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July 1, 2009

Does the Internet Create Wealth, or Steal It?

Filed under: Main — admin @ 12:01 am

There has been a lot of buzz about the “dot-com economy,” and Google, Yahoo, Amazon, and other overnight success stories on the Internet. But for every dot-com billionaire are there millions of people who once had jobs and who now don’t?

I’m a big fan of expanding an economy and creating jobs, but what happens when something new doesn’t create jobs but merely shifts them?

Consider Rush Limbaugh, for example.

No, I’m not getting political: Mr. Limbaugh is, after all, an entertainer, not a politician.

Before Mr. Limbaugh burst onto the scene, you had thousands of radio stations around the country, each with a morning or afternoon host and some type of interview or phone-in program. Thousands of guys, all serving their local markets, all employed and making good money. They were phased out of their jobs when Limbaugh came along.

Mr. Limbaugh’s show is free; radio stations don’t pay him to put the show on the air. They can still sell advertising, though, which makes them money. Their cost: next to nothing. Mr. Limbaugh makes money because he also sells advertising, though to a larger audience, so he makes more money.

Well, actually, Limbaugh doesn’t “make” the money, he just took it from those 1,000 guys and radio stations that once made it.

While Mr. Limbaugh enjoys a huge audience and a huge income, there are now thousands of guys he put out of business. Individually, those guys weren’t rich, but collectively all the money they once made is now being collected by Mr. Limbaugh. One guy replaced thousands and, except for Mr. Limbaugh, no wealth or new jobs were created.

I believe the same analogy can be given to the Internet. Where once you had thousands of people working in print media, and dozens of companies making money producing printed material and documentation, you now have the relatively free Internet. All those people and all those companies are out of work, but yet big fat companies like Google rake in that same money. Nothing was created, the delivery system was simply improved — and monopolized.

While I don’t begrudge Mr. Limbaugh or an Internet giant like Google for being clever, I don’t think that they’ve created anything new or unique. They’ve simply stolen jobs and income from others who once provided it. They offer a slick delivery system, but at the same time they do a tremendous disservice in that they provide a generic, mediocre product where once people had something customized and local.

I would argue that this type of monopolization of an industry is simply a transfer of wealth and not creation of anything new, and especially of anything beneficial. People seem to enjoy mediocrity (witness the proliferation of McDonalds), so the scheme works. But I don’t believe we’re any better for it.

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