New Economy Definition

What Is the New Economy?

The new economy describes a service- and knowledge-based economy in contrast to a traditional manufacturing-based economy. It is powered by new technology and solutions that drive explosive growth and innovation.

Characteristics of the New Economy

new economy

The new economy describes industries leveraging innovative technologies to drive “new” ways of doing things, the shift to a more service-based economy, and optimization of manufacturing to be as efficient as possible. Innovation, competition, and information technology drive the new economy[1].

For this reason, the new economy encourages companies to invest in research and development to gain an edge in a hyper-competitive market. Industries in the new economy rely on a combination of human capital and new technologies to outperform their competitors[2].

Another characteristic of the new economy is the democratization of information. The competitive marketplace and an interdependent world economy impose demands on companies to build partnerships and global networks. These networks allow them to collaborate and create products and services that they would not otherwise be able to produce on their own[3].

The new economy’s service sector creates new jobs that require highly educated labor with advanced technical skills. Knowledge workers are among the most important assets in a new economy. However, even though the “new economy” is often equated with a service-based economy, manufacturing is not gone in a new economy. Instead, it has evolved in a way that allows companies to have more options when it comes to the production of goods, including outsourcing or inshoring[4].

Why Is It Called “The New Economy”?

The first mention of the term dates back to the 1980s. In 1983, Time Magazine published a cover article titled “The New Economy.” In his story, author Charles Alexander referred to the new economy as a metamorphosis that marked the decline of old, heavy industries to give way to a boom in high-tech fields[5].

The transition from a traditional, manufacturing-based economy to a knowledge- and service-based and technology-enabled economy reached its peak in the late 1990s. The new economy emerged as a buzzword to refer to the industries that flourished during the dot-com bubble and the subsequent technological revolution.

Real Estate in the New Economy

The real estate market contributes to the growth of the economy, whether new or old, by boosting consumer spending. In the U.S., the housing market is an essential source of income and savings among households. An upswing in home values makes consumers feel more confident about their money and encourages them to spend more and make relatively high-risk economic choices[6].

Real estate also spurs economic activity through job creation. A real estate boom is a huge source of revenue for different types of professionals, skilled workers, and businesses—from agents and brokers to construction workers, gardeners, landscape architects, interior designers, movers, and more.

However, in the new economy, hyper-competition forces companies to approach ever-higher levels of productivity and market dominance in other ways. One is to find the best talent, attracting them with creative compensation packages that may include accommodation or housing. In particular, these are spaces with physical and cultural aspects that attract potential employees. Developers also design office spaces that cater to the latest generation of job seekers[7].

Meanwhile, investors in retail spaces in a consumer-driven new economy are exploring new strategies to match consumer trends and behaviors. The shift to ecommerce is an opportunity for investors to recalibrate commercial real estate to other types, such as mixed-use properties. These properties offer multi-channel shopping, dining, and entertainment experiences[8].

Real Estate Investment Trusts in the New Economy

new economy infrastructure

The new economy also shows a preference for an emergent real estate sector, real estate investment trusts (REIT).

A REIT is essentially a company that finances and operates income-producing real estate. Tech-related REITs support the economy by developing and maintaining high-tech structures[9] like data centers, server farms, cell towers, logistics facilities, flexible spaces, Silicon Valley “campuses,” and even warehouses for crypto mining, among others. REITs may also invest in the aforementioned mixed-use spaces or coworking venues, which are the hallmarks of a new economy.

Like mutual funds, REITs pool funds from multiple investors, allowing them to expand even further as long as there is demand for cutting-edge infrastructure. REITs are publicly traded like stocks, and they must pass on at least 90% of their income to their investors, making them highly liquid, unlike physical real estate.

The nature of REITs makes them highly attractive for investors—particularly the new generation—who may want to supplement their income. Some experienced investors also invest in REITs to mitigate the volatility of their portfolio[10].

Takeaways

The new economy is a buzzword that describes the shift in focus from a traditional manufacturing economy to service- and knowledge-based economy. It relies on information and communication technologies (ICT) and highly educated human capital to stimulate growth, productivity, innovation, and capital accumulation. In the new economy, companies leverage new technology to improve ways of doing business.

Real estate still plays an integral role in boosting growth and innovation in the new economy, and it can be argued that even more so. Real estate investment trusts belong to an emerging real estate sector that allows new and old investors to finance real estate development for high-tech infrastructure. In turn, this infrastructure supports the new economy by providing space for IT, communications, data storage, and logistics, which are all critical components of a hyper-competitive, service-based economy.

Sources

  1. Farrell, D. (2003.) The Real New Economy. Harvard Business Review. Retrieved from https://hbr.org/2003/10/the-real-new-economy
  2. Sweet, S., Meiksins, P. (2020.) Changing Contours of Work: Jobs and Opportunities in the New Economy. SAGE Publications. Retrieved from https://us.sagepub.com/sites/default/files/upm-assets/113884_book_item_113884.pdf
  3. Stiglitz, J. (2003.) Globalization and growth in emerging markets and the New Economy. Journal of Policy Modeling. Retrieved from https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/1497/Stiglitz_glob_and_growth.pdf
  4. The University of Queensland. (2016.) 7 features of the new world economy. Retrieved from https://business.uq.edu.au/momentum/7-features-new-world-economy
  5. Alexander, C. (1983.) The New Economy. Time Magazine. Retrieved from http://content.time.com/time/subscriber/article/0,33009,926013,00.html
  6. Acevedo, I. (2015.) How Does Consumption Spending Respond to Housing Prices? Chicago Policy Review. Retrieved from https://chicagopolicyreview.org/2015/12/11/how-does-consumption-spending-respond-to-housing-prices/
  7. Urban Land Institute (2011.) What’s Next? Real Estate in the New Economy. Washington, D.C. Retrieved from http://uli.org/wp-content/uploads/2012/06/WhatsNext1.pdf
  8. Burkhardt, C., Holuba, R. (2018.) Retail Investment for the New Economy. Commercial Property Executive. Retrieved from https://www.commercialsearch.com/news/retail-investment-for-the-new-economy/
  9. Nareit. (n.d.) How REITs Deliver Access to the New Economy. Retrieved from https://www.reit.com/data-research/research/nareit-research/how-reits-deliver-access-new-economy
  10. Kenny, T. (2021.) The Risks of Real Estate Investment Trusts. The Balance. Retrieved from https://www.thebalance.com/what-are-reits-416837

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