When I was an undergraduate at Columbia in the mid-1970s, students at the university’s top-notch School of Engineering had a reputation of being socially awkward dorks. They wore polyester shirts with many pockets and spent their time in dimly lit basements peering into black-and-green computer screens. Many were foreigners or first-generation immigrants, mainly from China, Korea or India.
Being a recent arrival from Moscow, I knew plenty of my compatriots there. One of them soon changed his major, opting to prepare for medical school instead.
“Technological progress is pretty much over,” he explained to me. “Most of the obvious things have already been invented.”
That was probably the misstatement of the century, coming as it did when Steve Jobs and Steve Wozniak were welding together the world’s first personal computer. Over the next three decades, the technological revolution wreaked dramatic changes in society, eliminating millions of jobs and creating millions of others and altering the way we collect and process information, work, spend our leisure and communicate. It transformed our workplace and our homes, and it forever changed the way we shop, not only determining what we buy but how we buy it as well.
The impact has even been felt in the realm of fashion. Computer nerds have gone from pariahs to sex symbols, displacing muscular jocks and New England preppies. Even their trademark heavy eyeglasses, polyester shirts and nerdy haircuts have by now become the look to emulate.
Duplicating Past SuccessThe financial services industry was probably the most profoundly affected by the new technologies, in a variety of ways ranging from how we save and invest to what we invest in. For example, in the early 1980s standard business school texts discussed the impossibility of creating new international brand names. They pointed out that such well-known brands as Coca Cola, General Motors and IBM were as much as a century old, and some even older. Since then, hundreds of global brands have emerged, most in the high-tech sector. Based on data from consultancy Interbrand, more than a dozen of the world’s 50 most valuable brands worth collectively hundreds of billions of dollars did not exist a quarter of a century ago.
Those investors who had the foresight to invest in shares of Apple, Microsoft and Intel have done spectacularly well, justifying the “greed decade” moniker for the 1980s. Later on, similar opportunities arose with Amazon, Yahoo! and eBay, and even more recently with Google.
Lessons of the 1970sThere are plenty of private individuals, venture capitalists, angel investors, mutual funds and financial advisors who specialize in technology start-ups and small-caps. In fact, the development of the venture capital system during the 1980s was a financial revolution, which went hand in hand with the technology revolution, fueling it and making it possible. The National Venture Capital Association estimates that between venture capitalists and various angel investors, some $50 billion is being invested into small tech companies each year.
Yet, they tend to crowd into obvious areas, such as biotech, energy efficiency and climate change. Mainstream venture capitalists, while credited with bold vision and risk-taking, are often trend followers. They identify areas where there is demand for technology solutions and money to pay for them. Thus, the aging baby boomers are expected to create a market for new drugs, while persistently high petroleum prices and concern about climate change are creating opportunities for alternative energy and energy-saving technologies.
This is doubtless correct, but biotech, for all its promise, has consistently failed to live up to investors’ expectations. While individual companies have done well, broadly based biotech funds have tended to be money losers.
One lesson from the technology revolution is that it doesn’t produce products to fill existing needs. On the contrary, many new products generated demand by altering behavior, starting with the personal computer. All through the 1980s, consumers saw little use for such machines at home, aside for storing cookbook recipes. Similarly, eBay created the individual Internet seller, altering the marketplace for antiques and collectibles, for instance. Even Google, though the best of the Internet search engines, could not emerge before there was a critical mass of web users.
Scientific ResearchMy friend at Columbia was dead wrong, of course, when he declared that technological progress was over. However, in one sense he was right. The technological revolution of the past three decades was based entirely on the discoveries occurring in the first half of the 20th century, such as advances in physics and chemistry, genetics and computer science. Over the past half-century, while an army of science researchers have advanced and developed those revolutionary discoveries, no comparable revolution has taken place in science. It is probably due in the first half of this century.
There is no question that rapid technological progress will continue. There is still plenty to invent, discover and improve in biotech, mobile telephony, Internet and energy sectors.
There can also be little doubt that the United States will continue to lead technological progress and its commercial applications. The entrepreneurial culture and the system of funding and growing start-ups have become deeply rooted in American society, and the advantages the U.S. offers its technology entrepreneurs are unrivalled anywhere in the world.
Not surprisingly, of the dozen new technology-related global brands on the Interbrand list almost all are U.S.-based, with only SAP and Nokia providing any kind of competition for Silicon Valley.
Moreover, it can be argued that the emergence of Japanese consumer electronics brands, such as Cannon or Sony, would not have occurred had the existing financing system in the United States been in place in the 1970s and 1980s. U.S. business was dominated by large, cumbersome multinationals, the regulatory environment was restrictive and the entrepreneurial spirit was temporarily in abeyance. While innovation came overwhelmingly from the United States, U.S. businesses were too slow to take advantage of it. Japanese firms, meanwhile, famously thrived on U.S. patents. Notice that all of the famous Japanese brands came into their own before 1990, and that since then innovative products–such as the iPod, the iPhone and the Blackberry — are once more being developed in North America.
But pure science is another matter. Since the 1930s, America’s scientific establishment has benefited from unfavorable conditions elsewhere in the world. For example, nuclear physics and quantum mechanics were developed in Germany and other Northern European countries. Before 1933, the official language of modern physics was German, a lingua franca used to communicate by Russian, Norwegian, Dutch, Danish and Hungarian scientists among themselves. Hitler’s advent to power sent most Jewish scientists to the United States, the first wave of emigration by scientific elites to this country.
In the postwar decades, the United States allocated a substantial share of its wealth to its universities, which created highly favorable conditions for scientists from Western Europe, Asia and, starting in the 1970s, the former Soviet Union. The funds were disbursed all the more willingly since the development of the atomic bomb stemmed directly from theoretical research.
The lion’s share of Nobel Prizes in physics, chemistry and medicine still goes to U.S.-based scientists, but the global situation is changing. The rest of the world is catching up with the U.S. as far as wealth and technology are concerned. There is greater freedom, so that scientists in places like China can now conduct their research without ideological interference. In the United States, on the other hand, public money is becoming tighter, whereas commercial applications of new scientific discoveries are decades away. The result is that this country could lose its position at the cutting edge of science — with dire consequences for its economic and technological leadership later in the 21st century.
Alexei Bayer runs KAFAN FX Information Services, an economic consulting firm in New York; reach him at email@example.com. His monthly “Global Economy” column in Research has received an excellence award from the New York State Society of Certified Public Accountants for the past four years, 2004-2007