A Disastrous Signal From the United States

You can find the most impressive proof of how dynamic the American economy is on I-101 between Palo Alto and San Jose. In the 1950s, it was nothing more than a wasteland that belonged to Stanford University.

Professor Frederick Terman encouraged his students at Stanford to settle there, and he raised venture capital and secured low-cost office space. Twenty years earlier, two students named William Hewlett and David Packard had settled there, working in a rickety wood-frame garage. Since those early days, that wilderness has become better known as Silicon Valley, the hub of American creativity. Whether it’s Apple or Cisco, Intel or Oracle, Ebay, Google or Hewlett-Packard, those few square miles became home to global companies.

If you compare companies to living organisms, then Silicon Valley companies are adults. As infants, they needed protection and care; during puberty, they grew quickly and some of them bordered on rebellion. Today they’re predominantly mainstream, even if they prefer keeping their youthful image. Yahoo, however, is a good example of how quickly start-up companies can develop growing pains. In a few centuries, archaeologists will accompany bus tours along San Francisco Bay to the ruins of those high-tech companies that once ruled the world, because someday the computer boom will be replaced by the technology of a new century.

Companies, industries and regions have their own life cycles that governments can influence but little, as may be seen here in Germany with the Ruhr Valley coalmines. Detroit, the automobile capital, will inescapably become the next economic wasteland. The financial losses of Ford, General Motors and Chrysler are astronomical and a brighter future is nowhere to be seen. The U.S. government’s decision to prolong the suffering of these moribund companies by giving them money is ominous. Seventeen billion dollars will be wasted next February – not invested, but simply incinerated. Money that could have been used to invest in the future.

It’s an ominous signal when the motherland of economic freedom begins mindlessly subsidizing private companies. Businesses worldwide will follow Detroit’s example and a global competition for government support may follow. As tough as it may be for the workers, companies unable to compete have to disappear from the marketplace. More profitable firms will replace them, offering stable employment. It’s not the government’s task to preserve the business status quo but to encourage projects that will be successful in the future. This economic crisis offers the opportunity to accelerate this painful but totally necessary “change for the future” but the opportunity is being wasted in, of all places, the home of dynamism and innovation.