Venture Capital and Technology… is the Tech Boom Over?
I have been blabbering on… to anyone who will listen to me… about my fears that the ‘tech boom’ we are living through is likely to end. And by ‘end’ I mean that it will take its place among other (sometimes struggling) industries and reach a level of normalcy. What this means is that the pace of innovation and heated competition–all fuelled by venture capital and the easy credit of the 1990s and 2000s–will be scaled back.
I teach media studies in a New Media department at a well-funded Canadian university. This means I am surrounded by well-meaning but caught-in-the-hype individuals who like to buy lots of iThings and assume (if they think about it at all) that it will all continue like this forever. They do not realize that the industry is extremely resource- and energy-intensive and that it has been heavily subsidized by governments (at all levels), venture capital, and monopoly money in the form of easy credit. Instead, they think that iPads are made in LaLaLaApple Land by happy little fairies (not slave labour) with materials that magically appear out of thin air (not mined by slave, migrant labour in some far off country controlled by some dictator friendly to Western corporations). Or, they assume that all these gadgets are magically powered by the sheer combined genius emanating from the craniums of Bill Gates, Michael Dell and, of course, Steve ‘God’ Jobs (he is the father of the ‘Jesus Phone’ after all) and not by an electrical grid that is increasingly under pressure from our air-conditioned, convenience-at-all-costs lifestyles. Or, they think that when they toss out their months-old smart phone (what makes it ‘smart’ again?) or GPS unit or PSP and then head on down to Sprawl-Mart to buy a newer and better one on their credit cards, that the old unit magically disappears, does not leach toxins into the environment, and certainly is not a waste of all of the labour, engineering, and the increasingly-hard-to-find precious metals and other resources. Today, technology for us Westerners is merely something to buy on a whim (and a credit card), use to a tenth of its capacity, get board with when the lustre (and fashionableness) wears off, and then discard. (One day soon, I am sure, we will be wishing we could rescue some of the mountains of discarded technology that are sitting in landfills.)
That is why I don’t think it is a particularly bad thing that this all will come to an end. With the financial industry (not just the housing market, the entire financial industry) having imploded, the mirage of free money appearing out of thin air starting to disappear, and–most of all–the shrinking of the middle class in Western nations, there is going to be little to continue to fuel the tech boom that laid the foundations for the technology that we are enjoying right now.
“Sure,” you might ask. “But what of the return to profitability? The impressive sales of the gadget and software? The fact mainstream media pundits can only talk about Facebook and Twitter? And that Steve Jobs is a friggin’ god? What do you have to say about all that?”
My reply would be that these things take time to develop. Most people have been convinced (more likely they convinced themselves) that this little ‘recession’ was over, and began spending again, apparently confident that everything would return to ‘normal’ (instead of realizing that we are returning to normal after many years of excess and fantasy). Politicians around the world handed over trillions (trillions!) in monopoly money to prevent the financial sector from melting away (along with their campaign contributions no doubt). And, perhaps most important, many people just cannot be bothered to pay much attention to all this until they are impacted directly.
But, today, I came across an interesting analysis of investment in the broad sector of technology development and it is extremely eye-opening:
“Technology Bubble Ten Years Back: The Money’s Not Back,” iTulip, Aug. 3, 2010.
Looking at some of the information presented in the article is very interesting and eye-opening. The level of investment ten years ago, and which disappeared after the tech- and other bubbles burst, was mind-boggling. One graph in particular shows just how different things were back then:
If you consider the investment made in software, telecom, and networking companies in 2000 as compared to now, the difference is huge. It is no wonder that we are swimming in a sea of tech gadgets today. And remember that it takes years for technology in established industries to make it into the marketplace. (It takes decades for technology in unestablished industries to make it into the marketplace which is why our need to develop alternative energy sources–and new gadgets, including vehicles, that will run off that alternate energy–is so desparate.)
