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What the Bubble Got Right
Jeremy Faludi, 7 Oct 04

Paul Graham, author of Hackers and Painters,has a new essay on what so many thought was dead, The New Economy. There was the boom, where you couldn't tell what was real change amidst the mountains of hype; then there was the crash, and many people thought the New Economy was nothing BUT hype. But now that we've had some time for the smoke to clear, and scout through the wreckage to see where signs of life are, and Graham's essay What the Bubble Got Right is a good picture of it.

"The Internet genuinely is a big deal. That was one reason even smart people were fooled by the Bubble. The same thing happened during the Mississippi and South Sea Bubbles. What drove them was the invention of organized public finance... And that did turn out to be a big deal, in the long run...."

"The hard part, if you want to win by making the best stuff, is the beginning. Eventually everyone will learn by word of mouth that you're the best, but how do you survive to that point? And it is in this crucial stage that the Internet has the most effect. First, the Internet lets anyone find you at almost zero cost. Second, it dramatically speeds up the rate at which reputation spreads by word of mouth. Together these mean that in many fields the rule will be: Build it, and they will come. Make something great and put it online. That is a big change from the recipe for winning in the past century...."

"The aspect of the Internet Bubble that the press seemed most taken with was the youth of some of the startup founders. This too is a trend that will last. technology has grown more important, the power of nerds has grown to reflect it. Now it's not enough for a CEO to have someone smart he can ask about technical matters. Increasingly, he has to be that person himself...."

"What makes the nerds rich, usually, is stock options... Options are a good idea because (a) they're fair, and (b) they work.... Employees seem to be most productive when they're paid in proportion to the wealth they generate. And the advantage of a startup-- indeed, almost its raison d'etre-- is that it offers something otherwise impossible to obtain: a way of measuring that."

On this last quote, I would also add that stock options are a kind of socialism done right. Instead of having unions, which are by nature adversarial to management, making workers shareholders starts to unify the interests of the workers and the company. The larger the percentage of employee-owned company stock, the closer the company comes to being a worker-owned coop. What minimum percentage would be necessary to maintain good working conditions? So far we haven't had a test, because programmers aren't commodities. Yet.

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I really disagree strongly with the idea that stock options are more valuable to workers than unions. First of all, few companies would ever allow the workers to control the companies through stock. They keep very close track of how much stock is given out and are sure that executives still have control. Second, when workers invest in the stock of their companies, they face complete disaster if/when that company goes under. How many people lost their retirements this way when the bubble crashed? Third, to assume that workers owning stock is a good thing you have to also assume that the interests of workers and executives are the same and there is a little evidence to suggest that they are. If the goal of corporations was to maintain slow steady growth that provided long-term stability to workers you might have a case, but it rarely is. Were the goals of Enron or Tyco execs those of their employees? I think not.

Posted by: Erik Loomis on 7 Oct 04

I really find that most of the people prefer cash-in-hand bonuses to share ownership. No lie!

Posted by: Owen Walton on 23 Oct 04



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