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The Institutions of the New Economy

Professor Manuel Castells (UC Berkeley)
A summary of the address to the Delivering the Virtual Promise? Conference, London, 19^th June 2000

• While the Internet now underpins the distribution and processing of information in all realms of society, yet it has not transformed most social institutions.
• Rather, the principal change over recent years has been the emergence of ‘the new economy’, which started in California, and is now rapidly expanding globally, fastest of all in Europe, and especially in Scandinavia and the UK.
• The current interest in the Internet shown by governments, companies and society in general results from the fact that it is a necessary (although not a sufficient) condition for the new economy.
• The new economy is not, however, to be understood simply in terms of the activities of dot-com companies, but is a function of the increasing centrality of the Internet and networking to all kinds of business and economic activity.
• The new economy has different social and institutional requirements from those of the old industrial economy - hence societies need to reconstruct their social, economic and political institutions, in ways appropriate to specific national and local cultural contexts.

• Characteristic of the new economy are new forms of productivity, afforded by the fact that information and communication technologies now allow real-time information processing in production, distribution and management.
• The new economy is global in that technological, institutional and organisational factors now allow the core activities of production and management to work as units in real-time on a planetary scale.
• Networking within and between companies (increasingly activated through the Internet) is the new organisational form on which the new economy is based, leading to the operating unit of the economy no longer being the firm, but rather the highly flexible, adaptable and productive business project.

• Captial: the critical source of investment is now not so much profits per se, but is increasingly found in the growth of value for stocks, which have become a currency, with companies using them to buy other stocks, or to pay their employees.
• Labour: the critical source of value in the new economy is talent, resulting in the emergence of ‘self-programmable labour’, that is labour which is sufficiently flexible, technically equipped, and well trained to be able to adapt itself throughout its professional life to different tasks, contexts and requirements.
• Management: the ability to navigate unpredictability while keeping in mind the goals of the firm in the long term, and of the business project in the short term, is vital to success in the new economy.

• The main necessary conditions, in a context of extreme and increasing instability of patterns of work, are labour flexibility and the individualisation of the work relationship between management and labour.
• The geographic mobility of labour is also key, given the current and expected future deficits in IT skilled workers in both Europe and the United States.
• If the new digital economy is to expand fully, it will need to be based on consumers who are educated sufficiently to make informed choices with regard to Internet based commercial activity.
• Capital must be mobile and flexible, highlighting, for example, the essential role of regionalised venture capital markets in stimulating innovation.

• Financial markets now display ‘systemic volatility’, which is the condition where a market’s normal mode of operation is not a steady equilibrium, but rather displays wide and frequent fluctuations.
• There is growing inequality and social exclusion in all our societies, resulting from the increasing individualisation of labour relationships, and the logic of networking that encourages firms and countries to connect with whatever is valuable, and to disconnect whatever is not valuable or is devalued.
• Addressing the issue of social exclusion is less a matter of simple connection than one of ensuring through a reformed education system that the cultural capacities needed to engage with technologies are widely held and psychological barriers breached, especially amongst older people.
• Western societies are becoming increasingly and irreversibly multi-ethnic, which can be a source both of tension, and of extraordinary creativity and innovation.
• The social and environmental costs of the new economy have prompted negative reactions from people all over the world, focusing on the issue of globalisation, which is often seen as an uncontrollable monster.
• Third world countries must be brought into the information age, which may require a redefinition of international aid, along with the rebuilding of both human and technological infrastructures in such countries.
• If it is to unleash its full productive and creative potential, Europe must adapt its institutions to the demands of the new economy, and in particular the increasingly important welfare state should be radically flexible, and based on the rights of the citizen rather than those of the worker.
• There is a need for global financial regulation, because the new economy and the new technological environment radically compromise the capacity of any individual state to regulate and to govern, particularly with regards to the tax system.

• Ultimately the institutions of the state will have to be rebuilt, if they are not to be bypassed by global flows of information, technology and wealth.
• The information age does not mark the end of the state, however, although it does bring a new form of state, which is not the nation state.
• This new form is the ‘network state’, formed by nation states co-operating together with international institutions, transnational institutions, local and regional government and NGOs in a complex system of interaction.
• If the challenges outlined here are taken up at an institutional level then the emergence of this complex network state could be facilitated, allowing a new model of the economy and the network society to emerge - a distinctively European model that will introduce European values, traditions, history and institutions into the dynamism and creativity of the new economy.

Edited by Peter Watts

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