housing. A combination of these two factors created the possibility of a finance-driven growth regime (Boyer, 2000a). The United States is a priori the promised land for this kind of growth, insofar as it is the country where stock market wealth is significant compared with disposable income flows, and where the assets of large companies can be easily traded in a highly liquid market.
50
This model, which for a while encouraged mergers/acquisitions/alliances and which generally built on the idea of big is beautiful, needs to be understood separately from the radical innovations which characterize ICT. The models limitations became clear during the early 2000s, when a number of operations that were undertaken in order to maximize shareholder value actually reduced market share and profitability. One example was the merger between Chrysler and Daimler (Boyer and Freyssenet, 2000b). Such mergers posed a certain danger in any case: dominant positions were built up, leading to a reactivation of antitrust trials. Lastly, the great liquidity of the US financial market led to a snowballing effect in the area of speculation, this being one direct expression of the power of finance (Orlan, 2000). Such factors turned out to be especially powerful once people began to assert that a new era was opening up in the history of technology. A Neo-Schumpeterian Growth Regime: Is ICT a Generic and Revolutionary Technology? This shareholder, value-driven regime may have been intended as a way of making growth more dynamic by restructuring firms in mature sectors, but from 1995 onwards the vision expanded to embrace the idea that ICT was a vector for changing the ambient industrial paradigm. The ICT-producing sector was depicted as a motor of growth and a catalyst for reconfiguring organizational models derived from sectors in the old economy (see, Chapter 3, Figure 3.2). For many analysts the new technologies constituted a revolution equivalent to the one introduced by the electrical motor. In a sense, this vision constituted an extension of preceding strategies that had tried to implement Japanese methods of teamwork and concepts involving justin-time and total quality. Equally, the creation of new financial instruments encouraged the funding of start-ups, and during the mid-1990s these came close to being considered the main vectors of the new industrial revolution. Two new developments marked this emerging growth regime. Innovation had previously been seen as something that was multiform and as much an organizational thing as a technological one (or at least dependent on technology sectors). However, all the post-1995 advances in information processing and transmission ostensibly constituted a new system based on the emergence of a radically new organizational model. Moreover, the financial community, usually so careful when analysing the financial earnings of large conglomerates, dispensed with existing valuation methods and adopted what became known as the Internet convention. This postulated, for example, that the number of clicks made by a mouse constituted an indicator of future profitability, irrespective of how much many start-up firms were in fact losing.
51
The foregoing chapters have analysed the solidity and likelihood of the hypotheses (if not the beliefs) on which such a growth regime was based. This brief panorama of a whole succession of unfulfilled crisis-exit strategies means that we now need to question the hopes formerly placed in the new economy. Not Repeating the Errors of the Past Some very useful lessons can be drawn from these analyses. Firstly, it must be recognized that none of these ideal models ever took concrete form. This is because each emphasized a monocausal explanation, whereas in fact modern economies are characterized by a host of interdependencies involving financial spheres, changing lifestyles and corporate management. We should be talking about codevelopment instead of one-dimensional determinism. Secondly, and above all else, analysts attribute objectives and types of rationality to actors that are identical to the ones underlying their own theoretical constructs. By so doing, they overlook the difficulty actors face when seeking a representation that is sufficiently precise to allow prediction of long-term strategic consequences. In reality, the long succession of ideas about the US economy referred to can be represented more accurately as a process of trial and error rather than an in-depth and in all likelihood impossible economic calculation. Lastly, linked to each of these crisis-exit visions are actors strategies for transforming corporate modes of organization, legislation and forms of state intervention, something that creates significant path dependency. If we accept such analysis, the question boils down to whether or not the many organizational and institutional transformations of the previous three decades ultimately coalesced into a specific system by the late 1990s. This invites us to turn from assessing ideas and theories to looking at the reality of the transformations that characterized the US economy. Seven such transformations are worthy of analysis.
AN EARLY DEREGULATION OF THE PRODUCT MARKET

The basic orientations of economic policy have featured heavily in discussions about the US trajectory. Retrospectively, the most important changes might not be the ones that were thought by analysts to be so at the time. From Renewed Monetarism to Supply-side Actions Although the first tensions in economic policy orientations appeared as a result of the progressive conversion on the part of US authorities to a monetarist
52
conception of inflation, an important watershed was Ronald Reagans arrival in power. A decision was then made to deregulate a number of services previously subject to state control, including air transportation, telecommunications and parts of the social protection system. The goal was to unleash the forces of competition, thus stimulating both static and dynamic efficiency by encouraging entrepreneurship and innovation. The result was that the total factor productivity growth rate, which had been in decline since 1965 and more or less hit the zero mark in 1979, started to increase again after this date (Graph 4.1).
4 3 2 1 0 1 2 3 4 5 Annual Adjusted
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
Source:
Bassanini et al. (2000), p. 21.
Graph 4.1 Adjusted and annual variations in growth rate of total US productivity, 19651999 Reinforced Competition as a Vector of Innovation It is tempting to analyse this turnaround in the light of a completely changed economic policy orientation and, more specifically, a modified competition policy. However, it is difficult to establish a causal mechanism based on this one correlation, especially as computer investments themselves accelerated towards the end of the 1970s (see Graph 4.4). At this stage of the analysis, the deregulation of the product markets seems to go hand-in-hand with the recovery in total factor productivity. This interpretation is echoed in a vast corpus of literature comparing US with European and Japanese performances. On the one hand, economic policy
1999
53
authorities in the US explicitly mention the degree of competition as a necessary precondition for corporate redeployment and for generating new companies (Greenspan, 2000). On the other hand, many international comparisons measure the degree of competition in product markets and specifically in the telecommunications market, trying to determine whether there exists a positive correlation between this and ICT diffusion rates (OECD, 1999, 2001b; Commission of the European Communities, 2001; Institute for Prospective Technological Studies, 2001). However, the lessons derived from the early chapters of this book regarding the complementarity between different organizational and institutional changes give good reason for reviewing the other structural transformations that occurred within the US economy. Such changes were legion and had an impact on almost all institutional forms.
INCREASINGLY COMPETITIVE LABOUR MARKETS

In reality, the conservative counter-revolution that broke with Keynesian conceptions and with the legacy of post-New Deal industrial relations could not avoid having an impact on the employment relationship itself. The Employment Relationship was No Longer Fordist Compared with Europe, the US labour market already favoured external flexibility. It was characterized by a greater elasticity of wages to unemployment, and by imbalances both between regions and between different skill levels (Mistral and Kempf, 1988). In addition, unionization rates had been constantly dropping since the mid-1950s. This was reinforced by a number of factors from the 1980s onwards. Firstly, there were the new economic policy orientations which began with the firing of all air traffic controllers. Secondly, there were changes to labour laws and the consequent differential treatment of workers in various US states and industrial sectors. And finally, there was general corporate behaviour which sought to individualize workers contracts and to check collective union power. In light of these institutional changes and the fact that there was much unemployment and atomization of employee bargaining positions (Bowles et. al., 1988), it is not surprising that there was improvement in the quality of adjustment between the supply and demand of jobs, especially during the 1990s (R. Duval, 2000, p. 19). The emergence of the paradigm in ICT required a mixing of competencies and skills. Firstly, the workforce would have to be reallocated from maturing industries toward sectors thought to possess a bright future. Additionally, decentralized and individualized employment contracts
54
would enable a readjustment and even a broadening of the wage scale, as well as the emergence of new forms of pay indexed to company performance and/or to evaluation by financial markets. These were labour market characteristics which international organizations such as the OECD had long advocated as the necessary preconditions for competitiveness and for the net creation of jobs (OECD, 1985). This argument was strengthened by the shift that has subsequently occurred in the productive paradigm, even though this was not just a result of the advent of ICT. To a certain extent, what we supposedly witnessed was a complementarity between the external flexibility of work and the diffusion of radical innovations that destabilized earlier forms of the division of labour (Amable et al., 2000a, 2000b; Gatti, 2000). Most clearly affected were internal Fordist-era markets whose deployment had been based on the implementation of a series of increasingly incremental innovations (Marsden, 2001). A Significant Contribution to Transforming the Cycle As a result, US expansion during the 1990s featured apparent stability in real wages until 1997, and moderate acceleration afterwards (Graph 4.2) at a rhythm that allowed unit production costs to stabilize during the early 1990s. This was
130 125 120 115 110 105 100
95 90
01 02 03 04
Productivity: 1991.I2001.I Productivity: 1982.II1990.III Real wages: 1990.I2001.I
Real wages: 1982.II1990.III
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: Calculations using US Department of Commerce data (2002).
Graph 4.2 Comparative changes over two cycles in real wages and productivity (1991.I2001.I and 1982.II1990.III)
55
due to productivity acceleration that was quite surprising seven years into the expansion phase, and which was almost the opposite of that which had been observed during previous cycles of the 1980s and even the 1970s (Zarnowitz, 2000, Graph 4). This sequence supports the following interpretation: until 1997, changes to employment relationships allowed for growth with improved profitability (Artus, 2002). Due to the prolonged nature of the expansion, technological and organizational innovations (particularly ICT-related ones) could produce a favourable effect on the acceleration of productivity. Thus the exceptional duration of the expansion phase of the 1990s was supposedly related to the complementarity between changes in the employment relationship and changes in the productive model.
ICT AS A WAY OF OVERCOMING MANAGEMENT PROBLEMS IN LARGE COMPANIES

The emergence of these new technologies was often considered to be a crucial factor in US performance. By extension, any unequal diffusion of such technologies was deemed to explain the heterogeneity of national trajectories, notably the European lag behind the USs (Cohen and Debonneuil, 2000). In
Proportion of total US output accounted for by the different components of ICT (19601998)
1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2
Investment in communications Investment in software Investment in computers Consumption of computer and software-related durable services Consumption of computers and software
Source: Jorgenson and Stiroh (2000), p. 137.
Graph 4.3 ICT is primarily used for professional purposes
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998
56
addition, the paradoxical behaviour of labour productivity, which accelerated after 1995 (see Graph 4.2) was often associated with the conjunction between corporate computerization and the fact that the global communications network (the Web) was being opened up to commercial applications. However, analysis of ICT diffusion between the early 1960s and the late 1990s suggests a much more nuanced type of diagnostic (Graph 4.3). Computerization is Part of a Long-term Trend Corporate computerization, such as can be measured by investments in computers and software, was already starting to take place during the early 1960s. An initial acceleration occurred during the latter half of the 1970s, and then again after 1989 when software investment tended to overtake hardware purchases. This chronology suggests that the recent informationdigitalization phenomenon is part of a long-term trend. Basically, the big Sloanist firms of the Fordist era, as with state organizations, were often stymied by the complexity of the information and decision-making channels needed to coordinate the funding, production and sale of an ever-greater number of mass-produced and increasingly differentiated goods (Boyer and Freyssenet, 2000). Microcomputing arrived just in time to enable a reorganization of decisionmaking channels. It found expression in ways which ensured information was processed at the right level. The 1980s and 1990s were seen by some as the equivalent of the transition that took place at the end of the nineteenth century, when investments in machines replaced capital formation linked to investments in buildings of a productive kind (Dumnil and Lvy, 2000). Since the 1960s, there had been an optimization in the efficiency of manufacturing industry equipment as a consequence of production computerization the novel aspect concerning the 1990s was the systematic digitalization of data relating to internal corporate management, and especially the standardization of interfaces throughout the value chain. This change affected manufacturing activities first and foremost, but also many service activities as well. This is because ICT is an essential, and even crucial, technology for services in fields such as finance, travel and market studies, as well as research in a number of disciplines (see Chapter 3). ICT is More of a Production Good than a Consumption Good Two points need to be emphasized as a way of complementing the statement made in this heading. Firstly, the strong productivity gains from the communications equipment sector (where returns to scale are significant) were responsible for declining relative prices that stabilized the proportion, in value, of the total output of this particular good, notwithstanding the explosion in
57
volumes. From a macroeconomic point of view, this had repercussions in terms of the sectors ability to act as an engine for the rest of the economy. Next, and contrary to earlier industrial configurations, consumer purchasing of informational goods a recent phenomenon dating from the early 1980s only accounted for a very small fraction of total production. This reinforced the hypothesis that ICT was wielding a greater influence on production norms than on lifestyles, at least as far as the previous two decades were concerned. Because of this, the tendency to overproduce ICT was allegedly one factor in the deflationary bias of the technological paradigm, itself an extension of the central banks tendency to counter any inflationary excess. Hence there was the sense that something was markedly different from the preceding technological paradigm which had been characterized by the mass production of vehicles, household durable goods and housing. Periodically, growth would be stymied by the fact that there were insufficient productive capacities because of continuing strong demand for Fordist goods, but this was not the case with the mode of regulation during the 1990s. A second distinction from the Fordist era was the fact that the entire ICT sector had become highly internationalized. The decoupling of production and demand, which no longer operated on a predominantly national basis, changed the foundations of growth as well as the forms of the institutionalized compromises that were likely to be created in particular domestic spaces (Boyer and Souyri, 2001). This shift in the productive paradigm exemplified one US specificity, namely that America represented the worlds leading country both in terms of ICT use and its production. For many analysts, this was one reason why European growth lagged behind the USAs. Employment in the EU did not benefit from the positive effects of the creation of new ICT-producing branches, the reason being that a large proportion of such goods were imported from the USA and from Asia. On the other hand, the negative effects of their diffusion were felt due to capitallabour substitution in all of the user sectors (Cohen and Dubonneuil, 2000).
THE PEACE DIVIDEND

Is this technology merely a product of the decentralized innovation strategies pursued by the companies in question? The answer is not entirely so. The history of microelectronics and of the Web reveals significant state funding of the research that led to the current generation of ICT. Traditionally, California received a disproportionate number of research projects funded by contracts with the US Department of Defense. Lower defence spending throughout the 1990s was a new phenomenon compared with earlier cycles (Zarnowitz, 2000, Graph 11a). This change had a double impact.
58
Converting ICT to Civilian Uses In a certain way, this change forced a redeployment of the competencies that had accumulated in the defence sector. Companies here were encouraged to devise civilian uses for innovations originally geared towards major military programmes. Alternatively, specialists left defence firms in order to start new companies or else to join ones operating in civilian markets. The breakthrough by Japan and certain Asian countries in the electronics sector also helped overcome the obstacle of antitrust laws. It enabled a redeployment of public spending to collective investments (information highways) as well as shared R&D efforts, thus strengthening the position of US firms in these new markets. Incidentally, it is worth noting that Europe, which did not have equivalent military research coordination programmes, could not achieve a similar result. This was despite having a greater number of programmes encouraging the emergence of an electronics sector, albeit without success over a long period of time (Amable and Boyer, 1993). How this Process Contributed to Re-establishing a Balanced Budget At the same time, the relative cut in US defence spending facilitated the redeployment of public spending and indirectly helped the goal of returning to a balanced budget after 1993 (Zarnowitz, 2000, Graph 11b). Here we could develop something equivalent to the crowding-out theory traditionally used to explain the equilibrium between savings and investment. It holds that a smaller public deficit encourages private borrowing because of lower funding costs. This theory could be extended to the innovation system itself because in the past major military programmes had, to a certain extent, distorted the orientation and intensity of innovations, to the detriment of civilian applications as well as of corporate competitiveness in international markets. This is the conclusion that certain experts drew from Japanese and German performances during the 1980s. The idea was that a simultaneous conversion of both public spending and R&D to civilian applications would not only have a short- and medium-term fallout (something that macroeconomic theories can account for well enough), but a long-term effect too, because innovation systems themselves would be reorienting. This latter phenomenon is more difficult to grasp, but it was definitely a significant factor in the USs growth regime (Amable et al., 1997; Amable, 2002).
A NEW ARCHITECTURE FOR ECONOMIC POLICY

Many macroeconomists began to favour a new architecture for economic policy (Blanchard and Fitoussi, 1997; Muet, 1998). In their opinion, the contrast during
59
the first half of the 1990s between US dynamism and European uncertainties was largely due to the radical opposition between economic policy ideas in the two regions. Budgetary Adjustment and Preventative Monetary Policy The administration and the Federal Reserve Board in the United States agreed on the need to adopt a medium-term public deficit reduction strategy. This clarified the outlook for long-term real interest rates and gave an investment signal to the private sector. As for monetary policy, the objective was one of optimizing economic performance by controlling inflation and stimulating growth whenever it faltered. The instrument of choice became the preventive management of short-term interest rates as a means of preventing inflationary expectations from building up. However, investment, and even more so R&D, is extremely sensitive to views about the future, to low real interest rates and to demand growth. It was therefore legitimate for macroeconomists to advance the hypothesis that the renewed dynamism of productivity after 1995 was also a result of the quality of monetary and budgetary policy management. In fact, this combination of policies made it possible to avoid cutting the expansion phase prematurely short and thus repeating a stopgo policy. Moreover, the high levels of liquidity after 1993 could not help but have a positive influence on investment and consumption (Zarnowitz, 2000, Graph 9b). As such, the length of the US expansion phase during the 1990s created the conditions in which it was possible to benefit from an ICT-centred productive paradigm. A Marked Contrast with Europe In Europe, economic policy during the same period of time was marked by an ongoing battle against inflation, and by national convergence strategies focusing on membership of the single currency. Furthermore, the budget deficit reduction process turned out to be particularly difficult, if only because German reunification exacerbated that particular nations deficit and extended high real interest rates to those countries whose currency was pegged to the Deutschmark. The uncertainty over the launch of the euro did little to reassure people about the future. The considerable gap in R&D volumes between the United States and Europe (Soete, 2001a) was partially due to this macroeconomic management and it perpetuated a vicious circle that only came to an end during the late 1990s, specifically when a positive outlook for growth began to influence the way people viewed the euro. Thus the relationship between economic policy styles and innovation is not unimportant when assessing the growth regime in the USA. Notable differ-
60
ences began to arise between the United States, Europe and Japan in these respects, hence we can assume that US economic policy was instrumental in helping American productivity to recover.
MULTIFORM FINANCIAL INNOVATIONS

Another type of structural change is frequently mentioned as having been a necessary precondition for the blossoming of ICT, and more generally for the transition towards a knowledge economy. Certain financial innovations made it possible to undertake risk-taking activities of the sort that were involved in exploring the potentialities of general information digitalization. Traditional financial systems, however, particularly where dominated by banks, did not really lend themselves to radical innovations of this kind (Amable et al., 1997). In contrast, and thanks notably to recent innovations affecting elements such as venture capital and new markets, financial markets were expected to make a positive impact on the emergence of emblematic ICT-producing firms, that is to say on start-up enterprises (Amable et al., 2001). A Deep and Liquid Financial Market For new branches to have emerged, two conditions would have needed to be met. Firstly, the branches would have had to attract the requisite competencies (note that the external adjustments of the US labour market would have provided for this). Secondly, they would have had to mobilize the capital needed both to make the necessary upfront investments and to finance the deficits that frequently arise during the first few years when an innovation is exploited. In this respect, the organization, depth and liquidity of US financial markets, along with the vigilance of the supervisory authorities there, were seen as comprising strengths. They constituted for certain analysts at least the underlying competitive advantage of the new technologies in the USA. A correlation emerges that appears quite surprising at first glance, namely the direct relationship between the Dow Jones Industrial Average and the rise in IT investment for 198088 (Graph 4.4). By way of contrast, the Nikkei index was not in tune with Japans ICT investment. This is because during the 1990s the slate was never entirely wiped clean following the bursting of the Japanese stock market bubble in the 1980s. As a result, otherwise commendable innovation efforts undertaken by firms never really materialized there (Boyer, 1999). The Other Side of the Coin Intensive Speculation At the same time, the outlook for ICT gave birth to a speculative fever that was relatively typical of preceding historical eras marked by equivalent innova-
61
400 350 300 250 200 150 100 50
Dow Jones, Industrial Stocks Investment in ICT, US
Investment in ICT, Japan
Nikkei 225, Japan
1980
1982
1984
1986
1988
1990
1992
1994
1996
Source: Calculated using data from European delegation to Japan (2000).
Graph 4.4 Unlike Japanese stocks, US share prices have been tracking the diffusion of ICT tions, such as the railroad boom. The theoretical diagnosis that a bubble was at work came under severe attack, however, even though some finance experts (Shiller, 2000) as well as Internet and ICT specialists (Perkins and Perkins, 1999) considered it to be highly likely. Of course, profit margins were much higher than they had been in the past and, more importantly, were staying at these levels even though the long expansion phase of the 1990s was entering its seventh year (Zarnowitz, 2000). This atypical development, which was supposed to continue over the medium and long term, generated great optimism with respect to the outlook for profit growth. This in turn led to unprecedented priceearnings ratios. After the NASDAQs sudden reversal in March 2000, more and more people began to realize that financial markets had been instrumental in creating the speculative bubble that monetary policy authorities had been first denouncing as irrational exuberance in 1997. As had been the case in the past, the fall-back in speculation could have been accompanied by either a greater, or a lesser, turnaround in the business climate. This truth should not, however, be construed as denying the real transformations that the diffusion of technology caused in the productive structure of the US economy (DeLong and Summers, 2001). Controversy may have persisted regarding evidence of this change, which was visible at a macroeconomic level (Chapter 3); but it was clear that there was no
1998
62
possibility of US growth reverting to the level that had characterized the 1960s and 1970s (Boyer and Juillard, 1992). In all likelihood, the rise in total factor productivity was going to be much smaller (Graph 4.5). 100 90 80 70 60 50 40 30 20 10 0
01 02 03 04
Cycle 1991.I2000
Cycle 1982.II1990.III
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Note: Source: After 1997 the priceearnings ratio rose sharply. Calculated using CDC data (2002).
Graph 4.5
19962000: the evidence of a financial bubble
INTERNATIONALIZATION UNDERPINNED INTERNAL US DYNAMICS

A final structural transformation linked US specialization and its strong financial system to the rise in international demand for ICT. This transformation consisted of two main parts. Inward Investment Offset a Lower Household Savings Rate The latter half of the 1990s highlighted one final, but very important, structural trait concerning the USs growth regime. This was its openness to the international economy. The conditions underlying the equilibrium of savings and investments in the United States were also key in mobilizing the countrys exceptional position as a global financial intermediation centre. This is because
63
its household savings rate plummeted throughout the 1990s, very probably due to a wealth effect that was itself a result of the stock market boom (R. Duval, 2000). This trend, associated with a stable savings rate in the private sector, was offset by a reliance on savings from Europe and Asia. The modest outlook for growth in Europe, the fallout from the Asian crisis and the belief that the United States was the home of the new economy generated major foreign direct investment in the USA between 1995 and 1999. In turn, this worsened the countrys trade deficit (Zarnowitz, 2000, Chart 15). US Domination in ICT Whereas in most so-called second-tier countries, internationalization infers occasionally stringent constraints on national strategic choices (Argentina being a pertinent example), the United States benefits from what, in many respects, is a hegemonic position. Higher ICT output reflects both the dynamism and sophistication of the American market and also the fact that the US exports these very products to countries that lack the wherewithal to equip themselves with the necessary competencies. Note the link between ICT diffusion and greater internationalization. Theoretical analyses of growth regimes find it easier to work within the confines of a closed economy. The fact remains, however, that fully open and interdependent countries have had a major effect in changing the equilibrium of supply and demand for new informational goods (Council of Economic Advisors, 2001). The same applies to financial intermediation: the dollars international role, along with strong US securities markets, give the country an advantage over Europe and Japan. Moreover, these factors have invariably influenced the dynamism of the ICT-producing sector in the United States.
SHOULD OTHER COUNTRIES ADOPT THE INSTITUTIONAL ARCHITECTURE OF THE USA?

US history offers a very peculiar configuration of institutional forms, all of which have been greatly transformed over time. Between 1991 and 2000 the overall reconfiguration was associated with a return to sustained growth. This led many of those commenting about the new economy to conclude that the US institutional edifice, largely dominated by a market logic, was a necessary and sufficient condition for a growth regime driven by high-tech. Actually, even after the Internet bubble burst, the US economy remained a benchmark for all analyses (Castells, 2001; Cohen and Debonneuil, 2000; Commission of European Communities, 2001). This occurred to such an extent that the following syllogism represents the views of many observers:
64
1. US macroeconomic performances are superior to those of Europe and Japan because the former has an ICT-driven growth regime. 2. The sine qua non precondition for a regime of this sort is a particular set of institutional forms. Deregulating the product and labour markets should help firms to adapt to new technological circumstances. Developing venture capital and new financial instruments should enable a transfer of capital from the old to the new economy. A strict management of the public budget and a forward-looking monetary policy should stress the preservation of private incentives to production and innovation in an environment of monetary stability. Finally, the purpose of the international system, with the WTO and the IMF at its centre, should be to ensure the stability of both world trade and capital movements, because this growth regime is basically operating at world level. 3. Ergo: any country that is lagging behind needs to undertake the structural reforms that will enable it to converge towards this particular institutional configuration, possibly with a few marginal adaptations to accommodate local contexts and national traditions.
CONCLUSION
Did an ICT-driven growth regime ultimately emerge in the United States during the late 1990s? The arguments presented in this chapter qualify the optimism that was still prevalent as recently as the beginning of 2000. Firstly, such a perspective is in a long line of crisis-exit strategies based on a simple and unique principle that, vigorously applied, would imply a return to strong and stable growth. Yet none of the many successive visions from 1975 until the present day has been able to sustain this claim in any major way. Actually, each one theorized and extrapolated from a specific phenomenon without accounting for interdependencies with other spheres of economic and financial activity. Secondly, and above all, we know that almost all of the institutional forms underlying the Fordist growth regime in the United States have been altered and in some cases radically transformed. Any analysis should therefore focus on the complementarity of the emerging new institutional reform in order to see how they create ways of sustaining a viable growth regime. Finally, when deciding which institutions are necessary and sufficient for overcoming the imbalances that accumulated during the 1990s in both Japan and Europe, it is not enough to consider the US example alone. It is equally important that a general definition be found for the principles that enable the reappearance of a virtuous circle of innovation, productivity, growth and employment.
5. The geography of the new economy: the diversity of institutional architectures

INTRODUCTION
How should we proceed with an explanation of the economic and institutional determinants of membership in a virtuous circle of growth? Three methods would seem to be useful. The first consists of a sectoral analysis or better still a study of panel data for firms. Bear in mind that several analyses have confirmed the discriminatory role of ICT implementation wherever it has been associated with a flatter corporate hierarchy (Asknazy, 2002; Chapters 3 and 4 in the present book). The second method consists of developing theoretical models, built on microeconomic foundations. These provide the basis on which to determine whether a conjunction of two particular institutions can induce companies to make organizational choices which are complementary, that is perform better as a consequence (Amable et al., 2000a, 2000b). Given the technical and, as yet, exploratory nature of this approach, it is not one that will be pursued at present. A much simpler, and more illuminating, method consists of carrying out a systematic international comparison, thus answering a series of three important questions. Was the United States the only country to have entered a virtuous circle of growth during the latter half of the 1990s? Is intensive utilization, or production, of informational goods a necessary precondition for membership in such a regime? And if other countries share this trait with the United States, do they display the same institutions and forms of organization, or are there substantial differences between them?
ICT AT THE HEART OF THE TECHNOLOGICAL CHANGE PROCESS

To test the relevance of these propositions, it is important to devise a general definition for macroeconomic performance during the 1990s and thus resist measuring each OECD countrys distance from the US configuration.
65
66
It so happens that studies carried out within an OECD framework (Scarpetta et al., 2000; Guellec, 2002; OECD, 2001b; Pilat, 2002) have compiled a large set of statistical indicators. From these we can ascertain that a relevant definition of an emerging growth regime will be based on the existence of a virtuous circle between intensified R&D efforts and an increase in total productivity, the latter being a condition for a recovery in potential growth. By opting for the first two indicators, an interesting configuration emerges (Graph 5.1).
1.5 (a)
Finland Sweden Ireland
Acceleration in tfp between 198090 and 199098
Australia
1.0 0.5 0.0 0.5 1.0 1.5 2.0 0.4

