Information technology: a contrarian view

The Nasdaq market has been murdered on at least three occasions this year. Each time, the corpse has clambered out of the coffin. The latest Dracula act came after giant chip maker Intel spooked investors with news that the Euro was eroding its earnings. The Times Square crowd at the $5 trillion Nasdaq exchange lurched for a couple of hours before recovering their nerve. But paying 70 times earnings for tech stocks in a slowing economy is looking increasingly for the birds.

It might be argued that Intel is about as relevant to the Australian stock market as a bucket of cod in Iceland. Are we not lectured by visiting firemen like Bill Gates and ubiquitous economist David Hale for being technological troglodytes? Is not our dollar being dumped because we are destined to become a nation of trinket makers for overseas tourists? Why then did the local stock market nose-dive more than 60 points when the Intel report first broke in Australia? It was not just News Corp, Telstra, ERG and Sausage Software that copped the selling. BHP, Western Mining, CBA and NAB were hammered, along with insurance group AMP. Turnover was very low. Supposedly, fund managers not actually attending the Olympics found it hard to concentrate on two screens at once in the office. In fact it was our irrational worry over a Nasdaq wipeout that caused the mini-slump.

The constant wringing of hands about Australia’s failure to develop a significant information technology base is rarely challenged.

When Kerry O’Brien was banging this worn old drum again on late night TV last week, his studio guest stopped him in his tracks. Professor of International Finance at Melbourne University Ian Harper told O’Brien that the fact we do not produce much in the way of high tech kit was hardly relevant, and is probably an advantage.

He said: “The profit margins from producing IT intensive goods and services will be very swiftly competed down. It’s the consumer who is going to pick up the gain from this. We are the big gainer from using these services to transform our industries right across the spectrum – primary, secondary, and most importantly our service sector.”

Prof. Harper is not a talk show blow in. He is a former senior official of the Reserve Bank and a member of the Wallis inquiry into Australia’s financial system.

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