Editor’s Notes: The CEO talks about Labour costs, Software, and hardware automation, and The future of labor economics.
Model: 02
Thursday, 05 October 2017
Labor costs are approaching zero.
Labor economics in the 21st century
Fundamental macro economic facts somehow escape the software industry’s notice. Labor costs are approaching zero; a secular trend which began in 1989, the year I was born. Although Kissinger’s opening of China could be used to mark the beginning of cheap labor in the machine age, or the even earlier waves of immigration to the United States during the late 19th and early 20th century Industrial Revolution — 1989 marks a moment in economic and technological history.
In economic history, the moment the world came together after the fall of the Soviet Union. In technological history, Tim Berners-Lee invented the internet.
Today, when are we? Nearly 30 years later, globalization has brought billions out of poverty and into market participation. There are about 3.5 billion people on the internet. English is the lingua franca.
One U.S. Dollar is worth many times more, in real terms, in developing countries like Croatia, Kenya and the Philippines. Cultures, hence tastes, are converging — they want what we have, but they’re hungry, and willing to work, hard, for it.
Software and hardware automation put further downward pressure on labor prices. If hysterics are to be believed, there will soon be double digit structural unemployment — from self-driving cars alone. Socialists politicize technology narratives to preach the welfare agenda: it is vogue to suggest that there will soon be no jobs to replace those lost to robotics and artificial intelligence.
These very same technology advances not only introduce innovation, they make existing goods better, faster and cheaper. Food and energy are cheap and getting cheaper; as is transportation; as are manufactured products. This means people need to earn less money to achieve the same standard of living.
The deflationary power of technology is hard to overstate. Deflationary welfare is a natural economic and technological phenomenon — and by making everything steadily better, faster and cheaper it creates real progress; whereas inflationary redistribution distorts this natural trend and makes nothing better for anyone, including the recipients, who become entitled dependants.
The deflationary future is a vision: flights from London to Tokyo taking 30 minutes and costing $15. Food for a month costing $5. A car costing $100; a home, $1000.
Universal prosperity and inequality are not incompatible. As the formerly poor come to afford all the amenities of the rich for a small cost, the problem will cease to become one of eliminating economic hells, but one of eliminating purgatories. The rich will have a crisis of not having meaningfully superior lifestyles: until and unless supply creates whole new technology and application categories.
All of these secular trends tell one story:
Labor costs are approaching zero.
71% of the world population lives on less than $10 a day. And yet over 50% of the world’s population is on the internet. Therefore, paying an internet worker $1.50 an hour is not exploitation, but rather a 20% improvement in their income, assuming they work only eight hours a day. If $1.50 is just a starting salary, and there is a meritocratic pathway to earn up to $20 an hour over time through incremental skill improvements — then it is economic salvation.
Not just in absolute, but in relative terms, there have never been more labor supply and less labor demand in all of history. I do not think this statement too much of an exaggeration. The excess slave labor that the Egyptian Pharaohs took away from farming work to build the pyramids is nothing compared to the vast labor pools clamoring for work today. The agricultural economy of ancient Egypt was limited, perhaps, by the ability to store food for long periods of time — so people needed something new to do with their time, some new productive endeavor. But in that society, and in every society before the Industrial Revolution, over three quarters of the population was employed, full-time, in agriculture. In our global society today, all industries are consolidating, and will continue to consolidate — until there is a monopoly in every market; until labor is minimized and technology is maximized.
The future of labor economics is this: Labor is cheap. Labor has never been this cheap. Labor has never been this cheap in all of history. And it will only get cheaper.
“Unskilled” labor has also never been more skilled. If a person can (1) speak, read and write English well; (2) is hungry to learn, especially, to learn how to learn; and (3) has access to a modern computer with high-speed internet access — that person has access to, roughly, all the information in the world.
Neo-religious socialists make much of the guilt of “privilege”, without observing that humanity, as a whole, has never been more privileged — because of these three basic premises. The weakest of the three premises is neither the first, nor the last, but the middle premise — because despite nearly worldwide socialist education, socialist education systems have failed to teach the only skill that ultimately matters: which is to learn how to learn; or, even more fundamentally, how to learn how to desire to learn how to learn.
