Indeed, one of the key benefits of globalisation over the past several decades is that the freer flow of goods and services, people and capital, ideas and information, has served as a vehicle for the transmission and diffusion of new technologies across borders. Other things equal, this should have accelerated catch-up between countries operating at and inside the technological frontier. 65  Other things, however, have not been equal. Penetration rates of new technologies, once adopted, tell a different tale. They suggest that, over time, there has been a divergence between frontier and non-frontier countries. In other words, the intensity with which new technologies have been used has expanded more rapidly in frontier (especially Western) economies than in non-frontier (non-Western) ones. This will have retarded catch-up between the two blocs. It is a less encouraging story about the diffusion of innovation. With the intensive and extensive margins of diffusion pushing in opposite directions, which has won out? It seems to have been the forces of divergence: slower rates of penetration of new technologies have more than counter-balanced faster rates of adoption across countries. This has shown up in levels of productivity between frontier and non-frontier which, since around 1980, have if anything diverged. Chart 7 illustrates that. It compares levels of productivity across 44 countries since 1950 relative to the frontier country (the US). Convergence prior to 1980 has given way to divergence subsequently.
It was mainly rising energy prices, higher interest rates, falling stock markets and a sudden downturn in corporate investment that resulted in the almost simultaneous and abrupt slowing of global economic activity in the latter part of last year. Weaker demand led in turn to stock adjustments and thereby to a further downward effect on orders and production. At the same time, the falling share prices muted private consumption. On top of this, the terrorist attacks will entail a short-term loss of production and probably also postpone an upturn. The cyclical downturn is following the normal pattern in many respects and is therefore not particularly surprising. Its course has been accelerated, however, by the collapse of the excessive optimism which had accompanied the technological breakthroughs that gave rise to the notion of a new economy. For a time there was no end to the hyperbole about the blessings that the new facilities for information and telecommunication had in store. Expectations of rapidly rising profits and incomes pervaded households and businesses in many parts of the world, perhaps above all in the United States. Investment and consumption rose. So did share prices. Production plans were revised upwards. In time, imbalances arose in the American economy between investment and saving, as well as between current and more fundamental stock market valuations.