Posts about economy

The importance of JOBS

April 5, 2012 by Jeff Jarvis
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The JOBS bill being signed by President Obama today is critical to the emergence and growth of the next generation of industries as ecosystems.

Those ecosystems are made up of three layers: Platforms (Google, Amazon, Salesforce, Facebook, Kickstarter, Federal Express, Foxconn), which make it possible for entrepreneurial ventures to be built at lower cost with less capital and reduced risk at greater speed. To provide the critical mass that large corporations used to provide — to, for example, sell advertising at scale or acquire distribution or acquire goods or services at volume — sometimes these ventures need to band together in networks (Glam, YouTube, Etsy, eBay). This is how I simplistically draw it in a whiteboard:

Our economy — equity markets, regulation, taxation — has been built to support The Firm: large companies that controlled the entire chain from design to manufacturing to marketing to distribution, gaining efficiency and control as they gained size. The new ecosystem still benefits large companies if they are platforms, as today much — perhaps most — of the value created via the net falls to new corporate behemoths: Google, Amazon, Facebook….

But it’s at the entrepreneurial layer that the real work is being done, the real efficiency is being found, and the real value is being built. But they need capital — not much, but they need it. And they need to be able to recognize the value they create. That’s what I hope Steve Case and others worked toward with the JOBS bill. Andrew Ross Sorkin is worries that the new law’s loosened regulation for some companies will mean that more will lose money. But Henry Blodget counters that it’s not the SEC’s job to save you if you’re stupid enough to invest in Groupon (told ya!). The lighter regulation certainly bears watching.

But the part of the bill that encourages me is the ability of small companies to raise small amounts from small investors. I see this as economically democratizing on both sides of the transaction: more small companies disrupting large firms and more real investors able to get in on the opportunities (and risks) of a platform-enabled entrepreneurial economy.

Such small-scale investment has already been possible in the U.K. — not just possible but encouraged through 30% tax break on investments. Recently I got email from a company set to benefit, Escape the City (soon to be renamed escape.co), which helps would-be refugees from London’s financial district build new and one hopes better lives outside it. Cofounder Mikey Howe kindly wrote to me because he’d read What Would Google Do? and said it helped him think in new ways. (Thank you, Mikey.)

Howe wrote on the occasion of the company sending a letter to its 57,000 members inviting them to pledge to invest in the venture. Within one hour, $6.6 million was pledged. I checked back with him three weeks later and 2,200 members had pledged $15 million (more than they will end up raising). What’s exciting is not just that a small company can more easily raise investment funds but that this small company knows its potential investors. They are members of the service already: a community of customers and investors. Imagine what that relationship could do to help a startup, when your users, your customers have a stake in your success. (I also enjoy the notion that their venture attempts to disrupt the financial district they left.)

Start Something You Love: Escape the City…1 year on from Escape the City on Vimeo.

Until the JOBS bill, about the closest thing we had in America was Kickstarter. My entrepreneurial journalism students are eager to try to use it to raise funds — perhaps a bit too eager, I caution them, for funding a single product or project does not a sustainable strategy make (any more than begging for grants from foundations). But properly used, Kickstarter reduces risk by performing the best possible market research (pre-orders) and allowing an entrepreneur to use her customers’ capital to start her venture while also turning customers into marketers. Kickstarter could not sell equity. Should it? I think that’s an entirely different proposition. In any case, now we can see Kickstarters of a new sort help more new companies. See also the U.K.’s Funding Circle, which loans capital to startups (and which just got an investment from New York’s Union Square Ventures).

The irony of the JOBS bill’s title (it stands for Jumpstart Our Business Startups) is that it may end up killing more jobs than it creates as it funds highly disruptive and highly efficient new ventures that will try to replace large and now inefficient companies in old vertical industries. (See my post, the jobless future.)

But if the disruption is inevitable — and I believe it is, across many industries from media to retail, banking to travel and even manufacturing — then the only sane response is to find the opportunity in the change. The JOBS act helps more people, entrepreneurs and investors, find more opportunity. That, more than bailouts, is the wise role for government to play in the shift from an industrial to a digital economy.

Efficiency over growth (and jobs)

January 26, 2012 by Jeff Jarvis
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The hook to every song sung at Davos is “jobs, jobs, jobs.” The chorus of machers on stages here operate under an article of faith that growth can come back, that they can stimulate it, that that will create jobs, and then that all will be eventually well.

What if that’s not the case? I am coming to believe, more and more, that technology is leading to efficiency over growth. I’ve written about that here.This notion is obviously true in some sectors of society: see news and media, retail, travel sales, and other arenas. But how many more sectors will this rule strike: universities? government? banking? delivery? even manufacturing?

