Untitled Document

Up and Down with the New Economy
_________________________________________________________________________________________________

Marcos Prado Troyjo*

Summary: The article suggests the viewing of a “photo album” of the so-called “new economy” and its implications for contemporary international relations. While not aiming at the outline of a clear and scientifically defined portrait of what the “new economy” is, the article rather collects a series of brief “impressions” on the emerging informational marketplace and its effects on power relations. The text compares the constituent elements of “old and “new” economies; it comments on the new (and chaotic) electronic stock market; as well as presenting an introductory bibliography to globalization –, issues that always come to mind when we think of the information society now in the making. The article discusses the consequences of high-tech prosperity and its apparent “bubble economy” effect for the US and the rest of the world. It equally examines whether the so-called “Digital Divide” will widen the gap between rich and poor even further. Although the article does not come up with final answers to many of these issues, it does bring a number of considerations that relate to the central aspects of this still largely undefined trait of contemporary society – the new economy.

Keywords: New Economy, information society, globalization.

What is the “new economy?”
As we move through the present time of globalization and high technology, we are repeatedly asked: do we have elements to characterize wealth today that are completely different from the liberal tradition begun by Adam Smith? Are we legitimized to call the current stage of capitalist development and the new phase of circulation of commodities as the “new economy”? When we use expressions and concepts such as “information technologies”, “e-commerce”, NASDAQ, “financial volatility” etc., we are clearly dealing with new ways of living, operating and doing business. We are speaking, therefore, of an economy and a society that are different to say the least. How can we relate such “phenomena” to the usual characteristics of the “traditional” economy – aspects such as scarcity and the factors of production: land, capital and labor?

Even if we consider the entire on-line apparatus, it would be difficult to sustain that the law of scarcity has changed. New technologies have incremented our well-being immeasurably. However, we still remain very imperfect human beings, with unlimited necessities and restricted resources (although, for some, more resources are increasingly available each day). Because of the expanding dimension of our desires, contemporary technology has merely sophisticated our tendency to “constantly wish for more and more”; and such a characteristic is inherent to human nature. However, are the factors of production the same as they were in the economy of the industrial revolution? Certainly not. One could argue that, although the land factor is immutable by definition, labor and capital have undergone radical changes, hardly similar, therefore, to the figure of Charles Dickens’ factory worker and cold-hearted industrialist¹.

Knowledge has altered the productivity of the inputs labor and capital in a definite way. But it has also, to a large extent, altered old Marx’s profile of the worker, who is dispossessed of the means of production. It has also transformed capital, making it all different from the “greedy input” that would necessarily have to reduce the wage mass in order to maximize profits. As if by means of an alchemy – which is formulated on a daily basis at Harvard, MIT, INSEAD and other institutions – , the systematic application of knowledge to economic activity has led to an “explosion of value”. Thus, the old “objective” economy had value as the absolute parameter and was characterized by the interplay of capital and labor. The new “subjective” economy is characterized by the process that adds value through the incorporation of knowledge to a certain product or process of production.

In the old economy, if land, capital and labor were part of the traditional model together with the agricultural, industrial and services sectors, knowledge-based activities define a “fourth” sector. Here, robotics, chemistry, network software, etc. constitute the surface of the new economy. In a way, we can understand the economic history of the 20th century, from Ford's assembly line to the biotechnological revolution, as a trajectory in which knowledge has had a progressive influence over labor and capital, to the extent that knowledge now constitutes a factor of production in itself.

In the past, knowledge made the worker more skilled and capital more sophisticated. Presently, single-subject experts are replaced by workers who are able to articulate different kinds of knowledge. In the past, knowledge was determined by capital. Presently, capital is determined by knowledge. If such assumptions are in fact valid, then we must rewrite our economics textbooks.

De-territorialization
In the last quarter of century, the rapid dynamics of information technologies – the infrastructure of the new economy – has revolutionized the economic understanding of “space” and, as a result, the manner in which wealth is distributed. The highest phase of such a revolution is “de-territorialization”, by which the distinction between "domestic" and "foreign" markets progressively disappears. This process may be slow, but it appears to be irreversible. Marx probably best described its beginning, when he stated that “commodities and their low prices were the heavy artillery used by the industrial revolution to tear down the Chinese walls”², thus describing the irrevocable expansion of capitalism during the 19^th century.

