In the September 27th, 2016 issue, the Economist revealed some interesting facts regarding the “new” technology economy: “[i]n 1990 the top three carmakers in Detroit between them had nominal revenues of $250 billion, a market capitalization of $36 billion and 1.2m employees. In 2014 the top three companies in Silicon Valley had revenues of $247 billion and a market capitalization [sic] of over $1 trillion but just 137,000 employees. “ That wealth contrast is better illustrated by the equivalent of wealth difference with $7,300,000 per employee (new economy) versus $30,000 per employee (old economy). And the Silicon Valley nurtures that growth by investing in similar software companies, vastly outdistancing itself from the rest of the United States, if not the world. In the PWC Moneytree Report, 2016 Q2, Silicon Valley investments in software technology for the last quarter exceeded over $5.5 billion, over 340 percent multiples from the next highest investment region, Orange County. How does the older, blue collar, middle class guy benefit from this new economy?
Now, I have driven by Tesla’s Fremont, California manufacturing facility and I did not witness not even one Tesla in the employee parking lot. The automated manufacturing facility does not compensate enough or price its hallmark products for the middle class. Let us go back less than hundred years ago, when Henry Ford assured that all of his employees could purchase its Model T Ford as it came out of the factory. And he achieved that promise. Every employee shared in the wealth of the Ford Company, not just the senior managers. Nowadays you hear of the hidden unemployment population—workers who had had no success re-entering the working economy. And this is what the new economy really delivers – an upper and upper-middle class with considerable wealth, those from Silicon Valley, blocking out any potential for the lower and middle classes.
I don’t see any of trickle down wealth in this “new” economy. And it concerns me. The
“new” economy rewards the “under 30” generation in Silicon Valley. Anyone over the age of 30 has a rat’s ass chance of getting any investments from any Silicon Valley VC. This blind, “technology” mindset culture accelerates this one-sided wealth from the rest of the economy. And this new economy is selfish. When there was a ballot to tax technology companies to fund programs for homeless people littering all throughout the streets of San Francisco, the ballot was knocked down. I guess that the Silicon Valley people do not believe that in a rising tide that all boats should rise – only those with jobs and stock options in technology companies should benefit from the rising tides.
Now, I foresee the exhaustion of the so-called digital markets—there is a limit what Facebook can do to its website. In response, Facebook expands its product lines to include overly priced VR hardware. Meanwhile, search engines like Google can only program to death its ability to find information and associate the searches with the users. Yahoo, AOL, and others disappeared. So there is a limit what “shrink warp” software can do.
In my previous blogs, I have clearly shown that the profitability of “shrink wrap” software is extraordinary. In today’s world, however, one finds software companies entering enterprise niches or the HW side of business—a new frontier for them. That suggests that any new software markets are shrinking. And the Economist pointed out that they sustain the market dominance through acquisition at other technology markets — from software platforms to hardware.
As an example, after his huge success with PayPal, Elon Musk enters into the rocketry business. Is it successful? I doubt any insurance company will insure my passage on one of his rockets – regardless of his earlier success with Paypal. So we know already, even not easily recognizable in Silicon Valley, software programming skills do not translate well into the HW world.
We also know that software pedigrees from Google or Stanford University do not guarantee success – in fact, can lead to huge financial disasters – e.g. Theranos and, now, Yahoo. (Out of curiosity, when the Yahoo system was hacked for +500 million users, why did this surface recently, and not revealed in their SEC filings in 2014? Just to protect the senior management’s bonuses?) The loses between those two companies exceed $20 billion by misleading information and poor management. So we know now that Silicon Valley software technology managers are not bullet proof. And yet the lower classes still receive no economic benefits.
Interestingly, in my recent visit to China on technology, I toured a car manufacturing factory all automated. Then I thought that a country with over 1.3 billion people what would happen to the older generation of potential employees displace by technology. There is nothing wrong with technology – as long as every segment of the society benefits, not just a few.
The key here is that societies need to evaluate how to trickle this wealth to the older, lower classes. No society can survive if it is economically bifurcated. We have observed what happens from the French and Russian revolutions. There is nothing to stop for history to repeat itself – even in America. The Republican presidential nominee seems to be bellweather that this unrest is fuming since his considerable political support originates from the very economic classes being impacted by the new economy. We need a better solution that allows technological wealth spread to other economic classes.