Existential Questions on the Future of Work (Part 2: Institutions & Economics)
Do our systems now place greater importance on the interests of institutions than on the well-being and advancement of humanity? What might be the socio-economic impact of labor over-abundance due to advances in automation technology?
The thoughts that follow in these writings intend to stimulate discussion around questions we already face or will likely confront within our lifetimes:
Part 1: People & Civilization
Part 2: Institutions & Economics
Part 3: Technology & Automation
Part 4: Makers & Takers
Part 5: Values & Questions
Acknowledgements include (links provided throughout):
Andrew McAfee and Erik Brynjolfsson (sequence of books on topic),
Ryan Avent: The Wealth of Humans,
Heather McGowan (starting with Jobs Are Over) and
Kurt Vonnegut Jr., Player Piano.
Created to Serve Us
It is intuitive to assume things exist wholly to serve the betterment of individuals, communities and civilization. Previously we noted how people developed things such as tools, machines and systems and employed them to transform the world and establish modern civilization.
We live in an age unthinkable even a half-century ago. The sum of human knowledge is now widely available to all — at all times, nearly everywhere. The human population is connected together as never before through global social media. At this moment of unprecedented potential to move civilization forward together, paradoxically some of the very things we created threaten to subordinate people and the planet.
Institutional Creations: Firms & Financing
To better match producers and consumers, Markets arise within civilizations and improve the efficiency of the exchange of goods and services. Growth — of population, of farms, of cities, of exploration, of territories, etc. stimulates further technological and economic sophistication.
Competition within the Market lays a foundation for Capitalism. As machines and systems become more complex, expensive and crucial, there follows a formalization of concepts of property ownership, capital and investment.
Ownership formalization gives rise to Institutions such as guilds, kingdoms, nations, firms and corporations. These subsume responsibility, ownership, training and advancement of systems and knowledge — formalizing information, knowledge and process previously handed down through ad-hoc oral traditions and apprenticeship.
Persistent advances in technology-powered extraction of matter and energy reaches a scale to force trade-offs between market demands and environmental impact. Institutions arise both to exploit and to protect natural resources such as human and industrial needs for air and water.
Unless motivated by profit or compelled by regulations or public sentiment, institutions measured primarily on financial performance have no direct incentive to consider conservation or environmental impact in their actions.
But people set into motion the objectives of institutions and thus can shape the policies employed. Our socio-political debate on the environment may be a logical proxy for discussing the relationship between institutions and jobs. Sustainability of energy and natural resources may be a model for workforce sustainability.
Compatibility of Traditional Firms vs. Human Needs
Sensible aims for traditional (supplier-driven / product-centric) firms would be assiduous pursuit to improve:
- Efficiency (ratio of process output to input resources)
- Economy (return on investment)
- and Quality (avoid defects and failures)
Taken to a state of perfection through advanced technological automation, how might these impact employees of the firm? Will the asserted needs of industry and finance grow to exceed justifiable cost to the human race and the planet? If so, what can be done to alter that course?
Part 1: People suggests human beings most fundamentally seek Dignity, Pride and Purpose. Are these compatible with nearly-perfect Efficiency, Quality and Economy across the breadth of our industrial and financial institutions? What is the purpose of and relative priority of people vs. the things and ideas we have created? On what rationale will this remain acceptable?
In The Nature of the Firm (Economica, 1937), Nobel Laureate Ronald Coase considered advantageous reasons to form corporate firms, such as to:
- Provide continuity (of access to needed talent, tools, materials).
- Facilitate communication between people enacting processes.
- Develop intellectual resources (practices, culture, training, knowledge).
- Create products and knowledge whose complexity exceeds informal efforts.
- Sustain long-term bets on innovation beyond demand-response.
Wealth vs. Growth
Time Magazine’s article “American Capitalism’s Great Crisis” observes financial institutions have largely turned away from their original purpose of investing in human endeavors contributing materially to economic growth. Consider the dramatic shift in banks (once even explicitly “savings and loan” organizations) from providing capital funding for growing businesses to today’s financial institutions emphasis on abstracted investments such as securities and dynamic high-frequency trading.
[Today] most of the money in the system is being used for lending against existing assets such as housing, stocks and bonds. […] In lobbying for short-term share-boosting, finance is also largely responsible for the drastic cutback in research-and-development outlays in corporate America, investments that are seed corn for future prosperity. […] Many tech firms, for example, spend far more on share-price boosting than on R&D as a whole. The markets penalize them when they don’t. […] as a result, business dynamism, the root of economic growth, has suffered.
Non-growth investment such as securities and rents at minimum hold back capital from potential investment in enterprise and innovation. More intrusively, by way of adding costs, these practices can skim margin from growth while adding no value. For example, in Silicon Valley’s boom from 1997–2000, while wages grew 40% the cost of housing doubled. Property owners profited far more significantly from the investment in the innovations of the dot-com era as a whole than the innovators, while contributing nothing to the ideas or delivering their impact (Ryan Avent, The Wealth of Humans).
Impact of Agency Theory and Shareholder-centric Behavior
As growth stagnated over the past decade, pushing interest rates lower and lower, pressures on pension funds to meet projected obligations has diminished patience on returns from stocks and emboldened and empowered so-called “activist investors” presuming to act on behalf of these larger funds.
