The Unstoppable Wave

The news today is full of speculation over the future of the economy. Will the recession run on "for years"? What kind of government stimulus should be applied? Are the proposed actions going to be too big, too small, too focused on this group or that group?

While these are important questions, and worthy of analysis by investors, there is a much bigger investment event taking place, of which many investors are completely oblivious.

This event is so momentous that it simply will not be stopped by this or that "stimulus package" decision, will not be stopped even by a recession as deep as the Great Depression, even though we do not believe investors have to fear a Great Depression on the horizon. In fact, the event of which we are speaking is as unstoppable as the Industrial Revolution, which was continuing its sweeping path of change through the economies of the West during the time of the Great Depression and was not something that the administrations of Coolidge, Hoover, or either Roosevelt could have prevented, even if they had wanted to.

There is every reason to believe that the world is today facing a Bandwidth Revolution which will be every bit as transformative and unstoppable as the Industrial Revolution and the Computer Revolution before it.

The most prescient herald of this approaching sea change has been and continues to be George Gilder. As early as 1996, he published an article in Wired magazine in which he articulated a vision which, thirteen years later, can be clearly seen to be materializing.

In that article, he explained the concept of "a new paradigm." Each economic era is dominated by a very different paradigm, characterized by "a key abundance and a key scarcity." For the thousands of years prior to the Industrial Revolution, the key scarcity was horsepower -- physical power -- while land was relatively abundant.

That dominant paradigm has undergone a seismic shift twice in the past century and a half. First, the Industrial Revolution made mechanical horsepower cheaper and cheaper and more and more plentiful. Towards the second half of that revolution, electrical power also became cheaper and cheaper and more and more plentiful. Power became cheap and plentiful enough to throw at almost any problem -- from washing and ironing your clothes, to planting and harvesting crops, to digging mines and tunnels . . . the list is endless.

Then, the Computer Revolution ushered in a completely new paradigm in which a new abundance would be applied to virtually all areas of business and life. Instead of supplying power to manipulate the physical world, it supplied enormous power to manipulate the world of words, images, numbers, texts, and information. Having lived through it and had its incredible transformations become part of daily life, we are almost blinded to what a change this second revolution brought about (desensitized like the proverbial frog being gradually boiled). But, if you look back at one of the first documents to predict this second revolution, the famous 1945 article by Vannevar Bush "As We May Think," you can see how radically the new capabilities have altered the world from which that prescient author was looking forward to ours. It is well worth a read.

However, while processing power became abundant, and was thrown at every aspect of life, connectivity -- bandwidth -- was scarce, and it was expensive. As George Gilder predicted in that Wired article thirteen years ago, "To grasp the new era, you must imagine that bandwidth will be free and watts scarce."

In other words, he foresaw yet another massive paradigm shift approaching which would be as transformative as the Industrial Revolution and the Computer Revolution. "If bandwidth is free," he wrote, "you get a completely different computer architecture and information economy." In fact, he predicted, "the most common computer of the new era will be a digital cellular phone with an IP address."

This prediction is rapidly becoming reality. The world in which bandwidth becomes abundant enough to throw at every aspect of life will usher in changes as momentous and transforming as those of the Industrial Revolution, as enormous as those that have made the world of today different from the world of film and typewriters described by Vannevar Bush in 1945.

It may seem that the bandwidth revolution has been sidetracked, and that it will never arrive, but in fact it is like a wave that cannot be stopped, even by the mistakes of the Fed or the miscalculations of Wall Street investment banks. Businesses need the efficiencies of connection, and consumers are ever hungrier for more bandwidth (which chiefly means more video and images). Enterprising companies will supply it to them, and as they do so, competition will cause them to supply it more and more abundantly, and more and more inexpensively.

We have published several previous posts hinting at some of the important aspects of this impending revolution, such as "Big Changes Coming," "Big Changes Coming Part II," and "Video is Clearly the Killer App Here."

We have also explained several times before that the investment process that we have pursued for decades is based upon finding well-run businesses in front of fertile fields of growth. To find those fields of growth, we look for major paradigm shifts. The paradigm shift discussed above is only one of the different paradigm shifts that we believe are taking place right now, although it is an important one.

While the rest of the financial world (and the financial media) are moaning about what a mess they've made of things, and wondering if the recovery is going to come in this month, or that month, or in a few years from now, investors who are aware of what is going on should be positioning themselves now to participate alongside the companies that are going to take advantage of the onrushing technological wave.

For later posts dealing with this topic, see also:

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1 comment:

  1. Speaking of paradigm shifts, have you seen Microvision's full size screen for mobile products?