The Internot
Amazon founder and chief executive Jeff Bezos is being investigated by the New York Securities and Exchange Commission for allegedly selling off 800 000 shares in his own company on the eve of the publication of a critical report by Lehman brothers into the internet book store. Amazon's problems have mounted as the supposedly model dot.com business failed to make profits. Amazon joins another internet pioneer, the search engine Yahoo!, whose chief executive was forced to resign on posting no profits in the last quarter, in a business over-reliant on advertising revenue.
With two of the exemplars of the dot.com boom in crisis, commentators are quick to announce the end of the Internet bubble. The evidence is compelling. Over the last year the new technology market the Nasdaq fell from its high of 5049 to just above 2000 - representing $2000bn created and lost in a year. The values of internet stocks rose as investors, worried at losing out bought them, forcing up the value in a virtuous circle where companies made money by selling shares irrespective of whether they could make money by selling goods and services. In fact sales on the Internet represented between half and one third of one per cent of all sales in the Group of Seven industrial countries in 1999 (Merril Lynch). In Britain, the largest sector of Internet sales, groceries at £530m, still represents less than one per cent of all grocery sales. If B2C - business to consumer - sales are elusive, the quest for B2B - business-to-business - sales is yet more so. In America the National Association of Manufacturers reports that 95 per cent of respondents achieved less than five per cent of sales online, or none at all.
The problem is not with Internet technology. On the contrary: the Internet has all the potential to revolutionise production if business were prepared to take advantage of it. The down-beat assessments of the Internet are more reflective of the state of Capitalism than they are of the quality of the technology. With Japan's public finances on the verge of ruin, US Fed Chair Alan Greenspan predicting no growth, and even German manufacturing lurching back into recession, optimism is thin on the ground, and the new technology shares are the focus of anxieties as they were previously of wishful thinking.
Despite the advantages of five years of growth in the West, Capitalists have squandered the opportunities, failing to invest in new production. In Britain, France and Germany spending on Research and Development actually fell as a proportion of GDP in the 1990s (below 2 per cent in Britain's case, below 2.5 in the others'). According to the British Department of Trade and Industry productivity deteriorated as 'the economy has generated an additional 1.5 million jobs at a quicker rate than it has increased investment (UK Competitiveness Indicators: Second Edition, p75). In other words, British capitalists took advantage of low wages to grow extensively, employing more people, but without investing in new technology that would raise productivity. The boom in Internet stocks in the 1990s could have been the opportunity for the development of new production processes and technologies. Instead it became a substitute for real investment, as investors simply chased paper money on the stock exchange.
-- James Heartfield