The Economy Of The Future?

Story has it that a Washington taxi driver once told an inquiring passenger that the motto on the National Archives Building, WHAT IS PAST IS PROLOGUE, really means "You ain't seen nothin' yet." In the case of the Internet and American business, the motto could be changed to WHAT IS PRESENT IS PROLOGUE--but it would translate the same way.

By many gauges, the Internet is already huge. As a business communications tool, it surpassed the telephone last year, when 3 billion e-mail messages were sent each day. Revenues of what might be called the Internet economy last year surpassed $300 billion, according to a University of Texas study, and experts say that number could double in 1999. The U.S. economy is so enormous that we are just beginning to see the effects of the Internet--lower inflation, more productivity, faster growth and a boom longer than anyone had expected, just a few months shy of being the longest in U.S. history. Profound as these effects are, they are only a foretaste of what could change the economy, and the way business is conducted, almost beyond recognition.

But please put heavy emphasis on the words could and almost. A gathering of TIME's Board of Economists, which met in San Francisco and was largely composed of specialists in the workings of nearby Silicon Valley, left a clear message: members were not at all prepared to forecast for the country an automatic or painless ascent into an Internet nirvana.

The Internet is weaving itself into the fabric of the economy at a breathtaking pace; on that point the economists were in full agreement. But they stopped short of calling it a revolutionary force, on the order, say, of the development of electricity as a power source for industry in the early 20th century. They did note that the Internet, like electricity, is insinuating itself in ways that make the future unthinkable without it. Says Barry Newman, director of technology, corporate and investment banking at Banc of America Securities: "You're going to see the Internet become a core portion of every business, of the way you think about entertainment, communication and information."

One difficulty is noted by Hal Varian, dean of the School of Information Management and Systems at the University of California, Berkeley: there are different definitions of just what the Internet is. "In a very narrow sense," he says, "it might be defined as a standardized protocol for wide-area computer networks." A broader definition, he explains, would be "the entire system of computers, plus the LANS [local area networks], plus the wide area network." That would come close to embracing most of what is generally considered information technology (IT).

That said, Paul Romer, professor of economics at the Stanford Graduate School of Business and an expert in economic-growth theory, specifically warns against a "technological determinism"--a belief that technological progress will continue along a fixed trajectory regardless of the choices people make. He predicts that "the Internet will reshape society, but also that society will reshape the Internet through its decisions about taxation, antitrust policy, support for new types of standards organization, protection of privacy and intellectual property, and the regulation of bandwidth connections to the home."