Cheap Thoughts

It seems like everyone is jumping into the debate over how to classify people who drive for Uber and Lyft or work for Handy and the rest of the sharing economy.  Are they employees, contractors or some new middle ground we as a society are going to have to define?  I don't have any answers or proposals that have not already been tossed around, and I believe that the conversation is an important one for our country to have as technology erodes what employment means to millions of Americans.  This blog post isn't aimed at answering that question, but rather to suggest that we should reframe the debate and not allow it to be so Uber-centric.

When someone starts a conversation about the sharing economy their statement generally begins with some variation of the phrase "with companies like Airbnb and Uber."  It is shortsighted for us to use Uber as the proxy for the rest of the sharing economy because they are the most likely to eliminate their workers altogether.  If you believe that driverless cars will arrive in the not too distant future then it's certainly not a stretch to argue that Uber will be at the forefront of that movement.  Once that happens we won't need to classify their drivers because there won't be any drivers to protect.  The debate needs to be adjusted away from Uber and closer to  companies that don't have as clear a path to automating their workforce.  Instacart is going to have a much tougher times getting robots to go grocery shopping for all of us and Handy will require human skills for the foreseeable future as well.  Let's have the conversation but shift our attention away from Uber to companies that will actually have workers in the long run.

A friend of mine recently bought an Apple Watch and it’s been fun for all of us (roommates) to play around with it.  None of us have ever really interacted with a wearable for more than a few minutes, and certainly not one with as much functionality as the watch.  There were moments when I smiled and said “that’s pretty neat,” others where I though some functionality was missing and others yet when I was stumped trying to understand how to use it.

Putting those first few days of interaction with the Apple Watch in context I couldn’t help but feel that this type of technology is the future.  I am excited to see what types of killer apps people thinks up, which I fully expect as the watch is really a new medium. I predict that I will look back ten years from now and laugh at how little I understood about the technology and how dumb I must have looked trying to get it to work.  I think those first few interactions I’ve had with the watch will be very similar to the time many of us have spent trying to get one of our grandparents to understand how the iPhone works.  To us, it is so obvious and intuitive, but to them it is a foreign experience. 

I am a pretty big Apple fan and definitely see myself owning some type of wearable technology in a couple years, most importantly (to me) when the battery life improves, but I don’t think it’s an investment I will make anytime soon.  

I have used Instacart a few times and love it.  They've built a great product and I expect to see their business and others like it grow exponentially in the coming years.  With that said I have decided not to use their product (at least for the time being).  

I stopped using Instacart because it wasn't solving a real problem in my life.  I convinced myself that I had too much on my plate to bother going to the grocery store, but in the process realized that I was actually missing out on much more.  To be clear, my argument is not that Instacart and other on-demand services cannot be hugely beneficial.  My mother raised five sons and I am sure she would have happily paid a premium to have groceries delivered as she tried to balance everything running a family demands.  (As a side not I really don't know how mom's do what they do.  As I've gotten older I have started to appreciate what mom's everywhere sacrifice for their children, they are literally superheroes).  Some other obvious scenarios include persons who are snowed in or sick, elderly people who can't drive, or someone living with a disability.  The list could obviously go on, but it would not include me.    

Much of Instacart's initial traction came from/continues to come from catering to tech workers in San Francisco, New York and the like.  I am going to generalize here by saying that the demographics of these workers are males and females, under the age of 32 and single (or at least not married with kids). I  fall into this bucket.  Somehow we have all convinced ourselves that our lives/responsibilities are too great to find time to go to the  grocery store.  I told myself that ultimately Instacart would allow me to spend more time working.  That's bullshit.  Again, I am in my mid-twenties, no wife, no children and no real responsibilities outside of the office. Not only do I have time, but I think it's important that we all find time to get out there.  Does anybody love waiting in line at the grocery store? No.  But when we begin to cut those experiences out of our life what are we left with?  What is life without real human interaction?  Better yet where will real human interaction com from if all we do is shuffle between the office and our apartment?  Talk about living in a bubble.

