Market realities and networked dreams

Independent work between the cracks of the old economy (part 2/3)


If you haven’t read the intro to this serialized essay, you might want to start with part zero, Bye Bye, Busytown, and then read part one, The Leading Edge.

There were no reality television consultants, 3d printer operators, or electric vehicle repair-people in Busytown. The visible outputs of American work have changed substantially since Richard Scarry’s time (and continue to do so), but even more fundamental changes have occurred to how we work and the ways that we work together. In the last essay I focused on the bottom-up, personal experience of a near-future economy. In this essay I look from the top-down, examining shifts at the macro level and the new context these shifts are creating for work.

Networks & projects

Human organizations — our tribes, institutions, and markets — are the glue of society. We bind ourselves together because doing so allows us to act at scale, and that is arguably the most effective tool we have for meeting the needs of our society. Scale helps us conquer greater challenges by offering new capabilities, such as the division of labor, communal intelligence, and the spreading of risk. Each are, by definition, beyond the reach of any one individual.

The prevalence of companies makes their existence seem almost like a fact of nature, but the work of Nobel Prize winning economist Richard Coase gives us a lens to see why these ‘firms’ have enjoyed this status up until now. Firms have been a useful way of organizing human effort because they allow us to achieve more together than we could as individuals. This is because working with peers inside a firm is generally easier (and therefore cheaper) than working with outsiders.

A restaurant provides a good example. The servers, bus-people, and kitchen staff do not have to negotiate their fees every time they come to work, nor do they have to establish contracts to work with each other. Each individual subscribes to the covenants and processes of the restaurant, defined in an employment contract and overseen by a manager, and suddenly the costs of working with other members of the same restaurant are radically lowered. This allows the restaurant to pay salaries, keep the lights on, and generate value. The same goes for engineering firms who build rockets, architecture studios who design hospitals, and any company that is sustainable.

Today, the organizational means we’ve used in the past are not generating the same returns that we’ve come to expect. Corporate profits are high, but so is employee disengagement, and income disparity is wider than it has been in almost a century. Consumers and employees alike are increasingly suspect of large companies. Government is also suffering. Trust in government is at an all-time low and federal employee satisfaction is far below that of the private sector.

As the financial and human costs of working within organizations have risen, alternatives to traditional full-time employment in a firm have become more attractive, as I discussed in a previous essay. Meanwhile, for some kinds of work, technology is making it cheaper to collaborate across organizational boundaries. Better software has made it easier to cope with the practical, managerial, and operational complexity of bringing an outsider into a firm to collaborate on a temporary basis. Working together today is not quite as simple as sharing a Dropbox folder, but the availability and ease of such tools does go a long way.

Exciting things are happening near or below the Coasean floor — the theoretical point at which it’s more efficient for the crowd to take action than a firm — but we’re still learning to produce reliable results through distributed action. With the Arab Spring we’ve seen that decentralized media like Twitter are more effective tools for taking down a government than they are for building a new one. Or in Boeing’s ongoing difficulties with the launch of their 787 airplane (PDF), which is the product of an extensive network involving multiple tiers of suppliers, that managing complexity at scale (and especially in physical matter) remains one of the more difficult human undertakings, despite dramatic advances in technology.

The extreme organizational difficulties of translating a crowd’s input into something useful and coherent is being tackled too, by groups including OpenIDEO and numerous other platforms, but it’s still easier to invite the masses to collaborate on work that can be computationally forked, diff’d, and merged—like code. More subjective tasks, such as designing a building or diagnosing a disease, still require hefty manual coordination to assemble disparate threads of effort.

From an organizational perspective, the cheap and nearly ubiquitous hardware and software allowing firms to begin behaving more like networks is a double-edged sword. The same powerful, portable, connected technology also makes it’s easier for would-be employees to choose to go independent instead, and remain competitive. The sheer cost of buying equipment and software used to be a barrier to entry for small business and independent workers in some sectors, but that is less often the case today. For all but the most specialized tasks, the entry-level Macbook is as sufficient as Apple’s top of the line products and on-demand services are available for everything from accounting to manufacturing. It’s early days for many of these services, but we can see the trajectory.

