The relentless revolution: a history of capitalism (55 page)

Like the PC, the Web browser’s popularity was not predictable, though retrospectively its delivery of online instruction, encyclopedias, and downloaded movies and music make it hard to imagine the world without a telecommunications network and its Girl Friday, the browser. With capitalism’s insistent search for new ways to make a profit, the Internet became a vehicle for retail shopping. Free access to the Internet drew viewers, who in turn formed the basis for a booming advertising industry. The moving graphics enticed as the instant information satisfied. In 2005 start-up companies began putting lenders and borrowers together through the Internet to make loans without those middlemen called banks. Today Internet access is approaching a billion users just ahead of the six hundred million mobile phones.
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Alas, the flexibility that so delights consumers also opens up avenues of fraud. Both the music and publishing industries have encountered serious problems protecting their products from illegal sharing through the Internet.

Jeff Bezos started Amazon.com in his Bellevue, Washington, garage in 1994. A pioneer in Internet retailing, he popularized “.com” as part of a firm name. Soon the request from stores and services to their customers to go to “www [fill in the blank].com” became ubiquitous. Branching out from its initial stock of books, Amazon grew rapidly, had a rough patch, but then recovered by opening up its site to other retailers. Today the Web has largely replaced the yellow pages of the telephone book as the place to go for information for everything from pleated lamp shades to Spanish anchovies. With all these retailing novelties, the cost of serving customers has sharply declined, contributing to American prosperity in the closing decade of the twentieth century, when most other economies were slowing. Competition in these ventures has acted as a goad to better performance, but the Internet’s vast catch basin of customers has also intensified success, making for superbig winners and lots of failures.

Alongside these developments sneaked in something called e-mail. Begun with messages sent by those using the same computer system, e-mail became accessible to a larger audience through the Internet. E-mail’s popularly soared in the 1980s; today more than six hundred million people e-mail, making it the most widely used facility of the Internet. While e-mail has not eliminated telephones, fax machines, and postal services, it has cut into their spheres of influence. The U.S. Postal Service acquired a new nickname, snail mail.

By 1996 a new Internet problem had emerged: how to retrieve easily the mass of information floating freely on the Web. Again two men in their twenties—Stanford grad students Larry Page and Russian-born Sergey Brin—came up with an answer in a new “search engine” that they called Google. Another phenomenal success, Google has been turned into a verb, as in “I googled Google to learn about its history.” Winning a protracted competition with Yahoo, another popular search engine, Google saw its market value soar about two hundred billion dollars in 2005. By dint of constant improvising from ongoing research, it has developed an e-mail service with video chat capabilities. Google also bought YouTube, a video source where people can share news clips, entertainment, and amateur humor. Now the largest ad seller in the world, Google continues with seeming effortlessness to improve its proliferating features.
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One of Intel’s founders, Gordon Moore, announced—with remarkable accuracy—that the number of transistors that could be placed on an integrated circuit would double every two years, greatly expanding computer and phone capabilities. Cell phones became smart phones; functions of PCs squeezed into Palm Pilots and iPods. Though no one predicted it, but equally impressive, the price of computers decreased annually by 20 percent.
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Yet nothing quite compares with the price history of cell phones. In 1987 a Motorola cell phone was a luxury that cost $3,996; today cell phones are given away for two-year contracts with telecommunications companies.

Although Gates and Allen planted Microsoft near Seattle, William Shockley, who won a Nobel Prize for his work on the transistor, returned to his home in Palo Alto when he decided to begin his own firm, Shockley Semiconductor. Others followed him, collecting outside Palo Alto in what became known as Silicon Valley. Moving from Massachusetts to California proved propitious for start-ups because Massachusetts law favored established companies with strong “noncompete” clauses. Such laws limited the opportunities of former employees to set up businesses of their own with ideas learned on their previous jobs. Nearly invisible, these institutional arrangements can be crucial in nurturing innovation.

