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Work and prosperity
29 May 2012

How the internet eats the economy

A great think piece from Daniel Knowles, the enfant sensible of the Daily Telegraph. His basic argument is that thanks to the internet “all sorts of things we used to pay large sums of money for are now nearly or completely free.”

New and exciting online businesses may be replacing old offline businesses, but the profits they can make per customer – and therefore the jobs they can generate – are being squeezed. For instance, this is his comparison of Facebook, the social networking giant, with Yell, the publisher of the Yellow Pages:

  • “…not long so ago, Yell was making revenue of £2.2 billion and profits of £300 million a year. That's not all that far off what Facebook is making now. But Yell was a company that only published a business directory that we barely ever even leafed through – even back in 2008. Facebook is a global company with 900 million users. Even if you assume that every single adult in the United Kingdom leafed through the Yellow Pages every once in a while, the company made 15 times more per customer in 2008 than Facebook does now.”

Another telling comparison is between two encyclopedia publishers – Wikipedia and Britannica:

  • “Britannica… employed literally thousands of academics – 4,411 in 2007 – to write articles, hundreds more editors to put it together, and, for a time, salesmen to sell it door to door. The last print Britannica came out in 2010…
  • “I looked up all of the facts in that last paragraph on Wikipedia. The global, online encyclopedia has a paid staff of 35… The website, even though it delivers huge and unquantifiable benefits to its users, generates no income besides what it raises in donations.”

Knowles is careful to point out that “the Luddites were wrong”. But why were they wrong? The answer is because the machines of the industrial revolution didn’t just allow existing needs to be provided more cheaply, they unlocked new sources of wealth – and, moreover, enabled human labour to be used more productively in the process. Therefore the industrial revolution increased both the value of labour and the means to pay for it. Consequently, the result was more jobs and higher wages for just about everyone.

Now, can the same be said for the internet revolution?


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