May 20, 2012
Thomas Friedman did his usual Sunday morning stretch, waxing eloquently on a new era in:
“in which to be a president, a governor, a mayor or a college president will be, on balance, to take things away from people.”
It’s not clear why this would be the case. After all, productivity is growing at a rate of 2.0-2.5 percent annually. This should mean that we are getting richer, not poorer, through time. But Thomas Friedmanland bears little resemblance to the world of gravity and arithmetic that the rest of us inhabit.
It’s also not clear how he thinks the future will be different from the past in this respect. In 1980, non-defense government spending at all levels was 14.3 percent of GDP. It was the exact same share in 2007 before the recession hit. There have been no big government give-aways for the last three decades.
Friedman begins by celebrating the developments in technology that are allowing individuals to produce books, music, videos and other creative work and directly distribute them without the mediation of publishers, the recording industry or movie companies. He then comments:
“The leading companies driving this trend — Amazon, Facebook, Microsoft, Google, Apple, LinkedIn, Zynga and Twitter — are all headquartered and listed in America. Facebook, which didn’t exist nine years ago, just went public at a valuation of nearly $105 billion — two weeks after buying a company for $1 billion, Instagram, which didn’t exist 18 months ago.”
The rest of the piece then warns us that such companies may not be headquartered in the United States in the future. It’s a bit hard to follow the story line here.
First, it is not entirely clear how much U.S. companies have driven this trend. Important innovations such a Skype and Linux have been developed elsewhere.
And, the success of several of these companies does not necessarily stem from being innovative. For example, most of Amazon’s profits have been attributable to its effective lobbyists. They have managed to exempt most of its sales from state and local sales tax in most of the country. This enormous subsidy, at the expense of traditional retailers, has often exceeded its profit margin.
Microsoft secured its position primarily through its aggressive and arguably illegal marketing practices, not its innovative software. The value of LinkedIn for anything is questionable. (Please do not ask me to be a contact.)
It is not clear why Friedman would celebrate Facebook’s market capitalization of $105 billion. While this may be held up in the market in the months and years ahead, it is also possible that Facebook will go the way of AOL which had a peak market capitalization of more than $200 billion. If that proves to be true, then Mark Zuckerberg’s great skill would be in running a con game, like Steve Case, the main billionaire behind AOL.
Anyhow, it is not clear why we should be so happy that these companies are headquartered in the United States or why we would care if future companies like those on Friedman’s list were headquartered elsewhere. People outside the United States get the same benefit (or pain) from Google, Microsoft, Facebook and the rest as people in the inside the United States.
It is far from obvious that the country benefits from having the small number of individuals who make big profits from these companies located in the United States and of course nothing guarantees that they stay here. If these companies were located in other countries then we might be less likely to have people like Bill Gates and Mark Zuckerberg pretending to be experts on education and using their wealth to impose their views on the topic. That could be seen as a major gain.
It would be useful if Friedman explained sometime why he thinks the United States would suffer if we used a search engine that was designed in another country. While Friedman is right to be concerned about the country’s neglect of education, having foreign companies top the list of major innovators is not the real problem. The overwhelming majority of workers will never directly or indirectly be employed by any of these companies. Rather, the risk is having a poorly educated workforce more generally and also future generations that do not get the skills needed to fully take advantage of the benefits of technology for their own enrichment.
Friedman also complains that the United States is suffering from a skills mismatch telling readers that:
“The Labor Department reported two weeks ago that even with our high national unemployment rate, employers advertised 3.74 million job openings in March. That is, in part, about a skills mismatch.”
Actually, it’s not very much about a skills mismatch. The number of job openings in the economy is still down by more than 25 percent from its levels in 2000. Also, if it were the case that the economy had a serious problem of skills mismatch, we would see major sectors of the economy in which average hours worked is rising (because firms can’t get more workers) and in which wages are rising. There are no major sectors that fit this description.
Number of Job Openings
Source: Bureau of Labor Statistics.
As usual, when Friedman tries to make the skills mismatch argument he mostly is showing his lack of the skills appropriate for someone writing on economic policy for a major national newspaper.
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