In the stylish world of high capitalism on Wall Street, the start-up millionaires in California were startling: youthful, informal, egalitarian in style, and decidedly brainy. Accepting the designation of “geeks,” these soft and hardware engineers were anything but cool like the denizens of lower Manhattan. Initial successes enabled dozens of men (and some women) with an ingenious scheme to find backing from venture capitalists. The dot-coms of Silicon Valley flourished until they got their comeuppance. The NASDAQ stock market exchange attracted thousands of new buyers. With investors, large and small, rushing to get in on the action in information technology, initial public offerings became oversold. The hot air from speculation burst the dot-com bubble in the late 1990s, but the avidity of Silicon Valley engineers for finding new applications did not abate. After a decade of shakeouts, Silicon Valley rebooted, as those in the computer world say. It attracted $10 billion worth of venture capital in 2007 compared with $7.2 billion for all of Europe.
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That same year American inventors filed for eighty thousand patents, a total larger than the rest of the world’s combined.

Information technology exploited the American openness to novelty. Consumers, by responding quickly to the chance to have personal computers, laid the foundation for IT’s phenomenal growth. When IBM raced to catch up with the new product, it brought the resources, learning base, and marketing know-how necessary to sustain the young industry. When IBM’s major suppliers Intel and Microsoft became billion-dollar companies, they poured much of their profit into advancing technology. At the same time, the PC craze undermined IBM’s dominance. Without patented components, it became easy for newcomers to enter the field. The simplicity of PCs freed owners from reliance on IBM’s legendary service. American success with computers, peripherals, the Internet, the Web, and e-mail boosted American capitalism, both materially and psychologically. But staying on top is never easy in a market of fierce competitors. After dominating the technological market, America in 2002 began importing more high-tech products than it exported. The trade gap in 2008 was more than fifty billion dollars.
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Worry about this might be mitigated by awareness that when Apple imports iPods from China, it adds the valuable component to the product the Chinese make.

Unlike European computer companies, Japan’s giant firms—Fujitsu, NEC, Toshiba, and Hitachi—were able to weather the American storm of success because of their size and experience in electronic equipment and telecommunications. Supported by the government, Fujitsu, NEC, and Hitachi became the world’s largest producers of semiconductors.
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The resurgence of demand for large computer systems in Europe, occasioned by networking, enabled Japan to compete with IBM in that market. When IBM opened itself up to cloning with its nonproprietary components, Japanese firms entered the PC market in a big way in the late 1980s. By 1996 only IBM, Dell, and Compaq had sold more PCs worldwide than Fujitsu, Toshiba, and NEC. The versatility of PCs had a cascading effect. New applications, peripherals, and improvements abounded. Sony entered the computer market with its CD-ROM (compact disc read-only memory) that transformed computers from data processing equipment to multimedia devices. Much of the sophistication and elegance of Japanese technology in consumer electronics and computers can be attributed to the circulation of ideas permitted by the close proximity of Japan’s giant firms concentrated in Toyko and Osaka.
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Still, old contenders never seem to surrender. The makers of American semiconductors and PCs carried their competitive spirit back to the Japanese market itself. IBM and Microsoft made a major dent in the home market because they have solved two problems of incompatibility, that of the West’s alphabet and the Japanese system of pictograms, or kanji, and the other of the diverse Japanese computers and peripherals that cannot be shared. Conjuring up that old generic magic, the new Japanese-language version of Windows, 31.J, became a great success. It can be run on any of Japan’s high-end computers as well as on all PCs.
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With this, the bouncing ball of technological innovation in computers bounced back to the United States.

