Do you live in the Internet's Rust Belt?

It's being called the Internet's rust belt, that space between the old economy and the new economy, where jobs grow old, then disappear. Today, it's occupied by travel agents, bank tellers and bookstore clerks, whose ranks are being reduced in increasing numbers by their automated Internet substitutes.
Written by Charles Babcock, Contributor

It's being called the Internet's rust belt, that space between the old economy and the new economy, where jobs grow old, then disappear. Today, it's occupied by travel agents, bank tellers and bookstore clerks, whose ranks are being reduced in increasing numbers by their automated Internet substitutes.

Just last week, in fact, airline reservations leader The Sabre Group bought an Internet travel company that it said would help automate its operations and cut 1,200 jobs. And two major booksellers announced partnerships with software giants Microsoft and Adobe Systems to expand their digital book offerings.

Tomorrow, the rust belt's residents may include the traditional car salesmen, software sales force, stockbrokers, real-estate brokers and lawyers who provide routine services such as wills, trusts and business pacts.

According to some economists, the Internet will one day replace anyone who enjoys a middleman position by virtue of the information he or she controls. And that includes a larger and larger share of the work force, labor experts said.

The wholesale arena "is another place that B2B [business-to-business] is really going to bite," warned Richard Carlsen, chairman of Spectrum Economics, a consulting firm in Palo Alto, Calif. The wholesale sales force is largely made up of middle-aged men with niche-based skills and no computer skills. "This is Death of a Salesman stuff," he said.

Such warnings often ring empty in an economy humming along with a record-low unemployment rate of 4 percent and jobs begging for workers to fill them. Many economists say focusing on what jobs the Internet will eliminate is too grim a point of view. It's necessary, they cautioned, to consider the brighter side: The Internet is creating jobs as fast as - or faster than - it is eliminating them. The problem is that it's not clear how, where or when job displacement will occur. And history suggests that if a sizable number of those dislodged from the old economy fail to find comparable jobs in the new economy, social and market chaos can result.

Unlike the rust belt of the 1980s - that swath below the Great Lakes that was thrown into recession by job losses in the auto, heavy equipment and farm machinery manufacturing businesses - the new rust belt is harder to pin down, because it's just beginning to take shape.

But like in any phase of the ongoing industrial revolution, "there are losers. We can see who they are," said Richard Vedder, economic historian at Ohio University and co-author of Out of Work: Unemployment and Government in Twentieth-Century America (New York University Press, 1997).

No one is sure, however, how fast job reductions will occur. Vedder said the Internet will not eliminate jobs overnight, but rather will make many of them increasingly less valuable. When looms were automated in 1820, for example, weavers who worked at home continued to have jobs in America - but the value of their work was driven below subsistence.

The Bureau of Labor Statistics has projected several categories in which jobs will decline in the 10-year period from 1998 to 2008, including administrative support, bank clerk, financial records keeper, procurement specialist and secretary. On the other hand, jobs slated to grow rapidly include computer engineer, database administrator, systems analyst and technical support specialist. Procurement specialists, for example, will go from 58,000 in 1998 to 49,000 in 2008, a drop of 16 percent. Computer engineers, on the other hand, who numbered 299,000 in 1998, will rise to 622,000 - an increase of more than 100 percent, said Dan Hecker, an economist at the BLS. Retail sales and marketing will be other areas in which reductions can be expected due to the Internet, he said.

One of the fastest-moving fronts of automation over the Internet is supply-chain management, said Jack Staff, Internet economist at Zona Research. Zona recently surveyed 100 companies and found that one-quarter had implemented some form of supply-chain automation and another quarter will do so by the end of the year; the remaining half plan to implement supply-chain automation next year.

"We were pretty surprised by that kind of penetration rate," Staff said. By automating procurement, a company with 30 people in purchasing "could see that number reduced 50 percent or more," he said.

With supply-chain automation, companies that do business with each other begin to substitute software talking to software over the Internet for two humans who both need to be by their phones at the same time to conduct business.

The movement to the Internet is also creating efficiencies that are harder to measure, said Mary Daly, senior economist at the Federal Reserve Bank of San Francisco, which covers a nine-state region.

