Commentary on how to view the Tech Slowdown - To Gauge the Internet, Listen to the Steam Engine

By WILLIAM J. HOLSTEIN http://www.nytimes.com/2001/08/26/business/26SVAL.html?ex=999964640&ei=1&en=5ca90d1d55089687

John Steele Gordon did not pass judgment on the Internet in his book, "The Business of America." In a recent interview, however, he did have some things to say about dot-com mania and its historical precedents.

Q. How does the Internet compare with earlier waves of technology?

A. Some technologies are more fundamental than others. A better can opener doesn't change the world. But when a technology does something revolutionary, it changes the whole economic universe. A perfect case is the steam engine. Somebody born in 1720 would be utterly mystified by the world of 1820, which by then included railroads. The Internet is one of those very fundamental technologies; the microchip is another.

Q. Do you think that we understand the full dimensions of what the Internet will do to us?

A. Heavens, no. It will be a hundred years before it fully plays out, just like the steam engine. We are now at the point with the Internet that they were with the railroad in 1850. It's just beginning.

Q. Was the rush to invest in dot-coms typical of earlier investment manias?

A. Very typical. Whenever a new technology is brought before the public in a very impressive way, there is always a rush to invest in it, to get on the bandwagon. If you get on the right bandwagon, you get enormously rich. Of course, guessing the right horse is very difficult, especially when there are 10,000 horses in the race. After Lindbergh flew to Paris in 1927, for example, there was a bubble in aviation stocks. People rushed in without even knowing what they were buying. It turned out that one, Seaboard Airlines, was a poetically named railroad. It wasn't an airline at all.

Q. What are we learning from today's technology bust?

A. Old Andrew Carnegie's formula still applies. Whether you're making steel or software, you invest to be the low-cost producer. Keep the money. Don't pay it out in dividends. So that when times are bad, you can swoop in and scoop up the pieces. Bill Gates, for example, is sitting on billions of dollars and marketable securities. We haven't seen the last of him.

Q. You don't seem to think governments can be effective in breaking a monopoly.

A. Antitrust enforcement is a hippopotamus. It lumbers in after the game is over.

Q. So your view is that monopolies eventually self-destruct?

A. Right. Nobody works any harder than they have to. Lions don't make their living chasing fast wildebeests. They do it by chasing slow ones. It's the same in the marketplace. If you have the right widget and everyone comes to you, you get lazy.

Q. Do you subscribe to the view that we have a "new economy" that behaves differently than it did a few years ago?

A. Yes, we have a very different economy than we did 25 years ago. We haven't abrogated the laws of economics or the business cycle, but it is different. It's much more globalized than it was. And we learn about information so much faster.

Q. Will economic momentum resume?

A. This period reminds me of the English economy in the early part of the 19th century when their economy was exploding. The term "millionaire" was coined in 1827 by Benjamin Disraeli. Everybody was making so much money. The whole society was shifting. Power was shifting from the aristocracy, which owned the land, to the middle class, which owned the factories.

Q. So are you optimistic?

A. Over the long term, I'm very much a bull. Over the short term, it's a bumpy flight.