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Internet Insanity

Many of my parents’ friends lost their businesses to the Internet. Didn’t the Internet create a new, larger economy?

You have enjoyed the benefits from the internet and new digital world. However, you recognize that not everyone has equally prospered from the changes. The internet is a great technological advance yet it can also be viewed as an economic disappointment. From an employment perspective, the internet has displaced many jobs but created few new ones.

Talented programmers fresh out of college will land high-salary jobs, but where does that leave the rest of us without coding skills. You could argue that the internet has seen the birth of some mega-corporations such as Google, Facebook, Amazon and Twitter fueling jobs and the economy. But those companies have taken revenue from existing ones without actually growing the economy.

In the past, new technologies created industries that stimulated massive job creation, the internet however has had a larger displacement that has overwhelmed any new job creation. The integrated circuit which first appeared in 1961 is a good example. At the time the worldwide electronics market was worth an estimated $30 billion, today it is around $1.7 trillion. Integrated circuitry improved existing products making them less expensive, more efficient, smaller and faster. The result was the expansion of the mainframe computer business, vaulting industry leader IBM’s revenue over tenfold in two decades. There were huge expansions in telecoms, TVs, PCs, gaming, tablets, smartphones and Internet of Things. The internal combustion engine did similar things for the automotive industry which spawned new industries, technologies and jobs as a result.

Online retail websites such as Amazon have depreciated countless jobs, from warehouses where robots do the packing, to actual shops which have closed as a result of lost business. Indirectly, there is a reduction in demand for physical retail space and the construction of stores, which hurts suppliers, furniture manufacturers, designers, and security and maintenance workers.

On the upside, the internet has driven down prices for consumers, according to web developers at Costume Collection, an online retailer. It has shortened the distribution chain from the manufacturer to the consumer, resulting in lower retail prices. The internet is so efficient, that our past development took place in a physical world and the future is happening in a virtual one.

The online experience has also made information gathering and research more efficient. Remember the slogan ‘let your fingers do the walking in the Yellow Pages.’ Search engines now present products and services sorted by location, price, features, etc. For example, by making it easier to find self storage units online, consumers can more easily shop for the lowest price and best location.   

The internet has also created large companies with fewer employees, leading to larger salaries at the top end. The likes of Google, Apple, Facebook and Amazon have huge revenue-to-employee ratios. This means that the companies must justify making a lot more profit to take on new hires. Sales per capita have remained relatively stable while employment in the retail sector has declined in the past decade. It has not turned into the job creation engine of the future we expected.

Policies should be considered to counter these effects and generate more jobs. Raising minimum wages is not really the answer as it will urge more organizations to automate. Infrastructure investment is always a good start but with more of us living and working online there will be less demand for it.

“The internet is becoming the town square for the global village of tomorrow,” — Bill Gates.