United States New Zealand Germany Belgium Netherlands Canada Portugal Austria Greece Japan France
Denmark
Spain
0.2 0.0 0.2 0.4 0.6 0.8 Growth in intensity of corporate research and development, 198090 and 199098
Note: Area (a) represents zones where virtuous growth circles are feasible. Source: Bassanini et al. (2000).
Graph 5.1 The economies that were part of a virtuous circle of growth regime The Remarkable Performance of the Scandinavian Countries One would expect to find the USs position in the far upper-right hand corner of Graph 5.1, the reason being that the new growth regime is closely associated with the American economy. In fact, certain countries from Northern Europe (Denmark, Finland, Sweden) and those linked historically to the UK (specifically Australia, Ireland, Canada, New Zealand) as well as to great surprise one country from Southern Europe (Portugal) performed just as well as the United States. Some did even better. For example, the Scandinavian countries and Finland seem to have done a good job of reconciling the knowledge economy with the preservation of social solidarity. The US, on the
The geography of the new economy
67
other hand, is still talking about how ICT-related rising inequality threatens society with a digital divide. This raises the issue of whether or not OECD countries all share the same economic strategy and/or belong to the same institutional configuration. An Original Method A previous study broaching this topic (Boyer, 2001b) used qualitative analytical methods to process a number of observations pertaining to OECD countries. Two general difficulties need to be recognized in this respect: firstly, studies until now have not been sufficiently exhaustive to set up the requisite confrontation needed to distinguish between the various hypotheses; and secondly, there are insufficient observations to allow us to devise econometric studies in good and due form. Moreover, it is not certain that OECD countries are all governed by a single model. It should be remembered that our goal here is specifically to detect the potential coexistence of several regimes. An original, but simple, method using Boolean analysis reveals other combinations of variables that can lead to a given outcome, and which can then be understood by means of a binary qualitative variable. The usefulness of this qualitative comparative analysis (QCA) has been well documented in historical and sociological research (Ragin, 1987, 1994). To particularize this method, we have to construct a table describing different national situations according to a whole set of growth determinants. Is it enough to simply invest more than the average for all countries, as was the case with Fordist growth during the 1960s? Does the simple fact of lagging behind create room for catching up, this factor becoming an explanation for growth differentials? Or has information processing become so essential that control over the use of ICT becomes the only element capable of guaranteeing faster growth than the average for all OECD countries? Applying this method produces an interesting outcome. The first premise of the new economy syllogism is corroborated by available data of the type collected by the above-mentioned OECD economists. And yes, ICT does seem to be one constituent of the 1990s growth regime. However, the United States is not the only country to have followed this path, and it is by no means evident that it has achieved superior results. A Plurality of Institutional Configurations The same method allows us to test the second proposition, which bi-univocally associates the new regime with an institutional architecture dominated by the logic of competition and finance. Thus, to understand the institutional configurations of the new economy, our analysis should focus less on the United States (a singular economy) and more on small, open social-democratic economies,
68
even if these clearly do not wield the same weight on the world economic stage or play such a leading role in international affairs. An OECD research programme which tried to describe the knowledge economy (OECD, 1999) and the properties associated with the emerging growth regime (Scarpetta et al., 2000) compiled statistical data on research, innovation, education and finance. It devised macroeconomic performance indicators made up of various components of the main national innovation systems (Freeman, 1987; Nelson, 1993; Lundvall, 1992; Amable et al., 1997; Amable and Petit, 2002). This approach sought to identify the institutional conditions which make it possible to obtain a given macroeconomic result. When operationalized, it allowed a structuring and ranking of the various factors.
PRE-CONDITIONS FOR VIRTUOUS GROWTH: TWO CONFIGURATIONS

Countries recording an accelerated post-1990 growth rate belong to two distinct configurations (Boyer, 2001b). A Social-democratic Model versus a Schumpeterian Model On the one hand, Denmark and the Netherlands featured a high level of general education and above-average lifelong learning. These were two factors shaping the egalitarian social-democratic variant of a knowledge economy. Labour market deregulation would not seem to have been a necessary precondition for such a regime. It should be emphasized, of course, that knowledge is not the same as information. The former refers to the aptitude of individuals and organizations to analyse a problem in the light of advances that have come about, particularly in the field of the sciences; also, to derive useful and/or profitable goods from such knowledge. Information, by way of contrast, refers to the means of accumulating and processing digitalized valuables, something that often occurs as a result of software and cybernetic processes. The information economy can encourage a knowledge economy; but the former does not necessarily, or at least automatically, lead to the latter. Conversely, Australia, Ireland and the USA are in a configuration where labour market deregulation coincides with an emphasis on training scientific staff. It is tempting to describe this model as Schumpeterian because it focuses on the role played by radical innovation in economic dynamics, and because it is a market-oriented variant which allows market logic to reallocate competencies and capital in line with innovation breakthroughs.
69
One Necessary Pre-condition a Deregulated Product Market The two preceding groups have one element in common a deregulated product market. This has occurred in response to the various pushes made by numerous international organizations at both the global level (WTO, OECD) and the European one. After all, the deepening of the EU single market has been associated with repeated efforts to reinforce competition by means of deregulation. The outcome seems to validate one of the hypotheses advanced in certain regulationist-inspired research projects which focus on the way in which forms of competition have catalyzed the growth regimes which emerged during the 1980s and 1990s (Petit, 1998). This recalls the thinking enshrined in various conservative strategies promoted by US Republican presidents from the time of Ronald Reagan onwards. International comparisons thus confirm the lessons of American history (see Graph 4.1). ... But Not a Deregulated Labour Market That said, the theoretical reasoning underlying these conservative programmes was marked by a close association between restoration of competition in product markets and extensive deregulation of the labour market. Was it not intuitively clear that there would be more inter-company mobility for workers if firms had to restructure in order to cope with increased competition and with the potentialities and constraints of information technologies? The usefulness of Boolean analysis is that it demonstrates that labour deregulation is not a necessary precondition for such things. This negative finding can be explained by the fact that analyses of international organizations have stressed external flexibility, this supposedly being associated with an attenuation of the regulatory and bargaining constraints on labour. At the same time, an innovation-driven redeployment of employment can be organized collectively, with this taking place either as internal mobility within a large company, as with the Japanese economy during its golden years; or else through varying state agency interventions, including workforce re-skilling actions, such as happened in the small, open economies of Scandinavia or Finland. As such, there was more than one way to organize labour mobility in response to the possibilities opened up by ICT. This plurality of growth-enhancing configurations provides the incentive to undertake a more systematic analysis of the institutions that served to ensure macroeconomic performance during the 1990s.
70
WAS THE US CONFIGURATION EXEMPLARY OR JUST SINGULAR?

If we were using the US economy during the 1990s as our sole benchmark, we would assume that the conjunction of several structural characteristics accounted for the emergence of strong growth. Firstly, given that an abundance of venture capital and the creation of new financial markets made it possible to quote the value of firms actually implementing the new technologies, such factors presumably served as necessary preconditions for funding radical ICT-driven innovations. Secondly, increased competition due to product market deregulation and fewer restrictions on mobility and remuneration of work were preconditions for a redeployment of demand and for production factors in the shift from the old to the new economy. Given that ICT acts to reinforce the abstract and intellectual nature of work, a high quality initial education plus intensive lifelong learning came to be seen as necessary preconditions for the blooming of the knowledge economy. As far as some analysts were concerned, radical innovations were of crucial significance for the new regime, unlike the mass production one. Innovations in the latter were viewed as primarily incremental and linked specifically to product quality or differentiation at a rather superficial level. By way of contrast, today the quality of the research system and the density of its ties to the business world are seen as essential factors. It no longer suffices to focus on the competency that a company accumulates with respect to the production of traditional goods. On all these points, the US economy seemed to comprise a one best way. This happened to such an extent, indeed, that a multitude of studies on the new economy implicitly or explicitly postulated the following equation: The new economy = venture capital + new market + deregulation + flexible work + a modern and developed educational system + the quality of the research system + the density of relationships between research and firms + an organization that is favourable to entrepreneurship Our attempts to characterize these various components by means of qualitative variables and a Boolean method of analysis produce one particularly noteworthy result. The analysis in fact discredits the otherwise widely accepted hypothesis that a single institutional configuration is capable of helping countries to benefit from new technologies, in particular ICT-related ones.
71
THREE INSTITUTIONAL CONFIGURATIONS

What are the shared characteristics of those countries that simultaneously recorded an acceleration in total factor productivity after 1990 as well as aboveaverage growth in this same indicator, specifically as a result of a rise in corporate R&D efforts measured as a percentage of GDP? Seven countries are affected, although it must be noted that they are not all part of the same configuration as the standard-bearer economy, that of the USA. Cooperation as the Basis for a Knowledge Economy: the Socialdemocratic Countries This particular configuration is based on a high level of general education; intensive vocational training; modern educational methods involving the use of computers in classrooms; and close cooperation between academic systems, research centres and the corporate sector. On average, a high proportion of total income is allocated to education, software and other mediums for transmitting knowledge. In a sense, this configuration is loyal to the characteristics that are customarily attributed to the new economy, the reason being that a widespread socialization of knowledge is organized by means of collective investments. Linux could well be the standard carrier of this type of knowledge economy. Here the market is not the dominant form of coordination, rather cooperation is essential and is institutionalized along national lines. Three northern countries, each equipped with social-democratic regimes, fall into this category. Competition and a Market Logic: The English-speaking Connection By contrast, a deregulated economy seeks to privately appropriate advances in knowledge. Patents and the protection of intellectual property rights have in fact become the tools with which the most talented, graduates or not, aim to keep as much innovation rent as possible. A very active labour market is responsible for assessing at any given moment in time what each individual should be paid in light of his/her competency, the demand for their services from the business sector, and economic conditions generally. This appropriation of wealth is attenuated by the fact that competition in product markets tends to lead to a considerable lowering of the price of informational goods. Consumers should, therefore, ultimately benefit from advances in innovation, just so long as they have not been excluded from employment as a result of the creativedestructive process that is typical of the Schumpeterian paradigm. Leapfrogging the Fordist Phase? Thanks to new technological circumstances, a third model (accelerated catchup) can also be viewed as a configuration capable of triggering a virtuous
72
circle. This is despite and maybe because of the fact that Portugal, the one country to which this model refers, lagged under the old Fordist mass production model. In itself, the lag was not sufficiently large for any accelerated catch-up effect to occur. What is important to recognize in this case is that private and public actors are able to find the wherewithal to coordinate their strategies, thereby creating the organizations and institutions that the new paradigm demands (Rodrigues, 2001). This particular configuration highlights a number of lessons drawn from economic history. If we reject the stages of growth model advocated by Rostow (1965) in favour of the catch-up model proposed by Gerschenkron in 1962, and more importantly accept the assertion that the social ability to absorb technologies and innovations comprises the real basis for development (Abramowitz, 1986), then strong employment protection is not an impediment for membership in this particular regime. This distinguishes it from the second configuration which is typical of countries that place their trust in market mechanisms. The usefulness of this approach to Boolean calculation-based, qualitative comparative analysis must be noted. It leaves open the possibility of a plurality of configurations and does not attempt to undertake any immediate estimation of an econometric model that would, de facto, postulate the unique nature of the mechanisms at work. Moreover, data analysis corroborates the idea of a plurality of configurations. Classical econometrics asserts that there is one single regime and this poses a significant risk of error. The effect of a given characteristic can, for example, be disadvantageous in one configuration and favourable in another without either of these observations being outliers, to use a word that is habitually associated with applied econometric studies. A more exhaustive study has already tried to verify the stability of these configurations when the underlying hypotheses and procedures were altered (Boyer, 2001b). Hybridization Rather than the Diffusion of a Canonical Model This plurality of configurations contradicts the customary vision which sees such results as if they were no more than a deviation from the one best way obtained from a combination of the most efficient institutions and practices relating to innovation, credit, labour and education. Instead, the concept of inter-institutional complementarity helps explain why such contrasting architectures can coexist (Amable et al., 2000a, 2000b; Amable, 2002): ideas and practices circulate from one country to another (Kogut, 2000), with identical diffusion being the exception. In other words, the hybridization process, by which is meant the adaptation of institutions and organizations to the constraints and opportunities of the local system, constitutes the rule (Boyer et al., 1998). This process can lead to an original configuration that is distinct not only from the one people hope to imitate, but also from the one that prevailed before
73
any relationship was established between the two spaces. In other words, internationalization can simultaneously undermine, or destroy, certain configurations, giving the impression of convergence while actually recreating diversity by deepening some local specificities and hybridizations (Berger and Dore, 1996; Boyer and Souyri, 2001). These findings, which have been obtained at the macroeconomic level, are equivalent to recent developments in corporate organizational microeconomics. This is because the notion concerning the complementarity of two institutional forms echoes the super-modularity theory. This can be applied to those management mechanisms which create synergies any time they deliver performances superior to the ones delivered by a single mechanism working alone (Milgrom and Roberts, 1990, 1992). This analytical framework has an important consequence. We cannot move from one organizational model at company level, or from one institution at the level of an economy as a whole, to another one simply by discerning the best practices for each of the components separately. Performance worsens at the margins of current equilibrium because complementarity will only play out in the vicinity of the new equilibrium, so we should therefore be trying to implement simultaneously, and as rapidly as possible, all the institutional changes that are supposed to take place. In general this is not possible, except in exceptional situations such as those following a war or in the aftermath of a major crisis.
IS IT NECESSARY TO PRODUCE ICT IN ORDER TO KNOW HOW TO USE THEM?

The US example shows that specialization in the production of microprocessors, servers and communications software can generate increasing returns that will translate into a significant contribution to total factor productivity (Gordon, 2000a, 2000b; Oliner and Sichel, 2000). At the same time, in the absence of a truly radical reorganization of user sectors, productivity gains will be disappointing (Asknazy, 1999; Greenan, 2001). An international comparison is useful here because it can put into perspective the US example and thereby verify whether ICT production is actually more important than ICT use. There Is No Obvious Link between Production and Demand We should first note that the degree of ICT utilization is largely independent of the intensity of its production (Graph 5.2). This means that we can further qualify the US example and refute the hypothesis according to which control over ICT production is a necessary precondition for the rapid diffusion of their use. Above and beyond a lack of correlation, the Boolean analytical method we just used to highlight the diversity of institutional configurations also allows
74
us to reassess the themes of the preceding sections. By so doing we can verify whether production is indeed a necessary precondition for membership in the new paradigms, whether these be of a technological or an economic kind.
3.5 3
Intensity of ICT production (1997)
Japan
2.5 2 1.5 1 0.5 0 0 1 2

Portugal Italy Spain Denmark Greece Sweden Germany Finland Netherlands France United States
Great Britain
3 4 5 Intensity of ICT usage (1995)
Source:
Graph based on OECD (1999).
Graph 5.2 Is there any link between the production and the utilization of ICT? It would appear at first sight that an above-average control of ICT production is not a necessary precondition for membership in a technology-driven growth regime. Once again, two conditions define such a regime: a total factor productivity that was higher than during the 1980s; and greater corporate spending on R&D (expressed as a percentage of production). For developed countries, it is the conjunction between the reliance on computerized capital goods and low telecommunications costs, not the production of these goods per se, that is the necessary precondition for membership in the new growth regime. We can thus see how difficult it is to understand innovation dynamism using a single statistical indicator, as opposed to the customary habit of perceiving R&D spending volumes as the key variable. Neither Output Nor Employment is Hampered by the Absence of an ICT-producing Sector Even though the deregulation of the product market was a common feature of the two configurations that recorded accelerated growth during the 1990s, the
75
same did not apply to ICT production. If this finding proves to be robust, it would mean that the communications and information sector was not the engine of growth that the construction and mass household goods production sectors were during the 1960s. Countries lacking the supposedly promising sector of ICT production do not necessarily seem to have been penalized in terms of growth. The same applies to employment performance. Of the four configurations showing a post-1990 improvement in employment (for more details, see Boyer, 2001b), it appears that ICT production was not the determining factor in three cases. The fourth institutional configuration, which corresponds to the countries looking to catch up, had weak ICT sectors. This finding is perhaps not surprising given that even in the USA, the high-tech sector was far from being the largest creator of jobs during the 1990s as the leaders in this respect were household services, healthcare and modern corporate services (Boyer and Didier, 1998). Of course, this result is heavily dependent on the Boolean analytical method being used. In fact, if we were to apply a cross-national analysis and postulate that there is a unique model governing both growth and unemployment, we would tend to get the opposite result (Amable, 2002, pp. 1517). Actually, it might well be that ICT production does have a positive impact on growth, but econometric estimations in this area are very fragile. As for unemployment, it appears to be positively related to the dynamism of ICT production, a finding that is somewhat counter-intuitive. This is unless we accept, as Schumpeterinspired studies do (Aghion and Howitt, 1998), that innovation reached much too high a rate in the ICT sector, with the destruction of competencies having a greater impact than improvements in the performances of user companies (Aghion and Bloom, 2002).
CONCLUSION
By way of a conclusion, we can say that those OECD economies which were able to experience a regime of strong growth during the 1990s shared an intensive utilization of ICT. This was something encouraged by the deregulation of telecommunications and by falling prices in this sector. This puts into context the US configuration for two reasons. Firstly, it can be advantageous, although not strictly necessary, to hold the dominant position in ICT production. Secondly, and most important of all, the small, open social-democratic economies ultimately performed as well as the United States, yet maintained a lower degree of inequality as a result of institutions which promoted quality education, lifelong learning, university research and inter-firm cooperation. The geography of the new economy is thus not limited merely to Silicon Valley. It also extends to those Nordic countries which have succeeded in developing an original institutional configuration one diametrically opposed
76
to the allegedly unique and more efficient configuration adopted by the United States. This calls into question the conventional vision according to which a segmented and flexible labour market, together with venture capital and new markets, all serve as prerequisites for membership in a new technology-driven growth regime. In a sense, then, it was the US economy that was singular and which continued to distinguish itself during the 1990s (Boyer and Souyri, 2001). Another indication of the particularity of the US economy is that it was the first to record a reversal in economic fortunes, starting with its stock markets in 2000, and then with economic activity in 2001. The origins of the sudden turnaround in the vigorous expansion phase that had lasted throughout the 1990s illustrates a number of structural factors that went unnoticed during the years of euphoria.
6. 20002002: reassessing the potential of ICT-driven growth

INTRODUCTION
At times it has seemed as if economists were seeking to align their thinking with the optimistic reaction of financial markets to the duration of the US growth phase. They urged that European countries and Japan import as quickly as possible the institutions and forms of organization that had led to the success of Silicon Valley. Of course, two major events then took place: the NASDAQs March 2000 plunge; and the rapid slowdown in the US economy during the third quarter of 2000, something that by the latter half of the following year raised the spectre of recession. This reversal in fortunes surprised many observers, even though a structural, historical and comparative analysis such as the one undertaken in this book would have provided a key to understanding the expansion phase, as well as the sharp readjustments that followed. There is no doubt that the productive, social and financial structures of most OECD economies no longer resemble the ones inherited from the Fordist era. It also remains the case that the new economy concept turned out to be wholly inadequate, to such an extent that in 2001 it was doomed to disappear rapidly. Is this not the fate awaiting all representations or theories which define themselves solely in terms of being radically different from past events, or chapters in a story now deemed to be closed?
THE INTERNET BUBBLE: FROM BOOM TO BURST

The NASDAQs collapse in March 2000 marked the end of the seamless creation of Internet companies and subsequent stock market flotations, IPO (Introductory Public Offer). It caused the financial community to reassess the criteria it had selected to justify funding the new technologies. And yet, at the outset, there were still very few references to the risk of a sharp economic downturn. After all, growth was still very dynamic, nurtured by the high confidence levels of US households which continued to buy the sorts of durable goods (housing, automobiles, computers) that had played a major role in the economic regime of the 1990s (see Table 3.1).
77
78
The speed with which economic conditions deteriorated in the US was a surprise even to many astute observers. People only began to notice in November 2000, although the decline had started during the years third quarter. At first it was tempting to blame a few exogenous shocks, namely how rising oil prices were cutting into purchasing power, or the uncertainties created by the outcome of the US presidential election. However, careful analysis suggests that the turnaround was largely endogenous. This lends support to one of the central lessons of the historical Annales school of thought a lesson that regulation theory has modernized for the present day. This is that an economy experiences those crises that are inherent to its structures. The shift from euphoria to doubt, and the turnaround in economic conditions, involved a succession of five phases, in accordance with a logic that is reminiscent of several equivalent historical episodes (Figure 6.1). Phase 1: ICT Producers Profits Validated the Belief in the New Economy Remember that the very term new economy is born out of the conjunction of three sorts of observations: the dynamism of Silicon Valley, viewed as an organizational model; the fluidity of the funding process facilitated by new markets such as the NASDAQ; and the post-1995 recovery in productivity. Given these conditions, the financial community was convinced that the future did not belong to old economy companies but rather to start-ups implementing a variety of ICT-derived components or applications. Hence a transfer of capital occurred from traditional sectors which were making comfortable profits to futureoriented sectors that were losing money overall. At the time, however, this anomaly did not bother the financial community, which saw it as a normal feature of a network economy characterized by costly and fixed upfront investments that would make it possible to build market share. Subsequent profits would be all the higher because an oligopoly or quasimonopoly situation would emerge. The model for all of this was Microsoft and its domination of PC operating systems. This sort of optimism would not have lasted as long as five years had the ICT-producing sector not recorded such large profits. Cisco, Intel and Microsoft seemed to be the models for what tomorrows successful start-ups might eventually look like. Analysts spent little time scrutinizing the solidity of these new organizations, much less their viability. After all, the general thesis was that start-ups were specific forms that needed to spend funds injected by venture capitalists as quickly as possible, the belief being that the first company to establish itself in the market would come to dominate it. As a result, financiers supported ambitious entrepreneurs who were consuming yet also paradoxically destroying a great deal of capital. It was as if the Internet convention had created a direct link between financial markets and the ICT capital-goods
ICT capital goods 2
Goods and services exc. ICT Entry of new companies
Financial market A.
B. Profits Demand for ICT equipment goods Produced by young start-ups, ICT-intensive 3 Losses 1 Produced by well-established companies 1 1 Transfer of capital 3 Destruction of capital 2 1
Belief in the new economy
Growth
Slowdown or decline 4 79
Dynamism New financial Recovery of Silicon instruments in Valley productivity and intermediaries
D. End of the opposition between new/old economies
Capital flows back to profitable companies 4 2 C.
Profitable 4 Apparent justification of the financial markets optimism 3
Even once profitable firms start to lose money
Collapse of the Internet convention
Figure 6.1 Birth and death of the new economy
80
producing sector (see Graph 4.4), relieving everyone in the process of the need to undertake rigorous analysis about the potential profitability of producing final consumer goods for which capital goods were being deployed (Porter, 2001, pp. 635). Phase 2: Distorted Market Signals Sparked a Speculative Boom and Led to Mass Entry of Structurally Non-viable Companies Within this context we find a range of practices which generated a gap between market signals and the real profitability of most new companies seeking comparatively easy, and not overly discriminatory, access to capital by jumping on the new economy bandwagon. Financiers paid very little attention to the realism and seriousness of the business plans or projects submitted to them, which they readily approved and funded. Some even adopted the paradoxical stance of thinking that todays losses were tomorrows profits, with any deterioration in current deficits constituting a positive sign that future gains would be all the greater! Instead of considering profitability to be the key criterion, specialists affirmed that what really counted was demand growth, notwithstanding that products were temporarily being sold at a loss. Even better, competition led to a generalization of the principle of free user access to websites because the value of an Internet company was supposedly based on its click rate, irrespective of the number of transactions made or the income generated. Competition forced firms to look for advertising revenues more on the Web than in the traditional media because the markets leading lights were convinced that the new economy would substantially replace the old. The employment relationship in the ICT sector was also affected by financialization. Employees accepted relatively low wages in exchange for stock options whose market value was expected to rise. Last but not least, many hightech companies adopted creative business practices, failing to account properly for past investment-related spending for example. This had the effect of hiding losses in an economy characterized by heavy fixed costs and by downward pressure on prices resulting from the ease with which new firms could enter market segments occupied by already established firms. Admittedly costs were actually marginally reduced because a share of total wage costs was made up of stock options. However, despite such accounting gambits, almost all the start-ups accumulated losses, without financiers or state authorities regarding this as being particularly worrying. This was because market signals themselves were being completely distorted by the widespread belief in a radiant future presided over by the new economy. Growing losses were incurred by the second generation of new economy entrepreneurs people who were often less competent and less scrupulous than
20002002: reassessing the potential of ICT-driven growth
81
the first. A number of companies went bankrupt shortly after organizing giant gala launches, often without even having brought a product to market. These losses generated orders for computers, servers, software and information system consultants which led to an explosion in the profits of ICT capital-goods producers. In turn this helped reinforce the second phase belief that the new economy was viable even though in reality it was little more than a Ponzi scheme; that is to say, the opposite of the sort of prudential strategy which applies well-established financial criteria to investment decisions. (The Ponzi scheme was named after Charles Ponzi, in reference to a fraudulent scheme he used in Boston during the 1920s, where the first investors quickly pocketed enormous dividends derived from the sums that their successors paid. Unlike pyramid schemes, the Ponzi scheme is based on the operations credibility instead of on the recruitment of other participants in the investment club.) For a while many actors came to believe that a mobile telephone company could be valued simply by multiplying the number of its customers by a lump sum, the latter increasing up to, and through, the early part of 2000 (and standing at circa 8000 euros per subscriber at the time of France Tlcoms takeover over Orange). This practice fitted well with the Internet convention. Another example was the auction mechanism used in England to sell third-generation mobile telephone UMTS licences. The result was a rapid rise in licence prices, with each potential operator afraid to miss out on a market seen as highly profitable and whose rise was considered irreversible. At the time, very few actors or observers wondered whether users would ultimately deem these services to be sufficiently valuable to justify ex post the royalties that auction winners were prepared to pay. Phase 3: The Accumulated Losses of Start-ups Depleted the Initial Capital and Precipitated the Collapse in ICT Investment In a sense, this turnaround was inevitable. At the most basic level and even during its glory years, the new economy destroyed more capital than it created. Investment capital was being turned to less profitable uses than in wellestablished companies where the hard logic of shareholder value forced firms to raise profits from one period to the next and to save capital. The new structural weakness manifested itself first of all in financial markets because NASDAQ stock prices did not reflect the fundamental value of companies; rather, they constituted an anticipation of ad infinitum profit growth which, had it gone on, would have absorbed the US economys entire added value (Table 6.1). The financial community became aware of the problem when young firms with promising reputations came back for a second round of funding while posting ever greater losses. Of course, the practice of selling at a loss had already
82
Table 6.1 Most new economy start-ups do not have viable share prices (value in millions of $ as of 11 June 1999)
Name of company Market Revenues Expected Implied sales capitalization future revenues growth (%) 816 85 350 75 30 84 4 190 28 66 109 259 148 89 57 40 76 252 602 2 940 1 22 339 2 952 3 832 10 869 6 610 7 106 70 348 3 275 2 909 3 187 24 037 5 474 3 066 2 452 1 942 1 859 9 302 14 435 20 641 2 658 94 103 61 170 194 143 76 159 113 96 148 106 103 112 118 90 106 89 48 368
Retail trade Amazon.com 17 100 Barnesandnoble.com 22 960 E*Trade 8 800 eBay 20 800 eToys 5 060 Priceline.com 13 600 Content America Online 107 700 Broadcast.com 3 760 CNet 3 340 Lycos 3 660 Yahoo 27 600 Services CMG 8 380 DoubleClic 3 520 Software Healtheon 5 630 Inktomi 4 460 Real Networks 4 270 Telecommunications services At Home 14 241 Global Crossing 22 100 Qwest 31 600 Rhythms Net Connections 4 070
Note: Source:
The table only shows firms with a stock market value of more than $3 billion. Perkins and Perkins (1999) Appendix C, pp. 24751.
become commonplace throughout the new economy. Furthermore, it must be noted that ambient commercial law, despite its reputation for archaism, would have deemed this to constitute unfair competition if undertaken by firms operating within the confines of the traditional economy. What would have become of Amazon.com had it been subject to the same criterion? This explains why the most fragile start-ups experienced a sudden fall in activity and why the market value of many new economy firms collapsed. A breakdown in the server and computer investment boom followed, albeit only
83
slightly to begin with owing to the operations of the old economy. With its prosperity still based on automobile, housing, travel and leisure sales and/or on the provision of healthcare and education, the old economy continued to market electronicized capital goods. These various contradictory forces manifested themselves between March 2000, when the Internet bubble first burst, and the third quarter of 2000, when it deflated. In the three months prior to the sudden collapse in its orders, Cisco, an otherwise highly efficient company, was still trying to make forward purchases of the components it needed for its servers, its executives having predicted an annual doubling of sales. Companies had begun passing several orders for the same equipment in the hope that they would escape the rationing effect that the speculative snowball had created. Enormous profits were being transformed into losses. At an aggregate level, a fall in profits of more than 12 per cent was observed during May 2001. Note that back in November 2000, the financial community had anticipated a 19 per cent rise in profits for ICT sector companies (The Economist, 2001a, p. 84). The readjustment lasted throughout the summer of 2001, reaching minus 20 per cent in August (The Economist, 2001c, p. 56). From March 2000 to spring 2001 firms with well-established positions in the ICT sector such as SAP (System Analyse Program) had sought to send out reassurances by advertising themselves as profit-making new economy companies. In the end though, the unexpected finally transpired during the following quarter. Firms which had been surfing on the wave of the demand for capital goods and achieving unprecedented profits in the process, began to record losses. This not only led to a reassessment of the Internet convention, but also to a more realistic evaluation of the changes that the new economy had created. Phase 4: A Manifest Over-accumulation in ICT, Moderated by a More Careful Management in Other Sectors The factors explaining the speculative snowball were also to be found at the heart of the economic turnaround that was actually worse the closer a company operated to the new economy. Plummeting stock prices and uncertain future prospects led to a collapse in financial sector investment and employment, which coincided with a loss of wealth due to the fall in the value of households stock portfolios. The result was some moderation of consumer spending, especially where debt levels were already high. In addition, firms in sectors experiencing much more moderate demand growth cut back on their investment plans and staff sizes, particularly so in those enterprises that had long been aware of the volatile nature of the economic climate. Of course, the built-in stabilizers typical of public spending and tax system, reinforced in early 2001
84
by the announcement of tax cuts by the new US President, George Bush, eased the fall in end-user demand. Paradoxically, the same traits that supposedly served as signs of the archaic nature of traditional sectors helped to stabilize economic conditions somewhat. Using the narrow definition of a recession (two consecutive quarters during which revised GNP volumes fall at the national accounting level), it appeared in January 2002 that the US economy had not fallen into recession during 2001. Deceleration at a sectoral level was admittedly quick in those sectors where there had been massive over-accumulation previously. A rapid drop in shortterm interest rates, however, underpinned household demand for automobiles and housing, and helped traditional sectors sustain economic activity. The new economy did not take hold everywhere in the USA, however; far from it. It was only one component of the structural changes that affected the overall growth regime and mode of regulation, albeit the one with the most spectacular effects. Phase 5: A Typical Crisis of Over-accumulation There is good reason to scrutinize profit rate changes (and the various elements that make them up) for non-financial companies as a whole. If ICT use had been associated with strong recovery in productivity, this would have made it possible to maintain stable unit production costs despite accelerations in real wages (see Chapter 4, Graph 4.2). Yet this did not happen. Profits share of current GDP peaked in 1998 and then began to fall even before rapid deceleration in growth took place in 2001 (Graph 6.1). As the US economy began to dig into its manpower reserves, a number of analysts began to sound like Marxists when referring to the exhaustion of the reserve army of labour. By the late 1990s, this situation produced an income redistribution in favour of employees (Artus, 2002). To a lesser extent, a definite, albeit slight, increase in deepening capital contributed to the lower profit rate. As we know, part of the US economys performance since 1985 had been due to an increasing output/capital ratio. This stemmed from the fact that the financial community exerted a tighter control over companies under the guise of defending shareholder value. In reality, the economy took on a far more capital-intensive structure, despite the fact that the rapid rise in investment volumes since 1997 constituted a response to the lower relative price of ICT-related capital goods (Graph 6.2). Once again, we see that the absence of a corporate reorganization mobilizing the potentialities of ICT reduced both the productivity gains and the high profitability levels that had been achieved by 1997. Hence the double contradiction in the situation of the US economy during 2002. The plasticity of its financial system facilitated development of an ICT

