Skip to main content
rob magazine

A billion bucks isn't what it used to be, but $20 billion can still buy you a national or global empire (all currency in U.S. dollars). Companies worth that amount, roughly speaking, include Rogers Communications, Magna International, American Airlines, Ralph Lauren and Campbell Soup. And WhatsApp.

When Facebook bought WhatsApp for $19 billion in shares and cash in February, tech geeks and investors immediately thought: WTF? Here's a company that did not exist until 2009, has modest revenues and uses a mobile instant messaging technology whose sustained success cannot be assured in a market where today's innovations are often tomorrow's flops.

But the price tag was not the most shocking aspect of the deal; it was the number of employees involved. WhatsApp had 55 of them. That's it. One wonders if any company has ever had fewer employees relative to its market value (the deal worked out to almost $350 million per head) or fewer employees relative to its customer base. When Facebook announced the purchase, WhatsApp had 450 million customers. The figure was rising by one million a day and, theoretically, is limited only by the number of smartphones on the planet.

There was a time, not too long ago, when the more customers you had, the more employees you needed. At its peak, General Motors had more than 850,000 employees (today it has 212,000). In the digital age, the correlation between the number of people on the payroll and the number of customers is vanishing. That's bad news for job creation and for middle-class incomes. If WhatsApp can dominate instant messaging globally with a few dozen employees, what hope is there for the semi-skilled and skilled workers who, in previous generations, could count on new jobs emerging as creative destruction routinely blew up one industry and replaced it with another?

WhatsApp is not an anomaly. Digitization, and particularly the likes of Instagram, pretty much ensured the gutting of Eastman Kodak, the company that introduced photography to the masses. As late as 1990, Kodak had 141,500 employees and vast profits. It has since declined steadily, missing or casting off one innovation after another.

Instagram came along in 2010. Two years later, a shrunken Kodak filed for bankruptcy protection. When Instagram was bought by Facebook for $1 billion in 2012, it had a grand total of 13 employees. Facebook has a market value of $175 billion and 6,300 employees at last count. That's three times the market value of GM with 3% of the employees.

Or consider robots. Their rise has been relentless, penetrating industries that had seemed robot-proof. Military pilots are being replaced by drones. Rolls-Royce is designing unmanned cargo ships that would spare shipping companies the annoyance of paying sailors and negotiating with their unions.

Resource extraction is one of the next frontiers on the labour-savings front. Miners are installing wireless networks underground, the first step in the creation of a machine-only system that would see drills, trucks and crushers operated from the surface by joysticks. Health care, the one industry that has never failed to add jobs, is embracing the revolution too. The FDA recently awarded a patent for the first "human interacting autonomous robot," intended for hospital use.

The evidence of job destruction is more than anecdotal. Data from the U.S. National Employment Law Project show that "mid-wage" occupations suffered 60% of post-2008 recession job losses but enjoyed only 22% of the recovery growth. So why has the unemployment rate been falling since the end of the recession? It's partly because the robot designers have yet to find a way to replace low-wage occupations, such as waiters, salespeople and home-care workers. Those jobs accounted for 21% of the losses in the recession but 58% of the recovery growth.

To be sure, digitization isn't making inroads everywhere. Online universities were supposed to have come on strong by now, eradicating armies of professors in the process. They haven't (though that could change). Robots can't yet replace a broken house window or set your son's busted arm.

In theory, productivity gains from mass automation could free up enough income to allow workers who have lost their jobs to reinvent themselves. Internet universities, for instance, would save families bundles in tuition fees. But even if that comes to pass, societies should not count on the digital revolution creating as many jobs as the Industrial Revolution did.

Pouring fortunes into education to equip the next generation of workers for the digital age may be one solution. Another idea is introducing a guaranteed national income, financed by higher corporate taxes, to keep the newly unemployed afloat. Accepting that economic growth and technological change no longer go hand-in-hand is a good place to start the debate.

Report an error

Editorial code of conduct

Tickers mentioned in this story