This is an idea I’ve been mulling over recently, inspired mainly by the issue of Uber and the degree to which it represents a sustainable business model, but the argument applies in general to companies engaged in the ‘gig economy’.

It’s not meant as a polemic; it’s just a hypothesis but I’m interested in people’s views. The hypothesis is this:

The shift towards self-employed contractors for large-scale service delivery businesses represents an even bigger shift in the burden of risk from the organisation to the individual. This is an exaggeration of one of the key features of Anglo-Saxon models of capitalism and is in stark contrast to the alternative Alliance Models seen in Germany and Japan.

But even more importantly, this shift represents a transfer of the means by which the viability of a given business model is evaluated, from the organisation to the contractor. By this I mean the feature of capitalism that is self regulating and efficient, with the best run, most viable business models succeeding and the least ones failing.

The contractor’s ability to sustain losses (that are the result of a business model that simply isn’t viable) is far lower than that of an organisation; this will lead them to exit the contract sooner.

But an individual’s appetite for risk also tends to be higher (because they lack the power of colletive decision making), thus increasing the likelihood of a (new) contractor willing to take the position.

This leads to a ‘merry-go-round’ effect of contractors entering into arrangements with companies, spending a year or two trying to make it work, failing (i.e. they lose money), exiting and then being replaced by more contractors willing to try and make it work.

The reason this possible is because the individuals willing to enter into the arrangement are desperate; the pressure they feel to find a way to provide for themselves and their families clouds their judgement and inhibits rational decision making.

Meanwhile the organising company still makes a profit because their business model specifically includes a key cost variable that should, under normal conditions, be part of the economic equation for determining the viability of the business model.

This is both deeply unfair, exceptionally inefficient and entirely unsustainable.

Discuss……

The “Uber-Model” works for a limited time in some markets. Not all businesses can operate the model, nor do they want to. There was a trend for employing high-earning ’employees’ as self employed or sole traders, but that loop hole is being closed rapidly.

The problem with ‘pure’ capitalism is that it does not confer any special status on humans over any other resource. It relies upon the morality of individual business managers (ha!) or legislation to make businesses treat people like people and not just ‘resource’. The contractor model is often people opting out of this legislative framework designed to mostly protect them for a perceived individual gain, which actually often harms the interests of the many.

but the argument applies in general to companies engaged in the ‘gig economy’.

This model isnt any new. We are just revisiting the joys of when workers had to line up at the factory or dock entrance and hope to get selected for a days work.
Just now because it is done using an app it is “innovative” and “disruptive”.

Its worth noting though for Uber the dream is to get rid of those pesky workers altogether. Either ending up with their own fleet of self driving cars or, more likely, one where once my car has dropped me off at the office I send it of working for uber until home time.

It’s also worth considering the barriers to entry.

For Uber and Deliveroo type engagements are pretty straightforward to qualify for. Where the bar to entry is high it tends to have the opposite effect.

The problem with ‘pure’ capitalism is that it does not confer any special status on humans over any other resource.

Honestly I’m not sure I agree with that statement for a number reasons, though I do agree with what I think is your motivation for making it (which is that in general a lot of businesses and society in general do not value the people effort highly enough).

But to narrow it down a little, you need to differentiate between the Anglo-Saxon models, which are frequently guilty of this, and the Alliance Models, which really aren’t (and is partly why they are called alliance models).

This model isn’t any new. We are just revisiting the joys of when workers had to line up at the factory or dock entrance and hope to get selected for a days work.

That’s very a good point; I hadn’t thought of it like that. I don’t think it’s entirely the same dynamic though there are clear parallels. It would need a much longer post to try and pick apart the differences and see if they are material or indeed if we really are just heading back 100 years.

Its worth noting though for Uber the dream is to get rid of those pesky workers altogether.

Now that is abundantly clear. And of course when we get rid of one of the few jobs that a significant part of the population are able to do (and only able to do because of other limiting factors like IQ), then the next question will be, what job is society going to create to replace being a driver now that you’ve just made 15% of the worksforce redundant. But this is a separate issue.

It’s also worth considering the barriers to entry.

This is an excellent point, thankyou, yes, so true. And in particular, where those barriers to entry are built on complex technology or processes, the commitment to employees, even in the Anglo Saxon models, will still limit the degree to which they can be kept at arms length.

