Small is beautiful, again?
“Almost all economists agree that technological progress drives long-term economic growth (…) it is now clear that the decreasing cost of computer hardware and software dramatically increased the role of information technology in the economy during the 1990s, even though IT spending represented only 3 percent of GDP (…) IT probably accounts for almost all the growth in productivity in the boom of the 1990s, and it is still perking right along.”
Read David Rotman’s “Can Technology Save the Economy” on MIT’s Technology Review.
David’s article captures the current debate on the need for fostering investments in both R&D and the deployment and consumption of new technologies as well as the role of private investors and public subsidies.
This is discussed in the context of today’s economic vulnerability leading to scarce investments, tight credit, conservative markets and, last but not least, this year’s U.S. Stimulus Bill, which provides $787 billion for technology, energy and R&D spending.
The “new economy” from the late 90s was perceived to enable limitless growth. The apparent death of the business cycle also changed how risk was perceived. “Irrational exuberance” in the form of reckless financial instruments coupled with a faulty regulatory environment yielded today’s crisis. Though James Cooper is reporting significant improvements in the U.S. economy:
- stocks are up 39% from March’s lows, yet 40% down from October’s peak;
- banks are attracting investors and showing a stronger capital base and liquidity.
So, one could think that deficit spending in the form of bail outs and stimulus bills does the trick, at least in the short term. But, it should be noted that this version of the “new economy” implied borrowing from the world’s markets and that China has become the wealthiest country on earth thanks to it’s $2.3 trillion in foreign reserves.
The U.S. remains the home of about half of the world’s 34 mega-companies (down from last year’s 63) with a market capitalization over $100 billion (see this week’s print issue of BusinessWeek.) We have learned that large companies happen to be too big to fail at the tax payer’s expense. So, in this context small is beautiful again:
“This crisis is not just the trough of a cycle, but the end of an era (… ) what we have discovered in the past nine months are growing diseconomies of scale. Bigger firms are harder to run on cash flow alone, so they need more debt (…) have to place bigger bets but have less and less control over distribution and competition in an increasingly diverse marketplace.” Chris Anderson’s “New New Economy.”
Circling back to the role of IT, or ICT for that matter, this time around this is not just about the decreasing cost, but the upward and downward scalability of computing infrastructure on demand, which is enabling smaller firms to be faster to market while saving themselves from budgeting fixed costs (capex.)
This means spending your “data center money” on need basis as an operating expense, while extending the useful life of many of today’s PCs and laptops. So, the emergence of cloud computing appears to be just what the doctor recommended.
Related posts:
- Is cheap the new black?
- ICT’s behavior in economic downturn and recoveries
- Can you be bullish in a bearish market? (1) (2) (3) (4) (5) (6) (7) (8)
- Entrepreneurship and innovation (1) (2) (3)
- Innovation and the role of government (1) (2) (3) (4) (5) (6) (7)
- Business model innovation
- BCG’s 2009 study on innovation
- The state of European innovation
J. de Francisco blogging from Chicago on June 28
