The fact that Lucent is cutting 10000 more jobs and now looks unlikely to survive 2003 in one piece might seem like another boring business story. Motient, Scient, Viant and many faux-Latin bubble-era companies are already dead, or as good as, so the significance of one more casualty is not immediately obvious.
But Lucent is more than an over-indebted telecom gearmaker. At its core is, or was, the heart of American technological leadership for the second half of the 20th century, the fabled Bell Labs. Amazingly, this commercial research organisation earned at least six Nobel prizes, not to mention giving the world Unix and running its own highly-rated economics journal. After the breakup of AT&T and the spinoff of the absurdly-named Lucent, the labs survived but were pushed towards a short-term commercial focus. Now it seems doubtful that anything will survive.
Meanwhile, the symbol of American technological leadership for the first half of the 20th century, Ford Motor company, is also in trouble. Once again, the core problem is the triumph of financial engineering over physical engineering. Ford’s problems stem from its finance arm, which holds billions of dollars in dubious car loans.
Even General Electric, which is still highly profitable despite some recent disillusionment, is now basically a finance company. The great achievement of Jack Welch, until recently the archetypal ‘hero as CEO’ was to combine the cash-cow of GE finance with a PE ratio appropriate to GE’s history as a technological innovator. The gloss has come off, and the question of whether GE would be better off broken into pieces is already being asked.
Done right, financial engineering is a valuable tool for reducing risk, but even more boring than civil engineering. What we have seen for the last two decades is better described as financial alchemy. promising gold and delivering dross.