Puncturing the myths of the New Economy

Book review

After the New Economy By Doug Henwood
New Press, 2003, Hardcover
269 pp., $24.95

During the 1990s, conventional wisdom said that the old rules of capitalism no longer applied. The New Economy made recession a thing of the past, free markets would make us wealthy, and only those refusing to be flexible team players would be left behind. But the bubble burst, a nasty recession followed, and the New Economy came in for reassessment.

Unfortunately, much of the reassessment, according to Doug Henwood, author of “After the New Economy,” treated it as “a mix of collective folly and outright criminality – never as something emerging from the innards of the American economic machinery.” Furthermore, despite its demise, many of the myths that grew and sustained the New Economy continue to be influential.

Henwood’s book is an excellent deconstruction of these myths. One of the dominant myths held that the New Economy transcended the material production of things. George Gilder, author and New Economy booster, celebrated the “overthrow of matter” made possible computers and bandwidth. Federal Reserve Chairman Alan Greenspan chimed in with his agreement.

But as Henwood, editor of The Left Business Observer, notes, “[D]iscourses like Gilder’s and Greenspan’s typically forget that their miraculously weightless blips depend on a vast infrastructure of computers and cabling,” and that if the production of things had become so insignificant, “would we really have to worry about global warming?”

Another popular myth is that the New Economy revolutionized work. According to the experts, we accelerated productivity by working smarter instead of harder, making our lives at work and away from work better. But the data Henwood presents tells a different story. Life and work are only better if by “better” you mean that we work longer and harder for less pay.

In 2001 the average manufacturing worker had to work 81 weeks to earn a median family income. In 1947, it took the same worker 62 weeks to do the same. Furthermore, U.S. manufacturing and service workers work more hours per year than our Western European counterparts. But if we’re working harder, then we should be getting our just rewards.

According to Henwood, however, the only ones benefiting from our hard work are the wealthy. According to the U.S. government, adjusted wages have declined since 1973, but the wealth of the wealthiest increased by 496 percent.

“After the New Economy” isn’t a theoretical work, but it raises one theoretical question: Does the revolution in communications and the use of computers, one of the most important features of the New Economy, represent a qualitative change in the means of production?

Henwood persuasively argues that it doesn’t. Most jobs created by the New Economy were old economy service jobs (truck drivers, retail sales persons, and office clerks) or jobs created by the “commodification” of domestic work (fast food workers and home health care aides). Furthermore, the substantial productivity increases were confined to specific sectors of the economy.

While productivity increased substantially in the manufacturing of high tech equipment, it remained flat in other manufacturing sectors. Even computer-heavy sectors such as finance, real estate, and insurance lagged in productivity increases.

Henwood also observes that the Wal-Mart effect is responsible for much of the New Economy’s productivity gains. Many companies are following Wal-Mart’s example by squeezing more out of their workers, making them work off clock, paying regular wages for overtime work, and monitoring every aspect of employees’ time on the job.

Henwood’s strength is his ability to transform dry economic data into a clear and lively critique of capitalism. He also applies a level of rigor absent among New Economy boosters and some of their critics.

Henwood’s prose style is nimble, but at times he gets sidetracked by his own nimbleness. For example, his chapter on finance meanders into the pop culture of the bull market and the rise to stardom of CNBC’s on-air financial analyst Maria Bartiromo.

Henwood questions the relevancy of this side trip but can’t resist taking it. He should have listened to his inner editor. He also could have done a better job of organizing his material.

The book consists of five stand-alone chapters, Novelty, Work, Income, Globalization, and Finance, plus an introduction and conclusion. What’s lacking is a unified theme. These criticisms don’t diminish Henwood’s accomplishments. He demystifies the hokum of the New Economy, showing it to be little more than a manic stage of a typical capitalist boom bust cycle. The main thing that distinguishes the New Economy from the old is that bosses used laptops and cell phones to impose their imperative to maximize profits on the rest of us.

The author can be reached at pww@pww.org.