Wednesday, June 13, 2012

Post Scarcity?

Fascinating article in The New York Times last week that might outline some factors of the new economy. It starts out talking about how much of the world survives in the informal economy of simply looking for and doing whatever work they can without the overhead of an “official” business. No benefits, no health care, no regular salary, no retirement plan, etc.:
One of the differences between rich and poor countries is that in the latter, people seldom wait for the government to “create jobs.”  When times are hard, they buy packs of cigarettes and sell them as singles; they find houses to clean through cousins of a cousin; they rent out bedrooms to students; they stock up on cellphone credit and peddle sidewalk calls by the minute.

It’s called the informal economy, and in much of the world it is bigger than the formal one. But it has been pushed onto the sidelines in the West, the refuge of criminals and the poor, because of labor laws, taxes, health and safety regulations and the like, which emerged to protect workers and consumers from the market’s vicissitudes and companies’ whims
If anyone has traveled to ‘third world’ countries, you know that you cannot get off the plane or walk down the street without someone trying to aggressively sell you something, with street kiosks everywhere. This is why informed people know that the myth that people in poor countries are less entrepreneurial is a lie. If anything, they are more entrepreneurial. They just have less functioning institutions, so in a labor surplus situation (which is the situation almost everywhere), they have no protections and incomes are driven down, hence the paucity of what we know as a middle class. There is relatively little value added labor, and the large-scale means of production are privately owned, with the benefits going to a small class of wealthy elites. But you don't have to wait to get hired, and there are no gatekeepers; the informal economy does not have the baggage of the regulated ‘formal’ economy:
Say you want to start a home catering business in New York. According to the city government, you’d need, among other things, a food protection certificate, a food service establishment permit, a gas authorization, professionally installed range hoods, a licensed carting company for waste, registration as a sales tax vendor as well as compliance with portable fire extinguisher rules and the unincorporated business tax. Which may be why people often wait for jobs to be “created.”
Now the internet is facilitating the rise of this informal economy, allowing goods and services to be bartered over the internet all around the world:
A new group of technology start-ups is building online platforms to facilitate offline transactions in this new informal economy: renting out your spare bedroom (Airbnb ) or Volkswagen (RelayRides ); hawking yourself as a handyman (TaskRabbit ) or personal chef (Kitchit ); selling custom-made furniture (Etsy ); or transcribing someone’s interview tapes (oDesk ). In each case, a transaction that was possible but complicated before is smoothed by the matchmaking skills, quality assurance and rating systems of a known company.

In an America, and a West, struggling to create old-fashioned jobs, complete with salary and insurance and pension, these services can be seen as an opportunity for do-it-yourself job creation.
These fall into several types. One is to offer services, including remotely. This can be done for pay, or direct barter, such as time banking. The other is the sharing economy – allowing people to pool resources, such as tool libraries and ZipCar type car sharing services. Another is to utilize unused resources that would otherwise sit idle like Couchsurfing and AirBnb, which allows empty rooms to go filled, and carpooling services which allow empty car seats to be occupied.

But here’s the catch: as the ‘formal’ economy increasingly fails to create jobs due to labor surplus, automation, efficiency, debt implosion and market saturation, the new jobs are fostering an environment in which formal employment is disappearing and leading to a race to the bottom in wages and benefits:
It is a lucrative new labor market, and also a way of going back to what the labor market was like before there were anti-discrimination laws, minimum wages and hours ceilings — with all the liberties and efficiencies and perils that implies.  “What we’re seeing is this throwback to better days of an age-old economy,” said Leah Busque, the founder of TaskRabbit, a pioneer in the field, with 4,000 registered errand runners for hire.

What some critics argue is that, in a bad economy, these choices are less than meaningful, and that they result in a race to the bottom for people who cannot afford such a race. These critics warn of a metastasizing economy of freelancers, supporting themselves with tasks rather than jobs, competing ferociously so as to lower wages, working long hours, all while paying for their own health care and retirement plans.

“Technology is supposed to be the great equalizer,” a blogger named Rich Reiben wrote recently. “In a recession, unions dissolve and workers compromise. But in this recession, something more devious is at work. Technology has become a one-way street. Suddenly the guy who wants someone to clean his basement has 50 bidders, some of whom are probably not eating very well these days.”
Is Technology Fostering A  Race To The Bottom? (New York Times)

And these informal freelancers are often competing with their former employers. They also starve the government for tax revenue, leading to a spiral of government losing revenue and cutting back worker and consumer protections. Caveat emptor.

