Published in February 2000 issue of Prospect Magazine
Dear John Kay
23rd December 1999
The New Economy is a fuzzy phrase. Sometimes it implies unprecedented technological change. At other times it simply means the exceptionally good behaviour of the American economy. I would argue that although the current US boom will come to an end, new technology is going to raise the growth rate of developed economies. This is more heroic than it sounds because a small difference in growth rates compounds into big differences in living standards over decades. It also implies-as did earlier waves of new technology-big changes to the way we live and work.
I am normally sceptical about forecasts, especially breathlessly optimistic ones. But the speed at which the new technologies are spreading is phenomenal. By 2010, our computers will have 10m times the processing power of a 1975 computer. The price of computers has already fallen 10,000-fold within a single generation. Worldwide, total computer power has been growing at a rate of 35 per cent a year during my life, compared to the 5 per cent a year growth delivered by steam engines and their successor electric engines in the period between 1869 and 1939.
It took radio 37 years to reach a global audience of 50m; it took television 15 years. But it took the worldwide web only three years following development of the Mosaic web browser in 1994. In 1990 there were only 300,000 computers linked to the precursor net. Now the volume of internet traffic is doubling every 100 days. I am getting breathless-but these are staggering numbers.
Are they anything special? Growth always has a vanguard sector, and often these have been linked to communication. It was rail in the 1840s and 1870s, cars and radio in the 1920s, television in the 1950s, air travel in the 1960s. What makes us suppose that telecommunications and computers are different?
What is more, so far, only in the US is there any sign that the New Economy is delivering faster productivity growth. From an average of 1.2 per cent a year in 1970-90, growth in GDP per worker rose to an average of 1.6 per cent in the 1990s, and it has surged since mid-1995 to 2 per cent or more, rather than diminishing as you might expect at this stage of a business cycle. But no other country has yet shared this experience-certainly not Britain.