Other side of new gen IT

Recently Whatsapp has been valued by Facebook Inc. for mind numbing $19 billion. If we go a little back in time to May 2013 Tumblrworth, it was estimated at $1.1 billion by Yahoo while Instagram has been earlier valued at $1 billion by facebook in 2012. Going by the big money valuations of these new generation dot-com and mobile application firms, one can blatantly think of the benefits that these companies may be posing upon their home country at large in terms of employment creation and strengthening its economic and social foundations. But wait! This thought needs rethinking. We need to dig somewhat deeper here.

Firstly, one might sense that these companies must be the big ones creating lot of jobs for people, but the bleak reality is that to serve 450 million customers. WhatsApp needs only 55 employees, tumblr requires only 234 employees to serve its millions of bloggers and instagram employs around 25 people for its 180 million active customers. This is fast tearing down the conventional relationship between the size of a customer base and the number of employees necessary to serve them which can be seen in traditional IT and non-IT firms.

Not only these firms create fewer jobs, they also consume large number of jobs in related fields. Like the rise of various online message-service providing firms have eaten up jobs of millions of communication workers, just as retail workers are succumbing to online mega stores, or various jobs being hit by online booking portals. Of course productivity is rising and corporate profits are soaring but jobs and wages are sinking.

Secondly, and more importantly, one of the dark sides that is coming to light about the world’s biggest economy USA and home country for most of these new generation IT firms is the large and growing inequality that has left the American social fabric, and the country’s economic sustainability, fraying at the edges. If we look at WhatsApp, it has two billionaire founders and 55 extremely rich employees. Tumblr acquisition left founder David Karp with $209 million and its 178 employees with $66 million distributed among them. And in fact in these new gen IT firms only few of their super-skilled employees are walking away with fat pay packets.Clearly the gains are not spreading widely which can have serious repercussions.

The rich are getting richer, while the rest are facing hardships. America’s middle class is becoming eviscerated, as the ‘good’ middle-class jobs – requiring a moderate level of skills, seem to be disappearing relative to those at the top, requiring greater skill levels. This is referred as ‘polarisation’ of the labour force.

Not only is the US becoming a more divided society but it is also losing on its tag of being the ‘land of opportunity’ that it has been where people from rich to poor everyone have an equal chance of being successful. America’s growing inequality can have grave economic, political, and social consequences for the world as a whole and it will be imprudent to ignore this critical issue.