There’s an interesting opinion column in today’s New York Times by Ross Douthat, The Facebook Illusion. The gist of the article is that the Internet economy is not capable of producing the economic growth, prosperity, and support of previous economies.
…the problem is not that Facebook doesn’t make money. It’s that it doesn’t make that much money, and doesn’t have an obvious way to make that much more of it. … The result is a company that’s successful, certainly, but whose balance sheet is much less impressive than its ubiquitous online presence would suggest. This “huge reach, limited profitability” problem is characteristic of the digital economy as a whole.
When you read the column, I suggest ignoring Douthat’s claim that the Facebook IPO flopped, and instead remember that IPOs primarily benefit founders, large shareholders, and investment banks. The more important observation comes later: the type of wealth the Internet economy makes possible doesn’t create many jobs, and therefore it has “created a cultural revolution more than an economic one. Twitter is not the Ford Motor Company; Google is not General Electric.”
Now, proponents of the Internet economy suggest that the Ford/GE-style manufacturing and consumer economy are dying, and they will have to adapt. The problem, perhaps, is that there is no way to adapt that also creates general economic benefit—i.e., benefit for more than startup founders and investment bankers. Here’s Douthat again:
The “new economy,” in this sense, isn’t always even a commercial economy at all. Instead … it’s a kind of hobbyist’s paradise, one that’s subsidized by surpluses from the old economy it was supposed to gradually replace.
That is to say, the reason companies like Facebook can exist is because so many people have leisure time bought by jobs in the non-Internet economy that make it possible for them to freely participate and contribute to these high-leverage online startups. Thus, the suggestion that everyone become an Internet entrepreneur has a major problem: the Internet economy only “works” is because people still have jobs that pay them in order to have the leisure to become the products of Internet companies (as data, as advertising). Which suggests a question: what are we supposed to do for a living in the “new economy?” If the entire thing is propped up on an implicit subsidy from the consumer economy, then the answer to that question might be… well, you tell me.