There are worse dates to peg the dawn of 20th-century industrialism than May 26, 1896, when a middle-aged New York editor named Charles Henry Dow unveiled his new "industrial" stock average. One of the companies was US Leather, whose belts spread power through thousands of humming new factories. The others - a dozen, in all - included Tennessee Coal & Iron, National Lead, and a forward-looking outfit named General Electric. Mr. Dow's average, calculated with paper and pencil and published in his Wall Street newsletter, closed its first day at 40.94.
A hundred years and 9,000 points later, another new economy is emerging, just as dramatically as Dow's smokestacks sprang from the wheat fields of the agrarian age. Industrialism is about things and the efficient production of them. The revolution today is rooted in networked information - how to create it, move it, and manage it. Charles Dow's index has become a cultural icon, expanded on the edges to include "industrials" like McDonald's and Walt Disney. His beloved Wall Street is still where the money flows - and it's arguably more powerful than ever. But even there - and, increasingly, everywhere around the world - anything that isn't firmly bolted to the past is in the throes of change.
So, in the spirit of the intrepid Mr. Dow, we are launching the Wired Index. On the simplest level, our aim is to do for the information age what the Dow did for its predecessor: track the growth of the companies that are building the new economy - not just the usual high tech suspects, but a broad range of enterprises that are using technology, networks, and information to reshape the world. Mission Two is to tell the poorly understood story of what that new economy is: simultaneously a revolutionary insurgency (Hello, Bill Gates) and a more gradual process whereby the old economy (the smart or lucky players in it, anyway) adapts to technological change. So you'll spot some familiar names, even a few that also grace today's iteration of Mr. Dow's average.
The companies we've chosen demonstrate one or more of the qualities that are transforming the old industrial economy into something new and different - not just intelligent use of technology, but also more abstract notions, including globalism, innovation, and strategic vision. (The Dow's main criterion is "substantial companies with a history of successful growth and wide interest among investors.") Like Dow and his successors, we made the choices entirely at our own, essentially subjective, discretion, with informal advice from a mix of academic economists and professional financial analysts. (No one owning stock in any of the listed companies was involved in the final decisions.) In determining the mix, we've taken some educated guesses about the likely rising importance of sectors like biotechnology and global telecommunications. To balance the influence of smaller and larger companies, we've added market-capitalization weighting (an innovation introduced by Standard & Poor's in 1928). And we've put some extra space on the list - 40 companies in all, rather than the Dow's current 30 - to let us take a few fliers on smaller companies whose technologies look particularly well tuned to the coming century.
Our choice of something as simple - some will say primitive - as a 40-company stock index is deliberate. One of the ironies of the information age is that the new economy it has spawned is increasingly difficult to measure - intangible, as economists put it - as opposed to counting widgets as they roll off an assembly line. There are Nobel Prizes aplenty to be won devising new metrics for things like service-industry productivity and valuing intangible assets. In the meantime, the collective human judgment embodied in the markets - by far the most information-saturated turf on Earth today - may well be the best measuring device we have.
If it isn't already obvious, the Wired Index is not an investment fund designed to beat the market - it is the market, or, more precisely, an informed guess at what the market increasingly will be. Funds are managed to seek opportunity and advantage; the virtues of an index are continuity, longevity, and the ability to accurately reflect change. Hence, we'll adopt the Dow's studied policy on changes to the list: When - but only when - one of the companies drops off (by being acquired, for instance), we'll review the whole list. The goal is to roughly balance stability and the larger economy's continual change.
As the Dow's present-day custodians warn laconically on their Web site, "an index doesn't predict anything." Nobel Prize-winning economist Paul Samuelson has a more acerbic version: "The market has predicted nine of the last five recessions."
The Wired Index's main aim is more modest: to mirror the arc of the new economy as it emerges from the heart of the late industrial age.
We don't know where that trajectory will end, any more than Charles Dow could have predicted a "substantial company with a history of growth" whose business includes selling Happy Meals. But with luck, we may create a new icon - a new, global, networked version of the Dow's torch song to 20th-century American industrialism.
WIRED INDEX
Wired Index Detail
Acxiom
Affymetrix
AIG
America Online
AMR
Applied Materials
Cable & Wireless
Charles Schwab
Cisco Systems
Daimler-Benz
Dell Computer
EMC
Enron
FDX
First Data
Globalstar
Incyte Pharmaceuticals
Intel
Lucent Technologies
Marriott International
Microsoft
Monsanto
News Corporation
Nokia
Nucor
Parametric Technology
PeopleSoft
Qwest Communications
Reuters
Schlumberger
SmithKline Beecham
Sony
State Street Corporation
Sun Microsystems
Thermo Electron
Wal-Mart
Walt Disney
Wind River Systems
WorldCom
Yahoo!
