Pacific Connection(英語)

The Bursting of the American Tech Stock Bubble

Do you think you've hit bottom?
Do you think you've hit bottom? Oh no.
There's a bottom below.
---Malvina Reynolds

A television advertisement for the San Jose Mercury News shows a young man sitting on a bus. A year ago, an announcer says, "you were a 28-year-old millionaire. Now, you're just 28."

That hard truth has become a fact of life, not just for former 28-year-old millionaires, but for nearly everyone who works or invests in the U.S. technology market. For roughly an eight-year period corresponding with the Clinton administration's tenure, the technology sector could do no wrong. Stocks went only up. Stock options, the longtime incentives given by companies to its employees, were considered the real reward for long hours in the cubicle---your salary was just the base pay. Even so, Silicon Valley's job recruiters kept busy finding qualified employees in a stressed out labor pool.

Then, around March 2000, things began to change. The steadily rising markets fell, fell some more, and then some. Just when everyone thought the market had hit bottom, there was-in the words of the late Berkeley songwriter, Malvina Reynolds---"a bottom below."

The American technology bubble has finally burst. For years, a handful of skeptics, including the legendary investor Warren Buffet, argued that technology stocks have been widely overvalued---that the market was willing to pay way more for a share of a company than that company was worth. And within the technology sector, the dot-coms were especially suspect because few them were actually making any money. In reply, the sector's defenders argued that the so-called "new economy" played by different rules: like valuing long-term market share over profitability.

These days, the new economy looks suspiciously like the old one. Profits are now back in fashion, venture capitalists are retreating, and 28-year-old millionaires are, well, 28 years old. Layoffs have become routine, with thousands of employees being let go, with once-flourishing job recruiters worried about their own jobs. Also routine: weak earnings reports, often below those predicted by analysts. Those numbers, especially, have forced stock prices down, with some stocks actually becoming under-valued. As the bad news has trickled in, investors have become especially gloomy. If the market is driven by fear and greed, fear is in ascendancy.

American bubble burst follows Japan's

In looking at on our bubble burst, Americans are wondering how it compares with yours. Back in the 1980s, the Japanese economy seemed so robust that some alarmists were convinced Japan would swallow the United States in one big hostile takeover. They pointed to acquisitions like Rockefeller Center and various movie studios, along with assorted golf courses, as evidence that the U.S. was losing control of its own assets. As Japanese automobiles grew in popularity here, many Americans fretted that core U.S. industries would be put out of business or get bought out.

But as the Japanese economy settled down, the U.S. economy ramped up, and Americans, especially the technology sector, stopped worrying, watched their stock portfolios blossom, and planned early retirements and BMW purchases. Now, we look at Japan and wonder, will our downturn be as prolonged as Japan's? Will the economic trajectory be in the shape of a "V"---that will hit bottom and quickly bounce back? Will it be in the shape of a "U"---scraping the bottom for two or three quarters before ending, say, at the end of the year. Or will it be a dreaded "L" economy, sinking, with no sense of when it will ever come back.

Here in California, the economic picture is further confused by an energy crisis. A few years ago, the state passed laws to deregulate electricity, much the way the federal government deregulated telephone service. But a combination of greed, poorly written legislation, and too few power generation plants has resulted in electricity outages more reminiscent of New Delhi than San Francisco. These "rolling blackouts" are instituted when the demand for electricity outstrips supply. At that point, a state agency orders that a specified number of megawatts be taken off the power grid and the electricity companies comply by shutting off electricity one area at a time on a rotation basis---for about 90 minutes at a time. So far, the threat of blackouts has gotten way more attention than their actual occurrence. But in the summer, but when Californians run their power-hungry air conditioners, it could get worse.

For individuals, rolling blackout are an inconvenience. But for companies, they can mean millions of dollars in losses. And so Intel, for example, has told the state that it will not consider building anymore fabrication plants until the state finds a long term fix. In April, U.S. DataPort has offered to build a mammoth power plant for a proposed server farm, so as not to further tax public supplies.

Silicon Valley life goes on

None of this is to say that the streets of the Silicon Valley are in chaos. Most companies are still in business, employee parking lots are pretty full, skilled programmers are still in demand, and restaurants still greet customers. Fewer people may buy BMWs, but BMW dealers are still in business. While this downturn may be especially dramatic, it is hardly the first, and there is a sense that, sooner or later, it will pass.

