In 2012, a number of institutions that long defined how Americans communicated are teetering near the brink of collapse. Major newspapers in cities across the country have stopped publishing. Strip-mall anchors from Circuit City to Blockbuster to Borders have filed for Chapter 11 bankruptcy protection. The U.S. Postal Service struggles under the weight of crushing pension obligations, as e-mail, Facebook, Twitter, and Skype render it all but obsolete. In politics, traditional modes of wielding power are also being disrupted. One prominent example is the recent battle over the Stop Online Piracy Act, or SOPA, in which grassroots activists defeated once-powerful Hollywood lobbyists.
What’s toppling these formerly invincible companies and institutions? In almost every case, the proximate cause is the Internet, and the disruption it has wrought on inefficient businesses in every corner of the economy. And so we are now engaged in a war over its future.
Advertisement
The Internet’s enemies have proven vocal, organized, and effective, while the vast majority of consumers, workers, and entrepreneurs it has enriched have proven anything but, and the fight over SOPA must be understood in this larger context.
A McKinsey Global Institute study published last spring found that, worldwide, 2 billion people were connected to the Internet and almost $8 trillion exchanged hands via e-commerce. The United States captures 30 percent of all the revenues generated by the global Internet economy, and 40 percent of the net income. Moreover, the Internet has been a powerful driver of economic growth and job creation. In a survey of small and medium-sized enterprises, McKinsey found that for every job destroyed by the Internet, 2.6 were created. In the advanced countries that were included in the survey, the United States among them, Internet consumption and expenditure accounted for 21 percent of economic growth over the past few years.
One is reminded of Jack Kemp’s call in the 1970s and 1980s for “enterprise zones,” blighted urban areas in which regulations would be eliminated, and taxes lowered, to spark entrepreneurship and growth. The Internet has been the ultimate enterprise zone. Just as Hong Kong’s freedom and prosperity contrasted vividly with China’s desperate poverty for much of the last century, the Internet stands out as an island of low regulation and taxation in a broader economy that grows less free with each passing year. The question is whether we will allow Internet-enabled innovation to continue transforming the economy — dramatically reducing the cost and raising the quality of our education and health sectors, for example — or, alternatively, we will allow the Internet’s growth to be choked off by cronyism.
For now, the Internet represents the great exception to the rising tide of state-guided capitalism, in which government favors politically connected firms and industries. As Ian Bremmer observes in his ominous book The End of the Free Market, the governments of the world’s rising economies seek to dominate key economic sectors. The global markets for energy, aviation, shipping, power generation, arms production, telecommunications, metals, minerals, petrochemicals, and much else are increasingly being manipulated by state-owned enterprises and sovereign wealth funds.
Even the United States, long the bulwark of entrepreneurial capitalism, has moved in a dirigiste direction. During his recent State of the Union address, President Obama celebrated the bailouts of GM and Chrysler, promising that “what’s happening in Detroit can happen in other industries.” What happened in Detroit is that taxpayers gave a massive infusion of cash to politically connected workers and investors in a collapsing industry.
When we think of state capitalism, we tend to think of the Rust Belt, where automobile manufacturers and steel producers have been clamoring for bailouts and protective tariffs for decades. But in the 21st century, it is Hollywood that has been the most effective at securing handouts. Until 2001, only four U.S. states had programs to encourage film production, typically through tax breaks and other giveaways. That year, the total amount offered was in the neighborhood of $1 million. Between 2001 and 2010, however, the number of states offering incentives went from four to 40, and the amount offered increased to $1.4 billion — note the change from “m” to “b.” Thankfully, a handful of states have abandoned their film-incentive programs since 2010, having recognized that they were a bad deal for taxpayers.
Terrific article, excellent journalism. And I'm trying to think which Republican candidate most closely espouses the future-oriented, free-market, expansive thinking the authors praise.
Re: "In a survey of small and medium-sized enterprises, McKinsey found that for every job destroyed by the Internet, 2.6 were created."
In aggregate, automation destroys job. That's the intent of the businesses that deploy it whether it's a farmer firing field hands because he bought a machine to replace them or a retailer terminating 90% of his sales force because he transitioned to an internet sales model.
The associated labor counts to produce the machines or design the web page don't zero out the job losses from efficiencies. If McKinsey were correct, we'd have little unemployment given the almost complete conquest by automation over the last 20 years.
