Tech Futures Where workers and investors will find opportunities in the years ahead2>
Hal Plotkin, Special to SF Gate
Thursday, November 7, 2002
As the holidays approach, Silicon Valley is brimming with jobless workers and tapped-out investors. Happy chatter about vesting stock options has long since morphed into a cacophony of woe.
Today it’s more common to hear comparisons about the length of time since the last job, complaints about stingy severance packages and calculations of the number of résumés sent out. Home foreclosures are up. The latest news: Nearly 4,000 more layoffs at Sun Microsystems, which let those heads roll a few days before the valley’s ballast, Stanford University, slapped a freeze on all new hiring.
One of the worst things about the current downturn, like others that preceded it, is the way, by clouding the future, it erodes confidence in the economy’s ability to recover. As a result, the big question left on everyone’s minds is, What’s going to happen next?
Fortunately, a big clue to the answer is right under our noses. You don’t have to be a financial genius or a Wall Street stock analyst or have an MBA to figure it out. Instead, all you have to do is look around.
It’s something the social scientists — economists, mostly — have taken to calling the “technology gap.” Put simply, the technology gap is the distance between how the best, smartest-led companies use new technologies and how average companies use them.
The very fact the gap exists is positive news for tech workers, investors and the overall economy.
The size of the gap, which was only recently measured, is important because it predicts what the American economy can reasonably expect in terms of economic growth over the next few years. If the gap is relatively small, it means that the economy is already chugging along about as well as it can and that stagnant times may loom ahead. If, on the other hand, the gap is large, it means there is room for the economy to grow without having to depend on salvation coming from the introduction of revolutionary new products or technologies.
The good news is, the gap is huge. And that means that while stock market prices probably won’t post the record rates of return witnessed during the height of the boom, the tech sector — and the economy at large — should be able to pull out of its recent tailspin and start adding new workers simply by making better use of the technologies already at hand. The better news is that once that movement starts to happen, jobs should start opening up again for workers who can help bring lagging business, government and education operations up to speed.
Once you start looking around, you see the technology gap almost everywhere.
You find it, for example, at the cable-TV company where the customer-service phone line doesn’t tell callers on hold how long they should expect to wait, even though many companies sell systems that do just that. You see it in the grocery-store chain that routinely runs out of items it has on sale because it lacks a good demand-forecasting and ordering system. It’s also on view at the many corporate Web sites that make it hard or even impossible to find something as basic as a company’s address or phone number, let alone do business with the firm.
On the government side, the gap is evident, among so many examples, in local law-enforcement operations that don’t offer convenient online processes to help citizens report crimes, contest tickets or follow up on investigations, and in legislatures and city councils that don’t put full discussions of public business or contracts online before they are voted on and that don’t track the performance or effectiveness of programs they enact.
When it comes to education, the chasm between what technology makes possible and what is actually happening is particularly alarming. A relative handful of privileged students can now learn trigonometry with the help of the latest computer aids, while millions of others are saddled with outdated textbooks.
Consumers encounter the gap every time they endure a shoddy service or product whose quality or delivery could have been improved by better uses of technology.
To be sure, we can still count on some tech company to come up with a winning new product or service that sets the world on fire, just as there is always some lucky stiff who wins the lottery. But, fortunately, the rest of the tech sector does not have to depend on similar miracles.
Instead, they just have to find ways to participate in closing the technology gap. And that means brighter days and more opportunities for companies, and their workers, that can help others use existing technologies more effectively.
Similar gaps have existed at least twice before in modern history. The first opened up after the invention of electric motors, and the second followed the introduction of the internal-combustion engine.
In both cases, it took quite a while for those major new advances to work their way through the rest of the economy. Over time, though, the ripple effects were felt across the entire manufacturing and service food chain.
Some years after electric motors came on the scene, for example, engineers figured out different ways they could be used, such as to power air conditioners, which in turn created an entirely new industry and made many others (indoor theaters, movies, department stores) possible or more successful.
Similar progress ensued in the years after the internal-combustion engine was commercialized. Just one example: Eventually, someone realized that gas-powered vehicles could be used to power profitable fleets of milk trucks, which breathed life into what would become the modern dairy industry.
In both cases the new inventions helped increase overall labor productivity (i.e., the same number of workers could produce more) gradually but steadily for decades. These increases in productivity have always been one of the most critical factors in creating economic growth.
Growth in labor productivity is important because this increase translates into more products that employers can sell at the same cost, which means there are larger profits to divide and more money available to pump into activities such as hiring new workers and buying additional supplies. When labor-productivity rates increase at a healthy clip year after year, prosperity, although not always equally shared, is the result.
Clearly, we haven’t seen the last of the revolutionary effects, including increases in productivity, which personal computers — let alone the Internet — make possible. The hard data backs up that view.
Speaking last week in Washington, D.C., in a speech that most media outlets ignored, Federal Reserve chief Alan Greenspan ticked off the facts about productivity trends and the current large technology gap that leave him with a reasonable measure of optimism about what could be called a return to normalcy — meaning an economy, and a tech sector, that grows year over year, rather one that is shrinking or stagnant.
In his remarks, Greenspan noted that current surveys of corporate purchasing managers reveal most of them believe they still have “quite a way to go” in terms of adding new applications of technology to improve their businesses. He also pointed to a recent pivotal study, published by economists Jason G. Cummins and Giovanni L. Violante in the Review of Economic Dynamics, that came to similar uplifting conclusions after measuring the actual investments American businesses have made in new technologies.
The result of their calculations: By making better use of existing technology — nothing new is needed — overall labor productivity in the United States can grow by 2 to 3 percent for at least the next decade, and possibly longer if the very best companies continue to stay ahead of the pack. That compares pretty favorably with the 3 percent annual increases in productivity witnessed in the years after practical electric engines first came out and the 2 percent annual rate in the years following widespread commercialization of the internal-combustion engine. It’s also pretty darn close to the 2 percent productivity growth enjoyed in the years between 1995 and 2000, a remarkably prosperous period notwithstanding the inflation and deflation of the stock market bubble, which was driven more by psychology than by economics.
Basically, all the numbers boil down to what in the end is a pretty commonsense observation: Most businesses can do much better, and technology will play an essential role in making that happen.
To be sure, no one knows what the economic consequences will be if the country goes to war in the Middle East or if international instability causes oil prices to shoot through the roof. Likewise, the Bush administration, Congress or the courts could always find new ways to muck things up. But if and when those concerns finally subside, the existence of the technology gap means there is good reason to hope business conditions in the tech sector can return to more historically normal, and healthy, rates of growth.
It’s unfortunate that no one can invent the personal computer again or create another entirely new Internet. But, given how things have been going lately, a return to normal sounds pretty good to me.
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