Computing in the
Insights from difficult times in the computer industry.
SINCE THE BEGINNING of the computer industry, it has been through several ma- jor recessions. The first big one was in 1969; there was
a major shakeout in the mid-1980s;
and most recently there was the dot-com bust in 2001. A common pattern
observed in these downturns was that
they occurred approximately five years
after the establishment of a new computing paradigm—the launch of the
IBM System/360 platform in 1964, the
personal computer in the late 1970s,
and the commercial Internet in 1995.
These new computing modes created
massive opportunities that the entrepreneurial economy rapidly supplied
and then oversupplied. It then took
only a small downturn in the wider
economy to cause a major recession in
the computing industry.
PhotograPh courtesy of iBM corPorate archives
The current recession appears to be
quite different when compared to these
earlier downturns. Unlike in earlier recessions, computing is not a victim of
its own excess, but is suffering from the
general economic malaise. Computing
is not much different than any other industry in the current recession—it has
no unique immunity. However, it has
no unique vulnerability either, which
offers a small amount of comfort.
Lessons from the Great Depression
To get some insight into what is happening today we have to look back to
the Great Depression. Electronic computers did not exist at the time of the
Wall Street crash of 1929, of course.
Despite the Great Depression, ibm increases its employment, trains more salesmen, and increases engineering efforts.
But there was an office machine industry whose products—typewriters, adding machines, and accounting equipment—performed many of the tasks
now done with computers. Indeed, the
most successful of the early computer
firms sprang from the office machine
industry—IBM, NCR, Remington Rand
(later Univac), and Burroughs among
During the depression years protectionism was seen as one of the policy
options. Because this option still surfaces from time to time, it is instructive to see what happened in the 1930s.
The U.S. was a net exporter of office
machines, so it was not interested in
protectionism in this sector, of course.
Most of the drive for protection came
from nations that imported office machinery—but these polices were often
the result of a tit-for-tat elsewhere in
the economy. The world’s two biggest
exporters of office machinery in the
1930s were the U.S. and Germany. Most
other advanced countries, such as Britain and France, had their own office
machine industries, but they found it
difficult to compete at the best of times.
Their response in the depression was
to impose “ad valorem” import duties
of 25% or 50%. In these countries import duties combined with a general
lack of business investment made office machines formidably costly, and
the domestic products were not always
an adequate substitute. Although the
import duties on office machinery may
have briefly helped domestic manufacturers, retaliatory protectionist
measures in other industries simply
led to a downward spiral of economic
activity. At the height of the depression
in 1932, office machine consumption
worldwide was down a staggering 60%.
It is a difficult lesson, but selective pro-