How can we form comprehensive views of society if we don't actually experience it firsthand?  We can't work at the intersection of the humanities and technology if we don't experience the world around us.  Perhaps an even more troubling consequence of the "shut-in economy" is it effects on our ability to build great new companies.  By removing ourselves from the world we become less sensitive to the problems around us and the problems that need to be solved!  And if we don't experience those problems how can entrepreneurs build great new companies to solve them?  You'd just end up with a bunch of really smart/driven people optimizing processes they and everyone else in their bubble are dealing with. 

In general I think I have done a poor job of evaluating the tradeoffs of using these new services.  Someone to do your shopping, deliver your food, do you laundry, etc.  The gains in convenience are obviously immense, but you also run the risk of losing touch with reality.  In conclusion, I want to post a link to this scene in Goodwill Hunting, which has been on my mind the whole time I was trying to formulate this thesis. 

Practically speaking full employment can be defined as follows, anyone who is interested in having a job can find one and anyone who wants to work more hours can get those hours.  I have always considered full employment to be unobtainable, something an economy should strive for but which could never be feasibly achieved.  Are we entering a world where that no longer the case?  

My central question is whether or not the sharing economy (Uber, TaskRabbit, Instacart) can actually get us to full employment?  As a side note, I realize that you need a car to drive for Uber or Instacart among some other basic prerequisites, but I want to stay focused on the bigger picture here.  All three of these companies allow individuals 1) The chance to earn income above the minimum wage 2) The ability to clock in and out of work at their convenience 3) Earn income directly proportional to the amount of time they are on the job.  Furthermore, they are looking to rapidly expand their workforce meaning as of today workers can add more hours whenever they want.  Phrased differently, these companies offer employment to almost anyone interested and give their employees a (nearly) endless amount of work to do.

I realize that working for these companies is not "work" in the traditional sense of the word, in Uber's case you are a contractor, not an employee, but I also doubt there are many companies on earth who are hiring as quickly as Uber is right now.  The impact these companies are having on society/the economy should also force us to rethink how we define and achieve our objectives.  My brother is currently in college driving for Uber on the side to make some extra cash, and while I couldn't tell you exactly what he is making per hour it is DEFINITELY over the minimum wage, and he gets to go to work whenever he wants.  For all the debating over exactly what an Uber driver can earn I suspect that everyone is earning above minimum wage salaries.  This new breed of companies gives (almost) anyone the ability to do the same.  I understand there are a whole range of issues that need to be resolved by these companies, their employees. and regulatory bodies, but at the end of the day shouldn't we praise companies who enable that type of workforce productivity?   

If you're at all interested in trying to understand how technology originates and evolves I couldn't recommend a better book than The Nature of Technology, by Brian Arthur. It's a fascinating read, and one which I expect to keep close by for years to come.  More to the point, there is a section in the book where Arthur is describing how innovation and competitiveness evolves in specific fields over time. He argues that technical expertise in a given field tends to be concentrated in a specific geographic region.  In making this argument he either knowingly or unknowingly perfectly summarizes why Silicon Valley is "Silicon Valley."  The excerpt goes:

"Real advanced technology-on the edge sophisticated technology-issues not from knowledge but from something I will call deep craft.  Deep craft is more than knowledge.  It is a set of knowings.  Knowing what is likely to work and what is not to work.  Knowing what methods to use, what principles are likely to succeed, what parameter values to use in a given technique.  Knowing who to talk to down the corridor to get things working, how to fix things that go wrong, what to ignore, what theories to look to.  This sort of craft-knowing takes science for granted and mere knowledge for granted.  And it derives collectively from a shared culture of beliefs, an unspoken culture of common experience."  

"It follows that once a region-or country for that matter-gets ahead in an advanced body of technology, it tends to get further ahead.  Success brings success, so that there are positive feedbacks or increasing returns to regional concentrations of technology."

If you think about entrepreneurship as a form of technology (which it is) Arthur's description of the concentration of technical expertise also perfectly describes how and why Silicon Valley is what it is today.  The positive feedback loop is not limited to one specific form of technology but rather to the process/practices/shared knowledge of building great companies.  To draw the analogy out even further, Arthur also makes a strong case for anyone who is long on Silicon Valley.

