Google, Facebook Will Cause the Next Economic Crisis   

I had an enlightening discussion this week with a guy who works on the same product as I do. He is a tad older, wiser and more reflective, so when he said had identified a cycle in human history, I was all ears.

Mike, who once designed a mechanism for recycling toxic waste into fuel and toothpaste by accelerating it supersonically, began by looking at unemployment figures.

"Unemployment is now at its highest for 20 years," he began, pointing out that the current crisis sounds like the biggest catastrophe to ever befall humanity, but it's just that the media focus is far greater and more invasive in our lives that it seems like a bigger deal.

"The nationalised industries that failed in the 70s were formed as part of a radical post-war programme of the 50s and 60s where the people that won the war realised that they were being exploited by plutocrats who were not shot at or blown to bits during the war. It was only 20 years later that they were seen as outdated dinosaurs. This played out as a violent revolution in some countries (Cuba, Vietnam, China) and as a more constitutional revolution in most of Europe.

"The traditional nationalised industries of the 70s that had kept people in jobs were shrinking and people were forced to be more creative. This generated lots of new enterprises and was the genesis of the massive growth in the financial services industry.

"In the mid-to-late 80s, the mass unemployment was as bad as now, or worse. People reacted in the same ways."

"The difference now is that it is fuelled by the internet rather than something else."

I was born in the mid-80s, so I'd be lying if I could remember those bad times personally, but I'm inclined to believe and respect Mike's opinions on how they are similar.

He finished the discussion with an insight, " I wonder if the 20 year cycle is a natural thing related to the kids of Generation N growing up and forming Generation N+1 as a way of spiting their parents...

"The sad part is that each generation thinks:

1. They are the first


2. Somehow they are different from every previous generation and will last forever"

The Future

So let's extrapolate this a bit to see how all of this StuffThatHasAlreadyHappened is even worth thinking about today.

The drivers of previous economic meltdowns were the collapse of large, established, respected businesses that suddenly lost the ability to sustain themselves. For whatever reason. The banks, for example, were let down by improper accounting practices that allowed money to go out that was never going to come back, but was still on the Balance Sheet as an asset. The steel and coal industries of yesteryear were obliterated by cheap offshoring and a reduction in demand thanks to synthetic materials and a boom in plastic production.

The new businesses that are the economic stars are web-based businesses such as Facebook, Twitter, Google, Netflix (already suffered death-throes this year, only to recover), Amazon, etc. Millions of businesses rely on Google Adwords for advertising, and millions of content publishers rely on Adsense to make a living. Same goes for Facebook's ad machine.

Amazon's Marketplace and Associates programme are buoying a similarly large number of organisations.

In "the olden days", when a business died, it would typically take its supply chain with it. Steel businesses would also take down their shipping and sales partners. Banks died and took most of their financial partners with them. The next generation "supply chains" are all about online services.

Say Google and Amazon went dark tomorrow. They became no more. That would put a huge number of people out of work that the benefits system wouldn't be able to support them all. Stock analysts would quiver at the sudden loss of confidence in "large, established, respected" IT stocks dropping to zero, a selling spree would signal the deaths of all the other post-IPO IT businesses. (I think Apple would be a special case in that scenario. It has a nicely diversified portfolio of hardware, software and also services (iTunes, iCloud), which should prevent it from being easily pigeonholed and tarred with the same brushes as these web-only organisations).

20 years from now, things could get very interesting. We need to keep an eye on those kids who are showing entrepreneurial talents early because those are the ones who will dictate what will be the next big thing when Mark Zuckerberg's digital estate becomes worthless...