A pretty good balanced perspective.... stolen from the NT thread.. orginally posted by Kenneth Phillips.
Productivity Engine Still Running
By JAMES FLANIGAN
The most important question to ask this New Year's
weekend is not whether the economy will suffer a recession, but
whether investments in technology and gains in productivity will
pick up again after the current slowdown.
There's no denying this is a worrisome period. Tight business
conditions will greet the new year. Recession is possible as
companies cut back spending on plants and equipment and lay off
employees. But that kind of slowdown can be remedied by lower
interest rates and the promise of tax cuts.
Gains in productivity--industrial output per dollar of investment
or unit of labor--have taken off in the last five years as applications
of computer programs have brought dramatic efficiencies to
businesses and many other institutions, from hospitals to local
governments.
If such productivity gains were to diminish, as growth of
business capital investment slows to a rate of 6.5% from more than
10% in 2000, the economy would have problems not easily fixed
by lower interest rates or taxes.
"If information technology were to lose its luster, the engine
responsible for the acceleration in productivity growth would be
gone, and there would be no easy way to get it back," says
economist Joshua Feinman of Deutsche Asset Management, a New
York investment division of Germany's largest bank.
On the other hand, if investment and adaptation of technology
by business continues, then the slowdown will be a pause in the
healthy, long-term growth of the economy.
Happily, it's time to accentuate the positive.
What we are witnessing in the fall of the "dot-coms" and in
stock price declines for technology companies is a transition from
one phase of the "new economy's" development to another.
Technological development and sales growth of personal
computers have slowed. But expansion of the Internet as a carrier
of services over broadband fiber-optic cables continues faster than
ever. Development of wireless communication and devices likewise
proceeds at a headlong pace.
Optical channels, which use light waves to deliver information
more easily and cheaply than electronic circuits, will help fulfill the
Internet's promise of extensive interactive contact among businesses
and people.
But despite massive overuse of the word "Internet" in the last
five years, use of the Internet is still in its infancy. The network itself
is still under construction. The annual total of Internet commerce,
estimated at $100 billion to $200 billion, is too small in relation to
the $10-trillion U.S. economy to have had much visible effect on
productivity, say economists Robert Litan and Alice Rivlin of
Washington's Brookings Institution in a new study on whether the
Internet will increase prosperity for average Americans.
Litan and Rivlin, and other economists in the Brookings project,
conclude that the Internet's effect will show up in mundane
ways--reducing costs of processing health claims from $10 apiece
to $2. More exotic uses will come with the spread of bandwidth,
transforming automotive production and sales by offering car
buyers custom-made vehicles delivered in a matter of days.
Such futuristic visions have become commonplace in recent
years, even as Internet infrastructure was being built by companies
trying to perfect amplifiers for light waves and switches that work
on light pulses.
At the turn of the year, it's a positive sign that companies
involved in building the Internet are not slowing down but adding to
investments in an attempt to keep up with intense demand for online
capacity.
Corning Inc., the $7-billion-sales inventor of fiber-optic cable,
will increase capital investment to $2.5 billion next year, from $1.8
billion in 2000.
Nortel Networks, the Ontario, Canada-based company that has
transformed itself from a maker of telephone equipment into a
supplier of Internet networks and services, is also increasing
investment in 2001.
Lucent Technologies, struggling to move on to optical networks
from its historic base in telephone equipment as the former Western
Electric division of AT&T--is maintaining capital budgets despite
adversity.
Smaller suppliers of optical components, such as Sycamore
Networks and Ciena Corp., also are spending to expand.
The stock market has been brutal to Internet infrastructure
companies--hitting stocks of Corning and others for declines of
50% and more in recent months. Yet the stocks don't look cheap,
with prices at 40 to 50 times underlying earnings.
What lies ahead in that respect is a technological and financial
free-for-all, experts say. Silicon Valley venture capitalist Vinod
Khosla predicted to the high-tech publication Red Herring that
90% of today's optical-component start-ups would fail but the
remaining 10% would flourish.
That, of course, is normal for a dynamic economy and an
environment of constant innovation. Bottom line is that we can
anticipate rising productivity for years to come as Internet networks
and services are built out.
Meanwhile, economies everywhere are pausing at the start of
2001. Europe's economies are slowing, J.P. Morgan & Co.
economists report. Japan's huge economy remains in the doldrums.
The rest of Asia as well as Mexico and Latin America will struggle
early in the year as the big U.S. economy sputters and reduces
purchases of foreign goods.
Domestically, the economy will be in the aftermath of a period
of surging investment in small telecommunications and high-tech
companies. Many of those companies will disappear. Some will be
acquired by the major telecom firms, such as SBC Communications
and Verizon, which are cash-rich and eager to expand their Internet
capabilities.
All companies will focus on cutting costs and outsourcing
operations to bring down overhead. That will make work for
contract suppliers of production and industrial services, such as
Toronto-based Celestica Inc., Solectron Corp. of Milpitas, Calif.,
and Jabil Circuit of St. Petersburg, Fla.
Outsourcing of jobs will mean more work for such companies
as Manpower Inc. of Milwaukee, Robert Half International of
Menlo Park, Calif., and Adecco Inc., which is based in Lausanne,
Switzerland. The staffing industry grew to $130 billion in worldwide
revenue in the last decade as contract personnel took on every kind
of job.
The main expectation to have for 2001 is that new inventions
will change perspectives on business and investment. Five years
ago nobody predicted the development of the Internet, much less
the productivity gains of 1995-2000.
The outcome of next year's economy will be better than its
outlook today.
latimes.com |
