Since the 90s the processes, outputs and culture of business have changed; these changes have been haphazardly lumped together under the all-encompassing term the ‘new economy’.
By definition all-encompassing terms are intrinsically vague: they refer to phenomena that are so vast and broad that all we can do is think of them in a general sense.
These phrases often become heuristics for big changes we can feel happening but can’t quite articulate. Take populism for example, a movement that has engulfed western democracies. We know it is there, but struggle to define it fully. Indeed, the best we can do is think of the trappings of populism: anti-immigration, protectionism etc.
Likewise with the new economy, we can’t quite fully articulate it, but we know it when we see it. We think platform economics, technological innovation, high growth and apps.
Unpacking it further, I would define the new economy as the the convergence of manufacturing, services and technologies which produce high value-added, technology-enabled, and adaptable industries. I do, however, concede this is broad, indeed it is almost more instructive to say ‘you know what I mean’ than it is to try and define it.
Regardless, this ‘new economy’ has come in for a lot of stick in recent years, some of this merited. In particular concerns over labour rights, monopolistic behaviour and data privacy deserve scrutiny. However, I have already covered these in depth in other articles, and, I think that in the current climate the benefits the ‘new economy’ have provided us must be reaffirmed.
So, what has this ‘new economy’ done for us?
Firstly, let’s face it, the products and services one associates with the new economy are, from a consumer's perspective, great.
The economics of platform businesses, prevalent in many of the firms we associate with the 'new economy', work in our favour. In particular the low marginal costs and the demand side economies of scale that come from their large networks effectively reduce the costs these firms face; this means cheaper (often free) products for us.
Many of these products are also qualitatively better offerings, with AI and big data allowing companies to offer us highly relevant and personalised products. Just look at Cleo AI, a bot that offers instructive and customised financial advice to consumers allowing people to take greater control over their finances.
Furthermore, when consumers win regulators tend to take note. Just look at fintech in retail banking, better products and services provided by new challenger banks have led to regulators, for example the FCA in the UK, shaking things up and making it easier for new entrants to get involved. This creates a ‘virtuous cycle’ allowing more entrants to offer better products, and also spurring on incumbents to up their game.
I would also posit that the new economy had increased our freedom and capacity for self-actualization.
Firstly, developments in the cloud, digital communications, and even VR have allowed us to work remotely, freeing up time and allowing us to work from the comfort of our homes. In fact, around 66% of companies allow remote work in the US, with 16% being fully remote. Just think of the benefits of this for the 43% of women who tend to have to take on the burden of childcare and leave their jobs when they have a child.
Furthermore, these same trends have set about a revolution in the economics of education. It is now possible to provide individuals with a good education online, just think of platforms like ‘Masterclass’ or the many online MBAs provided by universities. These educational entities can now scale easily at little additional cost- after all it’s easy to stream a lecture and digitise textbooks. Furthermore, this digitisation has reduced the need for physical resources like projectors and buildings leading to falling fixed costs. These near zero marginal costs and lower fixed costs allow educational establishments to charge less, increasing everyone’s access to much needed education. Many countries face a skills shortage or are unable to afford to give their populations university educations, others have ageing populations lacking the skills to participate in the modern economy. The ability for us to learn online could well be a panacea for these ailments.
More controversially, there is an argument that the ‘on-demand’ economy also gives greater independence to workers. This is the argument that companies like Uber and Deliveroo use with regard to their drivers, claiming that they are ‘independent contractors’ and can thus choose when they want to work. Whilst we should acknowledge that this claim can lead to exploitation and poor workers protection rights, as has been evident with regard to Uber and Deliveroo, there are a number of platforms getting this right. Just look at Grafter which connects short term workers to businesses that desperately need them, ensuring good pay and allowing these workers to take control over their lives giving them greater autonomy.
Finally, and perhaps crucially, the new economy has engendered incredible innovation and change. The winds of disruption are ubiquitous, no open economy or industry can escape them- this is a good thing. Better technology has allowed us to rapidly build and scale new ideas, driving innovation forward. This has led to a vast improvement in the products and services on offer; it has stimulated once lumbering corporate entities into adopting more agile and innovative business models; and it has vastly increased our technological capabilities.
This last point is critical from a societal perspective. In order to meet the vast demands of the 21st century, we will need to rely on technology to allow us to prevent potentially catastrophic climate change and also to help us sustainably manage our ever- scarcer resources and growing populations; this is made manifest when we think of the technological innovations driving forward the rental economy, which will be worth $400 bn by 2030.
Our capacity to innovate will undoubtably be the ultimate test we face this century. I firmly believe many of the features of the new economy create the conditions in which these much needed technological innovations can take place, namely: increased acceptance of risk through higher VC activity, higher R&D spending, and an emphasis on growth (not profit) which encourages more focus on product improvements.
The new economy is evidently a vast and amorphous organism, containing many, at times even disparate, elements (think nurturing corporate cultures vs intense growth). Broad features can be recognised, such as platform economics, the priority of growth over profit, an emphasis on technological and strategic innovation and mission driven businesses. However more needs to be done to perhaps articulate and condense these elements into a more coherent and instructive model.
It could be said that this analysis is not so much an affirmation of the 'new economy' rather a general promulgation of the benefits of technology. There may be some truth to this, technology is indeed the driving force behind these changes, encouraging new business models and creating new opportunities. That said I do believe there is a great deal of consistency in how these businesses operate, this implies that it is not technology alone causing these developments, new systems, processes and business models must also be designed around these technologies as well. With consistency comes the ability to formalise these processes and make them more instructive, something we must strive to do.
All this being said, no phenomena as vast and disruptive as the ‘new economy’ can be without its faults, and I highly advise you to check out our other articles on these issues to get a sense of balance. That said, I think it enables us a hell of a lot more than it inhibits us. Crucially the new economy contains a number of features that may allow us to make it in one piece to the next century.
Indeed, I would go as far as to say that as a model the new economy may be the only vehicle in which Capitalism can continue to thrive: it acknowledges the broader responsibilities that business should have, whilst also offering value to consumers and allowing us to develop and scale the capabilities we need to make it to the 22nd century.
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