[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Chapter 1
MODERN
ECONOMICS
∂
The past decade has seen tremendous changes in the world economy. Many
of these changes are linked to new technological advances that have transformed
what the global economy produces, the ways in which many goods
and services are produced, where they are produced, and how goods and services
are transferred from the firms that produce them to the households, governments,
and other firms that buy them. New technologies are transforming everything, from
how airlines sell tickets to how automobiles are produced, from how we buy books
to how we communicate with one another.
Like the industrial revolution of the eighteenth and nineteenth centuries that
transformed first Britain and then other countries from agricultural to manufacturingbased
economies, the information revolution of the late twentieth and early twentyfirst
centuries promises to transform almost all aspects of our daily lives. In 1999, in
recognition of the growing importance of new, high-tech firms, Microsoft and Intel—
the producer of the Windows computer operating system and the major producer
of the microprocessors at the heart of personal computers, respectively—were added
to the Dow-Jones Industrial Average, the most widely followed index of prices
on U.S. stock markets. Though the booming stock market of the late 1990s that
was driven in part by enthusiasm for new technologies came to an end in 2000,
innovation continues to be a critical force in the economy.
But the old economy is still alive and kicking. Four of the five largest United
States corporations in Fortune magazine’s top 500 list for 2003 were traditional
industrial firms—General Motors, Exxon, Ford, and General Electric. IBM at number
8 and Verizon Communications at number 10 were the only information or “tech”
firms in the top 10. Hewlett-Packard was number 14 and Dell Computers was 36,
but Microsoft managed to make it no higher than number 47.
So the old economy and the new economy coexist side by side. But it is not just
the emergence of new software and Internet companies that represents the effects
of new technologies. The way all firms do business is being changed, and their
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