As Facebook prepares for its much-anticipated initial public offering, many a hand has been wrung over the supposedly troubling fact that, while Facebook is a wildly successful company, it actually creates very few jobs.
Consider the graphic above, which accompanied this recent Wall Street Journal piece. Toyota, arguably the world’s most successful car company, employs more than 317,000 workers around the world, which results in $15,454 of net income per employee. Facebook, by contrast, gets by with a mere a 3,200 workers and thus pulls in $312,500 in net income per person.
Such efficiency, however, is not universally cheered. On the latest edition of the syndicated political talk show Left, Right, & Center, for instance, panelist Chrystia Freeland – as she is wont to do – lamented the fact that so few people can create so much value. She remarked:
Where I have a concern, and something I think we’re not talking about enough, is all the economic action, as epitomized by Facebook, is in a space that isn’t creating a lot of jobs…to me the pressing social and political question is, how do we deal with this digital revolution that may be creating economies and societies where entrepreneurs do fabulously well but they’re not creating that many jobs?
If that’s how she feels about Facebook, I can only imagine how panicked Freeland and her like-minded colleagues must be about nature and its abundant gifts to humanity. Not a single job is created in the production of rainfall, oxygen or sunlight. Each of these things simply pours down upon humanity, free of charge, thus making each of us poorer as a result (to use Freeland’s logic).
Where Freeland-esque thinkers go wrong is in their focus on “job creation” rather than “value creation.” We should applaud firms like Facebook that are able to create extraordinary sums of value with so few workers. Human time and labor are scarce resources, and when more is required in one area, less is available in others, a fact which has defined the advance of human prosperity throughout history. The development of settled agriculture allowed humans to produce surplus food, which meant that fewer folks were needed to hunt and/or gather and could instead focus on a trade like making clothes, tools, weapons, or – to bring us back to the modern era – social networking sites like Facebook. As industries become more efficient, the workers who are no longer needed in those sectors begin to put their entrepreneurial talents to work and, in the process, create entirely new industries and firms.
Writing in The Freeman, Steven Horwitz makes this very point:
A century ago 40 percent of Americans worked in agriculture; today it’s less than 2 percent. The former farm workers didn’t all go unemployed. The wealth created by higher farm productivity and lower prices enabled us to demand all kinds of new products that in turn created many more jobs than were lost in agriculture. This is the story of innovation everywhere.
So rather than talking about job creation, let’s focus on value creation. The case for freeing markets is that such freedom best enables individuals to find ways to use their knowledge and skills to create value for others and thereby create wealth for themselves. The more wealth that value creators can keep, the more likely they are to continue to create it. Even if a value-creating innovation destroys jobs in the short run, the increased wealth will bring a great deal of job creation in its wake.
What, then, is to become of the workers not needed by the likes of Facebook and Twitter? I don’t know, and I doubt anyone else does either. But then, I imagine that, back in 1920, there were plenty of rural American newspaper editors fretting over the fate of all the youngsters who were no longer needed down on the farm.
Tags: Creative Destruction, Efficiency, Facebook, Innovation, Zuckerberg
Excellent post, Aaron. You say “(Not Steve) Jobs,” but this could include Steve Jobs, too. He created quite a bit of value.
Really like your conclusion, a lot of Koreans (at least the ones writing books, quoted in the newspaper, and in elected office) are greatly concerned about what will happen to the farmers.
Good point on Steve Jobs and, um, jobs. I’m typing this on my Macbook Air while listening to music on my iPod. That fellow and his company clearly knew a thing or two about value creation.