Atelier N°.17, Article N°.12

©Monthly Review :
(April 2001)

                                                  The New Economy: Myth and Reality
                                                                          by The Editors

                              In the last few years the idea of a "New Economy" has gained wide
                              currency, almost rivaling "globalization" as a neologism that
                              characterizes our era. Thus The Economic Report of the President,
                              2001, begins: "Over the last 8 years the American economy has
                              transformed itself so radically that many believe we have witnessed the
                              creation of a New Economy." This New Economy is seen, first and
                              foremost, as consisting of those firms and economic sectors most
                              closely associated with the revolution in digital technology and the
                              growth of the Internet. The rapid convergence of information
                              technologies—including computers, software, satellites, fiber optics,
                              and the Internet—has, it is believed, fundamentally altered the
                              economic landscape. Since the mid-1990s, these revolutionary
                              technological developments have, it is argued, spilled over into the
                              wider economy, generating higher productivity growth, a sustained
                              acceleration of economic growth, lower unemployment, lower inflation,
                              and an attenuation of the business cycle.

                              For many the focal point of the New Economy has been the highflying
                              technology stocks that carried stock market speculation to new giddy
                              heights during what has come to be known as the "millennium boom."
                              This was rationalized by business (though with growing nervousness
                              after the sharp fall in technology stocks in the second half of 2000) as a
                              measured response to the opportunities offered by the New
                              Economy—and not simply a speculative bubble. Meanwhile, a vast
                              new wave of corporate mergers beyond anything ever seen before has
                              been taking place—for which the dual rationale is globalization and the
                              rise of the New Economy.

                              No one has been a stronger proponent of the New Economy thesis
                              than Federal Reserve Chairman Alan Greenspan. In a speech on
                              "Structural Change in the New Economy" delivered to the National
                              Governors’ Association on July 11, 2000, Greenspan argued that "it is
                              the proliferation of information technology throughout the economy that
                              makes the current period appear so different from preceding
                              decades…One result of the more-rapid pace of IT innovation has been
                              a visible acceleration of the process that noted economist Joseph
                              Schumpeter many years ago termed ‘creative destruction’—the
                              continuous shift in which emerging technologies push out the old."
                              Among the advantages of the New Economy is the ability of
                              corporations to generate a flood of information in miniseconds, allowing
                              them to "reduce unnecessary inventory and dispense with labor and
                              capital redundancies." In a speech on "The Revolution in Information
                              Technology" delivered at Boston College on March 6, 2000,
                              Greenspan claimed that "until the mid-1990s, the billions of dollars that
                              businesses had poured into information technology seemed to leave
                              little imprint on the overall economy." But beginning in 1995 that
                              changed, and the spillover effects of digital technology are
                              revolutionizing Old Economy sectors, making the New Economy a
                              more universal phenomenon. "Computer modeling, for example, has
                              dramatically reduced the time and cost required to design items ranging
                              from motor vehicles to commercial airliners to skyscrapers."*

                              The New Economy has also been associated with the development of a
                              more flexible workforce: non-unionized, highly mobile, just-in-time
                              workers, sometimes embodying new job skills. Comparing the more
                              highly unionized labor forces of Europe and Japan to that of the United
                              States, Greenspan stated in July 2000 that "the relatively inflexible and,
                              hence, more costly labor markets of these economies appear to be a
                              significant part of the explanation [as to why the New Economy has
                              been slower to develop there]. The elevated rates of return offered by
                              the newer technologies in the United States are largely the result of a
                              reduction in labor costs per unit of output. The rates of return on
                              investment in the same new technologies are correspondingly less in
                              Europe and Japan because businesses there face higher costs of
                              displacing workers than we do."

