Page 64 - Introduction to Business

38 PART 1 The Nature of Contemporary Business

The Internet is of tremendous importance, but it is only a small segment of a
nation’s economic output. However, the fact that the Internet is important does not
imply that it must be profitable. The bursting of the Internet bubble in 2000 clearly
14
exposed the common misconception that importance equals profitability. As we
have noted, there are many similarities between the IT-enabled technologies (espe-
cially fiber-optic cable and related business) of 2000 and the United States’ railway
mania of the 1870s. In the 1870s, would-be rail millionaires raised vast sums of
money on the stock market to finance proposed railway lines by misleading
investors on their companies’ business prospects. Most railway companies never
paid a penny to shareholders, and many went bust (just like Global Crossings,
Worldcom, and the dotcoms of the early 2000s in the United States), largely because
irrational exuberance and overinvestment created excess capacity. Even so, the rail-
ways brought huge economic benefits to the U.S. economy long after their share
prices crashed. The lesson is that although the IT and Internet bubbles burst in
2000, these may still produce long-term economic gains. Many investors, however,
will have lost their shirts in the bargain! It is a sobering thought that 99 percent of
the 5000 railway companies that once existed in the United States are no longer
around. The same is true of 2000 car firms that once existed in the United States.
According to a study by investment bankers Goldman Sachs, profits and share
prices of the early electricity firms in the United States were disappointing, despite
the industry’s profound effect on the economy. 15
Despite the collapse of many IT and dotcom firms and the failure of many e-
marketplaces, the fundamentals behind B2B e-commerce remain strong. A major
risk that has emerged since September 11, 2001, in B2B e-commerce is the impact
of terrorism (especially on transportation systems) along the supply chain. Effi-
ciency improvements and cost savings achieved through B2B e-commerce have
already led to higher productivity growth and lower costs and prices, which should
allow Internet-enabled economies to grow faster with low inflation. While most of
the gains will occur between businesses, the greatest long-term beneficiaries of B2B
e-commerce will be the consumers, who will enjoy lower prices and higher living
standards.

Impact of IT on Globalization, Culture, Society,
and Politics
Although developing countries are widely thought to be losing out from ever-faster
technological change, the Internet and related technologies are getting cheaper all
the time, making timely information available instantaneously and globally. For
example, A Better Life Foundation (www.ablf.org), a not-for-profit European organ-
ization, ships older PCs (as they get replaced by their sophisticated European own-
ers) to African countries like Burkina Faso for reuse. Such programs of computer
recycling enhance the computer skills of people in developing countries and
improve their employment prospects. Everyone benefits. Countries with poor fixed
infrastructure need not despair. Mobile telephones are popular everywhere, even in
developing countries. In poor countries, wireless IT has extra advantages, since
fixed-line telephones in these countries are woefully inadequate and inefficiently
run by state-owned monopolies. Some developing countries have created better
communications infrastructures than rich countries, since they started late but
adopted the latest technology at lower cost. The Internet allows the adoption of
outside technologies faster and also helps the development of homegrown tech-
nologies that often use open-source (free, e.g., Linux) software. It also enables
closer collaboration within and among countries. Governments need to remove

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