Since Marx first analyzed capitalism, the economy has undergone different phases, becoming worldwide, international, global and, now, virtual³.

Nevertheless, with the quick-paced expansion of international trade, the concept of “market seizure” has always been linked to geographic, physical concepts and understandings. We speak of the “European market”, the “North-American market”, and so on, and of course, we will still use these concepts for a long time. As the new economy is characterized by “virtuality”, the market seems to be gradually losing its characteristic as a location. In the new economy, the market is less of a place and more of a “moment” – an instant when the forces of supply and demand, producers and consumers meet. That is why the growth of e-commerce, that shapes this “virtual area of free trade” – the Internet – can make markets based on regional criteria, such as the European Union, Nafta, Mercosul, etc., become increasingly obsolete in the near future. Unfortunately, this process of “de-territorialization” of the new economy – the strengthening of the virtual, knowledge society – has not succeeded in making another geo-economic concept disappear, one that has been on the economic agenda of the United Nations for the last fifty years: the division between North and South. But even this concept has changed, perhaps in a more perverse way. For the past five decades, “North and South” have represented the clear division between the rich hemisphere that produces and consumes on a high scale and the poor hemisphere that still struggles to survive. The knowledge issue has contributed to increasing this “gulf”, and North-South distances are now greater than ever.

Peoples are no longer divided into “haves” and “have-nots”. The gap today is increasingly between the “knows” and “know-nots”. The traditional North-South division has received a new name in the information economy: the digital divide. The world is de-territorialized, many physical frontiers no longer seem relevant and one can easily become disoriented. But one notion seems to be certain: knowledge is the compass of the new economy.

The (il)logic of the new stock market
NASDAQ, the electronic stock exchange market, is probably the clearest indicator of what the new economy and especially the so-called “dotcom” companies have been for the past few years. The idea of a mechanism that attracts investments – such as a stock exchange market – aimed at high technology companies, is an experiment led by the US, but which may increasingly expand to Asia, Europe and even Latin America. But in what way is the new stock exchange market different from the traditional one? Is it the nature of the stocks that are being traded that make up for the difference, or is there something else that is new, that is not standard procedure for investors in classical operations of the stock market?

When looking at the origins of the stock market, we must go back to Dutch Mercantilism and the very beginning of what could be called the “financial market”, with loan transactions, the use of interest in the economy, and the creation of banks, etc. The stock market soon became the place where goods were traded, as still occurs today in the commodities markets, which define the trading profile of some financial districts, such as the “City” of London. A model of corporate capitalization soon developed, in which investors who were not interested in the administration but in the profitability of companies could purchase certificates that later on evolved to what is today known as “preferred stocks”. The analyses of those investors were based mainly on a company’s “fundamentals”, the dogma of stock investments in the old economy, characterized by detailed reviews of balance sheets – relating assets to liabilities, perspectives of contracts and companies’ profitability records.

In the old economy, the “real” or “concrete” performance of a company determined its “projected value” in the stock market; thus, fundamentals determined a company’s image. The “objective” reviews influenced the “prospective” analyses. Such a condition has importantly changed in the new economy. With the NASDAQ and the increasing speed of stock investments, the financial result is not only the positive outcome of the interaction of revenues and expenditures – a result sheltered by the tradition of doing lucrative business.

Today, it is the expectation of profit of a high technology company – not necessarily its past as a business – that determines its present situation. A company’s image determines its performance, its fundamentals. That is why dotcom companies such as Amazon and many others succeed – and turn their owners into millionaires – despite accumulating operational deficits. In the old economy, the accounting record defined the real value of a company listed in the stock exchange. In the new economy, it is a company’s future possibilities that define its daily operations, its fundamentals and its performance in the stock market.

In the traditional stock market, we used to look to the past in order to project the future. The market analyst was an historian. In the electronic market, we make projections about the future to establish the present and the market analyst is like a meteorologist. Of course even electronic markets suffer “cyclical shocks of reality”, and companies “fundamentally” more vulnerable are swept away from the charts, in the most Darwinian “survival of the fittest” fashion, as the NASDAQ has bitterly shown throughout the year 2000.

