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Blessings of Liberty

Thursday, January 1, 1998

One night a couple of years ago, Madeline Shea’s infant son woke up crying. Congested and cranky, he gave Shea a scare, and left her in a quandary. It was 3 a.m. Should she take him to the emergency room? Should she wake up her family doctor? Should she just do nothing?

Fortunately, she had another alternative. Shea sat down in front of her Macintosh computer, typed an e-mail to her doctor, and then went to bed. Within a few hours, she received an e-mail in reply reassuring her that her son’s sniffles were perfectly normal. "I feel like I have a direct line to my doctor at any time of the day or night, but without annoying him or interrupting him," Shea told USA Today.

Furthermore, by conducting some of her conversations with her doctor by e-mail, she can easily print a copy of important information for her husband, baby-sitter, or pharmacist to read. University of Kentucky researcher Richard Neill conducted a survey of 117 patients like Shea who use e-mail to talk to their doctors. He found patients most valued how e-mail made it easy to get prescriptions filled, obtain lab results, and make appointments. Nine of 10 had discussed medical problems with their doctors via the Internet.

When considering the relationship between entrepreneurial capitalism and the quality of our everyday lives, the most obvious place to start is the computer industry. It presents some of the most inspiring and enlightening stories of entrepreneurship in modern times. Personal computers, for example, have become so ubiquitous as to fade into the background of our daily lives. And if Bill Gates and other techno-futurists are to be believed, this trend will only continue as computers physically merge with clothing, furniture, and houses.

The Bountiful PC

Stories like Shea’s are useful because they help make the abstract concrete and put a human face on issues that all too often seem technical and esoteric. Consider these underappreciated benefits of the spread of personal computers:

• PCs have given families more power over their own finances. Quicken, which has given software designer Intuit 75 percent of the market for personal finance, now helps millions of people balance their checkbooks, track investment earnings, compute their taxes, and plan for the future. In many cases, these are services that families used to have to purchase from financial institutions, accountants, or other providers.

• PCs are one likely cause of the growth in home-schooling in recent years. During the 1996-97 school year, more than 1 million children were taught at home rather than at elementary and secondary schools, according to the National Home Education Research Institute. That’s more than triple the number of home-schooled kids in 1990. While other factors are no doubt helping to drive this trend, the growth in usage of PCs, educational software, and the Internet during the same period must be more than a coincidence. As one home-schooling friend of mine put it, PCs don’t create the desire for parents to home-school their kids, "but they reduce the costs for doing so significantly." The World Book Encyclopedia, for example, costs hundreds of dollars in bound volumes but only $50 on a CD-ROM.

• PCs have fueled a boom in small-business start-ups, particularly those based in the home, which account for a third of all new firms. From an estimated 6 million home-based businesses in 1980, the ranks of the home-based self-employed grew to more than 30 million by 1994. They use PCs to keep their books, contact new customers, and correspond with contractors. Henry Davis of Natick, Massachusetts, started a strategic marketing and consulting firm for high-tech clients out of his home after his employer laid him off. "I asked myself why I should beat half my brains out and make money for someone else," Davis says, "when I could beat half my brains out and make money for myself, plus have more time with my family." Without the PC, Davis wouldn’t have had this choice.

• PCs have created new markets for educational entrepreneurship. Educational software for home computers now represents a $600-million-a-year business, bringing in almost as much revenue as computer games. Computer-assisted learning has been particularly helpful to children with learning disabilities or other special needs.

• PCs help explain why American families have easy access to more retail goods and services than ever before. Part of the reason is that retailers now use PCs and terminals, networked with regional or national computer systems, to track their inventories and keep store shelves full of the goods consumers want. Computers have also revolutionized the mail-order industry, which can now offer more goods and deliver them much more quickly because of inventory and order-processing software.

• PCs cut Mark Gelman’s phone bills. Gelman, a New York architect, has an 8-year-old son and 6-year-old daughter. Both correspond via e-mail with friends they met at summer camp, rather than calling long distance. "My kids are more comfortable with e-mail at the grade-school age than I was at 35," Gelman says. "They don’t hesitate to tap out a conversation which I would normally conduct on the phone. They love it. I know it has accelerated their reading skills."

