Running Head: Technology and Economics

Technology and Economics 1

Running Head: Technology and Economics

Technology and Economics

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Technology and Economics

When thinking about the technology industry and the economy one cannot escape a argument about whether the industry, in the long run, was a benefit or an overall cause of great loss for United States economy. In many ways the technology industry led to one of the most productive economic periods in United States history. For a over a decade, and almost two, it seemed that wealth could easily be built in the United States (Klevmarken, Lupton & Stafford). Those in the technology industry, and others who benefited from the growth of technology during the 1980s and 1990s saw a vast increase in their personal wealth as well as in their personal incomes during those decades (Klevmarken, Lupton & Stafford). Unfortunately, however, that “magic” did not last (Buerkle). As the technology industry lead to the loss of jobs in other industries while it was developing, it seems to have eventually led to its own downfall through its ability to link people and businesses in vastly different geographic regions (Buerkle). While technology, therefore, led to a wonderful build up of the United States technology it has also caused much economic devastation.

During the 1980s and the 1990s the United States’ technology industry led the world in development and innovation. It seemed that while other countries continued to out-produce the United States in the automobile and steel industries, only the United States had the knowledge base necessary to come up with the next “big idea.” The United States was able to establish portable telephones; software programs, first Lotus 1-2-3 and WordPerfect and then Excel and Word, that eventually everyone in the world used; took the world’s population from desk top computers to palm held computers; and turned the world into one mobile Internet connected reality within about twenty years’ time (Innovation Associates, Inc.). When those twenty years’ started the United States was where all technology ideas were born, where all technology products and the components that built them were made, where all of its consumer purchasers lived and worked, and where the people who made them earned the highest wages possible (Innovation Associates, Inc.; AngelouEconomics Inc.). By the time the 1990s ended and as the Twenty-first Century began, however, the “dot.com” boom had ended and the technology industry throughout the nation faced massive layoffs (Buerkle). It seems that outsourcing, which was only made possible through the developments of the United States technology industry, had taken software development, PC building, and many other technology industry products out of the United States (Butler; Buerkle). Where in the 1980s and 1990s technology professionals commonly earned salaries in the six figure range, such dream salaries became few and far between as the Twenty-first century began.

The technology industry is a very unusual industry in many ways. It is well known that an industry normally begins small, gradually grows to its peak of employment and production, and then slowly begins to taper off in importance or others in other nations begin to take over the work and production. For example, from the day Henry Ford created the first Model-T in the early part of the 1900s, it took over seventy years for the United States to lose the automotive industry to the Japanese, Koreans, and Germans. Similar experiences took place in the shoe and clothing industries, the steel industry, and many others. Although many in these industries may have felt blindsided by the loss of these industries to foreign markets, there was ample review, discussion, and knowledge that the economics in other nations made those nations better able to compete in those industries for decades before the United States labor pool experienced the loss of those industries. The same may not truly be said of the technology industry. The technology industry began a very rapid, in fact explosive, development and growth period in the 1980s and maintained dominance for most of the 1990s (Butler). At some point in the 1990s, however, it seemed that a great deal of work for software development had been moved offshore to India and China (Buerkle). This then led to contraction in the industry which caused a great deal of loss of work as well as a decrease in price in the products the industry produced. It seemed, as the Twenty-first century started that the technology industry in the United States had peaked, leveled off, and begun to decline all within a period of two decades (Butler). It was a shock to many considering how the industry had gone from being nearly impossible to many to where it became a necessity to almost all.

Although the United States government and scientific communities had been working with technology for decades before the 1980s, the average citizen had not (Directron). As late as the late 1980s some college students still used typewriters. There were no consumer laptops, and the price of a personal computer meant it was too expensive for many to still afford. Even businesses had only just started to obtain personal computers for their employees. In fact, at that time, many businesses, even Fortune 500 firms, did not have a personal computer, or PC, as they were just then being called, for each employee. Also at that time, the uses of a PC were just becoming known. Word processing and spreadsheet programs were the most popularly used programs. Many employees, particularly those who had not gone to school during the 1980s, felt they had no need to learn how to use a PC and, moreover, had no interest in them. At the very least students who attended college during the 1980s knew there was technology industry and most had at least thought it necessary to take a course in BASIC, FORTRAN, or other basic computer languages (Directron).

During those years where technology was beginning the road that would eventually lead it to become a necessary part of American business and life, technology products remained luxury goods. They were very highly priced and often required the purchase of a “mainframe,” which cost several hundred thousand dollars if not millions to install. Technology was not a consumer good by any stretch of the imagination. In fact, even in the science and technology fields, where technology was most used, they remained a luxury good. As a luxury good computers were rather price elastic because whenever prices dropped, more and more people were able to acquire them. Still, though, computers were not commonly available to all and the majority of people had no idea what their purpose was.

