The real boom
By David Kirkpatrick
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(FORTUNE.COM) -- We may be entering the second great technology boom. The first one, of the late '90s, was a boom in expectations, which pushed up stock valuations and investor enthusiasm in the belief that the new technologies born of the Internet would fundamentally transform the economy.
It's starting to look like investors were right, just off slightly in timing and targets. I'm no economist, but I am a true believer in the transformative power of technology, and a close observer of just how many places such transformation is happening. So I get ideas when I hear things like yesterday's report that manufacturing blossomed last quarter at the fastest pace in two decades, only a week after we learned that the overall economy, measured by growth in gross domestic product, also grew at a rate faster than it has in 20 years.
Could it be possible that all the accumulated investment in technology is finally paying off? That, contrary to what over-eager investors thought in the '90s, the users of the technology, not the producers, will be the bigger beneficiaries.
Just think about some of the things in place now that weren't there last time we came out of a recession:
• No manufacturing company of consequence operates without a sophisticated enterprise resource planning software infrastructure, whether from SAP or another supplier. Increasingly these systems are linked with sophisticated supply chain and finance automation so companies know where things sit in their pipeline, how much inventory they have, and how much it all is costing them.
• Ordering over the Internet has become routine. This is as true for manufacturing giants as it is for consumers. Steel beams, for example, no less than books are now ordered online--probably more, in fact, as a percentage of the total. As a result, when demand increases in one place, its consequences can be felt efficiently, and immediately, elsewhere. Wal-Mart led the way with its long-ago deal with Procter & Gamble automating shelf replenishment, but now that kind of connectivity is, again, routine. We aren't in the vaunted real-time economy yet, but we've moved much closer.
• Communication in general between workers inside companies and between companies is now automated by e-mail and web portals. Corporate edicts can be disseminated at unprecedented speed, as can business orders.
• Meanwhile, news travels faster and more efficiently. Columns like this one can be written and published immediately, to a group that has indicated its interest. You get the information you want when you want it, whether it's here or on MyYahoo, or the New York Times Online or Google News. How could that kind of efficiency not help an economy grow rapidly?
I'm not continually using the word efficiency here by accident. Efficiency is a prime facilitator of value creation in any business, which is what drives economic growth. And the efficiencies created by technology surround us in ways large and small. When you start looking around your own environment I'm sure you'll find as many examples as I do.
For instance, FORTUNE just installed new electronic locks on our hallway doors. The old ones were electronic too, but they were clumsy and slow. One often had to stand in the hallway awkwardly swiping and waiting. Now you can wave the new cards and walk through the door while barely breaking your stride. I get to the editor's office a few seconds faster, for better or worse.
Or take my new car -- this Volkswagen has so many electronic features I barely have to turn anything on or off. The seat and mirrors automatically adjust when I get in. Set the temperature once and from then on it automatically turns on either air conditioning or heat, as necessary. And my favorite -- the windshield wipers can be set to wipe only when there is actually water on the window, however regularly or irregularly that may be.
OK, some of this may not be the kind of efficiency that generates economic value, but my basic point holds -- more time is being freed up by automation.
At work, that time can be used for making more things -- whether intellectual property, as here at FORTUNE, or real stuff, the more old-fashioned kind of property. At home, it can be freed up for recreation -- like for spending time -- and money -- on the Internet.
What else is booming at unprecedented levels? Global semiconductor sales in October grew faster than they had since 1990. Chips, of course, are the fundamental underpinning of all current technological progress -- the physical engines that power the digital age. They are what make possible those ERP systems, the PCs and PDAs we use for getting on the Internet, those office doors, and the wipers.
If you believe, as I do, that technology is a fundamental key to economic progress, it causes you to look at the news differently. It might cause you to speculate that the mutual fund scandal came to light faster because of the new transparency of information created by the Internet. Or to say that the AOL-Time Warner merger which created FORTUNE's own unwieldy corporate parent was not, as is now being said even by internal company publications, dumb. In fact the idea of combining digital distribution with physical forms is necessary and inevitable. It was just dumb for Time Warner to have acted when AOL's stock price was absurdly inflated by the last tech boom.
A few other examples of amazing efficiencies-of-the-moment I've just found online: a 6-megapixel digital camera at Buy.com for $430; seven just-released 2004 Volkswagens for sale on eBay; and nine house parties scheduled this Sunday within a mile of my home for a screening of an anti-Bush Iraq documentary, by the net-centric political group Moveon.org. Even politics are more efficient in this new economy.
But it's also worth noting what is not at record levels -- job creation. In the last two years U.S. manufacturers have eliminated about two million jobs. While there were signs in October of a revival in job growth, it was not at a high enough pace to significantly reduce the nation's high unemployment rate.
This is scary, in the face of such robust overall growth, but it's not inconsistent with my interpretation that the boom is driven largely by technological progress. One unfortunate side effect of techno-efficiency is that it reduces the need for people to do things machines can do.
To keep your job in this new world, you'd better be doing something that benefits from a digitized economy. And to compound the problem, as Intel CEO Craig Barrett has lately been pointing out -- we emerge from this recession with several billion more people having entered the global economy. Many of these people are willing to work hard for much less than the typical American. And much of today's work, as we've discussed here repeatedly, can be outsourced abroad over the wire.
I'm not sure we have entered a new sustainable economic boom. However, if you keep hearing impressive data about our economy, keep in mind how much technology is making it possible. Whether now or later, we are surely heading into a fabulous new world of efficiency facilitated by technology. Yes, it really is a new economy.
Questions? Comments? E-mail them to me at firstname.lastname@example.org.