Yes, PCs and the Internet have their downsides. They are often used frivolously, even by businesses, and offer such socially uplifting fare as hard-core pornography and discussion groups on bestiality. But on balance, computers have brought a breathtaking array of benefits to American families and businesses. We’ve barely seen the tip of the iceberg. The World Wide Web, the fastest-growing and most consumer-friendly part of the Internet, is quite young. As recently as June 1993, there were fewer than 200 Web sites. Today, there are close to a million, and about two-thirds of them are commercial sites. Furthermore, nearly two-thirds of all households have yet to purchase a home computer, but many are likely to do so in the near future as the Internet, television, cable, and telephony merge into a single spectrum of consumer "packages."

Computer Entrepreneurs

But is it fair to consider the computer revolution to be an example of private-sector innovation? Wasn’t the Internet, for example, a creation of the federal government?

Computers, it turns out, illustrate perfectly the historical relationship between government and private enterprise when it comes to technological innovation. The Internet was, in fact, the product of a government program—a frantic effort to come up with a way for the military’s command-and-control system to survive a nuclear strike by the Soviet Union.

Engineer Paul Baran, working at the nonprofit RAND Corp., finally came up with the solution in the early 1960s and published it in a 1964 article called "On Distributed Communications." He proposed a survivable "network of unmanned digital switches implementing a self-learning policy at each node, without need for a central and possibly vulnerable control point, so that overall traffic is effectively routed in a changing environment." The result, carried out first among defense installations and universities, was what we now call the Internet.

But making the Internet a broad-based phenomenon rather than a cloistered forum for academics and eggheads required private, entrepreneurial firms—such as Netscape, Microsoft, Apple, and Sun Microsystems (the creator of the widespread programming language Java)—to design the platforms that make people able and willing to go on-line. Without the efforts of commercial on-line services such as America Online and pathbreaking PC manufacturers such as Gateway and Dell, most Americans would still be off-line and wondering who had spun the World Wide Web.

The personal-computer revolution was truly born out of garages and dorm rooms, not government labs. Paul Allen and Bill Gates got the idea for starting Microsoft from an article in the January 1975 issue of Popular Electronics. That same year, Steve Jobs and Steve Wozniak built and marketed the first Apple computers in the Jobs family garage. In 1983, Scott Cook and Tom Proulx founded Intuit with little more than their paltry savings accounts and the idea of marketing personal finance software to families and small businesses.

Also in 1983, a college freshman at the University of Texas began tinkering around with IBM PCs in his spare time. Michael Dell had enrolled as a pre-med student, but couldn’t get his mind off motherboards and floppy disks. Picking up outmoded PCs cheaply from local retailers, he would lug them up to his dorm room, upgrade them, and then sell them door-to-door to local law firms and small businesses. One day Dell’s roommate piled his ever-growing inventory up against the door. "He was kind of frustrated, I guess," Dell confided later to Fortune. "So I moved."

Dell dropped out of college after his freshman year (not an uncommon fate among impatient high-tech entrepreneurs) and sold $180,000 worth of PCs his first month in business. From there, his fortunes rose meteorically. The firm raised $30 million in an initial public offering in 1988. By 1992, Dell Computers was doing $2 billion worth of business a year. Now, at 32, Michael Dell is worth $4.3 billion and heads a company with $12 billion in sales and nearly 10,000 employees at its headquarters in Austin, Texas. Dell Computers is the third-largest computer maker in the world, thanks to a low-cost, direct-sales model—a "just-in-time" manufacturing enterprise that was itself made possible by the computer revolution.

The Role of Government

There has been and always will be some degree of interdependence between government-sponsored innovation and private-sector enterprise. History is full of examples. The smelting of ore was likely motivated to a large degree by the need for stronger, sturdier weapons and armor, but new techniques were quickly put to use in agriculture, animal husbandry, and the manufacture of household and luxury products. On the other hand, the chariot, which revolutionized warfare in the ancient world, was an adaptation of the farmer’s simple ox-cart. In shipbuilding, metalworking, and most recently aviation, both governments and industry have historically had an interest in new ideas and invested in them in mutually beneficial ways.

Similarly, while some of the elements of the computer revolution originated in defense projects and university labs, their application to our everyday lives has been largely the work of profit-seeking entrepreneurs like Gates, Jobs, Cook, and Dell. What business brings to technological innovation is a relentless focus on the bottom line: the need to turn abstract ideas into concrete benefits for the consumers businesses must satisfy. Without that focus, computers would probably still come in kits, and the Internet simply would not exist in the form we know it today.

Perhaps BYTE magazine, in its 20th anniversary issue a few years ago, had it right when it included the following among the computer’s 20 greatest contributions to society: "Computers have created an industry that provides jobs for thousands of intelligent people who might otherwise be burdens on society—or worse, government bureaucrats. Thank your lucky stars."