Technology and Value
SOCIAL RESEARCH, Vol. 64, No. 3 (Fall 1997)
I propose to identify three issues and address one. The first concerns the relationship between technological leadership, on the one side, and the frontier between the public and private sectors. The second calls into question the triumph of materialist rationality in our technological age. The third involves the relationship between the valuation of technology and the technology of valuation in an advanced capitalist regime.
(1) Two corporations share global leadership in today's age of information technology (IT): Microsoft and Intel. Neither company has benefited in any discernibly direct way from the financial or regulatory subvention of the state. I suggest that the rise of the joint "Wintel" enterprise to dominance represents a break with the history of technological innovation and economic development.
Most obviously, the success of Intel and Microsoft over the past decade owes nothing to direct government subsidy versus the case, most notably, of the railroads in the nineteenth century. In fact, Intel—the older and larger of the two—positively rejected Defense Department subsidies when it chose not to participate in the Very High Speed Integrated Circuit (VHSIC) program more than fifteen years ago, correctly recognizing that a focus on absolute performance would divert the company's best design talent from the challenge of optimizing price, performance, and compatibility with installed systems to achieve commercial success. Further, unlike the first generation of IT leaders in the twentieth century (such as IBM and Texas Instruments and the "national champion" IT companies of Europe and Japan), the growth of Microsoft and Intel was not materially supported by early and substantial demand from the public sector. With respect to less-direct modes of state support, the new IT leaders have neither lobbied for protection from foreign competition—such as nineteenth-century manufacturers—nor sought government-sanctioned predominance in the domestic market—such as the old AT&T.
On the contrary, Microsoft and Intel and the generation of IT innovators that have risen with the distribution of computing power since the early 1980's have committed themselves to living by and, often, dying by the sword of unconstrained competition. Thus, there is no little irony in the fact that the one immediately visible threat to their dominance—the Internet and the associated technologies brought to market most notably by Netscape—arise from an environment built and sponsored by the state. Only the resources and purposes of the national security state, arguably, could balance the cumulative power of positive returns to technological leadership and market share, driven by the explicitly "paranoid" genius of entrepreneurial leadership. As of this moment, it must be said, there is no reason to assume that the partners in the Wintel enterprise will not succeed in their radical attempts to reposition themselves for continued dominance on the new playing field open for them.
(2) The success of Microsoft and Intel expresses the reemergence of the old "virtues" of first-generation, liberal, free-market ideology. Each company is "open to the talents" with a vengeance. Rootless, in that recruits come from literally the entire globe, each is also ruthless in requiring success and dismissing failure. Unconstrained by notions of paternalist obligation to hazily characterized "stakeholders," Intel and Microsoft hire the best of those trained in the digital disciplines, offer them direct access to the wealth they collectively generate, and replace those who falter without qualms.
As economic institutions, these enterprises stand as triumphs of materialist rationality. How is it, then, that they have arisen in the one country of the developed world where an overwhelming majority of citizens affirm a faith in a personal creator? Is the emotional and spiritual toll of competing to win in the technologically driven arena such that it invites, even compels, commitment to transcendent, definitionally irrational beliefs? How else might that vast majority—whose conscious embrace of the values of the marketplace sanction the rise and rise of the Wintel enterprise—cope with the certain knowledge that they themselves must fail the market's tests? Perhaps humankind can take just so much Schumpeterian creative destruction?
(3) Technology comes to market embedded in capital assets developed and distributed by enterprises whose securitized values, in turn, are themselves capital assets. The problematic process of valuing capital assets—tangible and intangible, illiquid and securitized—was at the core of Keynes's analysis of the dynamics of capitalism. In turn, the postwar triumph of neoclassical economics has depended on the credibility of its response to Keynes's critique.
In brief, the value of a capital asset is a function of the expected returns to ownership of it into the future compared with the cost of its production or purchase. Keynes argued that such expectations were both fragile (subject to the famous "animal spirits" of entrepreneurs) and irrational (derived from the workings of the equally famous "casino" that is the stock market). The neoclassical riposte to Keynes depends upon substituting the calculus of risk for emotional and inevitably inadequate efforts to overcome fundamental ignorance of future outcomes.
Technological innovation enters the argument on Keynes' side. History is replete with the inability to foresee what proved to be the commercially and financially meaningful applications of technological advance. One example may suffice for many: literally no one anticipated, when the science of the laser was being painfully reduced to reproducible practice, that, some twenty years later, the two dominant applications would lie in enabling optical communications and the automation of retail purchasing at the point-of-sale, respectively; some two hundred start-up companies were born and died in the interim. Today, the "Internet Boom" is merely another in a seemingly endless sequence of stock market bubbles as investors speculate on each other's fear of missing the "next great thing." A rapid pace of technological advance, as it renders obsolete sunk investments and opens the door for an Intel and a Microsoft, can confidently be expected to increase the spread of expected returns and reduce the time horizon over which the rational agent is prepared to express any expectation at all.
Yet, if the process of valuing technology is undeniably problematic, perhaps technology can be turned to transform the methodology of valuation itself. Information technology has done more than bring close the frontier of investment ignorance. It has itself enable a vast increase in the scale and scope of the markets in which financial assets are traded. For at least a hundred years, since Leon Walras, the dream of the neoclassically minded economist has been to complete the system of markets necessary to define a general equilibrium, such that at all moments all prices are set at market-clearing levels in all markets. Today's IT offers the promise of accomplishing the dream: this is what the endless proliferation of financial derivatives, defined and traded by computer programs, seems to represent.
In fact, the growth of derivatives is not a function of the logical needs of an economic theory. And a good thing, too: solving the theoretical challenge is a logical—not a technological—impossibility as it requires, of course, not only an infinite set of futures markets, but an (infinitely larger) infinite set of contingent futures markets. Rather, derivatives represent the pragmatic desire of market participants to cope with ignorance by laying off risk through the creation of instruments which capture specific "bundles of risk." Alas! The first dramatic consequence of the systematic, computerized effort of capital market players to lay off risk was the rise of "portfolio insurance" in the 1980s and its denouement in the crash of 1987. By attempting to use the derivative markets in stock market indices to lay off the risk of owning portfolios of equities, market participants created an implosion of value. Seldom has the Law of Unintended Consequences asserted itself so decisively.
The crash of 1987 and a host of microcalamities in the derivative markets serve to confirm another and related assertion of Keynes, one that was rooted in his own experience of markets as an active player. Sooner or later, the rationally calculated "value" of any asset is subject to the test of liquidity: at what price can it be exchanged for ready money? The "technological fix" of portfolio insurance failed disastrously in October 1987, as computer programs responded instantaneously to the actions of computer programs, with no time lag allowed for human judgment to assert itself. The collapse of the time constant, and the consequent elimination of market liquidity, has been effectively dealt with by the most simple and nontechnological device imaginable: the imposition of "circuit breakers" as trading halts whenever specified threshold levels of decline in stock market prices are reached. The time for reflection imposed from without the market, simply put, allows liquidity to catch up with trading.
The net of all this is to suggest that "technology" is not an escape hatch from the conditions of market existence. On the contrary, technology in its economic aspects is embedded in the problematic dynamics of the market economy, where greed and fear contend in the face of the unforeseeable.