The rise of the new economy and skyrocketing prices of Internet stocks have caused a certain discomfort and ambivalence among older Americans, which in this case generally means anyone over 26. There is, of course, due acknowledgment of the great promise of e-commerce and even some national pride about the phenomenon (only in America!). But logic, historical experience, and the fact that they didn't anticipate the explosion of new-economy stocks have convinced a lot of people that it must be a bubble. They wouldn't mind seeing it burst, if only that would take the smirk off the faces of the kids being featured as geniuses in the business magazines and didn't bring down the rest of the economy.
We're in new generational territory here. One day last year in a class at Princeton on American society where we were discussing the 1960s, I asked my students what the phrase "generation gap" brought to mind. If you think it had anything to do with sex, drugs, and rock 'n' roll, you're probably way over 26. The first answer from the class was "technology." Then a young woman said her parents' generation wasn't as entrepreneurial as hers.
Of course, students at Princeton are not typically planning to become social workers. One of my former students, about four years out of college, came back for a visit the other day and was received at the university only a little less respectfully than a head of state. Last year he sold his third Internet company (this one, unlike the others, built out of a small family business). A Fortune 500 company bought it for $900 million, which was not a bad price considering it had no revenue, much less any profits. As a student, he had casually asked me if I were interested in joining the board of directors of one of the companies he had started, which naturally I would not do, since I hadn't yet given him his final grade. It hadn't occurred to me this might be an expensive act of conscience. I'm now ready to reconsider.
From the beginning of the Internet phenomenon, many wise heads thought it was a fad. Five years ago, I was much amused by a financial analyst who reported, "Last year, the Internet went from a zero-million-dollar industry to a zero-billion-dollar industry." We're now long past the time when it was possible to enjoy jokes like that without laugher's remorse. The other day, it looked as though the skeptics would finally be proved right. To the immense relief of the older generation, technology stocks took a sharp dive on April 5, but they immediately bounced back. Those who were expecting that the Net millionaires' comeuppance had finally arrived were disappointed, but they took it well.
The technology sector will probably take another dive, and some stocks may never bounce back, but there should no longer be any doubt that we are in the midst of a genuine economic transformation. One of the confusing aspects of the upheaval is that what is most visible is not necessarily what is most consequential. We are bombarded daily with consumer-oriented dot-com advertisements on TV, radio, and the Net, but it is the changes inside companies and the business-to-business innovations that are likely having the most impact on productivity and growth. This is the payoff of the technological revolution that began not in the past few years, but decades ago with the advent of computer networks. It is not a short-run phenomenon, but more akin to the spread of electrification in the late nineteenth and early twentieth century, which took decades to have its full effect.
The depth of the transformation, particularly inside and between organizations, is one reason we shouldn't take seriously the arguments behind the current move in Congress to keep the Internet free of sales taxes. The conservative and business supporters of this measure present themselves as the champions of the new economy. But where the Internet is taking off, it doesn't need artificial tax advantages; it rests on genuine efficiencies, particularly in reducing transaction costs. At a time when general tax cuts have lost their old appeal, conservatives have seized on the issue of Internet taxes to get back some of their political luster, but it is an odd choice. Some of the big losers are likely to be small retailers, who are usually part of conservative coalitions. And who will lose tax revenue? The states and localities, which are supposedly the level of government that conservatives prefer. If anything, the long-term impact of tax-free Internet sales will be to create greater dependence on the federal government.
In a few decades, the Internet will seem about as exciting as the electrical grid, but for the moment, it's sexy--to some people, sexier than sex itself. As I think about my students' conception of the generation gap, I wonder if they would be interested in a version of the button from the 1960s that would now read, "Don't trust anyone over 30 ... with your investments." I suppose if I were more entrepreneurial, I'd be selling those buttons. On the Internet. Or better yet, I would be selling the company that planned to sell the buttons, without ever spoiling things by actually manufacturing one. ¤