With respect to the legal environment, it goes without saying that private sector innovation and business dynamism depends on assurance that property rights are respected and adjudication of disputes prompt. However, it is also clear that simply writing new laws is insufficient. The “rule of law” is even more crucial, implying a commitment on the part of business, government, and citizens to the legal process. International bodies are working to write model laws that economies can use as a starting point for their own efforts: for example, the OECD, UNCITAL, and the Hague. However, in the New Economy, certainty of rules must be balanced against dynamism of technology.
Laws must define objectives and be technology neutral. Laws should focus on guiding behavior while preserving the private sector’s incentives to meet the objectives of the law. 20 The increasingly globalized environment of New Economy transactions and actors means that the legal environment of a specific economy must consider whether it is internationally interoperable. Homogeneity of law is not required, but if laws are not internationally workable, domestic firms will not have global reach and domestic consumers will be cut off from the benefits of international markets. Both will undermine the potential benefits of the New Economy that derive from global engagement.
Synergies among policy domains : This set of growth-fostering economic policies is not new, and precedes the New Economy paradigm. However, the New Economy tightens the inter-relationships among these policies. For example, capital deepening, particularly in the form of ICTs and networks, is an essential ingredient of the New Economy. So, macroeconomic mismanagement (for example, through the inflation tax from inefficient or mis-directed fiscal policies or through high interest rates caused by poor banking systems or directed credit policies) is much more costly to economic growth.
Or, another example, the New Economy depends on a private sector responding quickly and flexibly to changes in technology, information, and the marketplace. So, excessive government intervention (for example, through “picking winners” in business, supporting large companies or monopolies, and restricting trade and investment) slows the development of the New Economy. Or, another example, network externalities are a key source of the New Economy benefits; so, limiting global connectedness (e.g. with domestic standards different from global ones, or limitation on domestic or cross-border information exchange) will reduce the benefits to be had from all other domestic reforms.
To reiterate the earlier point, capable human resources is distinct from the policy set we focus on here, but also important. The diffusion of benefits is influenced by flexibility and skills. 20 See Catherine L. Mann (2001), “International Internet Governance: Oh What A Tangled Web We Could Weave,” Georgetown Journal of International Affairs, forthcoming. - 21-