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Getting the Measure of the New Economy

Scepticism about the impact of new technology on UK productivity has gone too far and risks setting back efforts to improve Britain's economic performance, two prominent economists argue in a new report released today.

Getting the Measure of the New Economy is a new report from The Work Foundation's iSociety project. In it, Diane Coyle, Enlightenment Economics, and Professor Danny Quah, London School of Economics and Political Science, argue that new technology is having a significant effect on the way the UK economy operates, even though belief in a new economy driven by new information and communication technologies has been tainted by the collapse of the IT bubble and the Enron fiasco.

Co-Author of the report, Diane Coyle, said, "Secretary of State Patricia Hewitt recently said that the Labour Government bought into new economy hype too enthusiastically. She now describes the notion of a weightless economy as 'hot air'. This attitude suggests the Government is going to miss out on the chance to improve Britain's economic performance."

The report, which took 32 UK-specific indicators to track the wider impact of technology upon consumers, business, and the macro-economy, argues that mounting doubt towards the 'new economy' is driven by a misplaced focus solely on productivity. Instead, the debate needs to balance concerns about productivity by examining the way in which consumers, and their use of new technologies, are radically changing the shape of the economy.

Coyle and Quah argue: "Consumer tastes are going to be the real engine of change, as they have been in all previous technological revolutions. It is from the experience of our daily lives that we understand that new technologies are having a profound impact in reshaping our economy and society."

Will Hutton, chief executive of the Work Foundation, said: "This report creates a new imperative for business to focus on changing patterns of consumption and the ways in which people use technology in unexpected ways."

The report makes comparisons with other 'general purpose technologies' (GPTs), such as electrification, to show that the effects of GPTs are gradual and dispersed widely and that the real transformation requires organisations to restructure around its possibilities and shows that:

  • Evidence is mixed on whether high levels of investment in technology has changed the structure of UK economy. High levels of levels of investment in information and communications technology have not yet been reflected in productivity figures but this is consistent with what we know about the impact of technology: that it takes time to take effect, is difficult to measure, and requires widespread consumer use to have full impact
  • Although US investment in computer hardware has been high since the 1970s, it was only when more users became adept at technology and when Internet dissemination brought online hundreds of millions of users that productivity skyrocketed
  • The current crop of new technologies - notably faster information processing combined with the Internet - have all the characteristics of the type of 'general purpose technology' which will in time reorganise the way the UK economy operates
  • Other aspects of the UK economy do indicate 'weightlessness' - declining unemployment, a shift away from manufacturing towards services, a demand for knowledge skills, the development of 'flexible' working patterns, changing corporate structures and production patterns. Macro shifts include soaring cross-border investment, a growing global trade in goods and services, low inflation and a structural reduction in the variability of GDP growth.

Ends

To interview Diane Coyle or Danny Quah or for further press information, please contact Memuna Forna or Julia Bacon at The Work Foundation. Tel: 020 7479 2111/2107, email: mforna@theworkfoundation.com| or jbacon@theworkfoundation.com|

Press copies of Getting the Measure of the New Economy are available from The Work Foundation press office: call 020 7479 2111/2107. 

Notes to editors:

iSociety is an independent, definitive analysis of the impact of ICT on our lives, today and in the future. It is run within the Research department of The Work Foundation (formerly The Industrial Society), and supported by Microsoft and PricewaterhouseCoopers

Diane Coyle was formerly economics editor of The Independent. She now runs the consultancy Enlightenment Economics and is a columnist and broadcaster and the author of three books on technology and globalisation. 

Danny Quah is Professor of Economics at the London School of Economics and Political Science. He is associated with the Technology and Growth Program at the LSE's Centre for Economic Performance, and serves on the Academic Panels of HM Treasury and the Office for National Statistics in the UK. In July 1998 the Andrew W. Mellon Foundation awarded him a grant for continuing study of the weightless economy and the economics of information technology. Danny's academic research has been further supported by awards from the British Academy, the UK Economic and Social Research Council, and the MacArthur Foundation. 

The indicators assembled in the report include searching for employment online, financial services online, flexible work patterns, computer literacy, availability of venture capital, corporate outsourcing, inward and outward foreign direct investment, employment growth by skill level, skills and earning inequality, government R&D spending, government education spending, government online.

30 May 2002

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