Sunday, January 25, 2015

The myth of tech-economy 'makers'

This short little piece struck a nerve. As a result I'm gonna ramble far and wide here, so get ready....

If you want, ignore the feminist stuff in Debbie Chachra's essay. I did.

First, let me adduce my frequent correspondence with a Tea Party libertarian, John Birch Society dues-paying member, Silent Generation curmudgeon and Hayek-Pinochet admirer, who says that every American without a job because of structural changes in the U.S. economy or globalization should become a barber, plumber, landscaper or carpenter, because Americans will always need such workers, who are generally sole proprietors, independent contractors, or even in the "gray" economy that works on cash and doesn't pay taxes.

True, such professionals are not strictly speaking "makers" or creators in the Silicon Valley sense of the word... but nor are they the great middle of white-collar service professionals, blue-collar service workers, home-care workers, etc. They do something with their hands, they can create "something" out of nothing, albeit with materials available to anybody. (But isn't coding just the same in that respect?) I think that's really what Debbie Chachra is getting at, although she would probably disagree. She would call much of that blue-collar work "repair." Her focus is on service-sector workers who are "caregivers" and nurturers.

She's talking about what our present culture and economy seems to value -- technological savvy. Whereas the Bircher is talking about the everyday needs in our economy that seem (?) to go unfilled. Both acknowledge a labor gap where people who can't write the next great app or create the next great disruptive business model -- the other 99 Percent of us -- actually dwell. Most of us are not adept enough to thrive in the tech culture as such; yet meanwhile, most of us are not trained to take care of our own quotidian needs, and furthermore, use such skills to make a living in the persistent remnants of the "old economy" -- I would call it the "domestic demand economy" -- that still needs hair cut, leaky faucets fixed, ceiling lights wired, etc. 

Indeed, the persistent value of domestic-demand economy workers probably does go overlooked. My old Bircher correspondent, however, goes too far, and unrealistically sees in them a way out for ALL those folks who are not made out for white-collar management or tech-savvy. 

To switch gears: In my home city, there is a business incubator supported by the city and a few large local corporations and donors to support young tech startups, most of them trying to write mobile apps. Most of these apps, from what I've seen, are contingent services. That's what I call them. Maybe you know a better term. I mean apps or Internet-based services that consolidate, or piggy-back on, existing businesses. This is the majority of apps that I've seen. The app makers endeavor to provide a composite, streamlined, user-friendly interface for people looking to do everyday things that they already do, not something new. One hopeful assumption is that people will consume these services more frequently -- or at least more frequently through such new apps -- than they do already. I think that's a foolishly naive assumption. 

For if you think of the Internet as a utility -- as I do -- then it's just pipes. In this case, pipes of information. You can piss down this pipe or that one, a la George Castanza, but you're still pissing the same amount. The Internet isn't going to make you piss more. Maybe somebody's new pipe is nicer, or easier to piss in, so it collects more piss -- but it's still just a pipe. That's how I view most Internet startups. They're trying to channel existing demand. Most are disruptive in the sense that they may rupture existing sales and distribution channels of established players by lowering transaction costs and doing better marketing -- but demand (the amount of piss) in most cases is not increasing, it's just being re-channeled. Do you get me so far?

Now let me contradict myself. The Internet's pipe-makers are hoping that, by making product search and payment so much easier, you actually will piss, er, consume more. In some cases, they may be right. (This is where my metaphor comes up dry; because without additional income to consume more, people must take on debt; and in real life you can't borrow piss. But borrowing to consume more, amid stagnant median incomes, is exactly what Americans have done since the 1970s).

Then I hark back to the structural economy. Consumers have to make more money to consume more, whether they're buying at Internet-based companies or bricks-and-mortar companies. The explosion of knowledge-based companies is not putting more money in consumers' hands to consume more. If you're skeptical of this truth, look here at U.S. per capita disposable income:

This shows that, "Per capita disposable income displays a low level of volatility." It doesn't change much. But even that stat is misleading, since rising U.S. inequality means that rising disposable income of the rich skews the total. The One Percent has more disposable income, not the rest of us.

The point is that average Americans don't have more money to spend; they have less. (And they're still paying down debt from the Great Recession). So any Internet-based business that forecasts rising demand is probably a pipe dream. The most they can hope for, again, is to disrupt existing businesses by lowering transaction costs and re-channeling sales and distribution through their app; meanwhile the good or service being bought through them will still be provided by the same existing business that simply loses a cut of the sales to the app.

You can think of exceptions. For example, Uber or Airbnb. They are creating additional supply/capacity with private-sector contractors. But such companies are a transitory phenomenon. They are skating on the fringes of regulation to provide more capacity at a lower cost. And sooner or later regulation will catch up with them. Because most regulations came about for a reason -- usually to protect consumers, but also employees of suppliers -- and so when enough consumers get cheated and catch on, or enough providers' staff complain, then regulation-skaters' days will be numbered. Regulation simply hasn't caught up to them yet. That's my take.

And so I have just debunked the idea that most tech workers are "makers" -- in fact, most are derivative sellers and consolidators of somebody else's product or service. (Exceptions: behemoths like Google and Amazon; but they are still great market-makers and consolidators). In other words, they may create new marketplaces where goods and services can be bought and sold, but that's all. They are not creating new products or services. Again, there are exceptions but this is the general tendency.  And this makes sense! For all these app-makers and code-writers are not experienced businessmen in their industry; generally they aren't trained to make widgets, drive cabs, run hotels or restaurants or fix roofs -- they have never "created" a product or service before, they just see an opportunity to dismantle an existing marketplace and displace it with a new one: theirs.

This realization puts Chachra's argument in its place. She's right that the knowledge economy is sexier, and gets all kinds of attention, and high salaries for some. But most of these tech startups have a lot to prove, and in the end, provide very little. Indeed, they often succumb to competition from competing "marketplaces" established by tech competitors. Maybe one or two survives, and it has little to do with tech, and more to do with first-mover advantages, marketing, and hard-nosed negotiating with existing suppliers. And what are consumers left with? One or a few new marketplaces to replace the old ones; and consumers still have the same amount of money in their pockets to spend. 

By Debbie Chachra
January 23, 2015 | The Atlantic

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