For the Week of July 21, 2003

I have a soft spot in my heart for Slater's Mill.

Slater's Mill is the official tourist attraction of my mother's home town. It's in Pawtucket, Rhode Island, about a mile south down Broad Street from the house she grew up in, which is in Central Falls. Today the site sits very near a freeway intersection. It has been lovingly restored, and the tour is well worthwhile.

The tour tells the story of Samuel Slater . He was born in England, and apprenticed in a textile mill. Seeing his home market as saturated he emigrated to the U.S. in 1789. He did this secretly. As a brief Web biography of him notes, "it was illegal at the time to export anything to the U.S. relating to machinery, including engineers. Also, the U.S. was offering rewards for textile information."

Slater's Mill, in other words, is a lovely example of what we now call industrial espionage. Samuel Slater stole the secrets of England textile manufacture, set himself in business in America, and America made him a hero.

Today America is England. America owns the vital technology of telecommunications, of computer chip manufacture, of the PC and its underlying software. America owns it, and America says it will not let it go. Laws like the DMCA , and treaties like the WIPO , are America's equivalent to Britain's 18th century laws against the export of engineers. They are the same laws, created for the same reason.

It is vital that we understand this when looking at cases like Cisco's suit against China's Huawei. Cisco is right on the law, it could get some enforcement, but in the market its case will fail. Pakistani and Indian buyers will not pass-up the savings. The Chinese market is lost.

Unless, that is, Cisco keeps innovating. Cisco must come up with new gear that delivers ever-more performance for the price. Engineers, not lawyers, are the future.

How can America keep itself from 18th century England's fate? The only way to do it is to invest heavily in basic research, in applied research, in engineering, in product development.

It's not like we lack the money. Microsoft, for instance, was recently talking up the idea of a special $10 billion dividend to whittle-down its $46 billion cash horde. I think they would be better off investing that money, but if they did pay it out Bill Gates' share would be $1.3 billion - that's $1.3 billion from a single dividend and he keeps his stock. It also happens to be 40% of the total endowment of my old school which is itself the Anna Nicole Smith of college endowments.

With one check, in other words, Bill Gates could instantly create a research institute to rival anything in the world. Buy some Seattle acreage, put together a master plan, hire a graduate faculty of note, and get the best basic researchers to work. That, and only that, is the way to beat China. When you're in a losing game, you change the game. The way to stay fat and happy is with a big endowment, not a fancy lawyer.

What happened to Slater's Mill, you ask? A very good question. The mill did very well through the War of 1812, but when the war ended England was able to flood the U.S. market with better, cheaper goods. Only a new tariff - a direct tax on imports - saved the American textile industry from ruin. This set a pattern that lasted nearly a century. America depended on high taxes on imports to keep its own industry afloat, until our factories were superior to those overseas and it came to be in our best interest to become a manufacturing exporter. (This is what forced the U.S. to adopt an income tax - retaliatory tariffs were hurting our economy.)

America thinks international treaties will extend the reach of its lawyers and prevent other countries from copying our advances. This may be the biggest, and most destructive, self-delusion of our time.

Lawyers cannot stop progress. They can only force it to go elsewhere. And there will always be an elsewhere. Until the present rule of the lawyer is replaced again by the rule of the engineer, America is going backward. Samuel Slater today may be Chinese, but he will in the end rule the day.

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SSP (Shameless Self-Promotion)

Big news. I have started work as a business analyst with Progressive Strategies , a New York research firm that has the ear of the world's top technology companies. If we can get some of 'em to actually follow some Clues, it would be a very good thing indeed.

We have a winner. "The Blankenhorn Effect" has won the Computer/Internet category in the 2003 Independent Publisher (IPPY) awards . The book was also reviewed (favorably) by Ray Troxel of The Web Server Times last week.

"Dana, it is GOOD," raves Pete duPont, lawyer, futurist and once a candidate for President. "This is some really powerful 'stuff.' I think you've got a winner," says Drew Kaplan of DAK Catalog fame. One result is I have begun working on a follow-up book, describing the future direction of technology, to be called "The World Of Always On." Buy "The Blankenhorn Effect" at Amazon.Com , or at least say nice things. You can use the ASIN number, 1553953673, and recommend it to readers of other, similar books. You can also save on shipping when you buy the book at Amazon, over the cost of buying it elsewhere.

If you can convince some more published reviewers to read "The Blankenhorn Effect" and recommend it to their readers, please send me a name and address. In exchange, you'll get the PDF version of my second book, The Blankenhorn Effect: Boom, Bust & Beyond. This is a collection of columns from a-clue.com, organized chronologically and by subject, with additional commentary from yours truly.

You have my permission to forward this newsletter widely. And if you have trouble subscribing let me know . Remember: it's journalism that keeps the Clues coming...

