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The New Economy Backlash Checklist

By Rob WalkerPosted Wednesday, Jan. 24, 2001, at 9:00 PM ET

Depending on your professional relationship to the New Economy, you might think we've been in a backlash phase for months, or that the backlash has only lately gotten underway in earnest, or that it's still to come. There's some truth in each of these guesses. On the one hand, no one refers to, say, day trading as evidence of the "democratization of finance" with a straight face anymore. Venture capitalists have already taken lumps, the hulking New Economy magazines are now thin and dogged by skepticism about their survival, and dot-com "death pools" like fuckedcompany.com have ridden the wave of Schadenfreude to surprisingly widespread popularity.

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Still, my guess is that the backlash is not over. Much depends on whether the overall economy, and the stock market, limp through the next 12 months or build some sort of rebound. But many aspects of the boom were hyped so relentlessly that the conventional wisdom is now obliged to counterhype them. That is, it's not enough to simply admit that something like the cubicle does not represent a quantum leap in the improvement of the human condition; instead it must be demonized. So what's next for a good backlashing? The possibilities are nearly endless—and I'm certainly open to suggestions—but let's consider a few previously applauded manifestations of the boom culture.

Stock options: Somebody once observed that the apparently limitless upside of options made cash compensation passé—it just seemed "too final." My friend Marisa used to say that options, and the life-changing possibilities they embodied, were the LSD of the 1990s, but at this point I imagine there are plenty of people who wish they'd just said no. The next step would be widespread complaints that companies have handed out options willy-nilly, that they are not the free lunch they seem to be, re-pricing them can drag on the bottom line, they don't do nearly as much to engender loyalty as you'd think, they make possible some fairly questionable accounting tricks—and they are not nearly final enough.

Business plans on napkins: Perhaps the ultimate example here is recounted in Michael Lewis' The New New Thing. Jim Clark, fed up with the forms required on regular visits to the hospital, drew a simple diagram on a sheet of paper, illustrating his idea for a company that would use the Internet to eliminate all waste from health-care bureaucracies. "We want to empower the doctors and the patients and get all the other assholes out of the way," he explained, adding with a laugh, "Except for us. One asshole in the middle." Particular care was made to marvel that Clark knew nothing—nothing!—about the U.S. health care system; only such an outsider could have the vision and guts to change it. The subsequent history of Clark's Healtheon, and of WebMD, the company that bought it, suggests that once a plan has been drawn on a piece of paper, there are few advantages to knowing nothing at all about the thing you're trying to revolutionize. And anyone who bought HLTH when it was trading above 90 (it's below 10 now) might have some thoughts about who the assholes in this saga really are. (None of which, I feel obliged to ad, is meant as a knock on The New, New Thing, which remains an extremely impressive book.)

Pie in the sky valuation paradigms: Remember that whole Dow 36,000 thing? It's fun to ignore market history and dream up new ways of valuing stocks, and last February it might even have been fun to believe that the 30 stocks Super-Bull Jim Glassman was touting on his Web site really were great buys, despite their apparent priciness. It's less fun to find out that Mr. Market isn't interested in learning new tricks: Nearly a year after its inception, the Glassman Technology Top 30 has fallen around 40 percent, several percentage points worse than the broader Nasdaq. Although many of these stocks are obviously way more tempting at current prices, the proper backlash response would be to denigrate them all. Until they start rising again, of course.

E-dudism: The vogue for twentysomething CEOs really only lasted about 20 minutes before "seasoned" corporate grownups decided that heading a New Economy startup was the new equivalent of a trophy wife. Along the way, the grown-ups invariably transformed themselves into e-dudes (to borrow another friend's term) and chucked their suits in favor of black turtlenecks and chinos in an absurdly transparent attempt at seeming more "in tune" with the nose-ringers writing all the code. Expect more executives to Do The Joe Galli and go back where they came from. Probably in a suit.

Money columnists in general interest opinion magazines: Let's not dwell on this one.

