Sunday, February 6, 2011

Netflix: An Engine of Economic Inequality?

Progressive are correct that we should be troubled by growing economic inequality and unemployment, but they mistakenly present government policies as the primary culprits. Their narratives usually attribute the GW Bush Tax Cuts and "anti-union policies," whereas I believe that globalization and technological innovation play a much larger role in the increasingly skewed distribution of wealth.

One sector of the economy that offers insight into this phenomena is the video rentals industry. Growing up, I recall there were quite a few smaller, independently owned video stores. So, we can presume that the distribution of the AIE (aggregate industry earnings) was fairly equitable. In the late 1980's, Blockbuster Videos rapidly expanded, becoming a multi-billion dollar national chain. Because of its scale of production, it was able to offer lower prices, a larger selection and more extensive marketing than its competitors, which drove most of them out of business. In addition, they expanded into music and video game rentals. This resulted in a less equitable AIE, with a greater share of "video rental wealth" being concentrated in the hands of Blockbuster.

Out of nowhere, Netflix blazed onto the scene and in a remarkably short time tore into Blockbuster's market share. I am quite certain that this was a major factor in Blockbuster's recent declaration of bankruptcy. And with each store closure, the AIE are concentrated in fewer hands and employment opportunities are at least nominally diminished for low skill workers. Conversely the growth of Netflix generated employment opportunities mostly for highly skilled, highly paid workers, such as network architects, web designers and data analysts. We see that an industry that once required (let's say) 100,000 workers is now able to provide consumers better service, greater selection and lower costs with 1/5 the workers.

Although most Americans are not pleased with shifts in the income distribution, I don't know a single person who is willing to leave Netflix and support Blockbuster via their own consumer or tax dollars. In the end, the best we can do is provide greater educational opportunities for those who wish to develop the skills necessary to fill or (better yet) create high tech, high paying jobs. For companies and individuals unwilling or unable to evolve, there is little we can do.

1 comment:

  1. I was an employee of Blockbuster for almost 5 years and I can say it wasn't netflix that put them out of business, but their inability to change with the times. Their greed alone and unwillingness to listen to their field staff ultimately contributed to their demise. With the down turn of the economy, and the every day person having to stretch their dollar blockbuster chose to raise it's rates instead of lowering them. For years I said why can't they just to 2 dollars for 2 days, and still they were charging 5 dollars for 3 days. For a long time the reason it survived is because it costs a family of four (at least here in arizona) 45 dollars to catch a movie on a friday night. That's not even counting the goodies to go with the movie. It's easier to get a couple movies and stay in with some popcorn and still fill your tank for work the next day. But then you introduce redbox. Not everyone wants a monthly fee like netflix and why pay 5 dollars for a movie when they can go to an impersonal machine and get it for 1. People don't care that it's a dollar a day... They will keep it for 5 days, it's looking at it as one dollar... For the price of a double cheeseburger from McDonalds I can entertain my family for the whole night. If it was 1.99 at blockbuster for 2 days....the money would've been rolling in a long time ago and the turn around for the product to be rented out again would have been much more successful. But what would I know. I was a great employee, and like many of us seasoned staff with excellent ideas I was laid off. Not for my flawless performance, or excellent customer service skills, but because I made to much money because the idiots running the company couldn't understand times are hard. Pay full price for a movie geniuses. If I can rent it 15 times at 2 times each that's 30 right.. simple math