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March 24, 2002
David Warsh, Proprietor


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Upstairs, Downstairs

Boston’s Hynes Convention Center last week was the site of one of those happy intersections of human affairs that illustrate why the truth of economics cannot be captured in a single sentence — not even with the king of the oxymorons, “creative destruction.”

The cavernous hall has grown by degrees since it was inaugurated in the 1960s as a public “auditorium.” It then held down one corner of an all-but-abandoned railroad marshaling yard, itself a place previously known as Gravelly Point, before the river bay in back of seaport Boston — the Back Bay — was filled in.

To one side of the Hynes today is the Berklee College of Music; to another, the headquarters of the Christian Science Church. The Prudential complex of shops, offices and apartments is on a third; and across Boylston Street (nee Eleventh Avenue in the mid-19th century) are the elegant shops and low-rise buildings of the thousand acres that, starting in 1857, were reclaimed from Charles River swamp.

Upstairs in the Hynes, several hundred high-tech clients gathered to hear analysts from an important strategy and market research firm (Framingham’s IDC) deliver their latest opinions about what may happen to a dozen fast-moving information technologies during the next few years.

Downstairs, a booming trade show unpacked — devoted to the restoration and renovation of old and historic buildings.

IDC is a far-flung intelligence-gathering operation, adept at making money by identifying markets and reporting on them, both publicly (in its trade newspapers and magazines) and privately (in reports and consulting engagements to client firms.) There are many other such advisors, including any number of specialized boutiques, each with some particular claim on subscribers’ attention.

But IDC’s reputation is as the granddaddy of them all, so sober and reliable in its estimates of the actual that recently it has begun sporting a new motto to emphasize its commitment to the potential. “Analyze the future,” trumpets its bumpf.

Last week chief research officer John Gantz surveyed the history of the three major downturns in the information technology industry and ventured some predictions about what might happen in the aftermath of the fourth. After the mainframe crash of 1969-70, he said, a new slate of companies appeared with a new product for a new class of buyers — the personal computer.

Most of these first-generation suppliers disappeared in the PC crash of 1983, he noted. They were replaced by new companies better-equipped to serve corporate customers, typified by software first-mover Microsoft. Then the recession of 1991 ushered in the Internet era — and redefined what it meant to be an information technology supplier.

So what kinds of firms will dominate the next era? The Dot.Com Crash and the Telecommunications Winter seem to be receding into history now, said Gantz. The fourth quarter of 2001 probably was the bottom of the trough. A new wave of complexity, mobility and connectivity is building, much of it captured by the slogan “broadband,” shorthand for the possibilities inherent in new high-speed, high-capacity networks. Firms will thrive by emphasizing business integration, mobile and wireless communication, the new highly-distributed computer architecture and dependable security. The industry can expect “ten years of prosperity, at least,” according to Gantz.

I went by the Hynes to hear Tom Valovic talk. Valovic has a good eye for a story. It was he who got the scoop on the government’s 1991 decision to commercialize the high-speed data network that it had patiently developed for the military and the universities over the course of 25 years. (Al Gore’s co-sponsorship of that far-reaching measure was what the candidate had in mind when he claimed he had invented the Internet.) Then Valovic was writing for Telecommunications magazine. Now he heads IDC’s project on Internet telephony.

Moore’s Law — it holds that computers’ capacity to handle information doubles every year or so — hasn’t had a chance to have and impact on the telephone network, Valovic told his audience. Finally that’s about to change, he said.

What exactly is Internet telephony? The system is better described as voice-over-packet, Valovic said, since it depends on the packet-switching technology that made the Internet possible in the first place. The advent of fast, inexpensive computers in the 1960s made it possible to slice messages into little “packets” of data, each carrying its own copy of the intended address, each traveling individually, not necessarily by the same route, until, upon reaching the destination, all such packets are reassembled to form a coherent whole.

In contrast, old-fashioned telephone networks — adapted in Boston from telegraph networks about the same time that developers finished filling in the Back Bay — depend on circuit-switching. Every time one telephone calls another, a single circuit is opened, created by a series of centralized switches. It remains open for the duration of the call. Circuit-switching architecture insures that telephone service will work; also that it will be difficult to install and reconfigure, vulnerable to catastrophe, and expensive. Precisely these shortcomings packet-switching was designed to redress.

The charm of the Internet telephony story is the sheer magnitude of the “creative destruction” involved. The telephone industry evolved into a powerful political force over 125 years — just look at the way it has continued to avoid real competition in local markets. Now it must either change or fade into insignificance. Not since the railroads were surpassed by the automotive industry has there been anything like this — perhaps not surprisingly, for then too the issue was packet- vs. circuit-switching — of travelers themselves.

Internet telephony started in the mid-’90s when ingenious start-up companies learned to bypass tolls, leasing intercontinental long distance lines and employing media gateways to link phone traffic to the Internet at either end. A certain volume of consumer long-distance traffic now travels via packet-switching routinely. (You won’t be able to tell the difference when it happens to you.)

With the recent introduction of Microsoft’s XP computer operating system, some 70 million new endpoints were added to Internet telephony’s network virtually overnight. (Have you looked in your computer’s address book lately?). This year probably marks the real beginning of infrastructure conversion, Volovic said, with the regional Bell companies beginning to depend on programmable softswitches — glorified routers — instead of their traditional hardware. Ahead lies the Promised Land of enhanced services and converged networks.

Need an extra voice mail box for a house-guest? Set it up in a few minutes on the Web. Want your cell phone to do almost everything your PC can do now, and take and transmit photographs too? Wait a few years. Charges for plain old voice telephone service should continue to drop, since capital and operating expenses for the new Internet-based equipment are substantially lower than for conventional telephony. Most of us already pay a flat rate for local calls. Unlimited international calling cannot be far behind. Profit margins on those “enhanced services” should more than make up for the commoditization of talk.

I drifted out of the acronym hell upstairs at the Hynes Center just as it was coming to a boil, and paused to look out over the low rooftops of the Back Bay. It is a particularily beautiful cityscape, punctuated by church steeples and a few tall buildings across the river around MIT. The scene looked little different than the one that Alexander Graham Bell saw out of the windows above his workbench in 1876. (I know that because of a sweet little exhibit that New England Bell kept in its offices for many years.) The mood downstairs at the convention center wasn’t any less commercially exuberant. The renovation movement behaves according to the dictates of the market, too.

But downstairs the products all appealed to the taste for continuity rather than of change — architectural columns and ornamental capitals carved by digital lathes, recipes for lime mortar and a hundred other all-but-lost technologies. The event (www.restorationandrenovation.com) was launched in Boston ten years ago. It has returned four times since, growing bigger every year. The restoration market was relatively small and highly fragmented when it started. Today it is a full-fledged industry, one whose gospel is that there is nothing foreordained or absolute in the appearance of the new.

 

The point is that there is much more to economic growth than simply “creative destruction,” naively understood. Upstairs at the Hynes, the information revolution was going forward. Downstairs, the preservation movement was harnessing its power to preserve the past and protect the future. Economic growth and technological change more nearly resemble biological evolution than some periodic putting-up and tearing-down of buildings. Cities — not just Boston but all cities — exist as urban coral reefs, at once receptive and resistant to change. Humankind is as responsible for their good order as for the natural world.

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