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Do Social Media Companies Create Jobs? Scholar Argues that Facebook & Co. Are a Weak Substitute for the Manufacturing Sector

July 19, 2011, 11:48 AM
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At PRI's Marketplace yesterday, Mitchell Hartman took a look at Facebook's opening of a new server center in rural Oregon.  The story raised the question: How many jobs do social media companies like Facebook create?  The answer is not many compared to high tech manufacturing.  Here's the perspective of author Hank Notthaft from the Marketplace story:

HANK NOTTHAFT: These are not large job-generating companies.

Hank Notthaft is a Silicon Valley entrepreneur and author of Great Again, Revitalizing America's Entrepreneurial Leadership.

 

NOTTHAFT: So here you have a company with an $80 billion market cap, creating phenomenal wealth for a very few, and then on top of that, it's not creating jobs.

 

Of course, running servers requires a lot of power, but not many people. And social media sites like Facebook don't need many employees posting content. We users do that -- all those messages and photos and likes and pokes -- for free. So add in all the fancy programmers and marketing types in Palo Alto and around the world -- Facebook still only has 2,500 employees, total. Apple has 20 times that. Sony employs 170,000. And those jobs generate more jobs.

NOTTHAFT: Hi-tech manufacturing will actually create up to 15 additional jobs. Companies like a Facebook, a Zynga, a Twitter, for every job they create, even though they're very high-paying positions, they create only about two-and-a-half jobs.

The Marketplace story brought to mind an article I recently read at the new Breakthrough Journal by University of Manitoba professor Vaclav Smil.  In "The Manufacturing of Decline," Smil compellingly challenges the arguments that the U.S. need not worry about the decline in its manufacturing sector.  As Smil lays out, the US trade deficit leads to several long term systemic problems for Americans, problems not easily overcome by the country's increasing reliance on the service sector or enthusiasm over the new social media tech bubble. 

Smil argues that to reduce the trade deficit, policies need to focus on expanding the exports from well established manufacturing sectors.  Here are some key excerpts from the full article that is well worth a careful read.

Given these realities, the most practical and proven way to reduce America's huge trade imbalance is to export more manufactured goods in well-established sectors. Consider that from 2000 to 2008, America's exports of medicinal and pharmaceutical products expanded nearly threefold, industrial chemicals grew 2.4-fold, primary plastics 2.2-fold, and sales of power-generating machinery equipment rose by 70 percent.13 These accomplishments point the way: we cannot boost manufacturing by trying to repatriate millions of lost apparel, furniture, or electronics jobs. These losses cannot be reversed rapidly and most of those jobs would not come back even if Chinese exports suddenly ceased, as other countries would fill that vacuum. Rather, the solution is to expand those manufacturing sectors that are already outstanding exporters.

There is no reason the United States could not reverse the fortunes of its manufacturing sector as it did in the 1980s with semiconductors and as Germany did more recently with its high-end consumer and industrial products. German unemployment was much higher than the annual US mean during most of the 1980s, throughout the 1990s, and then until 2006. Mean unemployment between 2000-2006 was 10 percent in Germany and just 4-6 percent in the United States.

Manufacturing produces a variety of economic benefits that finance and service sectors do not. The higher outputs from manufacturing create important backward-forward linkages that include many traditional jobs (from accounting to job training) as well as entirely new labor opportunities (in e-sales, global representation). As a result, sales of every dollar of manufactured products support $1.40 of additional activity, while the retail sector generates less than 60 cents for every dollar of final sales.14 In terms of job creation there is no comparison. Facebook is valued by Goldman Sachs at $50 billion, nearly as much as Boeing, but Boeing employs some 160,000 people, whereas Facebook only employs 2,000.

Manufacturing acts as a powerful motivator for supporting and expanding suitable training and education because of its own demand for better-educated labor and because of its multiple linkages to intellectual services, transportation, and wholesale and retail operations. Losing manufacturing means reducing opportunities for skill-oriented education. And since more than two-thirds of research and development (R&D) occurs within manufacturing, losing manufacturing means losing R&D and with it a variety of multiplier effects for higher growth. In 2010, the US Department of Commerce released a new study quantifying the American jobs supported by exports: in 2008 that total reached 10.3 million, with nearly 2.8 million in services and 7.5 million in the production of goods. The study also showed how a post-2005 rise in exports increased the share of all manufacturing jobs supported by foreign sales from about 20 percent to more than 25 percent -- yet another confirmation of the substantial and realistic opportunities for expanding the sector.15

 

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