A society of Entrepreneurs?

Is that the future of the labour market, a myriad of “self-employed” entrepreneurs offering services in order to gain income – income that creates a claim on resources that are largely created by capital/machines.

This is what the “three laws of future employment” at new geography suggests to me. (ht Marginal Revolution) .

The laws are:

  1. Law #1: People will get jobs doing things that computers can’t do.
  2. Law #2: A global market place will result in lower pay and fewer opportunities for many careers. (But also in cheaper and better products and a higher standard of living for American consumers.)
  3. Law #3: Professional people will more likely be freelancers and less likely to have a steady job.

Where does this come from?  Say that a lot of the fundamental things we consume, both in terms of manufacturing and primary goods, can be mechanized extremely cheaply – with virtually no labour input.  In that case, investment in the machines and their maintenance is extremely valuable – and owners will as a result be willing to pay a significant sum (in terms of resources) to those who in turn look after the machines.

If only a very small number of people are required to look after and build the machines, then the rest of society has to move into roles where they do one of two things:

  1. Serve a secondary market of people without access to capital – say making food for their own small group of people, or making clothing.
  2. Offer a service to the owners of capital and the group of people who are looking after it.

In that case, there is likely to be a very very large service sector with a small base of labour manufacturing and primary production that is very productive/capital intensive.

Now why would we expect entrepreneurs, why wouldn’t we see massive scale in the service industry like we have in the other sectors?  Well, generally, services don’t fit the “scale” model – economies of scale do not exist in service industries, and as given the value of heterogeniety in the service industry the flexibility of small firms/entrepreneurs would be vital.  Lets not forget the internet either, which has reduced the cost of entry into service industries and increased competition.

In a situation where capital is very heavily concentrated (both in terms of physical and human capital – given that a small number of people in the service industry will also have significant talent and be able to extract far more rent than others), I see a role for significant redistribution and a minimum income in this type of environment.  As the constraint of scarcity is loosened, the idea of having a government to help ensure a minimum standard of living really becomes more important.  The question is, how far along that road are we now?

5 replies
  1. Richard29
    Richard29 says:

    I like where you are going towards the end there is that under this kind of labour market a universal basic income makes more sense. Our targetted welfare system assumesfull time equivalent salaried employment as the goal. A self employed person getting “3 weeks on 2 weeks off” type volumes of work with little certainty of exactly when the next paycheck is coming would be more than happy to pay a higher marginal tax rate on their income earned and have certainty of a minimum income when they need it without the hassle of applying for it (stand down periods, interviews, abatement rates on income earned etc)

    I would argue that another factor that you’ve not mentioned is that employers experience volatility in work volumes and competition mandates that they try to externalise that risk. The relative weakness of unions compared to 2-3 decades ago makes this more possible. The first examples that come to my head are Peter Jackson trying to break the acting unions (it’s hard to find a better example of a job that pays very well but provides very inconsistent volumes of work) and Ports of Auckland trying to break the wharfies unions and replace them with contractors who are only paid to show up when there is work to do. Another example would be Chorus trying to shift their lines repairers to independent contractors. None of these positions I would characterise as the kind of well off ‘professional freelancers’ and certainly not as entrepreneurs, in fact all of these groups voiced considerable opposition to their casualisation.

    There are substantial benefits from companies in doing this, carrying a large workforce and assett base (the Chorus contractors own their own van and tools) incurs a lot of waste and underutilised resource. The glaring example of this kind of waste is POA having to pay an entire workforce for 6 hours of no work because they finish unloading a boat in 2 hours and have a contract that mandates 8 hour shifts. I think the model of employers adopting the risk of workload volatility and giving workers decent conditions and a reliable income is a good one – but the fact is that time has passed – our companies are competing directly with the likes of coastal China that has a flexible labour pool of around 300 million migrant workers who have very little in the way of labour rights.

    Have you read Gareth Morgan and Susan Guthrie’s Big Kahuna? I’d be curious to hear your thoughts on their comprehensive capital tax proposal. Given this view of a future in which there are entrepreneurs, owners of capital and a swathe of people who are niether and who scrape by providing services to these two groups (the servant class?) what do you think of capital being taxed and expected to pay it’s way on a flat playing field with labour?

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