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Big Tech’s cutbacks are a correction rather than a catastrophe

The tech layoffs are coming thick and fast, but it’s not quite time for panic stations, writes Jason Walsh
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Image: Pixabay via Pexels

17 November 2022

After more than a decade of continual growth, the law of economic gravity seems to have kicked in for Big Tech. As 2022 slouches to its inevitable end, we are seeing round after round of what look very much like pre-emptive layoffs, with businesses trimming headcounts in order to buoy-up their balance sheets.

Naturally this has caused fear and alarm, not only in Silicon Valley but also at home in Ireland, where household names and start-ups alike have announced cutbacks.

The roll call is certainly a depressing one. So far, we have seen 80 to 90 jobs go at Stripe, Zendesk – which employs 600 people in Ireland – will cut 5% of its global workforce, Irish-founded Wayflyer is to let 70 staff go, Intercom 39, and Meta is to cut 350 Irish jobs. Salesforce is expected to cut 80. In addition, Twitter shed Irish workers as part of its chaotic restructuring under new boss Elon Musk, while reductions in headcount are also expected at Intel and Microsoft.

Needless to say, losing  a job is a tragedy for anyone who experiences it and the manner in which the layoffs have been conducted was in some cases brutal, and possibly even legally questionable. The wider question, though, is what does today’s frenzy tell us about tomorrow?

Personally, I am not worried that the recent spate of slashing is a re-run of the 2001 dotcom bust. I am, however, worried it could be an auger of something much worse: a re-run of the 2008 financial crisis, at least as it was experienced in Ireland. Sort of.

There are two key reasons why 2022 is not likely to be another dotbomb year. Firstly, unlike in 2001, information technology is deeply embedded in our lives, our jobs and even our governments. Even if the industry does have a tendency to overstate its transformative potential, the fact remains that IT is no longer an optional extra.

Secondly, the greatest casualties of the dotcom crash were unprofitable businesses, such as Pets.com, with enormously inflated valuations. With the exception of Twitter, which genuinely does seem to be struggling,the majority of the companies issuing walking papers today – even the much-maligned Meta – are profitable.

Meanwhile, other laughing stocks of the dotcom crash, such as Amazon, slogged on and proved themselves not only to have not been overvalued, but to have been massively undervalued. The lesson here is twofold: firstly, if you have a good enough product and can hold on then you will survive and, secondly, the stock market is not the economy.

Foreign intervention

What is worrying, however, is Ireland’s continued reliance on foreign-direct investment (FDI). IT is not the only significant source of FDI-funded jobs in the country – pharmaceutical manufacturing is also a significant employer – but, in total, around a quarter of a million people in Ireland work for foreign-based multinationals.

The reason this is worrying is because if the global economy is going to tip into a serious recession, more cuts will come.

As to whether or not a true crisis is coming, the picture is unclear. Looking to the US, inflation does remain stubbornly high but there is certainly no shortage of jobs. In Europe, high energy costs and the war in Ukraine certainly point to tough times ahead, however.

Tech, specifically, is suffering because in the era of 0% interest rates investment cash flooded out of bonds and boring industries and into all manner of speculative instruments in the hope of generating a return. In addition, the pandemic, specifically lockdown, was nothing short of a boon for the entire sector.

Naturally, in today’s changed economic environment, access to venture capital in particular is tightening, while publicly-traded companies operating on a combination of hitherto cheap debt and promises of jam tomorrow are proving rather less enticing to investors.

No-one expects Ireland to generate ex nihilo a series of world-beating multinationals, but perhaps it is time the country took a leaf from the central European book. Though they are under pressure right now because of rising input costs, principally energy, the economies of Austria, Switzerland and Germany stand on the broad shoulders of what is called  ‘Mittelstand’. The term translates, more or less, as medium-sized business, though the definition of ‘medium’ in use would be quite large by Irish standards.

When politicians say that Ireland is a ‘small, open economy’, what they mean, at least in part, is that it is subject to the caprice of forces far beyond national control. The dangers of this are obvious, and while they are not not an argument for autarky or a return to import substitution, it might be a good idea to see what we can push out into the world alongside what we can rake in.

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