A Case Against the Gig Economy

So the gig economy is supposed to be the next big thing. To the extent where it’s considered to be reshaping the economy and redefining what it means to be employed. Most governments are still grappling with how to deal with this in terms of regulatory oversight as well as setting up the broader context of how the laws and policies of today need to change to accommodate this rapidly expanding “workforce”. A case in point is Uber — the “partner drivers” are, according to Uber, not employees and therefore are not eligible to any of the employee benefits an employee in a traditional company is entitled to, such as a pension, health benefits etc. Never-mind the fact that these partners have consistently been working with Uber for the past several years and are basically employees in all but name. The UK has made some headway into this issue by forcing Uber to recognise its driver partners as employees.

This moral debate is, however, another issue entirely and there are enough brilliant people debating it. What hasn’t been spoken about enough is the fact that the gig economy has potentially negative benefits to the progress of Society’s capabilities and evolution as a whole.

Let’s start from scratch and build up our arguments on purely First Principle grounds. Gigs essentially refer to a contract wherein an entity contracts an agency to perform a specific task/fulfil a particular role for a specific period of time. Let’s call this type of work freelancing for simplicity’s sake. I will use the term freelancer and gig worker interchangeably in this essay. The freelancer is not part of the organisational structure, except on a temporary basis. This affords flexibility and certain benefits to the employer and the freelancer both.

The employer does not bear the expense of -
a) paying a potential employee when there isn’t anything productive for the said employee to do, thereby shaving off the “dead time” of their employees by not allowing it to exist in the first place
b) taking care of their permanent employees; companies need to give benefits to the employees on their teams, not so much to their freelancing consultants who do gigs for the employer.

c) It is easy for them to get rid of the people working for them for frivolous or purely utilitarian reasons when there aren’t employment charters guaranteeing their rights

The freelancer is benefited because -

a) they choose the type of work they want to do
b) barring financial constraints, they are largely free to control what they do on a daily basis

c) it is easy for them to get rid of working with people they don’t want to work with/under

These 3 benefits alone itself are very powerful incentives for all the constituents of the system to desire this structure. However, the contention here is that while these benefits do exist, these are short term benefits that will, in the long term, cause more harm than good. I will further also argue that this system is fundamentally unstable and society will therefore largely revert to the traditional method of employment.

Let’s look at how the very big and successful companies have functioned over the past few decades. Whether in printing, tech, media, or product design, all these companies are essentially very similar to each other in that they have the same organisational DNA that enables them to reach the scale they did, and then sustain. They were successful because they were innovative with their products and practices, they were robust enough to sail through market shocks that shattered their lesser competitors, and their organisational structures allowed the organization to lead the market through new ideas and perfect execution. These 3 traits, and maybe many more, are fundamental for an organisation to be at the cutting edge of its time and thereby sustain.

To enable these traits, diverse teams of teams across multiple functions need to work in perfect harmony. Coke, Apple, PepsiCo, 3M, Amazon, etc. would not be companies that are called too big to fail if their product development, tech, marketing, HR, accounting teams amongst many others did not work perfectly well with each other to deliver their products in an outstanding manner.

A company run well in this manner follows a virtuous cycle — their organisational structures enable them to become better and more effective with every successful product of theirs that hits the markets. This organisational experience needs to be communicated effectively — every new employee becomes better than the previous generation only if they can tap into the vast reservoir of existing organizational knowledge. This is vital for a company to sustain because there will always be more nimble and agile companies that can outperform them in specific niche markets of which these big organisations are a part. I have written more about the criticality of organisational communication here.

Consider the case of a company that is entirely driven through gig workers. When a new marketing campaign is needed, they hire freelancers. When a new piece of code is required, they hire freelancers. So on and so forth. Since a successful organization has its unique proprietary knowledge, the organisation cannot afford to let their freelancing contractors have free access to it. Every new project, therefore, has to be started from scratch in a way. Alternatively, the throughput of said organisational knowledge, when allowed, would be severely restricted, with the knowledge fed piecemeal and on a need to know basis, significantly lengthening the turn around time for the projects and compromising the quality of it since there are bound to be mistakes made during such a complicated and long-drawn process.

In this scenario, the quality of output is not a function of the organisation’s capabilities/expertise but is instead a partial function of the freelancer’s experience and skill as well. Since the gig worker will typically work for multiple companies in the same market, the average level of output of these companies will start regressing to the average level of skill of the freelancers. This is going to be the case for the middle part of the bell curve when you plot companies w.r.t their value.

Consider the higher case of the leading edge of the bell curve, where companies with very high value exist. High skilled freelancers (again, from the leading edge of their bell curve) will be in demand; every major organization in a particular space will want them. The output of these companies essentially will stem from the same sources. The output level of these companies is therefore directly correlated to the quality of the freelancers. Because of this, the quality of output of all these companies will also be roughly the same.

In the extreme case of a pure gig economy, what will companies do to maintain a competitive advantage? The organizational structures required by companies to successfully run many product lines and constantly innovate to stay ahead of their competition needs to have a very good communication interface. This is going to be difficult when you have a constant workforce turnover since most of the workforce is part of the company on a temporary basis. For most companies, it will be easier to just retain the gig workers who provide exceptional value on a regular basis.

Therefore, they will start trying to capture high potential or high skilled freelancers, and retain them for their companies via various contracts and compensation packages.

As companies start doing this, more companies will follow suit to close the competitive advantage gap. Eventually, the market reaches a point of critical mass where its back to the normal employee economy, transformed back from the gig economy by virtue of the competitive advantage an employee offers as opposed to a gig worker.

That being said, the shock of the rise of the gig economy will undeniably make things better for the employees once things settle down. There will be an increased appreciation for the employees’ welfare, more flexible work contracts that will be fair to both the employee and the employer. In the same way, a good market shock is required to bring things back to rational levels after markets get distorted, so too do we need a good shock to the current employment system to make it a more rational and efficient one. Maybe the rise of the millennial gig worker is it. Fingers crossed.