Brian Arthur's research into increasing returns is one of the most important methodologies for anyone trying to understand how technology is reshaping the modern global economy.  He argues that as software continues to eat the world the global economy will move from one of decreasing returns to one of increasing returns.  His basic premise was that up until about twenty years ago most industries were dominated by labor or the bulk processing of resources, everything from metals to lumber and retail goods to grains.  One of the principles of this type of industry is diminishing returns.  Diminishing returns hold that companies operating in those resource/labor intensive industries will eventually run into certain natural limitations (capacity or labor problems).  Those limitations create what economists call perfect competition or economic equilibrium, characterized by thin margins and multiple competitors.

Arthur goes on to argue that the modern economy is in the midst of a major transformation where knowledge has replaced labor, and where the products and services that get ahead first get even further ahead over time.  In Arthur's own words increasing returns

"are the tendency for that which is ahead to get further ahead, for that which loses advantage to lose further advantage. They are mechanisms of positive feedback that operate—within markets, businesses, and industries—to reinforce that which gains success or aggravate that which suffers loss. Increasing returns generate not equilibrium but instability: If a product or a company or a technology—one of many competing in a market—gets ahead by chance or clever strategy, increasing returns can magnify this advantage, and the product or company or technology can go on to lock in the market." 

You can already see the winner-take-most outcome in action.  Search is dominated by Google, online video by YouTube, professional networking by LinkedIn, social media by Facebook & Twitter, mobile OS by Apple & Google, e-commerce by Amazon and eBay.  So how does all of this effect wealth inequality?  

1) The shift from labor to knowledge-based economies puts a premium on workers who have access to high quality higher education.  Those who don't will be faced with fewer employment opportunities and will be forced to have their wages depressed in the face of increasing automation.  Although there is already a huge disparity in long-term earnings powers between college and non-college educated workers those differences will be compounded in the new economy.

2) This type of competitive environment will create monopolies across a ton of different industries, which Peter Thiel argues is actually a good thing.  While I agree with Peter's argument what happens if the companies grow through the use of AI, replacing human labor?

3) Companies will grow to become much larger today than any other time in history while employing fewer workers.  At its peak in 1979, GM employed over 600,000 workers in the US and over 800,000 worldwide.  Today, Apple, the world's largest company employs about 98,000 people and generated roughly $182 billion in revenue in 2014.  The wages for those highly coveted workers will continue to rise exponentially while the average American will be left with fewer opportunities for stable long-term employment.  It won't be long before a one-person start-up is sold for $1 billion.

(I'm sure there are many other effects that I am overlooking)

I see a world with more profits flowing to fewer companies, and where those companies employ a small percentage of the population than in previous years. And as a result of the characteristics that define an economy of increasing returns if will also be much harder for new entrants to compete/dethrone the incumbents.  Cynicism aside, it will also be a world in which most humans are better off.  Technology is lifting millions of people out of poverty, child mortality rates continue to decrease, fewer people are dying of preventable diseases, per capita GDP continues to rise and billions of people are now coming online, opening the door for an untold number of entrepreneurs to change the world.

Ultimately I believe this will be the defining issues of the next 30 years.  

I'm going out to Colorado with a buddy of mine to do some skiing in February, we just finalized our accommodations and the sharing economy has really come in handy.  Rather than paying a few hundred dollars per night at a hotel we're staying in someone's basement via Airbnb for roughly 40% of the cost.  I have been following Airbnb closely over the past few years and recommended them to friends and family on numerous occasions, but this is my first time using them.  We also decided to try Relay Rides as opposed to Hertz, Enterprise, etc. for our car rental, which if you're not familiar is like Airbnb for cars. Both of these companies have saved us several hundred dollars, but more than that they have changed how I travel altogether.  These idea's would have seemed utterly outrageous five years ago, but this trip was an "ah-ha moment" for me and one which made me realize how much potential those "utterly outrageous" ideas can have.

