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RAY SUAREZ: To what extent is the Internet driving economic growth and new jobs? A new study out today offers an answer. The study was funded by Internet equipment giant Cisco Systems. Here to discuss it is Anitesh Barua, a co-author of the study and associate director of the Center for Research in electronic commerce at the University of Texas; Jay Whitehead, CEO and president of Employeeservice.com, which provides human resource services to hundreds of dot com companies; Robert Reich, former Secretary of Labor in the Clinton administration, and now professor of social and economic policy at Brandeis University; and John Battelle, CEO of Standard Media International, which publishes “The Industry Standard,” a magazine covering the Internet economy.
Professor Barua, let’s start with you. What were the major findings of the study?
How many Internet jobs?
ANITESH BARUA, University of Texas: Ray, we found that the Internet economy is having a profound impact on the overall economy by all measures. As we have indicated in our study, jobs grew 650,000 to a total of about 2.5 million, representing a 36% growth, across all aspects of the Internet economy, but I think even more interesting is the fact that jobs grew up to 48% for high-tech companies who are providing sort of the plumbing pipes of the Internet, who are providing the application software, consulting services that make business happen on the Internet. And when you look at it along with the fact that revenues are up big time to the tune of 72% and that sales for every employee that you have rose 19% across the board, and sometimes actually much more, I think it’s painting a picture of high productivity, lots of opportunities being created, and also, it’s pointing to the opportunity cost of not joining this new economy.
RAY SUAREZ: John Battelle, should we be concentrating more on the fact that the jobs grew by 36% or that they still only add up to about 2% of the American workforce?
JOHN BATTELLE, The Industry Standard: Well, I think actually what’s very interesting about this study is as large as these numbers are getting, what’s even more astonishing is what’s not in the study, which is the broader economic base of corporate America and global, the whole world, in terms of how the Internet economy is affecting companies like Nabisco, for example, or Johnson & Johnson. So while this points to an astonishing growth in companies that are involved in the creation of what we’re calling the Internet economy, it really, I think, only is the tip of the iceberg when it comes to the effect this is having on the entire global economy.
RAY SUAREZ: So by defining it as jobs directly created, we’re actually using a very narrow definition, and in your view it might be a lot more?
JOHN BATTELLE: Well, I think, as years go by, we’ll have an interesting task in cracking this story, because these companies are becoming segmented. They’re becoming financial services companies. They used to be dot coms, and now they’re financial service companies or they’re retailers, or they’re perhaps in the business-to-business marketplace in steel. So they’re becoming part of the steel industry. And therefore, the steel companies are having to deal with that and become Internet economy companies, as well. That’s very interesting. And we see that story continuing through the next few years.
RAY SUAREZ: Go ahead.
ANITESH BARUA: I would like to point out that we are including lots of bricks and mortar companies. In fact, we had over 50,000 companies either selling goods or services on the Internet or providing electronic intermediary type of services. So we take a much broader perspective. We’re not limiting ourselves to the dot coms, but whoever is playing in this overall space, even if you are clicks and mortar, you’re very likely to be sampled.
RAY SUAREZ: And for people who aren’t following the jargon, clicks and mortar means?
ANITESH BARUA: You’re a traditional company but doing part of your business using the Internet.
Who are Internet workers?
RAY SUAREZ: Jay Whitehead, when the workforce we’re trying to measure goes up by 700,000 people. What kind of people are we talking about?
JAY WHITEHEAD, EmployeeService.com: Well, you’re talking about highly educated people who generally are highly driven to go from the bricks and mortar world into the clicks and mortar world that was just referred to. But there’s a real downside to the lifestyle that the Internet economy has thrown upon a lot of the workers. You’ve got people who are working 16, 18, 19 hours a day for weeks, months, quarters, and even years on end to reach horrendous financial heights. And this brings up three real down sides to life in the Internet economy for employees themselves. One is that people really are looking to their jobs for their entire personal life. The second is that you’ve got a stock option economy that’s forcing people to really look at jobs in terms of what stock options they can get. If you don’t have stock options to get, or to give to an employee, you don’t get that employee. You also don’t have a lot of loyalty in this marketplace. Jobs are being hopped from one by one over time. To go back to the first point about not having a life, there is no life for a lot of these dot com workers. In fact, there’s a term in Silicon Valley that people don’t have a personal life, a sex life anymore. And there’s a term called Internet Interruptus that has affected many, many employees.
