Bush aide: Tech to lag in US revival

NEWS

The Comdex crowds got an Economics 101 lesson on Wednesday as a presidential economic adviser offered a sobering analysis of the tech industry's future. Corporate overinvestment in technology in the late 1990s will mean that even when the US economy does pick up, technology spending is likely to lag, said Carlos Bonilla, special assistant to President George W. Bush for economic policy, speaking at the Comdex Fall 2002 trade show. That, he acknowledged, has been a bitter pill to swallow. (See ZDNet UK's Comdex Fall 2002 News Focus.) "It's hard to tell people to live with diminished expectations," said Bonilla, who sits on the National Economic Council. "Part of it is just coming back to earth and realising that the bubble was exactly that." Bonilla outlined, using charts and graphs, what many in the audience have experienced firsthand: The economic recovery has been slow and halting, with consumer spending a lone bright spot amid continued declines in manufacturing and other areas. "Clearly this is an economy coming out of recession more slowly than anyone would like," Bonilla said. The prolonged falling-off in jobs in the manufacturing sector is an area of concern for technology companies, Bonilla said. "This is a sector that is going to use a lot of the products that the technology industry produces." Later in the keynote speech, he added: "You're not going to do much differently than the companies you are selling to." Bonilla said the size of the past overspending varies from sector to sector. "There is decades' worth of fibre optics out there," he said after the speech. "Elsewhere, there is just a lot of new capital, plant and equipment. As a consequence, (companies) won't feel any great urgency to go and replace it." But Bonilla's speech also held some good news. He pointed to an expected rise in chip sales next year, along with increases -- albeit modest ones -- in PC sales this year. "Several top tech chiefs say they've seen an increase in business in recent weeks," he said. Stock answers
In a question-and-answer session, the presidential advisor was asked his thoughts on changing the way dividends are taxed. High-tech companies, notably Microsoft, have been under pressure to return some of their cash to shareholders in the form of a dividend. However, many companies have balked at this, given such payouts are taxed in a way that can hit them hard. "Treasury Secretary (Paul H.) O'Neill has been very clear that it makes no sense whatsoever to impose a double level of taxation," Bonilla said. Also in the session, an entrepreneur asked why he wasn't able to get a loan to start a business, but could get a low-interest loan for a $30,000 car. "Access to capital is no doubt harder right now," Bonilla said. But that may not be a bad thing, he said, noting that historically companies have raised money from friends and family to get their start, or as he called it, "the bank of mom and dad." "Maybe one of the problems we had in the last bubble is (that) too many small businesses hit the market," Bonilla said.

For full Comdex coverage see ZDNet UK's Comdex Fall 2002 News Focus. Have your say instantly, and see what others have said. Go to the ZDNet UK News Forums.

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