Cloudworker Economics

by Venkat on October 29, 2008

I started my exploration of the changing nature of careers with a micro-level view of its archetypal figure, the cloudworker. In this second part in the series, let’s take a look at how the cloudworker fits within the economy. The main argument of this article is that the dominant distinction in labor economics, unemployed vs. employed, is slowly getting displaced by a more fundamental one: default vs. exceptional career paths. Think of it as an emerging long tail in the space of career “design patterns” where there are a huge number of sui generis career (and lifestyle) designs. My contention is that this new watershed is primarily being created by technological forces, not economic, demographic or cultural ones, and that this has important consequences. So within my model, the cloudworker is primarily characterized by a technology-enabled my-size-fits-me career. The economic antithesis of the cloudworker is the organization man. Both organization man and cloudworker will co-exist in the future, but the latter, until recently characterized only by negative definition (“not an organization man”) will drive the economy. Here is a picture of where the notion of cloudworker fits, among related conceptual models. The x-axis represents level of dependence on technology for economic production, and the y-axis represents the degree to which the worker is tethered, financially, to a single institution. In this map, ‘cloudworker’ differs from others in being a technology-dependent definition.

Cloudworkers on the My Size Fits Me Map

Cloudworkers on the My Size Fits Me Map

Positive Space Economics

Economists have traditionally considered questions of labor from one of two perspectives, the labor market view, which considers the entire working population, and the firm-size distribution view, which considers the growth and decline of firms, the structure of industries, employee turnover and so forth. Of these, the latter has been the more important view, since much economic activity in the 20th century happened within firms, and the importance of the labor market view was primarily related to the political importance of a single macroeconomic variable: gross unemployment. I call this classical perspective “positive space economics” since it emphasizes the foreground of active, economically productive firms powered by interchangeable human parts (which were “positively” defined by the organization man archetype). Here’s a picture:

From Unemployed/Employed to Default/Exception

The underlying assumption of the positive-space analytical framework is that workers are either employed or unemployed, and that when employed, their identity as economic actors is effectively subsumed by that of the firm. For an anomalous century, when firms functioned by molding employees to fit their needs, this worked, since conflating “worker” with “piece of firm” and “non-worker” with “unemployed” was a good approximation.

During the heyday of the firm, nothing much of economic interest happened in the non-firm part of the developed labor markets, and to a first approximation, it was the same as “unemployed.” For a few decades of extraordinary corporate growth, exceptional out-of-firm models of self-employment and free-agency were minor factors in the developed world, which economists mostly studied. Turning inward, within firms, the vast proportion of employees fit within a few standard molds, and could be put on a handful of tracks (which Peter Capelli chronicles in Talent on Demand). There were very few employees following unusual paths. Lateral move was about as weird as things got.

Why was this an anomalous century? I put together data from Dan Pink’s Free Agent Nation (1999, 2000 data points, and 2010 projection) and Gareth Morgan’s Images of Organization (for 1780-1980) for the US economy, to produce this graph, which shows a two-century anomalous “dip” in the proportion of “self-employed” (this “dip” is curiously similar to a “dip” in the proportion of world GDP contributed by India and China that I saw in Businessweek several years ago; can someone point out the reference for me?)

Now, don’t take this graph too seriously. It merges data from 2 sources with similar, but non-identical definitions of what is being measured, and different methodologies. But the trend is roughly right, and I wouldn’t expect the curve to change much with more careful construction. What happened? Between 1780 to 1980, “employment” changed from meaning primarily “working for yourself” to “working for a corporation.” Before industrialization, around 80% of the workforce was self-employed. By 1980, that had fallen to around 10%. At that point, it was safe to ignore that 10% in broad-strokes views of the economy.

Then things turned around, and it appears that we’ll be halfway back by 2010: about 40% self-employment of some form (Pink’s “free agency” includes contingent employment, but culturally and financially, these workers live lives closer to self-employed than to paycheck employees). “Unemployment” today is becoming an increasingly meaningless term. Most workers today fill in career gaps that would be viewed by economists as “unemployment” with education, consulting gigs found by trolling LinkedIn, seasonal work, migratory work (ranging from Thai peasants serving as domestics in the Middle East to American college students teaching English in Japan), personal entrepreneurial projects, and the like. When average job tenure starts to go south of three years, these “gaps” start looking more like the norm than the exception.