As I write this, I’m watching a WEF panel moderated by Reuters’ editor, Steve Adler, with Larry Summers and government and business leaders. They’re discussing growth strategies and so far we’re hearing the same notions we hear elsewhere in Davos, the complete trick bag: spend money on infrastructure, be nice to business, regulate less, reform taxes, reform immigration. OK and OK.

“The problems of job creation are more complicated than that. They are more complicated than wealth creation,” says one of the panelists (operating under Chatham House Rule, so I won’t attribute*). “This is a group that understands wealth creation better than job creation.” He says “there are inherent limits” to the number of people employed in various sectors.

I haven’t heard any strategy yet that reverses the trends underway in the transition from the industrial economy to the digital economy. What will offset the shrinking of vast industries? New industries? Well, we have new, digital industries, but they are even more efficient than restructured old industries. Compare Google’s staff size to GM’s, even now. Facebook serves almost a billion people with the staff the size of a large newspaper. Amazon employes far fewer people than the bookstores it put out of business did. So those new industries will bring growth, profit, and wealth, but not many jobs.

“There are fewer jobs for regular people because those innovations happened than there would have been if those innovations hadn’t happened,” the panelist says. It would be “a delusion” to think that encouraging this innovation will increase jobs.

So what if the key business strategy of the near-term future becomes efficiency over growth? Productivity will improve. Companies will be more profitable. Wealth will be created. But employment will suffer.

I’m hearing no strategies focused on this larger transition in a gathering about the transition. I think that’s because the institutions’ trick bags are empty. They ran an industrial society. That’s over. And the entrepreneurs who will create new companies but also new efficiency aren’t yet in power to solve the problem they create.

I ask the panel whether all this talk of jobs, jobs, jobs is so much empty rhetoric. I ask whether there are other tricks in the bag.

The panelist I’ve been quoting says that there are two sets of economic issues: In the short term, for the next five years, we are dealing with demand and macroeconomic policy. “Employment today has nothing to do with the Kindle,” he says. “It has everything to do with the financial system, deleveraging, and macroeconomic policy.”

It’s in the long term that the issues I’m addressing here come to bear. “For the longer term, we don’t have nearly as good answers as we would like to,” he says. “We are going to have to embrace the idea that we are going to have growing numbers of people involved in the provision of fundamental services to other people, services like health care and education. We’re going to need to make that work for society.”

That is to say, health and education don’t directly create wealth; they are services funded in great measure by taxes of one sort or another. Employing people in those sectors amounts to a redistribution of wealth with the fringe benefit of providing helpful services. Is a service-sector economy the secret to growth? Who pays for that when fewer people have jobs in the productive economy? I still don’t see an answer. This is not an economic policy so much as it is a social policy.

Another panelist says that we will have fewer people and we will need to retrain people throughout their lives for new jobs. I agree. But that doesn’t create jobs (except in schools); it just helps fill the ones we have.

One more panelist, from Europe, suggests that nations here will end up making stuff for the growing economies and consuming middle classes of China, India, Brazil, etc. In a globalized world with maximum price competition, I’m not so sure that’s a strategy for growth, only survival. I’d hate to place my strategic bets on continuing — or returning to — the industrial economy. And at some point, that strategy bumps up against the question of sustainability: is there enough stuff to go around?

Indeed, in a globalized society, we need to look at total jobs, the sum of work and productivity and demand, not country-by-country. The question is: Will jobs on the whole increase in this digital economy?

If instead efficiency increases — and with it, again, productivity and profit — then great wealth can be created: see Google, and the technology economy. But that means the disparity of income and capital will only widen yet more. And it’s just wide enough today to cause unrest around the world. That’s much of what #Occupy_WEF et al is about. That’s what is causing such tsuris and uncertainty on the stages of the world (Economic Forum). That’s what is causing the institutions represented here to fear, resist, and regulate technology in the hopes of forestalling the change it is bringing. There is the root of the disruption we’re witnessing now even in Davos.

* I saw Summers later and he gave me permission to quote him by name. He is the quotable panelist.

The jobless future

August 5, 2011 by Jeff Jarvis
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UPDATE: This is now the topic of my South by Southwest proposal. Please go vote for and comment on it here.

We’re not going to have a jobless recovery. We’re going to have a jobless future.

Holding out blind hope for the magical appearance of new jobs and the reappearance of growth in the economy is a fool’s faith. Politicians who think that merely chanting the incantation “jobs, jobs, jobs” will bring them and the economy back are fooling us if not themselves. When at least a tenth of Americans are out of work, for Wall Street to get momentarily giddy at the creation of 117k jobs is cognitive dissonance at its best. No one can make jobs out of thin air. Jobs will not come back. A few new jobs reappearing won’t fix anything.