Apparently, a different (il)logic has been established. In the old economy, the past determined the future. In the new economy, we are all governed by the future.

The bubble that won´t burst
Some market analysts think the ups and downs of high-tech stocks, which oscillate more than the Dow Jones, merely reflect the mutable nature of a rather new market, which produces “short waves” of optimism (and profit making) or pessimism (profit losses). However, another group of analysts would associate the sectors of the new economy, particularly the electronic stock exchange, to a “speculative bubble effect”.

Such an expression is still present in analysts’ minds as a result of the so-called “bubble economy”, an economic phenomenon that characterized Japan in the 80s, a period when the country produced too much, saved too much and consumed too little, resulting in a sharp “rise and fall” of Japanese assets and in the reduction of market competition, mainly among “intangible” assets of the IT and technology sectors. According to such cataclysmic market observers, “inevitably” a violent “earthquake” will hit most dotcom companies, exposing new economy enthusiasts to ridicule. The truth is the earthquake did come with the fall of NASDAQ indexes.

Were such predictions therefore right? Why is the “bubble” concept always associated to the new economy as if by an “umbilical cord”?

This may be due to the conventional explanation that it is not possible, in the mid term, for investors to continue placing their bets on companies that are backed only by a “promise for the future” without creating tangible operational profits in the present. Economic theory teaches us about “supra-normal profits”, when a specific sector of the economy, due to a technological innovation, or even to consumers’ psychological or behavior changes, start yielding vast profits to the companies which first arrived at that particular sector – profits that are far greater than the economy's average rate.

Thus, the supra-normal profit generated in a specific sector is so attractive that more and more companies end up directing their activities to that destination, and, as a result, the extremely high profits begin to drop. If we take a look at the example of the United States during the period when the railway sector experienced huge profits following the period of consolidation of American expansion to the West in the 19th century, the US railway sector totaled around 5,000 railway companies. During the period of the automobile “boom” in the beginning of the 20th century in the US, there were more than 2,000 automobile industries. Needless to say today in both the railroad and automobile fields there are only about 10 companies⁴.

In a similar way, the supra-normal profitability of the first years of the new economy supposedly hailed in investments in excess, and the new economy is now necessarily and significantly cooling down. One way to promote such a drop in temperatures of the new economy’s thermometer, would be if the Federal Reserve Board were to increase taxes.

In sum, currently there are theories going around in the US that say that a tax increase would, in a few years, lead to similar effects to those brought on by “Reaganomics” during the 80s. The debt levels of companies and the public sector would increase. However, American prosperity and innovation levels would continue high due to the flow of investments to the US, leading to unforeseen effects in the rest of the world. By means of “Reaganomics”, the American bubble would not burst. But Reaganomics is to have a new a face.

From Private Keynesianism to Bushnomics
The statement that “in order to promote economic growth, one should borrow money and spend all of it (...) The money, however, should be spent wisely, thus creating a solid basis for development so as to enable creditors to recover investments by buying services and commodities, producing cycles of prosperity” is credited to John Maynard Keynes, the most important economist of the 20^th century.

Such prescriptions are not odd to financial strategies that fund new economy companies. However, the legendary British economist directed these thoughts to the state, defining its new role, and to the national economy as a whole. Thus, when economic bubbles would begin to shrink, the state could intervene and investors would gain from the spill-over effects resulting from the state's intervention.

In the US, the new economy had adopted a type of “private Keynesianism” prior to the fall of the NASDAQ and the tragedy of September 11. Individuals and companies became significantly indebted during the years of prosperity under President Clinton’s administration. As a result, every American household today owes around 100% of its annual income. Company and individual debts add up to around US$ 8.5 trillion, which is actually 30% more than the country’s GDP.

