Politics & Policy

Tech, The Next Generation

The sector is leaner, meaner, and as visionary as ever.

A dream has survived the rough day after the boisterous night before. That dream is tech.

During Nasdaq’s recent investor program for the technology sector at Merrill Lynch’s London headquarters, the dream was walking, talking, and power-pointing all day long. In twelve presentations, a number of leading Nasdaq tech companies presented their outlooks for 2004 and beyond. At times, it was as if the process of creative destruction was coming to life before the onlookers’ very eyes. Solid state LED technology will make the light bulb a thing of the past. Voice over internet protocol (VoIP) will spell a revolution in telephony. Ever more powerful microchips and ever faster chip-to-chip interfaces will allow for new applications in anything from systems management to cinema-quality computer games.

What’s most remarkable about this dream, however, is not its fantasy element but its sense of realism. All companies at the Nasdaq forum used their presentations to emphasise “reduction of costs,” “repayment of debts,” and most of all, “profitability, profitability, profitability.” All that matters now is the bottom line. The market’s laws of gravity have clearly done their work and surviving tech companies are the better for it — boasting net profits, improved cash flows, and steady growth rates.

The main reason many tech companies are back in the black is that they completed the necessary process of restructuring quickly and efficiently. In doing so, they didn’t just do themselves and their customers a favor. By focusing on profitability, tech companies have also done a lot to improve national and international productivity rates.

Data from the U.S. Bureau of Labor Statistics shows that while the hourly productivity of manufacturing workers grew at a mere 2.2 percent rate in the tech world’s annus horribilis of 2001, it increased by 7.2 percent in 2002 and by a healthy 5.1 percent in 2003. In its recent fifth annual report on the digital economy, the Department of Commerce acknowledged that “the recovery in IT-producing industries and increased use of IT throughout the economy are helping to drive very rapid productivity and output growth.”

Perhaps the single most important aspect of this restructuring has been the outsourcing of cost-inefficient business operations to emerging-market countries. This phenomenon generated a lot of heat in the early part of the American presidential election campaign. John Kerry used his speeches to rail against “Benedict Arnold companies sending American jobs overseas.” In his television spots, he implicitly blamed the outsourcing policies of American companies for pushing jobs out of the U.S. “in record numbers.”

But the recent impressive job-growth figures in the U.S. show that this argument is flawed. Outsourcing has in fact helped to create new business opportunities, in the tech sector and elsewhere.

As Catherine Mann of the Institute for International Economics has pointed out, outsourcing leads to lower prices of (among other things) computer hardware, which leads to lower production costs for American businesses, which in turn leads to greater profit margins, which inevitably leads to increases in employment. The truth is that outsourcing is changing people’s lives — for the better.

And not just in the U.S.. In a rare moment of optimism, New York Times economic commentator Paul Krugman observed that, in the space of a just single generation, the opening of developing nations to western products and investments has led to “an enormous, unexpected improvement in the human condition.”

Former developing countries like China and India have come on in leaps and bounds. Over time, this will also create new market opportunities for tech companies.

Companies like UTStarcom, for instance. CFO Michael Sophie predicts that by 2006, China alone will have 100 million handsets and 60 million ADSL connections. With its strong presence in China, UTStarcom is in a prime position to profit from the continued growth of the Asian market.

But what about Europe? In early 2000, European heads of government pledged to make the European Union the “most competitive economic area in the world” by 2010. Right now, the EU would probably settle for becoming one of the most competitive areas.

The OECD pointed out in its 75th economic outlook that Europe is the only part of the world that is not profiting from the current global economic upturn. A recent survey by the World Economic Forum showed that within Europe, only the Scandinavian countries and the UK were able to match U.S. competitiveness. It’s no accident that those same countries have most enthusiastically embraced the tech revolution.

Calls by Blair, Chirac, and Schröder to reduce bureaucratic burdens on European businesses are surely welcome. But if Europe is serious about unlocking its own economic potential, it should do more to encourage the growth of the tech sector of its economy. It could start by learning from its own successes.

The European market in mobile telephony (the biggest in the world) is a case in point. European regulators have taken a laissez faire approach to this technology, allowing the market to flourish. There are encouraging early signs that European legislators are taking a similar light-touch approach to the newly emerging VoIP market. Recent efforts by the European Commission to streamline the cumbersome process of software patent filing inside the EU, and also to extend greater protection to intellectual property rights, should help create the conditions for a technology-driven recovery. By allowing technology companies to tap into the vast potential market created by the EU’s enlargement, the old continent’s policymakers may have opened the door to a more competitive future.

The message for European entrepreneurs looking for the next big business opportunity is loud and clear: “Go tech, young man, go tech!”

– Joshua Livestro is an independent political commentator and columnist. He writes for Dutch and international newspapers and magazines, his columns appearing in the Dutch political magazine Vrij Nederland and in the Benelux edition of Reader’s Digest.


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