Is the Facebook initial public offering -- one of the largest IPOs in history -- a symbol of American prosperity? In some sense, yes. A technological innovation that began as an extracurricular obsession of a brilliant college student has now become a global "social utility" with 900 million users. In important ways, Facebook has transformed how people interact with each other and demonstrated yet again the dominance of American ingenuity.
And yet, Facebook's success also dramatically illustrates deeply troubling problems with the U.S. economy that threaten core American values. Six troubling features of the Facebook IPO stand out:
Facebook's IPO will contribute to the extreme concentration of wealth. As a result of the IPO, CEO Mark Zuckerberg will have a net worth greater than the combined bottom fifth of all U.S. households. Facebook's founders and investors have scored historic gains in recent years even as most U.S. households have been flat and their wealth assets have declined.
Disconnect Between Corporate Success and Job Creation
Facebook has a far smaller number of employees than any company of comparable value. Facebook's high valuation and relatively tiny labor force shows that building successful companies no longer necessarily means creating many jobs that grow the middle class.
Beyond its founders, early employers, and family members, the biggest winners from Facebook's IPO will be well-connected insider investors who parlayed their wealth and contacts into a piece of Facebook equity -- a common story in today's unequal economy. Ordinary investors have been largely excluded from this opportunity.
While Facebook's founders and key employees have displayed tremendous creativity and vision, many of those getting fabulously rich have not demonstrated outstanding skills and simply happened to be in the right place at the right time. The IPO showcases a "lottery economy," where there is a growing disconnect between wealth and merit, with individuals reaping outsized gains from pure luck.
While Mark Zuckerberg's large tax bill has drawn much attention, Facebook will get a huge tax deduction thanks to the stock-option loophole. In addition, some of the company's largest shareholders have moved to shelter some of their gains from estate and gift taxes. Most egregiously, Facebook co-founder Eduardo Saverin renounced his U.S. citizenship earlier this year, a move that will save him hundreds of millions in taxes.
The new wealth created by the IPO will empower Facebook stockholders to exercise significant sway over American politics, policy, and culture through campaign donations and philanthropy -- further tilting influence over U.S. life to wealthy elites and exacerbating civic inequality.
So, no, not all of us are celebrating Facebook's IPO. This is just the latest episode that shows how even the most spectacular business breakthroughs do not always translate into gains for ordinary Americans -- and, in fact, can reduce the relative influence of such Americans over the direction of U.S. society and generate strong doubts, if not outright cynicism, about whether the social contract works any longer in America.