A Research Forum for Technology Commercialization and Economic Logistics

What follows below is the text of a video recorded by Sten Thore, Gregory A. Kozmetsky Centennial Fellow Emeritus, The University of Texas at Austin, on April 13, 2000. The recording took place on the premises of the IC² Institute, to where requests for copies of the video may be directed.

My subject is capitalism, how it has fared during the past one hundred years, its present, and the promises for the next one hundred years

1.1. As the century opened, the worst and ugliest aspects of capitalism were in rich evidence – monopolies, colonialism, and imperialism. The world was led to a great military cataclysm, to war, just as Marx had predicted. In Russia, there was revolution and the dictatorship of the proletariat. In the West: countries in ruin and hyperinflation. Back home, the US economy was egged on by the "robber barons."  In 1900, Andrew Carnegie and Pierpont Morgan had created the US Steel Corporation. It held 75 percent of the American steel market. It was the apotheosis of monopoly capitalism.

1.2. Things did not get very much better in the 1930s. Ruthless dictatorships of state capitalism emerged in Germany and Italy. The great depression was followed by the emergence of an insidious new economic theory invented by John Maynard Keynes, the siren song that massive government spending would pull us out of the bad times. What followed was a mushrooming of government enterprises and the government sector in most Western countries, slowing growth, and the perspective of economic stagnation It would take extraordinary courage and insight still to believe in capitalism. One person, who did so, was Joseph Schumpeter. He saw and described the innovative forces of capitalism, he saw a creative mechanism even in business failures. But Schumpeter ended up a pessimist, believing that monopolies and state capitalism would eventually gain the upper hand.

1.3. The economies of the West muddled along during the 1950s and 1960s and 1970s, riddled by stagnation and so-called "euro-schlerosis", the gradual petrifaction of the European economies. A litmus test of the health of capitalism came in the early 1960s when the former colonies of Africa and Asia gained their independence and were to choose an economic system for their new fledgling economies. Most chose some variation of Soviet central planning, five-year plans, and state capitalism. Nobody seemed to believe in the capitalist heritage of the West any more.

1.4. The exceptions came in two former axis countries: the Wirtschaftswunder of Germany and the economic miracle of Japan, later spreading to a few more Far Eastern Dragons: South Korea, Hong Kong, Taiwan, Malaysia. There were one or two showcases of successful capitalism in the West as well, and the state of Texas, with a booming oil and real estate industry was one of them. When I arrived in Texas in 1978, the global outlook for capitalism nevertheless looked dismal, and I told myself that here scholars like myself had one of the few last chances in world history to observe capitalism first-hand, before it became extinct.

1.5. Then, in the early 1980s, something happened: the high technology revolution. Swarms of new technological and commercial breakthroughs in biotech, pharmaceutical science, and computer hardware and software. A few visionaries had seen it coming, people like George Kozmetsky who had founded the IC2 Institute at the University of Texas to further the study of the creative powers of the capitalist system. The US economy came roaring back, riding high on mergers, takeovers, and initial public offerings on Wall Street. It is a new kind of capitalism, based on knowledge capital and information rather than on machinery capital.

The New Face of Capitalism

2.1. The new capitalism is being driven by an explosive and self-feeding growth of high technology. There are swarms of small start-up companies growing at phenomenal rates. There are also stumbling giants. In the resulting setting of industrial turmoil, there occurs rapid technological evolution. A kind of balance is established between creativity and oblivion, between the commercialization of new products, the launching of new ventures, mergers and acquisitions, and bankruptcies. In the eye of the evolutionary storm is the new digital industry - - the industry of creating and distributing digital products such as data, news, entertainment. A new kind of synergy is driving the growth of the digital industry when the development of new technology by one company becomes the industry standard. Examples of such networks are the digital standards for picture compression, for sound compression and for video compression.

2.2. Second, there is the new and surprising evolution of venture capital and the stock market. A new democracy of stock ownership has developed, facilitated by the rapid growth of mutual funds, and by the increased availability of financial information. Further, new techniques have been invented for mergers and acquisitions in the stock market. New facilities for IPOs (initial public offerings) have been created. New venture capital vehicles have been created for the marketing and evaluation of new opportunities. Many of the new ventures commercialize new knowledge. The stock market provides the arena where the new knowledge capital is traded. The stock market no longer just gauges the health of corporations. It tracks the progress of the accumulation of new knowledge itself.

The Future - - On the Need for a New "Constructive Capitalism"

3.1. When George Kozmetsky started the IC² Institute, the acronym "IC2" stood for Institute for Constructive Capitalism. What George meant by that expression was the need for a constructive dialogue between the private sector and government. I submit that the main research challenge for the Institute for the next century should be to answer the following question: How can the private sector and local and central government cooperate to make capitalism work, providing guidance and challenge for new creativity, within a setting of democracy and law? Only fools still believe in unfettered laissez-faire. Enlightened government is needed to steer the development of technology and of the economy onto a path of sustainability and harmony with the environment. Financial corporations need to be regulated to ensure their solvency. Monopolies need to be busted. But how, precisely, should the relationship between government and the private sector be organized? What kind of government guidance and interference is benign, and which government regulations and controls are harmful?

3.2. I have six grandchildren, and I often think of what the world is going to look like when they are grown. Unfortunately, I see great dangers ahead. We live in an age of the great myth of Progress. Yes, there is unparalleled technological progress, but man remains the same, with good and evil co-inhabiting his soul. The economic system will always be subservient to the ruling political system, and the outlook for human governance is not good. One of the greatest sins of man is the lust for raw power - - be it military power, government regimentation, or even monopoly power. Giving those powers free rein, the foundation of capitalism withers. Globalization offers the promise of exporting the beneficial settings of capitalism to the entire world. But capitalism is a tender plant, blossoming only in a climate of individual liberties and true democracy. Its creative wand springs from the right to research, to publish and to assemble. In the US we take these rights for granted, but they are favorite targets of the totalitarian state. The People’s Republic of China stands out as a bad example in this respect. It is particularly ominous because there you have a state that professes its belief in high technology, and yet does not permit the free dissemination of knowledge.

3.3 Some of the most intriguing initiatives taken by the IC² are our attempts to foster commercialization and the technopolis in other countries, in China and in Russia. It seems to me that those programs offer a great opportunity to establish islands of understanding of capitalism around the globe. To achieve that purpose, it is not enough to teach the technicalities of running an incubator or of an initial public offering. Those people that we are fortunate enough to encounter in these programs need instruction about the basic mechanisms of free markets, and the workings of the capitalist system. They need instruction in human rights and human liberties, about the mechanisms of democracy, and about representative government. Capitalism can only be the servant of people, if government is the servant of people.