Share of profits of US non-financial companies expressed as % of GDP
85
6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1

Economic rate of return Financial rate of return
Source:
Graph 6.1
Total stocks of productive capital expressed as % of GDP
52
50 48 46 44 42 40
Source:
Graph 6.2
1985.I 1985.IV 1986.III 1987.II 1988.I 1988.IV 1989.III 1990.II 1991.I 1991.IV 1992.III 1993.II 1994.I 1994.IV 1995.III 1996.II 1997.I 1997.IV 1998.III 1999.II 2000.I 2000.IV
Artus (2002), p. 2, DRI data.
1985.I 1985.IV 1986.III 1987.II 1988.I 1988.IV 1989.III 1990.II 1991.I 1991.IV 1992.III 1993.II 1994.I 1994.IV 1995.III 1996.II 1997.I 1997.IV 1998.III 1999.II 2000.I 2000.IV
Artus (2002), p. 2, DRI data.
By 1998 profits were already starting to erode
Volume
Value
A capital structure that has become increasingly heavy
86
sector more quickly than in other economies, yet this came at the cost of a speculative bubble that had not completely burst by early 2002. At the same time, more traditional industries were able to buffer the downward adjustment in the output of Internet companies whose profits were already suffering from their prior inability to put ICT products to good use. It must be noted that the complexity of the factors shaping these short-term economic developments has little to do with the consequences of 11 September 2001. The latter provoked great uncertainty for a time, and exacerbated the loss of confidence associated with the downward revision of hopes that had accompanied the new economy, however such effects had dissipated by January 2002 as a result of US military success in Afghanistan and the cessation of attacks on American soil. All in all, the novelty and the complexity of the interdependencies at work generated uncertainty about the way in which monetary and fiscal policy needed to be conducted even in the United States (Lordon, 2001a, 2001b). Private and public sector decision-makers were in fact still trying to understand and monitor the original mode of regulation that had emerged. Would it be resilient to crises and to the accumulation of bankruptcies, firstly in the ICT sector but also in other sectors? Would economic policy be capable of stabilizing the financial system?
TRADERS AND ECONOMISTS FORGET THE LESSONS OF HISTORY AT THEIR OWN PERIL
Three lessons can be drawn from observation of these chains of events. Firstly, impediments to market functioning are often deemed to be the causes of crises. The essential merit of markets is often viewed as their ability to transmit and disseminate information that is relevant to corporate management and to consumer decision-making hence the predictions of certain analysts that financial crises would primarily affect countries in the Third World. Actually, they hit Russia in 1998, Turkey in 2000 and Argentina in 2001. What is surprising is that the United States did not escape the effects of the bursting of the financial bubble which was largely due to the erroneous nature of the signals being transmitted by markets possessing an unprecedented level of sophistication. Secondly, we note, not without irony, that a phase that was supposedly guided by a generation of Schumpeterian entrepreneurs (discoverers of new sources of profits) caused a massive destruction of capital, both during its glory years and also during the ensuing crisis! This is especially perplexing given that the search for shareholder value was simultaneously being affirmed as constituting the
87
cardinal principle of corporate strategy and organization. In other words, the institutions of contemporary capitalism have not eliminated capital overaccumulation. Lastly, the new economy was promoted for a while as the embodiment of a self-fulfilling prophecy about the regime of growth (Boyer, 2001a). Later on it became clear that the interdependencies between modern economies are so multiform and so difficult to comprehend that it is highly unlikely that the conjunction of Silicon Valley and NASDAQ would be enough to generate a whole new and coherent configuration of economic organizations and social relationships. A second look at the history of finance and of productive systems suggests that this learning process which for a number of actors proved to be very painful could have been accelerated and the extent of the crisis consequently attenuated. The Instruments Change but the Speculative Exuberance Remains the Same The most spectacular financial bubbles are born of a conviction that a new era is about to begin. In the past these have involved access to new territories such as the Panama Canal, the development of new technologies such as the railroad and the creation of new forms of organization such as large commercial banks and privately incorporated companies (see Kindleberger, 1978). Whereas savers used to assess the yields and risks of their investments with some degree of caution, the novelty of the new source of profit whose yield, while high, was objectively more uncertain than was frequently acknowledged, kindled a fervour to which even the most prudent parties ultimately succumbed. Individuals who enter the market at later stages are far from being connoisseurs of the product in question, or of the corresponding technical processes, rather, they are actors who have simply heard, through the media, through hearsay or from intermediaries, that rich and almost certain sources of profit are there for the taking. In such an environment, it becomes rational to place ones faith in the speculative bubble, even if astute operators are convinced that share prices have reached unrealistic levels. Two examples help us to situate this cognitive dissonance. In the autumn of 1999, a French telecommunications sector executive declared that, the market demands paper assignments.* It is hard to find a better expression of the fictitious nature of company share prices within this sector once the speculative snowball had spread worldwide. A second dictum came from the manager of an Internet market capital goods supplier: [My] company is selling masses of shovels, but are the prospectors going to find the gold to justify buying them? In other words, irrationality was not an appropriate explanation for what was happening, instead we need to
88
focus on the crucial role financial markets played in managing capital allocation to business. And yet, as the weaker hands began to penetrate the market and actually determined stock price evolution, the informational content of asset prices was evaporating. This divorce between information and market price, akin to the opposition that John Maynard Keynes introduced between a company being assessed in terms of its fundamental value and the actual market price of the same company, could not help but impair the stability of financial markets. Some theoretical models portray the chain of events that caused financial markets to distance themselves early on from the fundamental value of companies and move instead towards alternating bullish and bearish phases (Orlan, 2000). Everything indicates that this type of causality, already associated in the 1980s with the belief that Japanese production methods gave a definite competitive edge to Japan, subsequently spread throughout US financial markets. This was because the United States comprised the vanguard of the new economy. During the 1990s people often said that it was impossible to ascertain with any certainty whether NASDAQ share prices fuelled a speculative bubble. Even Alan Greenspan, despite his unsuccessful denunciation of irrational exuberance, started saying after 1998 that market operators were ultimately better informed than central bankers in matters relating to corporate growth prospects. This being so there was no proof that stock prices were excessive or that the financial situation was dangerous. A Dynamic that Was Not Viable Against this fatalistic position, it is worth remembering that communications technology specialists (Perkins and Perkins, 1999, pp. 24751) had clearly diagnosed the existence of an Internet bubble long before it burst. What they did was calculate the profit growth rate that was implicit in stock prices during late 1999, and they discovered that extraordinary projections were being made by most new economy companies. Amazon.coms profits would have needed to grow permanently at an annual rate of 94 per cent, eBays at 171 per cent, Priceline.coms at 143 per cent, Value Americas at 77 per cent, AOLs at 76 per cent and Yahoo was expected to experience a sales growth of 148 per cent (see Table 6.1). Since then, most of these companies share prices have collapsed. Some experienced spectacular bankruptcies (Value America for instance) while enriching, quite legally [sic], their founders. These were the people who had the time to sell back their shares, including selling them to large companies hoping to avoid missing out on the great adventure that was the new economy.
89
Financial researchers who had not postulated any a priori efficiency in financial markets (Shiller, 2000) arrived at the same conclusions. In fact, they were among the first to publicize their doubts about the Internet-generated bubble and its attendant dangers. Their arguments were adopted by the US Central Bank, which was in a delicate position in relation to the financial sphere, for whom it is both tutor and prisoner (Blinder, 1998). Even more importantly, this group of analysts devised precise arguments demonstrating the existence of a cumulative divergence between fundamental values and market prices. Enlightening Historical Precedents It is worth analysing two striking results obtainable by re-tracing the development of the US stock market since 1870 (Shiller, 2000). The first relates to the relationship between dividends and share prices; the second focuses on changes in 10-year yields in the light of priceearnings ratios at the beginning of each period. Whereas dividends and share values developed over the long run in step with each other for the period between 1870 and 1928, an initial divergence arose with the 1929 crisis. 196566 was another peak period in which share prices and fundamental values diverged. The gap had reduced by the late 1970s, however. The greatest divergence occurred in 1985 and again (even more so) in 1997. With regard to the latter date, share prices rose at rates that took them beyond the greatest multiplier coefficients ever witnessed between changes in dividends and share prices (Shiller, 2000, p. 186). It was increasingly unlikely that this trend could continue. After all, the theory of rational bubbles has shown that even where bubbles exist, there is a probability of one that they will burst one day (Blanchard and Watson, 1984). Even if we only take S&P 500 companies into account (this index from the USs leading market being reputedly less speculative than the NASDAQ), it is still notable that PERs (priceearnings ratios) doubled between early 1995 and late 1999, despite the fact that they are less than an optimal way of measuring shares (see Graph 4.5). This confirms that an unprecedented recovery in profit growth did indeed occur during this period (see Table 6.1). Of course, it is difficult to forecast stock market reversals in advance. This is because such turnarounds often depend on events that are accidental, or because they result from the market having passed through a threshold that technical analysts (so-called chart-ists) only discover ex post facto. It remains the case that the financial history of the US market provides us once again with interesting explanatory possibilities. It may well be that high priceearnings ratios constitute a good indicator of stock market asset yields for the 10 years that follow (Shiller, 2000, p. 11). If so, it should be noted that 1999 was similar to past reversal points such as 1902, 192930, 1937 and 196566. Furthermore,
90
Shillers prediction in this respect, much like the one that Perkins and Perkins made, was formulated before the market actually turned around. All in all, the new economy episode provided us with a new example of a stock market snowball effect, one that was just as spectacular as its predecessors had been (Kindleberger, 1978). For researchers and for analysts, this provides the incentive to develop tools (based, for example, on options theory) which can estimate the value of newborn or old companies operating in turbulent and uncertain environments (Jacquillat, 2000). In any event, the Internet convention was no approximation of this!
CONSECUTIVE TECHNOLOGICAL PARADIGMS DO NOT RESEMBLE ONE ANOTHER

The rediscovered fashionableness of theories inspired by Schumpeters work has served to popularize a mechanical vision of industrial revolutions. According to the latter, what happens is a succession of strong growth phases is followed by depression, or at the very least by economic slowdown in response to clusters of radical innovations that periodically reinvigorate profits and therefore investment. The digital revolution is quite naturally part of the same logic as the revolutions brought about by the steam engine, the railway, the invention of electricity and the automobile. It remains the case nonetheless that this pattern is at best an approximate one. On the one hand long waves, whose existence was postulated by Kondratiev, turned out to be extremely variable in duration during their ascendant and descendant phases. On the other hand, the very nature of innovation, especially that of a radical kind, means it does not stick to the paths set by previous technological advances, which makes prediction a difficult thing (Lesourne, 2001). A more analytical approach would categorize the technological and productive paradigm according to the type of innovation that created it and in such a way as to reflect the principal areas of application. These might be related to the reduced costs of producing and transporting information, and of processing and transmitting it. If we were to choose several supposedly epochmaking innovations that could be analysed in this way (each with a varying degree of significance: see Table 6.2), we would realize that their impact on corporate organizations, economic institutions and the spatial deployment of activities varies greatly from one case to the next. The new economy can be broken down into a series of innovations that range from the personal computer to e-commerce by means of the Web. This historical perspective lends itself to a few interesting observations.
91
Following in the Footsteps of the Telegraph? Firstly, ICT, as indicated by its name, no longer relates to the substitution of machine and energy for human labour; rather, it refers to issues pertaining to the computer, and to information management. This simple fact means we cannot automatically extrapolate the productivity gains that will be associated with ICT from the previous example of electrical motors, even if in both cases a virtuous circle was created between productivity and output in the emergent sector producing these goods. As mentioned before, productivity gains in the production of computers and later on of servers is reminiscent of the breakthrough represented by the Ford Model T car back in its time (Raff, 1988). This means that if we want to find the roots of the new economy we have to go all the way back to the invention of the telegraph. Was this not the first means of an almost instantaneous transmission of information, one that enabled, for example, the synchronization of Europes different financial markets (Vidal, 2000)? Financial market connections and interdependencies are thus nothing new. All that the Internet does is build on an interdependency that already existed more than a century ago. Incidentally, if we are looking for technological or scientific breakthroughs that have nurtured a myriad of derivative innovations, five can be identified: electricity; the internal combustion engine; molecular chemistry; the cluster of innovations relating to communications and leisure technologies (telephone, radio and television for example); and running water and public health infrastructures (Gordon, 2000b). Arguably, innovations derived from the marriage between telecommunications and microcomputers now define the sixth major invention. Insofar as development and codevelopment mechanisms operate here (Bresnahan, 2002), it is hard to make technological predictions at the outset. In one sense, e-mailing is nothing more than an extension of the exchanges that had earlier proliferated, first as a result of the telephone and later on of the fax machine. In this respect, certain entrepreneurs who tried to calculate the cost advantages in an attempt to make more informed choices about the switch from traditional communications media to the Web discovered that for the time being, in activities such as transportation brokerage, the Internet economy did not provide a major competitive advantage (Gomes, 2001). In France, Minitel access seems to have only affected the management of a few sectors and companies. It is likely that this diagnostic can also be extended, at least as a provisional hypothesis, to the Web. This would refute the frequent postulate by innovators (and sometimes by futurologists) that any process or product which is superior from a technical point of view, or which incorporates new scientific principles, cannot help but be economically successful. As neoSchumpeterian research abundantly demonstrates, this is to confuse invention with innovation, and even more importantly serves to restrict innovation to
Table 6.2
Putting ICT in a historical perspective

Innovation Railroad Dynamo Telegraph Automobile (Ford Model T) Radical Sectoral Product and process Telephone
Impact Nature of the innovation Marginal/radical Radical Sectoral/generic Process/product/ organization Impact on costs of Production Transportation Sectoral Product and process Radical Generic Product and process Intermediary Generic Process
Intermediary Generic Process then product
No direct effect Sharp fall Little effect No effect
Significant fall Falls at a later date (i.e. electric traction) No immediate effect No effect
No effect Without effect Considerable fall No effect
Massive fall Significant impact over time No effect No effect
Without any direct effect No effect Trends downward Without any direct effect A simple adjunct to other types of equipment
92
Information transmission Information processing Impact on the economy Firms organization
Large firms are built up The workshops change for the purpose of serving a national market Technical norms and training of electricians Changes in zones of industrialization
Little impact except on the sector itself Synchronization of financial markets
Model for the modern firm (Ford, GM)
Economic institutions A national space is developed Economic geography New regional polarizations
Emergence of a new Technical norms and employment relationship public monopoly Extension of the telegraph
Communications set up Urbanization is a throughout the world function of the automobile
Catalogue sales Marginal Sectoral Organization Little indirect effect Little effect
Computer Radical Generic Process then product Indirect effect through optimization of flows Effects are small and indirect Little effect Calculational ability is enhanced Computer services are added Specifically used by public sector administration No obvious impact
Microprocessors, PCs Intermediary Generic Product No direct effect except for services No effect Encourages standardization Cumulative lowering of costs
Minitel Intermediary Sectoral Product and process No direct effect No direct effect Fall in costs Moderate lowering of costs
The Web From radical to intermediary
e-Commerce Marginal/intermediary
From sectoral to generic From sectoral to generic Process/product as a whole No direct effect No direct effect Considerable drop Process and organization Effects are indirect and moderate Indirect effects on logistics Fall in costs
93
Little effect Little effect Readjustment through increased competition New form of retail company Marginal impact
Indirect contribution via Falls due to standardization standardization Portals and start-ups are Readjustment via added increased competition Destabilization of intellectual property rights New distribution of informational output Competition law and individual rights Impact is marginal to moderate
A more decentralized Services are added via day-to-day management the Minitel Competition and employment relationship are altered Little impact Little effect
Some decentralization
94
nothing more than its strictly technical elements. Success, however, is frequently the product of a synchronization between organizational changes, the innovations deriving from them and the creation of new markets. There are almost no examples of inventions having directly led to commercial success if we exclude health-related innovations such as vaccines or medicine. The problems faced by the new economy are reminders of the cautious approach people ought to adopt whenever they are tempted to dabble in technological determinism (Smith and Marx, 1998). At this point in the chapter, it is worth stressing once again that Minitel was a precursor to the Web, and even to e-commerce. Of course, it involved a hierarchical system one that did not allow for any interaction between the chains operating within a network that functioned only in France. However, it already included applications such as the standardization of exam entry data; train ticket purchasing; and the replacement of paper documents by electronic files, thereby reducing reliance on postal delivery services. As for the telephone, and later on the fax, these media had already started to move towards electronic messaging, an allegedly stereotypical contemporary trend. All in all, Minitel anticipated the Webs life cycle with a certain amount of success. It met with initial enthusiasm before being used more sparingly once the learning phenomena associated with it had become more or less complete. There is little question that in spite of all the services it offered, Minitel did not cause a real revolution in areas such as university registration or train service management. Everything depended on its ability to create new information and decision-making channels within the larger organizations that managed such public services. Yet was this not the same problem as the one faced by those firms seeking to adapt their arrangements in response to the potentialities offered by new information technology? The lesson to be drawn, both in the USA (Brynjolfsson and Hitt, 2000, p. 37) and in France (Greenan, 2001), is that the more decentralized the decision-making process, the better the use to which ICT can be put. Thus the impact of ICT was largely predicated on the feasibility of reforming large organizations in both the private and public sectors. Factors that have frequently induced companies and private bodies to go down the reform path include competitive incentives or else recurring crises. However, no equivalent reform processes have taken place as yet within major public administrations, notwithstanding that many are significant producers and users of information (Lorentz, 2000). Indeed, the difficulties involved in merging computer systems that belonged to two separate domains within the French Ministry of Finance provide a good illustration of the open-ended character of the (still potential) benefits that can be derived from ICT and their role in promoting costeffectiveness.
95
Modernized Catalogue Sales? The history of the retail trade sector is useful inasmuch as it provides a few answers to the hotly debated topic of electronic commerce, a subject in which statistical knowledge remains highly uncertain (Fraumeni, 2001, p. 319) and where it is extremely difficult to make predictions (Desruelle and Burgelman, 2002). After initial enthusiasm for direct B2C (business-to-consumer) trading between companies and consumers, the profession now seems to be more excited by the electronicization of B2B (business-to-business) transactions between companies, the reason being that this involves considerably greater volumes. Both the birth of the department store and later of catalogue sales, led observers at the time to predict that traditional retailing would disappear. In both cases, the new customer arrangements were unable to conquer the market entirely because, from a strictly economic point of view, they were only efficient for specific products or for particular clienteles. To put things another way, their development stabilized long before they could subsume the whole market. A few theoretical reasons explain the obstacles that new market forms encounter when forced to compete with already established entities. All markets involve the conjunction between specific product definition, organizational and transactional modalities and synchronized transactions across time and in space not to mention the infrastructures without which none of these operations can be carried out. So, which changes have ICT brought about? As demonstrated by a comparative analysis of the systemic conclusions derived from a whole range of sectoral studies (Bar, 2001), ICT affects both the nature of certain goods and the different operations that come together to allow transactions to take place (Table 6.3). This allows us to better comprehend the novelties that e-commerce has introduced. Such innovations do not involve payment per se; after all, electronic money was developed more than a decade before, at the time when various banks and financial organizations became interconnected. The Web has simply developed a particular infrastructure that can be used by the banking system once appropriate encoding and security measures have been adopted. However, there is something specifically new about the possibility of organizing transactions in a dematerialized (if not virtual) form thanks to the centralization of certain types of demand and, symmetrically, of supply. Here the types of participants and localization of markets are important and impact on price levels. The organization of certain agricultural product markets has already shown that changing the mode of intermediation between suppliers and bidders can have a dramatic impact on the way in which the gains derived from exchanges are shared (Garcia, 1986). However, in most markets for standardized goods, it is up to the logistical function to deliver the goods once the terms of the transaction have been signed. This is probably the reason why the major e-commerce
Table 6.3
A taxonomy of the shift from traditional trade to electronic commerce Standard good Bank money, paper currency Traditional markets Standard good Electronic Face-to-face Standard good Informational good
Type of product Payment Transaction Delivery Marketplace Infrastructure Type of trade
Traditional trade
Electronic payment
Electronic Electronic Electronic Electronic Logistics Electronic Possibility of e-market, auction Use of the Web Partial Full-scale e-commerce e-commerce
96
Source: Adapted from Bar (2001), Figure 21, p. 33.
97
companies allied themselves with logistical specialists once the volume of sales in their traditional goods became significant. The most radical novelty pertains to purely informational goods: software, texts, databases, film and music. This is because the actual delivery of these goods can be carried out across the Web. This means that ICT might in fact lead to a radically new market form whose viability would be based on conditions that are quite distinctive in kind, a point to which Chapter 7 will revert. However, our conclusion would not be that such a form is going to replace all others that is to say, unless we believe that informational goods will virtually take over the totality of peoples budgets, an unlikely hypothesis given the current stage of social practices and developmental modes. The analysis confirms an observation made back in 2001. After having believed that the click of a mouse would obviate the need for physical outlets of the brick and mortar kind, professionals discovered a strong complementarity between the two types of distribution channels. Long live clicks and mortar! More seriously, everyone saw that even with companies such as Amazon.com, distribution inferred the existence of decentralized warehouses serving different customer territories; that the logistical system was different from the one used for servicing supermarkets; and that the workforce needed to be specialized in matters pertaining to book handling. In short, capital investments involved more than just building a website. Here was a trial-and-error learning process that was diametrically opposed to the conception that e-commerce was already emerging as the most efficient form of trading and that it would necessarily replace previous forms, regardless of the product involved. Forgetting that there Are a Multitude of Sources of Innovation and Competitiveness The new economy myth, which was just as superficial as the cyberspace one (Coyle, 1999; Kelly, 1998) died out with the stock market crash and the subsequent economic dive. All companies incur sunk costs relating to their investments in productive capital, their setups and networks. Hence if there is an excessive shrinkage in the overall demand that a firm encounters, even the best-managed companies will start to lose money. This is what happened to Dell during the second quarter of 2001, when its sales dropped by 1 per cent, the first decline it had experienced since 1993 (Le Monde, 2001b). All in all, then, the success of TMT companies (that is to say those operating in television, media and telecommunications) has proceeded in tandem with fast US growth. Changes in the macroeconomic environment after 2000 logically led to a reassessment of the strengths and weaknesses of such organizational models. US companies during the 1990s learned little from the experience of Japanese companies which, during the previous decade, had been regarded as the
98
symbols of a supposedly infallible model. In both instances, the bursting of a financial bubble triggered a sudden turnaround in demand, an accumulation of losses by previously prosperous industrial firms and a proliferation of bad debts for banks. Such things highlight the limitations of previous corporate organizational strategies and modalities (Dirks et al., 1999). This can occur to such an extent that systems once thought to be transparent and efficiently supervised, turn out to be riddled with corruption and malpractice. The Enron bankruptcy constitutes an example of such a turnaround in evaluations and perceptions (The Economist, 2002c). At a certain level of abstraction, the chains which connect radical innovations of a technological or organizational kind, rising share prices, increased lending facilities and skyrocketing property prices in high-growth areas, increasingly resemble one another. However, inasmuch as the overall modes of regulation continue to differ (Boyer and Souyri, 2001), the US economy of the 1990s should not be confused with the Japanese economy of the 1980s. In any case the latter was in a state of virtual stagnation during the 1990s, and the impotence of its political policies contrasts with the resilience and power manifested by US public interventions. What is more, the perceived threat following 11 September 2001 sparked a vigorous anti-recession policy in the USA and paradoxically helped overcome the over-accumulation crisis caused by excessive hopes placed in the new economy. Lastly, by analysing the long-term transformations of productive structures, we can stave off the illusion that frequently arises whenever a new technological driver appears. There is always the temptation to imagine that the next growth model will be governed entirely by the strategy of a new sector or technology, one which looks set to conquer an economy by diffusing its products and type of organization. The other sectors seem condemned to imitate such trends if they are to avoid going under. There was a time when Dow Jones companies wanted to mimic the style of NASDAQ-listed companies and/or encourage the creation of start-ups. However, the long history of industrial revolutions is quite clear on this score: the success of an emerging growth regime is often related to the multiplicity of the indirect and often unexpected consequences of a radical innovation which are only fully understood ex-post facto. For example, the technological revolution in agriculture enabled workers to shift to the industrial sector; thus the beneficial effects in the form of lower relative prices of technological innovation in the first sector endogenously enhanced the outlook for the second. The same type of interaction was observed with Fordism, where the rapid drop in the relative price of goods geared to urban lifestyles (automobiles, household durables, housing) freed up purchasing power for other categories of goods and services such as leisure, healthcare, education and travel, items often characterized by the fact that they do not lend themselves to productivity gains. Thus the sector that serves as the driver will
99
not succeed in conquering anticipated market share due to the fact that increased volumes and lower relative prices go hand in hand. Employment ultimately develops in sectors featuring slow productivity growth and sustained demand (Baumol, 1986). Is this not the same destiny as that facing the information revolution? If we had to make a prediction, our best bet might be to say that information techniques are already part of company management modes and household consumption patterns, and their speed of diffusion is even greater than the one earlier observed with respect to mass-produced goods (Lewis, 1999, p. 307). Of course, actors have learned how to use them as best they can, but it may well be that future modes of growth will be determined by other sectors ones that actually govern the quality of life in developed urban societies. These include leisure, education and healthcare. This is especially true the richer a society gets. One of the main problems during the next few decades will be providing the specific services that an ageing population requires (Petit and Soete, 2001). Medical advances may lead to a new generation of innovations. Will the new regime be anthropogenetic rather than informational? Before developing this theme in the chapters which follow, it would be useful to draw a few preliminary conclusions.
CONCLUSION
Retrospectively, it has become easier to understand the strengths, and especially the weaknesses, of the growth regime that is said to have emerged during the 1990s. Firstly, the highly optimistic view of the future that played such an important role in helping to dynamize the ICT-producing sector had a greater effect on stock price inflation and the creation of over-capacities than in encouraging the rest of the economy to use equipment and software more efficiently. Falling profit rates after 1997 and the post-2000 slowdown in productivity remind us of the incomplete nature of a growth regime destined to unfold over several decades. Secondly, the accumulated imbalances, which were dissimulated for a while by inward capital flows in the USA following the 1997 Asian crisis, first manifested themselves in the bursting of the Internet share-related financial bubble; then in the sudden slump in ICT sector output; and finally in the crisis that spread to the rest of the economy. Paradoxically, the old economy was more stable than the new, the end result being that the sudden deceleration of ICT sectors did not lead to a severe recession. This is an important lesson one that suggests we should not attribute all the foundations of a given growth phase to a single and unique sector, even if this sector is seen as the driving one.
100
Nor should we extrapolate naively from the euphoric growth period or the ensuing pessimism. A variety of institutional, organizational and technological transformations were at work here, and the bursting of the Internet bubble raised many questions about the new economy and the myths surrounding it. Few elements escape unscathed in this respect; hence our need to return to a structural analysis that respects the multiple interdependencies shaping a growth regime.
NOTE
*
Assignments are the bank notes created and used during the French Revolution. The whole system collapsed after an impressive bubble.
7. The long-term historical outlook after the Internet bubble

INTRODUCTION
It is now time to weigh up the various sides of the debate and focus on the general aspects and implications of the changes the US economy has gone through during the past two decades. What form can be identified at the present time regarding the various elements that have contributed to the processing and transmitting of information? Are lifestyles in the older industrialized countries likely to be changed by the advent of nomadic goods? Are the institutions which oversee industrial relations, the functioning of financial systems or the preservation of competition going to change significantly? Should we be worried that social inequalities will worsen along lines of demarcation defined by the ability to master the computer and the Internet? Will state power be seriously restricted as a result of the increased mobility that information technology facilitates? Finally, what might be the consequences of these new circumstances for the NorthSouth divide and, more generally, for the development possibilities of the poorest countries? The present chapter deals with such questions, even though it would be wrong to imagine that full answers could ever be offered to such complex and thorny issues. Once we have transcended the euphoria and pessimism that financial markets alternatively convey, however, it ought to be possible to come up with an assessment that is more balanced than has been the case in the past (Table 7.1). There is little doubt that the very fabric of todays economies is not what it was in the 1960s and 1970s. It thus behoves us to measure the multiplicity of changes and interactions at work before making predictions about future growth.
OVERESTIMATING ICTs ROLE

