Virtual worlds folks are early adopters. They love cutting edge technology. Often we tend to believe that such technology is also a cutting edge investment, or a financial success story. Well, it seems this is not necessarily so. Maybe the new technology and information technology in particular causes competition to heat up that much, that the profitability of many ventures is coming under tremendous pressure. And maybe the current financial crisis is a symptom of these bigger issues, rather than a cause.
Michael Mandel at Economics Unbound (BusinessWeek) is such an economist who believes that the current crisis is a symptom. Looking at the period from 1998 to late 2007 he claims that
innovation was weaker than expected, private sector job growth outside of healthcare was virtually nonexistent, while real wages and real stock values showed little gains from the late 1990s to the end of 2007, when the recession supposedly started. Most distressingly, stock prices for the nation’s innovative sectors, biotech/pharma and information technology, showed a sharp plunge in real terms from 1998 to 2007.
Mandel refers to a new report from the Center for the Edge van Deloitte that seems to confirm that the problems of our economy go far beyond the financial sector. Only the most heavily-regulated U.S. industries seem to be insulated from intense competitive pressure and plummeting return-on-assets (such as Aerospace & Defense and Health Care).
Maybe analysts such as Martin Wolf at the FT’s economistsforum are a bit too optimistic when they say that capitalism as such has no problem. Mandel’s takes reminds me more of people like Immanuel Wallerstein.
I guess we should think hard about how our economies can adapt to a world where competitive pressures are intense and profitibility becomes a big issue in many industries. If the early adopters have any suggestions, please don’t hesitate sharing them!
Roland Legrand