The use of public debts constitutes one of the main elements of Keynesian theory, and during the 80s, Ronald Reagan’s economic policy – “Reaganomics” –, made good use of its mechanisms. An enormous increase of governmental expenditures occurred leading to modernization of technologies in the American armed forces. As a result, capital from other parts of the world was attracted to the US causing a steep increase in the “Prime Rate”, the US interest rate, and the following to occur:
(i) resources originating from additional incomes because of the appreciation of international oil prices flowed into the US from other financial markets;
(ii) debtor countries, such as those in Latin America and American financial institutions saw their debts increase.
Results as distinct as the huge public debt during George Bush Senior’s administration, the end of the Cold War and the arrival of resilient technologies that led to the Internet – made possible by a huge defense budget, are attributed to Reaganomics. As we analyzed the much-talked-about “soft-landing” for the American economy, undergoing debates about tax increases in the US and bubbles in the New Economy resurface.

As for technological innovations projected to the future, the US would not necessarily need a public funded program, such as “The Star Wars” project, to serve as a source for military or economic competitiveness. “Military Keynesianism”, as John Kenneth Galbraith once highlighted, propelled by interest rate increases in accordance with Reaganomics, is unnecessary. The private sector’s expenditures in research and development are sufficient enough for the US to remain the world’s technology leader for a long time.

The US is the undisputed leader in such innovative fields of knowledge such as biotechnology, nanotechnology and ITs, which make for the present – and future – economic and military muscle (and brains). The US houses the largest PhD population in the world. The US is also unrivalled in terms of the fluid relation between its corporations and universities. That is why, unlike the Reagan years, he US will not witness a sharp rise in interest rates in 2003 – there is no dramatic aftermath of oil crises such as it was observed in the early 1980s. Much to the contrary, a great interest increase on the part of the FED, while perhaps attracting capital that would otherwise move to emerging markets, could further increase the debt of the American private sector, resulting in a cooling down of US domestic economic activities. Thus, capital migration to the US, motivated by an appreciated “Prime”, would not compensate for the expansion of American private debt.

That is why, in order to prevent the devaluation of emerging markets, which in many aspects depend on the US, avoid chaos for the private sector and individuals, and the loss of competitiveness in the new economy, Reaganomics should remain only in the US economic history of the 80s. Therefore, the first years of this new century should not bring about traumatic rebounds on interest rates.

September 11 changed a lot of how the game is played though. A new sort of “military Keynesianism” has surfaced. We may call it Bushnomics. In 2003, the United States will spend US$ 210 billion in research & development as well as US$ 360 billion in defense. The interplay between these two budgets will represent the climax of the triangular investment science-technology-defense, and then the market will take charge and transform these new military technologies into “civil consumption” goods. It is the military expenditure taking the lead in economic innovation, yes, but without the astronomical domestic interest rates of the Reagan years. This should be how Bushnomics will unfold.

“Reading” Globalization and the New Economy
The debate about globalization is becoming increasingly interesting – and heated. The transformations in communications, transportation and – particularly – in people’s level of consciousness produce passion and dissent. Indeed, some people react to globalization as enthusiastic sports fans. Each drop in the NASDAQ index during the “innocent years” of the new economy was seen regarded by pessimists as a goal scored against optimistic global competitors. During the 60s, flowers in weapons represented a method of protest. The 70s and 80s were times in which military installations containing nuclear weapons were besieged by pacifists. During the 90s, embracing trees and the environmentalists’ rhetoric constituted the method of protest. At the dawn of the millennium, new technologies and trends in business operations, present in the so-called new economy, constitute the villain or the hero that sow the seeds of discord.

This is why one of today’s most popular courses at Harvard, quoting Freud, is “Globalization and its Discontents”, taught by Stanley Hoffmann and Thomas L. Friedman. Enthusiastic optimists and fans oppose pessimists – Cybernetics against Cyberskeptics: some support the dotcom teams, while others side along with protestors in Seattle, Prague or whatever capital that houses the “drivers” of globalization.

The first group approaches globalization as a spontaneous and liberating force that can offer never before reached levels of knowledge and wealth in a more democratic way. The second group believes globalization is a kind of ideology, with its own system of values and, for this reason, it favors particular groups. In sum, developed countries’ “digital prosperity” constitutes under-developed countries’ “digital exclusion”.

