I’m beginning to think that we’re in the midst of another historical change that will see most people experience a fall in their standard of living while the gains accrue to a fortunate few at the top, à la Piketty. As Schumbeter wrote in a paean to Ronald Coase
Perhaps not the entire story, but a good part of it. However the rise of the Cloud is erasing the difficulties in these short-term contracts. Need to get somewhere? You don’t need to own a car or hail a taxi, there’s Uber. Want a place to stay? Try Airbnb. These, of course, are just the most visible entrants in the new digital economy and perhaps they won’t make it in their current form, but they tell us something about the future.
Fundamentally what these new companies do is make transactions more feasible and take a percentage for having done so. This model isn’t new. It’s what Wall Street has done for decades, providing access to capital markets on the one side and access to investment opportunities on the other. IB firms grew fantastically wealthy as the facilitators; the smallish slice they take of a huge pie is a lot of money. Yet, as recent history shows, pursuit of more and more pie is ingrained in the system and abuses often follow. There is a reason people talk of the difference between Wall Street and Main Street, yet the less savory aspects of the former with outsized rewards to those able to extract money from the stream of commerce going by seems the way of the Cloud economy.
In the sweatshop days poor people crammed into tenements and did piecework, wages pushed low because the going rate was set by the cheapest person that could be found to do the work. We may think we are far from those days, yet Uber and Airbnb set their prices the same way; if someone values their time or living space less than current offers, down comes the price. Those with wealth rejoice, those desperate for income probably don’t share their joy.
I see around me time and again the impact of this new Cloud economy. A friend working at a local paper (itself an endangered commodity) says ad production has been offshored; the salesperson gets the job, the work is done where it is cheap, and the US ad-production people are out. There has been movement offshore for a while now of jobs that could be encapsulated, but now we’ve hit the next stage where even jobs that can’t be shipped en masse overseas are becoming commodities nonetheless, filled by temps that are low-paid and don’t get benefits (to say nothing of job security). Few people know that at many hospitals most x-ray are read overseas. Friends that work in engineering talk about layoffs of workers over 40, then in the next months hiring of contractors to take their place doing the same work.
The Cloud is making this mix-and-match easier. Uber shows how to easily find a few hundred people around town that are willing to take a temp job to drive others around. A lightbulb goes off! The next step obvious is to expand the range of jobs covered. Why stop at drivers? Need someone for a few days, a few weeks, a few months? The Cloud economy is going to make it easy to find those people, and at low wages too because they’re competing against all the other people that were similarly found. Just as in the sweatshop days, the most desperate workers will work for less and thereby set the going rate.
The real issue is the impact this has on society. Our economic institutions were not set by divine will, a few Republican candidates to the contrary not-withstanding. They exist as a way to control and allocate the resources (both natural and human) of a society. As we moved out of the agrarian past we were fortunate to live in a country where the gains were widely shared; not as equally as some would have liked, but nonetheless gains in output led to gains for everyone. I fear that was a brief period of good times, all the gains the past few decades having gone to those already at the very top. And I fear (as well as, sadly, expect) that the new digital economy is not only going to perpetuate spoils-to-the-top but bring about declines in the living standards of those who heretofore have been able to console themselves that even if they weren’t gaining they at least weren’t losing ground.
Thoughts?