                              The existence of the New Economy, in the sense of the advent of a
                              dynamic information technology sector within the economy that has
                              been a spur to accumulation, is not to be doubted. Clearly, it constitutes
                              something distinct in the history of capitalism. Two other ideas
                              associated with the New Economy are, however, more open to
                              question. First, it is contended that the New Economy constitutes a new
                              technological-industrial revolution, comparable to the introduction of the
                              steam engine or the automobile in its effect on the overall economy, and
                              that it is remaking the entire Old Economy in its image, ushering in a
                              new era of permanently higher productivity. According to Fortune
                              magazine (June 8, 1998), "The [computer] chip has already
                              transformed our lives at least as pervasively as the internal-combustion
                              engine or the electric motor." Second, it is often suggested that the
                              New Economy has attenuated, if not altogether eliminated, the business
                              cycle. Thus Thomas Petzinger Jr. observed in the Wall Street Journal
                              (December 31, 1999) that "the business cycle—a creation of the
                              Industrial Age—may well become an anachronism." In the balance of
                              this piece, we will take a look at these two claims.

                              A New Industrial Revolution?

                              Some idea of the importance of the New Economy sector to the overall
                              economy can be seen in the fact that although information technology
                              only accounted for at most about 6 percent of GDP during the third
                              quarter of 2000, about a quarter of the total economic growth since
                              1995 can be attributed to this sector together with
                              telecommunications.* As shown in Table 1, the share of information
                              technology investment in total investment in industrial equipment and
                              software (equal to total private non-residential fixed investment minus
                              investment in structures) rose from less than one-third in 1980 to more
                              than one-half in 2000.

                              Are we then witnessing a new industrial revolution, equivalent to the
                              first industrial revolution, which began at the end of the eighteenth
                              century (centered on the steam engine), or the second industrial
                              revolution, which began at the beginning of the twentieth century
                              (centered on the automobile and electricity)? For many purveyors of
                              the New Economy idea, not only is this a new industrial revolution, but
                              it is this which has suspended all economic laws, including the business
                              cycle, pointing to a period of long-term, rapid growth, with no
                              foreseeable end.

                              The facts, however, support none of this hype. In this connection it is
                              useful to distinguish between the sector that produces computers and
                              where these products are used in the business economy. Contrary to a
                              widespread view, computers are not used equally everywhere within
                              business. Conference board economists Robert H. McGuckin and
                              Kevin Stiroh have provided an analysis of the eight private sectors of
                              the economy that use computers most intensively—each with more than
                              4 percent of their capital in the form of computers. This includes three
                              service sectors—trade, FIRE (finance, insurance, and real estate), and
                              other services, and five manufacturing sectors—non-electrical
                              machinery, electrical machinery, printing and publishing, instruments,
                              and stone, clay, and glass. The percentage of total value added in the
                              economy and the share of computer capital input within business
                              accounted for by each of these industries in 1991 are shown in Table 2.
                              Most significant is the fact that 76.6 percent of all computer input within
                              business in 1991 occurred in trade, FIRE, and other services (which
                              encompasses various personal services, including legal services,
                              healthcare and software). Only 11.9 percent of computer input into
                              business is accounted for by the five computer-intensive sectors in
                              manufacturing listed in Table 2, and a further 11.5 percent by
                              twenty-seven other industries (including agriculture, mining,
                              transportation, construction, communication, and public utilities, among

                              To be sure, the structure of demand for computers shown here is partly
                              a reflection of the enormous weight in the economy assumed by
                              services, and particularly financial services. But a technological
                              revolution that finds more than three-quarters of its business demand in
                              the service industries (including finance, retail and wholesale trade,
                              marketing, legal services, health services, entertainment, and other
                              personal services) may be seen as falling somewhat short of an
                              all-round "industrial revolution."* The service industries, rather than
                              representing high productivity growth in the economy, generally
                              represent just the opposite (if productivity growth means anything in this