Though organizations no longer enjoy advantages of access, their scale does afford benefits in quality of service. An independent may be able to buy a fast computer for crunching data, but they are less likely to have reserves to pay for maintenance or replacements. For mobile independents, the impact of small snags such as a café whose WIFI is down for the afternoon or a stolen laptop are amplified by the fact that ample processing power and connectivity are basic assumptions in today’s economy. When those basics are out of their reach or malfunctioning temporarily, their work takes a disproportionately large hit.

“An extension cord is the most important thing for me because you don’t know where you’re going to be and where the outlets are.” AY, New York City

Technology provides the infrastructure to make flexible collaborations possible, but it does not act alone. There’s also an important managerial aspect, which is a shift towards project-based work. Many independents and forward-thinking organizations conceptualize their work as ‘contained’ in individual projects that combine to form an overall portfolio of what they’re up to. Whether it be an app, a publication, a deal, or product launch, projects have clear beginning and ending points and are staffed by a collaborative team who each have distinct roles but collective accountability. Project teams expect to disband at completion and perhaps recombine next time in a slightly different configuration.

Project-based work is common in design and technology firms, and is growing in popularity inside other kinds of organizations as well. Importantly, a project can serve as the basis for independents to attach themselves to organizational ‘hosts’, forming a kind of interface that allows the independent to be fully invested in the task at hand without having to engage in the broader extent of the organization’s plans or internal politics.

When collaborating with someone from another organization is as easy as working with someone inside your organization, the firm as a container for human effort enjoys no pride of place. It also means that the relative safety of being a peer inside the firm diminishes: outsourcing is easier. This implies that the characteristics and skills that it takes to thrive on one’s own will be of greater importance in the future, regardless of whether one works independently or not.

At the same time, being adept at forming partnerships and developing collaborative projects quickly is now a primary skill, especially for independents who can use strong networks to provide some version of the support and risk-mitigation role that an employer does for their staff. Companies struggling to compete as regional clusters have known this for some time, and their experiences are likely to be a useful analogue as independents develop new forms of collaboration.

Work ≠ job

American manufacturing was gutted when those jobs moved overseas. In the same way that shifting global markets can diminish the need for a particular kind of talent, shifting cultural ideals can reduce the demand for a particular type of job. When available jobs do not match available talent, a problem of ‘fit’ arises. For individuals who are able to find alternative ways to make ends meet, the difficulty of finding a job with the right fit may outweigh the security offered by traditional employment, which is why many of the people we met in The Leading Edge are currently independent.

Mainstream culture in the US understands employment to be a pact of mutual loyalty between employer and employee. Give us the exclusive use of your talent and a monopoly on your work hours, the arrangement goes, and we will give you regular compensation and a reasonable degree of job security. Independents eschew this binary, instead seeing their time as a currency that they use to bargain with, allowing them to retain the right to control their schedule and their work, and adjust their portfolio of activities as needed. This yields diverse benefits such as the ability to integrate work with the care for a loved one, semi-retirement, development of new skills, freedom from the internal politics of the host organization, the ability to work when or where one feels they are most productive, and so forth.

“I run a small business. I — slash — we. It’s mostly me.” JM, Charlotte

That today’s independents trade security for the right to have more agency in shaping their daily lives is not an intrinsic aspect of the independent mindset. Rather, it’s a trade-off they’re choosing among the limited options available within the structure of the American economy. Although the Affordable Care Act has helped open up new possibilities for how individuals cobble together a personal safety net, deeper sources of security to protect against the vicissitudes of childcare and retirement, to name just two critical areas, are still largely tied to the expectation that an individual has or seeks a full-time employment under a single employer.

As lifestyle choices become more valuable to individuals, firms must compete for talent by offering more flexibility and/or more significant compensation to individuals who can choose between employers, or decide to work independently. When salary is not a strong enough motivator, perks and other fringe costs become a way to attract and retain employees. This is currently most prevalent in Silicon Valley technology companies who are engaged in an arms race to offer their workers extravagant perks, ranging from free gourmet lunch to elaborate, thematic office environments (more on the effects of that here). The added cost of this competition for talent means that firms must be capable of generating more value to be viable.

