The New Economy, its advocates say, is less fragile. Where the Old Economy was rooted in manufacturing industries constrained by decreasing returns to scale in production, the New Economy is built on information and technology industries that show increasing returns to scale in production and positive externalities. Waves of innovation guarantee that firms can constantly lower their cost structure and promise consumers a continuously improving array of choices. Living standards tangibly rise, as does the quality of life. The dynamism associated with these innovations also ensures new and profitable investment opportunities and a steady supply of rewarding jobs.
People accept change because they see it as a bridge to a better future.
Inventory rebalancing, such a prominent source of transmission in the Old Economy paradigm, is far less important in the New Economy of advanced supply-chain management. New Economy firms directly tie their information systems together, enabling them to continuously match orders to sales. Moreover, New Economy firms and their investors have long planning horizons. They see the merits of increasing market share, expanding globally, and acquiring smaller competitors. With new technologies to power their businesses and sell to others, the entire New Economy has a solid underpinning that is impervious to cyclical fluctuations.