A reassessment of the impact made by informational goods should focus on the role they play in corporate performance as well as their impact on lifestyles.
101
Table 7.1
What the new economy promised and what it actually achieved

Period Promises made during the 1990s An interdependent ensemble of sectors What had actually been achieved by early 2002 Depending on which sub-sectors were involved in producing ICT, trajectories turned out to be very different from one another The demand for personal computers fell for the first time It took a while to flatten corporate hierarchies and to adapt norms and institutions Earlier models were rehabilitated Fixed cost-related rigidities arose Mistakes made by the new economy companies were criticized The telecoms sector was deregulated but none of the other characteristics of US capitalism were adopted elsewhere Foreseeable impact in the long run Emergence of a new nomenclature for ICT (and associated services)
Aspects The content and the contours of the new economy Lifestyle and demand Technological paradigm and productivity Model of corporate organization
A deep-seated transformation The equivalent of earlier industrial revolutions A radically new model Increased flexibility Fewer forecasting errors
A significant but stable component of income ICT will involve generic but not necessarily radical techniques There will be a plurality of models All organizational models will be restructured Experience and common sense will count rather than ICT alone! There will be hybridization rather than a simple diffusion of American institutions Diversity will be recreated
102
Economic institutions
A canonical type of architecture Deregulation Flexible labour Venture capital
Macroeconomics The cycle
There would be no more cycles thanks to flexible productive structures and nearly perfect forecasting A rapid and lasting rise in productivity would become feasible ICT would be a crucial factor
There was a noticeable and unexpected economic slowdown
The effects on inventory management are uncertain; and crises will become more frequent due to the risks being taken in financial markets Probable, but the impact will be progressive and/or moderate There will be security problems relating to information; intellectual property rights Less inequality if educational homogeneity and adaptation of curriculum to ICT The period of education will be extended; there will be lifelong learning but the required skills will also be diversified on a sectoral basis Possible interlinkages with specialists from the LDCs; plus adaptation of national training pathways
The growth regime
Decelerated in comparison with the 1990s Growing realization that there had been an over-investment in ICT In social-democratic countries solidarity and sharing of the benefits (and risks) that are associated with innovation Towards the end of the US boom, there were jobs even for the less skilled Since 2000, even ICT specialists have been getting fired
Societal impact 103
Inequalities could worsen due to the digital divide
Unemployment would be for people without the requisite skill level There would be a shortage of ICT specialists
104
Are Informational Goods the Same as Any Other Type of Good? Several convergent developments tend to substantiate this reassessment. Firstly, the stock markets have moved out of media, telecommunications and technology shares and into sectors that will enjoy relatively stable demand during the course of the business cycle, including agribusiness, leisure and healthcare. This explains why new markets such as the NASDAQ have fallen much lower than the Dow Jones index. At the same time, financiers have been looking for new growth industries, turning to pharmaceuticals for example, which is another area where the United States has displayed excellence (Sachwald, 2000). Firms from a number of reputedly mature and forgotten sectors have also performed remarkably well. As for ICT producers, they have learned how vigorous competitive mechanisms are for any product that has become established and whose price has fallen rapidly due to the imitation effect and as a result of the over-capacities inherited from the Internet bubble. In areas where some actors thought they could develop niche businesses, profit margin rates have dropped considerably from the levels achieved during the mid-1990s (DeLong and Summers, 2001). As for users, they have been trying to rationalize their usage of previously acquired hardware by favouring computer system security and integration applications, these being the only sectors sheltered from the major contraction that affected almost all other sub-sectors in 2001 (The Economist, 2002a, p. 10). In fact, ICT, a generic technology, has diffused throughout almost every sector. We need to bear in mind, however, that even though companies might not be able to survive if they do not implement ICT, they are still not gaining any specific advantage (Porter, 2001, p. 78). As such, there has been a progressive recognition of the diversity of sources of innovation, growth and competitiveness. At a theoretical level, the confusion existing between the information economy (Varian, 2000), the network economy (Curien, 2000) and the knowledge economy (Foray, 2000) has started to dissipate, a point to which we will return in Chapter 8. It is within this context that we rediscover that effective implementation of technological change and organizational innovation is born of the quality and diffusion of education and training (Krueger and Lindahl, 2000). Lifestyles Are Not Necessarily Shaped by Nomadic Goods The success of mobile telephones (at least in Europe), and more generally of nomadic goods such as laptop computers, GPS and the like had raised hopes about the shift from GSM to UMTS. The pitfalls that emerged in 2001, however, made clear that demand for this type of good did not correspond with the growth expectations anticipated by agents offering these new technologies. It is
The long-term historical outlook after the Internet bubble
105
noteworthy that in the middle of an Internet bubble, certain European governments gave large discounts on their UMTS licences. This attests not only to the technical difficulties of the operation itself, but also to the uncertainty facing commercial services looking to justify the investment. It may well be the case that the logistical curve for the diffusion of this type of good has already entered a deceleration phase, in which case the related sector will be joining the ranks of mature industries (Lewis, 1999). It is consequently risky to believe that an all-out electronization of peoples lifestyles will constitute a prolongation of developments which took place during the 1990s. Lastly, the outlook for employment in the ICT sector is being reassessed in a downward direction. The strong degree of internationalization at first worked to the advantage of the developed economies, but this has increasingly turned into a handicap. Such a development can be attributed to the appearance of considerable over-capacity resulting from the delocalization of mobile phone, computer and microprocessor manufacturing to regions where workforces are cheaper. This itself is in line with the emerging management myth of the production-less, high-tech firm (fab-less). All in all, it may well be that 200001 constituted an important turning point for employment in ICT sectors in the older industrialized economies.
THE END OF THREE MAJOR MYTHS

Other beliefs have had to be seriously re-evaluated too. These sought to portray ICT utilization as highly efficient and profitable, which would improve the quality forecasting of all economic actors. Such features would make it possible to reduce, and even eliminate, economic cycles and free an economy from its material foundations and from dependence on natural resources. Garbage In, Garbage Out During the mid-1990s, many people came to believe that ICT would promote real-time information, helping firms to avoid the sort of management inertia that characterized capital-heavy industries possessing overly centralized decision-making procedures. The new economy was seen to be fostering, in some way or other, the perfect forecasting space, thereby legitimizing the rational expectations hypothesis held by the new classical theory (see AbrahamFrois and Larbre, 1998). The fact that firms which best embodied this digital management ideal (Cisco, Dell and to a certain extent Microsoft) ran into serious difficulties during 200001 helped put an end to this belief. The fact is the technical quality of information channels does not necessarily coincide with a quality analysis of the data being transmitted and accumulated. Information
106
theory taught us long ago that if data of dubious quality are introduced into files, the conclusions drawn will be replete with errors. A variant on this is that information might be generated using a wholly inadequate, or even erroneous, analytical scheme (see Chapter 8). Furthermore, information accumulation has on several occasions been confused with knowledge required for economic strategies, with many observers having mistaken the means of transmitting a message with its substance and, worse still, with its interpretation. Paradoxically, established firms were quicker to react to such things than new economy ones, probably because their organizational structures included the experiential fact that downturns invariably follow booms and in turn are succeeded by recessions. Hence the importance of acquiring proper management instruments rather than just anticipating increased demand for a firms services as if such demand would always be strong, stable and independent of the current economic climate. This sort of attitude long prevailed with respect to ICT. There Is No reason Why Economic Cycles Should Disappear On a macroeconomic plane, a strict equivalency existed for these beliefs. This was the new management mantra being pushed by a number of consultants who benefited in the process from its propagation. When analysing the unprecedented length of the US expansion phase which had begun during the early 1990s, some pundits (albeit not all) concluded that business cycles had disappeared. This was a rehash of the old illusion that had occurred during the years immediately prior to the Great Depression of 192932 (Heffer, 1976), and then again during the early 1970s when Keynesians believed that strong control over the determinants of economic activity would eliminate business cycles. The turnaround in 200001 reminds us that in competition-governed economic regimes, investment almost always results in over-accumulation during the boom and then in a readjustment phase marked by a transitory slowdown, that is to say in a recession, or even a cumulative depression. That said, the latter situation is not very likely given the built-in stabilizers that modern modes of regulation possess (Boyer, 2000a). No Economy Is of a Completely Intangible Kind Parallels drawn between the dynamo and the computer created the expectation that information flows would tend, over time, to replace energy trading and materials processing. This is true for pure informational goods, but as a rule does not apply to most products traded in a modern economy. Similarly, factors such as extremely flexible product offers or global product competition in particular national spaces were expected to eradicate inflationary cost pressures.
107
This was thought to be all the more likely given that monetary policy would rest in the hands of conservative central bankers. The prediction that inflation would disappear was certainly not without substance. After all, notwithstanding the economic turnaround and rising oil prices there was no stagflation in 2001, unlike the situation during the 1973 and 1979 oil shocks (Maurice, 2001). Furthermore, inasmuch as each society experiences the economic conditions generated by its own structures, the inflationary balloons that were so typical of Fordist monopolistic regulation (Bnassy et al., 1979) no longer constituted the rule in finance-dominated economies (Boyer, 2000a), quite the reverse in fact; ever since the monetarist counter-revolution such things have become the exception (Aglietta and Orlan, 1982). It remains the case that inflation had a knock-on effect on stock market asset prices (Orlan, 2000; Pollin, 2000; Shiller, 2000) and on property prices in regions where new economy activities were concentrated. Another irony is that the new economy seemed to be leading towards an economy freed from natural resource constraints. Note that rising oil prices and the property sectors capturing of some of Silicon Valleys ICT-based benefits were reminiscent of the virtues of the Ricardian model. For example, property-based rents comprise a category that made a remarkable return in an era marked by ICT-related increasing returns. This rehabilitated growth theories in which rate fluctuations depend on displacing equilibrium between the increasing return dynamics that are inherent in manufacturing activities and the obstacle posed by decreasing returns characteristic of natural resource extraction (Kaldor, 1981).
INEQUALITIES WITHIN AND BETWEEN COUNTRIES: DOWN WITH TECHNOLOGICAL DETERMINISM

Developments during the 1990s blasted another myth. This concerned the inevitability of a digital divide. ICT control problems do indeed introduce a new line of demarcation and create inequalities, but that said, a technological determination of inequality does not withstand rigorous analysis. Family, School, Inheritance and Taxation Rather than Technology Firstly, it should be emphasized that such a new and potential source of inequality would exist independently of other factors generating inequalities in modern societies. The family-based transmission of economic and cultural capital, the role played by schools in the selection of individuals and the shaping of competencies, ideas about social justice (or their absence), the egalitarian nature of tax systems (or their opposite), terms of access to collective goods
108
and public services (whether broad or narrow) all of these factors strongly influence the perpetuation or reduction of inequalities in different societies. Secondly, note that as US expansion came to an end, the dearth of a skilled workforce led to renewed interest on the part of companies in hiring less-skilled workers. As a result, a workforce previously deemed unemployable was able to secure employment once again. At first this mainly involved unskilled activities, then when growth continued, there was a movement towards reskilling. As a result income disparities that had risen uninterruptedly since the early 1970s began to change during the mid-1990s (Pontvianne, 2001). We will not be reverting to the case of social-democratic countries such as Denmark, Finland and Sweden where the use of and in some cases the production of ICT coincides with a much lower degree of inequality than that which prevails in the United States (see Chapter 5). Ultimately, we should not forget that if a radical technological innovation is capable of altering forms of corporate organization and economic institutions, the opposite effect is also strong because the constraints and incentives built into institutional and political architectures (North, 1990) channel the direction and intensity of innovation (Amable et al., 1997) as well as the application of generic technologies. At a practical level, it is true to say that becoming a programmer or computer systems expert is not easy to achieve. Yet, operating systems today are such that it is comparatively simple for most people to make use of highly complex software programmes provided they can read and write and undertake basic arithmetical calculations. We should therefore question the notion that the digital revolution challenges the goal of equality, and put it into proper context. Rather than creating inequalities, ICT reacts with those already existing within societies subject to the greater, or lesser, compensatory effects arising from the workings of educational systems, social protection policies and taxation arrangements. The Hopes of Certain Regions of the South Nor does the digital divide necessarily create an opposition between rich, industrialized countries on the one hand and poor, lesser developed ones on the other. Silicon Valley, for example, uses specialists from Taiwan, India, China and many other countries often seen to be lagging in ICT terms. Many of these specialists have created their own firms and use their dual role in US and domestic networks to delocalize activities that had previously been concentrated solely in Silicon Valley (Saxenian, 2001). Thus the brain drain, initially so harmful to those nations which trained the specialists involved, might be partially, or even entirely, offset by the creation of activities in those original societies whose particularity is that they are linked to an ICT sector value-channel which functions at an international level. This might very possibly increase inequalities between, for example, Bangalore, an
109
emblematic figure of this new trend, and other Indian states, while at the same time reducing the differences between Bangalore and Silicon Valley. We are a long way, then, from an implacable technological divide that produces new sources of inequality either within societies or between them (or both). Once again, the geography of ICT would appear to be more diverse than is suggested by current simplistic representations regarding the diffusion of one best way systems earlier extended from the automobile sector (Freyssenet et al., 1998) to informational goods. Such comments do not mean that the new economy has disappeared without trace; rather, the big question involves something else. In light of the transformations that occurred during the course of the 1990s, is it possible to discern the outlines of those modes of regulation that have been emerging and ascertain the role that information technology has played in them?
AN UNCERTAIN MODE OF REGULATION

ICT has corrected predictions about the resurgence of competitive mechanisms (Docks, 2000). Previously we were in a position to understand the complex nature and often contradictory forms that competition assumes, and how generally the concentration of capital can change in present-day economies (Paulr, 2001). Today, the increasingly commonplace distribution of computer tools will create equal benefits for firms, displacing competition to other components of corporate management in areas such as customer service, quality and innovation. More an Erosion of Periodically Recreated Innovation Rents than Perfect Competition On the one hand, production management has tended to decentralize and organize competition inside and outside of large firms. For example, computer assembly operations involve an ever-greater number of producers. Lower profit margins develop as the specificity of each companys activities disappears. Similarly, microprocessor production is currently subject to fierce international competition that has largely eroded initial oligopolistic rents, which is why some analyses of developments during 200102 have suggested that ICT diffusion has cut into profit margins (DeLong and Summers, 2001). On the other hand, merger takeovers and alliances skyrocketed during the 1990s in response to the search for shareholder value, before slowing to some extent. The need to manage the over-capacities born of the 200102 economic turnaround means that this issue has again come centre stage. In sum, the paths to more, or to less, competition remain open. During the 1990s, profit margins in the US reached higher levels than in previous cycles
110
and continued to rise until 1997 (see Graph 6.1). This raised questions about the contours of the other institutional forms that support emerging modes of regulation (Table 7.2). Away from the Financialization of the Employment Relationship? The employment relationship has been substantially transformed during the past two decades, having become more sensitive to labour market imbalances and to the financial performance of companies. Whereas the Fordist employment relationship inferred a modicum of homogeneity in industrial relations, the international, technological and economic developments that have taken place since the 1970s have served to break existing employment contracts into three types: those involving market flexibility, polyvalent instability and professional orientations (Beffa et al., 1999). The computer sector recreated the possibility of neo-panoptic control of employees, regardless of status (Docks, 2000, p. 146). If ICT-producing sectors can be judged in terms of the relationships prevailing in Silicon Valley, employees possessing key competences will negotiate contracts by looking to share risks, profits and capital gains, with stock options serving as the mandatory precondition for membership in the new growth regime. Yet such a prognosis is invalidated by the experience of small, open social-democratic economies where, notwithstanding the lack of stock options, remarkable ICT performances have been recorded. The prognosis also needs qualifying for the US given the consequences for the employment relationship of recession in the ICT sector. Base salaries are regaining their earlier importance. This is especially the case now that hopes of getting rich by means of stock options have been dashed and the share prices of those start-ups which managed to get listed on the NASDAQ have fallen by as much as 95 per cent. (Many fared worse and went bankrupt.) Interest in traditional employment contracts has been renewed, especially as the tensions that arose at the end of the expansion phase gave rise to a unique type of unionization, one that covers Silicon Valley workers looking to move from firm to firm. Clearly a recession is never a good time for unionization. Nonetheless, it remains the case that the financialization of the employment relationship probably reached its peak during the late 1990s. As there is little chance that everyone will one day be working in ICT or the financial sector, the restructuring of employment relationships will probably follow multiform paths and be marked by growing differentiation. Will the Monetary Authorities Be Able to Discipline the Financial Sphere? With respect to the financial and monetary regime, the 1990s refuted conceptions that linked the growth of ICT with radically new ways of evaluating
Table 7.2
Impact on
The mode of regulation that is implicit to ICT does not entail perfect competition
What people were hoping for in the late 1990s An eradication of informational rents thanks to the Web (price comparisons, access to data regarding quality) e-commerce would lead to the advent of a Walrasian world of perfect competition The situation in early 2000 At the same time, suppliers recreated informational asymmetries (connected offers, subscriptions, loyalty vouchers, direct marketing) with this strategy More competition on standardized products, but for ICT a trend towards monopoly, oligopoly and a juxtaposition of economic archipelagos When the Internet bubble burst, financial rewards shrank for people employed in the new economy The turnaround in market conditions meant renewed interest in salaried contracts There were emerging forms of unionization It was both possible and advisable for the same methods to be applied to all companies It became obvious to all actors that the Internet bubble had burst The central banks were limited in the actions they could take when faced with outbreaks of irrational exuberance National and international legal principles were adapted and then applied to the Net economy The absence of any taxation on e-commerce created competitive distortions Distances disappeared, but not borders (identification of Internet users; local marketing based on tools like the mobile phone; judicial control based on ensuring compliance with domestic laws) Capital equipment, goods and non-informational services all require a physical localization
Period of time Forms of competition
Employment relationship
A move towards greater financialization (company savings plans, profit-sharing, stock options) Commercial law would tend to dominate labour law It would be difficult to unionize in the new economy
111
Finances/monetary policy
New financial valuation methods with ICT Internet financial bubble would not exist, or would be impossible to detect The Central Bank could prevent bubbles from forming or lessen the negative impact if they were to burst
State, collective management
An end to the states regulatory role; and a new economy that could be self-organizing A sphere free from all taxation
Economic geography and inclusion in the international system
The abolition of national borders
A fluid localization of economic activities
112
projects and companies. In fact, as we have seen, not only did the share prices of new economy firms plummet, but the Internet convention also fell apart. Remember that this convention was heteronomous with respect to the methods that had long been used to value firms. This is because the financial community was willing to base its assessments of the stock market value of start-ups on the number of clients they had and more surprisingly still on the number of visitors to their free sites. Clearly there is no point in conquering market share if by so doing a firm increases its losses, progressively eats up its capital and creates crises of liquidity and solvency. Until now, few start-ups have succeeded in re-establishing their profitability levels after a long period of cumulative losses. Quite the opposite, the few companies that have succeeded in doing so are those which from the very outset adopted entirely orthodox, profit-oriented methods of financial management. As such, and especially due to adjustments in new financial markets, there is no doubt that the speculative bubble that was building in 1995 burst once and for all in March 2000. Some observers were led to believe that intangible capital really had been created, and that share prices did indeed reflect the real value of firms (Hall, 2000). However, the methods used were highly dubious and raised questions about the actual measure of intangible capital, which in practice represented several multiples of productive capital. Another clarification involves the objectives and powers of central banks when faced with a finance-dominated mode of regulation (Boyer, 2000a). On the one hand, there has been criticism of the lack of action by central bankers when dealing with the emergent financial bubble. This is especially so bearing in mind Japans experience during the 1980s when this factor was neglected and the prevention of bubbles was not deemed part of the Central Banks objectives. By way of contrast, US authorities were aware of the role required of them in preventing massive speculation, an objective that supposedly makes trickier the pursuit of an optimal policy mix between inflation and growth. Alan Greenspan actually denounced the dangers of market-borne irrational exuberance up to 1997. Nevertheless, the Internet-related speculative bubble inflated just as rapidly as the Japanese bubble had done during the 1980s. Even after NASDAQ prices had started to drop, every time the Federal Reserve Bank lowered its intervention rates renewed optimism occurred and a short-term revival in share prices took place. Theoretical controversies remain as to whether the objectives of a central bank should include the stabilization of share prices (Blinder, 1998; Cecchetti et al., 2000) and exchange rates (Taylor, 2001, p. 267). The Japanese and US historical experiences both show the limitations of such forms of interventions. This raises a question concerning the relative importance of the two main structural transformations which took place during the 1990s ICT diffusion
113
and rising financialization. The latter was more significant than the former from a strictly macroeconomic point of view (Artus, 2001) and in terms of the nature of the social and economic relationships to be found in modern capitalistic economies (Aglietta, 2000). For example, divergences between economic conditions in the United States and in Europe were long attributed to the different speeds of ICT diffusion (Boyer and Didier, 1998), or more generally to the implementation of the new economy (Cohen and Debonneuil, 2000; Rexecode, 2000; Sachwald, 2000; Martinez, 2001). This neglected, in all probability, the fact that differences relating to monetary or budgetary policy were equally as important (Muet, 1998; Boyer, 2000b). The Nation State has Not Lost All of its Power Another myth should be reassessed, one in which ICT is deemed to be a vector for the disappearance of the regulatory role played by states. This is because the new economy was supposed to represent the promised land of selforganization and decentralization. It is true that the geography of the Internet economy is not the same as the geography of mass production, but in a world of networks, the states power has not disappeared (The Economist, 2001d; Zysman and Weber, 2001). Even in an economy supposedly run on the tenets of e-commerce, some property rights still have to be enforced; judicial powers have not disappeared; and international business law has not evaporated. To take just one example, the security of on-line payments requires the identification of people taking part in transactions and this in turn necessitates the territorialization of addresses and the management of electronic sites. Also note the physical localization of servers above and beyond the way the Web facilitates the dematerialization of information flows. The idea that the Web is a zone of non-taxation has thus come and gone. Equally, the 11 September 2001 attacks on New York City raised questions about the legitimacy of certain freedoms as well as about the anonymous nature of certain types of international financial transactions and interpersonal messages. This in turn impinges on the trade-off between freedom on the one hand and the role played by the state on the other. In addition, pressures exist to force companies to operate within the context of particular national or international business law environments, which necessitates specific home bases. Moreover, e-commerce would introduce competitive distortions if it were permitted to operate free of tax charges. Lastly, the Internet economy calls for a number of public infrastructures whose initial funding and running costs need to be covered by a modicum of taxation (McKnight and Bailey, 1998). Thus the internalization of ICT externalities calls for some form of taxation. We can understand why Internet users are so vehemently opposed to a tax system based on the volume of information exchanged (a byte tax). On the other hand, the Internet
114
economys most enlightened operators accept the need for a neutral tax system, one that neither penalizes electronic transactions nor offers special advantage (BRIE, 2001). ICT enables a redeployment of markets, thus creating areas where state interventions can take place. These might involve codifying intellectual property rights; establishing individual rights in an age of private and public sector data banks; ensuring security of payments; and generally guaranteeing the successful completion of contracts in law. In addition, the importance of increasing returns and moves towards monopoly provision of certain informational goods and services makes it particularly important that the state intervenes to ensure compliance with fair competition (McKnight and Bailey, 1998). A New Sphere for the Public Domain The Internet economy could in fact give birth to innovative types of public intervention which could constitute a necessary precondition for making markets viable (Figure 7.1). This is especially true if the idea of the public domain is reevaluated or redrawn in the context of internationalization factors (global public goods) and new technologies (Drache, 2001). Such elements are born either out of the application of national law to one of the parties to a transaction, or else out of an extension of international business law.
Transformation of general rules
New public domain
Compliance Recognized with contracts money, usable negotiated in international over the transactions Web Secure Definition electronic of intellectual payment property systems rights (encoding software) Viable electronic markets
Emergence of specific ICT rules
Definition of informational goods
Authorities in charge of protecting Rules competition Control enabling over the delocalized quality of markets to information stay open 24h/day
Need for an active and dynamic public domain (this being one pre-condition for the existence of an Internet economy)
Figure 7.1 Even an electronic market is based on the assumption that a whole set of public institutions and legal rules exist
115
This means that national borders have not been entirely abolished, even though the Web has enabled the creation of markets operating outside the confines of particular domestic spaces. Distances have been abolished in the informational field, but borders have not disappeared. As a matter of fact the marketing of third-generation mobile telephones took place in national spaces with an emphasis on proximity services, itself evidence of the myth of the global consumer (that is to say someone of uncertain identity living solely in cyberspace). Furthermore, the possibility of detecting the localization of users or buyers makes it possible to apply national laws which prohibit, for example, transactions involving products considered to be harmful (unauthorized medicine, drugs and the like) or which contravene human rights or laws relating to citizenship and the principles of equality (inciting racial hatred, sale of Nazi souvenirs and the like). The first years of the twenty-first century have been marked by a reinstitutionalization of the Internet economy, whether or not one approves of this trend (The Economist, 2001b, 2001c; Zysman and Weber, 2001; DeLong and Summers, 2001). There is one final point that may seem superficial, but is actually important: any activity, even one that relates to information processing, requires a physical base and is therefore governed by local law that is unless computer havens develop as modern versions of tax havens. In sum, it would be wrong to see the expansion phase of the 1990s as simply constituting a speculative interlude and possessing no long-term effects. The sum total of the transformations that took place created room for new regulations in which ICT plays a role, even if such changes are not crucial to identifying the factors that led to the success, or failure, of a firm or a nation.
THE OPPOSITION BETWEEN THE OLD AND THE NEW ECONOMY IS OBSOLETE
From the outset, some economists were sceptical about the relevance of notions concerning the new economy. They tried hard not to use the term, if only because they wanted to be free to examine and criticize it. These doubts have inevitably been reinforced over time (Gadrey, 2000; Gordon, 2000a, 2000b). It is also the case that many economic policy debates were based on binary oppositions: neo-liberals versus neo-Keynesians; partisans of the euro versus realists; those who placed faith in the new economy and those who were more sceptical about the transformations taking place. The Surprising Destiny of Industrial Revolutions It is helpful to put episodes of rapid technical and industrial change into historical context. In this way, we can appreciate that the reality of the causalities
116
at work does not necessarily correspond with the pathways pursued during the public debates which took place at the time. Rather, these earlier industrial revolutions went in directions that actors and historians only discovered with hindsight. One example is the too-ing and fro-ing between the US and Japanese productive models. During the mid-1980s, American entrepreneurs were preoccupied with applying the Japanese lean production model to mass production sectors (Womack et al., 1990). Meanwhile, in Japan itself a crisis was already brewing for this otherwise highly praised productive model (Boyer and Durand, 1997; Boyer and Freyssenet, 2000a) as well as for the mode of regulation which gave rise to it (Boyer and Yamada, 2000). An additional irony is that during this same period of time the basis for a US breakthrough in information technology was emerging, but was not recognized by the most attentive observers or experts of the day. This was because success in this particular area was uncertain; because it was predicated on geopolitical events that required a US victory in Star Wars; and because the innovation process, which by its very nature involves trial and error, was not understood by even the best minds among futurologists (Lesourne, 2001). In short, as Joseph Schumpeter had already affirmed in the first part of the twentieth century, innovation processes combine conscious strategy with the random events of discovery and success (serendipity). The same principle applies in all likelihood to the new economy. Remember nonetheless that some analysts did challenge the euphoria and offer arguments in favour of a more eclectic and careful approach to the transformations associated with the advent of ICT. A Return to Realism From early 2000 onwards, a number of financiers began to forecast the imminent demise of the new economy (Courtis, 2001). Once this occurred, the financial press became the latest in a long line of pundits to use the stock markets turnaround as the pretext for drawing up a list of errors committed by start-up companies (Gruner and Boston, 2001, pp. 201). Thus the impatience to implement information technologies was seen as having won out over a more rational approach to business organization building. Start-ups had relied on capital funding from large financial sector companies and depleted the corresponding funds indiscriminately. In other words, the problem centred on the fact that a strategy based on attracting new users had won out over the search for profits. The idea in this latter respect was that in order to help new firms hit the ground running, venture capitalists possessing technological knowledge in the appropriate field would be replaced by strategic partners capable of providing proper managerial know-how. Costly all-out advertising campaigns were to be
117
replaced by a marketing approach that was closer to the market itself. Similarly, PowerPoint experts are not substitutes for specialists capable of offering the competencies firms needed in order to succeed. In short, by 2001 the very traits that had earlier been regarded as the strengths of a new model that would challenge the big industrial monoliths, began to look like weaknesses and were deemed to have been the causes of the decline, and even the failure, of dot.com companies. Will management literature ever learn? Will it ever assume a more dialectical approach? More importantly, even management specialists started to situate the emergence of new economy firms against the backdrop of the continuous nature of the factors which ensure competitiveness and therefore longevity. Their conclusion was clear: there was no longer good cause to distinguish between the old economy and the new. The reason was that both types dealt with symmetrical challenges. As one author put it:
Dot.coms have to come up with real strategies capable of creating value. They have to recognise that their current competitive war is destructive and futile, benefiting neither themselves nor their consumers. As for the established companies, they have to stop deploying an Internet strategy that lies outside of their main activity. Instead, they should use the Internet to reinforce that which is the most specific about their strategy. (Porter, 2001, p. 76)
In other words, firms needed to reject purely imitative strategies in which they did little more than copy whatever model was reputed to herald the wave of the future. Clicks and mortar were no longer seen as conflicting with one another. Instead, firms had to build up value chains that interlinked physical and virtual activities in one and the same configuration. A new relationship to information management and promotion needed to be diffused in all companies (Cohen, 2000). The Durable Coexistence of Diverse Business Models At the level of organization and of R&D and innovation, it can be shown that the proliferation of start-ups in innovation activities did not always produce performances superior to those achieved by coordinating research efforts in large corporate laboratories (Amable et al., 2001). Lowering a small firms start-up costs does not necessarily improve consumer welfare. Financial deregulation encouraged the birth of new companies and accentuated disparities between researchers, depending on whether they worked in big companies or in startups, which led to an increase in inequalities that, strictly speaking, was not technological in origin. Such a formalization might serve to indicate that the surge in new company launch costs following the bursting of the Internet bubble would tend to encourage researchers to return to big corporate laboratories.
118
With regard to the history of inter-firm relationships and public policy stances, a reassessment of the role played by Silicon Valley and emblematic start-ups is needed (Fligstein, 2001). On the one hand, we know that public interventions occurred right from the outset and that they never stopped adapting to whatever particular stage the electronics industry had reached. On the other hand, the last few years have been marked by a return to configurations that are relatively well known. For example, the theory of networks neglects the fact that companies are ultimately successful because they occupy oligopolistic or quasi-monopolistic positions in particular markets. Examples include Microsoft (software), Sun (Internet equipment), Cisco (Internet switching devices), Intel (computer chips), ATT (cables and long distance telephone connections) and AOL-Time Warner (cables and Internet access). In the end, analysis reveals a complementarity worthy of note:
Hence large companies in this sector have set up oligopolies and monopolies to absorb all of the small innovative companies. This is a situation that benefits all protagonists: the start-ups founders are exposed to very large risks but might make colossal profits; and the large companies affirm their position by appropriating the new technologies that have been created in this manner. (Fligstein, 2001, p. 12)
The New Economy Is Dead, Yet ICT Is Everywhere This sub-heading stresses the relevance of rationally applying the potentialities of information and communications technology to the many various strategies pursued by firms operating in different sectors. The spectrum of application is very wide indeed. A company can look for a unique product that has no competitor in the marketplace; it can try to control specific techniques; it can train staff in particular competencies; or it can seek a quality service and an innovation strategy that suits its market position. All of these different paths create distinct possibilities for ICT.
CONCLUSION
Crises mark a time that is often painful for the actors involved and which sees the dissipation of economic and financial imbalances accumulated during previous speculative bubble phases. We are now in a position to reassess some of the significant positions adopted by actors at the time, as well as the various theories advanced by analysts. The bursting of the Internet bubble merely follows the historical pattern in this matter. As it happened, productivity gains continued to remain exceptionally high in the United States despite a recession in the countrys industrial sector after
119
2001. It remains true nonetheless that macroeconomists were obliged to revise downwards their projections of ICTs long-term impact on productivity compared with what had been predicted when the bubble was developing. Obvious over-capacities ate away at the rents that new economy companies supposedly enjoyed. At the same time, the advent of a new generation of ICT did not change consumption norms (or at least not yet, as optimists might say). Three great myths crumbled; namely, real-time processing of information does not prevent forecasting and management errors, recessions have not disappeared for all time, and the economy did not take on an intangible form: rising property and energy prices put paid to this latter myth. On reflection, it is clear that fears concerning a digital divide stemming from an unequal ability to control ICT were misplaced. On the one hand, social inequalities, both in the US and in Great Britain, increased because of changes in family structures, problems associated with schooling and lower taxation of wealthy individuals and their estates. On the other hand, several socialdemocratic countries showed that it is possible to produce, and use, ICT in a context still marked by the ideal of solidarity and of the fight against inequality. Predictions concerning the advent of a stereotypically competitive type of regulation (because ICT gives consumers the ability to compare prices) had little prospect of ever materializing. This is because the very dynamic of innovation involved an ongoing re-creation of oligopoly rents one that would be succeeded by their later erosion. Furthermore, national governments have not lost all control over information flows. Even before the events of 11 September 2001, it was clear that there was a need for continuing state interventions. At the very least they were required in order to preserve security on the Web. As a few lucid observers anticipated at the time, larger firms have taken advantage of the problems experienced by start-ups to appropriate the latters competencies for little cost, thus demonstrating their ability to react efficiently during an economic slowdown. Clearly, firms of this kind have not stopped amending and improving their management methods during recessions. No more opposition then between the old economy and the new! Finally, does it really come as a surprise that ICT is a generic technology, rather than a radical one? In truth, ICT is merely the latest in a series of innovations which, since the early nineteenth century, have impacted on corporate managements capabilities in matters pertaining to information processing and transmission. It should not be forgotten either that in the long run public administrations will probably emerge as the main users of these technologies, just as long as they can reorganize their decision-making channels appropriately.
8.
The emergence of an anthropogenetic model
INTRODUCTION
The approach adopted in previous chapters has hopefully been useful, but it does not absolve analysts from having to come up with ideas about the future suggestions that could change corporate organizational models and, in the long run, the growth regime too. The general calling into question of the impact of ICT has resulted in a resurgence of propositions and scenarios about the future. These various ideas reassess the role played by information technology and see it as one element within a structured analysis of the foundations of growth. The present chapter offers a double extension of these analyses. Firstly, it examines the latest ideas for transcending an ICT-driven growth regime. Is ICT the precursor to emergent real-time economics? Should we be viewing it as the latest manifestation of a general model, that is to say a network economy? Will lower information costs trigger the emergence of an increasingly knowledge-based economy? Secondly, and above all, the analysis offered here provides a historical perspective that will help us identify a regime that remains relatively unnoticed, even though it is likely to have a major impact in the twenty-first century.
ICT AS THE VECTOR OF REAL-TIME MANAGEMENT?