There are even those who see the bright side. For while it seems that the kids had all the answers. Now, as a colleague of mine has put it, "the adults are back in charge." Listening to the voice of experience is not a bad thing for any industry.

Some argue that the "irrational exuberance," as Federal Reserve Chairman Alan Greenspan famously put it, helped to fuel the Internet infrastructure, and that can only help us over the long term. "The introduction of the Internet and wiring of the economy with new forms of communication happened much more quickly than it would have in the absence of the stock-market boom," says David Hale, global chief economist for Zurich Group, in a Wall Street Journal interview. "There's no doubt we threw too much money at the sectors that were popular. But the fact is there was a far-reaching change in technology that will affect how we do business for many years to come."

And that's the point. The e-commerce model was overly optimistic, but it has still fundamentally changed the way many goods are purchased. Our household provides an extreme but useful example. Over the past few years, we've purchased online a reading lamp from a small lamp store in Kansas, a USB-to-9-pin converter cable from a cable supplier in Florida, a hammock from a specialty store in Santa Barbara, California, and a hummingbird feeder from a bird watcher supplier store in Grand Rapids, Michigan. I would have never heard of any of these stores were it not for the Internet. We've purchased numerous books and a DVD player from Amazon, airline tickets from Yahoo! Travel's Travelocity service, and tickets to the Sydney Opera House directly from its own site. One year, we even booked a vacation house on the Hawaiian island of Molokai---online. Although glitches occur, we've never had one, and have saved hours of shopping time. The Internet remains the ultimate shopping mall, and it will not suddenly disappear.

But it has and will trim back. As an earlier Pacific Connections---"The Dot-Com Deathwatch" (Oct 2000) noted---some dot-com companies are folding. Indeed, "," one of the sites tracking failures, itself shut down after four months, and a competitor site was put up for bid on eBay. But that's as it should be. From an economists perspective, failed enterprises raise the opportunities for more promising businesses, reminding investors that the stock market is not a lottery---it's an investment. And when laid-off employees find other jobs, they channel their talents into more worthwhile enterprises. Both are examples of the economy working efficiently.

eanwhile, there is pain. And so, Americans are re-learning some important messages: the business cycle has not been abolished, the difference between the new and old economies is an illusion, and if you want to be a millionaire, you'll most likely have to earn it.

The Case for Acting Quickly: a Conversation with Thomas P. Rohlen

There's no better critic than a good friend. Such is the case with Thomas P. Rohlen, professor emeritus of education at Stanford University and a senior fellow at Stanford's Institute for International Studies. Rohlen first came to Japan in 1960 as a foreign service officer with the U.S. State Department. He's a founding director of the Stanford Center in Japan---a satellite campus shared with ten other universities---and of the Kyoto Center for Japanese Studies. He has authored several books on Japanese education and training, and has studied Japanese R&D efforts.

I called Rohlen because I was interested in how the U.S. bubble burst compared with Japan's, and what the two countries could learn from each other. A long-time admirer of Japanese culture, Rohlen pulls no punches in criticizing the country's response to the post-bubble economy. In a nutshell, says Rohlen, Japan must stop making incremental adjustments and react faster to a changing world.