We’re all entrepreneurs now, yay!

This model isnt any new. We are just revisiting the joys of when workers had to line up at the factory or dock entrance and hope to get selected for a days work

And the shift from companies offering training to individuals being responsible for gaining qualifications in the hope they might get shortlisted for an interview.

The problem with ‘pure’ capitalism is that it does not confer any special status on humans over any other resource. It relies upon the morality of individual business managers (ha!) or legislation to make businesses treat people like people and not just ‘resource’. The contractor model is often people opting out of this legislative framework designed to mostly protect them for a perceived individual gain, which actually often harms the interests of the many.

v8ninety summed it up beautifully for me.

Geetee1972: I’ve read some of your posts and I, er, ‘don’t rate them’…

However, in your observations, you are spot on here. I would add that it’s not really so much ‘Anglo-Saxon’ capitalism where the crisis lies – it’s within the economics of (Late?) neo-liberalism. The Uber thing is really the latest in a long run of capital’s (and its agents) attempt to derive more profit from workers by undermining their power, commodifying their labour power (i.e. making each worker interchangeable with another – this was done in manufacturing easily with mass production, and is now being achieved in the service industry).

Most problematically what this does is two thing:

– on the economic side it undermines the ability of workers to sustain themselves, their families and actually buy things.
– Secondly on the social and political side is creates a group of people with very little stake in the success of the wider economy and society. They become disenfranchised and alienated. And as a result angry and resentful. You see this in the ‘burn it down’ attitude in Brexit and to a lesser extent the Scottish independence referendum.

The model prior to Thatcherism was a ‘pact’ between labour and capital where productivity rises and compliance were matched with real-terms wage rises – and where the state enforced contracts, provided regulatory stability, welfare and education. This model is collapsing everywhere – and in some places (e.g. the gig economy) collapsed some time ago.

Lastly – the supply of cheap credit is essential to supporting the current system – this provides the means of consumption in face of falling/stagnant real wages, insecurity and the need to provide and buttress the real wealth of those who already have it.

If you are so inclined there is tons of reading on this…

Bear in mind though that the Uber model with it’s move towards driver-less cars ultimately means that it can’t/won’t be a dominant force once that happens. It is it’s own limiting factor.

It would need a much longer post to try and pick apart the differences and see if they are material or indeed if we really are just heading back 100 years.

It varies according to the exact variant of the gig economy eg uber pushes it to the limits since it does put a lot more risk and cost onto the “independent contractor” (or whatever the term for “employee without any rights” is now). So its like expecting the dock worker to turn up with their own crane.
Others though like task rabbit and the like are a lot more similar.

Geetee1972: I’ve read some of your posts and I, er, ‘don’t rate them’…

I’m shocked! I guess you mean my views on men’s rights, equality etc. It’s ok if you don’t agree, plenty of people don’t, plenty of people do.

But it sounds like we strongly agree on my ‘hypothesis’.

I think there are pressures on all forms of capitalism, but I’m not sure that the pressures are equal. Your point here is interesting:

a ‘pact’ between labour and capital where productivity rises and compliance were matched with real-terms wage rises

To a large degree that is still how things are done (or at least were done) in places like Germany. My knowledge might be a little out of date now as the last time I spent a good deal of time reading and researching the finer points of Alliance vs Anglo Saxon capitalism was about ten years ago, but I can’t imagine things have changed radically in that time.

The insights in contrast to Germany though are valuable because it suggests a way forward for policy making that a government willing to act could take. Since Capitalism isn’t going to go away any time soon, it’s worth trying to develop policy that moves it towards the alliance model rather than letting it be a runaway train heading further down the precipice of anglo-saxon disintermediation.

Uber and TFL big falling out has highlighted to me the problem with this disruptive business model coming out of ‘Silicon Valley’.

It’s two core principles for me are the dreaded ‘efficiency’ word – a term that sounds great, but in reality is just greed and greed is ultimately self-destructive and short term. Efficiency says that you don’t need to pay staff a decent salary to enable them to have a life, which benefits the economy as a whole, creating more confident consumers who keep the wheels turning – no, you just pay them for only the exact moments they’re making you money – then you pay them a percentage. So they do all the work and take all the risk (trying to make enough money to maintain their vehicle etc) for that transaction. Some will make a living from it, some won’t – whilst they don’t overtly call it a job, it clearly is – their workforce is made up of of people largely below the poverty line or working insane hours to made ends meet.