If a firm is not capable of responding to the needs of their workers as whole-people, employees will look to alternatives, including independent work. In sectors where slim margins make it unrealistic for employers to offer perks or higher compensation, it will be harder to retain employees without taking work/life balance seriously and acting to create high quality work experiences for employees.

Searching for new ways to harness talent in America is to look for new means while seeking the same goals we always have — life, liberty, and the pursuit of happiness. Over the long run, American firms will change how they attract, retain, and develop talent or they will suffer the consequences of a disengaged workforce. Some will not survive at all, as their workers depart to compete in the same or similar line of business without the overhead of an organization.

In the future jobs might go away, but there will always be a lot of work to be done, simply because of the scale of our society. With 330 million mouths to feed, bodies to shelter, and minds to occupy, we should take the challenges of acting at scale very seriously. The daily reality of our numerous independent workers shows that it’s possible to do work without jobs, but what remains to be seen is how a massively independent economy retains the ability to tackle challenges that are larger than any one person. The benefits of the network are promising, but not yet up to the challenge.

Equity

The context of this new work may be emphatically post-industrial, but current levels of income inequality and wealth distribution in American society recall the early industrial era, with indications that the problem is not going away any time soon. Equity is a rising topic in the debate across America and it’s critically important to our long-term interests, but we do not need to wait for national consensus before taking action. Individuals and small groups interested in innovation in this space must acknowledge such factors while seeking solutions that mitigate, avoid, or minimize them, even if they cannot eliminate them. Experiments such as establishing a cap on the pay ratio inside companies are hopefully just the beginning of a larger refactoring of the corporate landscape.

At this time, the financial benefits of the shifts described above have been concentrated within firms who have lowered overhead and reduced fixed costs by consolidating around their core value proposition and contracting out for other services. The resulting profit comes from shifting risk off of their balance sheets and onto those of collaborators, who include many independents. Conversely, the non-financial benefits such as control over one’s daily schedule and freedom from the drudgery of employment have been substantially claimed by independents. Part of harnessing talent will be to encourage the risk and reward of these new arrangements to be more evenly distributed in both directions. In the long run that means saner working conditions inside companies and more secure conditions for independents.

Institutional obligations

Outsourcing agencies and micro-work platforms are an intermediate alternative to traditional employment, offering individuals a flexible work arrangement and giving firms the means to temporarily augment their capabilities without bearing the full cost of bringing on a new employee. At the moment, employers tend to get more out of this arrangement than the workers. Particularly for low-wage work, the flexibility demanded by such engagements is at the expense of the individuals and generally not factored into compensation. We live in an awkward time, where drones are too expensive to be in everyday use yet humans are being asked to have the same efficiency and cost-basis.

Though they provide imminent flexibility, average actual wages on micro-work platforms such as Task Rabbit and eLance are not encouraging. Work that can be done purely via the computer sees intense competition from overseas, at very low rates and without any of the hassles of a work visa. And tasks that require feet on the ground ask the worker to shoulder the risks involved. Specialized platforms such as Hourly Nerd, which promises to match small businesses with qualified MBAs for consulting, present a better prospect for independent workers, but are only accessible to highly qualified workers with degrees from a small handful of elite schools.

To succeed on current micro-work platforms users are encouraged to build a reputation through acts such as allowing the platform to analyze their social network on Facebook, completing transactions that yield good ratings, and creating a descriptive profile. In the name of helping individual workers gain more business, these platforms ask users to invest their own time and effort into amassing a reputation, including doing numerous small jobs at first. Because these rankings are proprietary and have no value beyond their role on the platform, this time acts as a form of ‘hostage capital’ that discourages movement to other platforms.

Here I’ve borrowed the term hostage capital from Douglas W. Allen’s excellent book Institutional Revolution, wherein he explains the economic function of Downton-esque estates in the British countryside of the 18th century. It sounds obscure, but a quick diversion here is useful. Three centuries ago, a merchant aspiring to make the leap into the aristocracy and enjoy the patronage of the Crown was expected to sell their business, because commerce was deemed ‘beneath’ the aristocracy. The aspiring aristocrat would then invest in a remote estate instead.

