17 Aug 15 Industry Insights
If you’ve been reading some of my more recent blog posts, you’ll realize that I’m a big fan of change, and I think we - humanity - are on the cusp of some pretty extraordinary transformations.
I believe that we are starting to transition out of the Digital or Information Age and moving into an “Infrastructure Age” (although, who knows what it will be called?) - an era where we will perceive technology in new ways, regarding it as a means to tackle the big problems of human survival by looking more closely at self-sufficiency and energy consumption. You can read more about the theory and the evidence that backs it by clicking here.
More recently I confronted the speculation that’s been swirling around the internet that we’re in a ginormous tech bubble that’s about the burst. There are a few reasons why I disagree with their arguments - which you can read here - but my final thought deserved a post of it’s own.
Is technology driving us out of capitalism?
I’m sure there are plenty of die-hard capitalists who scoff at the mere thought. Capitalism is after all at the core of every decision we make and the way we organise society.
But let’s not forget that Capitalism replaced Feudalism only a few hundred years ago. Feudalism took place mostly in Europe and lasted from the medieval period through the 16th century. Because feudal manors were almost completely self-sufficient, they restricted the power of the market and prevented any natural tendency towards capitalism.
It was the arrival of new technologies and discoveries - particularly in agriculture and exploration - which catapulted the growth of capitalism, so can we not deduce that some of the technological advances we're seeing today will drive us towards a new economic system?
I can’t say with absolute certainty whether we can expect this sort of change but there are undoubtedly some areas where technology is shaking up old principles.
1. Wage Rate
The wage rate used to reflect the extra output from an extra output of work, or whether the job required more education or experience, or a relatively hard-to-find skills set. The relationship between salary and the job role was quite logical.
Now it’s much harder to say an extra hour of work is worth a specific amount. Technology, particularly the advances in automation, has reduced the need for particular job roles, blurred the boundaries between work and free time, and relaxed the relationship between work and salary.
2. Market value
Markets are traditionally based on scarcity, but if information is abundant - and usually free - how do you form prices?
Thomas E. Copeland and Daniel Friedman provide a concise explanation of the relationship between information and market value in their paper The Market Value of Information: Some Experimental Results:
Until quite recently we have lived in a world where information was relatively scarce. Information was difficult to obtain and the distribution of information flows were generally controlled by a relatively small group of media owners who created successful businesses out of this scarcity.
But now we’re in an age of information abundance. This massive explosion in the volume of information produced, and the ease with which new digital tools enable all of us to discover, analyse and distribute it is radically changing our relationship to information.
The challenge for media companies is to meet the growing digital demand for information in original ways the create more than enough value to compensate for the cost of creating it. This has forced many businesses to adapt to move beyond the traditional approach of simply creating products to focus instead of creating experiences. Value no longer lies in the features of the product, but in the combination of the product, the context it creates and interfaces around it.
Given this seismic change in our relationship to information - which is the bedrock of many businesses today - how can we be sure we have accurate market valuations of these businesses and their products?
3. Collaborative production
Products, services and organisations no longer need to respond to what the market dictates or to a managerial hierarchy. Take Wikipedia, for example, which is cultivated by volunteers for free and has consequently obliterated the encyclopaedia business and deprived the advertising industry of an estimated $3bn a year in revenue.
Another key example is Airbnb and Uber. Both use models where people can sign up to earn money through the business, either by renting out their rooms or becoming a driver. But are they consumers, independent contractors or employees?
Uber is facing several legal challenges to its contractor-based business model. It holds itself “as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation,” but 2 months ago the California Labor Commission ruled that an Uber driver was an employee, not a contractor. because Uber has too much control over the everyday detail’s of a driver’s job.
It’s evident that these new business models are disrupting the legal system and labour market and could significantly impact some of the basic capitalist principles. While we may see some 'teething problems' as we adapt to how technology has impacted our economic landscape, I'm personally quite excited to see a new economic system come into play.
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