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.