The changes in the world economy in the 1990s have been so great that terms such as "new economy" and "globalism" have come into use. It is a very particular kind of capitalism that has emerged victorious; one that is much harder, more mobile, more ruthless, and more certain about what it needs. Its overriding objective is to serve the interests of property owners and stockholders, and its assertion is that all obstacles to those ends—regulation, controls, unions, taxation, public ownership—are unjustified and should be removed. Individuals should be free to invest and disinvest capital in industries and in countries at will. This ideology has become a very effective transmission agent for new technologies and for creating the new global industries and markets. It is a tool both of job generation and of job degeneration: it is a classic example of what Joseph Schumpeter called capitalism's creative self-destruction.
The infrastructure for this new economy is based on innovation that began during World War II and continued through the Cold War. Microelectronics telecommunications and network-oriented computer software, which seem so new and original, had their roots in mathematical activity analysis, input-output studies, and game theories of the 1940s and 1950s. Network-oriented information and communication, which allow for unprecedented speed and complexity in the management of the economy, is another application of the mathematical principles that appeared in that earlier development. Knowledge generation and information processing have made economics global: firms are organized into networks of production, management, and distribution within regions of planetary scope. In addition, capital has been organized into a global market, operating twenty-four hours a day and seven days a week, with hundreds of billions of dollars trading instantly among the financial capitals of the world. Capital markets accommodate risk, experiment over investment for the future, and daily coordinate millions of buying and selling decisions.
Economic globalization has several characteristics. First, it is part of a worldwide expansion and liberalization of trade. Eight rounds of tariff reductions led in 1995 with the formation of the World Trade Organization with power to resolve disputes and punish violation of the rules. This has been supplemented by smaller scale agreements—such as the North American Free Trade Agreement (NAFTA)—that have continued to push toward liberalized trade.
Increased mobility of capital is a second characteristic of the new economy. Borrowing and lending, trading of currencies and other financial claims, provision of commercial banking and other financial services has increased rapidly. This includes capital flows associated with foreign domestic
investment. One recent study put the daily turnover of currency markets at over one trillion dollars, more than 50 times the volume of daily trade and greater than the foreign exchange reserves of the world's central banks.
A third characteristic of the new economy is the emergence of multinational corporations. These corporations are key contributors to the new finances—as well as principal beneficiaries of the process of financial globalization. They have no country to which they owe more loyalty than any other, nor any country where they feel completely at home. Recent debates have focused on how multinationals are uniquely well equipped to exploit the revolution in communication and information technology and the greater ease of market penetration characterized by the new economy. Multinationals form part of the global web of interconnected economic transactions that is becoming increasingly separated from the territorial nation state.
Finally, we note the contribution of information technology to the recent increase in productivity and output. Information technology is disproportionately associated with intangible assets such as the costs of developing new software, populating a database, implementing a new process, acquiring a more highly skilled staff, or undergoing a major organizational change. One estimate is that for every dollar of information technology, the typical firm has accumulated $9 in intangible assets.
There is tension, however, between the market for capital and the markets for other resources and labor. Capital may be free to move in response to the needs of manufacturing and distribution, but resources are fixed in place, and labor can move but is usually socially constrained. Low-wage labor, in particular, is limited largely to its place of residence, although the large amount of migration that does occur shows that it cannot be totally fixed. Like labor, production is also constrained. Financial assets such as stocks and bonds, which can move instantly, can participate in capital movements and increase or decrease in value, but production, labor, and resources do not have that ability.