After the virtual economy, cybermarkets and the dematerialized Internet economy, a new general hypothesis has arisen in literature. Here the diffusion of the computer and the densification of the Web are seen as nothing more than landmarks on the way to the emergence of a new type of firm, one whose essential characteristic is its responsiveness. The End of the Sloanist Firm? Back when the Japanese model was flourishing, organizational specialists frequently talked about the opposition between Company A (standing for American) based on an information-processing hierarchy and Company J
120
121
(meaning Japanese) which focused on the widespread decentralization of the information needed to manage current production (Aoki, 1986, 1990). By the year 2002, ICTs novelty had focused attention on the management modes that firms were adopting in response to actual events or to unforeseen circumstances. The Sloanist firm and its contemporary successor had focused on long-term strategic planning; however, the turbulence of the environment and the intensity of technological change now appeared to argue in favour of another corporate configuration, one that was based on real-time management. The new opposition would be between the real-time (RT) company and the long-term (LT) oriented one (see Table 8.1). It was an attractive idea; for a number of reasons, however, it is not very convincing. Firstly, this vision attributed to ICT a number of developments that in actual fact had nothing to do with technologically determined causes. Not least this was because they first manifested themselves nearly two decades before the Web and the Internet economy emerged. An early example of this was the switch in management styles towards stronger entrepreneurial leadership, this being one reaction to poorer performance by conglomerates following the era of strong economic growth. Human resource management was no longer to be based on a promise of lifelong employment, but on continually training employees in competencies an approach that was seen as key to guaranteeing employability throughout peoples life cycles. This resulted from the transformation in competition and the increased uncertainty of macroeconomic developments. Similarly, reliance on cooperation instead of on vertical integration (or Keiretsu), came from the observation that the new technological environment destabilized earlier sectoral frontiers. Such a development requires collaboration between competencies that are based on many different specialities in order for the goods in high demand to be delivered to the market; think for instance about the marriage between mechanics and electronics in the automotive sector and the related invention of project groups (Freyssenet et al., 1998). Kanban Did Not Just Emerge with Electronics Secondly, real-time project management does not merely date from the mid1990s. After all, the lean production model (Womack et al., 1990), an abstraction of the methods and organization of some Japanese automobile firms (Boyer and Freyssenet, 2000a), is associated with just-in-time methods as well as with the search for total quality; that is to say, with the desire to minimize inventories and waste. The model itself drew inspiration from retail sector inventory management methods. At birth it was based on kanban, which involves a downstream to upstream transmission of orders in paper format. It is only very recently that this organizational innovation was electronicized, first in the United States and then in Japan by the same firm that had in fact fathered
Table 8.1
ICTs impact on the emergence of a new form of company: the real-time company
Real-time (RT) company Usefulness/limitations of this new form Less inertia but greater vulnerability Which methods will be successful? Reverting to an ad hoc model? Which methods can detect them? Excessive risk-taking? Social acceptability? Problems of cohesion and corporate identity
Type of company Typical long-term strategy configuration (LT) Components Strategy Relationship to competition Management style Management focus Legitimacy Recruitment Employment contract Career management Information technology Partnership Anthem
Actions are guided by the long-term Medium/long-term projects, but strategic plan short-term planning Understands competitors Seeks a consensus Ongoing search for quality Meritocratic Team spirit Promise of a job for life The company takes the initiative Focus is on database; passive management A keiretsu A march Understands clients Based on entrepreneurial charisma How to respond to new trends and events? Elitist Team players and prima donnas
122
Possibility of lifelong employability Divergence between employees and companys interests The employee takes the initiative Maybe for professionals. What about everyone else?
Focus is on information in response Quality and relevancy of this to the event information A la carte alliances and cooperative Danger of having a hollow firm? competition Improvised jazz New Orleans/free jazz
Source: Based on The Economist (2002a), p. 15 with a few minor transformations and the addition of a fourth column.
123
it (Shimizu, 1999). As such, the move to cut inventory as a proportion of total output reflects both the ICT-derived benefits which firms enjoy (The Economist, 2002a, p. 17, Graph 7) and the innovations that are inherent to the management modes whose technology enables the increase in efficiency. This interpretation applies to the United States, where increased responsiveness to supplydemand imbalances has been observed ever since the interwar period (Dumnil and Lvy, 1996). However, it has also applied to France since the late 1970s (Greenan, 2001). At a fundamental level it is therefore doubtful that ICT suffices to provide access to real-time management. To truly understand the nature of the argument, we can resort to analogy in the form of the following question: has the Web-enabled instantaneous diffusion of academic working papers led to any reduction in the time required to write these documents? Exuberance Followed by Crisis At a more basic level, following the small is beautiful refrain of the 1970s came a diametrically opposite view. Throughout the 1990s, the idea that big is beautiful underpinned the measures the financial community took. Then came a new slogan: the faster, the better. The idea here ideal, even was to react instantaneously to any event, including the unanticipated. However, corporate history and theories of optimal behaviour in an uncertain world both contradicted this postulate. For example, among the different management modes that tried to overcome the limitations of Sloanism, there was a belief in certain circles, for a short while at least, that decisions needed to be made in less than a minute, irrespective of the complexity of the problem involved. Of course, industrial history has shown that there are two ways a firm can go broke with a probability of almost one. The first consists of not reacting to environmental changes at all, which means that technological innovation (and therefore competition by other firms) will ultimately eliminate any enterprise from the market that does not improve its productivity or quality of its goods. The second way is just as efficient; here it suffices that the firm reacts as quickly as possible to environmental change, for example by getting rid of any activity featuring below-average profitability. Microeconomic simulations have shown that in the end, and in the absence of a long-term strategy, this sort of firm will not survive either (Heiner, 1988). Similarly, if capital can be instantaneously directed towards the most profitable sectors, growth will start to accelerate rapidly as the least efficient firms will disappear. It will then suddenly grind to a halt when, as a result of the changed environment, the competencies of companies are no longer sufficiently varied to enable them to cope with a new random event (Eliasson, 1998). This same outcome of structural instability can be found within the framework of the classical theory of growth. Thus an economy where companies are continually increasing their responsiveness to
124
imbalances observed in the market will reach a point where one option heads off in the direction of a relatively unstable dynamic (Dumnil and Lvy, 1996), which could actually be an interpretation of the 1929 crisis in the United States. The Virtues of Going Slowly The risk of such an eventuality occurring puts into question the value of the precept the faster, the better. It helps us to situate the fallout from the Internet bubble. In another section of the same issue of The Economist which predicted the emergence of the RT Company, there was a remarkable counter-example of this very phenomenon. Global Crossing, a US firm, tried to use its opticfibre cable technology to compete with, and hopefully replace, the well-established corporation AT&T. From January 1998 through to March 2000, Global Crossings share prices multiplied by a factor of five, while AT&Ts shares remained more or less stable. When the demand for long distance telecommunications suddenly decelerated, Global Crossing collapsed under the weight of debts it had incurred while trying to develop too rapidly a complete network to rival AT&Ts. Its share price plummeted and it went bankrupt in February 2002. AT&T on the other hand suffered far less from the effects of the turnaround. The subtitle of the article was Survival of the Slowest the exact opposite of the general marching orders defended in a special section devoted to the transformation of corporate organizational models and the shift to real-time management (The Economist, 2002b, p. 57). We should therefore be careful about making ad infinitum extrapolations of a tendency that cannot help but result in major imbalances. A Generic But Not a Radical Technology Lastly, e-commerce specialists, once they had synthesized available information on the various sectors, concluded that this particular innovation had in all likelihood been marginal at best, equivalent to what just-in-time had once been, or else to the search for total quality (Desruelle and Burgelman, 2002). All in all, although a real-time strategy is supposed to change certain management procedures, it is a quest that does not necessarily infer imminent emergence of a canonical model as powerful as the ones observed for over a century now (Boyer and Freyssenet, 2000a).
MOVING TOWARDS A NETWORK ECONOMY?

One other reinterpretation of ICTs rapid diffusion fits an industrial economics approach that primarily focuses on the interactions between agents operating within networks (Curien, 2000). The Web has in fact added a new network to the
125
ones that have long governed circuits. These earlier ones include road, railway and air transport systems; electricity, gas and water distribution; and telephone and telecommunications networks whose capacity and power have been extended as a result of recent technological developments. Whereas the previous scenario stressed changes in the internal organization of companies, what is crucial in the second approach is the collective infrastructure within which the activities of private agents unfold. In a sense, the two approaches are complementary, rather than being alternatives. This is proven, for example, by the attention that Internet specialists pay to the dynamics underlying infrastructure extension, and to the norms governing them (McKnight and Bailey, 1998). Greater Path Dependency A network organization displays properties that are original from an economic point of view. Consider first of all the introduction of increasing returns that are strictly related to the number of agents involved in the network. It has long been held that an existing system will be able to durably prevent the emergence of a new, and a priori, superior network if the latter cannot establish itself because of an insufficient number of new entrants (Arthur, 1994). This type of analysis has been invoked as a way of accounting for the persistence of certain technical standards, despite their obvious inferiority in terms of user-friendliness (David, 1987). Electronic portals have led to a renewed interest in this approach, which holds that a markets first entrant will be its only survivor. Because of such a belief, many firms which look to capture a potential customer base are willing to accept significant losses, even to the point of granting free access to their sites (Shapiro and Varian, 1999). An analogous reasoning rekindled the bidding wars for third-generation telephone licences. The Webs success further extended this path dependency by stressing that managers consider the value of a network in proportion to the number of bilateral connections that can be set up. The increase in the networks value is said to be equivalent to the square of the number of participants, something called Metcalfes Law. Here we should point out that in most cases, ICT simply extends the potential size of networks, without necessarily having been the factor originating them. In this context, the driving principle of the innovation is not to reduce information-processing and transmission costs, but rather to enhance the ability of exchanges and interactions to initiate new ideas for organizing new production and product processes. Cooperation Rather Than Competition? Superficial analyses confuse the information economy and the network economy. We have learned, however, that these two pure models have distinct ramifications, and that they emerge under strikingly different conditions (Table 8.2).
Table 8.2
Information, networks, knowledge: three distinct growth regimes

Type Information economy Network economy Organization and management of relationships between agents who are involved in the same activity Stems from exchanges and interactions between members of a network: learning by communicating Possible blockage in a lower-level configuration; path-dependency; attenuation of competition Tends to be replaced by a market-based commercial relationship Development of the ability to create relationships; role of social and cultural capital Rules made to ensure the networks interoperability and/or that competition is being maintained Driven by extension of network and by an intensification of the exchanges between its members Knowledge economy Individuals or organizations incorporate knowledge, methods, laws and routines Need to analyse and understand natural, physical, biological, social and economic phenomena Within a community, cooperation exists in general regarding the creation of a purely public good Aptitude for choosing knowledge and for developing new forms thereof Training to learn how to analyse, exercise judgment, and reason scientifically Promotion of open science, organization of cooperation; diffusion of knowledge
Characteristics Core Stored in physical binary data memory banks and processed via use of software Induced by the processing and transmission of information Asymmetrical information on quality; possibility of a private appropriation since this is an impure public good Ability to master software and communications protocols Learning about how to use the sources of information Ensure competition and security Guarantee freedoms and offer a basic infrastructure Driven by ICT production and use
Origin and style of innovation Impact on competition 126 Employment relationship Education Role of the state Potential growth regime
Driven by scientific and technical advances in all domains
127
In the first model, imperfect competition is a result of asymmetrical information. The supplier knows the quality of the good, but this is something that the bidder can only determine ex post facto, once the deal has been done. In the second model, the size of the established network prevents the emergence of a competitor, even if the newcomer would perform better once it reached the same stage of development. Similarly, different skills are being asked of employees. On the one hand, they are supposed to learn how to use the computer and the Internet, and more generally how to operate information processing routines. On the other hand, they are supposed to get settled into networks, thereby culling new ideas that can be translated into profitable products or processes. The state also has a different role to play in these two scenarios. In the information economy, the trade-off between security and freedom is essential and coincides with the states possible participation in the building of basic infrastructures (information highways). In the network economy, the crucial issue is the preservation of competition because the most valuable infrastructure is the one composed of the interpersonal relationships between the networks members and the trust built between them (Lazaric and Lorenz, 1998). Extending and Intensifying Interactions in Order to Generate Growth The principles also vary in pure growth-regime terms. For the information economy, productivity and growth appear at first glance to be driven by corporate investment in ICT and by private consumption. In the network economy, cumulative growth is most likely to be sustained by the increased number of members or, alternatively, by the intensification of their exchanges. Now, economic history does not lack in examples of this differentiation; in fact, US growth during the nineteenth century was rooted in the building of a vast railway network. This mechanism levelled off when production began to be mechanized, first as a result of Taylorism and then as a result of Fordism (Boyer and Juillard, 1995), the latter being the regime which by the 1990s had given way to information technology (Petit and Soete, 2001). In modern times the tendency to build networks has preceded the diffusion of ICT. The aeronautics and space industries have, for example, mobilized a network structure in which each participant pools its competencies with a view to obtaining a shared product whose performance is predicated on the quality of the interactions between the participants (Law and Callon, 1992; Zuscovitch, 1998). Of course, once the network is set up and begins to establish a relationship based on trust, it can then use information technology to try to accelerate and facilitate exchanges; however this is not a strict precondition for the appearance of such exchanges.
128
The Danger of the Hollow Firm Another difference relates to the transformation of the boundaries of firms. Whereas the information economy emphasizes the densification of companies internal exchanges, the network economy focuses on exchanges with subcontractors, customers and even competitors. One example is when R&D projects rely on a whole series of companies which work together while otherwise serving as rivals in the final product market. In fact, some analysts started to predict some time ago that vertically integrated firms, or highly diversified conglomerates, would disappear and be replaced by network organizations that would, on a project-by-project basis, regroup a variable number of teams made up of people from different companies (Teubal and Zuscovitch, 1994). Even if the modern era has tended to create significant overlaps between the information economy and the network economy (see Figure 8.1), the foundations of their growth remain quite distinct. In the one case, the hope exists for a drastic reduction in costs as a result of returns to scale. In the other, the hopes are for a whole chain of innovations resulting from exchanges, and for a shared search for solutions to problems requiring diversified and complementary competencies.
THE TRANSITION TOWARDS A KNOWLEDGE ECONOMY?

In reality, many international bodies and specialist commentators who once thought the new economy represented the growth regime of the future, have revised their opinions since the early 2000s. Genes, Codes and Logos In the words of two macroeconomists,
we are evolving towards an economy where the essential source of value is gene sequencing, computer programming codes and logos. In this sort of world, goods acquire a value not as a function of their mass or any other physical property, but as a reflection of dematerialised ideas. In this kind of economy, what a person knows is more important than what s/he does. (DeLong and Summers, 2001, p. 9)
Along the same lines are the successive collections of innovation and ICT diffusion statistics that the OECD has published entitled, Towards a Knowledge Economy (OECD, 1999, 2001b). The semantic shift masks a difficult theoretical problem. Many of the different research projects which focus on the information economy have shown
1. Uncertain effect on growth, static efficiency, macroeconomic instability
REAL-TIME ECONOMY
Intranet Extra-Net Web infrastructure
ICT ECONOMY
A reassessment of the new economy 6. Growth results from the conjunction of a variety of marginal innovations
Research in computer sciences
Engineering sciences Materials sciences
129
2. Growth via extension and densification of networks 3. Growth thanks to innovations born out of interactions between researchers Figure 8.1
NETWORK ECONOMY
Electricity, transportation
Scientific use of the Web
KNOWLEDGE ECONOMY
Human and social sciences Inc. educational sciences
Earth sciences
5. Ecologically sustainable growth
Scientific communities
4. Growth via production of humans by humans
Research and development partnerships
Life sciences
The new economys path towards an anthropogenetic regime
130
how the asymmetries generated by it can disturb market functioning. For example, rationing comes out as a normal mode of functioning, even in a competitive environment (Stiglitz, 1987). Furthermore, the rational expectations hypothesis that is present in almost all modern macroeconomic theories asserts that economic agents will in the end become familiar with an economys true model as a result of an estimation process that is analogous to the one being built and implemented by professional econometricians. Here it is the succession of random shocks and information that reveals the economic models deterministic element even though this is far from being the meaning that ICT specialists lend to it. What such specialists mean by the expression information economy consists of all of the operations that make possible the processing and storing of binary data in physical format. Information Is Not Knowledge Conversely, the knowledge economy focuses on both the individual and the collective processes by which actors shape their representations, regardless of whether these involve scientific knowledge or analytical and heuristic methods. Thus, at an abstract level, knowledge can be construed as that which governs the processing of information. It is the product of cognitive processes (Walliser, 2000), which should not be confused with the information-processing itself (Shapiro and Varian, 1999), that entails logical operators, specific functions and calculations pertaining to the propositions made. We may consider it possible to organize an information market in certain conditions and in the strictest sense of this term, but a knowledge market is a pure contradiction in terms (Guilhon, 2001). A scientific discovery can define a pure public good (such as E = mc2) resulting from cooperation/competition in a scientific community whose main objective is to nurture knowledge. In this respect, the work undertaken in an open and transparent community of scientists is diametrically at odds with the search for a competitive edge and for profits by economic entities seeking tacit know-how which they can then appropriate (for example total quality resulting from a whole set of idiosyncratic practices). Such know-how can only be subject to a commercial exchange if it involves a codification procedure that is based on a model such as the patent. Such a conversion is not always feasible. Certain theoreticians have come up with yet another concept to delineate the intellectual, or cognitive, element that underpins a companys cohesion and serves to maintain its performance over time. Here the firm is defined as follows: it comprises a set of competencies (Dosi et al., 1990) that are generally distributed between its top executives; it involves particular procedures for channelling decision-making and information; and it consists of the workers themselves. Some theories even hold that the size of a firm depends solely on
131
its directors competency (Penrose, 1963), and not on the balance between the returns to scale of its production function, its organizational costs, its attempts to minimize transaction costs or changes to its information-processing costs. Open Science Versus the Appropriability of Technologies The differences between information and knowledge economies are quite clear (see Table 8.2). The dynamic of the former is based on technological innovations that tend to lead to a fall in information-processing and transmission costs as a result of using particular equipment or software. By way of contrast, a knowledge economy seeks to analyse and understand natural, physical, chemical, biological, social and economic phenomena. It is concerned with scientific, or more generally conceptual, innovations. In terms of ideal types, a world of open science can be opposed to a world in which technology is based on (sometimes transitory) attempts to appropriate certain advances in knowledge (Dasgupta and David, 1994; David, 2001). There is no better example of the contradictory imperatives that govern these two spheres than the current debate on the patentability of living substances and on whether a private firm can appropriate or should be permitted to do so the benefits of a biological discovery (Orsi, 2002). The consequences for the growth regime and for public policy differ from one case to another because the knowledge economy generates scientific results capable of creating a cluster of innovations that might lead to radically new products and industries. Consider organic chemistry at the turn of the nineteenth century, or molecular biology in the early twenty-first. As for the information economy, it raises questions about maintaining competition between software and equipment suppliers, the trade-off between security and freedom and, to a lesser extent, the displacement of the borders of intellectual property rights. This is a central issue for the knowledge economy. These analyses suggest two considerations that are general in nature. Firstly, is it conceivable that one single type of innovation has been the dominant factor in the genesis of several different growth regimes? And secondly, can a hierarchy be established between the information economy and the knowledge economy? Regarding the first question, we know that technological change specialists have long demonstrated the coexistence of at least three modalities concerning the origins of innovation and their subsequent diffusion throughout an economy (Patel and Pavitt, 1995). The Three Sources of Innovation The first channel is capital goods innovation, which is then diffused to all user sectors. Technological change played a crucial role in previous industrial
132
revolutions, and todays diffusion of computers, software and servers is no exception to this modality. It is expressed by the initial conception of the leading role that ICT plays in increasing both productivity and the long-term growth rate (see Chapter 3). In a second modality, technological innovation can derive from scientific breakthroughs; organic chemistry and biochemistry, for example, have generated new industries from given scientific fields. In a sense, the knowledge economy stresses the increasing importance of this second source of innovation. It would be difficult to find a better way of emphasizing the differences from the first source of innovation. Lastly, technological and organizational innovation can result from solving a practical problem without any major scientific breakthrough being necessary. Many managerial innovations belong to this category: for example just-intime, total quality and teamwork. However, these innovations stem from the production activity itself (learning by doing), from attempts to satisfy user needs (learning by using) or from interactions between economic agents seeking solutions to problems where no single individual is able to fully master the solution because competencies are limited (hence learning by communicating, see Lundvall, 1992). This latter sort of innovation is considered to be one of the foundations of a competency-based economy. The technical nature of the competency economy is supposedly the opposite of the epistemic nature of the knowledge economy. As such, the response to the first question appears to be negative. It would be exceptional if a growth regime derived from a single cluster of innovations, especially so because modern economies implement an increasingly extensive division of labour, which in turn generates a multitude of decentralized innovation processes (Ragot, 2000). Information is Not a Substitute for Competency Regarding the second question, note that most analysts feel that ICT offers the premises for a shift towards the knowledge economy. This approach underlines the fact that the structuring of knowledge and competency comes first, with information use coming second. In reality, such usage is conditioned by an analytical method that cannot be purely inductive in nature because it mobilizes specifically human, cognitive and intellectual capabilities that are more than a series of routines and dealings with software. Observations of the best performing companies during the 1990s confirm the primacy of competency over the simple ability to process information (see Box 8.1). The three examples we mention share a focus on the local and sectoral nature of innovation which enables a firm to establish itself durably in a market and/or an individual to become a fully fledged member of a scientific community.
133
BOX 8.1
ACCESS TO INFORMATION IS NO SUBSTITUTE FOR COMPETENCY AND KNOWLEDGE
SELLING FOIE GRAS OVER THE INTERNET

What effects have the Internets advent had on the foie gras catalogue sales market? Some new entrants may be of the opinion that they will be able to use their portal design talents to gain market share, in the hope that the quality of their website will allow them to attract a sufficiently large number of Internet users and mask their lack of understanding of the market itself. This appears unlikely to succeed, however, as profitability in this business is more dependent on consumer satisfaction and on the progressive development of a good reputation than on whatever cost advantages might stem from shifting from a postal mail system to one where orders are given directly over an electronic site . An excellent site that sells mediocre products and offers poor value for money will soon be killed off by the competition, especially as one of the things that the Web supposedly provides potential buyers is information about the quality of the different suppliers product offer. This can be summarized in the following costbenefit analysis matrix:
Quality of foie gras Portal
Excellent
Mediocre
Attractive
P11
Mediocre P12 Where P11 P12 >> P21 P22
P21
P22
134
Thus more than anything else, competition will continue to impact foie gras-related knowledge and competencies: the ability to choose producers and to set prices that reflect the true competitive situation; the reliability of quality and the like. In short, e-commerce will tend to strengthen the hierarchy of competencies. Mastery over ICT will be of secondary importance.
ENCODING GENOMES AND THE ROLE OF ICT