As a believer in the essentially unlimited nature of human potential, there have never been better conditions for training an army. The best armies are not recruited from the martial class. Turn the peasants into knights. That is the strategy.
A small team of knights can teach the peasants how to fight. To turn them into knights, the peasants need arms, training and a cause. The arms are cheap: apps are swords, and apps are cheap. Training is more difficult. And a cause, the most difficult of all.
A cause, that is, a business: for the primary dimension of warfare in the world today is non-violent economic and technological warfare — companies are competing to build, and own, features of the future; so the future draws ever nearer, and humanity advances.
To give them a cause is difficult, because what is needed is a business model that is capable of absorbing practically unskilled labor, and turning it into unlimited human genius.
Our business can be understood as an answer to this question. The answer is synthetic intelligence. Synthetic intelligence: humans do the work, technology coordinates the humans. The work is structured as processes which are executed and coordinated on digital assembly lines. Clients interface with all of this through a single chatbot. As they purchase more and more processes, their bot becomes more and more omnipotent, omniscient and omnipresent.
Beautifully, what we most underestimated in the model was human potential. Our agents continually exceed our expectations. They not only execute our processes now, but they upgrade them, design them and manage each other. Very soon they will be managing client relationships directly and even selling.
Our meritocracy is evolving just as our product and operations are evolving, and there will be endless scaling challenges. But the vision is to provide our agents with no absolute limit to their earning potential, so long as they constantly solve new problems, master new skills, and learn how to operate like mini-CEOs.
But even if none of this makes sense to you, as a specific answer, the general answer is much simpler. Assume that you have unlimited cheap digital labor at your disposal, at all times. Assume that you didn’t have to worry about hiring, training, or managing that labor. Assume you didn’t have to worry about designing or building processes for that labor. Assume you didn’t have to worry about coordination or transaction costs, including context and relationship transfer, security and integration issues. Can you think of things that you would delegate?
For almost every individual, team and company on the planet, the answer is yes. The question, then, is how to achieve these assumptions. That is what we have done. Or, to be more precise, what we have figured out how to do on a small scale, and are continually attempting to scale. We’ve figured out how to hire, train and manage labor. We’ve figured out how to design and build processes for that labor. We’ve figured out the coordination and transaction costs, including the context and relationship transfer, security and integration issues. This leads us to believe that there are just two kinds of people in the world: clients and future clients.
Returning to the assertion: “Labor economics are approaching zero.” Why haven’t we noticed? Although these macro economic realities loom large, there are reasons for blindness. The first blindness is our bias in favor of pure software. Pure software means pure profit — it means extremely high profit margins, even after a healthy sales and marketing budget. Putting humans in the loop means that there is now a cost of goods sold, which means lower margins. Perhaps even more discouraging than lower margins, more humans means more complexity, less agility and the need for additional dimensions of core competence in hiring, training and management.
The second blindness is political. As citizens of the developed world, we are naturally insulated from the economic conditions beyond our borders — so we can’t see beyond the domestic labor crisis; although it is just a symptom of global trends. Foolishly, we’re fixated on preserving old jobs, which are going away, on welfare solutions for unemployment, and on financing a broken education system, which has already been replaced by the learning systems of the internet. Instead of desperately clinging to a past which is slipping away, these revolutions of the future will drag us along, if only we just grasp them.
Because of human genius, labor is not a commodity. It cannot be turned into an undifferentiated pool of unskilled labor. When it is, workers and clients are unsatisfied, and only very boring, very high-volume, soon-to-be-automated jobs make sense to delegate. But when a company steps in to turn the peasants into knights — and to solve all of the problems that prevent the labor from connecting with the work available — then this vast resource suddenly becomes a standing reserve of infinite power, on demand.
Once synthetic intelligence automates all of your work, you will be free, free at last — to do your real work.
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