However, for those who desire more than partial knowledge of such an important issue, there are several texts that can provide us with well-founded perspectives. It is important to be in touch with an “introductory bibliography” to the new economy and globalization and we should not, for the sake of knowledge, incorporate only one interpretation of the subject. Therefore, I suggest a “cocktail” of readings for those who desire to become participants, or for those who are interested in the new and extraordinary characteristics of contemporary society.

A more general text to start with is Information Age: Economy, Society and Culture, by Manuel Castells⁵. He has the gift of not presenting the idea of “technology as panacea”, which usually characterizes more superficial books, while acknowledging that the new economy is here to stay.

In the tone of “cyber-cautiousness”, there is Carl Shapiro’s and Hal Varian’s Information Rules⁶, in which the authors discuss the statement that “technologies change but economic laws don't”, constituting a compliment to “old economy’s” standards. On a similar note, Tom Standage in The Victorian Internet⁷ compares the impact of the invention of the telegraph in 19th century England to the advent of the Internet. In the cases of the telegraph and the Internet, communication costs sharply decreased while the amount of information available to society drastically increased. Nevertheless, one cannot attribute the foundation of a new economic model to the telegraph.

On the other hand, a “spokesman” for cyberskeptics, Dan Schiller, throws a bucket of ice over optimism in his Digital Capitalism⁸ , by defending the theory that the information economy offers subtle instruments that consolidate the power of transnational communication companies. As social differences grow, the new economy consolidates the “culture of consumption” that characterizes privileged groups. Schiller believes that digital capitalism has reproduced the market's two most evil by-products: inequality and domination.

But one thing appears to be certain: the year 2000 – and especially the greater amount of “downs” than “ups” in the NASDAQ index – has represented the end of the “age of innocence” for the new economy. But this is not necessarily a bad thing. Paul Krugman constantly reminds us of Schumpeter in his articles, thus preparing us for a period of “creative destruction”. Such a movement towards correction is not to be found exclusively in the old economy. It is a characteristic of any economy at any point in time, because excess that leads us away from utility and efficiency constitutes an important aspect of the history of technology and technology’s economic applications. Thus, the need to read about globalization enabling us on a more optimistic note.

John Micklethwait and Adrian Wooldridge, for example, in A Future Perfect⁹ , “de-construct” globalization by attacking the so-called five myths which distort its image. The authors believe that globalization does not mean that the power of large corporations is eternal, that worldwide products such as Coca-Cola and GAP are consolidated, that the economy’s traditional cycles have not become obsolete, that globalization does not constitute a “zero-sum-game”, and that it has not eliminated the importance of geography. The book is concluded by arguing that the name of the game is “adaptation and innovation” and that even though globalization presents disparities, it generates more winners than losers.

Richard Rosecrance, in The Rise of the Virtual State¹⁰, defends the theory that we are already moving from a “globalized economy” towards a phase of “virtuality”. Presently, “head” economies do research and develop products and financial and judicial services for the “body” economies to manufacture. But this relationship according to Rosecrance is not in accordance to one of a new “digital imperialism”. The logic of the new economy itself would require higher levels of education and training in the “body” economies. Thus, Rosecrance suggests that the great international impact during the 21st century will be the increase in competition among educational systems.

The New economy and Bill Gates’s change of heart
Seattle is famous for its changeable weather. Sparse sunny days alternate with more frequent drizzly humid days. However, the year 2000 represented a most remarkable move towards a gloomy sky, as it was noticed in the mood of the richest man of the world of all times, the one usually considered to be the greatest preacher of the benefits of the information society. Bill Gates, during the conference on “Creating Digital Dividends”, sustained that interconnectivity and the logic of the market itself would not necessarily bring about tangible benefits to the 6 billion people who inhabit the planet.

This is an admirable reflection made by the author of The Road Ahead, whose most recent thoughts suggest a kind of waning out of the “digital solution”. Mr. Gates proclaimed that in the poorest countries of the world, where per capita income is approximately US$ 1 a day, computers or Internet access do not make a difference. Gates is now an advocate of “getting down to basics”, claiming for more fundamental investments in food and health. Nobody has to be a genius to realize that, in a place where there is no electrical power, the rug is pulled from underneath the information society’s feet. Even the most advanced technological inventions, such as solar energy, can neither be consumed nor developed by communities that live on the basis of a few dollars a day.

