When I was a child, I remember hearing this phrase from time to time: “The rich get richer, and the poor get poorer”. The phrase was usually delivered by the speaker in a rueful tone, lamenting the injustice of it all. These days, growing levels of income disparity between the bottom and top of the economic ladder are a hot topic, particularly in the wake of Wall Street bonuses and the government bailouts.
After reading Marc Andreessen’s recent essay in the Wall Street Journal, entitled “Why Software Is Eating The World”, I have the following homespun prediction about uneven income distribution: get ready, because you ain’t seen nothing yet.
Mr. Andreessen is a celebrity in the technology world, having founded Netscape and helping usher in the concept of the internet we know today. He has since used his considerable name recognition and wealth as an entrepreneur and investor. In his essay, he points out the many huge industries around us that have been fundamentally re-ordered by software. Among his examples are “the suicide of Borders and corresponding rise of Amazon”, where Borders Bookstores in 2001 decided to outsource its online book business to Amazon because it didn’t view online sales as strategic. Now, even the books themselves have become software as Amazon has moved from selling books online to placing more marketing dollars behind Kindles instead of books.
He additionally describes a similar phenomenon happening in music, photography, movies, retail marketing, telecommunications and recruiting. All of these multi-billion dollar industries have been fundamentally re-ordered just in the past few years. When was the last time you bought film from Kodak, rented a movie at Blockbuster, bought a CD at a store, or snipped a coupon and brought it into a retailer? To be sure, some of this still happens, but the strong trend is away from these activities and instead to use your phone as your camera, download your movie from Netflix, download your music from Apple, or use Groupon or one of the many online “daily deal” providers to save money at the store. Andreessen believes that Healthcare and Education are two gigantic industries that are soon to experience similar levels of disruption and change, although I would point out that there is a long list of companies that have tried to bring change to those industries and failed.
Either way, the world is changing rapidly and thousands of jobs have shifted to just a few software-centered companies, which leads to another observation about the world in which we live: a disproportionate amount of the spoils end up in just a few corporate wallets, and it is our choices as consumers – not the taxation policies of the federal government – which most drives the resulting economic stratification. To cite just one example, in the second quarter of this year, Google – a company that many had never heard of ten years ago – reported $9 billion in earnings.
When I hear discussions about income disparities in society, the conversation inevitably seems focused on income taxes and what is one group’s “fair share” of the tax burden, as if changing few percentage points of a marginal tax rate will change these tidal shifts in the economy around us.
Given the fact that many existing jobs will go away, and many remaining jobs will either be high-value and high-paying (think “online” and “software”) or low-value and low-paying (think “big store retailing” and “low skill manufacturing”) without a lot of jobs in the middle, I expect our current unemployment rate and economic disparity to continue and perhaps worsen. Ten percent unemployment may be with us for a long time to come.
So most people – young people in particular – can react in one of two ways. Some will become resentful and spend their time blaming this or that political group. Others will embrace change, get busy and get prepared. Andreessen emphasizes how vital it is to retrain our workforce for the jobs of tomorrow, but I think this addresses only part of the problem. Although formal education continues to be a major determinant of future success, culture and personal ambition are equal partners. A curious, hard-working, ambitious person without a college degree is more likely to succeed than a college graduate who spends too much time on the couch watching Jersey Shore.
So much of what passes for discussion about important issues today seems to be filtered through what a person believes “ought” to be the way something is, as opposed to acknowledging how it really “is”. If we keep in mind that tomorrow’s jobs are created by consumer choices and markets, rather than the jobs program of a particular party or candidate, we’ll be better prepared – and the richer for it.
Published September, 2011.