New economy bubble in no trouble?

Some argue that the "new" economy is all about a new culture of confidence

I am all for devil advocates, but at times there are axioms so obvious and universal that to suggest the opposite, or to even attempt a position to the contrary, seems foolhardy indeed. Yet i guess it was only a matter of time before some die-hard supporters of the "new" economy recovered enough of their senses from the intense hangover of the past few months to argue that, in spite of everything, the "new" economy is still in good shape. In other words, the e-commerce bubble has not popped, although it may have deflated somewhat.

"The rapid pace of technological change all but ensures that e-commerce in its many forms will continue to attract capital, create jobs and wealth, and sustain the overall economy," argues keith regan in an article for e-commerce times. "In short, e-commerce is a bubble that can’t burst."

The idea that the e-commerce can’t burst is a striking one. At this point in time, it would appear that either keith regan has been in isolation for the past year or so, or he has some kind of insider trading secrets which will put him well ahead of bill gates in terms of personal wealth.

While regan remains upbeat about the future prospects for the "new" economy, he doesn’t revert to some of the overly optimistic ramblings of other e-commerce pundits, who not too long ago prophesied that we were in amidst a "long boom", that is, decades of unbroken hyper-growth. "That’s not realistic," admits regan, "but what is realistic is a period of time during which the economy never slows down as much as it has in the past."

Although a little more moderate than previous e-commerce visionaries, this toned down rhetoric is still somewhat problematic. It seems to avoid dealing with what "the bubble" really is. Most people would agree that the dot-com mania of the previous few years, around which the bubble grew, was all about short-term profit and had actually nothing to do with a "new" economy.

Media theorist geert lovink, in a post to nettime1, is more to the point. He maintains that the whole fiasco was engineered by a small and smart elite who tapped into "funny money" at the right time and place, and then diverted the available capital into "old" economy investments. In other words, it was a case of the old taking over the new.

In conjunction with this, various economic indicators fail to support regan’s assertions. Apart from growth statistics based on stock prices, rarely does a day pass when a dot-com layoff isn’t in the news.

"Yes, there are plenty of them, and they are accelerating like mad," concedes regan. However, he is not worried by such news for, as far as he is concerned, in the grand scheme of things these dot-com lay-offs and downsizing don’t amount to much, and has yet to make a significant impact on unemployment figures. In fact, he maintains that such negative news about the "new" economy is actually a testament to its strength and flexibility, for unlike "old" economy job losses and downsizing, the dot-com workforce is adaptable and thus quick to find work. Regan explains:

"That’s because for every layoff there is a startup somewhere looking to double its headcount. And that in turn is because venture capitalists are funding startups looking to be part of the next wave of internet and e-commerce evolution. That money in turn comes from major corporations and pension funds and the like, institutions that know how to get a big return on their investments."

Regan’s main point is that the "new" economy is all about a new culture of confidence. This not only has to do with the renewed ability of investors to pick stock and young companies to grow, but "that same confidence is on the employment side, too." he notes how in the "old" economy a person who drifted from job to job was frequently considered undesirable as an employee. "No more," he says. "Today, three months at a consulting firm, four at one dot-com and two at another is seen as valuable experience weathering the volatility of the new economy."

Unfortunately, this reasoning is a little dated (at least in techno-financial terms), and doesn’t differ much from the theoretical framework which drove the utopian projections of the long boom. In conjunction with this, there have been repeated warning that such an employment scheme based on temporary employment, in where people drift from job to job with little or no social security, is almost certainly doomed to fail.

Jack gordon, in an article2 that preceded the "information revolution" of the 1990s, stressed that employment, which is akin to movie productions, in where people work on different projects, converging and dispersing as they sell their services on an open market — each a freelancer, picking and choosing projects that are rewarding and personally fulfilling — won’t "liberate" workers from the old 30-years-and-a-gold-watch system. The problem, as he pointed out in 1993, is that very few people would be able to live such a life successfully and with peace of mind. Staying with the movie production analogy, he relates that most "actors" in los angeles and new york spend far more time waiting tables and parking cars than working on exciting movie projects.

Putting this ie in proper perspective, gordon offers statistics which haven’t changed much over the years, and which lays bare the fallacies of regan’s arguments:

"The failure rate for entrepreneurial enterprises may be instructive here. Eighty percent of all small businesses collapse within the first five years; 80 percent of the survivors fail within the next five. Where’s the evidence that the success rate would be any higher in a society where everyone is an entrepreneur, selling the "product" of his own skills?"

