The Economic Impact of Cloud Computing

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As the presidential campaign gets into full swing in advance of the November election, there’s obviously a lot of focus on the employment outlook. While the accuracy of the numbers that the Department of Labor posts are dubious at best, there’s no doubt that the employment picture could be better. A lot of factors go into determining what the employment picture actually winds up being. But one factor that a lot of folks don’t seem to be appreciating is the role IT and cloud computing are about to play in reshaping in the economy.

While most of the employment chatter these days about cloud computing centers around the impact this shift will have on people working inside IT, the reality is that the impact on people working outside of IT is going to be exponentially greater. Once a company starts moving IT into a third-party data center, it’s only a matter of time before entire business processes start heading in that same direction. Once business process outsourcing starts to occur in volume, it becomes apparent pretty quickly that one smaller group of people in the cloud can automate a process or task that used to be performed by 10 times as many people working in 10 different companies. As that trend continues, it’s not like those jobs moved somewhere and will come back one day; they just simply disappeared into the cloud.

During a recent panel discussion held during the Technology and Business Solutions Conference hosted by the IT services provider CSC, Simon Wardley, a research in the company's Leading Edge research unit, made it clear that accelerated rates of business process outsourcing via the cloud are an inevitable economic disruption. What’s not clear is to what degree cloud computing might create new jobs or where those jobs might be located. A good example of the economic disparity that is being played out is the over 130,000 jobs that were lost in mass layoffs in May. Obviously, other jobs were created elsewhere, but the recent job figures would suggest that the number of jobs being created is marginally ahead of the number being lost. As cloud computing continues to evolve, those numbers could start to look a whole lot worse than they do today.

There’s no stopping progress. Most of the tasks that unemployed people were performing were not eliminated; they are for the most part being done by somebody else who is probably living somewhere where the cost of living is less. We’re all pretty used to that scenario in the context of manufacturing jobs, but that same phenomenon is now playing out across any number of information-centric jobs on a global basis. That obviously creates a huge potential for job displacement.

Of course, in theory, new types of jobs driven by innovation will make up for that displacement. The trouble is that the nature of the jobs being created in the cloud tends to look like the 13 people working at Instagram before Facebook acquired it. It takes several thousand Instagrams just to make up for all the lost jobs at one Fortune 1000 company alone. At the behest of Microsoft, IDC recently forecast that cloud computing would create 14 million new jobs by 2015. But there’s no data on whether those are net new jobs or just the 14 million people who will be lucky enough to replace three times that number of people who lost a job.

Arguably, over time, more people are going to wind up working for themselves rather than corporations, especially if health care becomes more affordable. That may or may not spur a lot of business innovation. But jobs will be rationalized at a much faster rate than any of those anticipated innovations thanks to more efficient services delivered via the cloud. That’s a significant problem because if the number of people without disposable income continues to increase, it won't be long before the cascading impact starts to spiral out of control around the globe.

We’re rapidly approaching a point where all the rhetoric is becoming seriously counterproductive. The truth is that no Washington, Brussels or Beijing is offering the kind of leadership required to address these issues. That doesn’t necessarily mean the economic sky will fall tomorrow, but regardless of what anybody stumping for votes thinks you might want to hear, it’s hard to see how things are going to get dramatically better anytime soon. And it’s even easier to see how regardless of who gets elected, preparing for things to get worse before they get better might be a really good idea.