As I said previously, I don’t think this is a bad thing. If we return to normal sure, we might not buy new gadgets like we did in the last decade, but we will learn to live with that. Some sectors of the economy and some in these indstries might be affected, but these are companies that built business models that are entirely reliant upon a creadit-fuelled, highly subsidized system where we act like complete, mindless consumers… and these companies will not be as profitable (and some might not survive) in this new market that looks like it might be based more on reality and not reliant on phantom money and subsidized by future debt and tax-payer money.
Canada: Fiscally Conservative Model or Debt-ridden Western Consumerist Pig?
Now that the G8 and G20 meetings are over (well, all that is left is for tax-payers to actually pay for the extremely costly events), it was interesting to see this article from the Economist:
I was especially interested to see the graph showing the Debt-to-GDP ratios for many of the world’s “top” economies. Of course, Canada is comparable to many other nations, including those being portrayed as part of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) or as being quite precarious (U.S., U.K.). But over the last year there have been many (mostly politicians) gloating that Canada is a fiscally conservative and financially responsible nation. Sure, we didn’t need to bail out our financial institutions, but this has not stopped us from doling out bailout money (oh, right, this money isn’t a bailout, it is a “share purchase” or “loan guarantee”… “same diff!” as my childhood friends used to say) or from spending billions in stimulus money and running large deficits.
But when you look at Canada’s numbers, it is more tru to say we are the “least of the worst” or something along those lines. Of course, there are many differences that need to be taken into account. Japan has relatively huge debt levels but a lot of that is held domestically. The U.S. debt is increasingly held abroad but has modest social programs and could (or may have to) cut its massive defense spending which would easily halve its current deficit. With Canada, sure, we are not as debt-ridden as the U.S. or Japan or Greece, but we have higher levels of debt than many other nations and as an exporting nation, we rely on high consumption rates of other countries, and many of those countries have been living beyond their means too are now looking down the barrel of cut-backs and austerity programs. What is more, our levels of consumption rival that of the U.S. and are unsustainable in the long run. This is most evident in our very high levels of household debt.
So, when it comes to being an economic model or a consumerist PIIG, Canada is likely closer to the latter than the former.
By the way, you can see an approximation of Canada’s national debt at http://www.debtclock.ca/ and the U.S.A.’s national debt (and more) at http://www.usdebtclock.org/. (It is my belief that these debt clocks should be front and centre on the main websites of the respective federal governments involved.)
My last question is this: how does a government spend a billion dollars on security for two conferences that take place over a couple of days anyway? It just boggles the mind how that much money can be spent in such a short period of time. Here Canada seems to be taking a page from the U.S. playbook (which is something that is very common with this government): if you spend oodles and oodles of money on the military, police, or security, it is easier to get away with such waste because it is very difficult to argue against money being used for those purposes. Plus, (and this is a ‘big’ plus in the minds of those who lean to the right because it indulges their more aggressive/masculine traits) you can often just label your critics as being soft (on terrorism, on anarchists, on communists, etc.) and sometimes, as we saw a lot of in Toronto over this past weekend, just throw them in jail. At any rate, look for many of the higher-ups in this current federal government getting cushy jobs on boards or as upper management at security- or military-related corporations in the future.
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Mainstream Media… AKA, the Elite Propaganda Machine
Today, my lunchtime reading included some articles about technical flaws with the new iPhone (and the apologist media like Engadget who dismiss them out of excessive fanboyism… and healthy product placement deals or outright payola) as well as some finaincial news.
I came across an article which confirms (as if it needed any more confirmation) that when it comes to mainstream media (free media, commercial media, or whatever you want to call it), their function is not to provide individuals with information but, instead, simply exist so that powerful interests in society can push propaganda and disinformation on the public. Here is the article and the title pretty well sums it up:
Mike Shedlock, “Inane Thoughts of the Day: CNNMoney Article says ‘Housing Shortage is Coming’; Coldwell Banker CEO says Now is the ‘Absolute Best Time’ to Buy a Home,” June 25, 2010. http://globaleconomicanalysis.blogspot.com/2010/06/inane-thoughts-of-day-cnnmoney-article.html.
