What is an Old Economy?

An old economy refers to an economy whose growth is primarily based on improvements in manufacturing efficiency. A new economy, on the other hand, draws growth from the rate knowledge can be generated to improve services. In the world’s most developed countries, the old economy was in place roughly since the Second Industrial Revolution until the era of globalization that followed the collapse of the Soviet Union. It was characterized by a steady rate of technological incorporation, while the basic organization of an economy remained stable.

Agriculture tended to dominate the structure of the world’s economies before electricity and petroleum were widely available. Electrical power eventually allowed factories to operate many different machines, each with a specialized task. This tended to make both skilled and unskilled labor more productive than in decentralized, small-scale production. In addition to factory efficiency, transportation also defined the structure of an old economy. Petroleum coupled with automobiles that used internal combustion engines allowed factory-produced goods to be delivered at a relatively low cost.

Manufacturing in an old economy tended to be geared towards a national market. High-quality roads, particularly in the United States, led to inexpensive delivery of goods across the nation. Additionally, many nations during this period imposed tariffs on imported goods from other countries. This tended to discourage entrepreneurs from trying to sell their products internationally. Good domestic transportation infrastructure and low taxes made it profitable to sell manufactured goods within national borders.

In 1950, a majority of jobs used unskilled labor in the U.S. At this time, the economy was growing such that wages and productivity grew at about 3% each year. This growth generally resulted from reductions in manufacturing cost of goods. New technologies were incorporated into the manufacturing process at a relatively steady rate.

Around the last decades of the 20th century, economic growth rates had begun to fall across the world. The rate at which new technologies could improve efficiency dropped. Some technologies, however, did change the way the economy was organized. Information-related technologies, such as computers, cell phones and the Internet, ushered the end of the old economy.

In the new economy, information tends to dominate economic growth. Only 15% of jobs were unskilled in the U.S. during the year 2000. Businesses that hire more educated employees who can generate information faster than their competitors are now at an advantage. Many jobs are shifting away from manufacturing and toward providing business-related services. Markets in the age of the new economy also tend to be global, not national.