JANUARY 31, 2000
The New Economy
It works in America. Will it go global?
businessweek.com
Ironically, skeptics also worry that a worldwide investment boom could itself trigger global inflation. The reason? Slow growth in Europe and Asia in the 1990s helped keep commodity prices and interest rates low in the U.S., despite strong growth in America. But as the rest of the world picks up steam, that slack is slowly disappearing. By sometime later this year or early 2001, unemployment in the major industrialized economies should drop below the level that triggered inflation in the late 1980s. ''That's when you get a reasonable test of the New Economy thesis on a global basis,'' says Stephen S. Roach, chief economist at Morgan Stanley Dean Witter in New York.
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OPEN ACCESS. Moreover, the global economy is not a zero-sum game: Faster growth in the rest of the world would have a big payoff for the U.S. as well. Commodity prices might rise at first, but so would exports, bringing down the swelling trade deficits and creating manufacturing jobs at home. U.S. companies would start to see overseas profits accelerate.
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What could stop the New Economy from going global? Simultaneous rapid expansion in Europe, the U.S., and Asia could push up the prices on world commodity markets. But unless there is a cartel that holds supply down--as in the case of oil--such increases are likely to be temporary and not result in lasting inflation. Take steel, for example. With the world's mills operating at close to full capacity, ''we are forecasting a shortage of steel,'' says Peter Marcus, managing partner of World Steel Dynamics, an Englewood Cliffs (N.J.)-based consulting firm. He predicts that prices of hot-rolled band steel could spike up by 50% later this year. But as buyers and suppliers of industrial products and tools increasingly move onto the Web, it will hold down prices. ''Improvement in e-commerce will make the pricing structure more competitive,'' notes Marcus. Sandvik Coromant, a unit of Swedish specialty steel manufacturer Sandvik, expects 40% of its Scandinavian sales to be via the Internet within three years, allowing it to cut order costs in half.
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The biggest constraint on the spread of the New Economy globally will not be commodity inflation or product shortages. Rather, the main problem will be finding enough highly skilled and computer-literate workers to staff rapidly growing information industries. Europe and Japan will have to find a lot of highly skilled workers--quickly--as they try to beef up their New Economy industries. ''The one big inhibitor is the shortage of skilled labor,'' says Andrew Milroy of International Data Corp. in London. IDC estimates that the demand for skilled workers will exceed supply by 20% in Western Europe in 2002. And engineers comprise some 40% of China's enormous crop of annual graduates.
It will be necessary to draw on the enormous supply of college-educated workers in countries such as India and China. Asia accounts for two-thirds of the global increase in college and other post-high-school enrollments in the 1990s. Indian universities turn out 122,000 engineers every year, compared with 63,000 in the U.S. And engineers comprise some 40% of China's enormous crop of annual graduates.
The growth of the U.S. high-tech industry has been fueled by a steady flow of highly educated immigrants and foreign students. Between 1985 and 1996, foreign students accounted for two-thirds of the growth in science and engineering doctorates at U.S. universities. Most of them planned to stay and work in the country. |
