The great stock ‘n’ soul swindle

John Cassidy's dot.con puts the internet into perspective.

Sandy Starr

Topics Politics

Several postmortems of the dotcom era have been published in recent years (1). The latest, and one of the most impressive, is John Cassidy’s dot.con: The Greatest Story Ever Sold.

What gives dot.con an edge is its incorporation of the 11 September terrorist attacks into its analysis. Cassidy argues that ‘the internet boom and bust was about America – how it works and what it thought of itself in that short interregnum between the end of the Cold War and September 2001’ (p6).

It is tempting to write off dotcom mania as a frivolous aberration – but there was more to it than that. Cassidy points out that the technology sector presented Alan Greenspan, chairman of the US Federal Reserve Board, with ‘the biggest challenge of his career’ (p275).

Cassidy does a good job of explaining the enthusiasm the internet once elicited – not just from investors, but from users. ‘Going into the business world didn’t necessarily mean putting on a suit, killing your teenage dreams, and working for a stultifying corporation. It could just as easily mean putting on a suit, hooking up with some friends, and striking out on your own.’ (p86)

Meanwhile, ‘those upstanding citizens who haven’t joined in the festivities…feel like fools. If their daughter’s boyfriend, who does nothing all day but sit and play with his computer, can make $50,000 on his America Online stock, why can’t they?’ (p5).

The internet even appeared to break down the age-old tension between self-fulfilment and the workplace grind. In appearance at least, dotcoms ‘turned Marxism on its head…workers, far from being oppressed, were being given an opportunity to express their individuality through their roles in the production process’ (p175).

Investments took place at an unprecedented pace during the 1990s. ‘Internet companies…were spending money like Imelda Marcos on a shoe-shopping spree’, says Cassidy (p241). So pervasive was the technology boom that it didn’t just reward headstrong investors – it actually damaged sensible investors, simply because of the premium the business climate placed upon being seen to believe in technology.

‘There was no reward for being financially conservative’, says Cassidy. ‘The perception that Rupert Murdoch didn’t “get” internet stocks was much more damaging to News Corporation’s stock price than the earnings write-offs.’ In such a climate, businesspeople ‘would have a fiduciary duty to their shareholders to waste large sums on dubious online ventures’ (p117).

In the speculative climate of the time, ‘the process of valuing internet companies’ was considered akin ‘to throwing darts. The aim was to set the price high enough for the company to be satisfied but low enough for investors to make a decent return’ (p216). Investors were perfectly aware of how little relation such valuations bore to a company’s profitability, and ‘even the most bullish investors didn’t seriously attempt to defend this sort of valuation. The only way it could be rationalised was to think of internet stocks as a parallel currency that was convertible to US dollars on a one-to-one basis’ (p203).

It is a fallacy to assume that the crash of the technology sector dispelled all of this irrationality. Rather, the irrationality was put into reverse. ‘The same self-reinforcing process that had propelled stock market prices into the stratosphere was now operating in reverse, sending stocks hurtling back to earth’, writes Cassidy. ‘The falling market was feeding on itself, just as the rising market had fed on itself.’ (p289)

And there was much carping and cynicism during this turnaround: ‘Spotting the next dotcom to turn up its toes had turned into a popular spectator sport, with websites like and leading the cheering…the New York Post created a “Dead Dotcom of the Day” column.’ (p301-303)

The technology sector’s boom and crash demonstrates how today’s stock market can accommodate, and even privilege, irrationality and short-termism – but only for a limited period. ‘If stock prices continue to rise during a given quarter, the fund manager who keeps all his money in the market will look clever at the end of it. Even if the market crashes, and the fund manager’s stocks do badly, most of his competitors will look equally stupid so he will probably retain his job.’ (p123)

Economics today is increasingly understood through the prism of the financial economy. Financial institutions – once seen as the handmaiden to the real economy, a set of intermediaries through which capital could be siphoned from where it was in surplus to where it was in deficit – now appear to us as forces that drive the economy (2).

John Cassidy illustrates how the internet embodied this reverse in the perceived roles of productivity and finance. ‘The internet boom had inverted the traditional order of business. Instead of using the stock market to build companies, VCs and entrepreneurs were now using companies to create stocks.’ (p244) All of the presentational apparatus surrounding the stock market served to normalise this set-up, instead of revealing its contrivance. ‘New stock indices helped to maintain the illusion that the internet was a regular business sector, just like the transportation sector or the drugs sector, with its own internal logic, metrics and authorities.’ (p199-200)

The ascendancy of the financial economy over the real economy, before, during and after the dotcom boom, was a key contributor to people’s inability to contextualise and analyse the developments of the time, leaving investors hostage to the whims of speculation.