Our new economy is shrinking because technology leads to efficiency over growth. That is the notion I want to explore now.

Pick an industry: newspapers, say. Untold thousands of jobs have been destroyed and they will not come back. Yes, new jobs will be created by entrepreneurs — that is precisely why I teach entrepreneurial journalism. But in the net, the news industry — make that the news ecosystem — will employ fewer people in companies. There will still be news but it will be far more efficient, thanks to the internet.

Take retail. Borders. Circuit City. Sharper Image. KB Toys. CompUSA. Dead. Every main street and every mall has empty stores that are not going to be filled. Buying things locally for immediate gratification will be a premium service because it is far more efficient — in terms of inventory cost, real estate, staffing — to consolidate and fulfill merchandise at a distance. Wal-Mart isn’t killing retailing. Amazon is. Transparent pricing online will reduce prices and profitability yet more. Retail will be more efficient.

The housing market has imploded and is not likely to reinflate for a long time to come. So the market for new homes will not recover and construction jobs will not come back.

I can and will keep going, but later. Technology and related trends, including globalization, lead to efficiency in companies and sectors. Transparent markets lead to lower prices. Digital abundance leads to both.

All this has profound implications on both business strategy and policy, but we’re not facing these issues as, instead, our leaders keep trying to resuscitate old markets and old ways. Bailing out banks only transferred debt from them to governments (read: citizens), leading to Europe’s mess. Bailing out GM gave life support to an industry that deserves disruption. Fighting over debt in Congress — and reducing the markets’ faith in the markets, leading to this week’s mess — isn’t the issue. The question is, what should government be doing — where it should be investing — to improve our lot in the future as the size of government with the taxes available will inevitably shrink with the economy.

Don’t fill potholes — or rather. don’t think that will fix the economy. Instead, we should be investing in the entrepreneurs who will create jobs — if fewer — and wealth — greater, thanks to platforms and efficiencies. Invest in education of our youth and our unemployed. Invest in efficiency — energy efficiency, for example.

As I say, these are ideas I want to explore now and I hope you’ll help me by sharing yours.

: MORE DISCUSSION: There is an amazing discussion going on not only in the comments here but also at Google+ here.

Paul Graham of Y Combinator led off another amazing debate at HackerNews here.

I crossposted to HuffingtonPost here.

Henry Blodget just crossposted it at Business Insider here.

Thanks to all this amazing discussion, I just substituted my South by Southwest talk from publicness to this topic. Thank you all for the inspiration and for pushing the ideas here.

This is the next topic I want to work on, as I said. So this discussion is invaluable to me as I explore these notions. Again, thank you.

: Here is the text I resubmitted to SXSW under the title, “Honey, we shrunk the economy.”

: See also Rob Paterson’s post on the end of the job and corporation as we knew them. And another thoughtful post from Ben Casnocha.

: Jason Calacanis riffs on the idea of creating a retraining program that would give people the opportunity to move to new jobs.

: Eric Reasons, who really kept me going on this topic when I first raised it on my blog a few years ago, answers the questions in my SXSW talk proposal.

When innovation yields efficiency

June 12, 2009 by Jeff Jarvis
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Much of the innovation we’ve seen lately hasn’t led to growth but instead to efficiency – that is, shrinkage.

I’ve been mulling over Mike Mandel’s cover story in last week’s BusinessWeek, in which he tried to puncture another bubble: the belief that we’ve had a rich decade of American innovation. He argues that there’s actually an “innovation shortfall” and he uses economic stagnation to plead his case. Now I’m not economist (that’s a straight line) and so I won’t argue about the impact of other events on growth – starting with the so-called financial crisis.

But as I thought through the major innovations of the last decade, many of them have not led to economic growth; they haven’t added money to the economy but left it in the economy. Thus measuring innovation’s impact in the revenue, growth, productivity, and market cap of large companies may not be valid. Instead, we are seeing innovation take money out of their pockets, leaving it with their customers. What they, in turn, do with that extra money and what impact it has on the economy is an entirely different question – and that impact is likely seen in any case not in large companies but in individual consumers and in small businesses. But I think the proper measure of the changes in the last decade is the innovation dividend. See:

* craigslist is blamed for destroying (that’s from the publishers’ perspective) $10 billion in classified ad value annually**, replacing it with its reported $100 million revenue. Newspapers act as if that was their money – as if they had a God-given right to it – but, of course, it wasn’t. When Craig Newmark spoke with my students at CUNY, and they asked him why he didn’t maximize revenue at craigslist and sell it for billions and then use that money for philanthropy, he told them that he thought he was doing more good for the country and the economy by leaving more money in the pockets of the people who were doing the transactions he now enabled. He cut out a gross inefficiency born of the monopoly that newspapers held over the means of production and distribution. If you try to measure his innovation’s impact on the economy with old methods and metrics – built on the assumptions of the old economy – you can’t see it. He didn’t make companies grow or become more productive. He added efficiency.

