The enclosed article was written by Alvin and Heidi Toffler during the recession of '01.  From their perspective, the stock market gyrations of  '01/02 will seem like relatively minor burps when we look back at what is to come.


What do you think?


Send your comments to






By Alvin and Heidi Toffler.


Mr. and Mrs. Toffler are founders of Toffler Associates, a strategic advisory firm, and co-authors of "Future Shock," "The Third Wave," and other books about the future.



Featured in the Wall Street Journal


March 29, 2001



Faced with a panicky financial plunge, America, it would appear, is awash in I-told-you-sos. I told you these stock prices were too high. I told you what goes up must come down. I told you there was nothing behind all those dot-com IPOs. Now comes Michael Porter's Harvard Business Review article in which he says "Even the phrases 'new economy' and 'old economy' are rapidly losing their relevance, if ever they had any."


In the frenzy of the immediate, we may blind ourselves to the larger, more important reality. Yes, Virginia, there is a new economy, and it's just getting ready to launch its next phase.


Digital Revolution


In recent years, investors and the business community have been split. On one side were traditionalists who have always insisted that the "new economy" was a myth, and that all the old "fundamentals" remained in place. On the other were utopians who saw in the new economy an end to business ups and downs, and who not only justified the insane overvaluation of many dot-coms, but predicted a generation of essentially unstoppable growth and prosperity -- a "long boom."


Both sides in this polarized debate were, and are, wrong. Traditionalists may argue correctly, as Mr. Porter does, that the main purpose of business is still to make a profit. But that begs the question of how profit is defined and how it is achieved. A thousand years ago enterprises pursued profit. But they operated in an agrarian world based on peasant labor. The industrial revolution that began in the 17th century brought a radically new economy (though it had its doubters, too). It did not eliminate the pursuit of profit in one form or another, but it transformed just about everything else from finance to family life, from work to war, from resource use to religion. Today, on an even bigger, faster scale, a new economic and social system is taking form. It, too, will transform just about everything else.


The optimists spoke to us of a digital revolution. But by predicting steady growth and ever-rising stock prices, they forgot that revolutions, by definition, are marked by surprises, reversals, upsets, wildly volatile swings, and a heightened role for chance.


Indeed, during the early stage of the industrial revolution thousands of start-ups failed because, like today, their business models were wrong, their drive and optimism misdirected. No one knew how to operate in the emergent, postagrarian environment. Businesses had to invent everything anew -- factories, distribution chains, labor relations, sales. Markets gyrated, and plenty of investors lost their money, to a chorus of I-told-you-sos.


To imagine that the new economy is over is the equivalent of thinking, in the early 1800s, that the industrial revolution was over because

Textile manufacturers were going broke in Manchester.


Today's stock-market agonies hardly prove the new economy's non-existence. If stock prices plunge 50% on a given day, does that mean the actual underlying economic activities have been cut in half, that workers are producing half of what they produced the day before? If share prices mirror reality at all, they frequently do so with enormous lags and leads.


The notion that the new economy never existed is ludicrous if we look at how deeply it has already restructured even the biggest and least Internet-dependent corporations. Their hierarchies are more flat, their products more customized. Their skill requirements have changed as muscle-work declined and mind-work increased. Alliances and complex supply webs have reduced vertical integration; markets have nichified. Firms are forced to innovate and operate at a faster pace than ever.


There are today more than three million digital switches for every human being alive on the planet. They are not going to go away. There are nearly half a billion PCs on the planet -- one for every 13 human beings. They are not going to go away, either, unless they are replaced by even more advanced networks and technologies. The Internet, spreading at high speed from China and India to Brazil, is not going to go away.


Are hundreds of millions of mobile phone users going to throw their phones away? With or without broadband, will all those hand-held devices evaporate?


The obvious, inescapable fact is that the revolution is real, and it manifests itself at many levels simultaneously. Internationally, we see

it in today's drive toward globalization and the mounting backlash against it.Politically, we see it in novel battles over privacy and intellectual property. We see it in America's increasingly intangible exports. We see it in breakthroughs in genetics and in the manufactured panic over genetically modified food. We see it in the phenomenal rise of media power -- and the public's rising hostility toward it. We see it in intergenerational relations. We see it in a polarization of wealth. We see it in fears of a so-called digital divide. We see it in a rising tide of anti-Americanism in Europe and Asia. These changes are not independent of one another. They are part of a larger pattern.


Something new is arising on the planet and it doesn't fit the assumptions, models and paradigms left over from the industrial age. It is a new civilization of which the new economy is only one part.


The economic turbulence, moreover, has only just begun. To understand why, we need only ask a simple, frequently unasked question: What comes after the first digital revolution? Stunning and powerful as it is, the digital revolution is not the only source of fundamental change. In science, we've just achieved the first imaging of orbitals -- the so-called glue that holds the atoms of the universe together. Stem-cell advances point to our ability to regenerate human organs. We're making less visible breakthroughs in fields as diverse as conductive polymers, composite materials, energy, medicine, cloning, supra-molecular chemistry, optics, memory research and scores of other fields.


But it is, of course, in genetics and biotechnology that the most powerful effects are about to be unleashed. In the U.S., the Food and Drug Administration has already approved some 80 drugs and vaccines developed by the biotech industry and another 350 or more are already being tested on humans.


We have barely begun to feel the impact of the biodigital convergence. For example, we now have clues to the genetic manipulation of certain forms of intelligence. Imagine what that might mean to a knowledge-based economy --but also what social and political dangers might arise from such manipulation.


Day after day these discoveries are pouring out of our labs. Many, at first glance, seem unimportant. But that's because we typically think of them as unrelated to one another. In fact, many of them will converge. And when they do, they could astonish us.


Of course, all these advances rely on computers and digital technology, as well as on the Internet. But many have implications that will feed back into, and change, the future of information technology itself, whether in the form of biochips or DNA-based computing, and, who knows, new communications technologies based on DNA models and biochips.


Digital Revolution


It is now clear that the entire digital revolution is only the first phase of an even larger, longer process. If you think the revolution is over,

get ready to be shocked again as information technology fully converges with and is, in turn, remade by, the biological revolution.


In the first phase, information technology revolutionizes biology. In the next phase, biology will revolutionize information technology. And that will totally, once again, revolutionize economies. Together these represent a turning point not just in economics, but in human history.


The upheaval in the stock market is extremely painful. But we will look back on it as a minor spike in the early history of the new economy of the 21st century.



Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.




Return To Board Options Home Page