Summary:
Is the United States engaged in a 'new economy' based on technology? That was the tough question even for some of the world's top economists gathered at the Milken Institute 2000 Global Conference.
Leading a panel discussion of four Nobel Laureates at the conference's opening session Wednesday evening, Michael Milken noted that the value of Oracle is now about 60 percent higher than the combined value of the nation's auto makers, including Ford, General Motors and Daimler-Chrysler. "Is there a new economy?" Milken asked.
The consensus of the four Nobel Laureates is: it's too soon to say. And they were reluctant to call the advent of computer and Internet-based companies a new economy.
"Novelty is not new. Telecommunications is not new. . . it's getting better," said Kenneth Arrow. Inventions such as the telegraph and steam engine had a profound impact on the nation's economy that wasn't felt until much later, he said, remarking that factories were redesigned about 30 years after electricity became available. "It's a digestion problem."
James M. Buchanan said today's cyberspace industry is somewhat analogous to the nascent automotive industry of the 1920s. Predicting its future direction based on past or present knowledge is difficult. "I'll leave the question open," concluded Buchanan.
"I don't know if I want to call it a new economy," Lawrence Klein said. "It has certainly changed. I wouldn't look at the equity market fluctuations. There's a lot of noise and fluff in those figures," he continued, evoking laughter among the audience. The important measure of a new or changing economy is productivity statistics, such as employment and growth, said Klein. "It's a very unusual movement to have such young companies come so far and dominate."
An emerging industry is marked by "a dominance of a small number of companies for a while," says Becker, an expert in human capital. "It's not a revolutionary change, but it's a significant change. . . No one has the answer to whether it's a new economy."
Becker agreed with Arrow that productivity often lags innovation. "The role of electricity didn't show up immediately in productivity, but after a while, there was a great boom. Larry has an important point, " he said. "We had increasing returns in the telephone industry."
In presenting a list of the nation's top 10 companies based on market value, Milken pointed out that many, such as Microsoft, Cisco and Intel, are linked to technology. In response, Arrow said, "Twenty-five years from now we'll find this list passe. There's an enormously high price-to-earnings ratio. Due to the new technology, there's a lot of sorting out [to do] in the next 25 years."
What gives Becker pause to declare a new economy, he said, is that there are very few new European companies relative to the United States.
Milken predicted that in the next 10 to 25 years the list would change dramatically to reflect the rise of biotechnology companies.
Other topics discussed by the Nobel laureates included:
- The differing mortality rates of men and women in industrialized nations, where women outlive men, and Third World countries, where the death rates are more equal. "Women had very high death rates from giving birth to children," Becker said, describing the United States of a century ago. "What we're left with now are cancer and heart (disease). After those major killers, women are the stronger sex."
- The ability of undeveloped nations to leapfrog to the 21st century via technology — the reason cellular telephones vastly outnumber conventional wired telephones in some poor countries. "Every country won't have to follow the same tortuous path that we did," Klein said. "They can go right to the final result."
- How the Internet might change the delivery of higher education to the masses and whether universities will play a primary role in delivering online education. "Non-profits in general aren't good in adapting new technology to new uses," Becker said. "These big universities do well in bringing people together to interact closely and create knowledge."
- The impact of high technology on economic forecasting and whether the past remains an indicator of the future. "Everything in the future is unknowable," Buchanan said. "History can be helpful to the extent that you can use it properly. Depending too much on history gets you into trouble."
- Why Africa, rich in resources, remains poor. "Part of it is government interference with the economy, corruption and plain, old conflict," Arrow said. "When Rwandans are killing each other, there can't be an economy."
Western Europe's move toward centralization versus a worldwide trend toward smaller governmental units. "My concern is with the discretionary authority of a single, central bank," Buchanan said. "Too much power is in Brussels. It's a residual Socialist mentality."
- The issue of Social Security and Medicare as the nation's population ages. "We should bank more on growth," Klein said. "We have another big sector coming up, and that's biotechnology."
