The new economy: Reality and policy

This paper concerns the new economy (alias the knowledge-based economy). I examine the different meanings attached to the new economy term and the evi dence surrounding it, concentrating on the upsurge in US productivity growt h between 1995 and 2000. I argue that the reports of the death of the new e conomy have been greatly exaggerated. There is evidence that information te chnology has transformed the US economy and is thus likely to have a strong impact on the UK economy in coming years. I discuss how elements of public policy should adapt to these economic changes, both in terms of an overall framework and in applications to specific areas (technology policy, human capital policy, competition policy and industrial policy). The new economy is a place of hope and fear. The hope is that policy activism can cement in potential productivity gains; the fear is that government actions will not mitigate the seemingly ineluctable pressures towards social exclusion.