It is interesting that 21^st century Mr. Gates points out that even computers have to be considered in the perspective of human values. This is an important thought, also in terms of human and financial resources. The Bill and Melinda Gates Foundation is in the process of diverting its focus from information technologies to the distribution of medicines and the improvement of vaccines – which should consume approximately 2/3 of the Foundation's US$ 21 billion endowment. On a note of comparison, we should remember that the UN's regular annual budget is only slightly larger than US$ 1 billion.

We should also notice that Mr. Gates does not seem to have lost his faith in the future of information technologies. He has only confessed to have been “naive” in his initial enthusiasm regarding the solutions that global capitalism, on its own, could offer to the most serious problems in the developing world. Social distances in the fields of health, education and human rights precede the so-called “digital divide”. That is why such conclusions are so important to the very strengthening of the information society. No new economy or e-commerce can resist for a long period of time without socially and digitally including less developed countries, which today neither invest in the new economy nor consume its products.

Mr. Gates has been recently telling us that information technologies do not represent a solution by themselves. They are very useful tools to help build a fairer and better world. But they are not enough. After all, web users without income, health, rights and food hardly have the strength to plug a computer.

Debating the Digital Divide
The division between the developed and the developing worlds has received great amount of thought during the last fifty years. Apparently, a couple of “synthesis-explanations” were made for every decade within this period, in an attempt to clarify the reasons for so many disparities in human progress. The following terms should not sound strange to us: “center-periphery”, “maquiladora economies”, “foreign debt”, “first” or “second” industrial revolution countries, etc. These terms are part of the vocabulary of those who have dedicated thoughts to the social and economic distances between nations.
However, contemporarily speaking, the frequent use of the expression “new economy” occurred at the same time as the understanding that the digital divide is a catalyst for different levels of development among countries at the wake of the 21st century. We no longer speak as much of industrialized or industrializing countries. The gulf is now “post-industrial” and is between “connected” and “connecting” societies.

This issue has been explored by some of the most prestigious academic institutions in the world, like the first First Harvard/MIT E-Development Conference and the Digital Nation Summit Meeting, held at MIT's Media Lab in October 2000. The panel discussions that took place in both events revealed that there exists no consensus with respect to the “digital divide”.

Gabriel Accascina, of the United Nations Development Program, for example, believes the expression “digital divide” is not correct; distances are socio-economic, and the digitalization of the information society serves to shorten distances. As part of his experience, he worked in Bhutan, Fiji and East Timor, to connect such countries to the Internet. But connections can be of very little use in places where there is such a deep socioeconomic gap. On the other hand, OnSat's CEO David Stephens, a representative of the private sector, referred to the use of alternative sources of energy to link the poles of environment-based development and information technologies.

His company received aid from Unesco and the Organization of American States (OAS) to install solar-powered stations in Honduras, enabling remote villages to be connected to the Internet via satellite. There were some obstacles to the project: the excessive US$ 150 thousand installations bill and the fact that, as the region lacked an efficient transportation system, all the equipment had to be transported in eight-hour long donkey-back journeys to the location where the project was based.

The project is expected to become self-sustainable within a few months, when villagers start giving online Spanish lessons to US students and local coffee-farmers start selling their crops to foreign clients on the Internet. During the conferences, Media Lab's Academic Chairman Alex Pentland also pointed out that those countries that lack telecommunications infrastructure show several unexpected advantages with respect to the automation of their societies. Such countries would not need to promote technological conversion processes – such as the expensive replacement of copper wiring for optic fiber. They could use, for example, the best and most reasonable systems of remote transmission via satellite, connected to photovoltaic-powered mechanisms, as in the OnSat project. It's interesting that John Kenneth Galbraith has used a similar argument in many of his books, such as in The Age of Uncertainty, stating that developing countries would not have to substitute obsolete industrial parks. They would thus be capable of installing state of the art industries even in more primitive agrarian economies. Unfortunately, the 90s showed us that developed countries reached the stage of the post-industrial technology economy of services, faster than developing countries constructed industrial parks for the production of traditional manufactures.

