In 1880, George Eastman developed a machine that could coat the dry photographic plates used in the sliver gelatin process. In plain English, that means he made it easier to make the things that made pictures. Eight years later, he founded the Eastman Kodak Company in Rochester, NY. Eastman Kodak sold cameras pre-loaded with film for the modern day equivalent of $600. The Kodak cameras came with enough film for a hundred pictures. When you took your hundred pictures, you sent the whole camera to Rochester to have them developed. That service cost another $250.
All in, your first 100 pictures cost you $850 present day dollars. A picture may be worth a thousand words. But in 1896, it cost about $8.50.
By the turn of the century, Kodak had sold over a hundred thousand cameras. In the 1960’s they sold 50 million more Instamatic ones. That’s impressive when you consider there were only about 180 million Americans at the time. They reached a billion dollars in annual sales for the first time in 1962. They reached $10 billion in 1981.
At its height, Kodak employed 150,000 people— 60,000 in Rochester alone.
In 1997, Eastman Kodak’s stock price hit an all-time high of $94.75 as the company’s market value soared to $30 Billion. In 2012 when the company filed for bankruptcy, the stock was worth just 78 cents, the company just $145 million.
It was one half of one percent of its value 15 years earlier.
Kodak is still around, fighting to become profitable again. But their 100-year run of dominating the market of helping Americans store and share their images is over. There are plenty of business school case study’s as to why they fell. And lots of opinions on what they could have done differently. I’ll spare you all that. Because it’s not material to my point. There’s a different one to make. It has nothing to do with film. And everything to do with the value of people.
Or lack thereof.
The same year Kodak went bankrupt, 2,800 miles west of Rochester in Silicon Valley, Facebook was buying Instagram, a small company that had found the best way to store and share people’s imagery through an app developed for smartphones. During its two years of existence, Instagram had grown to 30 million users. That’s a growth of 40,000 users a day, about the same amount of people that live in my home town of Atlantic City, NJ.
For two years, Instagram attracted, enrolled and compelled a city’s worth of people a day to share their photos digitally. And then Facebook bought them for a billion dollars.
At the time, Instagram had 13 employees.
That’s where the story ends. And the troubling math begins.
Facebook and Instagram combined to improve upon the world’s ability to store and share the imagery. Every day, Facebook users post about 1.5 times more photos than the total photos taken by mankind in a day during the height Kodak’s profitability in 1997. In the world of storing and sharing imagery, things are better now. It’s not close. Nor debatable.
The innovators that built the companies that enabled the improvement have been rewarded. Facebook founder Mark Zuckerberg is worth $68.9 billion. Kevin Systrom, founder of Instagram, is worth $1.5 billion. They’re not getting rich off of exploiting their labor force either. The average annual income of a Facebook employee is $301,000.
The world has a better service…for free. The founders are inter-generationally wealthy. And the people who deliver the service are paid extremely well.
It’s capitalism at its finest.
Until, of course you take a little time to do the math behind it. And then you realize that the math that you just did explains the single most important economic and societal issue impacting Americans today.
So, let’s do the math.
As I write, Facebook is valued at $472 Billion. It has about 18,000 employees. Which means that a company with about 10% of the people Eastman Kodak had at its height, more effectively provides the same societal benefit that Eastman Kodak did to many more people and as a result is worth 15 times more than Eastman Kodak ever was.
Which means that, in this extreme case, a human being is 149 times less valuable in the service of helping mankind store and share their photographs than they were twenty years ago. And because of increases in things like healthcare and other payroll taxes, they’re much, much more expensive.
It begs the question: If you have capital, why in the world would you ever invest it in employing a person?
Politically, we’ve taken up sides around this problem. One side claims that government is getting in the way and ineffectively managing trade and the economy. The other says its Wall Street and the 1% elite’s rigging the system.
But no one is really saying the cold honest truth. It’s neither. It’s that technology has decoupled productivity from the value of human capital. And that’s a new problem.
If you own things like real estate, infrastructure or intellectual property, you own more wealth than you ever did before. Because technology allows you to bring what you own to the market without having to give away as much of it to those that enable you to do it. When Eastman shot himself in 1932, he had run one of the largest companies in America for forty years. And he had less relative net worth than 33-year-old Kevin Systrom of Instagram does today.
The rich are getting richer. Not because they’re horrible, though some are. Because of math.
If you don’t own capital and the only thing you can sell is the 8-10 hours of work you yourself can do, you have less worth than you used to. Not because of that damn Obama or that lunatic Trump. Because we need less of it. And information technology has enabled us to move it to other places where it simply costs less.
All the trade deals or tariffs in the world won’t make you build iPhones in Ohio.
Though the Facebook/Kodak example is an extreme one, you can follow the broader data to a very strong conclusion. And it looks like this:
The American worker has never been more productive.
But there’s not been less of us working in my lifetime.
Because we’ve never mattered less to the modern economy.
Because without us, business is doing just fine…
I built that last graph two years ago when I did a data study on macro-economic indicators for one of the first articles on this blog. I’ve been staring at it for two years. I didn’t quite understand what it meant. I only knew that it didn’t look right. Productivity and profit growth are supposed to yield improved employment outcomes.
I found my answer eight months later when MIT Sloan School of Management faculty members Erik Brynjolfsson and Andrew McAfee published The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies. The Kodak case study is only one of a few dozen examples they use to make a point. “The Great Decoupling” as they refer to it, happened about fifteen years ago when, for the first time in two centuries, productivity and employment outcomes diverged.
There’s a reason why Mark Zuckerberg stood up in front the 2017 graduating class from Harvard and advocated for a universal basic income paid for by the companies automating the American worker into obsolescence. And it’s not because he’s a socialist.
It’s because he’s done the math.
I’m not ready to jump on the free lunch train yet. But I’m listening hard for a better alternative. Because those graphs only move to the right. Going left isn’t an option. No matter what your red hat says.
Categories: Data and Economics