How different are the Japanese and American corporate cultures?
It's difficult to generalize about two countries, particularly when they have operations in each other's backyards. In the 1980s, we were trying to outdo the Japanese at being Japanese---with mixed results. Still, American classical manufacturing benefited from what they learned from the Japanese in the 80s. So American companies operate more on the Japanese model. For their part, the very large Japanese companies---the Toshibas, Mitsubishi Electrics, Matsushitas---now talk about shifting away from a Japanese approach. But a look at the way the Japanese are handling layoffs shows that while companies are changing incrementally, reducing their labor force, for example, they are not transforming themselves into something totally different.
Should they be? Is the Japanese economy today a result of Japanese tradition?
I don't think that's the primary problem. I do think that if we extend the notion of "Japanese tradition" to cover the cozy arrangements of government-protected industries, yes everything that went wrong was part of tradition. But everything that was going right in the 50s through the 80s is also part of that tradition. Those Japanese industries that compete globally have continued to do fairly well, except that they have not adapted rapidly enough to changing technologies---including the Internet and the world telecommunications system. The Japanese, in a sense, invited some of their problems by not integrating very well with the rest of the world. They need lots of integration with world markets and world product developers.
No company is big enough to work in isolation.
Right, and I think Americans are thinking the same way. There are so many different elements to an assembled product---and these elements have to come from various parts of the world. This has been a struggle for some Japanese companies because their philosophy, language, and culture don't readily integrate. The French have a similar problem, as do some American companies. Vodaphone and Verizon for example have similar issues over whether to form alliances or go it alone. The need to integrate is not unique to the Japanese experience, but the Japanese are not particularly well equipped to step onto the global stage and succeed as readily as, say, the Americans, British, Swedes or Germans have.
The first reason is language. Secondly, Japan is a country that even in Asia feels different. Thirdly, the Japanese have perfected their own system to such a high degree that it's much harder to change. Americans are much more loosely knitted together organizationally. People, ideas and technologies come and go all the time.During World War II, the U.S. was stupefied by the enormous success of the Japanese war machine, coming from a country that was probably a fifth or less the size of ours. It rolled over a succession of islands and countries in Southeast Asia following a beautifully wrought plan, organized way above the capacities of the American military. Suddenly, half-way through the war, the Japanese were defeated, to everyone's surprise, at Midway. That meant that all of their plans and assumptions had to be reevaluated. And the military fell into a chaotic state because they couldn't coordinate a new plan. A lot of Japanese units just fought to the death. It was a tragic story---a sign that the Japanese couldn't adjust in mid-course and formulate a whole new approach. Americans are always changing mid-course, always scrambling around. It was very common during World War II for field officers to "pretend" they didn't hear what the captain was telling them on the telephone---if orders didn't make sense to them.
What about today? How does flexibility, or the lack of it, play out.
The Japanese have hit a stone wall because their bubble economy of the 80s burst---primarily in real estate, not manufacturing. And they keep bumping into the wall thinking it's not a new world, that they just have to make incremental adjustments and everything will be fine. For example, the bursting of the Japanese bubble has not led to massive layoffs. Whereas in the U.S. if companies have burn rates greater than their revenue, bingo, you're gone. These people get other jobs, money gets reallocated-the system reacts. It's important not to be too incremental and cautious about adjusting to a change in the market.
What about the plus side: What do the Japanese have to teach Americans?
There's an enormous value in the details that the Japanese do very well. They have a greater attention to detail both in their school system and in their companies: And that has lead to both precision and efficiency, especially in manufacturing. I myself own a Japanese car. The reason: superior quality control, which has to do with design, contracting, and quality engineering. The Japanese have also demonstrated that producers, not just consumers, can benefit from attention from government. I'm not talking about protection here, but keeping the score even. California is going through an energy crisis. But if we undermine the efficiencies of our industries by raising prices faster than we do for the average consumer, we are shooting ourselves in the foot. We'll see jobs go, companies leave, and they will not invest here. It's not a smart thing to hurt your own industries. You always need a balance. And here, the Japanese have had a strong 40-to-50 year track record keeping their eye on the economics.
You've done some research with corporate R&D. How does the Japanese R&D infrastructure differ from ours?
This is an interesting illustration of an area where the U.S. and Japan have been quite different, at least until recently. Americans brought computers into schools, factories, and, especially, into R&D---at a very rapid rate. The Internet itself began as communication medium for American R&D, and R&D has benefited immensely. By contrast, the Japanese were very slow to bring computers into their R&D work. That was one of the stunning results we found in a study I conducted in the early 90s. Japanese R&D people, who were highly trained and producing sophisticated products, didn't use the Internet much. Japan was slow to embrace computers as communications tools. Today that's changed massively. At Stanford, for example, many Japanese visiting students take back their Apple in order to communicate with the rest of the world. The personal computer as a tool for scholars was discovered here by Japanese visiting at universities and labs.
For a Japanese scholar, you're quite a critic.
Well, I love aspects of Japan and I have great admiration for many things about the country and its culture. But the world has changed, and these changes have highlighted flaws that were not as relevant when we were a world dominated by standardized manufacturing, and mechanical and civil engineering. In the old world, trade was the thing. You manufactured products and sent them somewhere else. Today that system is no longer of great relevance. You can't say that borders occupy anything approaching their former significance. Of course, we, the U.S., are also prone to a kind of arrogance in the upside. I was looking at some commercial retail space, lavishly decorated, that been occupied by a startup---now deceased. My God, I thought: did they think that money grew on trees?