The second principle, is finding hole in legislation to allow them to 1) exploit workers 2) compete unfairly within an industry.

Let’s not dress it up, they can call their service a life-sharing service or whatever, but they’re a taxi / minicab service who don’t have to maintain their vehicles, don’t have to pay drivers sick pay, holiday pay etc, they don’t have to pay tax, they don’t have to license their vehicles etc – they market, and take the money.

These sorts of business models can only work in a few cases because if every business ran that way we’d all be too poor to buy anything, they’re a business virus – left unchecked they’ll kill their host and themselves in the process.

Uber and TFL big falling out has highlighted to me the problem with this disruptive business model coming out of ‘Silicon Valley’.

It’s two core principles for me are the dreaded ‘efficiency’ word – a term that sounds great, but in reality is just greed and greed is ultimately self-destructive and short term. Efficiency says that you don’t need to pay staff a decent salary to enable them to have a life, which benefits the economy as a whole, creating more confident consumers who keep the wheels turning – no, you just pay them for only the exact moments they’re making you money – then you pay them a percentage. So they do all the work and take all the risk (trying to make enough money to maintain their vehicle etc) for that transaction. Some will make a living from it, some won’t – whilst they don’t overtly call it a job, it clearly is – their workforce is made up of of people largely below the poverty line or working insane hours to made ends meet.

The second principle, is finding hole in legislation to allow them to 1) exploit workers 2) compete unfairly within an industry.

Let’s not dress it up, they can call their service a life-sharing service or whatever, but they’re a taxi / minicab service who don’t have to maintain their vehicles, don’t have to pay drivers sick pay, holiday pay etc, they don’t have to pay tax, they don’t have to license their vehicles etc – they market, and take the money.

These sorts of business models can only work in a few cases because if every business ran that way we’d all be too poor to buy anything, they’re a business virus – left unchecked they’ll kill their host and themselves in the process.

Uber and TFL big falling out has highlighted to me the problem with this disruptive business model coming out of ‘Silicon Valley’.

It’s two core principles for me are the dreaded ‘efficiency’ word – a term that sounds great, but in reality is just greed and greed is ultimately self-destructive and short term. Efficiency says that you don’t need to pay staff a decent salary to enable them to have a life, which benefits the economy as a whole, creating more confident consumers who keep the wheels turning – no, you just pay them for only the exact moments they’re making you money – then you pay them a percentage. So they do all the work and take all the risk (trying to make enough money to maintain their vehicle etc) for that transaction. Some will make a living from it, some won’t – whilst they don’t overtly call it a job, it clearly is – their workforce is made up of of people largely below the poverty line or working insane hours to made ends meet.

The second principle, is finding hole in legislation to allow them to 1) exploit workers 2) compete unfairly within an industry.

Let’s not dress it up, they can call their service a life-sharing service or whatever, but they’re a taxi / minicab service who don’t have to maintain their vehicles, don’t have to pay drivers sick pay, holiday pay etc, they don’t have to pay tax, they don’t have to license their vehicles etc – they market, and take the money.

These sorts of business models can only work in a few cases because if every business ran that way we’d all be too poor to buy anything, they’re a business virus – left unchecked they’ll kill their host and themselves in the process.

So good he said it three times…

These sorts of business models can only work in a few cases because if every business ran that way we’d all be too poor to buy anything, they’re a business virus – left unchecked they’ll kill their host and themselves in the process.

This is sort of my point.

In any other business, the fundamental flaw in the model would result in the business failing.

In Uber’s case (and potentially other ‘gig economy’ businesses) that failure is being carried by the drivers, who get a year or so in and have to quit having lost money.

But since there are plenty of people desperate enough for a source of income, there are drivers willing to take their place.

I agree with pretty much everything you said here. People being exploited as just another ‘resource‘ without reasonable protection.

The ‘disruptive’ opportunities as already pointed out – remove the relationship between risk and reward. One side takes the majority of the risk, whilst the other takes the majority of the reward…

The system has moved in an increasingly flawed direction.

alternative Alliance Models seen in Germany and Japan.

Don’t know about Germany, but Japan is *well* down the same path.