But is this a return to a pre-industrial pattern of economic organization? Hardly. It is a return, definitely, to a simpler form of economic organization, but it is not the same sort of medieval simplicity as the one that prevailed in 1780. As Oliver Wendell Holmes might have said, I wouldn’t give a farthing for the simplicity on this side of complexity, but I would give my life for the simplicity on the other side of complexity. What is happening is (with apologies to Hammer and Champy), a de-engineering of the corporation, thanks to technology.

De-engineering the Corporation

I began thinking this way when I heard a remark (due to Ross Mayfield of Socialtext I believe) that said that social media in the enterprise allow workflows to be more ad hoc. I interpret this as meaning social media de-engineer workflows. That results in overall less complex organizational forms, and a great deal more freedom for workers trying to craft paths optimal for themselves. These individually-crafted paths weave in and out of increasingly blurry organizational boundaries (legal, cultural and physical). I came up with a rather silly but fun visualization of this in my piece, From Bubbles to Cloud (click thumbnail for full view).

When corporations de-engineer, their dynamics return to a more primal form, driven by the dynamics of the substrate on which they are built: the social graph of the work force (which, to a first-order approximation, is LinkedIn for the US) . I called this form of economics nanoeconomics in a previous post, by analogy with macro-economic and micro-economics. If you like a more fluid metaphor, think of firm boundaries becoming increasingly diffuse, until finally firms dissolve into the social graph (or the ‘human cloud’) entirely on one end, and into the technological cloud on the other. The latter, keep in mind, isn’t just compute clouds and SaaS. The executive suite industry and Starbucks represent the cloud-ization of a very physical element of corporate reality: physical plant real estate.

At the extreme you get that textbook example of the virtual corporation: the Hollywood movie production team that arises from, and dissolves back into, the Los Angeles geographic area social graph.

This does not mean that firms themselves vanish or shrink in simplistic ways; fundamental definitions are being reformulated. Firm-size-distribution-focused “positive space” economics will continue to be crucially important, but with revised definitions of the “firm.”

Economic Negative Space

Now that the rough-approximation idea that those not in firms are “unemployed” is no longer valid, let’s make the firm structure of the economy the background and focus on the exception-individuals, including cloudworkers, who constitute the non-organization-man. Map all my-size-fits me workers. Most will fall in the interstices of the economy today, but an important minority is emerging within the corporation as part of its de-engineering (blue). Here’s a picture.

This is a true negative-space view in the artistic sense. Remember that the positive-space view had firms occupying center stage because their parts fit a standardized “positive space” description (organization man). The negative space view is defined by workers who define themselves uniquely, which makes the firms less coherent in the view. This will remain the negative space view for a while, but it might eventually become the positive space view.

The Technology of Exception-Career Paths

Technology often gets treated in naive ways, and quickly dismissed, in treatments of the social nature of work, usually with glib remarks about “gadget porn.” But McLuhan was right: the medium is the message. Technology provides the medium through which the economic DNA of the corporation and the aspirational DNA of the worker manifest themselves. The blackberry cannot be dismissed with superficial analysis.

I wrote a whole series of articles, Virtual Geography, analyzing how technology rewires everything about work, from our sense of work-space, to its social context, physical geography and temporal character, so I will not repeat myself here. Suffice it to say that when you immerse yourself in a particular web of technology optimized to your life style, the effects are immense. Technology matters.

