What The 'Cheap Revolution' Means To The Future Of The U.S., World

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The technology-fueled "Cheap Revolution" has changed everything, according to the publisher of Forbes magazine.

Of greater importance to the CU movement, said Rich Karlgaard, is that the world is "moving in a direction that favors credit unions."

"The effect bloggers and message boards have on a company's fate is increasing," he told attendees of WesCorp's recent Future Forum conference here. "Companies are forced to become more democratic than before."

Only 45% of Americans feel good about the U.S. economy-despite the fact the numbers are good, he said. The country is experiencing solid growth with low inflation, plus job creation. Still, the mood is somber, which led Karlgaard to ask: What is bothering the bears?

His answer is a question: What is the position of the U.S. economy in the 21st Century?

"Will it be as robust and create as many jobs as it did in the 20th Century? The United States owned the 20th Century, when it eclipsed Great Britain as the world power," he said. "Will China pass the U.S. in the 21st Century?"

Every new generation wants to believe it is the most interesting one in history, but the current one certainly has seen much turbulence in the economy, Karlgaard said. Predictions on the future of the equity markets range wildly-from Dow 16,000 to Dow 6,000. For perspective, he reminded the Dow was at 777 in August 1982 before the great rally. It peaked over 11,000 in January 2000.

The next direction the U.S. and world economies take will be influenced greatly by technology, especially the Internet-which Karlgaard described as the "greatest price transparency device ever created." He said technology has brought on a "Cheap Revolution," which has shaken the fundamental way business is conducted.

Karlgaard offered the audience four examples to illustrate how things have changed:

Example One: Google. The company was founded by two Ph.D candidates at Stanford University. They could have obtained $10 million in equity financing in the venture capital-mad days of 1998, but instead charged $20,000 on their credit cards.

"When it's your money, you get crafty, and you get cheap," he assessed. "They bought cheap computers off the rack to build their original hardware platform."

Today, Google generates more than a billion dollars in income, but Karlgaard said how little the company spends is more impressive.

Example Two: China. In 2005, China will become the leading volume manufacturer of silicon chips. China has four times the population of the U.S., but the formerly agrarian country leapt into this position by producing six times the number of scientists and engineers compared to America.

Example Three: India. A first-year radiologist in India makes $24,000, versus $350,000 for the U.S. counterpart.

Example Four: virtual Web design. A high school student started a web design business on the side. He formed a virtual team of 12 web designers scattered around the globe. They never met, talked on the phone fewer than five times during the creation of the company, yet soon built a formidable client list that included Microsoft, Stevie Wonder, and P Diddy Combs' clothing line, Sean John.

"They charge 5% of what their competitors do and they do spec work for free," said Karlgaard. "Not 5% less, 5%!"

"These are just four examples among thousands of how the Cheap Revolution is changing everything," he added.

Three things about today's business environment are not going away, said Karlgaard:

First: The advancement of technology. Processing power continues to double every few years, while prices continue to drop. Today, China and North America have the same cellular telephone population. A year from now, China will far surpass the North American market-because of the Cheap Revolution making handsets available.

Second: Hundreds of millions of talented people are coming into the global workforce all at once.

Third: The Internet will remain the greatest price transparency engine ever created.

"Hotels and airlines have been greatly impacted, even companies that do not publish their prices," he said. "A bright college student could use Google to replicate a company's price structure in a few hours-information previously available only to Wall Street analysts."

The consequences of these three factors? For starters, Karlgaard said, it is a great time to be a small, private company.

"The playing field has been so leveled. Access to technology is the same as at a large company, but the small company is starting with a blank sheet of paper. It has no legacy issues. The Google example hints at what small companies are going to be able to do."

The fastest-growing communities in the United States in coming years will be college towns, especially former land grant universities in the interior of the country, he continued. The price gap between the urban coasts and the heartland is at its highest ever, yet the information gap is the smallest.

Karlgaard foresees employers looking for bright, young college students in places such as Madison, Wis; Fargo, N.D; Bozeman, Mont., and Lawrence, Kan.

He said Microsoft has a large workforce in Fargo, N.D., after buying out a small software company there.

As for real estate prices: he said "boom or bubble" is the "million-dollar question."

"What [Federal Reserve Chairman Alan] Greenspan thinks is more important than what I think," Karlgaard said. "Greenspan is looking at the housing market the way he looked at the stock market in 1996 with his 'irrational exuberance' comments. With a year to go or less in his tenure, I expect Greenspan to do what he can to pop the bubble."

"On the urban coasts, there certainly seems to be a bubble," he added. "Prices on the coasts could go down 20%."

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