Visionary extrapolation: This is closely related to the business plan on a napkin. Basically, if you spot a growing trend, all you have to do is extrapolate, then declare yourself visionary and everyone else myopic and in denial about the inevitable future dominance of whatever it is you're talking about. For bonus points, cite Moore's Law. An entire New Economy prognostication industry grew up around this idea, but obviously this sort of extrapolation isn't hard—it's easy. Anyone can do it. I'm already running long here, so I'll return to Moore's Law and the extrapolation surplus in another column in the near future. But for today, one more potential backlash victim.

Foosball. The New Economy workplace may have required long hours, but this was tempered by a homier atmosphere, tolerant of Nerf-gun fights and flexible hours. In a tighter economy, our old friend the citizen shareholder is likely to conclude that employees can play foosball on their own time and pay their own gym fees. And stop wasting time surfing the dot-com death pools! Your stock options depend on it!

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Reader Comments From The Fray:

Let me add another backlash signal to the list: No more free fruit. About nine months ago, the outrageously rich and powerful investment bank for which I work decided the best way to keep its analysts and VPs from jumping into the arms of any dot.com whispering about stock options, was to disperse free fruit and soda throughout the office. At that time I thought this was an innovation in the company-employer relationship. I waxed poetic to my Marxist friends about the care firms have to show their employers in the New Economy, in fear of the employee leaving for free fruit and fusball in other companies. The little guy was getting a little back, and it inspired me.

Not even a year later and suddenly my free bananas have been slashed in a cost-cutting measure. It seems the $500 a month was a completely gratuitous expense only appropriate for boom years, and not the coming famine. The significance of this, I quickly realized, was that the fruit was not a New Economy entitlement on the same inviolable plane as healthcare or free coffee, but was actually a bonus. So when the company is doing well, peons such as myself get an apple while the MDs get 15 million dollar bonuses. When the economy is bad I don't get fruit and the MDs are forced to rely on only 10 million dollar bonuses. When I pointed this out to my co-workers, they replied that we'll probably also lose the coffee soon. I walked by a board meeting today and saw that all the guests were given a little fruit salad to tide them through the meeting. Seems the New Economy backlash simply means a return to normal.

--DW

(To reply, click here.)

Stock options: Offering options as an enticement to desirable, prospective employees to come to work for high-risk, high-gain companies is, really, a fundamentally sound idea. It was just far too over-applied, misunderstood, and misused. Eventually, everyone came to think this was a free-lunch. Now they know it's not. Options, as Walker points out, have a downside for both employers and employees. But what's a surprise is that that's a surprise to anyone. Are options now going to be thought to be as "bad" as they once were thought to be "good"? Why?

Business plans on napkins: People aren't very rational at spotting trends or patterns. We're wired to error on the side of over-reacting, which isn't a bad evolutionary strategy. Successful businesses that started as jottings on a napkin--either literally or metaphorically--were no more common in the last few years than they ever were. People read of a few dramatic success stories, and never think to ask just how many more failures there were for each success. Does this mean there's nothing new under the sun, that there aren't visionaries who come up with great, immensely profitable ideas after a few cocktails and perhaps a handful of salted nuts? Of course not. Most successful businesses, however, are the result of a lot of research, planning, and hard work.

Foosball: What's wrong with foosball? Is treating employees well either a very "new", or a very "bad" idea? I recall shooting hoops in the early eighties at a broadcast radio automation company. There are diminishing returns in treating employees well, but there's diminishing returns in treating them like slaves, too. Where to draw the line is always going to be a subject of debate, more driven by whim than careful consideration.

When I think about how extraordinary these last few years have been for me, I don't really think that I was lucky to have lived during a time when "everything changed". I think I was lucky to live in a time during which I was lucky, if you know what I mean. What seems striking to me is the sense of mania that accompanied these years--in other words, people acted a little weird, but the world itself wasn't all that different.

Wait twenty or thirty years 'till half the U.S. is either a desert or underwater--then we'll see what legitimate, justified shadenfreude is.

--Keith M. Ellis

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