Careers are lived out minute-to-minute, day-to-day, and it is at this level of granularity that technology has its impact. This may explain why humanities-centric and economics-centric observers (who grandly focus on quarters, years and decades) often miss, dismiss or (possibly out of fear) underplay its importance. Technology has always been the medium that has shaped the message of work. What is different today is that available technology comes at us as a meta-medium that is so fine-grained and so easily assembled into a variety of patterns, that it becomes a language with which to write out the script of your life. This meta-medium is the Internet, though it is evolving into such a new thing that I prefer Nick Carr’s term, The Big Switch. I choose to blog, twitter, range through LinkedIn and use LiveMeeting to get my work done. You might rely on a different configuration of elements — perhaps you survive armed with Ruby, on Darknets. Neither of us can be described by a standard-issue office setup anymore.

A Radical Interpretation: The “Firm” as a Technology with a Hype Cycle

If technology de-engineers and dissolves the corporation into the human cloud (the social graph) and the technological cloud, and drives humans themselves to unique scripts, what does it do to the economy theoretically?

It gets us into an era of rapidly lowering transactional costs of course, in the sense of Ronald Coase, but that conclusion is, by now, well known and widely publicized.

But what’s happening isn’t merely an economy organized around “the shrinking firm.” Since the very definition of the firm as economic unit is changing while it is being assaulted by transaction-cost lowering technologies, we need deeper ideas. Here’s one radical conjecture. The firm, as an abstract notion, is really a technology. A massively complex piece of engineering. A technology so completely disruptive, that at its trigger point around 1780, it began completely altering every aspect of the economy.

Like every technology though, it has a hype cycle. In this case, that hype cycle has taken 300 years to reach its plateau of productivity. The firm won’t vanish, it will just mature, redefined, to its proper role in the economy. The evidence for my conjecture is a simple piece of jugglery. Take my original “proportion of self-employed” graph, and assume that its complement, the proportion of standarized-parts “organization men” were all used to build firms. The reversal then, gives you a curve that looks suspiciously like the hype cycle. Here is a sketch, the red one is my scribble, not based on direct data of course, but I bet you could validate it using sources from the firm-size distribution literature.

It will be complex to test this conjecture of course. For starters, the red curve represents actual adopters who were sold the “American Dream” of mortgage and career ladder at age 21, and locked in for life. Hype curves are more than just left-shifted adoption curves, so there is explaining to be done. But still, an intriguing idea I think.

Note that this idea is subtly different from Gary Hamel’s idea in Future of Management, (which also looks at the firm as an obsolete “technology”). Hamel believes you can innovate and revitalize the firm as an evergreen construct. I believe it may fundamentally be a plateau technology, that will get replaced, in the next 100 years, by a different one, sending it down the cliff of obsolescence.

Up Next

So we’ve looked at the cloudworker as an individual, and at the economy within which he is embedded. Keep following this series, and we’ll get to culture, governance, education and technology too!

A topical note: as I write this, LinkedIn has just, as of today, launched a serious platform upgrade making it accessible to third-party productivity technology providers. What was merely the search/negotiation medium in the interstices of the resume economy is starting to acquire the trappings of actual economic production. Though Facebook got there first, I believe, in the long-run, LinkedIn’s move will be viewed as more significant.

Let the de-engineering begin.

[please vote for cloudworker in this contest to replace ‘telectommuter’. You can vote once a day between Oct 30 and Nov 2007]

Nichelle Stephens October 31, 2008 at 9:50 am

Thanks for putting a name to what I have been doing the past three years!

William Bagley December 29, 2008 at 10:18 am

I am not sure that your assertion holds. If I take your “free agents” graph and take one minus the value you show, then I do get a curve that approximates the Gartner Hype Cycle. In order for it to hold, though, the “trough of disillusionment” should take place from 2000-2010 with a corresponding plunge in the employment rate to around 20%. I do not have the data sources you used, but I suspect that did not happen even if I include India and China.
One could argue that that the “trough of disillusionment” would have occurred except that the US Government intervened to prop up AIG, General Motors, et. al. and prevented it.

Venkat January 3, 2009 at 5:11 am

Well… I wouldn’t commit to specific dates and percentage levels. Just the overall shape and underlying dynamics. The data is mashed up from Pink’s Free Agent Nation and Morgan’s Images of Organization. It will take a good deal more work than a single blog post to test the conjecture “the technology of the corporation is finishing its hype cycle”

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