When I began my professional working life in the 1990s, we were still very much in the old economy. There remained an acceptance of the idea of staying with companies for an extended period of time, and that companies adding employees to some extent represented business success; although this period aligned with the start of the work environment in which we currently stand, it was at its beginning.
I both existed in that time/environment, and have since been heavily engaged in all aspects of change, including everything from raising VC funds to creating a virtual currency site enabling the sharing economy. Hence, I may see the components of that total picture in a way that is different from others’ perspective. This is my motivation for putting down my thoughts here.
I’ll describe two elements that I believe are changing our society and economy in ways that we may well need to moderate and control, if we are to sustain a livable environment for the bulk of humans in America. The first is the gig economy, and the second is VC funding, which is often, in effect, the strategic implementation of gig economy values at a strategic level.
The gig economy is both an extension and a harnessing of positive creative flexibility to the massive scale at which it becomes the opposite of creative, and completely inflexible. -With the warning that this origin can make it very difficult to effectively address the issues of the latter. The gig economy starts from the idea that a creative and flexible individual may do a variety of tasks, in keeping with their lifestyle choices and interests, that will permit them a far better and more self-controlled life than that of a conventional employee. To believe in this, one must set aside the realities of financial need and emotional stressors, and also assume that we have never had this sort of economy before. In reality, we have, this sort of home-based work without any sort of labor representation mirrors that of the early 19th century, and is a highly transitional sort of labor environment that must give way to scalability that is not built on mass exploitation and is mediated to workers’ benefit.
There is a near universal belief in American business today that an entity should have as few employees as possible, and that actually adding employees represents a form of incompetence on the part of management. When individuals can legitimately be brought on as contractors (and often even when they should not be so designated) they are. The gloss on this is that it allows the company and the employee to be flexible. The reality is that it enables the company to maintain no responsibility toward the employee, while leveraging the possibility of more future work to ask the unreasonable of the “contractor.”
It was recently ruled that Uber drivers in London must be attributed as employees, rather than contractors, and of course this is accurate. Uber drivers work lives are largely controlled by Uber, and although some also work for other services, this is actively discouraged by Uber, in the same way that an employer would discourage moonlighting. Perhaps it is not coincidental that this ruling was in the UK, rather than the US. The vast majority of Americans who are paid as contractors, should not be. Uber is further an interesting example because it has a model of putting all of the risk for its business model on the shoulders of its employees, who may end up with far below minimum wage, without ever taking on the risk of hiring these people. Indeed, its long term model depends upon making these people redundant via robotic technology.
Most people in the gig economy live on the edge of solvency, and many younger people are partially dependent upon family financial resources remaining from the old economy. This allows entities like Uber a massive leverage in driving contractors to work for extraordinarily low payment under any sort of working conditions the entity cares to define. It also indicates that interesting times are certainly ahead when the middle class has expended all of its familial resources in the service of parasitic gig economy businesses.
The VC Extension of the Gig Economy
VC funding seems to the outsider to provide a fairly simple and consistent dynamic. It appears that adventurous and wealthy investors seek out the best and brightest entrepreneurs and business concepts, taking major financial risks in the hope of occasional significant rewards. Sometimes that is indeed what happens, certainly in the optimal environment, and I know very worthy people who engage and succeed on both sides of this dynamic.
However, at least as often, VC funding is something different, and much more analogous to the dynamics of the gig economy. VC and strategic investment has two problematic models into which it often falls. The first is development of effectively virtual sub-businesses, in which a pyramid is formed, with co-founders at the top, and low paid contractors beneath, in which all risk is born by contractors or lightly held underpaid employees, hoping for valuable equity; the second is a corollary oligarchic practice.
A central and unappealing aspect of this dynamic is derived from the core tenet of the early investing world: “it’s not the idea, or having things locked down; it’s the team that matters.” This makes a lot of sense when what matters about the team is their expertise or successes, but it more often refers to whether the team consists of people with whom the investor would like to collaborate and socialize. There is in this concept a basic acceptance that at some point everyone needs to pivot, so why get tied down with specifics. However, if you are hiring people to effectively be your colleagues, and you are specifically not forming a company, but lightly sourcing this new entity, is this not inherently problematic? Clearly, you are brilliantly sidestepping having employees, at a meta level. You are also avoiding all of the messy HR issues endemic in just hiring a bunch of white guys with whom you want to hang out.
What all of this means is that businesses are effectively abdicating the role of employers, and they are doing this on a massive scale. This can be remedied either by forcing/encouraging them to reassume this role, or by having other entities take over that role. If the latter, we are probably talking about unions/guilds, perhaps in some entirely new sort of configuration, or government. I know that most people in business would be loathe to have it be the government, but it may be a race to see which sector enables a viable solution first.