In his book Cowardly Capitalism: The Myth of the Global Financial Casino (3), Daniel Ben-Ami explains that while ‘there is no doubt about the benefits of financial economics for professional investors…as a way of understanding why the financial markets act in the way they do, the discipline has severe limitations…. By starting from the way the financial markets appear to investors, it militates against a deeper examination of the forces that drive the markets’ (4).

This is why fantasy stock valuations were such a double-edged sword for the dotcoms. As Cassidy puts it, ‘arguments were so vague that they could be used to justify practically any level of stock prices. While the market was rising, this vagueness was a great advantage, because it meant there were no limit on the upside. But should stock prices start to fall and keep falling…there would be no logical limit on the downside either’ (p288). This is the kind of scenario Ben-Ami alludes to in Cowardly Capitalism, when he argues that ‘if investors are preoccupied with short-term price movements those that develop new technology risk being starved of funds’ (5).

Cassidy addresses ‘the question of where the internet ranks in the history of great inventions. It is probably more important than the air conditioner…but what about electricity? Clean drinking water? The internal combustion engine? Petroleum? Radio and television?’ (p319-320). The fact that there have been so many hopes and expectations invested in the internet is a matter distinct from, and in some ways more interesting than, the internet’s objective merits as a technology.

The blow that conclusively knocked the internet from its pedestal was not the crash of internet stocks (although that helped), but the response to 11 September. Cassidy notes the consequences of the response to 11 September, rather than of that day’s terrorist attacks. He argues that ‘in financial terms, the direct impact of the terrorist attacks – the destruction of about 15million square feet of office space and the temporary grounding of the airline industry – was relatively minor’ (p314).

But if the physical damage had its limits, 11 September nonetheless ‘drew a thick line under the dotcom era…19 young men armed only with box-cutters and knives destroyed many of the intellectual assumptions that had underpinned the internet bubble’ (p313). While the technology boom suggested ‘that the future is boundless’, after 11 September, we ‘faced a future with limits: economic limits, political limits, and cultural limits’ (p295).

This sense of limits – which existed long before 11 September but has acquired added legitimacy since – is both self-imposed and dangerous. It uses the events of 11 September as a pat justification for a low opinion of what humanity can achieve, just as fluctuations in technology stocks were once used as a pat justification for a high opinion of what humanity can achieve.

The earlier optimism was, in one sense, justified – the future is, indeed, boundless. But dotcom optimism was not justified in the specific terms that it set for itself, which were short-termist and which failed to assess the magnitude of internet-related innovations by any useful standard.

dot.con shows us that in order to rebuild our faith in technology, we face the task of undoing not one, but two gross errors: unwarranted pessimism and uncritical optimism.

Buy dot.con: The Greatest Story Ever Sold, by John Cassidy, from Amazon (UK) or Amazon (USA)

Sandy Starr has consulted and written on internet regulation for the Organisation for Security and Cooperation in Europe, and for the European Commission research project RightsWatch. He is a contributor to Spreading the Word on the Internet: Sixteen Answers to Four Questions, Organisation for Security and Cooperation in Europe, 2003 (download this book (.pdf 576 KB)); From Quill to Cursor: Freedom of the Media in the Digital Era, Organisation for Security and Cooperation in Europe, 2003 (download this book (.pdf 399 KB)); and The Internet: Brave New World?, Hodder Murray, 2002 (buy this book from Amazon (UK) or Amazon (USA)).

Read on:

A tale of two dot.bombs, by Sandy Starr

Beyond the internet bubble, by Phil Mullan

spiked-IT: four principles, by Sandy Starr and Helene Guldberg

spiked-issue: Don’t Blow IT

spiked-issue: After 11 September

(1) See A tale of two dot.bombs, by Sandy Starr

(2) For more detailed analyses of the changing role of the financial economy, see In the wake of WorldCom, by Phil Mullan; Recession: from fantasy to reality, by Phil Mullan; Beyond the internet bubble, by Phil Mullan; Taking stock of technology, by Daniel Ben-Ami

(3) Daniel Ben-Ami, Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001. Buy this book from Amazon (UK) or Amazon (USA). For a review of this book, see A bold critique, by Phil Mullan

(4) Daniel Ben-Ami, Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001, p62

(5) Daniel Ben-Ami, Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001, p138

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Topics Politics


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