Let us now look at the scientific community that has been working on decoding the genome. Achieving this result implies both cooperation (based on communication and the exchange of findings) and also the race to publish articles, or in certain cases to register patents (if researchers happen to be working within the confines of a private firm). Will the use of modern communications and information-processing technology revolutionize the customary hierarchy of researchers? As in our first example, at first glance the answer would appear to be negative. This is because of the fact that from the very beginning we are in the presence of theoretical knowledge and practical competencies that are directly related to the genome. A brilliant IT specialist with no understanding whatsoever of this field will be totally dominated by a biologist,
Theoretical knowledge and practical competencies as regards genomes YES
NO
Inability to participate in decoding NO
Ability to control ICT
YES Improved quality in the speed of decoding advances
Findings are not updated as quickly
135
even though the latter is much less adept than the former in IT. Of course, among biologist researchers, variations in each individuals level of ICT competency might have a marginal effect on the quality and speed of findings. In this situation, it is tempting to talk about a lexicographical order pertaining to actors respective abilities to control biology or computers.
THE GOLDEN BOY: A MEDIOCRE FINANCIER WITH A FASTER COMPUTER THAN HIS/HER COLLEAGUES
The foregoing chapters have mentioned the appearance of certain synergies between new financial markets and the intensive utilization of computers and rapid telecommunications. Imagine once again a mediocre financier who is trying to base a competitive advantage on his/her speed of reaction to the kind of news that can make market prices move. Even though the financier will in certain instances be able to act more quickly than the competition, in many other cases s/he is simply making a wrong buy/sell decision more quickly than his/her rivals are. This means that the apparent competitive advantage will in fact precipitate a deterioration in performance. Here we return to a theme that has already been dealt with in reference to the real-time economy: how important is it to make a decision quickly? After all, if the decision is the wrong one, this just means that the markets sanction will be all the more painful! The joint conclusion from these three examples is that in most businesses, knowledge and competencies come first and foremost, and information processing and transmission afterwards.
Scientific competitive advantage comes from mastering knowledge and knowhow; day-to-day management is the only thing that brings quality and speed of information processing into the equation. This is another argument in favour of pursuing a plurality of innovation strategies. Here we can cite an example relating to the future of auto-making. In one scenario, Web facilities are supposed to make it possible to organize competition between subcontractors and suppliers; to allow drastic cost cuts; and to
136
advance an extensive delocalization of manufacturing phases. According to this view, such developments comprise no more than a continuation of lean production by other, computer-based, means (BRIE, 2001). In a second and different vision, the electronic content of automobile products rises until it becomes a medium for processing information in real time, this resulting from its embedded computing capacities. A third and final scenario assumes that the customer will be able to design his or her own vehicle from a terminal that can be accessed at a car-dealers premises. However, these three trajectories completely ignore what constitutes the automobile products specificity, namely the fact that it has to resolve mobility problems by incorporating developments relating to specific automobile techniques on the one hand (driving systems, anti-pollution, safety), and peoples demands and needs on the other. Reliance on information techniques cannot replace innovation efforts that link directly to the automobile product itself: the ecological car, the city dwellers car and so on. It is rare to find a sector where information-processing costs are so high that the competitiveness of firms is directly predicated on the efficiency with which they use ICT (see Chapter 3). Thus what we should be sketching is the shape of a growth regime whose embryonic form has long been present, but which has tended to be eclipsed by the fervour for the new economy.
IN THE LONG RUN: AN ANTHROPOGENETIC MODEL

In a sense, this sort of regime is an extension of the continued reassessment which has gone on concerning the potential of the information economy. On the one hand, its implementation presupposes a sufficient level of education and adaptation of training to enable learners to control ICT; also the possibilities for transforming teaching methods and the training approach itself (with much hope placed in the renewal of long-distance teaching by means of the Web). On the other hand, biotechnologies are often presented as if they had benefited greatly from synergies between advances in biological knowledge and the rapid information processing that is required, for example, in the field of genome decoding. In addition, as a consequence of ICT, the healthcare sector is likely to benefit at all levels from significant information-management savings (Litan and Rivlin, 2001). Does this mean then that the information economy is the first step towards a revolution in education, health and demographics? A Survey of the Different Sources of Growth To the contrary, many arguments have asserted that this movement has been a highly autonomous one. At a highly theoretical level, the following generalization can be offered of the successive phases of growth. For the Physiocrats,
137
land was the source of wealth that governed social stratification in an essentially rural and agricultural economy where growth was limited by farm yields. By contrast, for Classical and later Marxist economists, the production of merchandise by merchandise is what characterized core economic activity, and by extension, growth itself. The reader will recognize the famous analyses of Sraffa (1962) and Von Neumann (1945) in all of this (Arena, 1990). Note that in the latter scenario, the workforce reproduces merely by consuming basic goods; and techniques are established on a once and for all basis. However, since the work of Joseph Schumpeter, economists have been aware of the fact that in the absence of repeated innovations pertaining to new products, processes or organizational forms, growth is doomed to run out of steam as a result of the erosion of profits, these construed as innovation-related rents that are progressively eliminated because of the entry of new competitors. Modern theories of so-called endogenous growth have ultimately converged towards a general conception wherein the possibility for cumulative growth is solely predicated on the production of ideas by ideas, a process that never suffers from decreasing returns (Romer, 1990). Individuals specialize in the production of such ideas which are then sold as patents to firms, thus fostering the production of material goods. This activity is profitable thanks to the innovation rent that makes it possible to employ staff who have not been hired to work in the research sector. Implicitly, it is the conjunction of the talents of individuals, as well as their training by the educational system, that is most likely to generate differences in the competencies of individuals in terms of research or production. That is why other endogenous growth models also call for human capital investments, the externalities of which generate a cumulative process of development (Lucas, 1988). The Time Has Come for the Production of Humans by Humans If we want to extend this analysis even further, we would not only have to introduce education as a matrix of training as well as a ranking of peoples competencies, but also the healthcare sector because this influences fertility, death rates and life expectancy. Now, in modern conceptions of development, demographic change is viewed as one objective of economic activity and one criterion for assessing its outcomes (Sen, 2000). The ability to benefit from years of good health is a sign of how advances in healthcare are able to contribute to a populations well-being (Cutler, 2000, p. 49). By combining these two factors, we are able to affirm that modern economies are in fact governed by the production of humans by humans in the general sense that education, health and culture represent crucial components in the production, and especially in the shaping, of lives and lifestyles. This conception is useful because it serves to reconcile growth in industrialized societies with the outlook
138
for the development of certain countries in the South. It also does account for some of the major stylized facts of economic history. Is it possible to assess whether US growth is still being driven by dynamics built upon the purchasing and production of durable goods such as automobiles, household durables, computers, game consoles and telephones? The reconstitution of a long-term series of national accounting figures qualifies this view and tends to reinforce our earlier conclusions regarding the ICT paradox. During the 1990s, ICT volumes grew rapidly in proportion to the fall in their relative price, the end result being that their share in the value of household budgets only rose slightly. Although durable goods spending volume recorded considerable growth immediately after the Second World War, its share of total household spending has remained constant since (Graph 8.1). On the other hand, spending by households on healthcare has developed quite differently. Until 1950 the proportion of total income devoted to this expenditure remained more or less stable, then from 1960 onwards there was a cumulative growth, peaking in 1995 at 15.7 per cent of total household consumption. Only a few recent efforts to reform the funding of the health care system have had any effect on this long-term, upward trend. In the year 2000, Americans spent more on healthcare than they did on durable goods (OECD, 2000, pp. 11014).
18 16 14 12 10 8 6 4 2 0
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
Spending on durable goods as % of total household consumption Spending on health as % of total household consumption
Sources: Calculations based on data from US Department of Commerce (1975), pp. 31619, (1991), pp. 1345 and Council of Economic Advisors (2001), p. 2945.
Graph 8.1 A comparison of trends in household spending on durable goods and on health
2000
139
An Expression of Individual Choices and of an Original Form of Technological Progress Consumption analyses and theories of technological change have offered a number of explanations concerning the origins of this trend. Once essential needs are satisfied (food, clothing, housing, transport), both public and household budgets shift towards a type of spending that specifically ensures anthropogenetic reproduction from one generation to the next. On the one hand, spending on education (largely funded by the state) helps shape the knowledge, know-how and competencies which people use to find jobs that are well paid and potentially interesting (because they contain a significant amount of intellectual and cognitive substance). Statistics over the long term show, for example, a slow growth in the share of GDP being spent on education (US Department of Commerce, 1975 and 1991). On the other hand, private spending on health has been characterized by an income elasticity of well over one as a result of the choices individuals make when faced with the system of incentives and constraints arising from the USs relatively weak collective, or public, social protection mechanisms. The developments that Graph 8.1 retraces can also be explained by the conjunction of two other factors. On the one hand, medical care makes an intensive utilization of labour inputs which feature varying levels of skill. As a result, in most cases productivity gains are slight as these are typically tertiary activities, meaning that a Baumol effect is at work here which can be used to explain employment growth in the sector. On the other hand, technological progress has a very different meaning in hospitals from that in the manufacturing forum. Whereas the secular orientation of manufacturing industries seeks to save work by applying increasingly efficient technical processes and organizational forms, medical advances have had the effect of eradicating diseases that are relatively easy to heal or prevent. What arises instead are ailments that are more serious and crippling, and where no satisfactory treatment exists, despite the many efforts made. In addition, technological progress in the medical field has increased the number of analyses and security tests, hence the volume of services provided for a given health problem. Lastly, with population ageing there has been a whole range of new illnesses which require major care, specifically in the final phase of a persons life. This is something that is likely to orient the focus of medical research more and more in the future (Jacobzone, 2001). It helps explain why health spending has posted a secular increase. Such a result is all the more significant when one takes into account the fact that the US does not cover a large proportion of health spending; also in light of the fact that the purpose of many reforms in the USA during the past few decades has been to get people to pay, directly or indirectly, for an increasing proportion of their own health costs. Conversely, the main goal of many countries
140
possessing national health systems has been to limit the rapid rise in health spending (Boyer, 2000c). If we were to follow through this line of analysis, we could re-interpret longterm growth in light of the interaction between two series of innovations. The ones that relate to typical goods are intended as a means of saving labour, raw materials and energy. Their consequences can be measured by the associated gains that occur either in the apparent productivity of labour or else in the total factor productivity. As for medical and public health innovations, they have brought about a reduction in infant mortality and death rates as well as increased life expectancy without individuals suffering from major handicaps of a physical or psychological kind. We can comprehend the consequences of such an evolution by means of a synthetic indicator comprising the number of years a given population remains in good health. Thus public health innovations exert a direct influence on demographics and on the quality of life, whereas industrial innovations only affect these variables indirectly by means of an improvement in living standards, a reduction in working times, the development of leisure and the like (Easterlin, 1996). All these arguments reinforce the likelihood that an anthropogenetic regime will arise as the time horizons of rich, developed societies become more and more extended. Even in those countries where development is only at an embryonic stage, this strategy is not without interest as in some cases it is possible to avoid industrialization strategy errors such as the idea that the promotion of well-being should only be analysed through the prism of the industrial products currently on offer. Two other factors enhance the probability of this sort of regime. Correcting the Deflationary Bias of ICT: Producer Goods Not Consumer Goods The 1990s were marked by a cruel paradox. Belief in the advent of information technology as an engine of growth was countered by a major imbalance between manifest over-capacities at an international level and lifestyles that were certainly receptive to ICT, but not radically transformed by it. There was a major difference from the interwar period inasmuch as after WWII an appropriate capitallabour compromise enabled an absorption of the overproduction typical of the 1920s when Fordist goods were simultaneously both capital goods and consumer goods. Nowadays ICT is above all a management tool for companies and to a lesser degree a vector for transforming lifestyles. Increased spending on education, leisure and health has had a greater impact on this mode than has the strong demand for informational goods per se. If individuals were actually able to really orient production, there is little doubt
141
that the anthropogenetic model would get more votes than the 100 per cent information economy. The anthropogenetic growth regime has one final advantage. This is its ability to absorb the international imbalances that polarize ICT production in a very small number of regions. By way of contrast, educational and health needs are distributed much more evenly across the globe. In one sense, the low prices of high-tech goods have triggered this mechanism, even though it has not been recognized for what it really is. Such lack of recognition probably occurs because issues relating to the breakdown between public, private and funding as well as mutual benefit insurance mechanisms, make it difficult to ensure that the needs on which anthropogenetic growth is based are translated into effective demands (Boyer, 2000c). Redeploying Research Towards Biotechnology In the United States, the leading economy during the twentieth century, three foci of innovation occurred: the first related to capital goods, its symbol being the automobile; the second involved information technologies which captured the attention of many observers; and the third concerns biotechnology and is recurrent, especially attractive when the Internet bubble burst and the financial community moved assets away from information technology sectors. It is noteworthy that the United States carries out a large proportion of its research efforts in the field of life sciences and in possible spin-off applications (Table 8.3). In the end, the fact that European, US and Japanese trajectories differed so significantly in matters relating to innovation opens up interesting possibilities. The new economy may have meant that many countries were in a position to pursue a strategy based on imitating the United States (Boyer and Souyri, 2001); but in reality, the diversity of the sources of innovation suggests we should be looking instead for complementarities between the three geographical poles of this triad. Ideally, we can imagine a new international division of labour. Europe, stimulated by ideas pertaining to equality and by its extended social protection systems, could comprise the vanguard of a social-democratic variant of the anthropogenetic model thanks to an ever greater number of innovations in the field of biotechnology. Japan, the first country to have explored the consequences of accentuated population ageing, will probably continue to excel in all innovations in the interface between mechanics and electronics. Finally, the US can continue to explore the perspectives opened up by its dominant position in the field of ICT in areas such as leisure, finance, publishing, music and cinema. Although this prognosis was already in circulation in the mid-1990s (see Amable et al., 1997), it remains relevant for the 2000s (Hanck, 1999).
Table 8.3 The United States has been redeploying its research efforts to emphasize the health sector Sectors Country European Union United States Japan Total Average % annual growth rate in total number of patents
Note: Source:
198286 22.7 35.2 42.1 100
Automobile 198791 199296 20.5 33.2 46.3 100 18.1 52.1 29.8 100
198286 10.7 58.6 30.7 100
ICT 198791 9.4 51.4 39.2 100
199296 5.7 60.0 34.3 100
198286 24.5 59.9 15.6 100
Health 198791 22.6 64.8 12.6 100
199296 19.6 71.0 9.4 100
142
16.7
2.0
13.4
10.4
10.4
4.6
Development and breakdown in the number of US registered patents (%). Calculated using data compiled by Sachwald (2000), p. 11.
143
CONCLUSION
This book began by putting the new economy into context. It portrayed it as a conjunction of three structural transformations affecting the production system, the dynamics of productivity and the financial communitys belief that ICT would serve as the engine of twenty-first century growth. In reassembling the various arguments that have been discussed in this book, it is important to review the aggiornamento that took place after the Internet bubble burst and which showed the need to reassess the exaggerated faith placed in the new economy. The ICT boom during the 1990s was only one step towards other growth regimes, often portrayed as direct outcomes of the information revolution. The current chapters analytical clarification invalidates the vision according to which the new economy would be extended in other forms (see Figure 8.1). Rather, the new economy has come and gone; and it is highly unlikely that it will rise, phoenix-like, from the ashes. In no proper sense is the real-time economy a logical consequence of ICT diffusion. Just-in-time did not wait for information-transmission costs to drop before prefiguring a lean production model whose roots lay in the automobile industry. Portrayed in the past as a model whose destiny would revolutionize the twenty-first century, in fact by 2003 the real-time economys place in history was already modest, having undergone the full effects of the reality check that is currently taking place. Furthermore, even if corporate responsiveness has improved, it engendered the risk that successive phases of accelerated growth would be followed by crisis and then by a sudden fall in production. Real-time management amplifies both successes and errors. Yes, ICT is part of the network economy that has long governed the transportation and utilities sectors as well as those in telephone communications and TV broadcasting. In this respect, we can speculate as to whether ICT is really equivalent to the impact made by the railroads during the second industrial revolution. In fact, all that ICT really does is modernize and raise the level of sophistication of information exchange networks that have been influencing corporate finance and management for at least a century now (Vidal, 2000). Clearly, ICT can enhance the management of such networks, for instance by optimizing the way in which infrastructure and planes are used in air travel. However, it is not at all certain that such synergy will foster a vigorous and original growth model. In this domain, a much more crucial factor involves the deregulation of a great many public services (see Chapter 4). We can thus see why the knowledge economy has come to replace the new economy in peoples representations of innovation and growth trends (shown in Figure 8.1). However, such representations confuse information, knowledge, know-how and competency, all of which are distinct factors in potential alternative growth-model ideal types. We should not forget that an open science
144
model is scarcely compatible with one based on scientific advances derived from the search for technological fall-outs that private agents seek to appropriate. The debate about intellectual property rights goes far beyond questions such as the legal framework needed to cover computer networks or the tradeoffs that need to be made between freedom and security. It is in the fields of medicine and healthcare that we find the greatest tensions between the scientific advances being made for the common good and the private appropriation of the benefits of innovations. The rights of the living will be central for decades to come. Thus the main arguments in the current chapter are that a large number of sources of innovation will coexist for as long as can be foreseen, particularly so the further the division of labour is pushed; that forms of organization have and will continue to become more and more complex; and that lifestyles have become increasingly diverse. However, if we were to bet on the model which is most likely to emerge as the winner over the next few decades, we would probably have to take a close look at the production of humans by humans and to start exploring the institutional environment that will allow this to happen, especially in European countries (see Figure 8.1). Paradoxically, the very fact that the state is responsible for most spending on health and education (and on pensions) impairs the general awareness of political leaders about the power and potential of this model, the reason being that they are increasingly preoccupied with controlling social and public budgets. Such an aim, however commendable, should not stop them from helping the anthropogenetic model to unfold. After all, this is a development that is already part of the history of the last half-century.
9. Conclusion
THE FUTURE LASTS FOR A LONG TIME
It would be useful to summarize the various conclusions that can be drawn from this analysis of the new economy phenomenon. The search for a precise definition has enabled us to improve our understanding of the shifting object that once comprised the new economy. By highlighting the microeconomic imbalances inherent in the increasing returns that typify informational goods, we have been able to elucidate the reasons for the major uncertainties that affected the organizational model of start-ups. A review of the literature on the macroeconomic impact of ICT diffusion has put into context the contribution made by the new economy to the recovery in productivity gains. US expansion during the 1990s was not simply a result of the diffusion of a new productive paradigm. A study of the geography of the emerging ICT-based growth regimes thus requires going beyond Silicon Valley for insights. Similarly, historical analysis of technological paradigms does not confirm the postulate that the PC and the Web constitute radical novelties. Moreover, the very fact that there has been a turnaround in the US economy means that we have to reassess the claims made about the potential of the new economy.
BEHIND THE SUCCESS OF THE NEW ECONOMY: A CRISIS ALREADY IN THE MAKING
History teaches us that every time someone within the world of finance, the media or academia uses the word new to describe a phenomenon that is supposedly unprecedented and which threatens to overturn long-held analyses and regularities, the period which follows will be problematic and quite likely characterized by crisis. The rapid invalidation of experts views and economists theories since 2000 means a more balanced approach can now be adopted with regard to the institutional, economic and social changes that are taking place and whose real determinants, logic and outcome are only now ex post facto being seen for what they are.
145
146
For example, observing the collapse of the US economy from 1929 to 1932, Irving Fisher, the theoretician of, and believer in, speculation as a force for economic stabilization, was obliged to abandon the analytical framework which he had forged throughout his academic career, and to explore the consequences of the hypothesis of disequilibrium on a depression brought about by a desperate effort to reduce over-indebtedness (Fisher, 1933; Boyer, 1988). In 2001 did we not witness the same sort of turnaround, with analysts who during the 1990s defended the radical newness and stability of the US growth model being among the first to denounce the economic and financial imbalances that had built up in ICT sectors? Ironically, we can affirm that increased use of words such as new and end of was a sign of disarray in the analysts camp. (Remember that people were talking about the end of work at the very time that US employees had never worked so much!) In effect such words were an early indication of the upcoming crisis, a precursor for the sudden turnaround in the ambient euphoria, a return to economic analyses that were more lucid in nature. Is it not illuminating, and also intriguing, that a correlation exists (albeit a delayed one) between share price movements and the number of academic articles written specifically about the new economy (Graph 9.1)? 1500 1300 1100 900 700 500 300 100 100 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Number of articles on the new economy S&P500

Source: The number of references given corresponds to the number of articles found in the EconLit-AEA 19862001/09 CD-ROM that mention the new economy in reference to any of the topics in question.
Graph 9.1
Does belief in a new era herald the advent of a crisis?
Conclusion
147
MULTIFORM INSTITUTIONAL CHANGES RATHER THAN TECHNOLOGICAL DETERMINISM

By the dawn of the new millennium, the US economic configuration had at most a distant relationship to the form that had prevailed during the golden age of growth. In fact by the late 1960s the Fordist regime something that was built on generalized access to mass consumption by means of a diffusion of productivity gains to the entire population had fallen into crisis, and was being replaced by an extensive growth regime featuring mediocre productivity gains, rising social inequalities and increased differentiation of lifestyles. Then from 1995 onwards a different mode of regulation emerged, one which stemmed from a conjunction of a whole set of structural transformations which, having built up over two decades, translated into new macroeconomic adjustments. This was the change that introduced the new economy theme. The deregulation movement altered the incentive system and shaped a new competitive environment by encouraging entrepreneurship and innovation. Moreover, the decentralization of industrial relations, the individualization of employment contracts and the financialization of pay arrangements (and of part of employees social protection systems) were all factors that served to radically redefine the employment relationship. They broke it up into a whole range of different wage labour contracts dependent on the portable competency of each employee and his or her place in a firm. Relationships between the state and the economy, previously dominated by the institutionalization of part of the social protection scheme, switched to a market logic and favoured entrepreneurship thanks, inter alia, to fiscal reforms that benefited profits and investment. The breakthrough in terms of information and communications technology rounded out, but was not the cause of institutional changes which provided a definite advantage to those US companies which both produced and used ICT. This conjunction is what explains the long expansion phase of the 1990s. Any analysis that is expressed in terms of technological determinism should therefore be questioned, if not rejected. This is especially true with regard to the digital divide. There is nothing in ICT to infer that it is less egalitarian than the social relationships in which it is embedded relationships that in the USA at least were already highly unequal.
THE GEOGRAPHY OF THE NEW ECONOMY ACTUALLY INCLUDES THE NORDIC COUNTRIES
Silicon Valley is not the only place where an ICT-driven growth model emerged. Firstly, the US shared this model with other English-speaking
148
countries. Secondly and above all else, two other institutional configurations have enabled some European countries to mobilize these same innovations in ways that enhance growth and employment. We find, for example, in the small open social-democratic countries a stress on cooperative principles in implementing the knowledge economy, not pursuit of a logic based on competition and active promotion of intellectual property rights. These nations benefit from their populations high and relatively equal levels of education. What is more they insist on lifelong learning and on good cooperation between firms, research centres and universities. A few peripheral economies have also been able to pursue a catch-up strategy thanks to an aggressive utilization of ICT that has helped them establish a foothold in the emerging growth regime without going through the Fordist mode of growth as an intermediary model. As a result, the syllogism of the new economy is a false one. It is certainly true to say that information technology usage appears to have been one necessary precondition for achieving strong growth during the 1990s. Yet in terms of implementing a virtuous innovationgrowthemployment circle, US performances were not the best. It is wrong to affirm that in and of itself the economic architecture of the USA (competitive labour markets, venture capital, the NASDAQ, the incentivizing nature of the intellectual property rights regime) guarantees such a result. For example, a collective form of labour market organization does not necessarily constitute an obstacle to job redeployment and employment performance. Nor is venture capital a sine qua non precondition for achieving rapid growth. The adoption of an ICT-driven technological paradigm (ICT being a generic technology) does not necessarily infer importing the institutional architecture of the financial market variant of capitalism. A hybridization method which operates by adapting and amending (in order to reflect domestic constraints and traditions) the innovations produced in other economies seems much more promising.
ICT IS ALREADY A MATURE INDUSTRY

From the very outset, the microeconomic imbalances that are inherent in ICT (for example, increasing returns associated with fixed investments but almost zero marginal production cost) undermined the viability of the organizational model that start-up firms were ostensibly trialling for the benefit of other companies. At a macroeconomic level, excessive investment in electronicized capital goods, triggered by the speculative bubble that got underway in 1995, gave birth to the view that recovery in productivity rates was a permanent and significant feature. Quite on the contrary, the exceptional duration of the expansion phase was crucial in the productivity hike.
Conclusion
149
It is logical not to have expected the US growth phase of the 1990s to last forever. The bursting of the Internet bubble in March 2000 and the subsequent rapid collapse in orders for ICT capital goods in mid-2000 resulted from a process which corrected a manifest over-accumulation. In fact, the expansion phase was bound to stop independently of any exogenous shocks, be it higher oil prices in autumn 1999, the uncertain results of the November 2000 US presidential election or the 11 September 2001 attacks against the World Trade Centre. Above and beyond the consequences of these various events (which are clearly difficult to anticipate), largely endogenous forces undoubtedly determine the course of the US economy. A Schumpeterian analytical framework suggests that excess-capacity rebalancing mechanisms are already at work in ICT-related sectors, and that there has been an erosion of innovation rents due to the diffusion and generalization of goods from the information sector (Schumpeter, 1911). In all likelihood, the new economy has already joined lean production in the museum of innovations that were once supposed to leave an indelible print on the twentieth century, but whose effects were in fact frittered away after only one or two decades.
THE POWER OF WALL STREET INSTEAD OF SILICON VALLEY

Analysts attributed too much importance to information technology; with hindsight, it is probable that financialization was a much more powerful mechanism as it affected most institutional forms and ultimately shaped the US growth regime more than ICT did. Influenced by skyrocketing stock prices, households opted to increase consumption. In 1999 the household savings rate actually became negative. Publicly listed companies were subjected to a shareholder value imperative demanding a stable and even a permanent increase in financial earnings and capital savings. As a result, the employment relationship tended to become the variable of adjustment and revolved around the number of hours worked, the number of employees hired and the generosity of pay systems. Economic policy itself was transformed as the state spent time convincing the markets of the credibility and viability of its strategies. The main goals of central bankers thus became controlling inflation, smoothing out current economic fluctuations and preserving the overall stability of the financial system. Last but not least, Wall Streets role as a global financial intermediary led to an influx of capital in the form of direct or portfolio investments that offset a major trade deficit, this being a unique feature not available to countries lacking a hegemonic position. The extent to which such a structure was specific to the US and hence unexportable should be noted.
150
There is a flip side to every coin, needless to say. The plasticity of finance goes hand in hand with speculative bubbles. In reality, the 1990s provided the latest example of a model that is well known in economic history. This occurs when a financial bubble emerges in an economy featuring an innovation reputed to be sufficiently radical to transform most aspects of economic activity (and making an impact on social stratification too). It is remarkable that in an era so totally geared towards the future and towards rational calculation, that so many actors, both public and private, forgot this elementary lesson. The fact is past interactions between technological innovation and finance indicate that all speculative bubbles ultimately burst. Moreover, the timeframe for changes in productive, social and political structures is far longer from the one that financial markets need in order to quote securities.
ALTERED COMPETITION BUT NO RETURN TO MYTHICAL COMPETITIVE MARKETS

All in all, an original mode of regulation was germinating above and beyond the vagaries that had been introduced by the bursting of the speculative bubble and by the ensuing recession in the ICT-producing industries. It seems then that what we should be questioning is the frequently formulated prognosis that the Internet economy would inevitably lead to the triumph of a purely competitive market; that is to say, it would have seen the fulfilment of the purely abstract analyses enshrined in Walrasian theory. The easy diffusion of information by means of the Web allows consumers to compare prices. It also creates the opportunity for large companies to carry out individualized marketing that systematically creams off consumer surpluses, thus generating islands of oligopolistic rents in an ocean of competition characterized by firms of lesser stature. Similarly, the digitalization of information can encourage the emergence of auction mechanisms and market platforms just as it can enhance cooperation between partners working together to jointly develop new products and to shape networks and alliances. Observations of current determinants of profitability, as well as of trends in mergers, takeovers and alliances and most importantly of the crucial role played by finance, show that all such factors serve to distance real economies from the ideal Walrasian price system. This is because they introduce a systematic gap between fundamental value and market pricing. To the despair of ultra neo-liberals, todays capitalisms are not moving along a path that leads them back to the tenets of competitive economics; rather, another mode of regulation is in gestation, one that is much more complex and interdependent than its Fordist predecessor. The rhetoric of the new economy came at just the
Conclusion
151
right moment to offer a simple, but erroneous, interpretation of the interlinkages between the transformations that have created divergences between US, European and Japanese trajectories.
BETWEEN SPECULATION AND UTOPIA: THE ANTHROPOGENETIC MODEL

