New Economy
From Open Encyclopedia
The New Economy is a term that was coined in late 1990s to describe the evolution of the United States from an industrial/manufacturing-based economy into a high technology-based economy, arising largely from new developments in the Internet, telecommunications and computer sectors. At the time, analysts believed that this change in the economic structure of the United States had created a state of permanent steady growth, low unemployment, and immunity to boom-and-bust macroeconomic cycles. Furthermore, they believed that the change rendered obsolete many business practices. While many of the predictions about the significance of the change proved to be wrong, pundits continue to use the term New Economy to describe the contemporary American economy.
In the financial markets, the term is often associated with the emergence of the NASDAQ as a rival to the New York Stock Exchange, a high rate of IPOs, the rise of Dot-com stocks over established firms, and the prevalent use of such tools as stock options and employee compensation which were widley abused due to controversial changes in accounting laws and led to widespread corruption. This profiteering euphemistically came to be known as "down-sizing" and was the process of CEOs "off-shoring" well-paying manufacturing jobs while enriching themselves at the expense of employees and share holders.
By the year 2000, it was clearly evident that the normative claims of what the "New Economy" was, turned out to be a highly inaccurate description of an economic system punctuated by large scale scandals, bankruptcies, and national and international political upheaval. The most accurate definition that can be given to this term as of 2005 is the facet of Globalism pretaining to the United States of America.
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Background
The economics figure of the United States looked very nice in the 1990s. After the Great Depression of the 1930s, the recovery after the Second World War, the economy of the United States seemed to decline since the oil shocks of the 1970s and the rise of Europe, South East Asia and Japan. Japan's economy was at peak in the 1980s, but it collapsed in the late 1980/early 1990s, the Economy of Europe seemed to be sluggish in the 1990s, and South East Asia was "hit" (more accuratley, the Asian Tigers were attacked by American investors; most notably George Soros) in 1997 by the Asian financial crisis. So, in comparison to other countries the United States seemed strong.
However, the US entered a long term recession in the year 1999 and despite historically low interest rates imposed by the Federal Reserve, profit reports and unemployment reports for the next 5 years kept the US teetering on the edge of another depression.
The "New Economy" is rapidly morphing as of 2005 and all indications foreshadow a large-scale institutionalization of a military industrial complex to replace the failing economy.
Technology
At the same time, there was a lot of investment in the companies of the technology sector. Stock shares rose dramatically. A lot of start-ups were created and the stock value was very high where floated. Newspapers and business leaders were starting to talk of new business models. Some even claimed that the old laws of economics did not apply anymore and that there new laws. They also claimed that the improvements in computer hardware and software will dramatically change the future, and that information is most important value in the New Economy.
Stock market crash
In March/April 2000, stock prices at Nasdaq crashed, the Nasdaq fell from nearly 5,000 to 2,000. A lot of start-ups went bankrupt.
Scandals
After the crash, accounting scandals appeared. Medi revealed that companies of the New Economy, such as Enron, Worldcom and Global Crossing had manipulated their accounting. The companies filed Chapter 11.
Critics
Stock options
Some economists as for example Joseph Stiglitz criticized the fact that stock options were not included in the accounting. They were given a value of zero even if they mean a dilution of stocks when stocks will be converted in money.
Investment
Joseph Stiglitz also said that a lot of investments were useless especially in software and unused fibre optics.
