The New Economy Essay

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THE NEW ECONOMY
It works in America. Will it go global?

It seems almost too good to be true. With the information technology sector leading the way, the U.S. has enjoyed almost 4% growth since 1994. Unemployment has fallen from 6% to about 4%, and inflation just keeps getting lower and lower. Leaving out food and energy, consumer inflation in 1999 was only 1.9%, the smallest increase in 34 years.

This spectacular boom was not built on smoke and mirrors. Rather, it reflects a
willingness to undertake massive risky investments in innovative information technology,
combined with a decade of retooling U.S. financial markets, governments, and
corporations to cut costs and increase flexibility and efficiency. The result is the so-called
New
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Corporate restructuring has begun in Europe and Asia, financial markets are being rebuilt to support innovation, and there is more willingness to take risks. ``I'm seeing the entrepreneurial response almost
everywhere,'' says Clyde V. Prestowitz Jr., president of the Economic Strategy Institute.
``It's not Silicon Valley yet, but there's a lot of ferment.'' Even in slow-growing Japan, ``I
think there will be a New Economy,'' says Toshiba Corp. President Taizo Nishimuro,
though he cautions that ``it won't be the same as the U.S.''

Nevertheless, the process of shifting to a fast-growth track is still in its early stages in most of the world. Europe is at least two or three years behind the U.S., with Asia lagging even farther behind. While there are pockets of entrepreneurial vigor in places such as Finland, it has turned out to be an enormous challenge to reshape cultures to allow more risk-taking in Europe and Asia, where caution is a virtue.

It also takes time for policymakers to adjust to the New Economy. In the U.S., Federal Reserve Chairman Alan Greenspan, an enthusiastic proponent of technology-driven productivity gains, resisted great pressure to raise rates in the face of fast growth and low unemployment. By contrast, the two biggest central banks in Europe, the European Central Bank and the Bank of England, have adopted a policy of aggressively raising rates at the slightest hint of inflation, thus choking demand needed to justify business…