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The Failure of the Internet Decade

Posted by: Michael Mandel on February 26

I just gave a talk to the Massachusetts Technology Leadership Council (a full house of 400 people!) on “Innovation and the Financial Crisis.”

The talk was well-received. I rarely do powerpoints, but I did one this time. Let me try to post it here:

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Reader Comments

Charlie Wood

February 26, 2009 05:14 PM

Great presentation! I'd love to embed it in my blog (I'm a first-year economics major at UT) but a raw PPT file is a little unwieldy. Could you upload it to SlideShare or Scribd to make it easier to embed?

Charlie Wood

C Dillon

February 26, 2009 05:59 PM

As an attendee, this presentation was extraordinarily well received by the audience - Thank you! It provides some of the best insight to date on why we are where we are today. Michael's analysis is insightful, sobering and hopeful.


February 26, 2009 07:44 PM

Michael, This presentation is a nice synthesis of your recent points, and one thought that had escaped my focus: "housing sucked up all the financing". Good point. The diversion of funds by the housing mania, as well as the diversion of vital energies, could go a long way toward explaining why net job creation has been less than impressive and innovation has seemingly lagged.

Why wrack our brains for ingenious ideas and put funds and reputation at risk when we can just move into a (bigger, newer) house, or otherwise jump onto the housing bandwagon?

We can't exactly assume that the money will come rushing toward new opportunities, because, to some extent, the money is gone, but I'm encouraged by the possibility that the next round, driven by the sobering challenge of current reality, could deliver something much more worthwhile and interesting than a good deal on kitchen cabinets.


February 26, 2009 08:21 PM

Your slides confirm essentially no growth since 1997. But wasn't this the period of globalization and offshoring of jobs that was good for everyone? All we needed to do, the economists said, was move up to higher value work.

You seem stuck on the same mantra - we just need to innovate more - so we can export more jobs offshore? That's what your data shows just happened. We are offshoring jobs faster than we can innovate and its hardly been the case that recent years have suffered a lack of innovation.

Your slides seem to confirm Dr. Ha-Joon Chang's thesis that the real world data disagrees sharply with the theories of globalization.

Until economists agree that perhaps the real world is telling us something, and may be their models are not working, seemingly doing more of the same, faster, is not going to get us out of this hole.

Gloomy indeed.


February 27, 2009 12:46 AM

Mike, would you forgive me if I see a disconnect between your analysis and conclusion?
It's not precisely that I think you're wrong, it's just that innovation is one of those words that could mean a thousand things or nothing. Most people's interpretation seems to translate to "that which gives me an quantum boost in productivity". That wouldn't hurt, but I don't think it's what we most badly need.

What we could use that might fall under "innovation" is:
1. A significantly better economic, business, or contractual model. Something to make internet media, open source collaboration, or altruistic development pay. An improvement in trade theory to help us know when trade is good, and perform it with less hard and soft barriers where it is (and go ahead and duplicate effort where it isn't). Something to allow more people to contribute to the economy and have their work properly recompensed: there have to be a number of markets that would take off like a rocket if we knew how to monetize them. Maybe micropayments is the way: maybe there's more to the story.

2. A new category of good: something we just couldn't do before. Say, something that keeps us effectively "young" until 100, cures cancer, cures allergies, cures other genetic diseases, replaces organs, etc.

3. Better organization around public problems: health care, cheap non-fossil fuel energy, a path in the US to public transportation, understanding of climate change (is it real, where does it come from, how to fix it?)

I agree we need "innovation". I think we need to think big, and I hope you'll agree that not only IT, what we currently call "technology", but a lot of other fields have immense promise. But I don't think funding them and making them pay is going to look very much like the build-out of cheap Wal-Mart junk. I think that's a big part of the reason why we haven't seen it.


February 27, 2009 03:19 AM

Enjoyed the presentation, but how can we know housing is all to blame? Has there been any analysis done on why wages growth lagged so far behind productivity growth? Are there some fundamental social imbalances that got built into the economy. Have governments operating on the "It's the economy, stupid" principle, actually ignored the role of government to protect its citizens and ensure that they can trade fairly? Stray thought - is there a negative correlation between freedom and indebtedness?

