The Roots of the New Economy: An Institutional Perspective

The factors behind the emergence of the New Economy are still poorly understood. In this article, Pascal Petit from CEPREMAP and CNRS in France provides an institutional perspective on the developmental phases or roots of this New Economy. He analyzes the structural, institutional and organizational changes associated with the New Economy and based on these developments assesses whether an acceleration of productivity growth, the touchstone of the New Economy, is likely to occur in Europe and whether it can be sustained in the United States. Petit identifies three structural factors as preconditions for the development of the New Economy: the rise in educational levels; the internationalization of economic activity; and the development and diffusion of ICTs. He argues that these preconditions have been established in developed economies and that institutional changes such as product and labour market deregulation have served as catalysts for growth. He then looks at the role of work practices and organizational relations, such as inter-firm partnerships, that build on structural and institutional changes to foster the emergence of the New Economy. Based on the fundamental changes that have already occurred, he concludes that an acceleration in productivity in Europe is likely, as is a continuation of strong productivity gains in the United States.