As I See It: Insight and Outlook
by Victor Rozek
I was fretting about the economy. The way things were going, I figured that Santa--the poster boy for retail vitality--might be the first victim of the Space-Based Missile Defense System. Surely the government would never allow a bearded man in exotic clothing, loaded with wrapped packages, to enter the country. And the thought of old Rudolph taking a laser-guided missile up the, ah, nose courtesy of Homeland Security was just too distressing.
But Santa snuck through and the economy limped into the new year. By early estimates, shoppers purchased about 1.5 percent more stuff than they did last year. Not great, but those who comment on the nation's shopping habits are cautiously optimistic, which is to say, noncommittal.
A decent if not spectacular retail showing suggests that the level of IT support required to sustain sluggish growth will at least remain stable. But if retail is struggling, other IT sectors are predicted to flourish. International Data Corporation (IDC), an industry research and analysis organization, recently released its sixth annual "predictions for the fates of a range of IT services." Now, anyone who can predict "fates" must have some serious predicting juju, so listen up.
"We expect," said John Gantz, IDC's chief researcher/soothsayer, "to see a return to spending growth in 2003 in both the IT and telecommunications sectors." Gantz divines that "hardware spending and wireless services will benefit the most from increased spending over the near term, while IT consulting will continue to languish." Consultants will not hail that as a startling revelation. That, after all, is the nature of consulting: Last in, first out.
IDC further predicts that "worldwide spending for IT and telecommunications will hit $1.9 trillion during 2003, with the midrange server market returning to positive growth . . ." Since this is good news, and IDC has been in the prediction business for six years without incurring the ever-present derision and ridicule of its peers, I, for one, will choose to believe them.
There is, however, one notable omission in IDC's analysis. This year, for better and worse, one of the more powerful influences on the IT sector will be the government both through its policies and its procurement.
Since 9/11, security has been a prime concern not only for the government but the private sector as well, albeit for very different reasons. Private industry wanted to secure data; the government wanted to steal it. Various federal agencies were eager to compile, store, process and interpret monumental amounts of data about the preferences, habits, purchases, communications, and movements of its citizens and visitors. Toward that end, the government contracted for the delivery of hardware, database technology, optical recognition systems, and a great deal more. But much of what was needed did not yet exist, so government agencies are also subsidizing private sector companies engaged in developing new technologies.
One of the more curious manifestations of government patronage is the CIA's technology procurement front called In-Q-Tel. After skulking around Silicon Valley for years and being rebuffed by pony-tailed, Cheetos-eating, anti-establishment types, the CIA decided to promote partnership just like it does overseas, by buying it. The agency set up a small, non-profit company and installed Gilman Louie of computer game fame (Falcon and Tetris) to run it. The assumption, undoubtedly, was that a successful computer game geek could pass for one of Silicon Valley's own. Louie transmogrified into a CIA-funded (meaning taxpayer funded) venture capitalist, throwing an average of one to three million dollars at promising prospects.
The agency, according to Louie, needs better tools to "sift through and analyze unstructured data--the vast amounts of e-mail, reports, letters, graphics, and anything else that doesn't live in a structured database." The challenge, according to Louie, is: "How do you get knowledge out of lots of information that is just floating around in these data repositories." Mr. Louie appears to be well indoctrinated. What the CIA portrays as "floating around" like untethered balloons refers to personal communications, and the term "data repositories" is government-speak for private computer systems. If another of IDC's predictions comes true and online messaging grows to levels approaching 40 billion e-mails per day, that in itself will generate a formidable floating armada of information for the government to capture and analyze.
Over the past few years, Louie has invested in about thirty technologies. Of course he can't tell you what most of them are or he'd have to kill you, but several of the more benign investment deals have been graciously shared with the paying public. Among them, California-based Graviton is developing a wireless sensory network that allows "remote monitoring of indoor and outdoor environments." Entire city blocks can reportedly be observed, and the atmosphere monitored for "harmful airborne agents." Monitoring the cooking of cabbage may produce some unexpected alerts.
Systems Research and Development, based in Las Vegas, where it helps casinos detect connivance between dealers and players, is creating Non-Obvious Relationship Awareness (NORA) software which sorts through mountains of data looking for obscure links between two or more people. If NORA is too obscure for the CIA, perhaps dating services can find a use for it. It's damn near impossible to find a partner who reads Sanskrit and likes Jerry Lewis movies too.
With international crises multiplying like water hyacinths, we can assume government and military investment in computer hardware and software will accelerate. And that investment is likely to manifest on the commercial level. Versions of the data collection and analysis products developed for government use will also be attractive to private industry, which just can't seem to get enough information about our buying habits. And this should provide a further boost the IT sector.
But if government practices bode well for the industry, its policies do not. In spite of creating massive deficits and anticipating more, the administration is insistently strumming its single-note economic policy: tax cuts. The latest stunning proposal is a $674 billion package that features a recommendation to eliminate taxes on dividends at an estimated cost to the Treasury of $364 billion over the next decade. That will have a direct impact on the IT sector, as I'll explain in a moment. Add to that the previous tax breaks, and by default there will be insufficient money to meet our social, health care, and infrastructure obligations.
But someone has to pay and the responsibility is simply being pushed down to the state level where state and local governments are forced to do the very thing the administration scorns; namely, raise taxes. New taxes, of course, are about as popular at state levels as they are nationally, and as a consequence many states are being forced to reduce services, cut funding for education, and even let criminals back on the street.
As strapped as states are now, eliminating taxes on dividends will severely restrict one of their few non tax-based revenue options because it will make stock purchase that much more attractive than state and municipal bonds. With less money coming from the federal government, and bonds losing their traditional investment advantage, state resources will be stretched very thin. As a result, state and local governments, K-12 school districts, and to a lesser degree universities, are not likely to be investing in IT technology. For the industry, this is a loss of a normally vast and reliable revenue source.
There are a number of wild cards in the economic outlook. Perhaps the cause of greatest uncertainty is the war that each day looks more unnecessary as it becomes more inevitable. Wars create unintended consequences, and just as a single act of terrorism produced massive, unexpected economic disruption, there is no way to predict the results of another act of madness.
The fate of Hugo Chavez, the President of Venezuela, may also impact the economic recovery. A general strike designed to topple Chavez has severely curtailed oil production in that country. The U.S. currently receives about 15 percent of its oil from Venezuela, and at present, export levels are down about 1 million barrels per day. That, in itself, is not a crippling amount, but it is driving up oil prices--as will a middle-eastern war--which slows economic growth.
It was none other than Ronald Reagan, himself a two trillion dollar deficit spender, who admonished: "We might come closer to balancing the budget if all of us lived closer to the Commandments and the Golden Rule."
Sound economic advice for our times.
Contact the Editors
|Copyright © 1996-2008 Guild Companies, Inc. All Rights Reserved.|