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Andrew McAfee, Apple, China, digital, entrepreneurship, Erik Brynjolfsson, innovation, manufacturing, R&D, technology, Tencent, UK economy, US Economy

Are the poster boys of the internet creating a jobless society?

Last week, after much anticipation, Facebook finally filed for its Initial Public Offering (IPO) on the stock market and began the process of becoming a public market. Filing for an IPO requires Facebook to reveal the inner workings of its business to the public. The 150 page filing shows that Facebook has a US$3.7 billion turnover and US$1 billion operating profit. Facebook is seeking to raise $5 billion in an IPO that looks likely to be the largest by a web company since Google in 2004. This could place the social network’s value as high as US$100 billion.

It also became clear that Facebook’s growth is based on little more than a parasitical dependence on people’s personal information. With over 845 million members, sharing hundreds of thousands of photos and videos, Facebook has access to a vast amount of valuable data about its users. It is not surprising then that a whopping 85% of its’ revenue comes from advertising.

But while some commentaries are celebrating Mark Zuckerberg’s phenomenal individual success, others are more circumspect. This circumspection surrounds the view that, to them, Facebook epitomises the devastating impact new technology is having on employment figures in western economies.

There is a growing fear that companies based on new technology, like Facebook and Google, are generating huge profits for a relatively small group of shareholders while at the same time new technologies are replacing the need for workers as more and more things become automated. Put simply the new stars on the stock market just don’t employ enough people.

If you compare the employee figures of some of the leading web companies to some of the leading companies in the traditional manufacturing/industrial sector it is clear what it happening. ArcelorMittal, the world’s largest steel and mining company employs over 300,000 people; Toshiba, the global leader in high technology products, has 204,000 employees; and Toyota, the global carmaker, employees 322,000 staff worldwide. In contrast Apple has a total 60,000 employees; Google has 32,000 employees and Facebook has a mere 3,200 employees!

In their new book, Race Against the Machine, MIT Sloan School of Management professors Erik Brynjolfsson and Andrew McAfee look at the impact of today’s acceleration of technology on jobs and the economy. They argue that information technology is making America more innovative, productive and richer but this new wealth, innovation and productivity is being spread unequally, so that only a minority of Americans are benefiting from it. For them, the inequalities thrown up as a consequence of today’s digital revolution are deeply worrying, particularly its inability to produce more jobs for the ‘less well educated’ workforce.

This viewpoint is very much tied in with the worsening situation in western economies. In contrast, this outlook does not exist in China and other more dynamic economies. Web services companies like Baidu and Tencent (China’s Facebook’s and Google’s equivalents) are seen as positive contributors to the overall economy, not as destructors of jobs. This is because while these companies are very successful, they are just a small part of the overall growth taking place within these economies.

Throughout history new technologies have always created unemployment in certain areas. For example, in the nineteenth century the Luddite movement in Britain feared that mechanisation and new machinery would create unemployment for traditional loomers. While the introduction of machinery did change the nature of employment and the work required, it also fuelled the Industrial Revolution and a massive expansion in the British economy and employment.

New technology is not bad for the economy or the creator of unemployment. Innovation is key to economic success. Past innovations have fuelled developments in electricity, flight, nuclear energy, space exploration and medicine and spawned whole new industries capable of creating millions of new jobs and transforming society. Innovation can drive through huge increases in productivity and revolutionise infrastructure.

The dire economic situation facing mature economies demands radical innovation. What’s needed is new technological advancements that can help create real economic dynamism. Western leaders need to invest in and create new industries that will generate new jobs for its populations. This does not seem likely to happen.

Last year President Obama announced in his State of the Union speech that this was America’s Sputnik moment. He stated that the US needed to fund a level of research and development not seen since the height of the space race, with particularly strong investments needed in biomedicine, information technology, and energy technology. While this sounded very positive at the time, unfortunately in the year since Obama’s speech, there has not been any corresponding investment into America’s Sputnik moment.

Today’s risk-averse leaders are increasingly hostile to large-scale technological investments, choosing to hoard cash at the expense of capital investment. To paraphrase Marx, western economies have mastered the destruction part of ‘creative destruction’ but have yet to address the ‘creative’ part. Boosting the industrial sector would require a level of investment that many western leaders are simply not prepared to consider.

The rise of unemployment in the mature economies of the world has very little to do with Facebook or the introduction of new technologies. The bulk of the manufacturing sector has long since moved to China and other emerging economies to take advantage of increased investments, cheaper labour and better resources.

Rather than blaming new technology and innovation for the growth of unemployment, we should perhaps blame the lack of long-term investment and ambition on the part of western leaders.

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About Theresa Clifford

I am a senior manager/digital consultant with international agency experience in leading the delivery of holistic customer-centric strategies and digital programmes. I am also a Tutor/Presenter in Digital Marketing for the Marketing Association and a regular writer and speaker on digital trends. If you would like to discuss any aspect of your digital requirements, please feel free to contact me. (e) mstheresaclifford@hotmail (m) +64 21 026 17779

Discussion

One thought on “Are the poster boys of the internet creating a jobless society?

  1. it’s not about blaming the lack of long term investments….
    It’s about blaming the need to make profit..due to you LOAN the money from central banks, or international bank of settlements.

    “You have to make a profit or you’ll die or lose your job as our fund manager not tomorrow, but right now !!”

    Yeah…who wants to gamble? I say the owner of Tesla Motor, SPaceX, SolarCity is doing quite well..

    Elon is right to invest in all 3 fo them.. he missed one industry though that’s recycling industry..too big for his pocket & connection.

    Posted by nathan | April 17, 2012, 2:31 pm

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