Interestingly, this has dramatically affected the market for pornography. “Professional” pornographers cannot compete against all of the content that people are putting out in the Internet for free. This is leading to the death of professional porn actors (or are they all ‘stars?'), and a diminution of wages and opportunities:
For years the porn industry was dominated by an anarchic anything-goes attitude to sex. Directors competed to see who could stage the more outrageous stunts, pushing the performers to the limit of what their bodies could take. The scenes could be hard to watch, as I discovered for myself when I visited sets for a book I was writing in 2004. The sex acts seemed to owe more to reality shows where people eat live worms and pig vomit than anything conventionally erotic.

But some time around 2007, the "business of X" started going into a commercial tailspin. The arrival of free YouTube-style porn sites meant that consumers could download pirated scenes from the vast backlog of old content for free. The phenomenon of DIY amateur sex – part-timers uploading their videos on sites such as clips4sale – also put a dent in the professionals' pay cheques.

Suddenly an industry that was a byword for easy money, raking in billions by exploiting the anonymity of point-and-click purchasing, was fighting for its life.

Making the problems of "adult" even worse was that where consumers might feel enough loyalty to, say, Radiohead to buy their latest release rather than download it illegally, porn users don't have the same feelings about the Dirty Debutantes series. In essence, as with every other media evolution of the last 30 years, from VHS to DVDs to the birth of the internet, porn was once again leading the way, only this time into obsolescence.

And as goes the industry, so go the performers. It's well known that many of them come into porn looking for validation, fleeing lives of damage and abuse. They then sign up to a lifestyle that inflicts stress and illness, not to mention embarrassment, on its young foot soldiers, while offering nothing in the way of pensions and health insurance. Now they find themselves out of work, looking for a Plan B, when the only experience on their resumé is having sex for cash.
How The Internet Killed Porn (The Guardian)

This may all be amusing, except for the fact that this is happening across all professions. My own profession has been infamous for working for free through design competitions and other freelance gigs in the hope of getting clients. Free written content (such as this blog) is making it harder for writers to get paid. Illegal downloads and free content cut into the salaries of writers and musicians. Where does it end?

In my opinion this is huge challenge to the economic paradigm, and one that is not being taken seriously enough. Taken together, these two articles offer up a vision of the internet causing a massive depression of wages and elimination of job opportunities on one level, but also increased cooperation and collaboration, less red tape, and limitless content. Whether this is a boon or a bane seems to me dependent on how it is managed.

How you see it will probably depend on your perspective. For some, it offers a vision of an ideal anarchic society of mutual cooperation free from the constraints of big government or big banks. To others, it represents a hand-to-mouth existence for most people where you are never sure day-to-day where your next meal is coming from or whether there's a roof over your head. It's a throwback to the precarious existence most people lived with prior to the Industrial Revolution. Except then, most people worked the land to produce food, in the household economy, or in cottage or handicraft industries. Now there are millions more people in developed countries, and billions more worldwide, while at the same time labor is global and industry is highly efficient and automated. Or economy is mismatched with technological reality; not a good prospectus for survival.

It will probably provide opportunities but also exacerbate the division between the haves and the have-nots. And it will probably be a death-knell for the "consumer society." If people can not count on a steady paycheck, how can they sign up for a thirty-year mortgage or a five-year car loan?

UPDATE:
On Wednesday, Elance, a company that brokers often sophisticated short-term work online, released a survey of its customers’ hiring plans. The company asked what percentage of their work force would, in five years, consist of online temps. On average, the customers projected that more than half of their work force, 54 percent of all workers, would be these outsiders from around the globe.

The survey was unscientific and polled mostly small companies. Only 2.3 percent of the 1,500 companies surveyed had more than 100 employees. It is, however, another indicator that cloud-computing-based employment brokers like Elance, ODesk and Freelancer.com are gaining acceptance.

These companies allow easy hiring and collaboration between, say, a software developer in Russia and a marketing specialist in England on a project for a firm based in the United States. Job candidates present portfolios of past work, bid on listed jobs and are rated, much like the sellers of goods on eBay.

“The network transforms the locus of work from the desktop to the human,” said Fabio Rosati, the chief executive of Elance, which has over 500,000 active contractors worldwide. “You don’t need physical infrastructure to be anywhere. You need a new workplace.” By 2020, he thinks, one in three workers will be hired online, perhaps never to meet an employer or work in a company building.

The customers also indicated they were acting on their intentions. Seventy-three percent said they would hire more contractors in 2012 than in 2011. Web programming, graphic design and content development continue to remain the top three skills sought and 40 percent of customers said they had gone online because it gave them a better pool of potential hires.

Another big driver is probably economic necessity. Companies in Europe, now among the most troubled of the world’s major economic regions, were even more aggressive on both short-term hiring and longer-term revamping. The companies thought that by 2017, 58 percent of their staff would be freelancers. In addition, Greece and Spain have had some of the biggest increases in the number of potential contractors seeking work over the last year.
The Boom In Online Freelance Workers (NYT)

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