                              Indeed, when it comes to an empirical examination of the New
                              Economy thesis that the digital revolution since the mid-1990s has
                              heightened productivity throughout the economy, the most that can be
                              said is that there still is little or no hard evidence that computers have
                              generated much progress in this area. The upturn in productivity, which
                              accompanied the upturn in the business cycle, has naturally encouraged
                              the view that this can be explained by the information technology
                              revolution. But is the jump of 1.33 percentage points in average annual
                              rate of productivity growth—which rose from 1.42 percent in
                              1972-1995 to 2.75 percent between fourth quarter 1995 and fourth
                              quarter 1999—really a result of the productivity-enhancing effect of
                              information technology, spilling over into the overall economy? This
                              question has been taken up most systematically by Robert J. Gordon,
                              professor of economics at Northwestern University. Gordon "peels the
                              onion" of productivity growth to show a surprising explanation, very
                              different from the received truth in the establishment and the public.
                              Gordon looked into the various factors contributing to the leap in rates
                              of productivity. He explains and demonstrates the effect of a variety of
                              contributing factors such as the cyclical upturn of the economy,
                              technological acceleration in the production of computer hardware, and
                              technological changes in factories producing durable goods. His striking
                              result is that the contribution computer use has made is surprisingly low.
                              Of the 1.33 percentage-point rise in productivity growth referred to
                              above, only 0.07, "a mere pittance," can be attributed to the use of
                              computer technology and software outside of durable goods
                              production. In sum, he found that the effect of digital technology on
                              productivity was small on the whole; such advance as there was took
                              place almost entirely in the manufacture of durable goods.*

                              It is of course widely believed that the rapid expansion of the Internet
                              has been the device that has allowed the productivity effects of the
                              New Economy to diffuse throughout the economy. But the facts, as
                              Gordon’s analysis of productivity has shown, do not warrant such a
                              conclusion at present. Computers are widely available in offices, but
                              rather than increasing the productivity of business, the opposite effect
                              often seems to apply, as employees use their corporate Internet access
                              to look up stock quotes related to their personal investments, to do
                              online shopping, or to carry on e-mail correspondence. Studies show
                              that consumer oriented web sites get their highest usage not in the
                              evenings or on weekends, but in the daytime, Monday to Friday, when
                              people are at work. The proliferation of laptop computers, faxes,
                              satellites, the Internet, etc., has dramatically altered the newspaper
                              business, yet between 1987 and 1997 productivity in the newspaper
                              industry dropped by an average annual rate of 2.3 percent (John
                              Cassidy, "The Productivity Mirage," The New Yorker, November 27,
                              2000, p. 116).

                              The digital revolution certainly is a technological revolution with
                              widespread effects; the important thing from an economic standpoint,
                              however, is that it is not epoch-making, as in the case of the steam
                              engine, the railroad, and the automobile. It still has not produced "a
                              radical alteration in economic geography with attendant internal
                              migrations and the building of whole communities," each requiring or
                              making possible the production of numerous new goods and services,
                              on the same scale as did the steam engine, the railroad, or the
                              automobile in the first and second industrial revolutions (Paul Baran and
                              Paul Sweezy, Monopoly Capital, pp. 219-20).

                              The Taming of the Business Cycle?

                              The economic expansion that began in March 1991 has been
                              accompanied by an explosion of stock market valuations and of
                              corporate (and consumer) debt. As Yale economics professor Robert
                              Schiller observed in his book Irrational Exuberance,

                                   The Dow Jones Industrial Average … stood at around 3,600 in
                                   early 1994. By 1999, it had passed 11,000, more than tripling in five
                                   years…. However, over the same period, basic economic
                                   indicators did not come close to tripling. U.S. personal income
                                   and gross domestic product rose less than 30%, and almost half
                                   of this increase was due to inflation. Corporate profits rose less
                                   than 60%, and that from a temporary recession-depressed base.
                                   (page 4)

                              The "millennium boom," Schiller goes on to observe, is the "largest
                              stock market boom ever." Price-earning ratios (the real S&P
                              Composite Index for stock prices divided by the ten-year moving
                              average of real corporate earnings on the index) hit 44.3 in January
                              2000, the highest level ever recorded up to that time, with the closest
                              historical parallel in September 1929 (just before the stock market
                              crash), when the ratio hit 32.6. For Schiller and many others the
                              dizzying inflation of share prices on the stock market has all the
                              characteristics of a classic speculative bubble, traceable to factors that
                              have nothing to do with "rational economic fundamentals," given the
                              much slower relative growth of earnings.

