Robert Reich Doesn’t Understand WhatsApp or the Internet


Robert Reich, a wealthy cabinet member and Washington insider, decided to reinvent himself as a social justice crusader for income equality. This is funny to anyone except a liberal because Reich is just another wealthy political insider who doesn’t understand economics trying to be Mr. OWS.

Glomming onto anything timely, Reich concern trolls Facebook’s purchase of WhatsApp.

According to news reports today, Facebook has agreed to buy WhatsApp for $19 billion. (To be precise, $12 billion of the $19 billion will be in the form of shares in Facebook, $4 billion will be in cash, and $3 billion in restricted stock to WhatsApp staff, which will vest in four years.)

Given that gargantuan amount, you might think Whatsapp is a big company. You’d be wrong. It has 55 employees, including its two young founders, Jan Koum and Brian Acton.

Whatsapp’s value doesn’t come from making anything. It doesn’t need a large organization to distribute its services or implement its strategy.

WhatsApp “makes” software, which Reich has decided not to class as making something. He probably feels differently about his website. Also 55 people is more sizable in this category than Reich thinks.

In the emerging economy, there’s no longer any correlation between the size of a customer base and the number of employees necessary to serve them. In fact, the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows (WhatsApp’s 55 employees are all its 450 million customers need).

Meanwhile, the ranks of postal workers, call-center operators, telephone installers, the people who lay and service miles of cable, and the millions of other communication workers, are dwindling — just as retail workers are succumbing to Amazon, office clerks and secretaries to Microsoft, and librarians and encyclopedia editors to Google.

But who exactly is succumbing to WhatsApp which duplicates existing telecom services using existing infrastructure?

Software still has to run on hardware. That means you need to manufacture the devices they run on, sell those devices, ship those devices, manage the data infrastructure and yes, service it and operate call centers for the products.

WhatsApp is probably overvalued, but Verizon employs some 200,000 people. WhatsApp is just a way to dodge some of Verizon’s fees and it won’t last.

But the bigger question is why is so little of the hardware made in the United States? Reich was Labor Secretary during a huge outsourcing boom. Instead of more empty babble about income inequality, maybe he would like to discuss why so much manufacturing went overseas. Or maybe he would like to talk about NAFTA that allows Microsoft to assemble its hardware south of the border?

It was Reich’s boss, Bill Clinton who hold working people that the jobs weren’t coming back and that they needed to head to college. This is what an economy of college jobs looks like.

It was Bill Clinton who helped make the current nightmare possible with his pro-China economic policies. And the Clintons were big investors in outsourcing to India. If Robert Reich wants to know where those jobs went, he can ask his bosses, Bill and Hillary. Or he can ask himself.

Reich promoted NAFTA and he sneers at the idea of bringing manufacturing jobs back.

American manufacturing won’t be coming back… The fundamental problem isn’t the decline of American manufacturing, and reviving manufacturing won’t solve it. The problem is the declining power of American workers to share in the gains of the American economy.

This is incoherent gibberish. Reich says that manufacturing jobs aren’t coming back, but he wants workers to share in the gains of the economy. The workers at WhatsApp are certainly doing that. But there aren’t very many of them.

Without manufacturing jobs, you end up with WhatsApp companies. And Robert Reich peddling his income inequality shtick for a problem that he helped cause.

  • wileyvet

    I shall call you Minnie Me.

  • truebearing

    Perfectly analyzed.

  • A Z

    Bill Clinton who hold working people that the jobs weren’t coming back and that they needed to head to college. This is what an economy of college jobs looks like.”

    Research and development facilities only go so far. You learn things on the production line by solving problems. Some incremental improvement s and revolutionary improvements come from just that sort of problem solving.

    An engineer or scientist can trouble shoot via a telephone call to an overseas production line. A company might fly them over to the production line. There is a limit to how often this will work or how much money and time that can be spent on overseas trips.