Mike Mandel

February 27, 2009 04:46 PM


I agree, we need to think big. But I really do think there needs to be a substrate of technological change. Remember--financial innovation falls under your broader definition.


February 27, 2009 05:58 PM

Actually, the Internet decade was not a failure WW, even if it was for the US.

India and China have seen stock market booms (even after the present correction), and have seen income and GDP booms. Most of this is due to computing and Internet technologies become low cost and entering these previously closed economies.

So while the US was in suspended animation, India and China have been going great guns.

This is also why US real wages will not rise until China's per-capita GDP becomes half of the OECD average, which will be by about 2017. Only after that will US wages rise. India will still be a poor country in 2017, but as China will have crossed over to the other side, the wage-deflation effect of India will be smaller and spread over a larger area, and thus diluted.


February 28, 2009 12:16 AM


Yes, actually. You don't give up on the real thing just because of some over-hyped duds (can you imagine the technologies the world would be missing today if that were so?). Finance isn't my favorite field, but I imagine that an innovation that illuminates rather than obfuscates would have a lot of value. I'm sure we'll see a few really powerful insights as we try to move past our current problems, although it might take decades to sort out the good ones from the bad.


February 28, 2009 03:43 PM

The lobbies have prevented innovation in many occasions (green technologies is an example).
An innovation-driven economy (yes, this is the US's role in today's global "allocation of work") needs a suitable social model. The current social model in the US is too conservative to support further innovation (whether in the tangible or the intangible sector, desirability and a balanced mix are the key factors).
I agree with Obama's indirect efforts to redistribute wealth and empower the low and middle class via lower health care costs and better education. But the dividend of this social transformation (in case he wins the battle against the forces that will fiercely resist), i.e. a transformation that will support innovation, will come much later. In the meantime, concentrating on how to give back to the consumer part of his spending power (public projects to create jobs, tax-cuts below a certain income, subsidizing indirectly those on the brink of foreclosure,etc) is the way to make this recession less devastating. And yes, the rest of the world should continue in the meantime lending money to the US, it is to their own interest as well.
Obama is making good decisions, I am carefully watching to see whether America is ready to follow him or marginalize itself. As a non-american investor, I am tightly connected to the future of the US.


February 28, 2009 10:02 PM

Failure of the internet decade? Wow, talk about overblown headlines to try and get readers. According to your own calculations, real adjusted net worth per capita went up at least 50% over the same timeframe and debt growth as a percentage of GDP only matched that increase:

Even if net worth drops 10% from that peak, that was a fantastic decade. Mike, you have an alarming tendency to play up positive statistics in a boom, like we just had, and play up negative statistics in a crunch, like we're currently having. This cannot be explained away by your not knowing about the other statistics, as you produced both statistics. Using the overvalued stock markets of the 20s and 90s as a measure of progress is obtuse. The market boomed to unrealistic values in the 20s because of the great benefits of electrification and then when it naturally bust when overhyped expectations didn't match reality, Hoover and Roosevelt stepped in and made the downturn much worse with all their govt mucking around. This time around, when the overhyped expectations of the boom didn't match reality, the benefits of globalization came to the rescue, as the international saver sent their money to be invested in the US, only to be shoveled into a housing bubble by idiot financiers and promptly wasted. The periods have almost no comparison, other than the terrible performance of the S&P 500 and the recent try by Obama to repeat the mistakes of Hoover and Roosevelt. I agree that the internet has not fulfilled its enormous potential, because a working micropayments system was never deployed, but to say the decade was a failure because of the expected underperformance of the market after its unprecedented runup in the 90s is completely wrong-headed. As for wages, the US is now competing in a global marketplace: to simply assume that real wages will just grow to the moon, particularly when there hasn't been that much new innovation to justify it, is simply fantasy. I was glad to read your optimism but am depressed that you simply go along with all the money that is now being thrown down the pits of govt, medicine, and education, as that is clearly money wasted in the meantime that could be much better spent elsewhere.