Asia’s Four Little Tigers

The world market for everything connected to microprocessing gave a boost to four Asian countries, the Four Little Tigers of Singapore, Taiwan, South Korea, and Hong Kong. Their successful trajectory challenged the widespread belief that countries outside the circle of the economic giants would not be able to vault themselves into sustained growth. In the warm glow of sustained prosperity in the 1960s, when the economies of Western Europe rose like phoenixes from the ashes of war, analysts turned modernization into an end stage that all countries would reach given enough investment capital. It was an extremely optimistic prediction, the first to put prosperity into every country’s future.
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When countries in Latin America, Asia, and Africa failed to respond to mere infusions of Western capital and know-how, modernization theory slipped into deserved oblivion.

With the Cold War’s divvying up countries among capitalist, Communist, and nonaligned ones, a French demographer introduced the idea of First, Second, and Third Worlds to distinguish the First World of the West and the Second of the Soviet sphere of influence from the rest of the world, the unaligned. The first two categories never really caught on, but “Third World” served a real lexical need. A more sensitive public discourse exchanged the old term “backward” for “underdeveloped.” The Third World, according to thinking in the First, was not so much poor as underdeveloped. No longer colonial dependencies, countries outside the West could be induced to modernize on their own, a conviction suggesting that development was just a few steps away.

In the late 1940s and early 1950s, Western advisers suggested to Third World countries, particularly in Latin America, that they could best accumulate the capital necessary for development if they specialized in exporting their raw materials—beef, sugar, or soybeans—and imported manufactured goods from the West because the terms of trade were going to shift in their favor. This never happened because the demand for manufactured goods pushed up prices more than the demand for raw materials. So the core of industrialized nations prospered while the peripheral nations stagnated. Tackling the question of why countries didn’t or couldn’t modernize, Raul Prebisch, Immanuel Wallerstein, and Andrew Gunder Frank developed dependency theory, which argued that Third World backwardness emanated from decisions made in the First World. Underdevelopment was not a stage but a permanent condition, the deliberate result of policies adopted by the economic winners. Far from being inevitable, modernization was a chimera. By encouraging Third World countries to find their niche in the world economy, the advanced industrial powers were consigning them to a permanent periphery, a state of dependency from which they could never escape unless they pulled out of a game where the cards were stacked against them.
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Dependency theorists recommended that the countries in the periphery do an about-face. They should make their raw materials more expensive to outsiders and start to produce for themselves the manufactured goods they had been importing. This import substitution program would thwart the West’s exploitation and save precious exchange funds. They also hinted strongly that it was impossible for any undeveloped country to generate enough capital for a takeoff into economic development. Adding a conspiratorial note, some Latin American experts traced the region’s problems to exploitation by the United States operating through the CIA and multinational corporations.
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Further evidence of American malevolence accrued when Milton Friedman’s monetary policies boomeranged when applied in Argentina in 2000. The International Monetary Fund became implicated after encouraging the countries to borrow heavily. The idea that peripheral countries could enter the world market on advantageous terms looked almost dead, until nations in East Asia showed how it could be done.

Hong Kong, Singapore, Taiwan, and South Korea proved dependency theory wrong. Their economies managed their own takeoffs into self-sustained growth, doing in thirty years what it had taken Japan a hundred to do. Successful development in Taiwan and South Korea started with land reform, a step strongly backed by the United States, which exercised a powerful influence on the leaders of Korea and Taiwan through its aid programs. Just moving landownership from the hands of a leisured elite to those of the working farmers had many profound and lasting consequences. Crop yields went up, lowering food prices and giving everyone more purchasing power. Tax revenues from the new landowners went into the purchase of fertilizer, equipment, and farmer education programs in a mutually enhancing spiral upward.
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As in England in the seventeenth century, agricultural improvement required fewer workers, releasing men and women for other occupations, like manufacturing. The more egalitarian distribution of wealth created by land reform made rural radicalism less likely while it undercut opposition to modernizing reforms that entrenched landed elites usually mount. Less tangibly, the relative income equality in Singapore, Taiwan, South Korea, and Hong Kong consolidated the support from a prospering working class. One can only wonder what would have happened to the economies of Argentina and Mexico if they had undertaken similar land reforms.