James Fallows Interview: Conversations with History; Institute of International Studies, UC Berkeley

A Journalist's Craft: Conversation with James Fallows, National Correspondent, the Atlantic Monthly, 12/7/00 by Harry Kreisler.
Photo by Jane Scherr

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The Internet Revolution

One of your present concerns is the technology and communication revolution that we're undergoing today. Let's talk a little about that and get a sense of what your compass tells you, based on your travels, your reporting, and your thinking about this, because it would seem that the public dialogue on this issue is really important. Is the Internet changing everything around us in the drastic ways that we first thought?

It is changing everything, but I would argue in a different way from what people suggest. And I think there's an interesting analogy in business, which can apply more broadly. The business analogy: You and I are speaking in late 2000. In 1999, 1998, people thought that the business revolution on the Internet would be the dot-com companies themselves. There was a huge boom, which has since abated, and I think it's become clear that the real effect of the Internet in business for the near term will be on other businesses, on old businesses, businesses that could become more efficient, how they use energy, how they get supplies, how they distribute themselves. So car companies, steel companies, food companies -- the Internet will have its real impact there even more than on the dot-com companies.

Wiring the factories ...


... and the retailers and so on that are brick-and-mortar establishments.

And, for example, I think the last five years has been the first time in history that as the GNP has gone up, use of electricity has gone down, even though the Internet itself consumes a lot of electricity, because it saves so much in existing industries. More generally, I think the Internet's effect on life -- on education, on politics, on culture, on people's interactions -- will mainly be broadening ways people already interact rather than having revolutionary transformations. There will be some huge transformations, but, for example, e-mail is an extension of the telephone. It's sort of an asynchronous telephone. It makes a big difference in all of our lives, but it essentially expands something we did before, and I think in almost any realm of life you want to talk about, it's expansive and additive rather than a revolutionary transformation. And, in a way, it's more important.

What about politics? Wasn't this supposed to be the campaign that changed everything, and, in fact, changed nothing?

I just finished a huge piece in the New York Review of Books on exactly this theme, whose point was that this was supposed to be the Internet's election year, as 1960 was TV's. And, in fact, TV was still more important to this election than the Internet was. The televised debates have huge impacts. "Saturday Night Live" had impact, etc. And the impact of the Internet was, again, long-term and incremental. E-mail for getting out the vote will have some impact. E-mail for getting out campaign position will have some impact. If the test is not "Does this overturn everything we've done before?" but rather "How does it extend in interesting ways past systems for doing business?" then you can see that it has an impact. But it's that additive effective that I think will be important.

Now what about economic concentration? We are seeing now consolidations like Time-Warner and AOL and so on; the possibility that Yahoo! might ... Are we back to AT&T again in a funny kind of way?

Ah, yes ...

Although AT&T is not doing well!

I think that this is going to be the most interesting next economic aspect of the Internet. In the mid-1990s if you asked people in the tech world in general and the Internet in particular about what kind of business model they thought they were part of, it would be the small-d democratic, two kids and a garage, "let's start a company" model. You know, Yahoo!, e-Bay -- these were set up by people just out of college -- sometimes in college. They thought this would be the way to break up big, established concentrations. But by the end of the 1990s and the beginning of the 2000s, clearly the Internet was a large engine of concentration in the economy. And I think probably the most significant deal of the last ten years is not so much the Microsoft breakup talks, but rather the AOL/Time-Warner concentration. Because you have the big behemoth of online communications with the major cable company, with a major magazine firm chain, with a major movie studio. All of our conceptions of antitrust and how it should be enforced and the effects of concentration on the public life, I think, will need to be rethought. What is the difference when you have so much communications power in one company? I don't have an answer to that, but I think it'll be the place where many people will be thinking, arguing, in the next couple of years.

One of the things we're becoming very sensitive to about this new technology is the Napster phenomenon. The technology combined with technical skills of even the youngest people can create a situation, for example, in which one's copyright and one's entitlement to property, to private property of what one has created, would be sacrificed. How do you think that that will work its way out? Again, will it be institutions adapting, but no major revolution?

Well, it's clear that something will have to work out. You know, when the Napster deal with the Bertelesman was announced, and Napster was no longer just going to give everything away for free, a lot of its constituency among college [students] was outraged You know, "Napster sells out," etc. But it was clear that that was going to happen sooner or later. With each shift in the technology of media, there's been some change in how intellectual property is preserved. When printing presses [became available], authors were in a whole different position compared to when there were [only] manuscripts, because it was a different system for getting their ideas around. When the Xerox machine first came into existence, there was a whole idea of how you were going to control things. Some new system will evolve, because people who create music, people who create books, people who create programs need to be paid somehow. So I suspect what will happen is eventually some new system of micro-royalties in some sense. Every time you check onto Napster, you will have 25 cents deducted from your account and it will all go someplace. I think it will be incremental business and legislative deals that by four or five years from the time you and I are talking, will have worked itself out. Because that's been their record in the past.

Your book Looking at the Sun focused in part on the relationship between government and business and what government was doing in those situations that furthered the ability to compete. book cover How has any of your thinking changed in light of America's comeback, so to speak, as a result of the Internet revolution?

This was a book I wrote at the time when the Asian economies were nearing their peak and the U.S. economy was beginning its comeback. And I would view much of what's happened there as an extension of the patterns I was talking about in the following, I think interesting, ways. One of the big arguments at the time was whether the Japanese economy was basically like Western economies or basically not. I was in the camp saying, "This is basically not like the Western economies at all. It's organized for different purposes." And I was considered a racist for saying these things. But I would say the last ten years has validated that point of view, because from a normal capitalist point of view, they should have made a million changes during the 1990s. They should have liquidated all the bad debt in their banking system. They should have changed their political system. And they didn't. The preservation of some existing relationships was more important than capitalist vitality there.

For the U.S., there's been an interesting working out of the proper balance between state and private interactions for economic growth. The origins of the Internet were heavily state influenced, as everyone knows. This was DARPA-Net in its origin. But at a certain point, it was important to have private capital and private ingenuity take over with certain rules set by the government. And I would say here the Microsoft antitrust action was a very important rule set by the government, by having some limits on Microsoft's power in this world. And the decision said there'd be certain room for new enterprise to grow. So I would think that the stagnation of Japan in particular and the growth of the U.S. in general over the last ten years has ratified the point of view I was trying to argue in this book.

The cultural base of the Internet revolution is really the one that you first experienced in your California days, and then went on to articulate and argue about, namely this openness, the upward mobility, the emphasis on the individual and what he or she can accomplish.

Well, it certainly is striking to look at the statistics on Internet company formation. I believe it's the case that in the year 1999 in California, most technology start-ups were founded by immigrants. California people born especially in China and India; not just Asian-Americans, but immigrants. And so there is something in the culture of venture capital, the culture of start-ups. Now, of course, there are factors other than that culture, too. For example, in the year 2000, the culture still remains, but the market has been sliding. And so it's a combination of the cultural predisposition, which makes it easier to do these things in San Jose than in Warsaw or in Ulan Bator or someplace else, and the underlying fundamentals of flows of money, interest rates, etc. Those have had a very productive mix in the last decade.

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