Networker: Crisis free production?
Can the “new economy” escape the problem of the old capitalist economy, the boom-and-bust cycle? (“New economy” is a term applied to a range of corporations and activities with some connection to new technologies, often internet and information technology related businesses.) Two years ago that was a serious question. The past few months have seen the question answered conclusively.
For nearly 12 months the internet “dotcom” companies have been in trouble, with many failing. Massive amounts of investment have disappeared. Many of the new breed of stock market gamblers have lost everything they own and could borrow. But in most cases the capitalist press has explained this as examples of incompetence and excess. Companies with no reason for existence gained hundreds of millions of dollars investment, but still had no reason for existence because they had no way of getting an income, let alone making a profit. So it was only a matter of time, the story goes, until they failed.
At the same time long-established telecommunications corporations worth many billions of dollars have engaged in heavy gambles. Many of them have spent billions of dollars in government “spectrum” auctions around the world. This gave them the opportunity to plan new telephone data services (such as text messaging), expected to be the gold mine of the next decade. It only took a hint of consumer disinterest to send shudders of financial instability through these companies. Once again the astute capitalist press had warned of this.
The most dramatic case has been the flotation of France Telecom's Orange mobile phone subsidiary. Current value today is less than a third of the $200 billion expected last year when the float was first planned. Even with the massive growth in capitalist corporations in the past few years, for a company to lose $140 billion in anticipated value is not a small thing. This has driven down the value of other phone companies across Europe as well, with British Telecom giving up plans to float its yellow pages service which had been supposed to help reduce its mountainous $80 billion debt.
Since the beginning of 2001, however, something else has started to happen: major job cuts and profit reductions in companies previously held up as the stars of capitalist production. Most recent was last week's announcement of 1700 job cuts by Dell Computer, largest US (and second largest worldwide) personal computer manufacturer. These are the first job cuts in the company's 16-year history.
Praise for Dell's radical manufacturing approach fills a library of management textbooks. These include reduction by more than half in the number of manufacturing processes required, only a week's stock of parts, and building and shipping of most computers within eight hours of the order being received. Combined with direct sales to customers (rather than through shops) and pre-payment of the computers when ordered, this appeared to mean that Dell had solved the problem of overproduction.
However, the real problem for Dell was its success. Dell's sales of around US$50 billion last year, plus production by other manufacturers, has saturated the profitable market for personal computers. Even without massive stocks clogging shops and warehouses the whole industry is slowing down.
So ends another chapter of hype about the “new economy”.
BY GREG HARRIS (gregharris_greenleft@hotmail.com)