Automation is indeed well and good and provides enormous benefits. However, the real economic and social problems that have surfaced relate to what to do with all of the people whose (professional) training has been made largely irrelevant. (E.g., excess lawyers, architects, Pharma sales reps, etc.)
Re: "the Internet represents the great exception to the rising tide of state-guided capitalism, in which government favors politically connected firms and industries."
Is only partially true. Right now, the government favors Internet-only businesses indirectly by not collecting sales taxes on retail purchases. That's a huge drag on Bricks and Mortar stores. Even if Barnes and Noble Online ran as efficiently as Amazon, it would still get hammered simply because it has retail locations and Amazon doesn't. That's a huge implicit government distortion.
And Re: "The Internet, and the phenomenal success of technology entrepreneurs such as Steve Jobs, Mark Zuckerberg, Sergey Brin, and Larry Page, and countless others, is a vivid example of markets at their best."
What makes the Internet "solution" less robust is that the huge market caps of web content companies do not derive from the production of trade-able goods and services. OK, Apple does make hardware, (in China).
But Facebook has only 3000 programers on staff. The economic multiplier from cloud services as entertainment is near zero. Think Farmville or Internet gambling or even Wall Street derivatives trading. At the end of the day, the only thing being produced is electron churn. A relative few get very rich producing essentially nothing. "Exporting" Farmville to China to help right the trade imbalance is meaningless.
Ideally the benefits of automation should be people working less with access to more. But instead, the result is some people working much more (tethered to ball and chain Smart Phones) and others not working at all. How to handle the job dislocations and resulting from automation is a very nut to crack.
So automation and the Internet are indeed fantastic. But the Market picks winners and losers, a lot of losers are being squeezed out of the automation food chain, and the unintended social consequences are real.
You're wrong. So much extra wealth is created by automation that the people who lost their jobs in the field can move to better service or mechanics, engineering, etc. jobs.
The reason we have such high unemployment is because business men bought off our government and now pay 35 cents an hour for work that used to cost 8 bucks.
If you didn't subtract all the jobs that greedy fools sent to other countries and you added the new jobs at Amazon, Apple, Microsoft, etc. we would be way ahead.
Your claim that the Internet is an aggregate destroyer of jobs is incorrect.
It has definitely destroyed older-style jobs, and we do have a problem with folks who were only skilled at those jobs. In particular, folks who are only good at physical labor are being made obsolete by robotics.
But the Internet has created an ENORMOUS market for web-page designers, software app developers, computer security specialists, computer repair services, and many other jobs and professions that simply did not exist 30 years ago.
Every one of those applications you have on your computer that is not open-source was sold to you by a vendor for profit. And nearly all those vendors did not exist 30 years ago. These are brand new small businesses, thousands of them. What would those folks be doing if the Internet had not been invented?
This isn't the first time that automation and technology made jobs obsolete. We don't have these kinds of jobs in our major cities anymore:
Blacksmiths
Telegraphers
Milkmen
Elevator operators
Switchboard operators
Somehow, American unemployment *declined* despite all these jobs going away.
Finally, your statement that folks like Zuckerberg have gotten rich producing essentially nothing is false, and a perfect example of how folks like yourself don't understand what's at stake here.
Information is a tradeable commodity, and information is never "nothing." When you buy a newspaper, you're not buying it for the paper or the ink. You're buying it for the information it contains.
You must know that, or else you won't have "pushed some electrons around" to post your statement, which presumably you believe is worth something to others to read.
I'm sure I've read posts more ignorant, somewhere on the net, but at the moment I can't find any.
As always, the economically ignorant only pay attention to one half of the equation. They fail to consider what the person who saves money with automation does with that money.
Quick answer is, they spend it. They spend it growing the business and hiring more people in other areas. They also spend it buying stuff they and their family wants. In the process creating jobs in those industries.
If SteveM had his way, farmers would still be using mules to pull their wooden plows.
I love technology. I was a scientist in a former life. I don't argue against automation. I only point out the employment side effects that have to be considered during a very turbulent transition.
Of course you don't get that, or worse, can't get that. Which is a shame for the people who have to interact with you in real life.
I was merely pointing out, once again, how incredibly ignorant you are. If you wish to make a vain attempt to salvage your pride by showing me precisely where my criticisms of your inance yet infantile post is wrong. Go ahead.
However we both know that you won't. You'll just throw out more insults and tell all your buddies what a tough guy you are.
