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Internet Pioneers, There's Gold in California's Old Economy

February 04, 2001|Peter L. Bernstein and Peter J. Dougherty | Peter L. Bernstein is author of "The Power of Gold: History of an Obsession." Peter J. Dougherty is executive editor of Princeton University Press

PRINCETON, N.J. — At its zenith, the great dot-com bubble was frequently compared to a gold rush. Now that the bubble is burst, dreams of instant Internet riches have vanished, much like those of the gold frenzies of the past. But such a sense of defeat is far too pessimistic. This is definitely not the time to put away the virtual picks and shovels and struggle back home. If the dot-com frenzy really was like a gold rush--and it had all the earmarks of such a mania--then the story of the California Gold Rush reveals why opportunity has only just begun for the high-technology prospectors who know where the true gold is hidden.

Gold was discovered, quite by accident, in 1848 on a large and prosperous sawmill owned by John Sutter. A staunch member of the old economy, which was primarily agricultural, Sutter was enraged as he watched his laborers desert him and saw his property torn to shreds by a tumultuous crowd of fortune hunters. But where he could see only trouble in the golden nuggets flowing through the waters he needed to irrigate his lands, the hungry crowd saw the chance for instant wealth. Thus did the speculative new economy of the mid-19th century appear to collide with the solid, if stodgy character of the old.

Like so many of the impassioned dot-com adventurers of today, most of the '49ers ended up broke. Their claims were ultimately consolidated into better-capitalized businesses that evolved into large mining conglomerates. Nevertheless, just as many of today's Internet specialists are reluctant to retreat from the technological frontier, the gold prospectors of the American West were unwilling to drag themselves back home with nothing to show for their efforts. They lingered on in California, adapting themselves to the changes in their circumstances. In time, they would play a major role in building the state into one of the great economies of the world. Californians do not call home the Golden State for nothing.

The '49ers' fevered dreams of sudden riches were gradually replaced by more hard-headed ventures designed to produce things of greater lasting value. Sutter's sawmill, symbol of the old economy of the Old West, was replicated thousands of times over and improved upon in countless new and ingenious ways. Sources of raw materials far more useful than gold came to light; a thriving shipping industry grew up around deep and sheltered Pacific ports; oil would pour from prolific wells.

Eventually, an extraordinary rate of economic growth would be spurred by scientific research and prime academic institutions, by entertainment and leisure businesses, by defense, aeronautics and shipbuilding, by biotechnology and, finally, by Silicon Valley. Over the decades, as the exploration for ways to produce goods and services of genuine value progressed, the Gold Rush of 1849 would become a quaint reminder of the past, memorialized on the helmets of a football team of mostly misunderstood provenance.

The parallels between the California Gold Rush and today's detonating technology bubble should persuade today's Internet pioneers to wipe away their tears and take note of what surrounds them. They may be amazed at what they see. The old economy--the one that feeds, clothes, shelters, transports, teaches, heals, entertains, informs, conserves, defends and leads--is every bit as much where the action is as the humble activity conducted at Sutter's sawmill more than a century and a half ago. Indeed, California's blackouts, pollution, traffic and urban sprawl are stark reminders of the dominance of the old economy. Were these predicaments Sutter's revenge? They also cry out for innovation and renewal.

Rather than the end of the boom, this is a moment for Internet pioneers to sit up and take note. Their software wizardry, computational tools, wireless devices and instantaneous communication technology are the winches and pulleys that can help make the wheels of this old economy--really, the only economy--turn not only faster, but also more smoothly. Fortune awaits innovators with solutions to today's most pressing problems.

Thar's gold in them thar blackouts.

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