                              Significantly, it was Alan Greenspan, in a speech in Washington on
                              December 5, 1996, who coined the term "irrational exuberance" to
                              describe this dangerous situation. Here it is worth noting that there are a
                              number of problems facing Greenspan in his role as Federal Reserve
                              Chairman. He must try to keep the economy flying high as long as
                              possible, and help to engineer a soft landing when it is not. Both of
                              these aspirations are of course well beyond the powers of any
                              individual or any institution, including the Federal Reserve Chairman
                              and the Federal Reserve Board. Hence, a certain amount of
                              "jawboning" designed to influence the markets is part of the game.
                              Greenspan’s statements have often been aimed at calming down the
                              speculating, lest the market take a major dive and upset the apple cart,
                              while also serving to warn business that there is a very real danger. At
                              the same time his pronouncements more generally are aimed at
                              rationalizing for investors the anarchy of the market, in order to build a
                              general sense of stability and confidence. Thus just months after his
                              "irrational exuberance speech," Greenspan was extolling the virtues of
                              the New Economy. The ballooning of stock valuations and the
                              seemingly overrapid growth of the economy in general were not
                              irrational in the main, but were in large part justified by the productivity
                              expansion brought on by the New Economy. It was now possible to
                              have lower unemployment without the threat of inflation—precisely
                              because of this growth of productivity. As it is now commonly put in the
                              economic literature, the "speed limits" of the economy had changed.

                              Over the course of every long boom in the history of industrial
                              capitalism, economic interests have sought to account for continuing
                              growth and stock market expansion by arguing that a New Era has
                              arisen, which has tamed, or even eliminated the business cycle. Such
                              New Era pronouncements are always rooted in some notion of
                              changing technology and/or business organization. Prior to the 1929
                              stock market crash that introduced the Great Depression, it was
                              commonly argued that a New Era had emerged with the growth of the
                              large monopolistic capitals, which were able to manage and regulate the
                              economy more efficiently, smoothing out the economic swings and
                              decreasing or eliminating the downswings altogether. Irving Fischer,
                              professor of economics at Yale, and the most prestigious U.S.
                              economist of his day, is reported to have declared, on the basis of such
                              New Era thinking—just prior to the stock market peak in 1929 (which
                              was closely followed by the crash)—that "stock prices have reached
                              what looks like a permanently high plateau" (quoted in Schiller,
                              Irrational Exuberance, p. 106).

                              Similar views are being promoted today. For example in a July/August
                              1997 article entitled "The End of the Business Cycle?" for Foreign
                              Affairs (the leading U.S. foreign policy journal, published by the
                              Council for Foreign Relations), Steven Weber argued that "Changes in
                              technology, ideology, employment, and finance, along with the
                              globalization of production and consumption, have reduced the volatility
                              of economic activity in the industrialized world. For both empirical and
                              theoretical reasons, in advanced industrial economies the waves of the
                              business cycle may be becoming more like ripples."

                              Greenspan himself, though hardly claiming that the business cycle has
                              been eliminated, has suggested, as we have seen, that the increased
                              control of inventories resulting from the development of computerized
                              information systems and just-in-time production has enormously
                              reduced the forces generating recession. "Prior to the IT revolution," he
                              argued in a speech before the Joint Economic Committee of Congress
                              on June 14, 1999, "the paucity of timely knowledge of customers’
                              needs and of the location of inventories and materials flows throughout
                              complex production systems" necessitated the maintenance of
                              "substantial programmed redundancies," including "doubling up on
                              materials" if businesses were to function properly. In the New
                              Economy, however, business management has been able "to remove
                              large swaths of inventory safety stocks and worker redundancies." The
                              advent of processes such as bar-scanning devices and satellite location
                              of trucks has reduced delivery times. The growth of Internet Web sites
                              has speeded up and in some cases streamlined the way business
                              transactions are conducted.

                              Moreover, along with his claim that structural productivity growth has
                              shifted upward with the advent of the New Economy, Greenspan also
                              insists that wages have been kept down and unit labor costs restrained
                              by increased job insecurity of workers at any given level of
                              unemployment, due to globalization and the creation of more flexible
                              labor markets, which are taken as hallmarks of the New Economy.
                              Consequently, workers threatened by "flexibility" (which has often
                              meant the growth of non-standard and contingent jobs, such as work
                              through temporary help agencies) opt for job security where possible
                              rather than rocking the boat with wage demands. In testimony before
                              the Joint Economic Committee on March 20, 1997, Greenspan noted:
                              "In 1991, at the bottom of the recession, a survey of workers at large
                              firms by International Survey Research Corporation indicated that 25
                              percent feared being laid off. In 1996, despite the sharply lower
                              unemployment rate and the tighter labor market, the same survey
                              organization found that 46 percent were fearful of a job layoff."