After doing so, these nouveau aristocrats would then be compelled to play along with the rules of the Crown or risk being banished from the ranks of the very people who would be in a position to buy their estate, leaving them socially ostracized and bankrupt. In other words, stay in the good graces of your peers and your investment is useful, but take a wrong step and the value of your investment drops precipitously. If you believe in second chances, this model sounds pretty scary because your fate after a faux pas is determined by a single actor who takes no appeals and is not accountable to anyone.

The difference between reputation at large and the reputation that one builds on a site like Task Rabbit is that your at-large reputation is purely emergent. So-called ‘sharing economy’ reputations, on the other hand, are closer to the Crown’s control over its subjects, with the company that runs the platform having sovereignty over your reputation and the rules by which it’s created. Should Task Rabbit (or its investors) decide tomorrow that a category of tasks is no longer allowed on the site, anyone who has invested in creating a reputation for such acts would have their hostage capital vaporized unilaterally. The time invested in building a reputation would be gone without a trace because it’s not portable—people are not exactly listing their ‘Rabbit’ ranking on CVs!

That’s not to say that reputation is a bad thing to use as part of an assessment of a potential collaborator or client. All of the individuals I interviewed for my research, regardless of how many years of experience they had, reported getting the majority of their work from personal networks based on their reputation. This was particularly strong for people whose work is difficult to communicate in a design portfolio or in a code repository. If the standard work products of one’s industry happens to be more difficult to assess, reputation grows in importance. Portability is still a problem here, as reputation flows via social connections. There’s good work to be done in developing ways for broader kinds of work to be assessed and communicated in a manner that has the portability of a personal portfolio or public open source code repository, both of which scale beyond an individual’s personal network.

If under control of a single corporation, a reputation system may be a smart business decision, but it is a faulty building-block for a new economy. The only thing worse are lots of companies, each with their own private reputation system requiring the individual to invest their time as yet more hostage capital. Companies can have “these magical things called reputation systems,” as AirBnb CEO Brian Chesky has said, but the juggernauts of the ‘sharing economy’ also have a magical thing called private investment—lots of it—and the private parties making those investments can be fickle and idiosyncratic. Neither are laudable qualities of an institution. If the 21st century is to be a positive evolution of the past, and not a repeat of the 18th century’s misgivings, we will need to develop new institutional forms that are agile and equitable, large-scale and responsive.

Beyond income

In the previous essay we looked from the bottom up at the lived experience of independent workers around the country. We found that they are making choices that allow them to have a higher degree of agency and stay focused on what’s important to them.

In this essay we’ve looked from the top down at the way cheaper and more pervasive technology, together with the rise of project-based organizational modes and evolving cultural mores, have combined to make networked action more viable today.

This self-reinforcing evolution of work is not going unnoticed. Lots of companies are sprouting up to offer markets for micro-labor and other new income-generating activity, but the outcomes look rather hand to mouth—one hand, of course, because the other is constantly checking for new jobs, new tasks, new transactions. Likewise, consultancies are painting Rube Goldbergian views of the sharing economy in an attempt to demonstrate its benefits, but the details approach the absurd. For one, Deloitte suggests (PDF) renting your apartment for profit while crashing on someone’s couch for free, effectively monetizing the generosity of strangers.

This might be the economy we have at the moment, but I don’t think it’s the economy that many of us want. Disrupting old institutions might be fun if you are insulated from the need to grapple with institutional challenges or can worry about them in the everlasting “later,” but considering the full spectrum of interests from the micro to the multitudes is what makes democracy tick.

Thinking seriously about the changing nature of work also requires us to go beyond income. It means engaging questions of responsibilities, security, development, identity, community and scale, all of which are generally positive aspects of working for someone else. Independents have made a clear choice to work outside of companies, per se, but all of the individuals I met with still long for those ‘side effects’ of employment. Even if we someday have an economy with far fewer jobs, we will still have to meet these deeply human needs. In the 20th century the office, employer and coworkers played a prominent role in daily life, but those need not be assumptions for the 21st.

As I described at the beginning of this series, my goal here is to unpack a set of issues in a way that makes them easier to grapple with, and ultimately to redesign. Next week I will share a framework that I created for the Knight Foundation to guide the development of new programs, platforms, and policies related to work.

Continue to part 3/3, Fringe Benefits


Researched and written with the support of the John S. and James L. Knight Foundation. All opinions are my own.