Tech Sector Could Star In U.S. Economic Salvation

Universal broadband, spending on energy technologies, and alternative technologies could encourage the growth needed to come back from the Wall Street bailout, analysts conclude.
President Bush, in a statement on Tuesday, called for decisive action to address the U.S. financial crisis.

"We're at a critical moment for our economy, and we need legislation that decisively addresses the troubled assets now clogging the financial system, helps lenders resume the flow of credit to consumers and businesses, and allows the American economy to get moving again," he said.

As University of Southern California professor Jon Taplin sees it, the government needs more than legislation. It needs a national policy designed to allow IT companies and energy technology companies to power our economic recovery.

"Just recapitalizing the banks is not going to revive the economy," said Taplin. "The economy is going to have to be spurred to be a much more production-oriented economy, rather than a consumer-oriented economy. Seventy-two percent of our economy is based on people going to the mall. That's not a competitive situation when you have a Chinese economy in which 65% of the economy is based on producing real stuff."

Taplin believes that the private sector can't solve this situation alone. He expects unemployment will reach 8% by the holidays. Earlier this month, before the market plunged, Google CEO Eric Schmidt brushed off the suggestion that a financial crisis would affect his company. "My guess is the drama is in New York, not here," he said, according to the Los Angeles Times. "It's business as usual at Google."

But in Oslo, Norway, on Tuesday, Microsoft CEO Steve Ballmer wasn't so blithe.

"Financial issues are going to affect both business spending and consumer spending, and particularly ... spending by the financial services industry," he said, according to Reuters. "We have a lot of business with the corporate sector as well as with the consumer sector and whatever happens economically will certainly affect itself on Microsoft."

Perhaps the tech sector can now read the writing on the wall: It's going to be a rough ride.

As Taplin sees it, the government has to help direct private sector innovation through investment.

"The government is going to have to spur extraordinary levels of spending, as they did in the '30s, and the smartest, most efficient ways to do that would be to make sure we have universal broadband, spending on energy technologies, and alternative technologies," he said. "The way out of the crisis will be, I think, a very large investment program built by the government, based on leadership in IT and [energy technology]."

Taplin expects that the recovery will be traumatic and painful. "There are going to be a lot of empty shopping malls," he said. "But coming out of that on the other side, becoming once again the world leader in technology could be an exciting thing. We did it once before in the '60s and '70s when the IT revolution started, and it was the government, through Darpa, that provided the money to get it going. The Internet wouldn't exist if it wasn't for government spending."

"There's certainly going to be a lot of near-term pain," said Taplin. "But it's my belief that long-term, both IT and what Thomas Friedman is calling 'ET' -- energy technology -- will be the only ways to get out of this."

Amy Wohl, president of tech consulting firm Wohl Associates, expects that the inability to get credit will make life harder for fragile companies and startups. And she foresees problems for IT companies that serve the financial sector. She points to, which she said saw several of its large financial sector customers rearranged and merged recently.

But she also observes that IT organizations find themselves in a position where they will be asked to save money just as technologies designed to do that -- software as a service, cloud computing, virtualization -- are becoming mature enough to allow companies to reinvent their IT systems.

What's more, she said, those technologies may allow companies to reimagine their IT operations to be not just IT service consumers but IT service providers, as and Fidelity have done.

Part of the recovery, she said, "may be the opportunity to use services to create new businesses."

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