There's something important going on under the radar

04/01/2003

The dot.com bubble gave technology a bad name. Investors all over the world, but particularly in the US, poured money down what turned out to be a huge black hole. Executives at corporations in almost every field spent millions on networks that were going to transform their companies into dynamic, information-rich powerhouses. But when world economies went into recession, business soured, and profits disappeared, the huge expenditures on servers and enterprise software and disk farms looked like a big mistake. Many executives (among those who hadn't already cashed in their stock options and moved to Boca) vowed not to get burned again. That experience, as much as world geopolitical uncertainty, has stalled economic recovery.

While we have gone through a long down period, including a recession, something unusual has been happening that has gotten little attention. Productivity, especially in the US, has been rising faster than it has for decades. Maybe all that spending was not as foolish as so many executives thought. While no one got rich selling pet food over the Internet, a lot of corporations found ways to use the Web to do things much more efficiently at far less cost and with much greater speed.

Alan Greenspan, chairman of the Federal Reserve, has cited this factor as something that will greatly benefit the economy over the long run, and will help to pull business out of the doldrums. So far the turnaround has been slow to come. In fact, because of increased productivity in both manufacturing and especially service industries, unemployment has remained high, and fewer workers must handle growing workloads. Since consumers have been doing the heavy lifting in keeping the economy from slumping further, this seems like an ominous sign. More people out of work tends to dampen consumer spending.

Because of tough global competition, companies cannot just raise prices to bring about more hiring, and tight margins in a down economy have depressed profits. That's the bad news. But there is also good news.

Personal income of those still working has been rising, which helps their buying power, and the housing market has remained very strong, while existing homeowners continue to borrow on their home equity because of historic low interest rates, providing additional stimulus. That has helped the economy to make a slow recovery, but it's not enough to get business humming again, replacing old PCs, upgrading networks and storage systems, going to more sophisticated cell phones, and buying other types of new technology such as video conferencing systems. Still, since businesses are more productive now, if their end-markets begin to pick up they should see healthy profits, and many dormant technology upgrade plans can be implemented. Management is more wary now, so there may be some hard selling involved, but if new technology will help to make companies more competitive and will speed up operations, those companies will start buying once again in spite of past disappointments.

But where will all those people out of work find jobs? Many of them will find work in — you guessed it — technology and technology-based industries. But this time they won't all be dot.coms and optical network companies. It will be a wide range of emerging technologies that will grow as new capital becomes available for investment — from biotech to MEMS sensors to wireless handsets to innovative consumer electronics gadgets. There will be lots of fun stuff, and also plenty of tools for further productivity enhancement. New types of businesses will be made possible by the technology advances of the last few decades, especially the Internet. All the capital won't go into one basket of eggs this time, and there won't be any new dot.coms with valuations higher than General Motors.

One thing is sure. A lot of those advances will require plenty of computing power and storage, so there will be a new surge in demand for chips. The semiconductor industry will rise once again. Technology will no longer be a bad word.

Robert Haavind
Editor in Chief