RAY SUAREZ: So Secretary Reich, you’re a labor economist. You know how workers deal with this. Is this a finite kind of work life they’re going to have to figure out some new way of dealing with?
ROBERT REICH, Former Labor Secretary: Well, Ray, it’s an exhilarating work life, if you have the stomach for it. I’m not sure I understand exactly what Internet Interruptus means for everybody, but I can tell you that a lot of young people in their 20′s and early 30′s are finding they’re making a lot of money, not as much money as they thought they were making two months ago. There are a lot of new jobs being created with titles of which we have never heard before in this country. It is shaking up old, bricks and mortar and clicks and mortar companies. The Internet is becoming ubiquitous and pervasive. And talking about Internet jobs now is something akin the talking about electricity-related jobs in 1910.
RAY SUAREZ: So there are a lot of people, you’re suggesting, that don’t even realize they’re working in Internet-related jobs?
ROBERT REICH: Absolutely. We are all indirectly working at Internet-related jobs. A lot of clerical, secretarial workers, they may discover that actually they are downloading from the Internet, whether they are Internet workers or not is really anybody’s guess. Big business is increasingly substituting all fixed cost, big bureaucracies, for what are called business-to-business sort of various… on the Internet, various ways of finding bargains, various ways of actually reducing transaction costs. And that also is changing the nature of our bureaucracies. They’re no longer big bureaucracies. They’re coming to be sort of networks in which companies are partnering with other companies.
RAY SUAREZ: So Anitesh Barua, some of the people that are being counted in your studies are doing old economy jobs, truck drivers, warehousemen, people who lubricate machines?
ANITESH BARUA: Unless those products are actually being sold in one way or the other in conjunction with the Internet, yes. A lot of the jobs we are talking about are new jobs that are created in the high-tech sectors as high-tech companies hire people to build the plumbing pipes and the software infrastructure. And then there are a lot of new jobs that are being created by some of the electronic middlemen that Secretary Reich was kind of referring to. And those are really new jobs. But then a lot of job transformation is taking place. You know, when we did this study one year ago, we went to large companies and asked them, “how many full-time equivalents in your company are, in your assessment, involved in your Internet business operations?” And we heard from some huge organizations numbers like four. Obviously they were thinking of the Web developers and the Internet programmers, whereas when you kind of go and ask, so how many people in your finance area, in your accounting area, in your marketing are devoting their time to Internet part of your business, you see there is a new realization and new recognition that, gee, I mean, a lot more people in my organization are actually involved in this. And Ray, I’d like to take this opportunity to point out that, you know, we see 48% job growth with some of the high-tech companies who are playing in the Internet economy space, but we don’t even count the hundreds of thousands of jobs that are associated with the U.S. Internet economy based on outsourcing. Okay — because you cannot find enough high-tech labor in the US to fulfill those roles. And this gets back to a point that Secretary Reich actually made some four years ago, pointing to a potential shortage of high-tech workers in the US economy. And that has deep implications in terms of how we want this new economy to grow even faster.
Failure in the Internet economy
RAY SUAREZ: Jay Whitehead, will this also mean that a conventional resume is going the start to look a little different, that being fired or being part of a company that went belly up won’t be the kind of black mark it might have been at one time?