Do firms have a social obligation to provide a purpose for workers? to the dignity of communities? to the well-being of humanity and its planet? What non-financial incentives consistently/sustainably motivate global-scale institutions?
In The Error at the Heart of Corporate Leadership (Harvard Business Review, MAY/JUN 2017), Joseph Bower and Lynn Paine assess the consequences of Milton Friedman’s 1970 New York Times article which set in motion the ideology of Agency Theory over Stewardship, asserting the role and responsibility of the Board of Directors and Company Officers as obligated agents of the company’s owners — extended in publicly-traded firms to shareholders. As such, Friedman states “The only corporate social responsibility a company has is to maximize its profits.”
This position strains the traditional social contract (“submit to my authority and I will provide for you and protect your remaining rights”) between workers and empowered/employer institutions by implying:
- Institutional growth is sacrosanct compared with the goals of humanity, presuming the institution itself a necessary foundation of civilization.
- It is rational to only minimally meet the obligations to humanity, the environment, public institutions and pursuits as compelled by the government and/or by market forces such as public opinion.
- It is rational and justified to influence reduction of public controls for private global competitive necessities (lobby the government to reduce costs, risks, obligations and restrictions).
- It is rational and justified to spend one’s own wealth as one sees fit — including developing and employing the public workforce toward luxury goods, services and real estate for private interests (which may divert from applying such labor and resources to public needs and goals.)
Related: Work, Leisure and the Social Contract.
Paradoxically, employees’ own pension funds (hindered by historically low interest rates to meet performance/pay-out obligations), as aimed through Agency Theory and activist investors (asserting their actions represent uniform shareholder expectations) may impose demands on short-term returns from their employer that result in workers losing jobs in the process of cost-cutting to meet financial targets.
Flaws in Agency Theory include the stark differences between shareholders and company officers. Shareholders of corporations
- are (by definition) exempted of fiduciary liability
- have their anonymity protected
- do not technically have “the rights of owners”
- can concurrently hold shares of competitors and buy/sell at any time.
Whereas company officers and managers
- have fiduciary responsibility and accountability (including criminal liabilities)
- are scrutinized for conflicts of interest (including buying/selling stocks)
- have contractual obligations to customers and suppliers/partners (and possibly employees)
- and most importantly are expected to be profitable for future investors, not just present investors.
Companies emerged from markets to empower us to better cooperate to grand achievements spanning both a diversity of talents and the longevity of careers. They are a thing created to serve humanity in advancing our civilization. Yet we see examples where the interests of these institutions have evolved into self-importance primarily focused on the generation of wealth — and with more winner-take-all dynamics in the digital economy, the consolidation of influence and concentration of wealth (and risk). Such engines may set into motion profound disruptions to the human workforce as they can increasingly harness technological automation. I will revisit these themes in Part 3: Technology & Automation.
Emerging Challengers to Traditional Conduct of Business
Sir Richard Branson’s Capitalism 24902 vision suggests there may be factors not captured on balance sheets that can propel success in business. For example, clarifying a purpose of the work in a form meaningful and inspirational to employees can both motivate productivity and simplify tasks and expected behaviors. Consider the obsession of Branson’s Virgin companies on customer experience, stepping up to make positive impact and create a better world through Virgin Unite Entrepreneurs. Ultimately, it is difficult to argue strong focus on the (right) customer can drive competitiveness through insights, opportunities, trust and mutual respect. Additionally, the company may recruit higher talent at lower costs and enjoy higher retention compared with companies whose employees perceive the driving objective of their firm to merely deliver reliable quarterly returns to shareholders (a poor source of personal dignity, pride or purpose or guide to expected behavior).
Differing from the focus on Efficiency, Quality and Economy by traditional firms— one might consider the critical pursuits of more modern (creative / customer-centric) firms to be Disruption, Connectivity and Agility as strategies to thrive in a business landscape that has become much more volatile, uncertain and globally diverse.
As technologies erode the costs and complexities Coase argued the basis for establishing firms, what will be the impact on traditional employment of workers? In Machine, Platform, Crowd, Andrew McAfee and Erik Brynjolfsson describe relative cost advantages of companies (for transactions) vs. markets (for products). As digital technologies reduce transaction costs by facilitating connections and providing a basis for trust, markets gain cost advantages and companies can reduce in-house staff now as reliably sourced from the market. This is one stimulus toward the so-called “Gig Economy” of fluid income engagements. Are corporate organizations already experimenting with these structures by creating “mission-based teams”?
As employment becomes more part-time or temporary, are there viable alternatives to employer-reliant healthcare? Will our educational institutions prepare workers with the skills to thrive under such continual change? Are educational institutions and prepared for lifelong learning needed to keep pace with technology? How will perpetual learning connect with Dignity, Pride and Purpose? (Linked discussions from heathermcgowan and Chris Shipley).
As the traditional view of work is fundamentally altered by technology, can deeply-ingrained values such as “maker/taker” evolve to reassess the social order and distribution of the fruits of growth? When technology reduces the sum total of needed labor by traditional sources of income, we will face an opportunity to redefine the role of work in human culture.
Can we build [new] institutions for those who do not work [only] because their work is not necessary to generate (systemic) economic growth?
Ryan Avent, The Wealth of Humans