THIS NEW ECONOMY
How ironic that ever since the future has arrived,...
...GM is now the counter example. Today, if your company is like GM, it's in deep trouble. Instead, pundits point to Microsoft. Microsoft is the role model. It is the highest-valued company on Earth. It produces intangibles. It rides the logic of standards. Its sky-high stock valuation reflects the new productivity. So we look ahead and say: In 40 years all companies will be like Microsoft.
History would suggest this is a bad bet. The obvious lesson is that we tend to project the future from what's fashionable at present. Right now software and entertainment companies are very profitable, so we assume they are role models. Brad DeLong, an economist at UC Berkeley, has handy theory of economic history. He says that various sectors of economy wax and wane in prominence like movie stars. The history of the American economy can be seen as a parade of "heroic" industries that first appear on the scene as unknowns, then heroically "save" the economy by doing economic miracles, and for a time are treated as economic stars. In the 1900s, the automobile industry was heroic: There was incredible innovation, many, many car company upstarts, incredible productivity. It was a wild and exciting time. But then the heroism died away and the auto industry became big, monolithic, boring, and hugely profitable. In DeLong's view, the latest heroic savior is the information, communication, and entertainment complex. Businesses in the realm of software and communications are now valorous: They pull successes out of a hat, stack up unending innovation, and perform economic miracles. Long live computers!
There is a lot of common sense to DeLong's view of heroic industry. Just because Microsoft is heroic now, doesn't mean all companies will follow their lead and replicate intellectual property on floppy disks with a profit margin of 90%. No doubt many, many companies in the future will not resemble Microsoft at all. Somebody has to fix the plugged toilets of the world, somebody has to build houses, somebody has to drive the trucks hauling our milk.
Even Wired magazine, mouthpiece of the digital revolution--where I serve as one of the editors--does not approach the ideal of an intangible company. Wired is located smack in the middle of an old-fashioned downtown city, and in one year turns 8 million pounds (or 48 railway cars) of dried tree pulp, and 330,000 pounds of bright colored ink into hard copies of the magazine. A lot of atoms are involved.
So how can we make the claim that all businesses in the world will be reshaped by advances in chips and glass fibers and spectrum? What makes this particular technological advance so special? Why is the business hero of this moment so much more important than its recent predecessors?
I don't think I would point to Microsoft as an example of a hero. Busted for monopolistic practices, desktop share dropping slowly, browser share dropping drastically, an inability to apparently connect with its base (read Vista)... the list goes on.
I think the better choice for hero of the moment would be Google - or maybe Amazon.com.
Bear in mind, commenters, that this post was part of a book printed a year before Google received its start-up capital and nine years before Vista.
Let's not even think about the business heroes of the moment; let's ask ourselves what we'll need ten years from now when everybody's face is on the web and everybody's body is a yellow dot on an iPhone GPS map.
The argument that "all businesses in the world will be reshaped by advances in [tech]" is a good one, if you ask me. "Traditional" businesses to print our magazines and supply our milk aren't directly involved in technology, but they are influenced by it. Innovations in software don't just give Wired columnists stuff to write about. The production of the magazine itself is streamlined by countless applications. from Word to InDesign.
I agree that the producers of tangible products aren't going anywhere. However, I also think that we are in the middle of a chaotic period of economic reform where advances in technology are permeating into uncharted territory.
>"Why is the business hero of this moment so much more important than its recent predecessors?"
"Bandwaggoning" or "Safety in numbers" or "The comfort of being right" - all because it's easier to get behind a current winner than it is to either
(a) stick with what worked well in the past and be labelled a dinosaur, or
(b) stick your neck out, predicting the future and be labelled a dreamer.
I'm really enjoying reading this Blog. It is a truly excellent idea to see how the ideas from 1998 stack up today.
Regards,
John
"Why is the business hero of this moment so much more important than its recent predecessors?" - I think the sole reason is that unlike other businesses, IT is not a stand-alone industry as such but involves itself with other industries actively. For example, airlines and aviation is an industry that has been around for a long time now but if I need a ticket today, I would use the services enabled by the IT sector to get one. IT is closely linked to other industries and any ups and downs in any of these industries will impact the IT industry.
Therefore, I think we are moving away from each industry having a glorious time and then fading away to a more interdependent economy of industries.
Maybe I'm too old, but I feel that we need to restore some of our manufacturing infrastructure in this country.
I've worked in "brain" type businesses for almost 40 years So I value them very much. However, I really think that we have become far too dependent for our manufactured goods on countries which are not necessarily stable or friendly.
Globalization and Free Trade have increased prosperity, but narrowed that prosperity to smaller portions of the population.
Whatever comes next, in economic terms, needs to develop tools to share prosperity without stifling innovation. A very difficult task.