Will the Entrepreneur Boom Miss the U.S.?


As we marvel (or worry) about the Dow reaching 10,000, let's look again at how closely the crash and recovery are tracking the 1970s. From January 1973 to December 1974--23 months--stocks fell 48%. Over 17 months (October 2007 to March 2009) stocks dropped 54%--a little faster and more dramatically, but comparable. In 1975 stocks rose 38%, in 1976 another 24%. The bounce from this year's Mar. 9 low is nearly 60%. Again, faster and bolder but roughly the same, so far.

The 1975--76 rally didn't last. What torpedoed stocks from 1977 to 1982? I would argue it was the 1976 election, which elevated an unknown, underqualified reformer named Jimmy Carter to the presidency. The 1976 election also produced 61 Democratic seats in the Senate, along with a two-thirds majority in the House.
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There wasn't much pro-market advocacy in Washington during the late 1970s. Thus, it was no surprise when the worrisome inflation that had erupted under Gerald Ford took a turn for the worse. The Carter Administration and Congress believed the Federal Reserve's job was to ensure stable employment. The result? Inflation kicked into hyperdrive and pushed up taxes by way of bracket creep. Economic activity was distorted by a witches' brew of inflation and high taxes, which meant that speculators and tax lawyers got rich while the rest scrambled.

Looks scarily familiar, doesn't it?

The saving grace of the 1970s was entrepreneurship and innovation. During that otherwise rotten decade we saw the creation of startups that remain mighty today: FedEx ( FDX - news - people ), Southwest Airlines ( LUV - news - people ), Microsoft ( MSFT - news - people ), Apple ( AAPL - news - people ), Genentech ( DNA - news - people ), Charles Schwab ( SCHW - news - people ), Oracle. In 1971 Intel ( INTC - news - people ) introduced the microprocessor, which technology futurist George Gilder calls the most important invention in the last 50 years. Silicon Valley-style venture capital emerged during the 1970s, as did venture debt, better (and unfortunately) known as junk bond financing.

Will entrepreneurs and innovation bail us out again? They're already doing so. The rub is that most of this entrepreneurship and innovation is occurring outside the U.S. Americans--the mainstream media and the political class, especially--are terribly parochial regarding this. For example:

--How many Americans have heard of Huawei, the Chinese rival of mighty Cisco ( CSCO - news - people )? Huawei was started in 1988 and will sell $30 billion in telecom gear in 2009. Cisco was started in 1984 and will do $40 billion in sales. But Huawei's recent sales trajectory is steeper. It's possible Huawei could pass Cisco during the next few years.

--Did you know that Korean automaker Hyundai achieved record sales numbers in the lousy month of August? The J.D. Power quality ratings put Hyundai solidly in the top half, which belies the image of junky Korean cars.

--Did you know that Brazil's aircraftmaker Embraer ( ERJ - news - people ) has taken the airplane press by storm with its innovative light jets, the Phenom 100 and 300? In my Oct. 5 column I quoted Cessna's CEO, Jack Pelton, as saying he's "scared to death" of Embraer.

--Are you aware that outcomes of heart bypass surgeries are as good in India as anywhere else in the world?

--Or that Singapore is willing to pay U.S. research stars in biotechnology about $715,000 in annual salary?

Entrepreneurs and innovation will once again save the economy. But this time the miracle won't happen predominantly in the U.S. Policymakers seem not to care.
Apple the Outlier

Apple is now 33 years old, yet it seems like a perpetually new company. The company's blowout performance in its fiscal Q4--and really since the iPod's launch in 2001--has everything to do with Apple's keen sense of cultural shifts, which keeps the company at the edge of new. The genius of Steve Jobs has always been to marry his solid layman's understanding of technology to his world-class design eye and preternatural understanding of cultural moods.

Apple ( AAPL - news - people ) always seems one step ahead, even when it comes from behind. Apple didn't invent the personal computer, but it made the computer personal. It didn't invent the MP3 player, but the iPod put it all together. Smart phones existed before the iPhone. The forthcoming Apple iPad (or whatever it's called) will stand on the shoulders of the Amazon Kindle.

The lesson of Apple is to think deeply about what touches customers in an enduring way. What endures is great design and product coherence--stuff that looks cool, works well and, thus, justifies higher prices. This formula works even in a recession. Apple is a secular company with a religious following. It understands that people want transcendence and hope, especially during a difficult period. Apple's products have a quality that reaches beyond the economic dirge and reminds us of what is possible.

Movies did that in the 1930s. Apple is doing it now. Which is why Apple is an outlier.

Read Rich Karlgaard's daily blog at http://blogs.forbes.com/digitalrules or e-mail him at publisher@forbes.com. See Rich Karlgaard’s new TalkBack video series at http://forbes.com/talkback.