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?

 

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-- KK