Gearing Up for a New Century
In a rapidly changing environment the most important asset isn't your present inventory of skills but how fast it's changing to better fit the times. Education and flexibility are essential when what you sell, how you sell it, who you sell it to, and what they want are all constantly shifting.Consider the story of word processing as it unfolded in the early 1980s. Because it's slightly more efficient than typing, it's widely adopted by businesses. As typewriter companies see sales slump, they fire staff. Because letters now cost somewhat less to produce, they're written slightly more often and telephone use drops a bit. Letter-delivery companies' profits rise slightly and they hire more people, while phone companies' profits decline and they fire more employees. Software companies too hire more people to design more and better word-processing software. Scenting profits, other software companies enter the market, and the increasingly cutthroat competition forces down prices.
Except for those made jobless, everything is rosy as long as the market is expanding. In any case, most modern economies have at least 5 percent unemployment at the best of times. Eventually there's a glut of word-processing software competing for the ever-diminishing stock of businesses that haven't yet bought any. At this point, several software and hardware companies go belly up and others start firing staff.
Meanwhile, because word processing is more efficient, demand for old-fashioned typists falls. These redundant typists then reenter the job market. Then, because of the greater competition, real wages for all typists fall, making it less attractive to be a typist at all. This leads, in turn, to a drop in the wages of similar jobs, for which more of us are now forced to compete. As cheaper and more abundant labor lets businesses grow slightly more efficient, some firms turn a somewhat higher profit. If some of them gain significantly higher profits, however, other businesses enter their market and prices fall again. In this way, the ripples caused by dropping the pebble of word processing spread to wider and wider areas of the economy.
On the plus side, the economy benefits from the slightly lower prices of the products made by those slightly better businesses. In addition, as their improved business efficiency attracts more investors and as their stock prices rise, these businesses have more money to hire new people and to reinvest. Confidence rises as more of us see our investments pay off with the rising economy; so more of us invest more and take more risks to produce or consume more and better goods. The market then takes off. A boom results.
On the minus side, unless the economy as a whole expands to supply new jobs, the newly jobless can't afford these economically priced goods. The rich get richer; the poor get poorer. Then, if enough of us are unemployed, and if the economy stays stagnant for long enough, demand for all kinds of goods falls. Then confidence falls too as more of us see our investments failing in the falling economy; so more of us hedge our bets, consume less, and invest less in new products. The market then collapses. A recession results.
All that is understandable. However since the computer has sped up everything, the economy has no time to reach equilibrium after the introduction of word processing before the next stone drops into the economic pond. Standard economics then no longer apply. The economy is now super-heated.
The Law of Increasing Returns