In order to bridge the gap, the secretary-general of the United Nations recently announced the composition of a task-force in charge of forwarding proposals of shortening digital distances to 190 governments throughout the world. Its creation followed the release of “Millennium Report” where Kofi Annan acknowledges the central role that information technology is taking in defining levels of human development in the next millennium. The team is being led by Costa Rica's former president José Maria Figueres, who since the Global Knowledge Conference (Toronto, 1997) has been taking on a lead role in the expansion of the use of information technologies in developing countries.

Coincidently, in Paris, Unesco held the “Infoethics 2000” Conference. It mainly covered public authority roles in access to information, including “equitable use” of information technology and protection of “dignity” during the digital age. The equitable use concept is extremely important because it aims at reaching a balance between the need to democratically expand access to information via the Internet, and the need to end digital piracy and promote the recognition and safeguarding of intellectual property rights. The conference aims to make leeway so that Unesco can have an active role on the “moral” issues that appear as a result of the knowledge society, which should be debated in the “World Information Summit” scheduled for late 2003.

Linguistic differences were also covered, as Internet Society's Christine Maxwell illustrates, pointing out that Unesco could perform a role in this field as could the Unilanguage program, which is being developed by the UN University in Tokyo. An interesting part of the equitable use discussion has to do with the future of the PC expansion in developing countries. The tendency that seems to be flourishing is the use of mobile phones, since they are cheaper than PCs, and can receive and transmit internet-type data

On the other hand, two of the most important individuals of the contemporary economy at Harvard, George Soros and Jeffrey Sachs, approach the digital divide within the broader picture of the impact of globalization on poorer countries. They mention paradoxes such as that of the digital prosperity of some nations in the northern hemisphere, which represent only 1/6 of the world's population, in opposition to the fact that every year 3 million people die from diseases that could be prevented by vaccines. In a lucid and similar way as that of Bill Gates' reflection in the “Creating Digital Dividends” conference, Soros and Sachs argue that developed nations sometimes respond to problems of developing nations with “fiscal measures and democratic elections” speech. In discussions with poorer countries they should be covering diseases “transmitted by insects”.

When such countries face more severe difficulties, the immediate solution seems to be to “call the IMF”, an institution that examines international liquidity crises but is hardly capable of fighting worldwide poverty. Soros and Sachs equate the way the IMF deals with the Third World to the way the United Kingdom dealt with their colonies one century ago. Two important texts of reference are Open Society¹¹ by George Soros and Helping the World's Poorest¹² by Jeffrey Sachs.

Conclusions
By following these debates, the perception that the Digital Divide is nothing more than a technological expression of a dramatically segmented world according to economic might. The digital divide is not a cause, but a consequence of more fundamental disparities, in sectors such as education, health, public transportation, etc. – that constitute the “basic infrastructure for competitiveness” of economies. The Digital Divide, like a fever, is not a disease in itself. It is a symptom of a very serious disease that afflicts international society.

But how can we treat both the fever and the disease? How can we go deep into providing the modern basis for a more balanced – and wired – new economy world? We must remember that in economics we are always facing the imperative of making choices. These are particularly complicated when we are debate investments in the infrastructure of the new economy. The pace in which an airport or a railway became obsolete in the face of new transportation demands is far less accelerated than the speed copper wire is being substituted by fiber optics. And even fiber optics communication may be rapidly overcome by the increasing use of satellite technology for the transmission of Internet data.

(1) As we go through the pages of a “photo album” of the new economy, we come to the conclusion that a “Technological Marshall Plan” is needed to supply the knowledge and information technology infrastructure for the developing world. For the old economy, infrastructure was represented by the investment in ports, airports, roads, railways, etc. For the new economy, infrastructure is fostering safe and speedy models of electronic connectivity. It also means bringing universities, research unities and companies closer together. But for many countries, it does not matter whether we are talking about old or new economies. The need is there for food, health and education. And this may be the greatest challenge for the consolidation of a worldwide new economy and new society.

_______________
*John Williamson is Senior Fellow, Institute for International Economics, Washington DC, USA.