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Dale Jackson

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An old time technology revival

Dale Jackson

There's a saying about U.S. politics that has made the rounds since Republican President Richard Nixon resigned in disgrace following the Watergate scandal: "When Americans look at a Democrat, they see what they can become. When they look at a Republican, they see what they are".

That was 1974 and the idea of post World War II Democrats as visionaries is likely rooted in the stark contrast between Nixon and John F. Kennedy who 10 years earlier boldly vowed to send a man to the moon and back.

In truth, just about all successful politicians of every stripe have wrapped themselves in the flag of technological innovation attempting to link themselves with a better future in the minds of voters. Unlike business where leaders are measured by profit political results are much harder to quantify.

However, politics and business are both influenced by sentiment and it's on that common ground where technology thrives. It was under the Kennedy administration that the seed of the technology-dominated Nasdaq Stock Exchange was planted in 1961. The U.S. Congress ordered a study which identified inefficiency among the country's existing exchanges dominated by the Dow Jones Industrial Average. There was a feeling in the higher levels of government that the growth companies of the future were not getting fair access to equity markets.

NASDAQ

Trading on the Nasdaq Composite actually began at 100 points during the Nixon administration in 1971. The Index crept upward for two years, and tanked to near oblivion following his resignation. Over the next 20 years it gained steadily under the terms of Republican Gerald Ford, Democrat Jimmy Carter, Republican Ronald Reagan and Republican George Bush Senior.

The Index crossed the benchmark 1,000 points in 1995 during the first term of Democratic President Bill Clinton and that's when the high-tech revolution really began. It was the dawn of the Internet age when companies like Microsoft, Cisco Systems, Intel and Apple Computer literally changed the way we lived and investors made a killing. Nasdaq 100 companies were billed "new economy" stocks rivalling "old economy" Dow Jones stalwarts including General Motors, DuPont and Citigroup.

During that first term in office President Bill Clinton introduced a plan to spend $17-billion on technology to encourage high-risk long-term venture capital startups to help contribute to technological modernization. Vice-President Al Gore had been introducing technology-related legislation since 1979.

Promotion of technology prior to the Clinton administration was generally confined to mission-oriented research in the Defence Department and NASA and had limited impact on the broader economy.

In the short period of five years, the Nasdaq Composite hit a record 5,000 points in 2000. In some cases technology stocks were trading at multiples in the hundreds on the misguided belief earnings could live up to investor expectations.

George W. Bush took control of the White House in early 2001 while the Nasdaq was in a freefall that hit bottom at nearly 1,100 heading into 2003. Between the Nasdaq's wild overvaluation and the aftermath of 9/11 it's impossible to draw a direct political link, but the Bush administration's connection to the oil industry and old money signalled the old economy was a priority.

It would be wrong to say the Bush administration has been anti-technology. In broad terms, Republicans support a freer market and that's generally good for all business innovation. Some aspects of technology have flourished indirectly through increased military spending in the defence sector. In his war on terrorism George W. Bush has supported surveillance technology to keep a closer watch over his people and he has come out in favour of a manned mission to Mars although the implications for the broader economy are not clear.

The current Bush administration has also supported extending a moratorium on Internet taxation and pushed for a permanent research & development tax credit.

On the other hand, the Bush administration has vehemently opposed stem-cell research which could spur new business ventures and lead to cures for diseases such as cancer and diabetes.

With a Presidential election set for this fall there's little to say the next crop of Democrats would be any better at injecting new life into the technology sector aside from the party's appeal to young voters looking for overall change. U.S. based technology companies rely on revenue from overseas markets much more than old economy companies, which may not sit well with the protectionist demons in the Democratic caucus.

On the plus side, the Democrats have been pushing for legislation to force publicly traded companies to draw 15 per cent of their supplies from wind, solar and other renewable resources by 2020, which could boost innovation in energy technology.

In the race to lead the Democratic Party, front-runners Barack Obama and Hillary Clinton have both come out against Internet taxation and surveillance technology. Both are promising to boost health-care spending and lower health-care costs by promoting technical innovations.

In a recent television interview Mr. Obama compared his lack of political experience to the highly successful Google and likened his veteran political rivals to the ailing General Motors.

Republican front-runner John McCain who is the former chairman of the Senate committee that oversees the Internet - says he opposes Internet taxation but is unclear on surveillance technology. His main contender Mike Huckabee is still grappling with evolution and has a vague stand on technology.

The Democrats are the heavy favourites but no matter who wins the White House, valuations in the technology sector are currently at record lows and earnings growth is steady despite some troubling signs from the U.S. economy. If a technology revival takes place markets will be the driver but it wouldn't hurt to have a true believer in the White House to jump-start the engine.

Dale Jackson has been a producer at Report on Business Television since its launch in September 1999.

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