What’s good for General Motors is good for the country[1]
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[2]. 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?
[1] Apparently this quote is apocryphical.
Jovan Kurbalija
March 1, 2012
Cut of the Internet cable in Serbia (and access to Facebook) increased productivity for 200%. It is the news from Serbian “Onion”-style news website. The article quotes angry Facebook-ers, who out of desperation had to do some real work. http://www.njuz.net knows how to make the point. Here is the text in Serbian. http://www.njuz.net/u-delu-srbije-bez-interneta-zabelezen-porast-produktivnosti-od-200/
Aldo Matteucci
March 1, 2012
Jovan,
I intimated as much: 80-90% of social networks is gossip, not even opinion- sharing, let alone information. But even as a pointer, it is doubtful. Why should I trust hearsay?
Vedran Djordjevic
March 1, 2012
Allow me to make an attempt to analyze your initial question.
“How much” is a quantifiable value, while “worth” is a value system.
If we look at Facebook’s current status as a publicly traded company, the how much would be a numerical digit and the worth would be a currency. This valuation makes perfect sense for a company with workers, shareholders, stakeholders and etc.
As hard as it can be, we have to try and step away from the 80% of distracting/disturbing content and look at Facebook as a good source of information and as a tool for sharing, liberating information & thought. We have to try and see its, still foggy, overall worth to history, politics, culture, technology. After all this is where that multi-billion dollar valuation came from.
Stepping back even further, Johannes Gutenberg’s printing press should be compared to Mark Zuckerberg’s Facebook. They both freed up information sharing and gave way to modern mass communication. The value that one would give the printing press is unimaginable when considering the liberation of thought, culture and market it brought up.
I know that many people, would cringe at the thought of comparing the two, but many also cringed at the sheer laziness and loss of worth in producing Incunabulas thinking that they would never replace the laborious handwritten copies by scribes. Today we have gossip magazines.
Facebook’s mass communication can be partly attributed to some of the world’s revolutionary undertakes where it provided a safe ground for the liberation of thought and information. How much is Facebook worth to the people in those countries? I don’t want to go further and analyze the success of social media in protests and revolutions and the revolutions themselves, but they did have a significant role.
For anyone working with social media in general, the hardest thing has been to place a return on investment (ROI). The actual worth of social media for corporations, small businesses, governments and individuals is hard to put into quantifiable results, even monetary. I understand the implications of it in a operational business sense, but I think the return on investment or any type of money value that we try and assert on such a still misunderstood phenomenon is a little ignorant.
This can also tie in to copyright and the claimed loss of money and jobs that many companies are facing with the Internet and social media. How much has Facebook’s impact cost a company or a nation? If we then look at the printing press again, its method of quick and cheap production of copies of single works was revolutionary to the point of heresy. But, these copyright infringements have spurred creativity, jobs and money.
We then have to look at the value systems and the quantifiable measures that we assert to these systems that we have created to justify our existence. Have they been fair to many of the greatest feats in the history of our humanity? Has it been fair (whatever that may be)?
Why do we ultimately do the things that we do?
I hope I didn’t stray too far from the initial question.
Aldo Matteucci
March 2, 2012
Vedran,
My friend Florence has mailed me the comment below, so I’ll answer you jointly.
“What about factors not directly involving employment or welfare? Diffusions of ideas, opinions trends, tastes, which could be a relevant matter in terms of sales, and evolution of a society? Opinions without being facts can change sales, site constructions, transport developments, marriage tendencies etc.. They may not be for the best but they are a strong factor of change or lack of it in a society. The economic impact would be there, even if far more complex to evaluate. What is the economic impact (apart from advertisements) of the medias, newspapers or television for instance? As you express it quite clearly what are they talking about: the number of jobs and added value of the company or the possible influence it has on a national or continental market? One is probably small and the other very difficult or impossible to calculate. As you say, mixing up the two is unprofessional and some sort of fraud.”
My answer:
What I did, when posting the blog, was to correct basic errors in Cost-Benefit Analysis as employed by Deloitte in the context of measuring the “worth of Facebook to Europe’s economy”. They set the tune – they have to dance by it. In the Deloitte/Facebook framework, their claims are spurious.
Simply put: it is bragging, if not braying. When does one make such claims? When trying to get a subsidy, or some monopoly, or a license – i.e. happens when we try to hoodwink or browbeat everyone’s favorite whipping boy: the state in making us a favor. If I were a Finance Minister, I’d smile, listen politely, serve them a glass of water, and shake hands as they leave by the door – fast. A toothpick company could make equivalent claims based on the same reasoning.
