Facebook recently purchased a startup with no profits for $19 billion dollars in the largest tech acquisition in history.
The venture capital-backed, tech startup world is rife with problems as I’ve blogged about before.
However, Robert Reich has brought up one of the more popularly alleged economic problems.
He claims the problem is that tech companies like WhatsApp are hurting the economy by not creating enough jobs.
In Reich’s words:
Productivity keeps growing, as do corporate profits. But jobs and wages are not growing. Unless we figure out how to bring all of them back into line – or spread the gains more widely – our economy cannot generate enough demand to sustain itself, and our society cannot maintain enough cohesion to keep us together.
In other words, Mr. Reich is saying, “55 employees were able to make a business worth $19 billion dollars serving 450 million people and that’s not fair. Why do such a small group of people deserve so much?”
Of course, he offers no solutions other than to mention income inequality implying that it’s the fault of successful companies like WhatsApp for being successful.
Venture backed start-ups with insanely high valuations, minimal revenue and no profit have all sorts of issues.
But not creating enough jobs is not one of them.
Remember the Luddites rioting to destroy new machines that made the textile industry more efficient back in the 18th century?
Richard Arkwright invented his cotton-spinning machine in 1760 which became one of the main instigators of the Luddite riots.
After all, the cotton-spinning machine would displace the jobs of all of the seamstresses who used to make the clothes by hand, right?
In 1760, there were about 7,900 persons in England engaged in production in the textile industry. In 1787, 27 years after Arkwright’s invention and only 8 years after Ed Ludd destroyed 2 stocking frames allowing his name to become synonymous with all the machine destroyers, there were 320,000 people employed in textile production in England.
Why did more efficiency results in a 4400% increase in jobs?
Because with increased efficiency came lower prices so, instead of having 2 sets of clothes, people could afford to have dozens.
The same complaints have been lodged against every major technological advancement.
Every time we progress, the Luddites come out claiming this time the new increase in efficiency is going to hurt the public by reducing jobs.
The exact opposite is true.
About two centuries ago, the majority of America was an agrarian (i.e. farming) society.
However, the invention of farm machinery didn’t result in the majority of Americans starving because they were no longer needed on the farm. In contrast, less people on the farm meant more people inventing, building, and creating other things.
At its core, economics is very simple.
If something increases efficiency it’s good for the economy. If it decreases efficiency it’s bad.
WhatsApp figured out how to connect 450 million people with only 55 employees. That sounds hyper-efficient to me.
Our knowledge-based economy has seen the fastest and greatest improvements in efficiency and leverage the world has ever known.
The end result of that increased efficiency is always an improvement for society.
Massive fortunes were made by Rockefeller, Ford and Carnegie when we transitioned from an agrarian to an industrial economy.
More recently, Gates, Zuckerberg, Page and Brin have been richly rewarded in our transition from an industrial to a knowledge economy.
Would we all be better off if none of them were allowed to reap the rewards of their creations?
You have 2 options
Become a Luddite, slow down technological innovation, and reduce the reward for being an innovator by asking the government to intervene.
Learn what it takes to excel in the knowledge-based economy and join the successful companies that are improving our lives.
Time will prove, once again, that Robert Reich, despite all of his experience, power, and prestige, is no different than Ned Ludd whose name became synonymous with the machine destroyers’ failed attempt to halt progress.
The problem is education
The problem is not our exponential increases in efficiency.
The problem is an education system that was built at the beginning of the industrial revolution and is still designed to teach students to be good “workers” instead of great thinkers.
As the owner of a marketing tech company who has been almost steadily hiring for 2 years, I can assure you that the education or degree of people who succeed on my team is irrelevant.
A particular degree, or college education at all, cannot predict job success as well as cognitive reasoning abilities, emergent leadership, the ability to learn quickly, a passion for your expertise and a willingness to make mistakes while admitting when you are wrong.
Google recently revealed their top 5 hiring attributes and indicated that the number of people at Google without degrees is increasing.
So whether it’s Twitter, Google, Facebook, WhatsApp or my company, Optimized Marketing, fast growing companies that understand how to leverage technology are coming to realize that relying on someone’s particular degree or level of education is not a good predictor of future job performance.
In other words, our education system isn’t reliably producing people with the skills we need.
The problem isn’t successful companies.
The problem is we haven’t yet learned how to educate students for the knowledge economy.
Don’t blame successful entrepreneurs for not making more jobs.
Celebrate their success and start teaching more people how to do the same thing.
There’s a reason Ken Robinson’s below TED talk explaining how schools kill creativity is the most popular TED video ever with over 25 million views.
Mr. Robinson’s talk is popular because he’s right.
Whether creativity comes in the form of becoming the dance choreographer who wrote Cats or the founders of a successful startup company that sells for billions, creativity is the solution.
Taking away the rewards of creativity, as Mr. Reich seems to be implying, would further hinder creative pursuits and not help anyone.
Imagine what the next 100 years will look like if we are all allowed to “come up with original ideas that present value”, as Mr. Robinson defines creativity.
To your passionate, creative success,
P.S. For more examples of technology increasing employment in various industries, check out Henry Hazlitt’s Economics in One Lesson.