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Shameless Promotion

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If you're serious about Internet Commerce, you need Whitehat Interactive . Get it today.

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Takes on the News

The Big Challenge For 802.11

The big challenge for wireless broadband lies in the network.

Specifically it's in building a network business model that can not only make a profit today, but can make a profit tomorrow while Moore's Law keeps driving equipment prices lower.

AT&T's idea is to build a network model based on business services, and business requirements. It thinks the value-add of "security" will justify the high prices being charged for using hot spots.

I think that's a vain hope. Security and VPN provisioning can be done at the network ends. In the long run it is not a requirement of the network itself. AT&T's best hope is to use the security of its hot spots to win major VPN contracts against MCI and Sprint. But all such contracts expire.

The business model that works is a fixed-monthly charge for a designated bandwidth link, the DSL model. Alvarion is the leader in delivering the equipment WISPs use to provide this value, either as a stand-alone or back-up plan for business customers. So Intel's decision to work with Alvarion on WiMax (802.16) gear is very Clued-in. Putting Intel chips into Alvarion gear makes Intel a leader inside WiFi hardware , an area that should have been dominated by Motorola or telecomm chip specialists.

Remember the WISPs' game. It is to bypass the Bells. The Alvarion-Intel combination now makes this possible, combining excellent customer service and support (from Alvarion) with good price-performance on the hardware (from Intel).

Over the next five years, I guarantee you that Intel makes a bigger profit from WiFi than AT&T.

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Still No Tech Recovery

Tech stock prices rose sharply in June, anticipating that $4 trillion in fiscal stimulus over 2 years would have to raise demand and spark a recovery, starting with technology.

So far, unfortunately, it's the triumph of hope over experience. . In an interconnected world, the link between stimulus and jobs is no longer as clear-cut or straightforward as politicians make it appear.

Throwing money at a problem won't work. (Where have you heard that before?) The net result of the incentives so far has been to encourage companies, and investors, to send their money (and jobs) to India and China, where costs are lower. There is no penalty being proposed for this use of the stimulus. What was sold as domestic policy is turning into foreign aid.

Corporations cannot afford to engage in social policy. Those that see a need for training, like Control Data, or long-term research, like Xerox, wind up underperforming and, in time, failing, if they try to bear the burden alone. Only government can consider long-term values and when government shirks that burden the people suffer for it.

The government's bet on the economy has been placed. It will play out, one way or another, over the next year and a half. The usual knock-on multiple for government spending is 4-1, that is, for every $1 spent a total of $4 in economic activity is generated. If we don't get $16 trillion in growth over the next two years this experiment will have failed.

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Had Once My Dad Been Wealthy

My father, who passed away in 1999, was not a rich man.

He wanted to be, but he suffered several faults. Not the least of these was that he fought for every dollar in every deal. He saw himself as smarter, more deserving than others, an idea man, the "key man." And so in business he had few friends. When his natural honesty took over, he was always swindled by the other "last dollar" men he had chosen to work with.

My father's example kept me fearful of becoming a key man. But his lesson has, for the most part, allowed me to work with amiable, honest people, and when they prospered I shared in it. When they failed I retained their friendship, and this friendship, I have found, has proven a greater fortune than any I could have sought.

When you get in trouble you find who your real friends are, and if you have spent your life making enemies the abyss can be very deep indeed.

So it is with the RIAA . The RIAA has spent decades representing only itself, scratching for every last dollar from artist and consumer alike. It has ruled its industry through fear and lawsuit. It seems to know no other way. While there have been many within its ranks - Herb Alpert and Chet Atkins come to mind - who have been princes among men, the RIAA itself has always reflected the rule of fear, and greed, and avarice.

The Copyright Wars have now been going on for nearly five years , ever since the DMCA was passed. An informal consumer boycott against RIAA terms and conditions has continued to build, as I have written many times. The industry's revenues will fall about 5-8% this year, and those losses now extend to Japan.

But the consumers who have either gone without music, or simply exchanged it online, have not done so in the interest of robbing anyone. Given a better business model most would be happy to pay for what they listen to, for it is money they have and amusement they lack.

So now come the real pirates. Specifically, Russian mobsters who copy CDs and sell them at discounts. This is real piracy. This is what the DMCA was sold to deter. But the public sympathy and respect that would allow the RIAA to crack down successfully against these pirates is lacking. By fighting tooth-and-nail for every dollar, and against every technology, the RIAA has found itself friendless when it needed friends most.

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Clued-in, Clueless

Clued-in are House Democrats , finally staking out a party position on an important computing issue (spam) that wins popular support.

Clueless is Chris Cox , a California Republican who still wants trespassing statutes used against unwanted e-mail, First Amendment be damned. Mass commercial e-mail only has the First Amendment protection given commercial speech, which is minimal. Personal e-mails, and e-mails covering political issues, deserve the fullest protection of the law.

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