Boosters of the so-called New Economy claim to know the new laws. They sometimes say that the United States is succeeding because it's "deindustrializing" – closing down factories and replacing them with a service economy based on information technology. The successes of American high-tech companies and the Web have prompted a string of books from cyber pundits eager to outdo each other in optimism, including Long Boom from authors Peter Schwartz and Peter Leyden (due out in October) and New Rules for the New Economy by Kevin Kelly.

But according to former Forbes and Financial Times editor Eamonn Fingleton, the nation's extraordinary prosperity may be hiding a structural decline. His latest book, In Praise of Hard Industries, purports to offer the real story about the prospects of an information economy.

Fingleton believes the triumphs of U.S. tech companies like Microsoft may end up hurting the country in the long run by making huge information-industry success seem normal. He paints Microsoft as a special case – a company whose growth "has been driven almost entirely by its monopolistic role in setting standards for computer operating systems" while "other software companies enjoy no such all-embracing franchise – and no such license to print money."

The book's basic theme focuses on the difficulties countries fall into when they overemphasize the business of information – in such fields as software, publishing and telecommunications – at the expense of capital-intensive, technically sophisticated manufacturing needed for products like ships, textiles and steel.

Fingleton opens his argument by calling "three strikes against the New Economy." First, he says, the New Economy produces a bad work mix, reserving most jobs for people with high IQs. He quotes a prediction by economic commentator Michael Rothschild that "up to 20 percent of the American workforce will be marginalized by the move to an information-based economy."

Strike two: The New Economy causes slow income growth. This is a surprising claim, but he backs it up by comparing the per-capita income growth experienced by the deindustrializing United States, United Kingdom and Canada with that of heavily industrialized countries like Germany, Japan, South Korea and Switzerland. During the 16 years from 1980 to 1996, the cumulative U.S. income growth rate of 134 percent lagged behind that of 12 other members of the Organization for Economic Cooperation and Development. Britain, which has made an even larger shift toward postindustrialism than America, placed 21st in a field of 26.

Strike three is the fact that language- and culture-dependent information products export poorly, Fingleton says. The money needed to customize software products for other countries goes to translators and consultants in those countries, eating up profits that might otherwise have come back to a software maker's home base.

While digital-age libertarians may have trouble shrugging off the charge that a focus on information leads to slow income growth, they tend to dismiss complaints about job mixes with references to Darwinian struggles for survival. Likewise, they may also question whether exports really matter in a global village.

Fingleton believes that exports do matter, because there is no global village yet. While the "grasshopper-like" U.S. media plays with globalism – an idea that sounds good to Americans, so long as the globe keeps going to see movies made by Hollywood – the "ants" in Japan, Germany, South Korea and Switzerland have built manufacturing and exporting bases that will last long after winter comes to the New Economy. When it comes to improving the export balance, manufactured goods have the edge; Nikon's world-class light-emitting diodes lose little in translation.

What about the Internet? Fingleton argues that the Web is unlikely to prevent the United States from losing ground to its competitors. Many Net enthusiasts are betting that the Web's ability to advertise goods worldwide will enhance U.S. companies' ability to sell worldwide. Probably so, says Fingleton, but not as much as they think.

Most countries have erected trade barriers in order to protect homegrown industries, and those barriers remain important. Countries are no more likely to lower trade barriers because of e-commerce than they were to lower them because of the telephone. Indeed, nearly all the revenues coming to Internet companies in America still come from its 50 states.

Nor does the author expect Web shopping to explode. He quotes Internet commerce expert Mary Cronin as saying that "despite the hullabaloo over e-commerce, customers may not even want it." Fingleton concedes that people don't mind buying books online, but he maintains that for the most part, shoppers still prefer to see and feel merchandise before they buy.

Seen through Fingleton's lens, then, President Clinton is incorrect – the important laws have not been rewritten, merely ignored. Economic success continues to flow to nations with advanced manufacturing bases. And what looks like a sustained boom for information-based economies will in the end turn out to have been a mirage. – Bill Brazell

Other New Titles of Interest

The Channel Advantage by Lawrence G. Friedman and Timothy R. Furey (Butterworth-Heinemann, $30)

As the book explains, "It isn't enough to just add a Web site, hire distributors or build a call center." Companies like Dell and Charles Schwab find the right mix of sales channels. -- From The Industry Standard