The bank's "Beige Book" of anecdotal feedback on the state of the economy indicates businesses are sharing databases, sampling each other's inventory and supplying information directly to one another's back-office systems over the Internet.

One comment the Beige Book has been collecting from employers: "You don't have to rely on having as many people to conduct business," Daly said, which means someone has become expendable who used to supply that work.

The main change is "a tremendous lowering of information costs," said Ted Gibson, chief economist at the California Department of Finance. Companies can find the goods and services they need quickly and without intermediaries. Sales forces are typically the suppliers of information to customers, and the rise of the Internet means "sales forces could easily be done away with," he said.

For example, Oracle Chairman Larry Ellison boasted his company would save $1 billion this year through Internet-based efficiencies. Oracle posted its price list to the Web this year for the first time, making it easier for customers to negotiate deals on its products. The negotiation process was one of the hallmarks of the old Oracle sales force, and that role has been mostly eliminated, said Ted Schadler, group director at Forrester Research.

In addition to automating order-taking and invoicing, Oracle has realized savings on sales-related expenses by keeping lawyers out of deals, reducing the hours needed to gain a sale and cutting travel expenses. "We're sending in fewer people," said Oracle spokesman Kevin McGuirk. And while the sales force remains the same size, it no longer has to expand as fast as sales, he said.

In many cases, higher-level jobs replace lower-level ones, resulting in opportunities for some jobholders to move up, if they can get the training to make the switch. In other cases, even ultramodern outfits such as Amazon.com may be creating as many lower-level jobs as they eliminate, Gibson said.

"We may be trading a bookstore clerk for a warehouse worker" moving books to fill Amazon's orders, he said. The Internet has also been a boon to overnight delivery services, he added.

Still, it is clear that as the new economy progresses, someone, somewhere gets crowded out.

The BLS reported a productivity gain of 6.2 percent for the second quarter, ended June 30 - a gain that Gibson termed "phenomenal." Usually, he said, productivity gains are highest as a recovery begins on the heels of a recession. The U.S. economy, on the contrary, is 10 years into a business expansion, and productivity gains are accelerating from 3 percent in 1999 to a range of 5 percent to 6 percent this year. The only explanation, he said, is that business is making better use of automation and the Internet. That means, according to Gibson, that many jobs are at risk.

Last week, Sabre, one of the giants in the travel-booking industry, announced that it was buying Internet travel agency GetThere. With the merger, and the efficiencies the company hopes the Internet will bring, Sabre said it plans to cut 1,200 jobs.

Also last week, it became clear that Amazon's success in making it easier for consumers to buy books from the comfort of their homes and offices may be just its first step into the new economy. In a joint announcement with Microsoft, Amazon said it was making use of Microsoft's easy-on-the-eyes ClearType to produce digital books. Around the same time, Adobe announced that it will buy digital publisher Glassbook and expand its partnership with Barnesandnoble.com.

"We're giving a heads up to authors and publishers. We hope they will provide our customers with a very nice reading experience" by moving more of their wares to a digital format, said Lyn Blake, Amazon's bookstore manager.

At first, digital books will have to be priced the same as lower-cost paperbacks, because they will have to help pay for the new systems needed to implement their distribution, Blake said. Over time, however, the digital book will reduce the need to maintain paper books in inventory. It will also cut the costs of distribution, shipping and handling, and dealing with returns. "In this industry, 'return' is a bad word," she said. Reduce returns and the prices of books will fall, she predicted.

Blake estimated that digital books will make up 10 percent of Amazon's total sales by 2004 or 2005, which will in turn further reduce jobs for bookstore clerks and cut into the need for warehouse workers.

Such a change might be hard to envision in what is still a paper-oriented book-reading culture, but that's another aspect of this new industrial revolution - the increase in the speed of change.

Skills that used to keep a member of the labor force employed for a lifetime are now sometimes outmoded within "two to five years," said Rajeev Dhawan, director of econometric forecasting at the University of California at Los Angeles' Anderson School of Management. Dhawan publishes forecasts of the U.S. and California economies.

Many in today's work force have good skills and will refuse to believe they might become outmoded, Dhawan said. But they need only ask the engineers from California's aerospace industry how quickly things can c

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