How can we make sense of the economy’s cyclical nature? Take a step back and look at technology’s steady march forward, for one thing. The lessons are there in history, says Peter Cochrane. From the experience of the past two years we can safely say no individual, company, institution or government understands the stock market. Experts are at last acknowledging chaos is the dominant mode and all past talk of control has, at best, been nonsense and, at worst, hubris. Yet despite recent experience I still see published reports proclaiming there is no new economy, dot-com is dead and high-tech was just some ghastly mistake. What a contrast to the market hysteria, the greed and panic not to miss the boat of only a few months ago. Those who, by chance, got in early, rode the e-wave and jumped at the right time, laughing all the way to the bank. Those who didn’t were left holding the baby and nursing their losses. Some of the dot-com boomers saw their net worth rise rapidly into the millions only to fall to near zero in a matter of weeks. At some point it seemed everyone was a paper millionaire! So what when wrong? Was it all a mistake and will it all recover? Certainly when you look at the rise in dot-com spending with online retail and music (legal and illegal) sales plus the buoyancy of the online travel market, it appears dot-com is not only alive and well but booming. When we look at the high-tech sector we need to consider the historical context. There have always been peeks and troughs and periodic shakeouts. It is as natural as life itself. We all know the examples of growth and consolidation in the US railroad and automobile industries. Markets are fundamentally fickle and chaotic and small changes can have a big impact, especially when the investor base has little loyalty and is subject to a mass herding mentality. In short, it soon votes with its feet. Once a critical number of investment changes are made everyone follows the trend. No one wants to miss out. No one wants to be left behind. This is the power of fear, greed and short-termism. At the most fundamental level if there is no high-tech sector then there is no industry, food, heat, light, power, waste disposal, water, medicine or indeed life. We could no more live without technological progress than we could without food. And those countries that feel that they can develop an economy on a service industry alone with absolutely no industry may well be sitting on a time bomb of brittleness in a world that is yet to achieve 100 per cent peace and political stability. So what went wrong and can it be corrected? It all seems to be about speed of technology, creation and adoption, coupled with market adaptation and developments changing faster than human subsumption. Evolutionary forces dominate all change and not just biological – technological ones do too. So if we do nothing, it will all ultimately come right but the process will not be compassionate or comfortable. Evolution cares nothing for pain and suffering – she just rolls the dice and accumulates the outcomes. Who survives or dies is of no direct interest to evolution as she just favours the adaptable and fleet of foot over the strong and intellectual. Evolution is a mere spectator in the final outcome. The reality is the dot-coms caught a cold first, then the not-coms, and now we see overstretched companies and sectors beginning to fall. Even the venture capitalists are biting the dust. At a fundamental level individuals and groups have invested money and time in the creation of far more companies than the global economy can support and the excess businesses are going to go to the wall. Some have become household names in months and gained the confidence and respect of millions. Some hardly got off the starting line. A few have become a social necessity and will not die. In many respects the global economy has never been so robust and vibrant. Inflation is on the ropes and unemployment relatively low while the creation of new companies has become more measured. There may be cause for gloom and despondency on one level but on another we can be reasonably optimistic about the long term. All transitions engender some difficulties, stress and strains upon society. It is unfortunate our technology creates change faster than we can anticipate and adapt. But therein lies an opportunity for us to model situations before we embark on the wholesale deployment of the new. But I fear our ability to understand and comprehend in time will always be limited. By its very nature technology does radical things and we only have to look at the dot-com revolution to see how it can reach and involve everyone on the planet. It is not limited by the production of or movements of atoms – it is about the infinite world of networking of bits. It seems the old economy was determined to slow down the dot-com world and try to negate progress as it was created but in reality it is being dragged along and will have to change. Over 91 per cent of UK businesses use the internet and over 80 per cent place orders online. And less than 1 per cent worry about security and privacy. Those that don’t fully understand and grasp the change will see the basics of the old economy disrupted by new business models and modes. Much of what we have done in the past is ecologically unsustainable but new technologies offer solutions and a different route to sustainable lifestyles. I think we’ll just have to wait and see – but not for long – that control is out and chaos is in! This column was dictated over a warm coffee in my garden on a freezing January day, collected by my PA’s spouse, received in typed form via a high-speed line, edited on my G4 laptop over another coffee in my kitchen the next day, and dispatched to silicon.com via a Wi-Fi link to the net. What do you think? You can contact Peter by emailing pcochrane@silicon.com. Peter Cochrane is a co-founder of ConceptLabs CA, where he acts as a mentor, advisor, consultant and business angel to a wide range of companies. He is the former CTO and Head of Research at BT, as part of a career at the telco spanning 38 years. He holds a number of prominent posts as a technologist, entrepreneur, writer and humanist, and is the UK’s first Professor for the Public Understanding of Science and Technology. For more about Peter, see: http://www.cochrane.org.uk .