                              The argument on job insecurity, which focuses on a more intense class
                              struggle imposed from above and the increasing costs of losing a job
                              (particularly given the rising indebtedness of the working class), gets
                              closer to the truth in explaining why "wage inflation" did not ignite
                              during the economic expansion, than do claims regarding structural
                              improvements in productivity. Nevertheless this argument, like all other
                              dominant economic perspectives, suffers from a view of the business
                              cycle ushered in by monetarism and Reaganomics that sees inflation
                              (especially so-called "wage inflation") as the primary cause of
                              recessions. The truth is that economic downturns have more
                              fundamental causes related to accumulation, the buildup of
                              overcapacity, etc., that are relatively independent of mere price
                              movements. It is not a squeeze on profit margins, due to rising wage
                              costs—supposedly forcing firms to raise prices—that generally
                              accounts for the onset of economic crisis. More important is the
                              overinvestment and overexpansion of debt that occurs whenever the
                              forces that initially propelled the boom start to peter out. And
                              underlying this of course are structural problems of overexploitation,
                              uneven distribution of income of wealth, and lack of effective demand
                              that are always present under capitalist conditions. Such basic truths of
                              accumulation, which were widely acknowledged in the days of the
                              Keynesian revolution, remain as valid today as ever—the New
                              Economy notwithstanding.

                              The deceleration of real GDP growth in the fourth quarter of 2000,
                              dropping from 2.2 percent in the third quarter to 1.1 percent in the
                              fourth quarter, generated widespread concern within business. Most
                              ominous was the fact that real nonresidential fixed investment fell 0.6
                              percent in the fourth quarter, as opposed to a rise of 7.7 percent in the
                              third, with investment in equipment and software declining by 3.5
                              percent. All of this occurred simultaneously with a dramatic drop in the
                              NASDAQ stock index (dominated by dot-coms), followed by a
                              general decline on the New York Stock Exchange.

                              Whether these events presage a full-fledged economic crisis, no one
                              knows at this point (late February 2001). What is significant, however,
                              is the surprise with which this apparent turnaround was viewed even in
                              supposedly knowledgeable quarters. Some had clearly come to
                              believe, history notwithstanding, that periods of rapid technological
                              progress were themselves guarantees against business downturns.
                              Others had bought into the idea that the New Economy was new
                              precisely in the New Era extra-economic sense of overcoming the
                              business cycle. The point to remember, however, is that business cycles
                              have been a regular feature of capitalism since the early part of the
                              nineteenth century and continue to live on despite dreams about the
                              flood of information available to corporations in miniseconds, and
                              similar notions. None of the empirical and theoretical claims associated
                              with the New Economy—technological revolution, rising productivity,
                              rising profit margins, and the like—are proof against the business cycle.
                              Indeed, cyclical downturns most often occur not in spite of but because
                              of such developments. That is, a high rate of accumulation can itself
                              lead to crisis. Overexpansion of capacity relative to consumer buying
                              power is an essential feature of a capitalist economy throughout its
                              history—in the state of competitive capitalism, in the monopoly stage,
                              and in the current phase of accelerating globalization and new

                              Nor is the expansion of the financial system, including the participation
                              of more and more people in speculative markets, a guard against crisis.
                              Financial crises, like economic crises more generally, are endemic to
                              accumulation under capitalism. Such economic instability arises not
                              from mismanagement, shortage of information, or lack of business and
                              consumer confidence, but from the dynamics of class-based
                              accumulation. The outstanding contribution made by the new
                              technology in creating mountains of information that can spread around
                              the world at the speed of light can contribute to a meltdown of the
                              money markets as effectively as it contributed to its ballooning. News
                              or hints of a break in the fragile financial network, which is based on
                              thinly spread layers of debt, can reach the money market headquarters
                              with a speed too fast for central banks to prevent a chain reaction on
                              the way down.