    The engineer getting the practical experience are foreign engineers, foreign workers and foreign management for the most part. It will bite us on the butt hard. In time foreign R & D and foreign universities will outpace the U.S. because the rubber hits the road in practical, daily applications overseas,

    • Daniel Greenfield

      Very true. American Apparel, as sleazy a company as it might be, broke ahead because it brought production lines back to the US.

      • A Z

        I was for NAFTA in the 1990s. I won’t lie.

        I believed that we would have high tech jobs like Greenspan talked about and that light manufacturing leaving would be okay. Then my father reminded me of some of the people worked with. He said that after what some people had been through all they could do was light manufacturing. I worked with a guy who spent 15 years in prison. He was a nice guy. The thing is after his upbringing, substance abuse, and lack of educational attainment, light manufacturing was where it was at. he worked steady with a good work output when he was paired with someone.

        So I was wrong on 2 accounts. First, there is no level playing field. the other side does not play fair.Tariffs are not the only barrier. Second, linking economies that closely is like putting two generators on line with one another. They have to be within a few degrees of one another before putting them both on the same line or you will have problems

        • Daniel Greenfield

          On top of everything else, our own business ecosystem is a disaster. We have Mexico-level corruption with a much higher cost of doing business. That’s a formula for turning into Spain.

          • A Z

            NAFTA is a disaster in that business such as smelting and forging could relocate across the border. It was easier than fighting the Greens. So they stopped fighting and moved and we have a green hegemony.

            If you want an engine block, most if not all of them are made outside the U.S.

            How can you win a war when you cannot produce the engine of a vehicle?

            Manufacturing is hollowed out.

            All some one like China would have to do is hold the line. they don’t have to aggress. They simply stop shipping. You do not need an EMP attack to stop the U.S. Simple stop shipping key components and maybe before factories can be rebuilt we have massive infrastructure decay and civil unrest.

          • Daniel Greenfield

            With China maintaining a monopoly on rare earths, the Greens have given them economic control by default.

          • A Z

            There are rare earth metals in Africa and the Rockies. Many liberal voters do not understand how long China has been in Angola, Mozambique, Sudan and other places. So China could potentially tie up those rare earth metals.

            Rare earth metals in the Rockies can be tied up by the EPA or pick your Democrat president.

            Bill Clinton tied up low sulfur coal in the American West by calling the land a national monument. so there is a perfidious precedent.

          • Daniel Greenfield

            The Greens won’t allowing mining in the US. They’re hostile to “exploitation” of the Third World. China ends up in the driver’s seat by default.

          • A Z

            I know. Personally, I am for recycling metals.

            We do a pretty good job already. Where I live we do have a steel mill and it is fed via scrap iron form shredded cars.

            Still there will always be ‘losses’ in the system, so to not mine is to decline.

          • carpe diem 36

            it is the greens who are holding the keystone pipeline from being built. that is a disaster for this country same as other things the greens are doing. only someone like obama who hates america will let them rule out building things in this country.

          • A Z

            “We have Mexico-level corruption with a much higher cost of doing business.”

            I’ll plead ignorance. I would have assumed in the 60s thru the 2009 that we had a lower level of corruption than most other countries.

            Now I don’t know.

            I do know that overseas & “just in time” manufacturing was given a 1, 2 punch in 2001, when the longshoreman West coast had their slowdown . Also there was the nuclear tension in India and Pakistan at that time.

            *** Every continent should have their own manufacturing base. ****

            Period, end of story.

        • Habbgun

          I was for NAFTA too and I don’t see it as the problem. If we aren’t manufacturing, if we aren’t producing goods then the for good and badtreaties mean nothing anyway.

  • John Panzer

    Great article. It demonstrates the difference between opinion and economics. Rhetoric and Political Science. Journalist’s and Secretaries of Labor.

  • Hard Little Machine

    Whatsapp is a good example of the model that government would love to follow – rake in billions, employ no one.