New and old economies interdependent

NEW YORK (AP) -- It is a distinction familiar to all now, the new economy and the old, but in truth there is still just one economy. The new needs the old, and the old is a major beneficiary of the new.

As distinguished from the old, the new is based on utilizing mankind's mass of information and turning it into practical products. It doesn't so much rely on existing needs as on creating new ones.

The old is centered on supplying the more-basic requirements of food, clothing, shelter and transportation, and even the most dedicated techies must concede they cannot live on information alone.

But the two are ever-more reliant on each other. The new economy, for instance, needs the capital produced by the old economy, and in some respects its biggest customer is the old.

It's true that there was a time, no more than a few years ago, when the new economy had the notion of going its own way. But now the differences are so blurred it is difficult to tell one from the other. General Motors epitomizes the old, but it is one of the world's largest users of the new.

Faster than almost anyone had foreseen, what were viewed as distinctly different entities have been merging into a hybrid. Management consultants now say that success is most measurable in companies with a bit of both.

In fact, a study conducted among 450 American and European companies by Mercer Management Consulting concludes that ''hybrids'' have a greater profit potential than pure Internet plays.

Operating in both physical and virtual worlds, hybrids are more likely to satisfy consumers and generate higher margins for investors, says Mercer's Georges Vialle. One example is the joining of AOL and Time Warner.

The initiative has come from both old and new. The new economy companies at first tended to view their market as made up of individuals, but old economy businesses have taught them otherwise.

The latter recognized that using new technologies produced enormous efficiencies in handling inventories and dealing with suppliers and customers. Business-to-business (B2B), or new economy selling to old, is now where some of the biggest profits are. And in the process, traditional business models are being revolutionized.

As a result, after being stalled for years, productivity has been rising at many old-line companies, and the effect can be measured in the bottom line and in the market value of stocks.

The use of new technologies is even transforming industrial assembly lines. Cookie cutter devices that turned out standardized products will instead be customizing orders to suit individual tastes.

So what are still called the old and new economies are being transformed by each other. Rather than going their separate ways they are evolving in ways neither foresaw. They are becoming interdependent.

In hindsight, the two aspects of the economy seem so well matched that no other course but mutual dependence could ever have been imagined. But a casual check of the 1980s literature will show it wasn't anticipated.