Through the Clouds

 March 22, 2003

War is raging across our television screens with wall to wall embedded reporters. Unemployment is rising. Businesses aren’t spending. The NASDAQ, (in which many investors see the future of the American economy) is down 67% in the last three years.

Things do indeed look bleak. They will get better though.

It certainly will not happen tomorrow, and maybe not even this year, but soon enough things are going to begin to improve, and when they do, we will see growth to a degree few of us can imagine right now. Why? Three reasons: population, technology and the efficiency.

Population: Today there are approximately 285 million people in the United States. Compare that to 1950’s 151 million and 1900’s 76 million. If you assume that a constant percentage of the population, lets say 10%, (a random number picked for demonstration purposes) are inclined to be scientists or entrepreneurs or doctors, then 10% of 285 million people is 28 million vs. the 15 in 1950 or 7.6 million in 1900. There are simply more people to work in laboratories, study problems, create revolutionary products and think of new ideas.

Technology: Two years ago we celebrated the 20^th birthday of the PC. Computers have been around since the 1940s, but it was only with the introduction of the PC that their benefits were truly available to the masses. When IBM introduced its PC 5150 in 1981 it cost $3000 and included: the MS DOS 1.0 operating system; a 4.77 MHz chip; a monochrome monitor; 64K RAM and no writable hard disk. Today for $699 at Dell.com you get a Windows XP PC running at 2.53 GHz, with 256 MB of RAM with a 60 Gig hardrive and a 17" color monitor. The growth in computers has be nothing short of spectacular. In the supercomputer area, improvement has been even better. Today, ASCI White, an IBM supercomputer can do 12.3 trillion operations per second. Compare that to the 1946 ENIAC, which could do 5000. Fifty years after introducing their first computer, IBM’s fastest machine is almost 2.5 billion times faster than the original.

In their 1998 book, Bob Davis and David Wessel compared the impact of computers in the economy to that of electric motors a century before. "It took electricity thirty years to begin to transform the American workplace and home and another twenty years to complete the job. Computers are on a similar trajectory; they will start noticeably boosting productivity soon, and will lift economic growth over the next decade or two." Indeed they go on to show that productivity gains took off when small, electric motors were developed that empowered individual workers with individual tools like drill presses, lathes and sewing machines. The PC and the Internet are the spiritual descendants of those empowering small engines.

Efficiency: Because of advances in everything from economics to ergonomics to logistics and manufacturing, today’s economy is far more specialized and productive than ever. The result is that today it takes far fewer workers to accomplish the same work. Possibly the best example of this is in Farming. At the beginning of the 20^th century, 41% of American workers were involved in farming in the United States. By 1950 that number had dropped to 15% and today it stands at less than 2%. Not only does this 2% manage to feed an American population 4 times as large as a century before, but it also manages to export millions of tons food annually. This same dynamic has been replicated throughout our economy.

The Bottom Line

Two examples demonstrate how all of this ties together. The first is the human genome. When the government-backed Human Genome Project (HGP) started to sequence the Human Genome in 1990, they expected it would take 15 years to accomplish. Eight years later they had completed 3% of the total. In 1998 a privately funded company named Celera Genomics, and its CEO Craig Venter, brought a market focus and cutting edge technology to the project, and a race ensued. On June 26, 2000 President Clinton announced the completion of a "working draft" of the human genome. Imagine, alone HGP took eight years to decode 3% of the sequence but with Celera acting as a competitor, catalyst and partner, the two sequenced the final 97% in just 25 months!

The second revolves around Sean Fanning. You may not know Sean, but you certainly know his creation, Napster. Regardless of how the Napster story played out in court, the fact is that a 19-year-old college dropout created a computer program that shook the incestuous, siege-mentality driven world of music production and distribution to its knees in a matter of months. In one fell swoop a David not old enough to drink took on Goliaths like Time Warner, Viacom and Disney, who together employ a million people and spend billions of dollars trying to maintain the status quo, (remember the battles over VCRs and CDRs). In 18 months Napster went from conception to 60 million users. This is not a story about the Internet or piracy or technology, it is a story of a young man with an idea who had the foolhardiness to think that he could design a better music distribution mousetrap, and then proceeded to do so.

With 285 million people in America, the sheer numbers tell you that there are thousands of Sean Fannings and Craig Venters sitting behind their zippy new computers waiting for their chance to change the world. The road ahead is far brighter than the dark clouds might suggest. There is a shining light beckoning from beyond these dark and stormy clouds. That light is the vortex created by America’s unique combination of unabashed optimism, exuberant creativity and unrelenting spirit. Hold on, it promises to be a very exciting ride.