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The advent of the new economy.

"The new economy is already upon us," according to Anthony Patrick Carnevale, author of a May 1991 report prepared under the aegis of the American Society for Training and Development and the U.S. Department of Labor's Employment and Training Administration. The most striking difference between the new economy and the one it replaces is the complexity of standards that must be maintained for the Nation to remain competitive in the global community. No longer is simple productivity maximization-producing goods in high volume with the fewest resources possible-sufficient. Today's producers also must be concerned with quality, variety, customization, convenience, and timeliness of delivery because consumers demand and can afford them. In the global economy, if U.S. industry does not meet these standards, somebody else will.

Vital to the new economy are flexible and information-based technologies, the most important being the computer. Such technologies permit higher productivity and quality and the tailoring of products and services to smaller markets and even to individual customers. By integrating producers and consumers into economic networks, technology also helps to create an environment in which goods and services can be delivered globally or locally in a convenient, timely way.

New economic and technical forces also affect organizational structures, skill requirements, and jobs. Organizations are becoming flexible networks that use information to integrate operations, expedite strategic changes, and improve customer service. Information thus is becoming a basic raw material of economic processes. The shift to information networks is seen in the restructuring of businesses both large and small. It tends to flatten the middle tiers of the hierarchies of large organizations by driving authority, skill, and resources toward production and service delivery. In industries with small, autonomous, isolated organizations, information technologies are integrating small structures into effective networks.

As capital-to-labor ratios continue to grow, and direct labor inputs to production decline, human responsibilities and skill requirements are increasing and becoming less job specific, and workers are spending more time interacting with each other and providing services to customers. Service functions and jobs are increasing in all industries because the new market standards stress service.

Producing state-of-the-art goods and services requires flexible, integrated work organizations to get innovations off the drawing board and onto the market quickly. Customizing a wide and ever-changing assortment of products and services requires closely integrated working groups that can shift fluidly. Providing quality and convenience calls for teamwork and shared information. Economic activity thus becomes more of a collective activity by groups of people.

Evolution of the new economy Every economic era has a characteristic mode of production. Two major economic eras, craft production and industrial mass production, preceded and influenced the new economy. The preindustrial craft economy. Craft production was characterized by the autonomy of skilled farmers, miners, and artisans. For these persons, both the mediums in which they worked (cloth, wood, glass, and so forth) and their tools were subservient to their skill. The conception, execution, and control of work were unified in the individual. Remuneration was based on skill and output.

The mass production economy. This era has seen the rationalization of economic activity: simplifying and boosting the scale of activity to yield large quantities at lowest costs. The autonomous artisan is replaced by the dependent employee who works in an organization. The artisan's unity of conception, execution, and control at work is fragmented in the mass production workplace. The human scale and natural rhythms of the craft and farm economy yield to bureaucratic procedure and the machine cadences of the factory. And wages in mass production relate to jobs rather than skill or final product.

The craft economy has survived in an uneasy coexistence in the shadow of mass production. Markets for shortrun production and specialized services have persisted. Some industries, such as construction, have been difficult to rationalize with available technologies and have continued in the craft tradition. Also, professional and administrative services that have grown as a result of mass production, urbanization, and increased disposable income have provided new opportunities to expand the craft model. The new economy. The new market standards of customization, variety, convenience, timeliness, and quality are similar to those in the craft economy. But, the new economy also uses a powerful capital base to produce craft-like products on a scale and at prices more akin to mass production. The new economy retains the productivity standard and adds to it.

Employees in the new economy are not as independent as artisans, but are more autonomous than those in mass production, working in loosely knit teams and networks organized flexibly around information. As in the craft economy, control is exerted through common values and goals arrived at by consensus-building rather than through authority-based systems.

The new economy represents a return to craft standards for remuneration, but wages are increasingly dependent on the performance of the group rather than the individual. As a result, employees are generally more attuned to the effect of organizational performance on their earnings. A history of transition At present, general understanding of the new economy far exceeds its acceptance in the U.S. workplace. The reason: Our path toward the new economy narrows as we encounter economic, social, technical, and political bottlenecks. We have encountered such barriers in earlier economic transitions, and there is much to be learned from them.

Transportation was the first hurdle in the path of U.S. economic development. The North American heartland was rich in natural resources, livestock, and produce. Yet in 1800, it still took 53 days of hard riding to get from Detroit to Pittsburgh. By 1820, the race between the canals and the railroads to serve the new regions was on. After the Civil War, the railroads finally overtook the canals as the principal means of moving goods from west to east, because they were faster and could carry heavier loads.

