Of Hope, Growth, and Hard-Won Wisdom
The lessons of the information sector’s glorious debut continue to unfold. Today, too many people seem content to focus on the greed, the silliness, the hype, the promotion of hope over reason, and the conflicts of interest that we learned about only after the fact.
They seem to be happy shaking their heads sadly and saying either “I told you so,” or “I should have known better,” as the case may be. And they seem to want to “blame” the whole debacle on our lesser nature. But they forget....The information sector’s debut was the dominant economic story of the late 1990s, and the late 1990s were a wondrous time in America— as in much of the developed world. We were happy, and excited, and successful. And we were all looking forward to an even more wonderful future. The many people who now deride the New Economy forget what it was really about: unbounded opportunity, growth without limits, steady improvement, motivating creativity, rewarding success, and above all having enough of everything to go around. Tech companies hired based on merit, led the way in promoting domestic-partner benefits, and recognized talented immigrants as people coming over to help make us even richer—not to take our jobs. The gestalt of those years pushed the concepts of tolerance, equal opportunity, talent, merit, motivation, and reward further than they’d ever gone before.32 The workplaces of the New Economy were casual and comfortable because the happiness of the workers mattered and because the owners assumed that it would enhance their wealth! In the late nineteenth century, the folks who owned coalmines insisted that they would go broke if they had to pay their miners a living wage. In the late twentieth century, the folks who owned tech companies insisted that they would go broke unless they could award partial payment in stock options. I sense forward movement in there somewhere.
America in the late 1990s got a rare glimpse of peace, prosperity, and hope—revisionist naysayers notwithstanding. To those who complain that we elevated hope over reason, I must ask: What’s wrong with a little hope? The world would be a better place if there were more of it around. When our hope collapsed, we learned that our excitement over the bubble may have led us to pay too little attention to events unfolding elsewhere. That reality came crashing down upon us to tragic effect. But our memories of the bubble, coupled with the lessons we have learned since its collapse, can give us valuable insights into the subtle relationship between the values of liberalism and the lessons of network growth. We now can appreciate why genuine network growth, constant innovation, and social advancement only can occur within a liberal framework.
Freedom, individual rights and responsibilities, equal opportunity, and personal choice are all network goods. The larger our free-world network, the more valuable the membership. Expansions of the network expand opportunities, bring new potential innovators into the picture, fuel the network’s further growth, and make us all richer. The miraculous growth of the1990s came as Eastern Europeans and Latin Americans became freer, and as the International Monetary Fund (IMF), the World Bank, the WTO, NATO, and the European Union helped nurture their membership—an expansion of the liberal network abroad. It came as a generation of minority Americans entered leadership positions, the substantial return on our investment in a great society—an expansion of the liberal network at home. We fostered it with sound domestic economic policies that promoted innovation, entrepreneurship, and smallbusiness growth, rather than policies designed to help the successful businesses of previous eras lock in their profits—and their customers. Domestic and international forces converged to make us all richer through the magic of network economics. Though we may not have identified the networks we were building, we succeeded in harnessing the ultimate gospel of network effects.
The much-maligned New Economy attitude played an important role in that construction.In today’s information sector, technologists make information ever cheaper. Consumers and savvy producers benefit, and distributors become increasingly unhappy. The record companies try to shut down P2P development to maintain control over music distribution. Microsoft attempts to shut down middleware threats and open-source development to keep all information flowing through its own tollgates. Various other industries apply different laws or follow in the footsteps of these giants; auto dealers use state laws to keep transaction costs in place, and garagedoor manufacturers introduce needless encryption to establish a monopoly. All try to reintroduce transaction costs to bolster their own bottom lines.
Though we already can see the battle lines of the future forming, our more basic challenge is to see these battles for what they are—and to remember where our broader interests lie. On one side, we must never allow entrenched interests to restrain the innovation that powers technological development. On the other, we must recall that many transaction costs exist to support important policy goals. We must not wipe them away simply because we can. Wherever we eliminate laws that serve worthy goals but that have become unjustifiably costly, we must devise alternate ways to meet those goals. Technology may change our calculations, but it shouldn’t alter our underlying values.
The information sector stands poised to influence more and more of our industries, and larger and larger parts of our lives. In every new industry that it encounters, numerous people—some weak, some strong—will stand to lose as most of us gain. The forces of growth benefiting all will inevitably come into conflict with the forces of lock-in favoring a few. We as a society will have to choose between two strategies for coping with the conflict.
One strategic approach is to fight each battle as it arises, confident that we’ll win in some industries, lose in others.
Where society as a whole wins, network growth will take over, and the industry will blossom as innovation enriches consumers and savvy producers. The losers may suffer horribly, but at least their demise will be swift. Where society as a whole loses, the industry will languish, as the victorious incumbents will continue to force all innovation through the narrow channels that they control. These locked-in “winners” will work their way into a slow, painful death spiral from which there can be no escape, though inevitably they’ll try to inflict greater pain on the rest of us with each downward twist.A better strategic alternative would be to plan our transition wisely by investing in the infrastructure needed to grow our networks. We can work with the people trying to adjust to new lives in the information sector. We can compensate companies whose rights technology tramples, and invest enough to retrain and to relocate workers whose jobs become obsolete. We can deliberate and debate the most effective ways to ensure that our economic, technology, and industrial policies evolve coherently to promote both opportunity and incentive—the key ingredients to robust long-term growth.
This second route promises to return us to an era of hope and growth, an era when the information sector will once again make us all richer, happier, and better—if only we choose to let it. The choice is ours. The future of more than just the information sector hangs in the balance.