The author, Mike Shedlock (or ‘Mish’) does a very good job of picking apart such outright propaganda but I wonder just how many poor saps are sitting in front of CNN and hear this and think they are somehow getting the ‘inside dope.’ (For me, one of the truly confounding effects of mass media is that some people evidently think that the mass mediated messages they hear on, say, radio or television are in some way insider information.)
This process of mass communication is nothing new but surely does explain why we find ourselves in the global mess that we do financially. For the past decade, the mainstream media have been letting loose a constant stream of financial koolaid, filling people’s minds with huge expectations and the belief that money somehow grows on trees (or on the magical equity in houses*). And the questionable reliablility of the mainstream media is something that we should pay moer attention to. If you look at your local news, it is probably filled with people who went to journalism school, are decent human beings, but are probably overworked and oiverly worried about the everyday worries that come with employment (career, office politics, etc.). If they say something like “And this could just be another sign that the global recession is a thing of the past…,” what should we make of it? More often than not, this is not a statement that comes from any empirical analysis or a wealth of knwoeldge or experience. Instead, it is likely one part cliche (repeating what they hear around them, sometimes coming from the ‘experts’ they interview) and another part fear (they don’t want to rock the boat-full of advertisers and elites who depend upon the status quo). Now, if you look at national news, things might be a little different but probably only in that the amount of influence that powerful interests and elites play is that much more prominent. Most newscasters, especially on the mainstream news, are there because they are good looking and because they are willing to play within the rules of the system in order to achieve that position. (Note that this does not mean they are lacking skills as journalists or newscasters.) This explains why those people (and there were many) who warned of bubbles and fraud in the housing/mortgage/finance markets were mocked and belittled by the many journalists/pundits/experts who are attached to mainstream news.
Like so many things in life, if it sounds to good to be true, it probably isn’t. With the media, if it is free, there is a good chance that it is simply to good to be true.
*This reminds me of a commercial from a few years back which depicts two small children, one of whom is on his hands and knees, with a flashlight or magnifying glass in his hands, inspecting the floor. The other kid asks him what he is doing. To which the first child replies: “Wooking for ekwidee… Dad says da howse is full of ekwidee and dat makes us vewee wich.” I have to find that commerical as it pretty well sums up the naivety of the last decade (… or half century for that matter).
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The Recession is “sooo… 2009″
This morning, on CBC Radio out of Calgary, I heard the CBC’s business reporter mention (twice) that the recent GDP numbers for Canada indicate that the recession “is sooo… 2009.” I am used to reporters, especially those who have time to fill eveyday, latching onto any available economic indicator and asking, “Is the recession over yet?” I mean, if it is your full-time job to report “the news,” then it must be difficult to have to report the news in poor economic times. But I was struck by this reporter’s seeming confidence in using Vallery-Girl lingo to dismis negtivity as somehow being passe.
At any rate, I surely didn’t buy into his exhuberance. In fact, I tend to think that we have yet to see the worst of it in the U.S. and that Canada is nowhere near being out of the woods. So, I stumbled across this report from Alexandre Pestov at the Schulich School of Business (York University) which looks at some of the fundamentals (which, of course, your average “Is the recession over yet?” reporter does not do) and comes to a very different conclusion: that a housing bubble does indeed exist in Canada and that it has yet to burst. You can access the report here:
I find the report to be pretty compelling and not really that surprising. I live in a small city in Alberta and the house that I purchased in 2003 was later valued at three times the price I paid for it only three years later. Three times! Now, that was an informal estimate (coming from two different friends who are realtors) but it didn’t seem out of line with the prices people were paying for similar properties. And while the Alberta economy was hot, I don’t think your average person was (and still is) pulling in three times their normal wage.
The other aspect of this is that I really feel many people do not fully appreciate the extent of the financial problems (the fundamentals) of Western and probably the world’s economies. If we are living in the Great Recession, or the “Second Great Contraction” as Reinhart and Rogoff call it, we need to remember that the Great Depression took many, many years to play out (and only really ended a decade later with the outbreak of World War II).
By the way, yesterday I cashed out all my (meagre) investments. I figured that before these financial advisors can completely destroy (steal) my investments, I would rather take them now and pay down debt. In the future, I will plan for my own financial future.
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