Reed Hundt, Unleashed

According to a Harvard Business School study that Reed cited, the net IRR of all investments as a class into dot coms is currently about 9% per year and not negative as most people believe!

This is not as astonishing as it sounds, and the number will vastly improve when Google goes public next year, compensating for tens of billions of dollars of lost investment. What still made the boom a bust, however, is that the losses were widespread whereas the gains are concentrated in a handful of winners (Ebay, Yahoo!, USAI) and volatility adjusted, 9% is a lousy IRR for so much risk.

Reed believes that two events in 1991 really drove the economic boom of the late 90's and beyond. The birth of the web at CERN is the obvious one. The more interesting one is the collapse of the Soviet Union, which led the Chinese government to believe that it had to modernize to survive.

The emergence of China means that the new middle class in India, China, Korea and the rest of Asia significantly dwarfs the middle class in the U.S., shifting the core market for advanced goods and services overseas. At first, those countries needed the western powers for their abilities to produce manufactured goods, but now China dominates in production of cellphones, home electronics, washing machines and so forth. Reed is worried that they don't need our services either. Software jobs are going away and aren't coming back. Reed's solution -- create a national health care system to remove the extra cost that employers bear when creating jobs.

Eventually, according to Philip Greenspun, China may dominate production of cars and houses as well. However, "losing jobs" is a bit of a tired meme and I was surprised to see Reed treat service jobs as a zero-sum game. The emergence of new markets in Asia creates opportunities for U.S. entrepreneurs which should more than offset the competition, assuming that we are up to the challenge of adapting our products for foreign markets. National healthcare is no panacea to the job creation problem (and why are more jobs always a good thing? Most people don't want to work -- they just want the money!). Lifting the health care expense away from employers isn't free -- it comes out of their taxes. Disconnecting it from their actual hires just creates an incentive to use more labor instead of capital, which decreases efficiency and long-term productivity per employee.

Reed correctly focused on entrepreneurism as the engine that really differentiates the U.S. economy from many others. What makes entrepreneurs more common in the U.S. than elsewhere? Culture.

I was mouthing the word "freedom" when Reed said "culture," but close enough, I suppose. If our culture advocates openness, competition and change, what happens if we lose it? This is the danger that Lessig is warning us about, and not enough people are paying attention to.

Finally, Reed had some thoughts on his core area of expertise, broadband deployment to the home. He strongly supported the idea of opening cable networks to competition, as he sees them as the dominant provider for broadband in the future. Reed recounted a conversation with the CEO of a major optical equipment provider, who lamented that the market projections for optical communications equipment had shrunk to 1/10th of what they were three years ago, and that fiber to the home was a distant fantasy. As to whether or not wireless will be able to address the last mile, Reed wasn't sure.

It'll be a while in the coming, but eventually I agree that DSL will fall by the wayside and cable will dominate -- with DSL you get 1MHz of usable bandwidth to your home, which translates into about 1Mbps bi-directional, depending on range. With cable, 900 MHz of plant is split across 500 homes passed. The subscribers on that node can divide up 4.5 Gbps amongst them, once it becomes obvious that there are better uses for a 6MHz channel than devoting it to a single hobby or to infomercials.

Wireless is the big unknown and may end up being the next pipe into the home. Early deployments have struggled with unpredictable RF propagation, expensive equipment, spectrum licenses and expensive backhaul needs. 802.11 with its free spectrum, cheap silicon and high capacity may overcome all that, but will require very dense deployment and will have to overcome interference issues. There are a lot of people working on this, so we'll find out in the next few years.

All in all, a very interesting speech.