JAY WHITEHEAD: In fact, that’s a great point, Ray. Failure is something that is actually valued in the Internet economy. There’s a saying in the Internet economy that “we want to fail fast, because that way we learn faster.” So there are so many jobs in this space, in fact, in Silicon Valley, the unemployment rate among Web workers is Negative 3% — that means there are many, many more jobs than there are people to fill them. And like the old bank robber, Willie Sutton said, “I rob banks because that’s where the money is,” workers are going to the Internet economy because that’s where the money is. In fact, there is a glut of venture capital out there. I’m here in Chicago for a venture capital conference today, in fact. And that glut of venture capital has created a lot of dot bombs. So there’s a lot of… not dot com, but dot bombs, I said. And that means there’s a lot of displacement of workers. People are being displaced from jobs in but months on the job because the company ran out of money. In fact, that Internet economy, that venture capital frenzy has created what’s called the Barney Deal. The Barney Deal is that it was a company that was funded because the venture capitalist said, “I love you, you love me, let’s give you whole bunch of money,” and that created an over funded but under-substantial business model. So there’s a lot of displacement.
RAY SUAREZ: But, John Battelle, is that something that we’re starting to see at least having more geographic spread, not the stereotypical company that’s located somewhere between San Francisco and Santa Cruz?
JOHN BATTELLE: Right, 50 miles from San Francisco. Yes. And I think also pulling back a little bit and putting this in context, we’re absolutely in the middle of something, something relatively large, and I think this University of Texas study is proving it. We’re in the midst of a significant transition and rewiring of how business is done. That means we have the try a lot of stuff and screw a lot of stuff up and get it wrong and try again. And the economy is encouraging people to do that and rewarding people for doing that, and I fundamentally think that’s a good thing. It sure makes for a good story. And so therefore, when you have an almost — a cultural vision that things are changing and we’ve got to figure out how to get ahead of this thing, you’re going to see capital formation occur to encourage that. I think it’s very, very good for our economy and the global economy that we’re committing capital to trying new stuff. And certainly a lot has failed. Certainly a lot has worked. And that’s very exciting. And it makes for a great story.
RAY SUAREZ: Well, Secretary Reich, speaking of dot bombs, you brought up the electricity industry in the early part of this century. Was there a lot of boom and bust then right along with the large run-ups in the size of the labor force and the amount of capital being spent?
ROBERT REICH: Certainly there was, Ray. In fact, we are seeing in the dot com parts of the Internet industry a period right now of consolidation, things are settling down a little bit. Some of the stocks that were very, very high-flying are now low-flying. They may come even lower in the future. But generally the bottom line is this: If you are young and well-educated, the sky’s the limit. This is an extraordinary economy. The Internet economy provides opportunities that are really unprecedented. If you are older and if you are less educated, if you are poorly educated, it’s another story entirely. We are seeing, again, that two-tiered economy we have had and have been developing in this country. The digital divide is real. The Internet economy is wonderful, but we’ve got the look beyond the Internet economy, as well.
RAY SUAREZ: But if demand keeps growing at the rate that it has been, why won’t potential employers go in search of, let’s say non-traditional labor pools, train them up, create the expertise?
ROBERT REICH: Ray, they will as long as unemployment stays down and the market stays very tight. As long as there is a tremendous shortage of Internet workers and high-technology workers, employers are going to be up-scaling and training a lot of their employees, and that’s terrific. There is also going to be a steady drum of demand by employers to open up the American immigration to high-tech workers abroad. To some extent I think that’s necessary. But we don’t want to do it to such an extent that we reduce the incentive on employers to upgrade the skills of American workers.
RAY SUAREZ: Professor Barua, if we’re looking at this as a maturing industry in its growth period now, how many more years of this kind of growth will we look at before things start to cool down a bit?
ANITESH BARUA: Ray, I think we are still seeing the tip of the iceberg only. And the technology is the driver. You know, it’s kind of unpleasant to say that. We always like to think of business strategies and we somehow use technology to drive it, but technology is the driver. And just think about the endless possibilities with wireless and with broadband, which has already begun in Europe and in Asia. And we are just beginning to see the initial phases of that, that revolution, kind of still brewing. And I kind of get back to the comment that Secretary Reich made about the digital divide. You know, what happens when you have $100 devices that connect you in a wireless mode to the Internet with really easy-to-use applications that are all being developed and this media-rich content that’s zooming to your hand-held devices? I think it will help us gap that digital divide and we will see much higher growth rates driven by new technologies and application.
RAY SUAREZ: Gentlemen, thank you all very much.