or worse, falling behind in relative terms if their neighbors start to pull ahead with faster trend growth. A definition offers no shortcut strategy for reform, but it is the correct starting point for deeper analysis of what the New Economy is and upon what it depends. We will argue that there is a danger that the term will become synonymous with only the technology part of the story, or the notion that technology can solve all development challenges, or that riskless growth can be achieved. That would be unfortunate, because the paradigm is real and does indeed present new opportunities for prosperity, though in many respects the New Economy rests on traditional policy foundations.
In the spirit of Brunei, we offer the following definition as a point of departure for further analysis: The New Economy is an economic paradigm. It is distinguished by the combination of structural policies and networked information and communication technologies. This mix increases the value of information available to individuals, firms, markets and governments, allowing each to act more efficiently, raising the return to knowledge skills, and demanding flexibility. The resulting transformation of activities yields higher overall productivity and economic well-being.
Whereas the technology part of the New Economy is new and is a key driver of productivity growth, it is the transformation of economic activity in response to the forces of the New Economy that generates the greatest gain. Therefore, this definition subordinates technology to the economic policy environment. What ICTs do –computers, the Internet, e-mail, electronic commerce – is substantially increase information. But it is the economic environment created by policies that provides opportunity and motive to actually use the information. The response by firms, individuals, and governments to opportunity and motive is transformation , as we shall describe empirically and anecdotally.
5 The ability and tendency to transform is intimately related to structural policy reform, hence the definition and focus. ICTs matched with the policy reforms that make them usable yields a dynamic, competitive, innovative marketplace, wherein skilled people are needed to take advantage of new opportunities and transform what firms do in the economy. To some extent, ICTs embed skills, and in this sense can make people and firms more productive even when they are not highly skilled. But, a related but separate quality demanded by the New Economy is flexibility particularly associated with the use and diffusion of technologies throughout an economy.
In an environment of transformation inability and unwillingness to change increasingly is untenable. Since skills are increasingly correlated with flexibility, human resource development is key. 5 We could go so far as to say that an economy 100% made up of technology exporters but with little use of that technology at home to transform the marketplace is not a New Economy, whereas an economy with no high-tech manufacturing, let alone exports, but robust import of and use of ICTs for transforming the domestic economy is the forces of the New Economy at work. - 11-