Thursday, May 17, 2012

How Facebook is destroying the US economy!

Okay, I'll admit it.  I'm trolling for eyes on the eve of the big Facebook IPO but this is an idea I've been toying with for some time.  Can we blame Facebook for the dreadfully slow pace of the economic recovery?

Now, I'm not talking about the normal sort of Facebook destruction - marriages, friendships, etc - or even the way it destroys the productivity of its users.  I'm proposing that Facebook and all forms of electronic social networks, are changing the world in a way that no one has thought of before.

I'm not a sociologist or anthropologist or even an economist, but here's what I do know :  one of the key drivers of the US economic growth story over the past century was our incredible level of labor mobility.   Increased levels of labor mobility have enabled the country to evolve from a nation of farmers to a nation of east coast cities to a nation with a strong industrial midwest to nation which could harness our energy resources in the Gulf Coast, etc, etc.

In short, when times got tough people move where the jobs are.  This was hard and painful for many families and friends that were separated by vast distances but you went where the work was because there were no other options.  I also think we're experiencing a similar phenomena in the education world - thirty years ago, people went "away" to college but today many students feel the need to stay local to stay connect. 

Here's my theory and I'll reiterate that this is just a theory --

Facebook and the other social apps do not allow people to cut the apron strings of home anymore.

1) Consider the college student that is struggling to fit in at her new school in North Carolina.  In the past this student would stick it out, eventually find a couple of life long friends and treasure her time at college.  Today, it's easier to log onto Facebook and feel like she never left home in Northern New Jersey.  She connects with her old friends and longs to go to the Tick-Tock Dinner on Friday night.  This nostalgia draws her back and prevents her from experiencing new opportunities in North Carolina.  After graduation (or worse, before graduating) she returns to her hometown because the grass is always greener.

2) Consider the family that is struggling to make ends meet in a western PA town.  Dad can easily find work in North Dakota or Idaho so he packs up the family and heads west.  However, after a year of living in a Facebook bubble, the kids still consider their PA friends, their best friends and the family returns to face brutal job prospects but because they couldn't cut the apron strings the kids will be "happier".

Now expand this thinking to a global scale and you'll see that increasingly people that were VERY prone to migration (Indians, Chinese, etc) are now feeling the same draws to stay local as a result of their Facebook networks.  When my father-in-law immigrated to the US from India in 1973 his connection to his homeland was a monthly call home and an occasional letter.  Thus, he became immersed in the culture of NYC and he became part of the great NY metro melting pot.  However, imagine if he'd had Facebook where he could talk to his buddy from his old village every hour or hear about a wedding going on two towns over this weekend.  The draw to give up when things got tough in a new country would be very strong and I suspect this is at least a partial reason why the US is experience reverse immigration as people are returning to their homelands in droves.

Facebook users have virtual friends which in theory should make people more mobile, but I believe that the fact that users are constantly bombarded with info from their circle of friends is making our world less mobile.  Can the US thrive in a world with families unwilling to move and where people of overseas are unwilling to leave their homelands?  Well, right now the US looks pretty good compared to Europe and Asia but in the long run you need a flexible labor force to be successful.

So, while it's a stretch to put all of this at the foot of Facebook it is my opinion that they are playing a part in the reduced labor force mobility in the US. 

Cheers!

PS - My expectation is the IPO will price at about $42 and trade up to $55 or so before settling around $52 but that's just a guess.  The value of the company in my opinion is far, far below those levels, though.

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