On February 21, 2014, Robert Reich writes on Nation of Change:
If you ever wonder what’s fueling America’s staggering inequality, ponder Facebook’s acquisition of the mobile messaging company WhatsApp .
According to news reports today, Facebook has agreed to buy WhatsApp for $19 billion.
That’s the highest price paid for a startup in history. It’s $3 billion more than Facebook raised when it was first listed, and more than twice what Microsoft paid for Skype.
(To be precise, $12 billion of the $19 billion will be in the form of shares in Facebook, $4 billion will be in cash, and $3 billion in restricted stock to WhatsApp staff, which will vest in four years.)
Given that gargantuan amount, you might think Whatsapp is a big company. You’d be wrong. It has 55 employees, including its two young founders, Jan Koum and Brian Acton.
Whatsapp’s value doesn’t come from making anything. It doesn’t need a large organization to distribute its services or implement its strategy.
It value comes instead from two other things that require only a handful of people. First is its technology — a simple but powerful app that allows users to send and receive text, image, audio and video messages through the Internet.
The second is its network effect: The more people use it, the more other people want and need to use it in order to be connected. To that extent, it’s like Facebook — driven by connectivity.
Whatsapp’s worldwide usage has more than doubled in the past nine months, to 450 million people — and it’s growing by around a million users every day. On December 31, 2013, it handled 54 billion messages (making its service more popular than Twitter, now valued at about $30 billion.)
How does it make money? The first year of usage is free. After that, customers pay a small fee. At the scale it’s already achieved, even a small fee generates big bucks. And if it gets into advertising it could reach more eyeballs than any other medium in history. It already has a database that could be mined in ways that reveal huge amounts of information about a significant percentage of the world’s population.
The winners here are truly big winners. WhatsApp’s fifty-five employees are now enormously rich. Its two founders are now billionaires. And the partners of the venture capital firm that financed it have also reaped a fortune.
And the rest of us? We’re winners in the sense that we have an even more efficient way to connect with each other.
But we’re not getting more jobs.
In the emerging economy, there’s no longer any correlation between the size of a customer base and the number of employees necessary to serve them. In fact, the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows (WhatsApp’s 55 employees are all its 450 million customers need).
Meanwhile, the ranks of postal workers, call-center operators, telephone installers, the people who lay and service miles of cable, and the millions of other communication workers, are dwindling — just as retail workers are succumbing to Amazon, office clerks and secretaries to Microsoft, and librarians and encyclopedia editors to Google.
Productivity keeps growing, as do corporate profits. But jobs and wages are not growing. Unless we figure out how to bring all of them back into line – or spread the gains more widely – our economy cannot generate enough demand to sustain itself, and our society cannot maintain enough cohesion to keep us together.
Capitalism as it has evolved is what I term “Hoggism” based on greed and monopoly, the result of the inadequate application of anti-monopoly and concentrated ownership protections and tax policy and regulations that stimulate broadened personal ownership of productive capital assets.
Productivity, as a result of the non-human factor of production becoming increasingly more productive (not labor), keeps growing, as do profits and incomes produced by corporate owners (ultimately vested in individual persons). But, as Reich and others point out, jobs and wages are not growing and cannot grow without substantial economic growth, which means more investment in the non-human factor of production––productive capital, which will enrich those who end up owning these assets.
The ONLY viable solution that protects the principles of personal private property ownership is to spread the productive capital gains more widely by broadening personal ownership going forward. Otherwise, without EVERY citizen empowered to acquire wealth-creating, income-producing capital with the earnings of capital, our economy will not be able to generate enough demand to sustain itself, and our society will not be able to maintain enough cohesion to keep us together.
The Agenda for The JUST Third Way at http://foreconomicjustice.org/?p=5797 is aimed at policy development to bring about a FUTURE in which monopoly ownership of productive capital does not exist, a FUTURE in which EVERY child, woman and man is acquiring a viable, wealth-creating, income-producing diversified capital estate represented by stock ownership in the corporations and companies producing the products and services needed and wanted by society.
The action plan for this JUST Third Way Agenda is the Capital Homestead Act, conceived as an extension of President Abraham Lincoln’s Homestead Act., which was enacted back in 1862. See http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm.
“I don’t believe in a law to prevent a man from getting rich. It would do more harm than good, So while we do not propose any war upon capital, we do wish to allow the humblest man an equal chance to get rich with everybody else.” Abraham Lincoln
“I see in the near future a crisis approaching which unnerves me and causes me to tremble for the safety of my country. Corporations [narrowly owned] have been enthroned and an ear of corruption will follow and the money power of the country will endeavor to prolong its reign by working on the prejudices of the people until the wealth of the country is aggregated in a few hands and then the Republic is destroyed.” Abraham Lincoln
