Big Tech is in retirement. Hardly a day goes by without news of further job losses on America’s West Coast. Friday was Google, which cut about 12,000 jobs. A few days earlier, Microsoft had announced that it would cut 10,000 jobs this year. Just before that, Amazon announced it would be laying off 18,000 people.
Meta, parent of Facebook, cut 11,000. Twitter, rather a special case following the takeover by Elon Musk, lost 3,700. The list goes on. Indeed, the only major company not to announce layoffs was the most valuable of them all, Apple. It has suspended hiring, however, and markets are awaiting a staffing announcement, possibly when it next releases its results on Feb. 2.
As investors around the world, including here in the UK, know to their cost, their share prices have fallen. They’ve stabilized a bit over the past two weeks, but are down massively from a year ago. Even Apple is down 18%, while Alphabet (parent company of Google) is down 28% and Meta is down 56%. You could say that late 2021 values were grossly inflated and at least investors weren’t, overall, wiped out.
Forward Thinking: We know advancements in technology will continue and the really interesting question is where the winning apps might be.
But the plain truth is that a lot of people lost money last year and now a lot of people – including in the UK and Ireland – are losing their jobs.
So what’s the next step? I think the best place to start is to recognize that Big Tech, taken as a whole, is going from a big bang to a steady state. Disruption from companies such as Uber and Airbnb has happened, and while these two companies (and their competitors) may still grow a little, they now need to find ways to make more profit like any normal business must. make.
Social media may have peaked and it may be declining. And there is always the possibility of another disruptive technology coming along and harming the business of what will become legacy players. For example, could artificial intelligence challenge the primacy of search engines? Great threat to Google if that were the case.
Markets understand all of this and reclassify companies accordingly. Is this downgrading over? Intuitively I think not. There will be a floor but I don’t think we’re there yet. But we know that advances in technology, especially AI, will continue and the really interesting question is where the winning applications might be.
My guess is that they won’t be looking so much to create new services, but to make existing services cheaper and better. It is impossible to see the detail, but we can glimpse the direction of travel.
Think of something we really need: lower cost personal pensions, perhaps. If anyone could figure out a way to make them without the jargon and the fees, they would be doing a social service in addition to a financial service. And if they can make online banking safer and more accessible, that might make up for a bit of all those closed branches.
Or look at medical diagnoses. There is huge progress being made, but also huge efficiencies to be achieved. Or in public sector services such as tax administration, surely AI could improve the quality and speed of response.
All of this matters from a UK perspective. We missed the last tech boom. America got the pool back. But now we are doing well in tech start-ups, and there will be opportunities for the City to support the next generation of businesses. It requires self-confidence as well as money. I hope we will have both.
The lasting legacy of Sir Alan Budd
A sad note. Sir Alan Budd, the economist who was known among other things as the founding chairman of the Office for Budget Responsibility (OBR), died just over a week ago. This was his last major public post, an extremely important one because he established his true independence as a watchdog of our public finances. We were reminded of this importance last September, when then-Chancellor Kwasi Kwarteng launched his ill-fated budget without OBR oversight.
While Alan Budd was hugely important in helping restore fiscal discipline after the excesses when Gordon Brown was Chancellor, he was also key in restoring monetary discipline after the inflationary catastrophe of the 1970s.
He then became professor of economics at the London Business School, before leaving in 1991 to be chief economic adviser to the Treasury. There he helped shape the current system of inflation targeting, with an independent Bank of England setting interest rates. He was a founding member of the Monetary Policy Committee.
Governments always need sound advice. And the fact that the British government now operates with reasonable financial discipline is largely due to his sage advice.
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