What’s good for General Motors is good for the country
Charles Erwin WILSON,
one time Chairman of GM, occasional US Secretary of Defense
Facebook is good for its investors – but is it “good for the country”? This question nags the back of the mind of Facebook CEO. According to a report published in January 2012, Facebook asked the global business advisory firm, Deloitte, to estimate the benefits it generated for the European economy. For a hefty fee, I presume, the firm opined (gingerly): For Europe as a whole, the economic impact of Facebook was estimated as just over €15bn in revenues, supporting 229,000 jobs.
Now we have first an epistemological question: can we attribute to Facebook the economic effects of the influence it wields on its subscribers? This is the topic of the very knowledgeable blog I quoted. To make a long and interesting story short: whose responsibility is it, if an avalanche thunders down the slope? Do we hold the last snowflake accountable (see it being taken away in heavy chains as it protests its innocence), or is it a collective responsibility? Well, it all depends on the point of view, as the example shows: one loves taking credit for the good result, but hates being held responsible for the bad outcome…so presumably, like the financial crisis, the avalanche was an “act of god”.
There is an even deeper attribution problem: Facebook is just a conveyor of influence, it generates none of its own. I’ll grant the “the medium is the message” – but it is a hell of a cheek to argue that the post office, simply because if ferries sealed envelopes around the country, is entitled to claim for itself the value added of the business contained in the envelopes.
The other question is a more pedestrian and straightforward question. What is the value added of Facebook to the nation?
The Deloitte study is a marvel of poor socio-economic analysis – hence my contrarian comment.
Benefits in welfare
Assume Facebook shifts consumption patterns from Brand A to B or even from industrial sector X to Z. The firm B or sector Z wins, and firm A or sector X loses. The net contribution to the economy may vary from zero (in which case we have simple churning) to the differential in utility that consumers gain by switching. If all people feel better off with the new brand/product proposed through Facebook, or with the new gadget, then indeed something is gained. In basic terms: the net benefit to consumers is utility of A MINUS the utility from B that has been foregone.
Information is a good thing to have, but it costs time (hence money). The person who enters into a foreign town and spends an hour looking for the “best” restaurant ought to include in his calculation of “benefit” the time he wastes looking for it. That’s why I settle quickly after two or three perusals of the menu outside: the likely marginal improvement is not worth the hassle. I don’t know how much time citizens spend in marginally improving their choices through Facebook. And don’t tell me it is “free time” – they could be improving themselves instead… The time so spent may be significant, and in fact more than offset the added utility – only, the consumer fails to include them in the choice.
Benefits to employment
Again, it all depends on what assumption one makes about the economy. If the switch simply means that employment is reduced here and correspondingly increased there – the economy is indifferent to the shift. Employment benefits only accrue is there were to be net addition of jobs in the production of the goods favored thanks to Facebook. Furthermore, if the economy is “at full employment”, then the benefits may soon be zero.
Again, we also have adaptation costs – workers in firm A or sector X rushing to the new place of work B or Z. The social costs of this shift may be far more than the value of the net addition, e.g. if older workers laid off in A or B fail to find new employment in B or Z, or if they have to take a salary cut. Or simply if they have to rearrange their lives to fit the new employment conditions.
Matters get even more complicated if we move from Europe-based product A to globally-sourced product B, and so on. Here we have “leakage”, a process that tends to become irreversible. The US is a good case in point. Jobs in industry have drifted abroad, and have been replaced by jobs in flipping hamburgers.
The socio-economic irrelevance of Facebook
According to the Deloitte study Facebook has direct impact of € 214m and supports 3,200 jobs. That’s not much from the point of view of Europe’s economy. If we just assume that half these jobs are filled through reshuffle from other parts of the economy and the rest are people taken from the pool of the unemployed, then the game does not seem worth the effort.
Whether Facebooking is a more informed way of buying is debatable. Instead of acquiring information one acquires opinions. Since when are opinions better than facts?
 Apparently this quote is apocryphical.