U.S. manufacturing was born in New England at the turn of the 19th century and grew over the next 50 years as a result of borrowed technology and protection from foreign competition by embargo and tariff. Yet as late as 1860, only 14 percent of Americans worked in manufacturing, while 53 percent still worked in agriculture. Because most economic activity still took place in agriculture, the rationalization of such activity had its first and most powerful impact on the farm. By the 1860's, agricultural productivity had increased enormously, compared with productivity rates at the turn of the century.

After the Civil War, the pace of change in manufacturing processes quickened. The principal technological bottleneck for U.S. manufacturing was energy, and the shift from water to steam power after the war and the subsequent shift to electricity between 1880 and 1930 made quantum changes in the power and productivity of manufacturing processes.

As the Nation raced toward the 20th century, new educational, organizational, and financial barriers to economic progress were encountered. As productivity increased, agriculture began shedding unskilled labor. At the same time, the Nation had a growing need for a highly skilled urban industrial labor force of white-collar and technical employees and blue-collar laborers. Substantial investments were needed in the railroads, roads, and communications infrastructure that would move raw products from west to east. Urban infrastructure, including electrification and sewage treatment, demanded huge capital outlays. Private employers needed new institutions and financial mechanisms to support the expensive technical and organizational infrastructure of mass production. In the end, the Government paid for the urban infrastructure, the industrial labor force, and the roads. Private industry built new financial institutions large and powerful enough to finance development of factories, railroads, and new communications infrastructure.

The urban industrial economy of the early 20th century required stable production and ever-increasing consumption to justify the costs of the new infrastructure and to maintain the increasingly wage-dependent work force. In time, strikes and recessions proved that the new bottleneck in the development of the Nation's economic system was instability in the workplace and in consumer markets.

Eventually, managers achieved workplace stability without surrendering substantial control by paying higher wages and being accommodating toward nonsupervisory employees and their unions. The stability of markets was improved by boosting the buying power of consumers, extending credit, and managing national economic performance through the money supply and Government spending.

The Great Depression and World War II demonstrated the need for new tools to stabilize the national market. After the Depression, a financial safety net was created for the unemployed, the underemployed, and other dependent populations, bolstering demand in slack periods. War production demonstrated the ability of the national Government to sustain aggregate demand through tax policy, Government spending, and control of the money supply.

Thus, by the start of the postwar era, all aspects of the U.S. economic system seemed to have been reconciled. The hothouse economy of the postwar boom yielded abundance on an unprecedented scale. Pent-up demand for consumer goods continued to stimulate the resources mobilized for war production. The result was effortless growth, with public policy braking or nudging the economy at the point of demand.

U.S. economic development ran into new obstacles in the early 1970's. A productivity decline suggested to some observers that there was something wrong with the way we were using technology, people, and the organization of work. Shortages of energy and other raw commodities proved another barrier to growth. By the 1980's, postwar productivity had saturated mass markets at home, encouraging globalization of competition. Eventually, global demand also was saturated, with a glut of output in an increasing number of industries. Thus, growth has been stagnant since the early 1970's.

On entering the last decade of the 20th century, the Nation is breaking a path toward the new economy. But numerous new obstacles impede progress. In the workplace, flexible technology needs to be matched with more skilled, autonomous workers and work teams and a service orientation.

Barriers to progress exist outside the workplace as well. Environmental limitations to growth await solution. The new economy is facing a financial dilemma-one that is fraught with savings-and-loan bail-outs, junk bonds, and foreign debt. And, although the new economy will require massive public and private investment in the Nation's human, organizational, and technical infrastructure, the necessary capital is being absorbed in an orgy of public and private consumption. It also is increasingly clear that ability to stabilize domestic markets is no longer enough; the new economy has gone global, and unpredictable global events tend to impinge on our domestic economy. Finally, the demographic surpluses of the 1970's are giving way to longer term shortages, cutting into the pool of available workers. Moreover, more workers will come from populations in which human capital investments before work have been inadequate.

The Nation can be cautiously optimistic about its prospects in the new economy. Much will depend on its ability to break through barriers. The United States set the standards in the old economy, and old and once successful habits die hard. Other nations face many of the same obstacles, but we move into the new economic era dragging the dead weight of past industrial success behind.

COPIES OF THE REPORT, America and the New Economy, are available, at no charge, from the American Society for Training and Development, 1640 King Street, Box 1443, Alexandria, VA 22313, or from the U.S. Department of Labor, Employment and Training Administration, 200 Constitution Avenue, N.W., Washington, DC 20210.
COPYRIGHT 1992 U.S. Bureau of Labor Statistics
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Publication:Monthly Labor Review
Date:Feb 1, 1992
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