The years 200001 witnessed the end of the opposition between the new and the old economies. This was so both at the level of organizational models of companies and in terms of ambient growth regimes. On the one hand, many start-ups went bankrupt or were taken over by large companies which acquired expertise for little cost in the process. Few followed Microsofts trajectory. Mastery of ICT has generalized and now diffused throughout all corporate organizations and their subcontractors. By itself, information technology has not provided any competitive advantage, given its tendency to turn into a generic product. Hence the difference between an information economy and a knowledge economy. As for the macroeconomic aspects, there is little doubt that we need to recognize the multiple nature of the factors that have shaped the trajectory of OECD economies. Even if financial globalization has reinforced the interdependencies between the worlds different regions, it must be noted that modes of regulation are far from converging in North America, the euro-zone and Asia (the latter a region where Chinese dynamism contrasts with Japanese stagnation and uncertainty). ICT diffusion will continue to mark the current decade, but it is unlikely that the inequalities which accompany it will suffice to explain variations in national macroeconomic performance. Thus, more than ever, it is necessary to come up with a systemic and institutionalist approach to emerging growth regimes. Only by so doing can we hope to understand all the diversity that exists. A theory taking into account this diversity has yet to be written; thus we can understand why analysts have placed emphasis on a succession of simple, and even monocausal, hypotheses. These have been put together from observations of the most striking changes that have taken place. The new economy at least had the merit of polarizing the thinking of a great many researchers in different disciplines with respect to the issue of technological innovation. The simplicity of the hypotheses underlying the new economy unerringly stimulated a process that was rich in analyses and rebuttals and to which the present book, in its own way, has attempted to contribute. Today the theme has almost disappeared. What remains is the need to characterize the transformations that happened after the Internet bubble burst. There is no lack of ideas on the subject. Even
152
so, we need to be careful not to fall prey to the same traps and illusions that featured in the past. Farewell to the start-ups and long live the responsive company then! Farewell to the new economy and long live the knowledge economy. Boosted, or extended, by financial markets, these, and other fashions, will invariably succeed one another for years to come. And yet, faced with ever greater problems relating to lifestyles, the organization of education, lifelong learning and an ageing population, discussions and research projects are already overdue concerning the contours of an anthropogenetic growth model derived from the mobilization of resources and knowledge relating to the creation of humans by humans. Will the next speculative bubble pertain to the applications of those breakthroughs that the life sciences are going to achieve? In sum: after the Japanese model of the 1980s, the new economy will have been the mobilizing myth of the 1990s. Will belief in the future of biotechnology take up the torch during the first decade of the twenty-first century?
Bibliography
Abraham-Frois, Gilbert and Larbre, Franoise (1988), La macroconomie aprs Lucas, Paris: Economica. Abramowitz, Moses (1986), Catching up, forging ahead and falling behind, Journal of Economic History, 46, 385406. Aghion, Philippe and Howitt, Peter (1998), Endogenous Growth Theory, Cambridge, MA: MIT Press. Aghion, Philippe, Bloom, Nicholas, Blundell, Richard and Griffith, Rachel (2002), Competition and innovation: an invented U relationship, NBER working paper. Aglietta, Michel (1976), Rgulation et Crises du Capitalisme, Paris: CalmannLvy, 2nd edn (1982), 3rd edn, Paris: Odile Jacob (1997). Aglietta, Michel (2000) Nouvelle conomie, nouvelles rgulations, in Cercle des conomistes (eds), Esprances et menaces de la nouvelle conomie, Paris: Descartes & Cie, pp. 15382. Aglietta, Michel and Orlan, Andr (1982), La violence de la monnaie, Paris: Presses Universitaires de France, reprinted (1992). Amable, Bruno (2002), La diversit des systmes sociaux dinnovation et de production dans les annes 1990, Institutions et innovation, Paris: Albin Michel. Amable, Bruno and Boyer, Robert (1993), LEurope est-elle en retard dun modle technologique?, conomie Internationale, 56, 6190. Amable, Bruno and Petit, Pascal (2002), La diversit des systms sociaux dinnovation et de production dans les anns 1990, in Jean-Philippe Touffut (ed.), Institutions et Innovation, Paris: Albin Michel, pp. 2365. Amable, Bruno, Barr, Rmi and Boyer, Robert (1997), Les systmes dinnovation lre de la globalisation, Paris: Economica. Amable, Bruno, Breton, Rgis and Ragot, Xavier (2001), Does financial liberalisation change the frontiers of the large corporation?, mimeograph, Paris: CEPREMAP, March. Amable, Bruno, Ernst, Ekkehard and Palombarini Stefano (2000a), Institutional complementarity and dynamic compatibility: an application to industrial relations, mimeograph, Workshop on Institutional Complementarities, Paris, November. Amable, Bruno, Ernst, Ekkehard and Palombarini, Stefano (2000b), Endogenous strategies for trade unions and firms, mimeograph, Workshop on Institutional Complementarities, Paris, November.
153
154
Aoki, Masahiko (1986), Horizontal versus vertical information structure of the firm, American Economic Review, 76, 97183. Aoki, Masahiko (1990), Towards an economic model of the Japanese firm, Journal of Economic Literature, 28(1), 127. Aoki, Masahiko (2002), Fondements dune analyse institutionnelle compare, Paris: Albin Michel. Arena, Richard (ed.) (1990), Sraffa Trente ans aprs, Paris: Presses Universitaires de France. Arthur, Brian (1994), Increasing Returns and Path Dependence in the Economy, Ann Arbor: University of Michigan Press. Artus, Patrick (2001), La nouvelle conomie, Paris: Repres, La Dcouverte. Artus, Patrick (2002), Karl Marx is back, Flash, no. 20022004, 4 January, CDC IXIS. Arvisenet, Philippe (d) (2001), Que reste-t-il de la nouvelle conomie?, Conjoncture, BNP PARIBAS, 5, May, 211. Asknazy, Philippe (1999), Innovations technologiques et organisationnelles, internationalisation et ingalits, Paris: EHESS thesis. Asknazy, Philippe (2000), Changements organisationnels: de la nouvelle conomie aux 35 heures, in IFRI Seminar on The New American Challenge: Firms Strategies and European Policies, Institut Franais des Relations Internationales, 3 October. Asknazy, Philippe (2002), La croissance moderne: Organisations innovantes du travail, Paris: Economica. Asselin, Jean-Charles, Demartini, Anne, Gauchon, Pascal and Verley, Patrick (2002), Crises conomiques, Encyclopedia Universalis, 7th edn. Baily, Martin Neal and Lawrence, Robert Z. (2001), Do we have a new economy?, American Economic Review, Papers and Proceedings, 91 (2), May, 30812. Bar, Franois (2001), The construction of marketplace architecture, in Tracking a Transformation: E-commerce and the Terms of Competition in Industries, Washington, DC: Brookings Institution Press. Bar, Franois, Cohen, Stephen S., Cowhey, Peter, Delong, Bradford J., Kleeman, Michael and Zysman, John (2001), The next generation Internet: promoting innovation and user experimentation, in BRIE (ed.), Tracking a Transformation: E-commerce and the Terms of Competition in Industries, Washington, DC: Brookings Institution Press, pp. 43573. Bassanini, Andrea, Scarpetta, Stefano and Visco, Iganzio (2000), Knowledge, technology and economic growth: recent evidence from OECD countries, Economic Department Working Papers, no. 259, OECD, October. Baumol, William J. (1986), Productivity growth, convergence, and welfare: what the long-run data show, American Economic Review, 76(5), 107285.
Bibliography
155
Beffa, Jean-Louis, Boyer, Robert and Touffut, Jean-Philippe (1999), Le droit du travail face lhtrognit des relations salariales, Droit Social, 12, December, 103951. Bnassy, Jean-Pascal, Boyer, Robert and Gelpi, Rosa-Maria (1979), Rgulation des conomies capitalistes et inflation, Revue conomique, 30 (3), May, 397441. Berger, Suzanne and Dore, Ronald (eds) (1996), National Diversity and Global Capitalism, Ithaca and London: Cornell University Press. Betbze, Jean-Paul (2000), La nouvelle finance, in Cercle des conomistes (eds), Esprances et menaces de la nouvelle conomie, Paris: Descartes & Cie, pp. 295306. Blanchard, Olivier and Fitoussi, Jean-Paul (1997), Croissance et chmage, Conseil dAnalyse conomique, no. 7, Paris: La documentation Franaise, pp. 938. Blanchard, Olivier J. and Watson, M.W. (1984), Bulles, anticipations rationnelles et marchs financiers, Annales de lINSEE, 54, AprilJune, 7999. Blinder, Alan S. (1998), Central Banking in Theory and Practice, Cambridge, MA: MIT Press. Boisivon, Jean-Pierre (2000), Nouvelle conomie, nouvelles mthodes ducatives, in Cercle des conomistes (eds), Esprances et menaces de la nouvelle conomie, Paris: Descartes & Cie, pp. 40520. Bowles, Samuel (1988), Business ascendancy and economic impasse: a structural retrospective on conservative economics, 19791987, Journal of Economic Perspectives, 3(1), 10734. Boyer, Robert (ed.) (1986), La flexibilit du travail en Europe, Paris: La Dcouverte. Boyer, Robert (1988), Dun krach boursier lautre: Irving FISHER revisit, Revue Franaise dconomie, III(3), Summer, 183216. Boyer, Robert (1999), Will the Japanese and the German innovation systems cope with the challenges of the XXIst century?, Economic Research Center Discussion Paper, no. 112, Economic Research Center School of Economics, Nagoya University, February. Boyer, Robert (2000a), Is a finance-led growth regime a viable alternative to Fordism? A preliminary analysis, Economy and Society, 29(1), February, 11145. Boyer, Robert (2000b), Rformes des procdures europennes et croissance, Rapport du Conseil dAnalyse conomique, no. 27, in Pierre Jacquet, Jean Pisani-Ferry et al. (eds), Questions europennes, Paris: La Documentation Franaise, pp. 72108.
156
Boyer, Robert (2000c), The French welfare: an institutional and historical analysis in European perspective, Couverture Orange CEPREMAP, no. 20002007, July (www.cepremap.cnrs.fr) Boyer, Robert (2001a), Lconomiste face aux innovations qui font poque: les relations entre histoire et thorie, Revue conomique, 52(5), September, 1065115. Boyer, Robert (2001b), Un retard de lEurope? Mythes et ralits, in Centre Saint-Gobain pour la Recherche conomique (ed.), Institutions et croissance, Paris: Albin Michel, pp. 32798. Boyer, Robert and Didier, Michel (1998), Innovation et croissance, Conseil dAnalyse conomique, no. 10, Paris: La documentation Franaise, Paris, pp. 11132. Boyer, Robert and Durand, Jean-Pierre (1997), Laprs fordisme, 2nd edn, Paris: Syros-La Dcouverte. Boyer, Robert and Freyssenet, Michel (2000a), Les modles productifs, Paris: La Dcouverte, sub-collection. Boyer, Robert and Freyssenet, Michel (2000b), Fusions-acquisitions et stratgies de profit, Revue Franaise de Gestion, 131, November December, 208. Boyer, Robert and Juillard, Michel (1992), The new endogeneous growth theory versus a productivity regime approach: one century of American economic history revisited, Couverture Orange CEPREMAP, no. 9210. Boyer, Robert and Juillard, Michel (1995), Les tats-Unis: Adieu au fordisme!, in R. Boyer and Y. Saillard (eds), Thorie de la rgulation: Ltat des savoirs, Paris: La Dcouverte, pp. 37888. Boyer, Robert and Souyri, Pierre F. (eds) (2001), Mondialisation et rgulations, Paris, La Dcouverte. Boyer, Robert and Yamada, Toshio (eds) (2000), Japanese Capitalism in Crisis, London: Routledge. Boyer, Robert, Charron, Elsie, Jrgens, Ulrich and Tolliday, Steven (eds) (1998), Between Imitation and Innovation, Oxford: Oxford University Press. Brender, Anton and Pisani, Florence (1999), Le nouvel ge de lconomie amricaine, Paris: Economica. Brender, Anton and Pisani, Florence (2001), Les marchs et la croissance, Paris: Economica. Bresnahan, Timothy F. (2002), The mechanisms of information technologys contribution to economic growth, in Institutions et innovation, Paris: Albin Michel, pp. 287322. Bresnahan, Timothy F. (2002), la contribution des technologies de linformation la naissance conomique, in Jean-Philippe Touffut (ed.), Institutions et innovation, Paris: Albin Michel, pp. 287323.
Bibliography
157
BRIE (2001), Tracking a transformation: E-Commerce and the Terms of Competition in Industry, Washington, DC: Brookings Institution Press. Brousseau, Eric and Rallet, Alain (1999), Technologies de linformation, organisation et performances conomiques, Rapport du groupe de travail, Commissariat Gnral du Plan, Paris. Brynjolfsson, Erik and Hitt, Lorin M. (2000), Beyond computation: information technology, organizational transformation and business performance, The Journal of Economic Perspectives, 14(4), Fall, 2348. Caroli, Eve and Van Reenen, John (2001), Skill biased organizational change? Evidence from a panel of British and French establishments, Quarterly Journal of Economics, 116(4), 144992. Castells, Manuel (2000), The Information Age: Economy, Society, and Culture, revised edn, Oxford: Blackwell. Castells, Manuel (2001), La galaxie Internet, Paris: Fayard. Cecchetti, Stephen G., Genberg, Hans, Lipsky, John and Wadhwani, Sushil (2000), Asset Prices and Central Bank Policy, Geneva: CEPR. Coase, R.H. (1937), The nature of the firm, Economica, November, trans. (1987), La nature de la firme, Revue franaise dconomie, II(1), Hiver, 386405. Cohen, Daniel and Debonneuil, Michle (2000), Lconomie de la nouvelle conomie, Conseil dAnalyse conomique, no. 28, Paris: La Documentation Franaise, pp. 949. Cohen, lie (2000), Nouvelle conomie, nouveau management, dans Cercle des conomistes (ed.), Esprances et menaces de la nouvelle conomie, Paris, Descartes & Cie, pp. 36786. Cohen, Stephen, DeLong, Bradford J., Weber, Steven and Zysman, John (2001), Tools: drivers of e-commerce, in Tracking a Transformation: E-commerce and the Terms of Competition in Industries, Washington, DC: Brookings Institution Press. Commission of the European Communities (2000), Communication from the Commission to the Council and the European Parliament: innovation in a knowledge-driven economy, Com (2000) 567 final, mimeograph. Commission of the European Communities (2001), Benchmarking enterprise policy: results from the 2001 scoreboard, Brussels, Commission Staff Working Paper, SEC (2001) 1900, 21.11.2001. Coppel, Jonathan (2000), E-commerce: impacts and policy challenges, OECD, Economic Department Working Papers, no. 252, June. Council of Economic Advisors (2001), Economic Report of the President, Washington, DC: United States Government Printing Office. Courtis, Kenneth (2001), tats-Unis, Japon, Europe: le basculement des annes quatre-vingt-dix, in Robert Boyer and Pierre F. Souyri (eds), Mondialisation et rgulations, Paris: La Dcouverte, pp. 4958.
158
Coyle, Diane (1999), The Weightless World: Strategies for Managing the Digital Economy, Cambridge, MA: MIT Press. Curien, Nicolas (2000), conomie des rseaux, Paris: Repres, La Dcouverte. Cutler, David M. (2000), Walking the tightrope on Medicare reform, Journal of Economic Perspectives, 14(2), Spring, 4556. Dasgupta, Partha and David, Paul A. (1994), Toward a new economic of science, Research Policy, 23, 487521. David, Paul A. (1987), Some new standards for the economics of standardization in the information age, in P. Dasgupta and P. Stoneman (eds), Economic Policy and Technological Performance, Cambridge: Cambridge University Press. David, Paul A. (1991), Computer and dynamo. The modern productivity paradox in a not-too-distant-mirror, in Technology and Productivity: The Challenge for Economic Policy, Paris: OECD. David, Paul A. (2000), Understanding digital technologys evolution and the path of measured productivity growth: present and future in the mirror of the past, in E. Brynjolfsson and B. Kahin (eds), Understanding the Digital Economy, Cambridge, MA: MIT Press. David, Paul A. (2001), Cooperation, creativity and closure in scientific research networks, paper presented at the second conference of The Saint-Gobain Centre for Economic Studies, reproduced as La coopration, la crativit et la clture des dbat, in Jean-Philippe Touffut (ed.) (2002), Institutions et innovation: de la recherche aux systmes sociaux dinnovation, Paris: Albin Michel. Dlgation Europenne au Japon (2000), The new economy, mimeograph, Tokyo. DeLong, Bradford J. and Summers, Lawrence H. (2001), The new economy: background, questions, and speculations, mimeograph, U.C. Berkeley, Conference Draft, August. Desruelle, Paul and Burgelman, Jean-Claude (2002), The impact of ecommerce: a prospective look on changing value chains in selected areas, ENCIP Euro CPR Conference, Barcelona, 2426 March. Dirks, Daniel, Huchet, Jean-Franois and Ribault, Thierry (eds) (1999), Japanese Management in the Low Growth Era: Between External Shocks and Internal Evolution, Berlin, Springer-Verlag. Docks, Pierre (2000), Nouvelle conomie et thories conomiques, in Cercle des conomistes (eds), Esprances et menaces de la nouvelle conomie, Paris, Descartes & Cie, pp. 13952. Dosi, Giovanni, Teece, David and Winter, Sydney (1990), La frontire des entreprises: vers une thorie de la cohrence des grandes entreprises, Revue dEconomie Industrielle, 151, 23854.
Bibliography
159
Drache, Daniel (ed.) (2001), The Market or the Public Domain, London: Routledge. Dumnil, Grard and Lvy, Dominique (1996), La dynamique du capital. Un sicle dconomie amricaine, Paris: Presses Universitaires de France. Dumnil, Grard and Lvy, Dominique (2000), Crise et sortie de crise: Ordre et dsordres nolibraux, Paris: PUF, Actuel Marx Confrontation. Duval, Guillaume (2000), Les conditions du rattrapage europen, La Revue, Confdration franaise dmocratique du travail, no. 35, Novembre, 39. Duval, Romain (2000), Quel crdit faut-il accorder la Nouvelle conomie amricaine, mimeograph, Paris: Direction de la Prvision. Easterlin, Richard (1996), Growth Triumphant: The Twenty-first Century in Historical Perspective, Ann Arbor: University of Michigan Press. Eliasson, Gunnar (1984), Micro-heterogeneity of firms and the stability of industrial growth, Journal of Economic Behavior and Organization, 5(34), 24974. Eliasson, Gunnar (1998), On the micro foundations of economic growth: human capital, firms organization and competitive selection, in Jacques Lesourne and Andr Orlan (eds), Advances in Self Organization and Evolutionary Economics, Paris: Economica, pp. 287307. Federal Reserve Bank of Boston (1980), The decline in productivity growth, Proceedings of a Conference held in June, Conference Series no. 22, Boston, Federal Reserve Bank. Fisher, I (1933), Une thorie de la dflation par la dette, French translation and reproduction in Revue Franaise dconomie, III(3), Summer. Fligstein, Neil (2001), Le mythe du march, Actes de la Recherche en Sciences Sociales, 139, 312. Foray, Dominique (2000), Lconomie de la connaissance, Paris: La Dcouverte, sub-collection. Fraumeni, Barbara M. (2001), E-commerce: measurement and measurement issues, American Economic Review, Papers and Proceedings, 91(2), May, 31722. Freeman, Christopher (1987), Technology Policy and Economic Performance: Lessons from Japan, London: Pinter Publishers. Freeman, Christopher and Soete, Luc (1994), Work for All or Mass Unemployment? Computerised Technical Change into the XXIst Century, London: Pinter Publishers. Freyssenet, Michel, Mair, Andrew, Shimizu, Koichi and Volpato, Guiseppe (1998), One Best Way? Trajectories and Industrial Models of the Worlds Automobile Producers, Oxford: Oxford University Press. Gadrey, Jean (2000), Nouvelle conomie, nouveaux mythes?, Paris: Flammarion.
160
Garcia, Marie-Franoise (1986), La construction sociale dun march parfait: le march au cadran de Fontaines-en-Sologne, Actes de la Recherche en Sciences Sociales, 65, November, 213. Gatti, Donatella (2000), Product market competition and labour market imperfections, mimeograph CEPREMAP, Workshop on Institutional Complementarities, Paris, November. Gerschenkron, Alexander (1962), Economic Backwardness in Historical Perspective, Cambridge, MA: Harvard University Press. Glowinski, Albert (2002), conomie des tlcommunications, Encyclopedia Universalis, version 7. Gomes, Lee (2001), Can business to business survive? Hunt family finds fax and telephone beat out Internet, Wall Street Journal Europe, Net Working, 19 March, 234. Goolsbee, Austan (2001), Education and the Internet, Brookings Task Force on the Internet, The Economic Payoff from the Internet Revolution, Washington, DC: Brookings Institution Press. Gordon, Robert J. (2000a) Interpreting the one big wave in US long-term productivity growth, Working Paper no. 7752, Cambridge, MA, National Bureau of Economic Research, June. Gordon, Robert J. (2000b) Does the new economy measure up to the great inventions of the past?, The Journal of Economic Perspectives, 14(4), Fall, 4974. Gordon, Robert J. (2001), La technologie et les succs de lconomie amricaine, in Centre Saint-Gobain pour la Recherche en conomie (ed.), Institutions et croissance, Paris: Albin Michel, pp. 279326. Greenan, Nathalie (2001), Changements organisationnels et performances conomiques: thorie, mesures et tests, thesis, EHESS, January. Greenspan, Alan (2000), Technology and the economy, speech before the Economic Club of New York, 13 January. Gruner, Stephanie and Boston, William (2001), How to avoid dot-com death, Convergence, 7(1), Spring, 201. Guellec, Dominique (2000), Economic growth in Europe: entering a new era?, mimeograph presented at the Forum conomique Franco-Allemand, 1718 January. Guellec, Dominique (2002), Lmergence dune conomie fonde sur la connaissance, mimeograph, Institutions et innovation, Paris: Albin Michel. Guilhon, Bernard (2001), Technology and Markets for Knowledge, Norwell, MA: Kluwer. Hall, Robert E. (2000), Struggling to understand the stock market, American Economic Review, 91(2), May, 111. Hanck, Bob (1999), Varieties of capitalism revisited: globalisation and comparative institutional advantage, La Lettre de la Rgulation, 30, 14.
Bibliography
161
Hansen, Bruce E. (2001), The new econometrics of structural change: dating breaks in US labor productivity, Journal of Economic Perspectives, 15(4), Fall, 11728. Hayek, Friedrich von (1945), The Use of Knowledge in Society, reproduced (1948) in Individualism and Economic Order, London: Routledge and Kegan Paul. Heffer, Jean (1976), La Grande Dpression: les Etats-Unis en crise (19291933), Paris: Gallimard, Paris. Heiner, Ronald (1988), Imperfect decisions and routinized production: implications for evolutionary modelling and inertial technical change, in G. Dosi, C. Freeman, R. Nelson, G. Silverberg and L. Soete (eds), Technical Change and Economic Theory, London: Pinter Publishers. Hobin, Bart and Jovanovic, Boyan (2001), The information-technology revolution and the stock market: evidence, American Economic Review, 91(5), December, 120320. Ingrao, B. and Israel, G. (1990), The Invisible Hand: Economic Equilibrium in the History of Science, Cambridge, MA: MIT Press. IPTS (2001), Future Bottlenecks in the Information Society, Report to the European Parliament, Committee on Industry, External Trade, Research and Energy (ITRE), June, Seville: Institute for Prospective Technological Studies, EUR 19917 EN. Jacobzone, Stphane (2001), Healthy ageing and the challenges of new technologies: can OECD social and health care systems provide for the future?, mimeograph, OECD, Directorate for Education, Employment, Labour and Social Affairs. Jacquillat, Bertrand (2000), Comment valoriser les entreprises de la nouvelle conomie?, in Cercle des conomistes (ed.), Esprances et menaces de la nouvelle conomie, Paris, Descartes & Cie, pp. 30720. Jorgenson, Dale W. and Stiroh, Kevin J. (2000), Raising the speed limit: U.S. economic growth in the information age, Brookings Papers on Economic Activity, no. 1, 125235. Kaldor, Nicholas (1981), The role of increasing returns, technical progress and cumulative causation in the theory of international trade and economic growth, conomie Applique, 34(4), 593617. Kelly, Kevin (1998), New Rules for the New Economy, New York: Penguin Books. Kenney, Martin and Curry, James (2001), The internet and the personal computer value chain in BRIE, Tracking a Transformation: E-commerce and the Terms of Competition in Industries, Washington, DC: Brookings Institution Press, pp. 15177. Kindleberger, Charles P. (1978), Manias, Panics, and Crashes: A History of Financial Crises, New York: Basic Books.
162
Kogut, Bruce (2000), The transatlantic exchange of ideas and practices: national institutions and diffusion, mimeograph, prepared for the IFRI Seminar on The New American Challenge: Firms Strategies and European Policies, Institut Franais des Relations Internationales, 3 October. Krueger, Alan B. and Lindahl, Mikael (2000), Education for growth: why and for whom?, Working Paper, no. 7591, National Bureau of Economic Research, Cambridge, MA, March. Law, John and Callon, Michel (1992), The life and death of an aircraft: a network analysis of technical change, in Wiebe Bijker and John Law (eds), Shaping Technology/Building Society: Studies in Socio-technical Change, Cambridge, MA: MIT Press, pp. 2152. Lazaric, Nathalie and Lorenz, Edward (eds) (1998), Trust and Economic Learning, Cheltenham: Edward Elgar. Le Monde (2001a), Le Dow Jones rsiste encore la dconfiture des bourses mondiales, 18 August, 10. Le Monde (2001b), Dell enregistre une perte nette pour la premire fois depuis 1993, 18 August, 11. Lequiller, Franois (2001), La nouvelle conomie et la mesure de la croissance du PIB, Document de travail INSEE, Direction des tudes et Synthses conomiques, no. G 200/.01. Lesourne, Jacques (1991), conomie de Lordre et du dsordre, Paris: Economica. Lesourne, Jacques (2001), Ces avenirs qui nont pas eu lieu, Paris: ditions Odile Jacob. Lewis, Ted G. (1999), Microsoft rising and other tales of Silicon Valley, Computer Society of Los Alamitos, CA. Litan, Robert E. and Rivlin, Alice M. (2001), Projecting the economic impact of the Internet, American Economic Review, Papers and Proceedings, 91(2), May, 31316. Lordon, Frdric (2001a), Classicisme de la nouvelle conomie, LAgefi, 13 March. Lordon, Frdric (2001b), Les oublis de la nouvelle conomie, LAgefi, 20 March. Lorentz, Francis (2000), Nouvelles technologies: ltat bouscul, in Roger Fauroux and Bernard Spitz (eds), Notre tat. Le livre vrit de la fonction publique, Paris: Robert Laffont, pp. 64366. Lorenzi, Herv (2000), Nouvelle conomie et e-commerce, in Cercle des conomistes (ed.), Esprances et menaces de la nouvelle conomie, Paris: Descartes & Cie, pp. 26794. Lucas, Robert E. (1983), Studies in Business Cycle Theory, Cambridge, MA: MIT Press.
Bibliography
163
Lucas, Robert E. (1988), On the mechanisms of economic development, Journal of Monetary Economics, 72, July, 342. Lucas, Robert E. (1993), Making a miracle, Econometrica, 61(2), 25172. Lundvall, Bengt-ke (ed.) (1992), National Innovation Systems: Towards a Theory of Innovation and Interactive Learning, London: Pinter Publishers. McKnight Lee and Bailey, Joseph P. (eds) (1998), Internet Economics, Cambridge, MA: MIT Press. Malerba, Franco (2002), Les rgimes technologiques et les systmes sectoriels dinnovation en Europe, in Jean-Philippe Touffut, Institutions et innovation, Paris: Albin Michel, pp. 20347. Marsden, David (2001), Ladaptation des institutions du march du travail la nouvelle donne conomique, in Centre Saint-Gobain pour la Recherche conomique (ed.), Institutions et croissance, Paris: Albin Michel, pp. 6192. Martinez, Michel (2001), La position de la France dans les technologies de linformation. Une comparaison avec les tats-Unis, le Royaume-Uni et lAllemagne, Revue de Rexecode, 71, 4176. Maurice, Jol (2001), Prix du ptrole, Conseil dAnalyse conomique, no. 32, Paris: La Documentation Franaise. Milgrom, Paul and Roberts, John (1990), The economics of modern manufacturing: technology, strategy, and organization, American Economic Review, 80(3), June, 51128. Milgrom, Paul and Roberts, John (1992), Economics, Organization and Management, Englewood Cliffs, NJ: Prentice-Hall International Editions. Mistral, Jacques and Kempf, Elizabeth (1988), Flexibilit des salaries: limpact des annes Reagan, Economic Perspective Internationale, 36(4), 97113. Muet, Pierre-Alain (1995), Ajustements macroconomiques, stabilisation et coordination en union montaire, Revue dEconomie Politique, 105(5), SeptembreOctobre, 73977. Muet, Pierre-Alain (1998), Coordination europenne des politiques conomiques, Rapport du Conseil dAnalyse conomique, no. 5, Paris: La Documentation Franaise, Nelson, Richard (ed.) (1993), National Innovation Systems: A Comparative Analysis, New York: Oxford University Press. North, Douglass C. (1990), Institutions, Institutional Change and Economic Performance, Cambridge and New York: Cambridge University Press. OECD (1985), Employment Outlook, Paris: OECD OECD (1999), The Knowledge-based Economy: A Set of Facts and Figures, Paris: OECD, 2223 June. OECD (2000), tudes conomiques de lOCDE: Les tats-Unis, Paris: Publications of the OECD. OECD (2001a), Ministerial report on growth, mimeograph, Paris: OECD, 9 March.
164
OECD (2001b), Towards a Knowledge-based Economy, OECD Science, Technology and Industry Scoreboard, Paris: OECD. Oliner, S.D. and Sichel, D.E. (2000), The resurgence of growth in the late 1990s: is information technology the story?, The Journal of Economic Perspectives, 14(4) Fall, 322. Orlan, Andr (2000), Le pouvoir de la finance, Paris: Odile Jacob. Orsi, Fabienne (2002), La constitution dun nouveau droit de proprit intellectuelle sur le vivant aux Etats-Unis, roneotype, CEPN-IIDE, Universit Paris 13-Villetaneuse. Patel, Pari and Pavitt, Keith (1995), Patterns of technological activity: their measurement and interpretation, in P. Stoneman (ed.), Handbook of the Economics of Innovation and Technological Change, Oxford: Blackwell. Paulr, Bernard (2001), Ambiguts et incertitudes de la New Economy, mimeograph, Colloquium, ADIS-Universit Paris Sud (XI), Nouvelle conomie: Thories et vidences, 1718 May, Paris. Penrose, Edith (1963), The Theory of the Firm, Oxford: Oxford University Press. Perkins, Anthony B. and Perkins, Michael C. (1999), The Internet Bubble, New York: Harper Business. Petit, Pascal (1998), Formes structurelles et rgimes de croissance de laprs fordisme, Anne de la Rgulation, 2, Paris: La Dcouverte, pp. 11738. Petit, Pascal and Soete, Luc (eds) (2001), Technology and the Future of European Employment, Cheltenham: Edward Elgar. Pilat, Dirk (2002), The role of technological change in recent growth patterns, mimeograph, Institutions et innovation, Paris: Albin Michel. Pollin, Jean-Paul (2000), Les banques centrales face aux dfis de la nouvelle conomie, in Cercle des conomistes (ed.), Esprances et menaces de la nouvelle conomie, Paris: Descartes & Cie, pp. 95124. Pontvianne, Aymeric (2001), Origines, dveloppement et implications du rapport salarial refoul aux tats-Unis, 19802000, Mmoire de DEA conomie des Institutions, Paris, Nanterre, Novembre. Porter, Michael (2001) Strategy and the Internet, Harvard Business Review, March, 6379. Raff, Daniel M.G. (1988) Wage determination theory and the five-dollar day at Ford, The Journal of Economic History, XLVIII(2), June, 38799. Ragin, Charles C. (1987), The Comparative Method, Berkeley, CA: The University of California Press. Ragin, Charles C. (1994), Constructing Social Research, Thousand Oaks, CA.: Pine Forge Press. Ragot, Xavier (2000), Division du travail, progrs technique et croissance, Paris: thesis, EHESS, Dcembre.
Bibliography
165
Ragot, Xavier and Touffut, Jean-Philippe (1998), Le partage du profit: de la pertinence lchelle de la firme la validit macroconomique, Lanne de la Rgulation, 2, Paris: La Dcouverte, pp. 13168. Rexecode (2000), Vers un nouvel ge dor de la croissance europenne, Revue de Rexecode, no. 68, 3rd quarter. Rodrigues, Maria Joao (ed.) (2001), The New Knowledge Economy in Europe: A Strategy for International Competitiveness with Social Cohesion, Cheltenham: Edward Elgar. Romer, Paul (1990), Endogenous technological change, Journal of Political Economy, 98(5) S71S102. Rostow, Walter (1965), Les tapes de la croissance, (trans.), Paris: Seuil. Sachwald, Frdrique (2000), The challenge of innovation based competition: a transatlantic perspective on ICT, mimeograph, The New American Challenge: Firms Strategies and European Policies, Institut Franais des Relations Internationales. Saxenian, AnnaLee (2001), Transnational technical communities and regional growth in the periphery, Working paper, University of California, Berkeley. Scarpetta, Stefano, Bassanini, Andrea, Pilat, Dirk and Schreyer, Paul (2000), Economic growth in the OECD area: recent trends at the aggregate and sectoral level, Paris: OECD, Economic Department Working Paper no. 248. Schumpeter, Joseph (1911), Thorie de lEvolution Economique. Recherche sur le profit, le crdit, lintrt et le cycle de la conjoncture, trans. (1983), Paris: Dalloz. Schumpeter, Joseph (1954), Capitalism, Socialism and Democracy, 4th edn, London: Allen and Unwin. Sen, Amartya (2000), Development as Freedom, New York: Anchor Books. Sessin, Thierry (2002), pargne salariale: lactionnariat salari et les options dachats dactions, Encyclopdia Universalis, version 7. Shapiro, Carl and Varian, Hal R. (1999), Information Rules: A Strategic Guide to the Network Economy, Cambridge, MA: Harvard Business School Press. Shiller, Robert J. (2000), Irrational Exuberance, Princeton, NJ: Princeton University Press. Shimizu, Kochi (1999), Le Toyotisme, Paris: La Dcouverte, sub-collection. Sicilia, David B. and Cruikshank, Jeffrey L. (2000), The Greenspan Effect: Words that Move the Worlds Markets, New York, McGraw-Hill. Smith, Meritt Roe and Marx, Leo (eds) (1998), Does Technology Drive History? The Dilemma of Technological Determinism, Cambridge, MA: MIT Press. Smith, Michael D., Bailey, Joseph and Brynjolfsson, Erik (2000), Understanding digital markets: review and assessment, in Erik Brynjolfsson and Brian Kahin (eds), Understanding the Digital Economy, Cambridge, MA: MIT Press, pp. 99136.
166
Soete, Luc (2001a), Limpact de linnovation, de la concurrence et de la rglementation sur la croissance: les enseignements rcents de lexprience europenne, in Centre Saint-Gobain pour la Recherche conomique (ed.), Institutions et croissance, Paris: Albin Michel, pp. 24378. Soete, Luc (2001b), The challenges and the potential of the knowledge-based economy in a globalized world, in Maria Joao Rodrigues (ed.), The New Knowledge Economy in Europe: A Strategy for International Competitiveness with Social Cohesion, London: Routledge, Ch. 2. Solow, Robert M. (1987), Wed better watch out, New York Review of Books, 12 July, 36. Sraffa, Piero (1962), La production de marchandises par des marchandises, trans. Paris: Dunod. Stiglitz, Joseph (1987), Dependence of quality on price, Journal of Economic Literature, XXV, March, 148. Stiroh, Kevin J. (2001), Information technology and the US productivity revival: what do the industry data say?, Staff Reports, 115, Federal Reserve of New York. Taylor, John B. (2001), The role of the exchange rate in monetary-policy rules, American Economic Review, 91(2), May, 2637. Temple, Jonathan (2000), Summary of an informal workshop on the causes of economic growth, Economic Department Working Papers, no. 260, OECD, October. Teubal, Morris and Zuscovitch, Ehud (1994), Demand Revealing and Knowledge Differentiation through Network Evolution, Johansson Borje et al. (eds), Patterns of a Network Economy, Heidelberg: Springer Verlag, pp. 1531. The Economist (2000), Nokia: a Finnish fable, 14 October, 97103. The Economist (2001a), Whats left?, Special Report on the New Economy, 12 May, 835. The Economist (2001b), The Internets new borders, 11 August, 910. The Economist (2001c), American productivity: a spanner in the productivity miracle, 11 August, 556. The Economist (2001d), Putting it in its place, Special Report, Geography and the Net, 11 August, 1820. The Economist (2002a), A survey of the real-time economy, A Special Survey, 2 February, 118. The Economist (2002b), Global Crossings bankruptcy: survival of the slowest, 2 February, 57. The Economist (2002c), Enron and auditing, and the trouble with accounting, 915 February, 9, 614. Triplett, Jack (1999), Economic statistics: the new economy and the productivity slowdown, Business Economics, 34(2), April, 1317.
Bibliography
167
US Department of Commerce (1975), Historical Statistics of the United States: Colonial Times to 1970, Washington, DC: US Bureau of Census. US Department of Commerce (1991), Statistical Abstract of the United States, 1991, Washington, DC: US Bureau of Census. Varian, Hal R. (2000), Market Structure in the Network Age, in Erik Brynjolfsson and Brian Kahin (eds), Understanding the Digital Economy, Cambridge, MA: MIT Press, pp. 13750. Vidal, Jean-Franois (2000), Dpression et retour de la prosprit. Les conomies europennes la fin du XIXe sicle, Paris: LHarmattan. Von Neumann, John (1945), A model of general economic equilibrium, Review of Economic Studies, 13. Walliser, Bernard (2000), Lconomie cognitive, Paris: Odile Jacob. Weber, Steven (2001), The political economy of open source software, in BRIE, Tracking a Transformation: E-commerce and the Terms of Competition in Industry, Washington, DC: Brookings Institution Press, pp. 15177. Weisskopf, Thomas E., Bowles, Samuel and Gordon, David M. (1983), Hearts and minds: a social model of US productivity growth, Washington, DC: Brookings Papers on Economic Activity, no. 2, pp. 381450. White, Harrison C. (1981), Where do markets come from?, American Journal of Sociology, 87(3), 51747. Williamson, O. (1985), The Economic Institutions of Capitalism, New York: The Free Press. Womack, James P., Jones, Daniel T. and Roos, Daniel (1990), The Machine that Changed the World, New York: Harper Perennial. Zarnowitz, Victor (2000), The Old and the New in US Economic Expansion of the 1990s, Working Paper no. 7721, Cambridge, MA: National Bureau of Economic Research, May. Zuscovitch, Ehud (1998), Networks, specialization and trust, in Patrick Cohendet et al. (eds), The Economics of Methods: Interaction and Behaviours, Heidelberg: Springer Verlag, pp. 24364. Zysman, John and Weber, Steven (2001), Governance and politics of the Internet economy: historical transformation or ordinary politics with a new vocabulary, in N.J. Smelser and P.B. Baltes (eds), International Encyclopedia of the Social and Behavioral Sciences, Oxford: Elsevier Science Ltd.
Index
accelerated catch-up 712 agribusiness 104 air transportation 412, 47 Annales school 78 anthropogenetic model emergence 4, 12044, 1512 prospects for xvxvi antitrust laws 48, 50, 58 Asian crisis 63 assembly lines 26 asset prices 88 auction mechanism 81, 150 automobile sector 48, 109, 1356, 141 e-commerce 3740 historical perspective 914 balanced budget, US 58 banking sector 3740, 49 bankruptcies 86, 98, 110, 151 bargaining strength 1819, 25 Baumol effect 139 benchmarking 4464 biotechnology 136, 1412, 152 Boolean analysis 67, 6970, 72, 735 brain drain 1089 budgetary adjustment, US 59 Bush, George W. 84 business-to-business trading 22, 24, 95 business-to-consumer trading 22, 95 business cycles 104, 106 business models 11718 byte tax 113 capital 28, 56, 60, 64, 109 cultural 1078 deepening 84 economic 1078 intangible 1067, 112 -labour relations 57, 140 -output ratio 84 over-accumulation 2, 837, 98, 106, 149 start-up losses 813 structure 84, 85 transfer 78 see also investments; venture capital capital goods 7881, 834, 87, 141, 148, 149 capitalism 48, 87, 113, 148, 150 capitalist firm 24 catalogue sales 915 central bank 47, 111, 112, 149 see also Federal Reserve Bank chart-ists 89 civilian uses (defence ICT) 58 Classical economists 137 codes, computer programming 128, 130 collective goods 1078 collective management 111 Commission of the European Communities 53, 63 communist firm 24 competencies 13031, 1326, 147 competition 234, 478, 69, 71, 148 altered 15051 altering forms of 1819 cooperation and 1257 imperfect 11, 127 market 1516 paradox 16 perfect 16, 10910, 111 reinforced 523 transformation of 17 competitive advantage 21, 37, 60, 135, 151 competitive markets 15051 competitiveness (sources) 979 complementarity, inter-institutional 72, 73 computer programming codes/logos 128, 130 computer sector 345, 108, 110 computerization trend 56 computers 104, 105, 109, 135 historical perspective 914 168
Index conservative policies, deregulation and 478, 69 consumer goods 567, 80, 14041 consumption 59, 138, 139 mass 44, 47, 147 contract theory 21 controlled migration 20 cooperation 71, 121, 1257, 150 corporate organizational models 8, 1425, 108, 145, 151 corporate restructuring 32 corporate strategy 87, 98 costs fixed 15, 21, 80 information-processing 19, 25, 28, 32, 42, 120, 125, 131 marginal 1516 sunk 97 transaction 21, 131 transition 25 transmission 32, 125, 131, 143 Council of Economic Advisors 63 creative-destructive process 71 crisis 78, 1234, 1456 -exit strategies/visions 51, 64 over-accumulation 2, 837, 98, 106, 149 crowding-out theory 58 cultural capital, inequality and 1078 customer loyalty 18, 25, 40 de-industrialization process 45 decision making 24, 56, 86, 105 defence sector (peace dividend) 578 delocalization 456, 105, 108 demand 17, 18, 24, 57, 734, 99, 123 demographics 136, 1378 deregulation 7, 42, 469, 71, 117, 147 labour market 64, 68, 69 product market 513, 64, 6970, 745 digital divide 2, 107, 1089 digital revolution 90, 108 digital society theory 10 digitalized information 1417, 150 distribution channels 97 distribution sector 40, 41 dividends 89 division of labour 26, 54, 132, 144 international 141 Dow Jones 7, 60, 61, 98, 104 durable goods 29, 40, 41, 77, 138 dynamo (historical perspective) 914
169
e-commerce/e-business 1819, 111, 113 historical perspective 914, 957 sectoral trajectories 3740 econometric studies 72 economic capital 1078 economic cycles 106 economic geography 111 economic growth see growth economic policy 5860 economies of scale 15, 39 education 99, 108, 1367, 13941, 148 cooperation and 71 electronic portals 1819, 234, 125 electronics sector 48 electronization of lifestyles 105 employment 108, 121 contracts 110, 147 performance 745 protection 72 relationship 535, 80, 110, 111, 147, 149 Employment Retirement Income Security Act (ERISA) 49 endogenous growth theory 10, 11, 12, 78, 137 energy sector 45, 46 equality 115 European countries 5960, 634, 69 success (comparative data) xiiixiv evolutionist theory 21 exchange theory 112, 127, 128, 130 exogenous shocks 9, 11, 78, 149 experience good 16 family, inequality and 1078 Federal Reserve Bank 3, 33, 59, 89, 112 of Boston 44 finance-driven growth regime 4950 financial innovation xivxv, 3, 78 multiform 6062 financial markets 60, 70, 78, 80 financial sector 4041 regulation 110, 11213 fiscal policy 86 fixed costs 15, 21, 80 foie gras (case example) 1334
170
The future of economic growth experimental phase 213 financial innovation 6062 future 245, 145, 147, 14852 as generic technology 30, 5051 geography of 109, 145 historical perspective 914 impact 1425 long-term historical outlook 10119 management problems 557 mature industry 1489 myths 1057 -oriented virtuous circle 2930 overestimating role of 1015 production/use 735 shared vision 12 strategies available 1921 technological change process 658 US domination 63 imitation effect 104 imperfect competition 11, 127 imperfect information 16 increasing returns 10, 11, 1517, 25, 107, 114 individual choices 13940 industrial relations 4, 53, 110, 147 industrial revolutions 32, 50, 90, 98, 11516, 1312 inequality 1079 inflation 33, 44, 47, 52, 57, 59, 107, 112, 149 information 68 channels/accumulation 1056 costs 19, 25, 28, 32, 42, 120, 125, 131 digitalized 1417, 150 imperfect 16 management systems 37, 117 primacy of competency 1326 processing 17, 18, 19, 367, 50, 56, 115, 130, 131 revolution 1, 46, 99, 143 role/function 1425 information economy 1517, 104, 1258, 13031, 136, 141, 151 information highways 58, 127 information technology 48, 109, 116, 141, 151 informational goods see goods informational rent 21, 23, 111 infrastructure 12 of networks 17, 19, 126, 127
Fordism 5, 6, 8, 534, 567, 712, 98, 107, 110, 127, 140 growth regime 4451, 67, 77, 1478 forecasting (problems) 336 foreign direct investment 623 garbage in, garbage out 1056 gene sequencing 128, 130 genealogy of new economy 4464 genome encoding/decoding 1345, 136 geography of ICT 109, 145 of new economy 6576, 1478 US transformation 89 Germany 478, 59 goods capital 7881, 834, 87, 141, 1489 collective 1078 consumer 567, 80, 14041 durable 29, 40, 41, 77, 138 informational 19, 21, 247, 29, 345, 57, 63, 65, 71, 967, 101, 104, 109, 114, 140 nomadic 101, 1045 standard 95, 96 Gordon, Robert 28, 29, 30, 34, 356 GPS 104 Great Depression 106 Greenspan, Alan 7, 33, 88, 112 growth 112, 127, 131 anthropogenetic model xvxvi Fordist regime (successors) 4451 hybridization process 723, 148 ICT-driven 8, 2643, 77100 potential (forecasting) 336 GSM 20, 21, 104 hardware 17, 19, 37, 104 healthcare 99, 104, 136, 137, 13842 history/historical analysis 89, 145 household savings 623, 149 household spending 138 humans, production of (by humans) 1378, 144, 152 hybridization process (economic growth) 723, 148 ICT 23, 70 anthropogenetic approach 12044 -driven growth (20002002) 77100 -driven growth regime 8, 2643, 44
Index inheritance, inequality and 1078 innovation 9, 10, 11, 54, 70, 116 financial 50, 6062 historical perspective 914 multiform 50, 6062 peace dividend 578 reinforced competition and 523 rent 71, 10910, 137 sources 979, 104, 1312, 141 technological 989, 108, 1312, 151 technological paradigms 57, 9099 Institute for Prospective Technological Studies 53 institutional architectures 634, 6576 institutional change 313, 147 US 4464 intangible capital 1067, 112 intellectual property rights 46, 71, 114, 144, 148 interest rate 59, 84 intermediation 21, 23, 39 international comparisons 65 International Monetary Fund 64 internationalization 623, 723, 105 Internet 120, 121 economy 1819, 235, 11315, 150 uses of 212 Internet bubble 17, 24, 33, 124, 141, 149 lessons from 8690 long-term historical outlook 10119 phases 7786 Internet convention 50, 81, 83, 112 Introductory Public Offer (IPO) 77 inventory management 121, 123 investment 1517, 35, 47, 56, 59, 106, 149 collapse in ICT 813 fixed costs 21, 80 savings and 58, 623 see also speculation inward investment 623 Japan 46, 478, 60, 61, 64, 69, 112 Japanese model 6, 4850, 88, 978, 116, 12021, 152 just-in-time methods 40, 50, 121, 124, 132, 143 kanban 121, 23 Keiretsu 121
171
Keynes, John Maynard 88 Keynesianism 47, 106 know-how 130 knowledge 68, 71, 106, 13031 knowledge economy 1, 46, 60, 68, 7071, 120, 12536, 1434, 148, 1512 Kondratiev long waves 90 labour 57, 69, 84, 140 see also division of labour labour market 47, 60, 71, 110 competitive 535, 148 deregulation 64, 68, 69 laptop computers 104 large companies (management problems) 557 lean production 48, 121, 136, 143, 149 learning by communicating 132 curve effects 17 by doing 132 effects 18, 267 lifelong 70, 148 by using 132 leisure 99, 104, 140 lifelong employment 121 lifelong learning 70, 148 living standards 5 logistical function 95 logos, computer programming 128, 130 long-run anthropogenetic model 13642 long-term (LT) company 121, 122 long-term changes (organizational and institutional) 313 long-term historical outlook (after Internet bubble) 10119 macroeconomics 89 management problems 557 manufacturing sector 37, 56 marginal costs 1516 market competition 1516 market logic, competition and 71 market mechanism 72 market prices 88, 89 market share 2, 18, 23, 112 market signals 8081, 86 market theory 21 Marxism 84, 137
172
The future of economic growth organizational model (search) 1925 phases 7886 promises/achievements 101, 1023 sectoral differences 3642 success of (crisis) 1456 uncertain shape of 335 Newly Industrialized Countries 46 Nikkei index 60, 61 nomadic goods 101, 1045 Nordic countries 1478 NorthSouth divide 101, 1089 OECD 53, 54, 69, 128, 138 countries 4, 378, 658, 75, 77, 151 oil crisis 45, 46 oil prices 78, 107, 149 old economy 83 new economy and 7, 268, 50, 11518, 119, 151 oligopoly 4042, 78, 109, 118 rents 16, 47, 119, 150 open science 131, 1434 openness (ICT strategies) 1920, 21 options theory 90 organizational changes 313 organizational model 8, 108, 145, 151 microeconomic instability and 1425 organizational structures 106 outliers (in econometric studies) 72 output 745, 84 over-accumulation 2, 836, 87, 98, 106, 149 patents 71, 130, 137 path dependency 18, 51, 125 PCs (historical perspective) 914 peace dividend 578 perfect competition 16, 10910, 111 performance (ICT producers) 1920, 21 personal and corporate services 42 Physiocrats 1367 policy mix (inflation/growth) 112 Ponzi scheme (Charles Ponzi) 81 portals 1819, 234, 125 price(s) 16, 47, 80, 88, 104 earnings ratio 61, 89 relative 17, 99 see also oil prices; share prices; stock prices producer goods 14041
mass consumption 44, 47, 147 mass production 19, 27, 356, 40, 44, 489, 567, 70, 72, 99, 113 mature industries 456, 105 mergers and acquisitions 46, 50, 109 Metcalfes Law 125 microeconomic instability 1425 microeconomics 89 microprocessors 105, 109 historical perspective 914 Minitel (historical perspective) 914 mobile phones 105, 115 monetarism 512 monetary policy 107, 111, 113 US 44, 47, 512, 59, 61, 64, 86 monopoly 16, 23, 107, 118 monopsony 23 Moores law 345 multiform financial innovations 50, 6062 multiform institutional changes 147 NASDAQ 7, 61, 77, 78, 81, 879, 98, 104, 110, 112, 148 nation state 11314 national accounting systems 35, 37 natural monopoly 16 natural resources 107 neo-classical economics 910 neo-Keynesians 10 neo-liberals 150 neo-Schumpeterian growth regime 5051 neo-Schumpeterian theory 10, 12, 13, 91 network economy 104, 120, 1248, 129 network effects 1718, 267 networks 24, 108, 118 infrastructure 17, 19, 126, 127 redundant 1417 New Deal 5 new economy 1516, 77 analytical challenge 513 demise 11617, 118, 143 emergence xixii, 11617, 128 figures (sub-sectors) 1719 future/conclusions 14552 genealogy of (USA) 4464 geography of 6576, 1478 myths 23, 4, 97 old economy and 7, 268, 50, 11518, 119, 151
Index product differentiation 10, 46, 48 product market 71 deregulation 513, 64, 69, 70, 745 production 16, 24 demand and 57, 734 good, ICT as 567 lean 48, 121, 136, 143, 149 mass see mass production productive paradigm 1, 6, 12, 54, 57, 59, 90, 145 productive structures 98 productivity 28, 44, 47, 102 cycle 67, 3031, 35, 545, 62 exogenous shocks 9, 11, 78, 149 forecasting (problems) 336 gains/growth 2932, 56, 84, 91, 989, 11819, 145, 148 sectoral differences 3642 total factor 5, 12, 31, 52, 62, 734, 140 profit 61, 7881, 836, 88, 104, 10910, 112, 150 property rights 26, 113 intellectual 46, 71, 114, 144, 148 property sector 107 public domain/institutions 11415 public goods 2, 130 public services 1078, 143 qualitative comparative analysis 67 quality of life 99 quasi-monopoly 78, 118 railroad (historical perspective) 914 rational expectations hypothesis 105, 130 rationing 130 Reagan, Ronald 47, 52, 69 real-time (RT) company 121, 122, 1234 real-time economy 129, 135, 136, 143 recession 2, 4, 84, 98, 110, 11819, 150 regional inequalities 1089 regulation 86, 10915, 147, 150, 151 rents 19, 107 informational 21, 23, 111 innovation 71, 10910, 137 oligopoly 16, 47, 119, 150 research and development 12, 17, 21, 58, 59, 66, 71, 74, 117, 128 reserve army of labour 84 responsiveness, company 12024 retail trade 40, 41 retirement system (US) 49 returns to scale 26, 27, 46, 128 Ricardian model 107 risk 60
173
savings 58, 623, 149 Scandinavian countries 667 school, inequality and 1078 Schumpeter, Joseph 10, 90, 116 Schumpeterian entrepreneurs 86 Schumpeterian model 10, 11, 68, 71, 75, 90, 149 scientific knowledge 130 sectoral analysis 65 sectoral differences 3642 services 367, 412, 56, 99, 107, 143 share prices 2, 81, 82, 889, 98, 110, 112, 146 shared economy 7 shareholder value 4950, 81, 84, 86, 149 Silicon Valley 12, 6, 8, 75, 779, 87, 10710, 118, 145, 147, 14950 skilled workers 108 Sloanism/Sloanist firm 56, 12021, 123 Smith, Adam 26 social-democratic model 678, 71, 75, 108, 110, 141, 148 social inequality 1079 social justice 3, 1079 social protection 4, 108, 141, 147 socialist firm 24 software 1718, 19, 37 Solow paradox 2833 speculation 2, 6062, 80, 83, 878, 112, 146, 148, 150, 152 spending, household 138 stages of growth model 72 standard goods 95, 96 standards (network effects) 1718 Star Wars 6, 49, 116 start-ups 50, 60, 78, 80, 148 accumulated losses 813 historical outlook 110, 112, 11618 organizational model 18, 19, 145 state (regulatory role) 111, 11315 stock market 4950, 60, 623, 767, 8990, 97, 107, 112, 116 stock options 80, 110 stock prices 812, 88, 107, 149
174
The future of economic growth transmission costs 32, 125, 131, 143 travel sector 3740 trust 127 UMTS 21, 104, 105 uncertainty 86 forecasting potential growth 336 organizational mode 1425 unemployment 45, 47, 53, 75 unskilled workers 108 USA development phases (1960s/1990s), 58 institutional change 4464 long-term historical outlook 10119 transformations 89 value-channel 108 value chain 38, 39, 45, 49, 56, 117 venture capital 2, 60, 64, 70, 76, 78, 116, 148 vertical integration 38, 39, 121, 128 virtuous circles 3, 17, 268, 148 virtuous growth 6873 wages 46, 47, 49, 534, 80, 110, 147, 149 Wall Street 14950 Walrasian theory 18, 111, 150 wealth effect 623 wholesale trade 40, 41 World Trade Centre 119, 149 World Wide Web 23, 24 historical perspective 914 see also Internet; Internet bubble; Internet convention World Trade Organization 64, 69
stop-go policy 59 structural changes 11213, 147 analysis in real time 912 subcontractors 23, 24, 39 sunk costs 97 super-modularity 40, 73 supply 18, 123 System Analyse Program (SAP) 83 takeovers 109 taxation 47, 834, 1078, 111, 11314 Taylorism 127 teamwork 50, 132 technological change 32, 658, 13940 technological determinism xiixiii, 3, 8, 44, 1079, 147 technological innovation 989, 108, 1312, 151 technological paradigms 57, 9099, 102, 145 technological progress 13940 technologies, appropriability of 131 telegraph (historical perspective) 914 telephone (historical perspective) 914 television, media and telecommunications (TMT) companies 97 textiles sector 3740 theoretical models 65 Third World countries 86 total factor productivity 5, 12, 31, 52, 62, 734, 140 total quality management 50, 121, 124, 132 trade unions 47, 53, 110, 111 training 121, 136, 137 transaction costs 21, 131 transition costs 25