                              Next to Greenspan himself, Michael Mandel, economics editor for
                              Business Week, has probably done more than anyone else to
                              propagate the current New Economy hype. Yet, instead of arguing that
                              the New Economy is impervious to the business cycle, Mandel has
                              recently written a book, entitled The Coming Internet Depression,
                              that points to the probability of a severe New Economy crisis, arising
                              specifically out of what he calls the "tech cycle." The tech cycle,
                              Mandel argues, stands for the fact that "the business cycle has been
                              reincarnated in a different garb for the information age." The expansion
                              phase of the tech cycle, he says, is characterized by rapid technological
                              innovation; easy available funding for start-ups (as a result of venture
                              capital); strong productivity growth; investment booms as companies
                              scramble to keep up with the technology; the holding down of inflation
                              due to productivity gains and competitive pressures; and buoyant stock
                              markets. All of this conveys the main thrust of the New Economy idea.
                              But Mandel says that there is also a contraction phase to the New
                              Economy’s tech cycle: technological stagnation; the drying up of
                              venture capital; weak productivity growth; falling investment;
                              rebounding inflation; and depleted stock markets. Insofar as the tech
                              cycle is seen as displacing the traditional business cycle, Mandel’s
                              analysis is altogether questionable. But his claim that the various forces
                              that sent the New Economy up can also, once these forces have been
                              spent, lead to its turning down—and indeed account for a drastic
                              downturn—adds an element of rationality to the New Economy hype.
                              High tech, Mandel argues, means "high volatility."

                              Making things even more perilous, Mandel argues, is the extent to
                              which the New Economy boom has been financed by debt, both
                              corporate and household, which introduces the possibility of cascading
                              defaults. The ratio of household debt to disposable income rose from
                              80 percent in 1989 to around 100 percent today.* The debt of
                              nonfinancial corporations, meanwhile, rose by 34 percent between the
                              beginning of 1997 and the beginning of 2000. Such extensive
                              borrowing means more pain in the downturn of the cycle—particularly
                              for workers who have borrowed out of necessity to compensate for
                              stagnant real wages.

                              It is also worth noting that the United States benefited in the 1990s
                              from the relative prosperity of its economy in relation to Europe and
                              Japan. An economic resurgence in Europe and Asia, however, Mandel
                              warns, could "trigger a financial crisis in the U.S., and perhaps even
                              globally." The New Economy boom in the U.S. had been financed to a
                              considerable extent by an expanding flow of money from overseas. "In
                              1995," he notes, "foreign money was only 8% of total U.S. investment
                              (residential and business). By the first quarter of 2000, foreign money
                              had risen to 26% of total investment." All of this has made the U.S. a
                              net debtor on a massive scale, "with the value of its overseas liabilities
                              exceeding the estimated value of assets overseas by more than $1
                              trillion at the end of 1999." It is conceivable that such conditions could
                              lead to a devastating run on the dollar causing foreign investors to pull
                              out their investments even more quickly than they put them in. This
                              could generate a global financial crisis. With "a sell-off of the dollar," as
                              economists John Eatwell and Lance Taylor wrote in Global Finance
                              at Risk, "the potential disequilibria—portfolio shifts away from the
                              U.S., bigger international obligations on its debt, and growing financial
                              stress on the household sector—could begin to feed on one another
                              and on the views of the markets. At that point … all hopes for global
                              macro stability could disappear." The globalization of the disastrous
                              consequences of a New Economy bust could generate a world
                              economic meltdown.

                              Michael Mandel’s book, following the competitive dictates of the
                              business-press market, is subtitled Why the High-Tech Boom Will Go
                              Bust, Why the Crash Will Be Worse than You Think, and How to
                              Prosper Afterwards. This is prognostication and hyperbole, not
                              science. Although it is entirely rational to recognize that the New
                              Economy thesis, even if assumed correct, has its downside, which
                              could lead to a severe crisis, it is well to remember that much of what is
                              taken as already proven about the New Economy is illusion. The
                              investment boom associated with the digital economy is real. But the
                              thesis that there has been a structural (not cyclical) elevation of
                              productivity throughout the whole economy, and that this (rather than
                              the class struggle and the restructuring of the labor market) accounts for
                              relatively high employment accompanied by relatively low inflation, is
                              extremely doubtful at best. Indeed, the commonsense economic
                              assumption that higher productivity automatically means higher
                              economic growth is itself questionable. Some of the fastest expansion of
                              jobs and value-added in the U.S. economy in recent decades has been
                              in those sectors—services, and especially financial services—that are
                              notorious for their low productivity gains, and that are associated with
                              the accumulation of money capital rather than the expansion of

