New economies and economic innovations

Roman Denarii. Photo Credit: Wikimedia Commons
Roman Denarii. Photo Credit: Wikimedia Commons

Sometimes, we can see in many newspapers the concept of new economy related to internet. Internet is a communication channel that let to make economic transactions instantly at far distances. We name new economy to a new productive sector, but this is not necessarily new economics. Any technological innovation that produces a product innovation is creating a new economy in some degree but it is not producing an innovation in the economic field.

The current concept of new economy would be related to high speed and long distances. For us, this concept of new economy is old yet, because the use of internet to make economic transactions is wide nowadays.

Analyzing in deeper the phenomenon of internet, we can see that internet is a technological innovation instead of an economic one. Economic innovations, properly speaking, are really organizational innovations instead of technological ones. New technologies can support new organizational changes; in that case, it is possible that a new technology is driving an economic innovation but the innovation must be organizational. It must be a change in the way as people establish relations to increase the effectiveness and the efficiency of the production and consumption of goods and services.

Imagine the world before and after the invention of the wheel. We cannot say that transport is more complex after that invention; however, an improvement in the transport process implies that economic transactions of good and services can be done at longer distances. The potential market for any product becomes larger and the complexity of the management can increase. This is similar to the creation of internet. Internet makes the markets wider and the transactions faster, and a new economy is created around the services of communications in the same way as a new economy of transport services could be created with the innovation of the wheel.

On the other hand, the introduction of a common currency for several countries can be seen as an economic innovation, if we lay aside the fact that the first money was common, because the use of gold and silver was accepted as in any country. The innovation is not related to the use of technology (paper money, electronic transactions or a physical metal) but to the establishment of agreements among countries to share a common currency. That is the reason why it is truly an organizational innovation instead of a technological one.

Economic innovation can be driven by technological innovations, because technological innovations introduce changes in the complexity of the economy. New products usually imply additional complexity. Decision makers (producers and customers) have more options to choose. The higher the number of options is, the more complex the action of management is. However, in the same way as new products are introduced, other ones can be eliminated because of the elections of producers and customers. Innovation does not imply necessarily a more complex management on the long term.

Most innovations are searching less complexity in some activity as wheel in transport. The additional complexity that a technological innovation produces in the economy due to changes in the markets can be compensated by organizational innovations that should be the truly economic innovations. Organizational innovations in the field of economy are many times control mechanisms designed to preserve the manageability of an economy when the technological innovations induce an increase of complexity in the economy. The aim of this kind of innovations is to reduce the complexity of the economy. An example of this fact is the Euro. The aim of the Euro is to make easier the transactions inside a new larger (and more complex) market.

Any control system is complex itself and it is designed for a certain working state of the economy. Far from this working state, it could contribute to increase the complexity instead of decreasing it. That is the reason why it is a good action to test periodically under some kind of complexity analysis any economic innovation.


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