The “Next Economy” - Market Collapses Drive Long-Term Growth

The stock market has been steadily advancing. People are starting to feel somewhat comfortable with their portfolios once again. This is happening in spite of the gnawing reality that far too many tech related jobs in the US are disappearing, and most will never return. Some US pundits are saying in four to five years the US economy could be in real big trouble, with huge raising deficits and the ever-increasing trade imbalances with countries such as China. This problem is spilling over to the technology industry as well.

Thomas Fischermann who writes for Die Zeit, a weekly German publication based in Hamburg, sees a very positive long-term view. He recently visited Silicon Valley in order to talk with the CEO’s of many of the top companies. He desired to gain a better understanding of how they see their industry developing for the long haul. Fischermann views the recent developments in Silicon Valley as merely a phase that industries naturally go through as they mature. Once the dust settles, he talks about the “Next Economy” in glowing terms for Silicon Valley, and other tech related areas of the US.

Fischermann’s long-term historical perspective spans two centuries of observation that illustrates how collapses in various marketplaces have resulted in dramatic long-term growth recoveries. In Great Britain in the mid 19th century, the railroad revolution was in full swing and went through very dramatic cycles. Hundreds of enterprises were started to build the railroad tracks, locomotives, and train stations and they were all financed by a wave of speculative capital. As the railroad market heated up, stocks in these companies were being sold on the streets of London, and the feeding frenzy followed. No one wanted to be left behind!

By 1845 the overcapacity began to develop and share values in these companies dropped like a rock in a pond, and investors lost their shirts, as hundreds of railroad enterprises collapsed.

What followed was not what most people had then expected. After the collapse, the surviving railroads began to flourish beyond anyone's expectations, and over next few years the railroad network in Great Britain expanded tenfold. Within just a few years, Great Britain entered a golden Victorian era of prosperity, and was not adversely impacted by the railroad transportation revolution that had temporarily failed! Going back even farther, the same thing happened again in Great Britain at the end of the 18th century with the building of the canal system. There were many speculators who wanted a piece of the action and many construction companies were funded, and this created a giant wave of interest, which ended in the crash of 1793. At the beginning of the 1800’s, the surviving construction companies had doubled the size of the nation's canal network, that lead to a huge industrial revolution unlike anything the world had ever experienced before.

The automobile revolution is but another dramatic example that occurred in the US at the beginning of the 20th century. In 1909 there were some 275 firms producing automobiles. After World War II, although the number of automobile companies had been reduced to less than ten, the industry prospered and has played a huge part in driving the US economy for the last fifty years. It has completely revolutionized global manufacturing!

History repeats itself in many ways. It’s important to remember that speculation driven technology revolutions often appear to “fail fast” in the short term. Yet in reality, these “Next Economy revolutions stimulate innovations, create long term shareholder value, drive economic growth and prosperity. History can be a great teacher if we step back and look at the big picture and study a couple of centuries and not merely a couple of decades!

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William Dollar is a Senior Contributing Editor for the Wisconsin Technology Network, and has his own consulting company at www.billdollar.com. You can also contact him at bill@wistechnology.com.

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The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of the The Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.