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 last century as industrialization expanded around the world. These sectors do not rely heavily on technology or technological advancement, but use processes that have been around for hundreds of years. Even with the rise of the new economy, old economy companies still experience growth, albeit at a declining rate.
Old Economy vs. New Economy
Old economy differs from 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.
- Old economy refers to industries that have not changed significantly despite advances in technology.
- Examples of old economy industries include steel, agriculture, and manufacturing.
- Climate change and new technologies impact the old economy, but most of the processes have been the same for hundreds of years.
- There is a limit to how much new technology can help old economy industries, which have roots that trace back to economic systems of the industrial revolution.
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.
In fact, the notion that it is 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 created scale and influence during previous generations. As the old economy evolved, it laid the foundation for what would soon become the new 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 need 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.
Examples of Old Economy
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 new economy companies, 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. However, examples of old economy go beyond that to include small business, such as bread making, horse farms, and landscaping.
Meanwhile, external shocks such as climate change pose an issue for multiple sectors of the old economy. Farming, in particular, could experience substantial variation in crop production if weather conditions continue to change. Lastly, the energy sector, which is another example of an old economy industry, is rapidly evolving to include newer technologies such as solar, wind, and hydro.