Friday, 28 March 2008

The High Tech Bubble Bust: a True Financial and Human Disaster

When market and financial bubbles finally burst, their consequences are often severe and long lasting.

I've watched the price of stock investments like optical equipment manufacturer JDSU, one of the high tech darlings of the 2000 bubble era decline precipitously - it is currently down 99% from when I bought it and that was not its peak.
Even the strong tech companies of today have not recovered to anywhere near their levels of that time. The Cisco stock I bought in 2000 is currently not even worth a third of its purchase price. The best performing tech company I still own - Nokia - has gone back up to barely over half its purchase price. How long will it be, another decade before previous highs are again achieved?

On the human side, the July 2007 research study by Marc Frenette of Stats Can titled "Life after the High-tech Downturn: Permanent Layoffs and Earnings Losses of Displaced Workers" documents an equally grim picture. This excerpt from the Abstract says it all:
"... the high-tech downturn resulted in a sudden and dramatic increase in the probability of experiencing a permanent layoff, which quadrupled in the manufacturing sector from 2000 to 2001. Ottawa–Gatineau workers in the industry were hit particularly hard on this front, as the permanent layoff rate rose by a factor of 11 from 2000 to 2001. Moreover, laid-off manufacturing high-tech workers who found a new job saw a very steep decline in earnings. This decline in earnings was well above the declines registered among any other groups of laid-off workers, including workers who were laid off during the ‘jobless recovery’ of the 1990s. Among laid-off high-tech workers who found a new job, about four out of five did not locate employment in high-tech, and about one out of three moved to another city. In Ottawa–Gatineau, about two in five laid-off high-tech workers left the city."

We have yet to see how the popping of the credit bubble plays out but we should not be surprised if the financial and human turmoil is severe. Maybe people in the financial industry should have a look at a copy of Anita Caputo and Lee Wallace's book Learn to Bounce (see my review), in which the authors show how to respond positively to the unemployment challenge when the kind of jobs they have been used to doing simply disappear.

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