An Internet depression?

Louis Proyect lnp3 at
Fri Mar 30 11:24:53 MST 2001

NY Times, March 30, 2001

Business Ups and Downs at Internet Speed


As one of the brightest lights of the Internet revolution, Cisco Systems
has long been looked to as the company that not only supplies the equipment
that holds the Web together but also understands how information technology
makes business work smarter.

So when Cisco announced earlier this month that orders for its products had
unexpectedly plunged and that revenue would decline for the first time in
its 11 years as a publicly traded company, it did not just send shudders
through the company itself and its own suppliers. It also raised profound
questions about the role of the Internet in the current slowdown.

The Internet, with its myriad online connections, speeds the transmission
of ideas, good and bad, and amplifies their reach. It has allowed business
managers to peek into every link of the supply chain that feeds their
manufacturing processes, and to change direction with a nimbleness that
would have been unimaginable just a few years ago.

Yet power incites hubris - a Porsche fairly demands to be driven at
breathtaking speed. The result for the economy can be jarring.

"The supply chain looks a lot more like the stock market," said Andrew B.
Whinston, director of the Center for Research in Electronic Commerce at the
McCombs School of Business at the University of Texas. "It becomes much
more volatile."

And that could help to explain why the economic downturn seems to be
happening on Internet time.

Since last summer, the economy has gone from a racetrack annual pace of
almost 6 percent to barely 1 percent. Business executives in one industry
after another have described being stunned by the abruptness of the drop in
orders. Caught by surprise, manufacturing companies have watched their
inventories soar.

With all the information supposedly at their fingertips, why were
executives so out of touch?

There appear to be several related reasons. As in past business cycles,
companies caught up in the boom expanded capacity and output to meet
expectations of continued strong growth that simply was not sustainable by
all of them together. But added on top of that, it seems, was a sense of
complacency that the new management-information tools would provide plenty
of advance warning of troubles ahead. That may have been asking too much of

"It's important to understand that the Internet cannot change what is going
on in the marketplace," said Susan L. Bostrom, senior vice president of
Cisco's Internet business solutions group. "You can manage those variables
that you can control, but what makes business fun," she said with a nervous
laugh, "is that there are always variables that you can't control."

Finally, with so many companies farming out actual production to contract
manufacturers, some clearly lost touch with the overall market environment.
. .

During the headiest days of the 10- year economic expansion, some
commentators insisted that the Internet and other information technologies
were powering a new economy that would effectively eliminate the
boom-and-bust business cycle.

As things began to wobble, that view has given way to a counter- argument
that the dot-com bust could drag the rest of the economy down with it,
creating what the economist and journalist Michael Mandel calls an
"Internet depression."

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Louis Proyect
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