The quality of our trip is now in the hands of individuals not companies (for the most part).  The variety of options available to us when making our accommodations has increased dramatically and the costs have come down significantly.  Furthermore, the economic value is now going directly to a person as opposed to a company (again for the most part).  If you would have asked me five years ago what would have to take place for the Hilton's and Alamo's of the world to have their business model threatened I would not have had an answer for you.  When you start to estimate how much money companies like Airbnb and Relay Rides are costing incumbents it really makes you appreciate the nature of innovation. 

I think sometimes we all tend to underestimate how much companies like Airbnb and RelayRides are affecting the world around us.  I urge everyone to take a step back every once in a while and appreciate the progress being made right in front of us.  

I read an article last week that discussed how the Chinese Communist Party believes it has a responsibility to oversee and control education at the university level (a moral imperative).  It is another step in the wrong direction for a country who citizens are clearly looking for a more democratic government and greater protections of their free speech.  It's controls like this and others that will continue to make it very difficult for Chinese citizens to live up to their innovative potential, as they faced continued resistance from their government, including:

• Making it more difficult to access Gmail
• Tighter control of University education
• Banning the use of puns in the media 
• The list of more than 2,700 banned websites
• The Hong Kong protests 
• Continuing to jail dissidents

The story of Chinese growth over the past twenty years is one of the most astonishing economic triumphs in human history.  In a very short period of time, China has established itself as one of the world's greatest economies, creating hundreds of billions of dollars in new economic value and introducing nearly 700 million of its citizens to the internet.  Those citizens are now spending billion of dollars every year on goods and services and have the leverage to move China to a modern consumption based economy.

As China continues to integrate itself into the global economy and as the explosion of the Chinese consumer continues it is going to be increasingly difficult for the Communist Party to reconcile these trends with their ideologies of ever-tightening government control.  Furthermore, as technology makes it way deeper into China and millions of new users gain access to the internet I suspect the government will find itself between a rock and a hard place.  Every step taken to further integrate itself globally will make it harder for the Chinese government to hide their policies restricting the rights of the citizens of a "free country".  Furthermore, as their role in the world grows they will simultaneously be inviting more criticism of those same policies.  The growth that they are so eager to sustain comes with expectations from other developed nations that their citizens have access to similar basic rights of any other free nation.  

-With all that said I still expect to see China produce some of the most innovative companies of the 21st century, just don't expect them to gain control of the title "Most innovative country in the world" anytime soon.

-I'm also excited to see how technology is leveraged by the Chinese to force change on their government.

I saw this GIF recently and thought it was one of the most compelling visuals for why we need innovation in the auto industry.  With the global population expected to grow to over 8 billion people by 2030 and urbanization around the world packing more and more people onto our city streets we're going to need to see some drastic innovation in this sector in the coming years.  Like any other complex global problem there is no silver bullet but there are a number of options that could help create a much more sustainable urban model for coming generations.  

Government's at all levels are going to have top reinvest in public transportation infrastructure but they are also going to have to make it an enjoyable experience if they want to achieve mass adoption.  They should leverage technology to make people want to use public transportation, not use it as a last resort.

Uber, Lyft and other rise sharing services are also well positioned to help solve this problem.  More specifically, services like Uber Pool and Driver Destination have the potential to have a tremendous impact on urban congestion.  While these services continue to face intense scrutiny I expect they will become the norm for my generation as more people become comfortable with the sharing economy.  

I was in a meeting today and one of our employees got frustrated because the screen on his iPhone had frozen, forcing him to shut down his app and reopen it.  In about 30 seconds he was back to where he needed to be, harmless enough.  If you had seen his reaction though you might have thought that Apple had deliberately planned on ruining his entire day.  I found the incident amusing but also began to reflect on how high are expectations are for technology these days.

The iPhone (or any smart phone) is a globally connected supercomputer that fits in our pocket and allows us to to communicate with anyone around the world instantly, for free.  Pretty powerful stuff.  It amazing if you step back and think about how far we've come in the last decade.  So many of us, myself included, forget how lucky we are to be living in a world where we have access to any bit of information we could possibly want at out fingertips at all times. All tech companies should also recognize how high consumer's expectations are and make sure that their product is able to meet or surpass them, or risk being beat by someone who can deliver an almost perfect user experience.