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Thursday, May 12, 2011

Technology is 20% of the economy - for a good reason

The power of capital and ideas.

by StFerdIII

Technology is almost 20% of the North American economy. It is the single biggest 'industry' and one which did not exist in any meaningful form 20 years ago. In 1995 these five firms – Amazon, Apple, Google, NetFlix, RIMM – either did not exist or in the case of Apple, were poor, pale shadows of what they became a mere 15 or 16 years later.

Amazon

Revenues $35 Billion, 34.000 Full Time employees.

Apple

$87 Billion in sales, with 46.000 employees.

Google

$31 billion in revenues with 26.000 employees.

NetFlix

$2.4 billion in sales, and 2.600 employees.

RIM

$19 billion in sales with 17.500 full time workers.

>>Fab Five Total: $174 Billion in sales with 125.000 direct employees.

These fabulous firms, started by men of action and genius, simply underscore the power of capital and technology when government and the state are rolled back and the marriage of labor, money and ideas can take effect. Imagine if the internet was regulated in the same manner that the phone networks were micro-managed before the 1970s. There would be no I-Pad, no Blackberry, no Amazon, and tens of thousands of firms, applications and utilities would never have been invented. The impact on jobs, productivity, tax revenues, and consumer choice would be vast. Amazon, Apple, Google, NetFlix and RIMM have just by themselves, created directly 125.000 jobs and indirectly more than 1.5 million, once you add in up- and downstream suppliers, part time workers, and those firms in the market who have created products and services around the offerings of these 5 top firms. Entire firms exist for example, who do little but develop applications for Apple or RIMM products, or who feed into Amazon's enormous datacenters various services and products. Typically a large firm like Apple will 'spin off', or indirectly support 5 to 10 jobs for every one it creates. Similarly Amazon's new 'cloud computing' initiative' is another new market, which will create in the form of servers sold, hosting services, new applications, consulting and training, a large amount of both revenue and jobs potential. The creative power and dynamism of the tech market can and should be replicated elsewhere but the issue is always the same – the state and its penchant to socialise, regulate and manage all aspects of complex markets and transactions.

The greatest threat to technology are the surfeit of regulations and mumblings from government about regulating the internet, ensuring 'fair access' or government initiatives to lay down subsidized band-with, or engage in subsidized business ventures around mobile-internet or application development computing. Higher future taxes on business and computing transactions are also an obvious threat as is the storm cloud of regulations and fees. None of government's involvement is remotely rational or necessary.

Imagine if in the 'public interest', and to 'equalize fairness' and enact 'social justice', the government[s] stepped into the technology market to micro-manage and 'redistribute' the 'excess' profits of say Apple, to other 'socio-economically disadvantage firms', who are not part of the 'dominant culture'. Or regulators decided that the Fab Five listed above enjoyed too much 'success' at the 'expense of the little guy'. Overnight these firms' ability to compete, innovate, produce profits and engage in market based transactions would disappear – along with their stock prices. New markets and products would dry up. Jobs would be lost and we would all be poorer both in terms of tax revenues, and in terms of consumer choice.

Yet the above happens in agriculture, health care, banking, lumber, communications and media, and in a sundry list of affirmative action programs, subsidies and mandates to help one 'disadvantaged' group achieve 'equality'. None of these government activities has any merit. Neither do the obscene number of agencies involved in the marketplace. In any given area within North America there will be no less than 7 government groups involved in 'economic' development. That means 7 groups with 7 staffs; 7 wonderful offices; 7 unionized workforces demanding high unionized salaries, benefits and pensions; and 7 budgets of social engineering. It makes no sense and in the end is self-defeating.

Culture produces innovation and innovation, along with capital, is both color blind and ideologically neutral. If we want dynamic job growth we have to mimic what the tech market has done in developing clusters around capital and brains. The basis of tech's success is that government for the most part has been kept out. At least for now.