This observation has since been supplanted by myriad real-life scenarios. Michael krantz, who left a relatively secure job at time magazine to try his luck with a dot-com firm, epitomizes the feeling of many who have sought fame and fortune in the virtual world of the internet. "Sigh. Back to our cramped cubicles," he laments. "New economy, my ass."3

Despite such basic and fundamental observations, regan firmly believes that "the internet itself will provide a steady river-flow of capital, jobs and spending." he makes reference to the present wave of infrastructure development and wireless networks, both examples of how capital is now geared toward more rational projects.

Indubitably these projects, unlike earlier investment in the "new" economy, now expect a quick return on their capital rather than the vague promises of many dot-coms that "we’ll make a profit soon." however, rather than viewing this as a more rational approach to the "new" economy, it’s perhaps more accurate to view this as capital going from one extreme to the other. In the end, the result is invariably the same: stifling progress because of unrealistic expectations.

A case in point is the very high prices paid for umts licenses, which almost ensures that the development of the network will not be geared toward offering better services, but ones that will enable a profit to be returned in a short period of time. Thus, although new services will be packaged as better and more advanced, they will in many cases be inferior. Those operators that will dare to try and develop superior services, will most likely go the same way as many dot-com startups have recently gone.

The nervousness of many pundits toward this dilemma can already be seen in their attitude toward the umts auctions themselves. Quite a few criticised the governments selling the licenses as "robber barons" and have thus set a foundation of blame should this next phase in the "new" economy fail. A prime sample of these reactions can be seen in the now europe digest, put together by steven carlson, on discussions focusing on the "robber baron" and "m-commerce" threads (see the now europe digest).

Some, however, take a more progressive view. Erik bach, who is involved with a norwegian telecom company providing services for gprs and umts, commented in a post to now europe4 that despite the obvious failure of dot-com businesses, many still believe that once technology is properly applied (i.E., in terms of bandwidth and location-based services) then the "new" economy will finally "take-off".

"Why do we believe in specific services for m-commerce in the umts scenario??" he asks. His answer: "i suspect that it’s because many people in the business are taking the technological point of view – proposing services for umts because they know a lot about technical opportunities with umts. The core problem is that this perspective doesn’t say much about consumer needs or behavior." he adds, "i believe that asking the question: why do we as telecoms or asps believe in certain applications for the future??, we could at least be aware of our own taken for granted views about m-commerce applications in the future."

Bach takes ie with the likes of regan who suggest that the bubble is not bursting but has simply "rationalised" itself. Specifically, he dismisses the excuse that the major problem with early dot-com ventures was they lacked infrastructure and a well-established brand name. "This is striking, why didn’t this knowledge come earlier?" wonders bach. To this he also has an answer: "i believe that it has to do with the preoccupation and strong belief that once we have the right technology, (just as if the web makes us want to look for more shops) we miss the fatal point: consumers don’t change their internalized routines over night just because there are more opportunities available."

Bach’s main point is that there are many examples from history which, unless heeded, will inevitably lead to a circle of failure. Hence, in order to stave off such failure, those developing umts services need to take into account that consumers are not very willing to pay for content. Yet considering the amount of money already invested in this area, the idea of content mostly paid for through advertising is an uncomfortable prospect for service providers and content developers alike, as costs are very unlikely to be recouped in the short term.

Finally, what is rarely touched upon is the question of shifting demographics. As lovink explains: "[the] internet might grow over the next decades, but that [probably won’t be] in the demographic sectors of society which have lots of pocket money to spend. In part that’s the reason behind the current e-commerce crisis. Growth is stagnating there because the newbies are kids and seniors, not the affluent innercity dwellers."

In spite of all this, what is driving many to press ahead, and keep the likes of regan saying that things will be fine in the long run, are some of the few success stories that do exist. The biggest of these is the use of sms. No-one was able to predict the popularity and speed with which this application has spread. But its success has little to do with technology as with responding to a basic human need, in this case person to person communications. This is a simple application in technological terms," observes bach, "but it touches upon something essentially human which will not go away because we get a lot of content in new situations."

In the end, whether the bubble has actually popped or not seems to all come down to a question of faith. "The belief that we are moving in the right direction, even though there may be bumps both large and small in the road, will keep this bubble from bursting any time soon," asserts regan. In this digital age of ours, however, faith is no longer enough. In fact, the notion of "keeping the faith" would appear more relevant to pyramid schemes than a fully functioning economy.

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