Understanding the New Economy: A Systemic View

Under the rubric of the new economy, a wide variety of economic and social phenomena have been identified and discussed. Some of the phenomena, such as the increasing returns economics and the network externality effect, are emphasized as signaling fundamental changes in the old principles of the economy. The discussions on the new economy phenomena, however, do not add up. Most of the observations in the literature on the new economy are fragmented, casual, and anecdotal, not compiling to a whole picture of what the new economy is really about. This article is an attempt at a better, more systematic understanding of the new economy. It documents what are happening presently in the economy and discusses how to make sense of it all. For this, the article adopts system perspective as an overarching frame of reference for analysis. The new economy is framed as a system phenomenon, exhibiting particular systemic characteristics and behavior. The various phenomena observed in the new economy are interpreted with and integrated in the system analytic framework. The systemic characteristics and behavior of the new economy is sought in five generic aspects of a system; i) what are the entities that comprise the system, and how are they related to one another?; ii) how does the system function?; iii) what are the goods and services (output) that are generated and flow in the system?; iv) what is the value of those goods and services?; and v) what are the collective, systemic quality and attributes of the system? To analyze the five system generic aspects of the new economy, an extensive review of the literature on the new economy is conducted. Some 30 plus so called new economy phenomena are assembled and each of them is reviewed and categorized as pertaining to and describing a particular system aspect of the new economy. Based upon the review and categorization, some essential characterizations are made for the five system aspects of the new economy. Such characterizations are interpreted as collectively enunciating the systemic characteristics and behavior of the new economy. At the end, the implications of the systemic understanding of the new economy for business and firm strategy are discussed. Some future research is suggested.