Writings of a techie wizard
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Wed, 17 Oct 2012

I recently came across a blog post proposing a rather novel solution to what it calls "the shortage of technology talent in the United States". (I got there by following a link trail from this post at CSpace, a sysadmin's blog which I recommend for general reading if you're at all interested in tech issues; I read it regularly and I'm not even a sysadmin.)

The blog in question only allows comments if you have a Facebook, Twitter, Yahoo, or AOL account, and for reasons which I have blogged about before, I have none of the above and don't intend to any time soon, so this post will have to do. I have no comment on most of the post, which seems to be fairly standard fare in this genre; what got my attention was this towards the end:

I am proud of, and impressed by, Craigslist's ability to serve hundreds of millions of users with a few dozen employees. But I want the next Craigslist to optimize for providing dozens of jobs in each of the towns it serves, and I want educators in those cities to prepare young people to step into those jobs.

In other words, the author wants tech companies like Craigslist to be economically inefficient on purpose, in order to provide more tech jobs.

As Sherlock Holmes would say, this plan seems to have only one drawback, and that is that it is intrinsically impossible. Economic inefficiency is economic inefficiency; it means you are expending excess resources that could be put to better use elsewhere. And that means that, sooner or later, those resources will be put to better use elsewhere. How long that process takes, and how painful it is, depends on how soon you recognize that it's inevitable and let it happen. (As an example of what happens when you don't recognize this early, I give you the U.S. economy, and indeed the world economy, over the last few years. But that's another post.) Propping up economically inefficient jobs just isn't a viable long-term strategy; that's what "economically inefficient" means, and it doesn't magically stop being true just because you're doing it in what you consider to be a noble cause.

But what about all those venture capitalists and startup founders that are raking in tons of wealth and not sharing it, leading to what the blog post author calls "continued income inequality"? Isn't that unfair? Paul Graham wrote an essay years ago entitled Mind the Gap that gave a good rebuttal to that argument: the prospect of all that wealth is what drives wealth creation. If startup founders didn't have the prospect of a huge payoff if they succeed, they wouldn't even try; and if the venture capitalists didn't have the prospect of a huge payoff if the startup they fund succeeds, they wouldn't fund it. The wealth those startups create is not taken from anyone else; it's created, out of nothing, and the people who create it get the first dibs on it. That's how it works.

Furthermore, even if it were somehow true that startup founders, once they have gotten the big payoff, have some sort of "duty" to share it by creating lots of jobs that their companies don't need, that wouldn't fix what the author says is the underlying problem. In an earlier post entitled "To Less Efficient Startups", the author expands on what he thinks is wrong with the "standard" startup wealth creation model:

Instead of generating tens of thousands of middle-class jobs as industrial-age titans did, these companies make a few dozen people truly extraordinarily wealthy, and then give generous payouts to a few hundred people who were already on a path to success by having been privileged enough to go to top universities and by having the identities that tech and engineering cultures are biased toward today.

There are certainly well-known startups and founders that fit this profile (Mark Zuckerberg, for example, or even Bill Gates). But the one the author chose as his primary example doesn't. Craig Newmark, the founder of Craigslist, came from a normal middle-class background, and he founded Craigslist 18 years after he graduated from college. If anything, Craigslist illustrates the sort of behavior the author wants from startups; the Wikipedia page quotes its CEO as saying that

Craigslist has little interest in maximizing profit, instead it prefers to help users find cars, apartments, jobs, and dates.

So if Craigslist is operating with a small number of employees, that's because it can; it can meet the needs of its owners and its customers with what it has, so why should it try to grab more resources and wealth? Instead, it leaves those resources and wealth for others to use. If only Wall Street investment banks showed that kind of restraint. The author should be applauding Craigslist, not telling them to create unnecessary jobs. And in any case, creating unnecessary jobs wouldn't do a thing to fix what the author is really complaining about:

There is effectively no blue collar path to success, notwithstanding the much-vaunted stories of tech company chefs entering these companies in the kitchen and exiting as millionaires.

The way to fix this would be to try to create more blue-collar startup founders, not to create more blue-collar employees. But they will still be startup founders, facing the same set of potential outcomes and economic constraints.

In fact, the author completely misses a real issue that does contribute to excess income inequality ("excess" meaning over and above the amount that's needed to drive innovation, per Graham's essay). He says:

It is a triumph...for Facebook to serve a billion users with just a few thousand employees.

Which is true, but misses a key point: Facebook doesn't get paid by users. It gets paid by advertisers, and many if not most of those few thousand employees spend their time, not on meeting the needs of users, but on figuring out ever more creative and complex ways to get those users to click on buttons that track their web usage for advertisers and marketers. If Facebook were paid by its users, it might well be able to operate with fewer employees; certainly its employees would be spending time doing far more interesting things, not to mention avoiding the constant stream of privacy issues and other debacles for users, like losing "unknown amounts of email" with no way to recover them even after the bug that caused it was fixed.

So the huge concentration of wealth in the hands of Facebook's early investors (from the looks of things after the IPO, "early" means "before it went public", but that's another post) is more a sign of an economic bubble in the ad-driven model of web applications, than a sign of lasting value. Many of the Internet startups the author talks about (even Google, at least to an extent) are the same way. But that's not something that programmers and startup founders can easily fix, because it requires changing user behavior, not just programmer and founder behavior. Facebook has a billion users because it's easy, centralized, and free. Sooner or later that model may well backfire on enough users to make a difference (for the reasons why, see the earlier post of mine about the cloud that I linked to above), but even that won't matter unless enough people take enough time and expend enough effort to build an alternative.

And there's the real rub: any handicap in building the alternative may well kill it. At least one company the author mentions, Kickstarter, is trying to do something along these lines, building a distributed way for people with ideas and people with spare cash to hook up. Does the author really think that such companies will be able to compete with the likes of Facebook by being economically inefficient? Because ultimately, that's what it's going to come down to.

I'm all for a more distributed economy, where creation of wealth is open to everybody, not just those who can get the attention of venture capitalists. But we won't get there by being less efficient on purpose.

Posted at 22:16   |   Category: opinions   |   Tags: computers, economics, education, politics   |   Permalink
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