                              Hence, the economic downturn that now appears to be upon us will
                              most likely have much more in common with a classic business cycle, in
                              which the central role is played by the buildup of overcapacity, than
                              with the "tech cycle" described by Mandel. Indeed, excess capacity is
                              now appearing in industry after industry and on a global scale. As
                              reported by Floyd Norris in the New York Times (February 16,
                              2001), the global telecommunications industry—the highest of
                              high-flying sectors of the late-90s boom—is facing a "black hole." The
                              enormous capital expenditures have created capacity that far outruns
                              demand. And credit has dried up, even as vast sums are needed to
                              complete massive projects already well underway. "Weaker
                              companies, meanwhile, are failing. ‘Piece by piece, they are starting to
                              default up the chain,’ said Charles Clough of Clough Capital, a money
                              management firm…. Eventually, there will be growth to absorb the
                              excess capacity. But that will take years, not months. The financial
                              markets have still not fully discounted the pain to come."

                              There is no question about the fact that the magical new technology of
                              the information age has dramatically changed aspects of personal and
                              social life. It promises to do even more as time goes by. Indeed, all
                              major technological revolutions over the course of capitalist
                              development have contributed their share in altering the way we live.
                              But in no case did any of these earlier technological revolutions create a
                              new economy, or a new tech cycle, any more than has today’s digital
                              revolution. The economic laws of motion of capitalism remain in force.

                              We are living through an unprecedented situation marked by dramatic
                              new developments, including not only the New Economy boom and
                              bust, but also an unheard of polarization of wealth, rampant
                              globalization, and the greatest merger wave in history aimed at the
                              takeover of larger and larger sections of the world market by a
                              relatively small number of global-monopolistic corporations. Rather
                              than trying to predict what will happen under these rapidly changing
                              circumstances we should be keeping our eyes on the main
                              contradictions and tendencies that will feature prominently in any future
                              developments, recognizing all along that this is a phenomenon of capital
                              accumulation and crisis—and hence class struggle.


                              *For Greenspan’s speeches see the Federal Reserve Board website:

                              *Estimates on the contribution of the New Economy to economic
                              growth are those of the Bureau of Economic Analysis. See J. Steven
                              Landefeld and Barbara M. Fraumeni, Measuring the New Economy,
                              Bureau of Economic Analysis Advisory Committee Meeting, May 5,
                              2000, Table 2 U.S. government
                              statistics use what is called a "hedonic price index" to make
                              adjustments for quality improvements, in accounting for real computer
                              spending. This tends to overstate information technology spending in the
                              U.S. and its contribution to GDP compared to the majority of countries
                              (exceptions being Canada, France, and Japan) that do not use such
                              hedonic indices. See Economic Report of the President, 2001, pp.

                              *It should be noted that there have been major advances in the use of
                              automatic machinery within industrial production as a result of the new
                              technology. This includes not only computers but cybernetics, which
                              has a lot to do with the whole computer technology. To get more
                              automatic, workerless production equipment, various devices of
                              automatic controls and feedback, which use computers or
                              computer-like instruments are introduced. Hence, data on the utilization
                              of pure information technology within durable manufacturing, such as
                              referred to here, may be somewhat misleading, understating the role
                              that the new technology plays in that sector.

                              *On the problems of the application of productivity statistics to the
                              service sector, see Harry Magdoff and Paul M. Sweezy, "The Uses
                              and Abuses of Measuring Productivity," Monthly Review, June 1980.

                              *Robert J. Gordon, "Not Much of a New Economy," Financial Times,
                              July 26, 2000, and "Does the ‘New Economy’ Measure Up to the
                              Great Inventions of the Past?," Journal of Economic Perspectives,
                              vol. 14, no. 4 (Fall 2000), pp. 49-74.

                              *See the Editors, "Working-Class Households and the Burden of
                              Debt," Monthly Review, vol. 52, no. 1 (May 2000), pp. 1-11.