The Guardian’s Nonsense About The Twitter IPO Cash
IT would appear that The Guardian is simply entirely ignorant of how this creative destruction stuff of capitalism works. Commenting on the Twitter IPO that made loads of millionaires they wonder why we the customers didn’t get any cash:
Finally, look at Twitter’s business. Or rather, look at its own assessment of its business, as stated in its S-1 stockmarket filing. Early on comes the delicious admission: “Our success depends on our ability to provide users of our products and services with valuable content, which in turn depends on the content contributed by our users.” Read that again: Twitter is in the business of selling us to us – our news and views and idle banter. Without those, without us, it is nothing. As with Facebook and Tumblr and all the other social media, we’re also part of Twitter’s workforce. But I bet you haven’t seen any stock options, either.
Oh dear. OK, this is a bit geeky but it’s one of the great economics papers of recent times:
The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. We first show the underlying equations for Schumpeterian profits. We then estimate the value of these profits for the non-farm business economy. We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.
OK, to unpack what it’s saying there. Schumpeterian profits are the profits that go to the entrepreneur. That’s the inventor, the innovator, the bloke who has the basic idea and gets the whole thing running. And what they tried to measure was, well, how much of the wealth of these new ideas goes to those people? Obviously, some of it comes to us, the consumers. The inventor of the electric washing machine might have made some cash, sure, but we’ve all also benefited from not having to stand over boiling tubs and stirring our kacks. So, of this total value, how much do the inventors end up with?
According to that paper, about 3%. The other 97% goes to us, the consumers. Of course, that’s an average, it may or may not be true exactly about Twitter. But the reason we don’t get cash as a result of the IPO is because we’ve already got something of value from Twitter: the ability to send a tweet.
It would be helpful if The Guardian, that vehement opponent of capitalism, would bother to try and understand the system it is opposed to really.