What I Did in Phoenix

NATIONAL JOURNAL TECH DAILY -- October 16, 2002: Business: Google CEO, Economist Debate Maturing of Industry

by Drew Clark

PHOENIX -- The CEO of Google said Monday that the technology sector is becoming more mature and is slowing down, but a noted economist countered that because productivity growth remains robust, information technology has a bright future ahead.

In a debate at the Agenda 2003 conference here about whether "the best is yet to come," Google CEO Eric Schmidt said: "Nothing can outperform the economy in the long run because it becomes the economy. The growth rates that we are addicted to are unusual by historical standards."

But J. Bradford DeLong, a University of California at Berkeley economist who served as deputy assistant secretary for economic policy in the Clinton administration, said continuing productivity growth in the midst of the recent recession just demonstrates that "maturity has to be put off for another business cycle."

Schmidt took the pessimistic side of the debate but said he spoke for himself and not for Google, the company behind the Google.com search engine that most agree has strong prospects. "We are all technology optimists," he said. The question "is not whether infotech is indispensable ... but whether it is a great business."

Just as the invention of the railroad prompted wild speculative bubbles in railroad stocks in the late 19th century, he said, the Internet prompted unrealistic expectations about revenue growth.

"The assertion is not that technology is not working; it is that it is maturing" by becoming a more tradition-bound and slower-growing business, Schmidt said, adding that tech executives should acclimate themselves to that environment because "being a utility is better than being beat by a competitor."

He also said the raging debate about copyright and patent protection in the digital age would have a key impact on "what kind of long-term profits our industry can build."

If there is no intellectual property protection whatsoever," he said, "entertainment and pharmaceutical industries can't be built. And if there is too much, it shuts off a whole bunch of the creative" process at work in the technology sector.

DeLong reacted to Schmidt's railroad analogy with some historical counter examples. Railroad businesses suffered when their stock bubble burst, he said, but the overbuilding of tracks in turn laid the way for new businesses.

Widespread railroad transportation fostered the development of department stores like Sears, Roebuck and Montgomery Ward, he said, and Chicago meatpackers also were able to undercut higher-priced local butchers on the East Coast because of railroads.

DeLong said the continued vibrancy of Moore's Law -- the principle that computer processing power doubles every 18 months -- strengthens his optimism about the technology business. "I urge you not to confuse a bear market and a crash with a fundamental technological transition," he said.

But he agreed that intellectual property issues pose a wild card. If Schmidt's "gloomy prediction of maturity comes true, it will be in the way the government sets the [intellectual property] rules of the game," DeLong said. He added that stiff copyright laws would "strangle what could be good opportunity" for new technologies.

Posted by DeLong at October 21, 2002 07:30 PM | Trackback