Now your questions: what is the social value of Facebook as enabler? I’d sort of answered the question, when I’d argued that we can’t blame the last snowflake on the slope for the ensuing avalanche. But let me dwell on it.
This kind of question is as old as our societies – and a sorry tale of greed and power. An early instance took place in Rome. According to Livy, writing five hundred years after the fact, Menenius Agrippa was chosen by the patricians to persuade soldiers serving in the Roman army to re-enter the city and rejoin the community in 494 BC. The soldiers had withdrawn from Rome in the first of so-called “secessions” to protest the severe inequity of power in the early Republic. Livy says that Menenius told the soldiers a fable about the parts of the human body and how each has its own purpose in the greater function of the body. The rest of the body thought the stomach was getting a free ride so the body decided to stop nourishing the stomach. Soon, the other parts became fatigued and unable to function so they realized that the stomach did serve a purpose and they were nothing without it. In the story, the stomach represents the patrician class and the other body parts represent the plebs.
I could rephrase the question this way: who is more important – the person who invents (and/or) builds a fantastic machine or the humble repairman, who keeps it humming along? We (correctly) argue that maintenance is a high indicator of civilization. Modern machines inserted in a society that has no experience with them fail, while they make ours work even better. Who is to blame?
Sure we have a “before Facebook” and a “after Facebook” situation, and we can see the difference. But in a complex system we cannot – nay, we may not – mechanically point to the only thing that changed and say: that’s ITS contribution. It’s an illusion based on the fact that we don’t understand, hence ignore, every other part’s contribution, or the working of the system.
The Roman plebs said: “we fight” and the Senate said: “we lead” to justify a division of the spoils that favors the one or the other. The only correct answer is “Senatus Populusque Romanus”. Adam Smith had a difficult (and embarrassing) time figuring out what the “manager” was good for. It is convention arising from the distribution of power that we try to allocate each participant’s contribution in accordance to his “willingness to contribute” and then leave what’s left over to capital or management. If I’m hungry, I’m willing to settle so as not to starve, while the rich can wait me out. It’s a neat way to extract a surplus – but logical (let alone “ethical”) it is not. It reflects the balance of power, nothing more.
More generally and abstractly: comparing “before” and “after” is no substitute for comparing “with” and “without”. If we could construe two Egypts, both run by the same Hosni Mubarak, and one “with” and one “without” social networks, we may have a glimpse of the difference they made. But it is just a fleeting glimpse, for once these two scenarios diverge, the impact is blurred once more. We might be able to sense the “with”, but which of the infinite “without” available at any instant to choose? Lurking in the opaque background I can furthermore see Zho Enlai’s diplomatic answer to Mitterrand’s question about the “value” of the French Revolution: too early to tell.
Which leads me to the very question of “value”: at each instant life is an infinite world of possibilities out of which chance and circumstance only chooses one. It is a helluva chutzpah to assign “value” to “difference”.
As I conclude, I ask myself the question: who is responsible for this answer? Is it you who posed the question, the many books and memories that lie behind my answer, the farmer who grew the coffee on which I thrived as I was writing all this, or the Indian bed on which I slept, and where I found the answer as I woke up?
Vedran Djordjevic
March 5, 2012
Aldo,
I had to read your reply twice to fully appreciate it. It feels good to read something that makes you look from a different point of view. I must say the view of the “Facebook mountains” that you have is very geological, yet appreciates the aesthetical beauty it gives to the overall landscape.
I liked how you tied in “Senatus Populusque Romanus” to this. This should make us question the true motivation behind Facebook. Is it really “Management and the People on Facebook”?
Facebook’s mission statement is to give people the power to share and make the world more open and connected. If that is the true motivation behind the social network, they should maybe add – “under any means necessary” to the end of that statement, now that the comapny is being publicly traded.
There is a Serbian war time saying which roughly translates to: “The country gives the canons, the rich give the oxen and the poor give their children.”
In Facebook’s situation it might be: “The management/staff give the code, the shareholders give the currency and the poor people give their privacy.”
Taking all this into consideration, I still give Facebook a round of applause. The social network brings many aspects of our evolved human nature, culture and daily routines into a platform, in a virtual reality which acts as a change agent in the physical world.
There is a chain of events that lead up to anything, but the catalyst that comes out of nowhere is the exciting and memorable experience of the entire illusion.
Looking forward to the next article.