What Is the State of the New Economy?

Our third annual report on the State of the New Economy.

There is a battle under way to define the past, present, and future of the new economy. As you try to make sense of this battle and to reach your own conclusions, you can listen to many voices. You can find conservative business leaders breathing sighs of relief, convinced that this new-economy nonsense has run its course. They never understood what all the fuss was about: New business models? New ways of working? Finally, they tell themselves, they can go back to business as usual.

You can read trend-spotting journalists busily assigning blame, writing the hyped-up downside to the previously hyped-up upside of the new world of business. They don't care which way the story moves — as long as it keeps moving, and as long as they can create new heroes and villains.

You can listen to confounded economic analysts who are anxiously trying to make sense of conflicting data, perplexed by their own efforts to use traditional tools to track the course of business in uncharted territory. They are truly strangers in a strange land, tasked with a responsibility for which nothing in their past has remotely prepared them.

Or you can spend time with this issue of Fast Company — our third annual report on the State of the New Economy — in which we answer four questions that we believe define where business stands and where it is heading. Because, for the record, we are not happily relieved, busily blaming, or anxiously perplexed. Yes, the carnage in the financial markets has been nothing short of brutal. And the setbacks at high-profile companies such as Cisco, Dell, and Intel have been painful. But we are more convinced than ever that the spirit of innovation and disruption that has characterized the past five years will inspire business over the next five years. And we're convinced that you will agree. Ask yourself: Can you think of a time when work was so compelling and engaging? When business was subject to such unpredictable change? When technology was so ubiquitous and so frustrating? When there were so many ways to have so much impact in so short a time?

First, the Answer

So what is the state of the new economy? It is alive. It is well. It has been released from its kidnapping by the get-big-fast, get-rich-quick, built-to-flip crowd.

The good news is that the new economy — the real new economy — is back. The bad news, of course, is that the overall performance of the U.S. economy is in a slump. But while we may be going slower, we are not going backward in time. There is no returning to the old days of Father Knows Best corporatism, of top-down command-and-control leadership, of low-road, zero-sum competition.

Let's be clear, then, about what the new economy is not, and then what it is. The new economy is not — and never was — just about dotcoms. It is not and never was just about IPOs, venture capitalists, or irrationally exuberant stock markets. It never did belong to just one industry or one part of the country.

So what is the new economy about? It is about three things: the expansion of individual opportunity, the disruptive energy of ceaseless innovation, and the transformative power of information technology and communications. At its heart, the new economy that this magazine has been chronicling, charting, celebrating, and critiquing represents the convergence of these forces — forces that challenge the conventional wisdom of the Industrial Age and that unleash entirely new ways to make strategy, launch products, serve customers, and organize for creativity and productivity.

Consider first the scope of individual opportunity. After decades of thinking that "business" was synonymous with "the corporation" and that workers were anonymous cogs in a giant machine, we have come to understand that the new unit of analysis for creating value, making change, and producing results is the unit of one.

One person with one great idea is the fuel that powers the new economy. That person may be an evangelist for change inside a vast, global corporation, the leader of a high-energy startup, or the sole creator of a Web site that attracts millions of visitors. Never before in the history of business has each person mattered more — as a talented performer, as a leader in an organization, as a consumer in the market, as a creator in the world of enterprise.

Second, disruptive innovation is the new operating condition of business. The era of stable, predictable, set-piece competition is over. The only way to stay in business today is to be fully, constantly, and instantly alive — alive to new ideas, alive to new practices, alive to new opportunities. The job of leaders everywhere is to challenge conventional wisdom in their industries and received wisdom in their companies.

Finally, information technology remains a powerful, transforming force, a jolt of digital energy that alters every piece of work and business that it touches. To be sure, technology can move faster than the human capacity to absorb it; investments in new technologies often go beyond the capacity of companies to profit from them. But networked digital technologies are an enabling platform that unleashes all kinds of possibilities in the ways work can be structured, companies can be operated, and the future can be created.

Individual opportunity. Disruptive innovation. Information technology. These forces apply equally to companies of all sizes, of all ages, in all industries. They are everywhere about us, and they continue to reinvent, reenergize, and redirect everything about business, work, leadership, and success. They are the ideas that animate the new economy.

Second, The Questions

Of course, ideas are only as powerful as the data that supports them. Anyone looking for hard evidence of the breadth and depth of business transformation need only pick up As the Future Catches You: How Genomics and Other Forces Are Changing Your Life, Work, Health, and Wealth (Crown Business) , by the brilliant Harvard University researcher and writer Juan Enriquez. Enriquez's just-published book is a statistical guide to the new economy, the equivalent of an unofficial Congressional Budget Office report on the rapidly changing, rapidly emerging world of an economy powered by knowledge, altered by genetics, transformed by computing, and shaped by geopolitics. We have included some of Enriquez's telling data points below.

