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The Internet's Network Efficiencies Are Destroying the Middle Class
Hugh Pickens DOT Com writes "Joe Nocera writes in an op-ed piece in the NYT that the same network efficiencies that have given companies their great advantages are becoming the instrument of our ruin. In the financial services industry, it led to the financial crisis. In the case of a company like Wal-Mart, the adoption of technology to manage its supply chain at first reaped great benefits, but over time it cost competitors and suppliers hundreds of thousands of jobs, thus gradually impoverishing its own customer base. Jaron Lanier says that the digital economy has done as much as any single thing to hollow out the middle class. Take Kodak and Instagram. At its height, 'Kodak employed more than 140,000 people.' Kodak made plenty of mistakes, but look at what is replacing it: 'When Instagram was sold to Facebook for a billion dollars in 2012, it employed only 13 people.' Networks need a great number of people to participate in them to generate significant value says Lanier but when they have them, only a small number of people get paid. This has the net effect of centralizing wealth and limiting overall economic growth. It is Lanier's radical idea that people should get paid whenever their information is used. He envisions a different kind of digital economy, in which creators of content — whether a blog post or a Facebook photograph — would receive micropayments whenever that content was used. 'If Google and Facebook were smart,' says Lanier, 'they would want to enrich their own customers.' So far, he adds, Silicon Valley has made 'the stupid choice' — to grow their businesses at the expense of their own customers. Lanier's message is that it can't last. And it won't."
The micropayments for content idea sounds familiar.
That just says there are sectors that are booming. This shift has left a lot of people behind. what you are ignoring is all the lower skill jobs. Now when I say lower skill, I don't mean McDonalds; I mean any job you could do with a 2-4 year non-technical degree and on the job training.
It used to be, you go to college, prove you can read, write, and take training, and you were almost garaunteed a middle class lifestyle supporting job. The entire economy was based around the plethora of these jobs.
My favorite example is the paralegal. They still exist, yes. However, it used to be a single lawyer with a big case would hire an auditorium full of paralegals just to study case law and review documents. Those days are gone, that job is done by a small handful of people. An entire auditorium reduced to maybe 2-4 people.
That is why you are seeing people with college degrees working at McDonalds and those with less education struggle to get even the shit jobs that they used to be considered "stuck with". We have seen the huge rise of part time, low wage employment.
But yes, our sector is booming and it is great. That is partially because we empower everyone else to hire less people, and use the ones they do hire more efficiently.
"I opened my eyes, and everything went dark again"
This smells distinctly like someone had an idea ("The internet is destroying the middle class!") and then busily started beavering away trying to jam every square peg into that round-hole of conclusion.
Kodak was absolutely NOT destroyed by the internet, not by any way. It was annihilated by digital CAMERAS. It's only with a staggering misunderstanding of recent history and a stunning lack of historical memory that someone could assert that something released in 2010 destroyed a company that was shedding jobs a half-decade before. (15000 jobs cut in 2004 alone).
To suggest that "the internet" led to the financial crisis is simply ignorant; the (most recent) financial crisis had its roots in the subprime-mortgage industry, which (depending on whom you believe, and probably your politics) was a failure of collusive non-regulation, unbridled mercenary greed, the Democrats, the Republicans, or the Illuminati. Only by a complete misunderstanding of the circumstances could one believe that electronic trading (I guess?) might have had something to do with it, but EVEN THEN fund traders don't use the interwebs, they have dedicated lines because even a 0.5 second delay would mean a massive competitive disadvantage.
NETWORKS are allowing companies of any size to compete successfully around firms like Wal-Mart and Target (who themselves destroyed small-town businesses). Networks mean everyone's competing in a flatter environment, informationally - that's a good thing, pretty much per economics 101. (Well, it's not good for the non-competitive; are they a 'protected class' now?)
Joe Nocera, by the way, is a "business" columnist/commentator who has a penchant for taking a reasonable position to silly extremes, so I guess this isn't such a surprise.
-Styopa
Eh, the 'real reason' for Kodak's demise had little to do with Apple or consumer products in general. Kodak was killed by corporate raiding, a corrupt CEO got stock payoffs for short term gains due to selling off one profitable division after another, leading to long term failure of the company. We tend to focus on Kodak's consumer products on sites like this because, well, we are average consumers and our world revolves around us, but we are not the only market and the lion's share of Kodak's revenue did NOT come from retail products.
You should read up on it. Talk to some of the incredibly bitter ex-Kodak people. Here's a timeline.
1975, Kodak invents digital photography. Management does not see value in developing it to the point where it can be sold to consumers. (Why should they, film is doing multiple billions of business per year!) Patents are filed.
1980s: People decide to give digital a try. Kodak decides film is still better and pursues the medical diagnostic film market. Fujifilm eats away at their domestic consumer film sales. Kodak tries to enter the battery market and gets properly served by Duracell.
1990: Kodak introduces Photo CD because they just don't 'get it' that it's a huge waste of money when you can just exchange photographs in GIF or JPEG format. It's not very successful, and R&D costs are high.
1991, Kodak releases a 1.3 megapixel digital camera. It's not very good.
Mid 1990s: Various sub-par digital cameras are made while the bulk of their focus is still on film and paper. The film business is really, really good. New film products continue to be developed and introduced to the market.
Late 1990s: Kodak introduces APS, trying to divert consumer attention from the growing digital 'fad'.
2001: Kodak unveils the Easyshare system, which is years behind upon release. The gallery website you're supposed to use is terrible, the product is the epitome of crashy TWAIN junk. Image quality isn't comparable to film. Around this time, they have a series of market-dominating digital cameras, but that's not because they're good - that's because they're selling it so cheaply that they are taking a loss on every unit sold in the hopes that their consumables (Kodak photo paper and inks and Photo CDs and website products) will make up the difference. Maybe they're hoping enough people will have a bad experience that digital gets written off as a bad idea?
Mid 2000s: Nikon and Canon eat their lunch in digital cameras because they (and Sony, and Sigma, and Pentax, and Olympus, etc etc) saw fit to pour huge R&D into digital camera development, while Kodak was going strong after film, which made them a lot of money at the time. Epson, HP and Canon also destroy them in the inkjet printing space while Kodak attempts to enter the market with a small thermal printer, which fails because it can't compete on price and also can't be used to print the kids' homework. Profits fall because digital starts a major takeover once it reaches 3 megapixel resolution, which is about the minimum you need for a 4x6 or 5x7, and they aren't ready with good products in the consumer space. Proprietary interconnects and dodgy online galleries aren't helping. Stocks plummet. It gets so bad they are removed from Dow Jones. The death spiral begins. Shedding employees neuters digital R&D and puts them even further behind, which accelerates their decline.
Late 2000s: Cell phone companies, particularly Nokia and Apple, are now the biggest digital camera manufacturers in the world. They do it without Kodak's products. Kodak is a distant single-digit percentage of the market. They resort to lawsuits to try to sustain the business, which is barely surviving on medical imaging and cinema film at this point.
Early 2010s: After filing for bankruptcy, they have sold large portions of their patent portfolio. They have closed or sold many parts of the business. Film and paper are sold. Online galleries are sold to Shutterfly. Pension plans are outright cancelled, leaving many retirees without any options.