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Facebook Touts Its ‘Economic Impact’ but Economists Question Numbers

Facebook has more than a billion users and generated an estimated $12 billion in revenue last year. But the company says its economic impact is far greater.

A report commissioned by Facebook concludes that the social network was responsible for $227 billion in global economic impact, and 4.5 million jobs, in the year ended October 2014, roughly equal to the gross domestic product of Portugal. The report was prepared by the consulting firm Deloitte.

Independent economists said Deloitte and Facebook used questionable assumptions in the report, valuing each Facebook “Like,” and assigning Facebook credit for roughly one-sixth of smartphone sales.

“The results are meaningless,” Stanford economist Roger Noll said in an email. “Facebook is an effect, not a cause, of the growth of Internet access and use.”

Facebook Chief Operating Officer Sheryl Sandberg disagreed. “We know Facebook is one of the main drivers of why people buy phones, particularly in the developing world,” she said. “People will walk into phone stores and say ‘I want Facebook.’ People actually confuse Facebook and the internet in some places.”

Sandberg, who plans to discuss the results of the study on a panel at the World Economic Forum in Davos, Switzerland this week, said in an interview that Facebook wanted to show that technology companies aren’t just disrupting old industries and eliminating jobs – they’re also creating new jobs and wealth outside of the tech industry.

“Technology creates non-tech jobs as well, and its’ creating them in big numbers,” she said. Deloitte estimated the number of jobs based on Facebook’s economic impact.

Sandberg said Facebook commissioned the Deloitte study out of “genuine desire by us to understand the economic impact we’re having,” she said. “We take our responsibility to be good corporate citizens really seriously.” Sandberg said she hopes the study will help influence policies in favor of the tech industry.

In the study, Deloitte assigned an economic value to each Facebook “Like,” arguing that each like had an amplified impact on businesses with Facebook pages. Deloitte also assigned an economic impact to people who used Facebook to organize events such as parties and corporate gatherings. Deloitte looked at how many people RSVPd to events on Facebook and multiplied the estimated number of attendees by the average cost of a pub visit, then added an estimate of the ancillary economic benefits of the gatherings.

The study also estimated that Facebook is responsible for 16% of smartphone sales. Ana Aguilar, the Deloitte director who oversaw the study, cited a European survey in which 16% of respondents said they could not live without social media.

She said the study relied on statistics from Facebook as well as qualitative discussions with Facebook about its economic impact on the world. Some of the details of the study are confidential. For instance, Aguilar would not reveal the estimated value of a single “Like.”

Tyler Cowen, a professor of economics at George Mason University, said Facebook likely has a significant economic impact, but not as great as the report suggests. He said Facebook likely doesn’t create nearly as many jobs as the report suggests.

“The value of smartphones is that they help you read Facebook — in addition to other benefits — not vice versa,” Cowen said, calling the study’s calculations “bad reasoning.”