This data point explains (in part) the conundrum of the global economy

The global economy is the primary focus for many industry titans and global policy makers this week at the World Economic Forum in Davos, Switzerland.

The mood on the economy here is mixed, but somewhat dour. CEOs and company executives are still optimistic, and say they are planning to invest for growth. But, economists, investors, and people with a more macro view are pessimistic.

There are concerns about growth, and to a certain extent, income inequality, and job creation.

At Davos, I was talking about these issues with Gary Pinkus, the CEO of North American consulting practice for McKinsey.

In our conversation he brought up a great data point that illustrates the challenges of our current economic situation.

Basically, the big tech companies today are more valuable than the big auto companies of yesterday but they need fewer employees. Here’s the exact data which comes from a McKinsey paper:

In 1990, the top three automakers in Detroit had among them nominal revenues of $250 billion, a market capitalisation of $36 billion, and 1.2 million employees. The top three companies in Silicon Valley in 2014 had nominal revenues of $247 billion, a market capitalisation of over $1 trillion, and only 137,000 employees.

Also worth noting here: There were three automakers that all existed relatively peacefully together. In technology, there is one search company, there is one social network, there is likely to be one ride sharing company (Uber), and there is one company that makes all the profits in smartphones, Apple.

As these companies form into natural monopolies, they require fewer employees overall than, say, multiple companies in the same industry. (A thriving MySpace + a thriving Facebook would probably bring more jobs than just Facebook, for instance.)

This is the conundrum. What can be done about a disparity like this?

It doesn’t make sense for Apple, Google, or Facebook to just load up with employees for the sake of having employees. So, what do we do?

I have no idea! And, as far as I can tell, nobody at Davos has an answer either.

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