At that time there was a select group of people, normally called “geeks,” who had special degrees in computer programming, or the more advanced computer engineering degree, which a few universities, known for their engineering programs, offered. At the time employees without such degrees mainly felt that they would not need to use computers extensively and companies hired those with technology degrees to run most of the computer rooms and software used by the company. There was no such thing as a “chief technology officer,” as corporate technology was not yet a vital part of everything a business did. As technology, particularly software, became more important in the operation of a business, however, the need for technology departments, programmers, software developers, project managers, and chief technology officers developed. Although college technology departments were full of students who wanted to enter the filed by the late 1980s and early 1990s, there were still relatively few of them out in the labor pool. Those who were in the labor pool could at that time almost dictate their salaries. They were being offered starting salaries that dwarfed the starting salaries of almost all other college graduates and there seemed to be no end in sight to their potential earnings. It was a perfect example of what happens when demand rises astronomically for a certain talent and the labor pool with that talent is quite limited.

The technology field itself also, however, had severe impacts on the economy (Galdon SanchezSchmitz). The growth of the technology industry led to the development of technological systems that replaced many jobs which only human beings could once do. The manufacturing industry had massive lay-offs and as manufacturing companies replaced hundreds of employees with technological advances that could produce thousands more products at lower costs, the economy both suffered and benefited. Those in the manufacturing industries suffered great loss of work and saw their wages drop tremendously (Galdon SanchezSchmitz). Due the availability of technology that could replace these workers, however, there was little these workers could do but try to retrain and learn how to work in other industries if they could, many were unable and a large group of people dropped out of the labor pool (Galdon SanchezSchmitz). Manufacturing businesses that could not afford to replay workers with technology, or failed to do so quickly enough, closed. This led to more unemployment and more downward pressure on wages in the manufacturing industry.

By this point, however, technology, in the form of computers, was no longer a luxury good. Computers had become normal goods and their prices had dropped significantly. In fact, there was no longer any need to have a mainframe computer in order to have a computer. This meant that there was a complete new set of consumers for the good, those who just a few years earlier were entirely priced out of the system. Also, computers and technology became so necessary for business and personal reasons, that they became necessary goods (Maskus). Technology products, therefore, became more inelastic the more common and the more needed they became. It was becoming impossible, in fact, to find a business that did not use computers.

As students, even those who graduated without a degree in technology, graduated with computer skills and knowledge, their wages also began to rise (Maskus). Those who lacked computer skills, however, saw their wages sharply decline (Maskus). PCs became universally used in every industry and every size business (Innovation Associates, Inc.). As this took place businesses sought out employees who, in addition to the skill set needed for their job, such as an accounting degree, an economics degree, a marketing degree, or even a degree in the arts, were also computer and technology savvy and comfortable using them. This further increased the number of employees who could use computers and the number of computers that businesses used. At the same time, technology developments lead to the birth of new manufacturing plants and industries.

While those in manufacturing saw their industry shrink, many others found employment in companies that did not exist prior to the technology boom (Innovation Associates, Inc.). Some manufactured computer memory chips while others designed software (indeed, Microsoft blossomed seemingly out of nowhere in a very short period of time). Indeed, the “consulting” industry, where a company hired professionals from another company to review their systems, write software, or develop new networking solutions for them, was born and became ubiquitous during the 1990s. Those who worked in these industries were also well paid and, again, paid much more than those who were not associated with the technology industry.

When the Internet revolution finally took hold of more than just those in the technology field sometime during the mid-1990s, the technology boom again seemed to explode. Companies developed entire online businesses which were unimaginable a mere five years earlier. To support the Internet cable companies and phone companies offered new services to allow Internet connections. New business also grew out of the Internet, such as web designers and internet search engine companies like Yahoo! and Google, and even day-trading. Through the Internet, however, many local businesses lost consumers to Internet selection and availability of goods as well as the fact that most Internet purchases were free of sales taxes. The fact that Internet purchases were tax free was a key fact in the rapid consumer adoption of them. The federal government had asked state governments not to charge sales taxes on Internet sales so that Internet commerce could develop and strengthen. It worked, even though local businesses felt unfairly harmed by these policies.

The fact that during most of the 1990s the Federal Reserve, under Alan Greenspan, had had a tight monetary policy it used to keep interest rates relatively stable and low, there was a great deal of money in the economy (Stock & Watson). This meant that many in the economy had money to invest (Stock & Watson). Many of these persons invested in the technology industry. In fact, the NASDAQ, which had the majority of tech company listings, saw so mush investment that it seemed to be overtaking the NYSE “the” stock exchange for the next millennia. This investment also helped those in the technology industry profit greatly and build large empires; such as Jeff Bezos at Amazon, Bill Gates at Microsoft, and Steve Jobs at Apple.

By the end of the 1990s, however, this second technology boom had ended (Buerkle). As nations such as China and India developed their own technology industries which offered good products and software at rates much lower the American companies could produce, they took over a great percentage of work in the industry (Buerkle). They could take over this work, regardless of their geographic location, because the technology industry made it possible for persons continents apart and separated by several time zones to speak and see each other and to exchange work in real time, on an as needed basis. The American technology industry had created the resources that helped move much of the technology industry out of America (Buerkle). It was a long, strange trip.

References

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Butler, A. (NA). Is The United States LosingIts Dominance in High-Technology Industries? Federal Reserve Bank of St. Louis. Retrieved August 15, 2008, from

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Maskus, K. (1998). Policy Paper One: Trade, Technology, and Wage Inequality. University of Colorado at Boulder. Retrieved August 15, 2008, at

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