* Amazon, eBay, and the internet as a whole are blamed for destroying large swaths of the retail marketplace. But again, they brought efficiency in a number of ways: price transparency, which leads to lower prices for customers; critical-mass efficiency; the reduction of brick-and-mortar and staff costs; and I’d imagine a reduction in distribution and warehousing costs. The net result is fewer jobs, less rent, less waste (that is, books on shelves that get pulped; now they’re made just in time), and lower prices. Again, more money is left in the pockets of the transcators. The impact of innovation on retail is seen in shrinkage and efficiency, not growth.

* Google is blamed for destroying media but, of course, all it did was give advertisers a better deal. It dared to compete. Google did this not just by creating abundance rather than selling scarcity born of control of those means of production and distribution. This created a more efficient – read: less expensive – marketplace for advertising. More important, Google revolutionized advertising by selling performance, proving a return on investment. So the money that didn’t stay in the pockets of people buying and selling cars and homes, thanks to Craig, now stayed in the pockets of retailers and manufacturers thanks to Google. More efficiency. In What Would Google Do”, I argue:

We have shifted from an economy based on scarcity to one based on abundance. The control of products or distribution will no longer guarantee a premium and a profit. . . . We are entering a post-scarcity economy in which Google is teaching us to manage abundance, challenging the bedrock rule of economics, first written in 1767: the law of supply and demand.

Old rules and measures and analyses can’t track that.

* Web 2.0 is credited with making it much faster, easier, and far less expensive to start new companies. That is the other innovation dividend – the innovation that happens on the back of innovation. But this is happening, again, not at a large-company level but at a small-company level. Measuring spending on innovation, then, becomes another unreliable metric. The economics of innovation itself have changed.

The reliability of the standard metrics and analysis matters greatly because profound – and expensive – policy and economic decisions are being made on the basis of them and I’m not at all sure they’re valid anymore, or at least as valid. They miss too much of the change and impact and value and dynamics in this new economy. They lead us to bail out GM and Chrysler. One could argue, as George Will did in yesterday’s Washington Post, that that the bailout violates even old rules:

The administration’s deepening involvement in designing and marketing automobiles through two crippled companies ignores this truth: Capitalism is a profit-and-loss system, and the creative destruction it produces is supposed to clear away failures such as Chrysler, freeing capital for more productive uses.

But that capital, once freed, may not go to building huge new ventures. It may go to building small new ventures. It may stay in the pockets of people doing transactions and now instead of spending it on Toyotas, it may go to banks. You won’t see all the impact – except negatively – on the Dow Jones Average and the Fortune 500; those were the measures of the old economy. We need new measures.

** I had said craigslist and the internet replaced $100 billion in revenue in newspaper classified, which was an attempt to calculate over the life of the web, but that was difficult to calculate, so I changed the figure to $10 billion, the difference between classified revenue at its height in 2000 and in 2008.

Defining the new economy

April 16, 2009 by Jeff Jarvis
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I’m collecting links to thinking that tries to identify the essence of the new economy. In a stream-of-consciousness flow about just this, Brian Frank argues that we’re moving from an industrial to a venture-capital economy where supposed scientific precision gives way to the imperfection that is inherent in innovation:

[Paul] Graham compares this to the Industrial Revolution, which is a fair comparison in terms of scale, but I think we should recognize that these current changes are a kind of reversal, or inversion, or undoing of the Industrial Revolution.

Through the Industrial Revolution the economy itself gradually became like one big machine — or at least that’s how most economists tended to see it. Everything could supposedly be quantified, reduced, and rigorously predicted.

Silicon Valley represents something else entirely. . . .

Rather than expanding control and diminishing variations, the emerging attitude will be about expanding variety and accommodating the unknown. It inverts all of our intuitions and assumptions about doing business and managing the economy… Know your ecology and complexity science.

(My favourite books on this are The New Pioneers by Tom Petzinger, Surfing on the Edge of Chaos by Richard Pascale et al, and Bob Sutton’s Weird Ideas That Work… I haven’t read Jeff Jarvis’s What Would Google Do? yet — I have it on-reserve — but I think it might make my list too. Orbiting the Giant Hairball has been on my reading list for a long time as well.)

So far Silicon Valley is the best model we have for going forward. It addresses the two big defects of industrialism: the one pointed out by Roger Martin, that employees and customers are turned off by rigorous efficiency, and the one pointed out by Nassim Taleb, that the unexpected is inevitable.