SteveM is mostly right. Automation has displaced many people from their jobs -- some for short periods of time, others for much longer. Eventually, the efficiencies of scale result in a net gain, but often not for the workers who had to try to find other employment. He is not arguing against automation in the long run; he is simply making the wholly valid point that improvements in technology can have negative consequences for some people. Part of our social net exists to take those folks into account.
"I was merely pointing out, once again, how incredibly ignorant you are."
What a joke. You didn't directly counter anything that he wrote... I really wish you would stick to discussing everything but financial and fiscal matters, as you are frequently incorrect - and always a jerk. I mean, you come off as a very unpleasant person in pretty much every interaction I see you have here at NRO.
If you don't see how anything I wrote countered the gibberish SteveM wrote, it could only be because, once again, you couldn't be bothered to actually read what I wrote.
One example of the effect of automation on jobs can be seen in the history of AT&T in the 20th century.
AT&T deployed its first automatic dial system in 1919 (although "independents" had deployed then earlier). Automatic switching systems eliminate operators, yet employment in the Bell System increased.
In 1948, AT&T introduced "direct distance dialing"- now users could dial long-distance calls themselves (formerly this required an operator).
In the 1980s, AT&T began using electonic switching systems instead of the old electromechanical type. This reduced the need for maintnance- formerly there was a small army of technicians busy cleaning the switch contacts and such.
Yet for most of the century, employment at AT&T increased. It increased because, even though less labor was needed to complete each phonecall, the number of calls increased enormously as the price of a call came down.
So, for most of the century automation increased employment- until the 1980s, when the cost of a long-distance call finally became so low that no further reduction in price could produce more calls. Since then, employment in telecom (including cellular) has decreased as automation has indeed reduced the need for labor.
SO, the answer to whether automation destroys jobs would seem to be, "it depends."
Overall, higher productivity may mean fewer jobs if the increased output cannot be absorbed by the market. BUT, decreasing prices combined with improvinng functionality may compensate by increasing demand.
You are simply wrong. On every point, simply wrong. Automation is a God send. It provides for efficient (that is, cheap) production of goods and services.
And while the market does indeed pick winners and losers, as does government and labor unions and NGOs and lobbyists, the market is just another way of saying, "people".
I would rather trust free people to pick winners and losers than a politician or labor boss.
Yet, you lobby tirelessly to convince the public that Ron Paul is not electable. You can't have it both ways boys. If you're going to blow up the government regulation model, it has to include your interventionist foreign policy model too. Of course you could try to explain to me and others, the difference between the constant war model, and the constant regulation model. Good luck with that!
When the populace looks away, our politicians will play. I think it is incorrect to say that Republicans have now seen the light concerning SOPA and other special interest legislation. When John Boehner goes out of his way to say that “lobbyists are necessary to the political process” or when Marco Rubio is a sponsor of SOPA --- it is clear that our politicians in DC, Tea Party or not, are in the pocket of everyone with a checkbook. In the case of SOPA, they were caught and now need to save face. If we are to right this listing Republic, we need to watch our elected officials hawkishly and demand that they act in the interest of liberty and the Constitution. We hold the talon of responsibility.
Now I know why we have to watch all the irritating $@#& at the beginning of a dvd!
My brother went back to college (night school) to get another degree. They have "electronic learning" available. The course is on the internet and you don't have to commute to school. No "brick and mortar" is required and the classes are larger than the typical classroom would hold. Why then, do the electronic classes cost more than the traditional ones? Very little overhead is required but they charge 10% more! It is a mystery. I guess they are charging you for convenience (they also charge all the normal student fees even though he never steps a foot on campus!).
I think over the next 20 years, brick-and-mortar, private, liberal-arts, universities, (with their $28,000 tuition bill in unbankruptable student loan debt) will be "Devry-ed" out of existance. This is already starting to happen.
A lot of interesting points, but the authors come awfully close to arguing that attempts to protect your intellectual property constitute demanding a government bailout. No, they don't - they constitute demanding the government do its job and prevent theft.
Government prevention of theft does not stifle innovation, rather it enables it. No "indie artists" sprang into being due to the ineffable joys of having their work stolen and distributed for free on Bittorrent - rather, now that things like ITunes allow the middleman to be LEGITIMATELY cut out, they spring into being.
Why were there a million IPhone apps within two years of the creation of the IPhone? Because it's relatively hard to pirate IPhone apps compared with acquiring them legitimately. Everybody who made one is capable of making a better app for a desktop computer, but they don't, because they know they won't see a dime.