Robert Boyer - The Future of Economic Growth

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Robert Boyer - The Future of Economic Growth

Uploaded by

Copyright:

Available Formats

The Future of Economic Growth

This page intentionally left blank

The Future of Economic Growth

THE SAINT-GOBAIN CENTRE FOR ECONOMIC STUDIES SERIES

The future of economic growth

65 65 65 68 70 71 73 75 77 77 77 86 90 99 101 101 101 105 107 109

Graphs and Boxes

Preface to the English edition

THE ILLUSIONS OF THE NEW ECONOMY MAY RE-EMERGE

The future of economic growth

THE SEDUCTIVE AND DANGEROUS NATURE OF TECHNOLOGICAL DETERMINISM

Preface to the English edition

THE UNSUNG SUCCESS OF CERTAIN EUROPEAN COUNTRIES

The future of economic growth

FINANCIALIZATION AND ITS DANGERS

Preface to the English edition

THE PROSPECTS FOR AN ANTHROPOGENETIC GROWTH MODEL

The future of economic growth

This page intentionally left blank

The future of economic growth

BEYOND THE MYTHS

The future of economic growth

1. A social construct and an analytical challenge

The future of economic growth

A social construct and an analytical challenge

The future of economic growth

COMBINING MICRO- AND MACROECONOMICS, HISTORY AND GEOGRAPHY

A social construct and an analytical challenge

THE DIFFICULTY OF ANALYSING STRUCTURAL CHANGES IN REAL TIME

The future of economic growth

NeoSchumpeterian theory II Knowledgedriven endogeneous growth theory

re-jig the tools it uses

develop totally original concepts

Digital society theory

A social construct and an analytical challenge

The future of economic growth

Total factor productivity

A permanent recovery in growth rates

The emergence of a productive paradigm

A permanent shock A transitory shock

The difficulty in describing structural change

A social construct and an analytical challenge

Microeconomic instability and an uncertain organizational model

DIGITALIZED INFORMATION AND REDUNDANT NETWORKS

Microeconomic instability and an uncertain organizational model

Diversity of technologies/firms Likelihood that technologies/firms will coexist

The future of economic growth

Microeconomic instability and an uncertain organizational model

THE THREE FIGURES OF THE NEW ECONOMY

The future of economic growth

Microeconomic instability and an uncertain organizational model

THE SEARCH FOR AN ORGANIZATIONAL MODEL FOR THE NEW ECONOMY

The future of economic growth

Open migration (Fax, modem, Hewlett-Packard)

Discontinuity (Audio CD, consortium of producers) (GSM, consortium of European companies)

Microeconomic instability and an uncertain organizational model

The different uses of the Internet

Microeconomic instability and an uncertain organizational model

The future of economic growth

Microeconomic instability and an uncertain organizational model

A growth regime driven by information and communications technology?

Quality of the relations between research and industry

Is information processing crucial?

Should users be reshaping their organization?