What is 'Old Economy'

Old economy is a term used to describe the blue-chip sector that enjoyed substantial growth during the early parts of the century as industrialization expanded around the world. Even with the rise of the new economy, old economy companies have still experienced growth, albeit at a declining rate.

Members of the old economy operate in traditional sectors such as steel, manufacturing, and agriculture, many of which do not depend entirely on technology. Despite losing market share to the new economy, they still employ a large swathe of the population and contribute a significant portion to gross domestic product (GDP). In financial markets, investors often equate old economy companies with blue-chip stocks, which offer stable earnings growth, consistent returns, and modest dividend payments. 

BREAKING DOWN 'Old Economy'

Old economy differs from the new economy in that it relies on traditional methods of doing business rather than leveraging new cutting-edge technology. This traditional economic system dates back to the Industrial Revolution and revolves around producing goods as opposed to the exchange of information. Common goods are valued by measurable factors such as operating expenses and scarcity of the product.

Although firms in the old economy have adopted new technology, there is a limit to how much innovation can assist the industry. A large portion of production in manufacturing and agriculture, for example, benefited from technology, but still require human supervision and even manual labor to proceed. The notion that its old economy versus new economy continues to prove incorrect, instead it's a combination of the two. Blue-chip companies must innovate on the traditional methods of operating that bred scale and influence during previous generations. As the old economy evolved, it laid the foundation for what would soon become the new economy.

Limitations of the Old Economy

While the old economy continues to adopt new technologies, several roadblocks may hinder traditional institutions from making further progress. In many ways, old economy companies didn't needed to think outside the box as they commanded sizable market shares for multiple decades. But today, they must quickly replace established practices with new technologies to meet modern demands and ignite productivity. Bringing substantial change at the same pace of a startup is increasingly difficult for big corporations that have multiple levels of governance.

Meanwhile, external shocks such as climate change pose an issue for multiple sectors of the old economy. Farming, in particular, could experience great variation in crop production if weather conditions continue to change.

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