Social media giant Twitter has descended into chaos following Elon Musk’s recent $44 billion purchase of the microblogging platform.
Advertisers are rapidly pulling back, depriving the business of vital revenue, after the introduction of a new $8 per month ‘Twitter Blue’ service allowed impersonators to cause pandemonium by setting up a slew of parody accounts.
Arms manufacturer Lockheed Martin, Big Pharma firm Eli Lilly, and fossil fuel monopoly BP were amongst the corporations skewered by satirical imitators. Other targets included establishment politicians and celebrities.
The verified brand situation is getting out of control. Quick thread of twitter blue brands, and brands who might be pissed off at Elon right about now. pic.twitter.com/bZ9PSqZKtf
— Read Jackson Rising by @CooperationJXN (@JoshuaPHilll) November 11, 2022
But the real victims of Musk’s Twitter shakeup are its employees, with the billionaire boss slashing 50% of the company’s 7,500-strong workforce.
Mass layoffs of this scale are by no means limited to Twitter, however. Meta, the parent company behind Facebook, WhatsApp, and Instagram, recently laid off a whopping 11,000 staff – about 13% of its workforce. And this week, Amazon announced plans to cut 10,000 employees.
There have also been mass sackings at Eventbrite, who chopped 45% of their staff; Groupon, with 44% job cuts; Crypto.com, 30%; AirBnb, 25%; Intel, 20%; Snapchat, 20%; Coinbase, 18%; Uber, 14%; Lyft, 13%; and many more
At time of writing, so far this year, there have been over 120,000 layoffs in the tech sector, across over 780 firms.
It is clear that a severe crisis is brewing in this key industry for the world economy – a reflection of the deepening crisis of capitalism.
House of cards
The tech sector is one that has seen incredibly rapid growth over the past decade, reaching a total market rate of $9.3 trillion in 2022, with a growth rate of 11.6%.
The industry also saw a significant boom during the pandemic, as lockdowns drove up demand for tech products and online services.
Accompanying this growth spurt has been a rise of so-called ‘unicorns’: privately-held startup companies, funded by investors, that achieve a valuation of over $1 billion.
From fewer than ten in 2010, there are now 1,201 unicorns, with a total valuation of approximately $3.9 trillion.
But such heady valuations rarely reflect reality. Instead, these startups’ frothy share prices are yet another speculative bubble: potentially an extremely profitable venture for those who get in early; but a disaster waiting to happen for those who are late to the party.
With a lack of profitable avenues in the real economy, investors are willing to take a risk on these speculative bets, in the hopes of backing a winning horse.
A deluge of cheap credit and newly-printed money, meanwhile, has only further inflated the bubble, encouraging yet more gambling.
As a result, investors’ money has flowed towards ‘radical big thinkers’ with large ambitions (and even larger egos). This includes those with fundamentally flawed business models and no clear path to profitability, such as WeWork.
This explains the phenomena of unprofitable companies managing to sustain an existence year on year. Investment pushes up valuations, which attracts further investment and cheap loans.
Yet many of these unicorns have never turned a profit. Even established tech firms like Twitter only manage to turn a profit sporadically.
This is clearly a house of cards, ready to tumble at any moment. And now we are seeing the first signs of collapse, as a new world slump looms, shaking the flimsy foundations of the tech sector.
Collapse and cutbacks
In the long run, these unsustainable companies can go in one of two directions.
They can try to become profitable, weaning themselves off the drip-feed of speculative investment and advertising income.
But this requires massively scaling back. In concrete terms, this means cutting staff, whilst finding ways to squeeze more money out of both workers and users.
Alternatively, the bubble can burst and the firm can collapse. The company either goes under entirely, or is bought up by one of the tech monopolies, again leading to severe cutbacks.
Tech workers deserve better. https://t.co/X7ZwGsy3Ir
— AFL-CIO ?? | #AFLCIOVotes (@AFLCIO) November 9, 2022
This is a lesson Elon Musk is learning the hard way, with the Big Tech baron now presiding over a blazing inferno at Twitter.
And this precarious position is not helped by the rising borrowing costs Musk has to pay back on the $13 billion worth of loans he took out to fund his recent purchase, adding to the financial pressures facing the company.
This is why Musk has laid off half of Twitter’s workforce, and why he is experimenting with alternative sources of income, such as the subscription-based ‘blue tick’ verification system – with disastrous consequences all round.
Acting as a prominent vehicle for speculation, tech startups – and the whole tech industry – are particularly vulnerable to downturns in the world economy.
Now, in the face of a looming recession, anxiety is forcing investors to tighten their purse strings, while soaring interest rates have made cheap credit a thing of the past.
Many ‘unicorn’ companies might be better described as ‘zombie unicorns’: firms that are only kept alive thanks to low borrowing costs and an accumulation of debt.
But as this life-support is removed, these frail businesses are increasingly being forced to stand on their own two (four?) legs. Many do not have the strength to do so.
As is the case for many other areas of the economy, therefore, the latest slump is exposing the instability and fragility that has been building in the tech sector for a very long time; revealing the fact for all to see that self-proclaimed emperors such as Musk have no clothes.
Boom and bust
The tech industry might be a symbol of modernity. However, this is ultimately another classic case of a crisis of overproduction, as described by Karl Marx over 150 years ago.
In their search for ever-greater profits, the capitalists are driven to continuously reinvest their surplus, expand production, and search for new markets.
But operating anarchically, under the ‘invisible hand’, the bosses pile into one industry after another, leading markets to become saturated and glutted. Profitable avenues for investment begin to dry up. Commodities go unsold. Crisis sets in. Boom turns to bust.
Alongside this, casino capitalism proliferates. Instead of investing in real production, the bankers and billionaires pour their money into risky, short-term ventures, leading to speculative bubbles everywhere. Today, this means cryptocurrencies, NFTs, and tech unicorns.
This is exactly what we saw in 2007-08 in the real estate sector, with the subprime mortgage scandal and all-manner of dodgy derivatives. And is exactly what we are seeing now in the tech industry, which accounts for a significant portion of the ‘value’ of many major stock markets.
Once the crisis begins, contagion quickly spreads from these key sectors to the rest of the economy. And it is the working class – through layoffs, austerity, and other attacks – who foot the bill.
This cycle of boom and slump is inherent to capitalism. Only by planning the economy rationally and democratically – along socialist lines, under workers’ control – can we put an end to these periodic crises.
Under private ownership, the Big Tech firms, like all monopolies, are only interested in maximising their profits, not addressing society’s needs.
The advertiser-driven business models of most social media companies encourage toxic interfaces and algorithms, for example, designed to maximise user retention and create addictive behaviours.
All the while, tech bosses harvest people’s data to sell on for profit – or, in the case of Elon Musk, to advertise his other businesses to Twitter’s users.
This is the real reason behind the Tesla CEO’s Twitter takeover. It has nothing to do with the protection of ‘freedom of speech’, and everything to do with the pursuit of money and vanity projects.
Instead of being used as profitable playthings for narcissistic billionaires, social media platforms should be run as public utilities: providing means of communication and interaction for ordinary people, free from the influence and interests of big business.
This can only be achieved by bringing these tech monopolies into public ownership, under democratic workers’ control, as part of a socialist plan of production. Only then can we put an end to the speculation, scandals, and instability that plagues the tech industry.
Tech workers are showing the way forward, getting organised in unions like the United Tech and Allied Workers.
In combination with the rest of the labour movement, mobilised around a clear socialist programme, we can put bosses like Musk and their system where they belong: in the dustbin of history.