High tech won't save the economy this time
Opinion: In 1982-1983 the economy in the West was battered. Unemployment in the U.S. reached 9.7 percent. The United Nations pegged growth for developed nations around one percent. Stagnation and recession were global conditions.
But in Silicon Valley unemployment was only 7.5 percent. At the time mid-size companies there like Intel, AMD, Apple, and countless others who have since vanished were growing. Other regional high-tech centers sprouting around Route 128 in Boston, the Silicon Forest in the Pacific Northwest, and the Silicon Fen around the University of Cambridge in England were spawning dozens of small and mid-size businesses that were pushing the economy forward.
New technologies, like local area networks, were attracting hundreds of millions of dollars in venture capital. Personal computers were becoming popular business tools. Software developers had a field day with opportunities to write programs for MS-DOS, CP-M, Unix (and its many variants), VMS, and many other operating systems. High technology, as it was called then, was booming.
In fact, while the rest of the economy slowly crawled out of its hole in the 1980s, tech companies raced ahead. Even after the market crash in October of 1987 where the FTSE tumbled 23 percent in two days, the DJIA fell 22 percent in one day, and the Australian and Hong Kong markets lost a whopping 40+ percent in the month, tech companies like Lotus Development Corp., 3Com, Tandem Computers, and Digital Equipment Corp. continued to thrive. That growth continued with few interruptions throughout the 1990s.
Without that high-tech the economy the West would never have seen much, if any, economic growth throughout the 1980s and 1990s. Yes, the financial sector grew in the U.S. and Europe, but its expansion was built in no small measure on the business driven by constant mergers and acquisitions and IPOs in the tech sector. Tech has been the engine of our growth for the past two decades. But that engine is petering out.
The first sputtering in the fast-paced high-tech economy appeared with the dot-com bust at the dawn of this century. Mid-sized companies that primarily drove that growth were hit the hardest. Companies like Sun Microsystems ("We put the dot in dot-com.") suffered badly and never fully recovered. Compaq was so battered it fell into the arms of Hewlett-Packard in 2001 to save itself. Venture capital investment stalled.
After a brief uptick from 2003-2007, the tech sector is again languishing. Unemployment in Silicon Valley topped an unprecedented 12 percent in August and is likely to get worse. IPOs are at dismal levels. Venture capitalists I talk to are in despair.
Yes, yes, there are a few big bright spots - Apple, Cisco, and Google come to mind. But these few giants can't spur the overall economy. There is no longer a core of mid-size tech companies that drive growth. Microsoft and Intel, once significant contributors to the high-tech expansion only seem to grow now by buying smaller firms, then laying off all but a few engineers and sales staff, and, inadvertently, I suspect, stifling innovation to build support around their legacy systems.
Facebook, Twitter, and other social media darlings will not create the next high-tech growth engines for our economy, either. Looking around the industry, there's nothing, not even the ubiquitous iPhone, that will spur overall economic growth. High-tech's salad days are over and with them any hope for a quick end to the current Great Recession.