Because we believe, as Enriquez does, that the new economy continues to unleash remarkable innovations and dramatic changes in business strategy, economic competition, work, and life, we dispatched four of our most talented writers to collect answers to the four essential questions that box the compass of the new economy today:

Who Has the Next Big Idea? We live in an economy that is defined by ideas. The capacity to outthink the competition, to convert knowledge to power and smarts to money, defines the shift from an economy of tangibles to one of intangibles. According to contributing editor Dan Pink, the next big idea is coming from Michael Hammer, who has already unleashed one big idea on an unsuspecting business world — he's the godfather of business-process reengineering — and who has a whole new take on what comes next.

What is the New Economics? The way we talk about the new economy is, in fact, more about business than economics. But in the halls of Yale University, Robert J. Shiller, economist par excellence, author of Irrational Exuberance, and himself a dotcom entrepreneur, is hard at work revising the conventional wisdom about "the laws of economics," as contributing editor John Ellis discovered. What if human psychology was more powerful than rational expectations?

Where is the Next Frontier of Innovation? With Silicon Valley in disarray, it would be easy to conclude that the technological principles that drove the new economy are in retreat. In fact, the new economy's innovation paradigm is transforming many fields of human endeavor beyond business. Senior writer Fara Warner explores the depths of the ocean — the place where life began — with the Monterey Bay Aquarium Research Institute to find out how digital transformation may shape life in the future.

How Do Fast Companies Work Now? The signature innovation of the new economy is the "fast company" — an organization that creates value by embracing change and innovation. In recent years, in the popular imagination, fast companies became synonymous with high-tech startups — young organizations that were built on speed. According to senior editor Keith Hammonds, a new generation of fast companies will be built on momentum: speed times mass. His report on iFormation Group, which is a remarkable collaboration between Goldman Sachs, the Boston Consulting Group, and General Atlantic Partners, shows that there's real power in being a hybrid of large, strong, traditional businesses and nimble, agile, Webified operations.

New ideas, new economics, new innovations, new companies: These are the lifeblood of the new economy. Far from over, far from reversing fields, far from being ambiguous, the new economy continues to bring change, opportunity, and challenge to the business world and the workplace.

Question: Is the new economy over?

Answer: You gotta be kidding!

Sidebar: Data Points

Data Point #1
Fast Innovation

It took the telephone 35 years to get into 25% of all homes in the United States. It took TV 26 years. It took radio 22 years. It took PCs 16 years. It took the Internet 7 years.

Data Point #2
Smart Cities

Of all patents in the United States, 33% came from 10 cities: Boston; Chicago; Detroit; Los Angeles; Minneapolis; New York; Philadelphia; Rochester, New York; San Francisco; and San Jose.

Data Point #3
Computing Power

ENIAC, the world's first all-electronic digital computer (dating back to 1946), weighed 30 tons and was 100 feet long. But it was far less powerful than a chip that fits on your fingertip and powers your PC. ENIAC could do 14 multiplications per second. IBM's new supercomputer, Blue Gene, may do close to one quadrillion multiplications per second.

Data Point #4
The Perils of a CEO

In 1982, a CEO earned, on average, 42 times more than a factory worker. By 1999, the average was 475 times more, according to some researchers. In 2000, 40 of the top 200 CEOs in the United States were fired.

Data Point #5
Middle-Class Bankruptcies

Middle-class bankruptcies in the United States increased from 313,000 in 1980 to 1,281,000 in 1999. Two-thirds of those who filed for bankruptcy were people who lost their job and found it impossible to catch up.

Data Point #6
Wealth Creation

In 1989, there were 1.3 million millionaires in the United States. In 1999, there were more than 5 million millionaires. In 1982, there were 13 billionaires in the United States. In 2000, there were more than 298 billionaires.

Data Point #7
Genetic Code

Around 95% of genes in humans have counterparts in mice. The gene overlap between humans and bonobos (pygmy chimps) is about 98.5%. The real differences between one person and another are less than 0.0003%.

Data Point #8
Changing Fortunes

In 1900, 10 of the 12 largest U.S. corporations sold commodities. They included American Cotton Oil, American Steel, American Sugar Refining, Continental Tobacco, and Federal Steel. In 1999, 10 of the 12 largest U.S. corporations were in manufacturing, finance, and high-tech. They included AT&T, Citigroup, Exxon, Ford, General Electric, General Motors, IBM, and Wal-Mart.

Data Point #9
Cheaper, Faster, Bett
er

Handheld calculators cost $120 when they were introduced in 1972; today they cost $10. Color TVs cost $1,000 when they were introduced in 1954; today they cost $299. VCRs cost $1,395 when they were introduced in 1978; today they cost $199. Cell phones cost $4,195 when they were introduced in 1984; today they are free with activation.

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