That Old New Economy

A leftist tries to make sense of the '90s boom.

Charles Oliver from the June 2004 issue

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Yet just two pages later, Henwood grants that black households have made tremendous gains in income relative to whites since the early 1980s, and that "since 1993, even the poorest fifth of black households have enjoyed stronger income gains than whites." The shrinking of the gender gap in income is "even more dramatic," he acknowledges. So much for racial and sexual discrimination as a primary explanation for the growing income gap.

As for immigration, Henwood really glosses over the subject, barely pausing to note that the influx of poor Hispanic immigrants drags down the income average for that group. Harvard economist George Borjas estimates that each 10 percent increase in the supply of labor through immigration reduces wages of natives by 3 percent to 4 percent.

It's simple enough economics. The more of something there is, all other things held constant, the lower the price it can command on the market. Adding millions of low-skilled workers to the economy should drive down the wages of those with low skills. A 1997 report from the National Research Council found that almost half the decline in real wages for native-born high school dropouts from 1980 to 1994 could be explained by competition from immigrant workers. None of that necessarily means we should end immigration, but it does mean that we should recognize it has costs.

Henwood stands on firmer ground when he tackles globalization. He finds that, for many leftists, globalization is a nebulous concept applied to "everything bad that's happened over the last decade or two."

He also points out that "antiglobalizers are frequently antidevelopmentalists as well, and like [Ralph] Nader, sport a closet full of hair shirts, not just for themselves but for everyone in sight."

Henwood argues that both globalization and economic development have definite benefits, although he also argues that the institutions under which both processes are currently taking place advantage capital over labor. He also does a good job of putting the current debate over globalization into historical context. "Early capitalism wasn't as local and personal as myth has it; from its beginning it was deeply international," he notes. "In the early U.S., early nineteenth century merchants imported British industrial goods and exported cotton, acting as financiers at every stage."

The book even comes tantalizingly close to putting the New Economy into historical context. "The early days of the telegraph were laden with fantasies of universal peace, love and understanding, very similar to some of our more fervent web enthusiasts -- and even 'web' metaphors were themselves common," Henwood writes.

Indeed, the telegraph was a huge advance in communication, arguably a bigger advance over what then existed than the Internet has been. And it, too, revolutionized commerce and industry. The telegraph assisted the spread of railroads, for instance, by making it possible to communicate train schedules, synchronize time across distances, and warn operators of any disruptions.

The automobile, the telephone, and radio, to name just a few examples, also had profound changes on the way people lived and worked, but those changes weren't inevitable. Both Marx and the New Economy prophets were wrong: There are no historical laws.

Technology alone won't end oppression or guarantee an endless economic boom. Nor can new technology protect us from the bad policies of central bankers or lawmakers. That's something we found out when Federal Reserve Chairman Alan Greenspan raised interest rates in the late 1990s, temporarily choking economic growth and sending the stock market plummeting.

A sober appraisal of the New Economy would try to find out what mistakes were made in the '90s and who made them; it would ask what institutional arrangements would help us best realize the potential of new technologies. On the few occasions when Henwood actually tries to do this, he can be perceptive. Far too much of this book, however, focuses not on the New Economy but on old complaints about capitalism.