GLOBAL FINANCE

``. . . suppose that, for whatever reason, the market goes up month
after month; your MBA-honed intellect may say `Gosh, those P/Es
look pretty unreasonable', but your prehistoric programming is
shrieking ``Me want mammoth meat!'' and those instincts are
hard to deny.''

Paul Krugman, economist

IBM chief Lou Gerstner said in 1999 that the booming dot-com compa-
nies were just ``fireflies before the storm.'' A real boom is coming, he
thinks, when ``the thousands and thousands of institutions that exist
today seize the power of this global computing and communications
infrastructure and use it to transform themselves.''

The Internet can be seen as part of a continuum of IT advances

that are leading to a networked world where the physical cost of
communications is virtually zero. This is likely to transform the supply
chains of big businesses, saving billions of dollars by slashing processing
costs, procurement cycles, and the prices of purchases. Major car
companies such as Ford and Chrysler are already claiming huge savings
through e-business. Ford's parts division Visteon (now spun off as a
separate company) serves small dealers via the Internet, producing
large efficiency gains. Ford is also developing business-to-consumer
e-applications that promise the public more personalized cars.

On the level of individual companies and industries, e-business

clearly offers opportunities to beat the competition through more
efficient communications. But what will this mean overall during the
next two or three decades? One possibility is that it will accelerate
outsourcing so much that large companies will split up into loose
alliances of smaller units and independent knowledge workers.

A change in the way corporations are organized looks likely. What is

less clear is whether the elimination of the cost of communications will
really have a substantial effect on the growth rates of the developed
world as envisioned by the ``New Economy'' pundits.

IS THERE REALLY A NEW ECONOMY?

Stanford economics professor Paul Romer (see Chapter 8) has an
amusing way of looking at the limits to growth: the total amount of
matter and energy in the universe remains the same, and what human