How the Internet has Hurt the American Economy

The Internet, with all its benefits, has really hurt the American economy. It’s a little theory of mine. Here is how I came to that conclusion…

The Lost Decade+

Since 2000, right about the same time the internet started playing a strong role in a global economy, the S&P 500 index has actually declined 20%. That means, if you “invested” all of your money in the S&P 500 12 years ago and pulled it out today, you’d have 20% less than what you started with, excluding any dividends and inflation. Correlation doesn’t always mean causation. But, isn’t it peculiar that we’d see a net loss of market wealth at a time when the Internet made a global economy possible?

The “lost decade” of investing is close to becoming the “the lost 12 years” and counting and globalization is to blame.

That’s not all. Outside of health, education, and government, the U.S. didn’t add any jobs in the decade that started in 1999, despite our population increasing by 10% in the same time period.

Globalization’s Impact on our Jobs

internet globalizationSome may argue that there was a globalized economy before the rise of the Internet. That is partly true. However, globalization was only available to the largest of the large multinational corporations who had the resources to take advantage of it – large industrial manufacturers, large scale commodity (food, energy, mineral) importers/exporters, and the largest clothing manufacturers.

Today, a 19 year-old living in his mom’s basement can set up an e-commerce store and sell cheap goods from a Chinese manufacturer that pays its workers $1.50 an hour, whom he found through a global marketplace like Any individual or corporation can find a cheaper alternative if they look long and hard enough online. This simply wasn’t possible for most until the last decade. Between 2001 and 2010, the U.S. lost 2.8 million jobs due to its trade deficit with China alone, 1.9 million in manufacturing.

The Internet put globalization into turbo mode.

Can you blame a company as big as Apple, AT&T or Comcast (call centers), Nike, or GM for taking advantage of cheap labor and materials to drive up profit margins, particularly when all of their competitors are already doing it? Can you blame for re-selling lampshades made in China that cost them one-fifth the price similar lampshades made in the U.S. would cost them? Particularly when all of their competitors are already doing it and every consumer has become skilled at finding the lowest priced alternative online? Loyalty to the American worker means nothing to Wall Street or to Joe Startup who is looking to make the best living for himself.

The Race to the Bottom

Corporations exist to make increasingly higher profits and they’ve succeeded. But it hasn’t been from adding more employees or paying higher wages.

If work can be done cheaper elsewhere, it will be. With a world population nearing 7 billion and growing quickly, there will always be a few hundred million, or billion people willing to race to the bottom and the American worker will lose 9 times out of 10.

In the process of globalizing everything we sell or buy we have made many of our jobs obsolete. These jobs simply aren’t coming back. The factory worker, call center rep., shoemaker, tailor, and farmer are all dying a slow death in the U.S.

To say “we need to start making things again” totally misses the reality of the marketplace.

The jobs that will remain will either be:

  1. location dependent/high wage/high expertise: doctors & other medical, electricians, lawyers, on-site engineers, professor, executives, etc.
  2. location dependent/low wage/low expertise: grass cutters, restaurant workers, retail workers, etc.
  3. location dependent/medium wage/low expertise/union jobs: construction, public blue collar, public white collar, transportation industry.  Note: there is a corporate/political war against unions to drive wages lower with these jobs. This class may not be around in 20 years.
  4. location independent or dependent/high expertise entrepreneurial: self-employed writer, photographer, restaurant owner, etc.

Employer-based, location independent jobs, regardless of expertise, will be close to 100% outsourced.

Surviving & Thriving in the New Economy

I started off this post with the premise that the Internet has “destroyed” the American economy. In reality, it has destroyed the old American economy. The old economy had a heavy reliance on manufacturing and a unionized middle class to drive it. As these middle class jobs have been outsourced to the global economy, unemployment has risen and the average American’s spending power has decreased.

We are in a transition period that may last decades. A successful new growth economy may eventually emerge, but things will never be the same. This does not have to be a sad story. You can respond. America can respond.

How can you respond? You can choose one of the four alternatives above. Only two seem acceptable to me. The first is the employer based location dependent/high wage/high expertise jobs. You need a lot of education, expertise through experience, or both to land one of these jobs and be successful with it.

The other is the entrepreneurial route. 70% of Americans want to be self employed. Is it at all a surprise with the war against unions and the race to the bottom by corporations that people want to take matters into their own hands? If you can create something unique or provide a high value service to others, you can succeed.

If you like working for others, choose the first. If you don’t, choose the second. Any other alternative will leave you vulnerable and without a real career to speak of.

No matter how you move forward in the new economy that has been created by the Internet, the irony is that you’ll need to embrace the Internet every step of the way in order to succeed. With it, there is no reason things can’t be better than before.

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