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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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MAY 28, 2004
Innovation = Economic Growth BW Economist Mike Mandel tells a CeBIT audience: "If you want real growth, you have to have new technologies" Following are highlights from BusinessWeek Economist Michael Mandel's presentation and answers to audience questions afterward at the CeBIT technology conference in New York City on May 27: Moderator: Michael Mandel is the chief economist of BusinessWeek magazine and he is very much a forward thinker. In the pages of BusinessWeek in the 1990s, Michael was among the first writers and economists to identify the emergence of a new economy. And, then, he was equally prescient in predicting when the boom would go bust with his book in the year 2000 called The Coming Internet Depression. He has a new book out now -- and, by the way, his books will be in the back of the room later, if you'd like him to sign it and you can purchase them, also. The book is called Rational Exuberance: Silencing the Enemies of Growth and Why the Future Is Better than You Think. And, in it, Michael outlines what to expect from technology, growth and profits moving forward. So, please welcome Michael Mandel. [applause] Michael Mandel: This is going to be a very different talk. I will not use any acronyms. I will not use the term "management space" or "vendor space" or "ecosystem." If I talk about space, what I mean is outer space, which maybe makes me seem a little bit like an alien in this environment, but that's okay. I'm going to talk this morning where we've been, where we're going, and what the obstacles are. Here's the place where we want to start: Economic growth is driven by new technologies and its applications, always and in all places. So that we know that periods of rapid innovation are also periods of strong growth, we have new jobs and new industries. Historically, half of productivity growth comes from new technology. It doesn't have very much to do with budget deficits. It doesn't have very much to do with tax rates. It doesn't have very much to do with a lot of the things that you hear the presidential candidates arguing about. At the end of the day, if you want real growth, you have to have new technologies and you have to have the will to use them. This is a very important point. It really helps you think about what's happening in the economy now and the link between the economy and technology. When you have slow growth in technology, when you have a lack of innovation, then you have slow growth in the economy.So that you go back to the 1970s, the microprocessor was invented in the early part of the 1970s; the first one was 1971, I think. But it really wasn't economically significant. Part of the reason why the 1970s was such a weak decade economically was because we had a technological drought and there was actually a lot that was written about that at that point. Then, of course, we have the 1990s, when we had the internet, very exciting. Comes in, drives the stock market up, drives wages up, drives the job market, drives profits, does all sorts of terrific things. It's not a coincidence that you have a new technology in an era of an economic boom.Then, of course, we have the bust. Now, this is actually a very important point. You have a boom and you have a bust. Are we better or worse off after this ten-year period is over? What's the answer? Audience comment: Better. Michael Mandel: Better. We're better on almost every single indicator. Compared to 1994, the stock market is up 150%. Compared to 1994, unemployment is actually lower. Compared to ten years ago, what's the size of tech spending compared to ten years ago? Business tech spending? Does anybody have any idea? Female Speaker: Huge ... Michael Mandel: It's more than double the size that it was ten years ago. So I sit in the audience and I listen to people ask, "What's happened to tech spending?" The answer is that, if you believe the government's figures (and I tend to believe the government's figures) that business spending on software and communication equipment and computers is just below the peak of the boom. That is to say that we've made back pretty much all of the losses from the bust. So here's the question: Why doesn't it feel like it? Why doesn't it feel like it? And the answer is, is that when it comes to information technology, we are right now in an era of slow innovation. Not rapid innovation, but slow innovation. That is to say, the 1990s is what an era of rapid innovation feels like where you have a very compelling set of new technology that comes out and forces people to adopt them. What we're in right now is a period where peopleare producing new products which are incremental gains from the ones that existed beforehand, incremental gains. You pile a lot of incremental gains on top of each other, you can get someplace. It's not that these things are not real. But they are not explosive gains; they are not the gains that generate new businesses. They're not the innovations that generate new jobs. They're not the innovations that generate excitement. They're not the innovations that generate another boom in the economy. But I'm going to look forward and ask the question, which is: Are we going to see slow and steady growth in the tech sector, in tech spending or are we at the beginning of another boom-and-bust cycle? This really determines what kind of -- it determines both the nature of what's going to happen in the tech sector, but also what's going to happen in the economy. What I call slow and steady growth would be about 7 or 8% increase in spending per year, which is still faster than the overall economy, but not really very impressive and it doesn't generate a lot of excitement. It doesn't generate a lot of demand for new and sweeping applications. It doesn't generate a lot of jobs. When you've got this kind of slow growth, when you've got companies rolling out new products that are incremental gains, what you get is you get a lot of outsourcing. It's easy to outsource when things are not changing very fast. You're looking to cut costs, you're looking to shift jobs into places where they're cheaper and you can do that because the pace of technological change is not very quick. And that's really where we are at this moment.So think of this -- this period is not a trough in terms of spending, it's a trough in terms of the pace of innovation. The alternative is what I call "exuberant growth," which is driven by new technologies. And what I mean by "new technologies" is not necessarily web services, but new technologies are things that are quantum leaps beyond what we'd had before. The internet was such a technology. You go back, you see airplanes, you see television and so forth; these are all quantum leaps for exuberant growth. If we have a new technological breakthrough, what you see is you get fast growth, you get a lot of new jobs. You get the boom we had in the 1990s. I've made part of my career on making crazy forecasts that turned out to be true. In the middle of the 1990s, I talked about the new economy and I was beaten up by a lot of economists at that point and it turned out to be true. In 2000, I talked about the tech bust and I was beaten up by a lot of people who were in technology who said, "No, it couldn't possibly go bust." But I'm going to go out on a limb now and make another forecast and say that, over the next five to ten years, that the U.S. will have another technology-driven boom. Like, in many ways, the one that we had in the 1990s. Technological revolutions, they generally come in waves, they don't come with a single big innovation. The internet is one thing, but we're going to get -- we are going to get further big jumps. But there are two problems here. One problem is that, surprisingly, there's an awful lot of people these days who are uncomfortable with rapid technological change. For example, a lot of executives, corporate executives are kind of burnt out on change. They say, "Well, give me some cost savings. Don't give me big ideas, give me cost savings". But there's also a lot of discomfort in the electorate, among politicians, among economists, surprisingly, with technological change. You can listen endlessly to what economists say about the economy without hearing a single whisper that what you need is another round of technological change. They talk about the budget deficits, etc., etc., but technology is off their radar screen. And I'm not going to say very much about this now. I should just say, in the book lists some people, economists that I identify as enemies of growth, including several famous ones like Milton Friedman, Paul Krugman and Greg Mankiw, who's George Bush's chief economist.This is something which is true on the Democrat and Republican side. And if you don't believe me, listen to Kerry and Bush's speeches and see how much they talk about new technology. And the answer is: Very little. But equally important, when we're looking forward -- and this is where it's possible that I get into trouble here. We are not sure, at this point, I'm not sure, what is going to be the new technology that drives the next boom. It is true, technology is unpredictable.
BW MALL
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