New economy here to stay but reform is vital, says Prodi

Date: 22/03/01

By Simon Coss

REPORTS of the new economy's death, says Romano Prodi, have been greatly exaggerated.

The European Commission President insists that despite the recent plunges of the high-tech Nasdaq share index, a wave of sackings by some of the world's best known information technology firms and 'dotcom' Internet companies are dropping like flies, the much-vaunted e-economy is still alive and kicking.

"The dotcoms are but one chapter of a very complex story," Prodi declared at a recent conference in Brussels.

The former economics professor argues that the real e-revolution has little to do with share prices or self-styled Internet moguls who think they can defy the basic laws of business and finance.

"The true essence of the e-economy is the digitisation of the entire economic fabric and the penetration of information communication technologies (ICT) into every area of our lives," Prodi said.

EU industry sees the situation through similarly tinted spectacles.

"Despite all of the doom and gloom in the news at the moment, the fact is that the deeper changes brought about by ICTs are not going to go away," says Iona Hamilton, an economics expert with the employers' lobby UNICE.

Hamilton prefers to talk about a 'renewed' rather than a 'new' economy and argues that the current wave of dotcom deaths simply shows that reality is getting a grip on the markets once again.

"The fundamental rules of business will always be there and companies that do not make profits usually don't survive. But ICTs really have changed the way firms do business," she says. The Commission also points out that digital technologies have created easily accessible global markets in areas that simply did not exist before.

"Producers are suddenly in competition with companies they have never heard of," Prodi says. "For many products and services, consumers now have real rather than a theoretical choice."

He also says that the new technologies have integrated products and services in whole range of areas - the famous 'convergence' that e-pundits are so fond of talking about. "If you pay for something by dialling a phone number, is that a financial service or a telecommunication service?" he asks.

But while the Commission believes the new economy is here to stay, the institution says Union governments must introduce a raft of regulatory reforms if EU companies and consumers are to reap the maximum benefit from ICTs.

Despite the advent of the single market, doing business in the Union is still far more complicated than in the United States, the Commission argues.

"Markets - for goods, services, capital and labour - need greater flexibility to accommodate new forms of organisation," Prodi argues.

The EU executive says that it repeatedly comes forward with ideas for freeing up these sectors but points out that only EU governments can decide to put its suggestions into practice.

The institution also argues that the EU will have to speed up the way it makes laws regulating the use of new technologies. At present it can take up to four years for an EU law to make its way onto the statute books in the Union's 15 member states.

In a world where the latest high-tech gizmo is obsolete in six months, the usefulness of such lengthy procedures is, to say the least, debatable.