A New Era of Innovation--and Profit--May Be Looming

If American consumers are having an anxiety attack, does that mean that the recession is all in their minds? No, but that’s what much of the commentary would have you believe, with talk of America traumatized at the loss of its dream or awakening only now from delusions of prosperity. Mostly that’s nonsense.

The real problem is economic, not psychological. And though consumers wouldn’t immediately think of the word, the root cause of their concern is declining profit, especially in advanced industries--computers and electronics, automobiles and aircraft, even medicine and pharmaceuticals--as innovation has gone temporarily dormant.

After decades that saw advances in the automobile, the television and the computer, the world economy is in a lull. Lately products have been derivative--a bigger-screen TV, a smaller computer; the car has become a commodity. And when that happens, profits shrink or disappear, as they have not only for U.S. firms but for Japanese and European companies too.

The special profits of innovation--the wealth creation that comes with new industries--are more than financial phenomena. When they’re absent, vision becomes uncertain, research is trimmed back, hiring plans are put on hold. That’s the situation today, causing Americans not so much to look to the past as to worry over lack of future direction.

Only the stock market seems decisive--especially U.S. markets, where many prices are at all-time highs. And that’s a clue. The market is giving record prices to stocks of Apple Computer, and Hewlett-Packard, to Microsoft and Motorola and to telephone companies and electrical suppliers because it anticipates a new era of innovation.

Within a few short years, combinations of the television, computer and telephone will begin to transform daily life. Innovations in electrical power, including electric cars in urban areas, will emerge by the mid-’90s.

It may be too early to pick corporate winners--the stock market’s enthusiasm notwithstanding--but not to acknowledge that a climate of change and technological excitement is surprisingly near. New federal energy laws will soon mandate government and corporate use of electric, solar or natural gas-powered vehicles.

As for television: “Forget TV sets, in three years there won’t be any,” says Andrew Lippman, somewhat tongue-in-cheek. Lippman, research associate of the Media Lab at the Massachusetts Institute of Technology, predicts that, instead, there will be computers married to TV sets--digital television.

The effect will be an earthquake for many businesses. When TV sets can receive data as computers do, it will be possible to transmit vastly more material. Digital TV will mean a great abundance of television channels, fed by satellite or cable.

Stanley Hubbard, chairman of U.S. Satellite Broadcasting Co., of St. Paul, Minn., is already talking of 200 to 400 channels. John Malone, boss of Denver’s Tele-Communications Inc., talks of 500 cable channels, enabling his company to dominate local advertising. News Corp. Chairman Rupert Murdoch, who last week took the day-to-day reins at Fox Inc., is pushing his media companies deeper into cable through ventures with Malone’s TCI.

Those mega-channel ventures are only in the planning stage, but already they’re casting a long shadow of coming market power in advertising and communications. And that’s causing concern among broadcast TV networks, local TV stations and other media businesses, including newspapers.

But the implications of television-as-computer go beyond advertising media. The digital TV set will allow individuals to store and manipulate information, to study and experience places and events as never before. Unlike today’s cheap and simple box, the set will become a product with inherent value--and the seed of a video industry reborn, with particular significance for U.S. business, which withdrew from TV manufacture a decade ago.

Now U.S. computer and electronics companies are working on video products. Hewlett-Packard said last week that it will manufacture an interactive television device to enable viewers to answer back to quiz shows and order from home shopping channels.

Apple Computer will make personal communicators and digital file drawers. In a venture with Motorola and Sony, Apple will make devices combining a TV, a computer and a cellular phone.

Sure, quiz show devices and hand-held diaries are gadgets, not technological breakthroughs. But understand what is happening: The research and development capabilities of the computer industry are turning to work on consumer electronics.

Serious products will result. Last week Apple reported progress on making the Macintosh computer respond to voice commands. Machines that automatically translate languages--repairing the breakdown of Babel--are really not far off.

“It’s the early stages of interactive video,” says analyst Andrew Kessler of Morgan Stanley. “The business will take off when an application becomes a hit with the public.”

Neither Kessler nor anybody else knows what that application will be. But he can predict that interactive video will grow to a $50-billion business by the late ‘90s. Because that’s how innovation works, creating industry and wealth and often rejuvenating an economy in unpredictable ways.

Legend has it that Thomas Edison invented the phonograph merely to record a deathbed will, and Alexander Graham Bell invented the telephone as an aid for deaf people. Both inventions came in the late 19th century, when the U.S. economy was in a long depression--and they helped lift it out.