The expectation of enormous productivity gains from the rapid spread of information technology (IT) has been driving the Nasdaq, Wall Street's index which tracks the prices of key IT and other high-tech stocks, to breathtaking new highs.
The US stock markets went into a new frenzy on March 10 when the Nasdaq zoomed pass the 5000 mark. In mid-March, the price/earnings ratio (P/E), which measures a stock's price in relation to its earnings (a gauge of how much the prices may have become overvalued), went well above an average 300 for the Nasdaq stocks: its listed companies have only ever produced minuscule earnings, if any.
Meanwhile, the traditional "blue chips", the largest listed firms, fetched a P/E of only around 24.
Nasdaq's new high pushed the total market valuations of its component stocks to US$6 trillion ($10 trillion). This astronomical amount dwarfed, for example, the total global foreign direct investments last year of US$827 billion, itself a new high.
The prices for individual Nasdaq stocks had been even more far-fetched: early last year, America Online hit a P/E of 720, Yahoo! 1368 and eBay 9570.
Boundless growth
The Nasdaq has lost 33% between mid-March and April 14, including a 13.6% fall on April 4. Such losses have provoked cautious remarks from some market commentators. But similar comments have followed most stock index surges, including that of the Nasdaq in the last two years.
Based mainly on the increasing extension of the "information superhighway" and the Nasdaq's "impressive" performance, a whole theory has been built and increasingly marketed by establishment figures, which proclaims that a "new economy" has arrived, propelled by the internet, telecommunications, bio-tech and other computer technologies.
This theory also claims that such technologies could bring boundless productivity improvements, an end to business downturns and even an extension of democracy.
A key originator of the concept, US President Bill Clinton gave it a further push by holding a "new economy summit" in the White House on April 6.
Clinton told participants, "We meet in the midst of the longest economic expansion in our history and an economic transformation as profound as that that led us into the industrial revolution".
Microsoft boss Bill Gates cheered on, claiming the "IT boom" could "move more people out of poverty more quickly than any time in all of human history". But will it?
Whose boom?
No propagandists of the "new economy" theory have made much pretence that this "magical" boom goes far beyond US shores.
Furthermore, despite being seven years into the economic upturn, US income inequality in 1998 was at its highest level since 1947, when the relevant figures were first published, according to the February 10 issue of the US periodical Left Business Observer (LBO).
LBO editor Doug Henwood points out that, despite US gross domestic product (GDP) having grown almost 30% during the current expansion after adjusting for inflation (14% per capita if the effects of population growth is also considered), the income of the poorest 20% of households still hadn't recovered its 1989 levels.
This outcome partly reflects the deep cuts to US real wages over the past two decades. But more importantly, it reflects the skewed distribution of the gains of economic growth.
The growth "went mainly into the pockets of the richest 5%, whose incomes are up 22% since 1989, with more than half of it coming in the last five years", Henwood states.
He further notes that, even based on a highly inadequate poverty measure, the US poverty rate only declined from 11.6% in 1997 to 11.2% in 1998. It has undergone little change in the years before 1997, even in spite of the many "boom" years.
Even to call the current US growth period a "boom" is an exaggeration. Based on figures published by the International Monetary Fund, US GDP growth of 3.4% during 1993-98 appeared superior to, say, the 2.5% average achieved by the G7 countries as a whole (which includes Germany, Britain, France, Italy, Japan and Canada, as well as the US).
Adjusted for population growth, however, US's growth rate fell to only 2.4%, compared to the European Union's 2.3% and the G7's average of 1.9% (which included Japan's 0.5% growth).
Even Business Week, one of the US ruling class's principal mouthpieces, admitted in 1997 that the current US recovery was "the most sluggish" in modern times.
Claims that the "new economy" and technological developments will deliver prosperity even for workers and poor in the US are little more than hype.
As for growth prospects elsewhere in the world, they're even bleaker. The countries hit by the 1997-98 economic crisis — most of Asia, Brazil and Russia — are still licking their wounds. Most countries in Latin America are not significantly better, to mention nothing of the disaster in Africa.
Dot.com mania
At first glance, the IT euphoria seems to have some foundations. IT and related technologies do have a gigantic potential to boost labour productivity and human welfare.
But this is only potential — it is highly doubtful that many of the benefits of these latest technological innovations will trickle down to the majority of humankind.
The Nasdaq/dom.com mania has been driven essentially by the profit potentials of these new technologies, not their potential benefits to human well-being. The US corporations which developed the bulk of these technologies did so for profits and will only apply them in activities that maximise those private gains. If human welfare is improved in this process, this is only as a by-product.
These firms have no particular passion or need to put their money into productive activities — which generally only fetch a return after several, even many, years. If they can make a profit without doing so, all the better. Hence, the attraction of financial speculation — which brings quick and lucrative returns if the bets go right. Much of the dot.com frenzy is pure speculation.
To the extent that putting their money into production can't be avoided, capitalist firms have sought to minimise their outgoings, of which labour is a key item. Apart from outright cuts in wages and conditions, a key way to minimise labour costs is by increasing labour productivity (the rate of exploitation) by inventing more powerful machines.
To outbid one another, and to achieve profit levels superior to those of their competitors, corporations have funded the invention of ever more powerful machines and brought on new inventions more quickly. This has in turn called for expensive capital outlays for machines that have an increasingly truncated life cycle.
Technology for whom?
That's why rapid technological innovations and increasingly capital-intensive production has been a long-standing feature of capitalism. There has also been a growing concentration of capital and a rising reliance on debt to feed capital expenditure.
However, this whole scheme only works if the products can be sold smoothly — which is not always easy.
Partly to drum up sales and share prices (allowing them to either raise funds more easily through the stock markets or to cash out), capitalist firms have been keen to turn technological possibilities into new market crazes.
The darling of the craze which preceded the 1929 Wall Street crash was the radio — which offered huge possibilities of penetrating into many facets of human activities. Radios could be put into cars, homes and businesses. Sound familiar?
Many people have benefited in some ways from new technologies, but mainly the more peripheral ones. The cream of technological discoveries has remained in the hands of the big corporations and is reserved to defend market turf — and to destroy human life.
The internet, for example, was created by the Pentagon as a communications system that could survive a nuclear war.
Rather than serving human needs, new technologies in corporate hands have increasingly magnified the problem of excess capacity and overproduction in key industries. In the auto industry alone, according to the February 19, 1999 Economist, there was an excess capacity of 30% in Europe, and that is not the worse case.
"The mass producers of cars destroy more wealth in bad years than they create in good ones", the Economist commented.
Compare this to the billions of people around the world who are denied access to safe drinking water or food in their stomachs.
The gap between the immense might of technologies and the limited extent they have been deployed to serve human welfare is immense. The cause of this contradiction is that control of the means of production, and the products themselves, is in the hands of capital owners. Their profit motive drives the entire economic system.
In their pursuit of ever-greater capital, these few owners manufacture false needs, unwanted products and excess capacity that runs side by side with unmet basic needs, growing misery and stolen dignity for the majority.
While different blocs of capitalists engage in their dog fight for profits, the welfare of working people is torn to pieces. This is a fundamental reason for the boom and bust of the capitalist economy and working people's declining living standards.
We need a new economy, but it's not the one defined by Clinton.
BY EVA CHENG