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.