Mike Mandel

March 1, 2009 03:32 PM


Let's leave aside your last point for the's a big question that I need to come back to.

The reason why I stress the failure of the Internet Decade is because the wrong diagnosis leads to the wrong treatment. The conventional wisdom is that we had a failure of the financial system, brought on by a lack of regulation. That suggests the *solution* is more regulation.

But if the problem was a failure of technological innovation to keep up, then we need to focus on doing the things we need to encourage innovation....which may include more government support or *may* include more freeing up the private sector.


March 1, 2009 08:22 PM

I think your diagnosis is confused. If the internet had taken off again 5 years ago, would that have made the financial breakdown any better? The two are separate problems, the fact that internet money might have made the financial breakdown more bearable doesn't mean that the financial problem wouldn't have been a problem in its own right. I suppose you could argue that investors would have put their money into tech rather than housing if given the opportunity but that's just wishful thinking. The real problem is to avoid financial institutions wasting money regardless of the situation. I agree with you that technological innovation was less than it should have been. After all, building a working micropayments system is not a big deal: it wasn't done only because of sheer stupidity. But I think that the internet has brought much monetary benefit even without micropayments- compare how much you paid for news, amazon- or ebay-type goods, or classifieds before and after- and innovation is besides the point of our current financial problems, which may after all lead to a better financial system if the govt would just butt out.


March 2, 2009 07:14 PM

The government is stifling innovation by trying to control social freedom on the internet. Gambling, prostitution, drugs,nudity are all excuses for the internet being stifled. This may seem inconsequential to some but who wants to innovate when basic recreational activities are being stifled by the government?


March 3, 2009 10:53 AM

You know, your presentation also supports another thesis - 'The Bush Years S*cked'. Perhaps that's the problem. We let the foxes run the henhouse.

Ed Dodds

March 3, 2009 01:28 PM

What are the possible innovation implications which could accrue from the adoption of XBRL and International Financial Reporting Standards a la the arguments made in XBRL for Dummies?

Grammar nazi

March 3, 2009 02:59 PM

Ajay> *may* include more freeing up the private sector

I do hope you're not advocating stronger IP law here!

Tom E.

March 3, 2009 09:05 PM

Besides financial innovation, cost innovation was the other big thing in the last 10 years. Everyone was going after the China price for goods and labor.

James Wimberley

March 7, 2009 06:28 AM

It's fairly easy to embed a slideshow in a blog from images in Picasa or Flickr. This page claims you cam embed a PowerPoint presentation in ablog by converting to it to Flash. Not tested.

If the link embedding doesn't work, here it is again:

David Tubbs

March 23, 2009 01:12 PM

Innovation, innovation, innovation. Developers, developers, developers. Anyone catch that one? Anyone? Bueler?...

Seriously, we need to stop throwing this term around and focus on the items that form the big ball we refer to as "innovation." Peter Drucker would have (in my imaginary world) referred to it as "good management." Just telling people to innovate is not enough. If there's one thing I remember about reading Freakonomics it is that people need an incentive. Any hot shot CEO is going to say either:
1. "sure, innovation is our mantra but this just isn't the way things work in the real world


2: "Innovation? WTF is innovation?!"


3: "Why?"

I'm just a big wannabe/armchair CEO. But I just really think we need to realize why the business world works the way it does: it's about give and take. Sometimes bad decisions are made. And like fashion, sometimes things like the pillbox hat are in-vogue. What needs to happen is that this issue needs to be tackled at the root: EDUCATION. I say we forget about teaching these old fools about the importance of innovation and start focussing on tomorrow's leaders. Some people will never change. Let's focus on those whose minds haven't been shaped yet. To add insult to injury: Steve Jobs is no more innovative than the Korean guy that set up a dry cleaning business around the corner from you. Insight is not innovation. Let's not confuse business sense with innovation.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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