I’m reading William Scholz’s excellent post on the future economies here. He has some very incisive observations about the direction we’re going regarding production – in this case, production of concepts and ideas. And he posits the demise of the old supply-demand curve that we economically-trained thinkers have relied upon to predict prices, and thus wages. This demise is primarily due, in Scholz’s analysis, to the fact that ‘production’ in modern times, is nearly friction-free. The essential example might be an e-book. once created, it can be consumed in limitless quantities. Infinite supply, right?
I would disagree, in that what we’ll see is flatter supply curves, but curves nonetheless, as the demand moves from the productive result of workers and plant & material to more cognitive-based output like ebooks, other entertainment and software.
First, let’s contrast distribution and supply.We’ll tackle distribution first. It is nearly frictionless (very low cost) to distribute the ebook, but it is not free. The author must pay the distributor enough to repay the distributor’s cost of infrastructure: maintaining servers and staff to build and support the electronic distribution network is a significant investment. That is the modern equivalent of a factory. The scale at which distribution can be accomplished is a remarkable improvement over the days of print and paper.
But what about the supply? If we think about the supply of e-books we really want to read, that becomes a different story. The writing of the book is analogous to the design of a new widget. There are a lot of writers out there, and the very low cost of distribution, and due to computers, even of production (writing and editing the book) lowers the cost of entry to the point that we have a lot of producers. But how many good ones do we have?
I’ve been diving into the twitterverse lately and opening many channels to new writers, many indies, who are doing it themselves. They are the instantiation of the massive supply Scholz describes. But the product quality is very variable. Many of these ebooks can be filtered out by bad typography, mis-spellings, bad grammar, bad usage and inconsistent layout which really detracts from the physical experience of reading. once you get to a particular level of professionalism to which we expect for our payment, the supply has been drastically reduced. The next filter is for that book which speaks to us. Does the author have a vision, a spark of creativity to which we are drawn?
Not so much supply now, is it? In truth, it takes a lot more than a good idea and energy to write a great book. I posit that wages will flow to those who get the professionalism and the inspiration right and who address needs/interests of the larger part of the population. The beauty of the system of course is even the edgier writers will find someone, and they can reach them at a low cost. But the wage differentiation will certainly persist. For every J.K. Rowling there are many thousands who sell a few thousand books a year.
It’s not so different in software. I’ve been in big companies and small ones, but I started small. I was in a little boutique firm that sold complex derivatives-valuation software to the big banks. And one day, while I was hanging with the chief architect, he said to me, “You know why I like small companies? Because in big companies, there’s too many stupid people.” That was pretty harsh but hey, it was between the two of us. I’m sharing with my gentle reader because, what Jay was really trying to express was what I call the scarcity of entrepreneurship.
I’ve lived it. I’ve worked in some very large companies and I have witnessed the deadwood that inhabits the forest which is a big firm. But beyond that, there is typically a large number of folks who are productive and working hard but basically punching the clock and looking forward the weekend, not looking forward to changing the world. There was an article passed around in the mid-90s (before the internet had really taken off, so we had to pass around paper!) about how the top employee was about 5X the productivity of the average worker, and about 12X the productivity of the lower-level ‘deadwood’ types. I knew that, because I was hauling deadwood along in my project, I reported lines of code per month and I knew I was carrying things. And during portions of my career, when my kids were taking the 9th iota out of my SO and I, my productivity crashed. Boy was I looking for the weekend. So swap the term “otherwise exhausted/uninspired” for “stupid” in Jay’s quote and you get the general human condition. We’re not all on fire all the time.
Later I was astonished to find in this big company that no one had managed to simulate, in software, how our machines worked. There were 20 engineers in a parallel product line (the ‘Cadillac’ so to speak) who did this. In our product line (the symbolic ‘Chevy’), about ten or so engineers were working on analytics but no one had built a tool. I asked the Caddy guys if I could plug into their system but they said I’d need three fulltime engineers to do it. I had no headcount, so I built my own simulator from the ground up. Over the next three years, I was the entrepreneur. It was a lonely position, and in that position I met a few other engineers who, like me, had a fulltime job but did extra work to build gizmos because it needed to be done, and we had the fire. I’d say, in a community of some 10,000, there were maybe a dozen of us.
That, my friends, is the scarcity of entrepreneurship. The initiative that drives forward progress at world-changing rates is finite, and even those who have it run down. There are a few weird outliers who affect everything they see and never seem to rest, like Steve Jobs, Bill Gates, Larry Ellison, Elon Musk and they are like the odd ruby on a beach of plain sand. They are also bloody rich, so, again, will we see wage differentiation? Yes, we will.
Scholz writes “We move toward an economic order where creative or knowledge based resources are negotiated through social incentive rather than being derived from natural availability.” The collaborative functions of the internet age are certainly powerful. We have very valuable creative commons being built, and the efforts of people like Linus Torvalds have thrown entire industries into the wastebin. However, we must remember folks like Linus were able to do what they did because they were working in an industry which was pre-transformation; it paid well, and provided the opportunity to do work which was not specifically remunerative. With the globalization of the workforce more and more programmers are finding themselves fighting a flattening wage slope between themselves, Shanghai and Bangalore. Will inspired Americans and Europeans be willing to give up wage-earning time if they can’t make the payment on their SUV or Smart Car, respectively?
I expect increased competition and the entrepreneurial talent to demand compensation. We’re already seeing competition for the best minds as Musk hoovers up the top 1%, Apple and Google fight for the Stanford and Berkeley grads and the various tech centers like Silicon Valley continue to draw the brightest minds from around the world.
Thanks William for the thought-provoking premises!