Another element is the increased dependence of benefits in supporting the low / minimum wages, particularly big retailed like Sports Direct who offer zero hours / minimum wage contracts to employees, who then require benefits hand-outs to simply survive and the likes of Mike Ashley pocketing millions on the proceeds, regardless of the fact that their business wouldn’t survive without a Government ‘subsidy’. Even worse with the like of Uber or Amazon who pay minimum corporation tax as the proceeds are simply off-shored. Successive Governments also absorbed by targets for employment, regardless of whether these are ‘high value’ jobs and why UK productivity continues to fall.

Another element is the increased dependence of benefits in supporting the low / minimum wages, particularly big retailed like Sports Direct who offer zero hours / minimum wage contracts to employees,

Good point and one that makes the idea of a ‘universal income’ at least worth exploring.

This was dicussed yesterday on MoneyBox and some figures banded about that suggested £400bn in government spending would yield about £5,000 income per anum per adult in the UK.

I don’t know what the current total spend is on all benefits and welfare so I don’t know how much of this £400bn is a net increase in cost versus just a reppropriation of existing spend.

But if our model of capitalism is going to allow increasing disintermediation between employer and employee, then Universal Income is one policy we could introduce to make approach sustainable.

Interesting thread.

I do find the RW press frothing at Corbyn amusing.
His popularity at the moment is a direct response to the neo-liberal economics that has left so many with so little.
Such policies will become more popular unless those at the bottom get a larger slice of the pie.

o a large degree that is still how things are done (or at least were done) in places like Germany. My knowledge might be a little out of date now as the last time I spent a good deal of time reading and researching the finer points of Alliance vs Anglo Saxon capitalism was about ten years ago, but I can’t imagine things have changed radically in that time.

The insights in contrast to Germany though are valuable because it suggests a way forward for policy making that a government willing to act could take. Since Capitalism isn’t going to go away any time soon, it’s worth trying to develop policy that moves it towards the alliance model rather than letting it be a runaway train heading further down the precipice of anglo-saxon disintermediation.

In terms of Germany – ad the way in which employee representation has been (at least in the large, traditional employers) as been Incorporated into board rooms and decision makers is by and large a very good one as it recognises that: 1. In the immediate, employers and employees should have the same ambitions i.e. the company grows, jobs are safe, wealth increases 2. Skills and labour are knowledge-economy companies biggest assets – it is a good thing for all to grow these 3. It keeps a lid on social and political tensions 4. Employees sometimes have good ideas for improving the way a company works. And, the best way to achieve these is to involve employees at the highest level. In the UK, although a pact emerged, the stance tended to be opposition: capital v labour; Labour v Tories.

But: within this there was an acknowledgement that each side has a legitimate and reasonable interest – and both had power. e.g. strike action, and ultimate discretion over wages and benefits.

However, these companies like Uber, Deliveroo avoid this conflict and simply by how they arrange their affairs to not recognise the legitimate demands of their staff. They don’t value the skills and abilities of their staff, or think of them as having anything useful to contribute. They are simply interchangeable units. There is no relationship or mutual respect, no sense of value.

Given our economy and politics is a unified political-economy the effects of this will be seriously damaging. People are having their stake in the political-economy removed from them – for the first time since WW2. In other words, we are seeing the creation of a group in society who, for reasons of structural rather an cultural alienation (e.g. punks, hippies) will soon no longer give a shit about anything.

A policy position on this needs to be found – but it will be cast as a regressive clampdown on private profit by the right wing press. However, not doing so will cause huge problems further down the line.

I’ll stop ranting now…

N.B. in the low wage, low skill service economy (in general) e.g. McDonalds and so on, I have no idea if the German model works in those companies as they work in Germany.

I’ll stop ranting now…

DONT EVER STOP RANTING!

I’ve long considered myself a liberal capitalist, liberal in my attitude towards society, capitalist in that I think it’s the best system we’ve got (so far).

Honestly, and this might surprise a few people, it’s the issues being debated here (and people like you buddy ‘ranting’) that changed my vote to Labour in the last election.

I know on here we sometimes get bent out of shape in disagreements over important issues, but that does sometimes change the way people thing and, as with me, vote.

The Uber model just uses tech to make a few people rich at the expense of millions, and like everyone says just moves the risk to the individual.

It’s about time governments started to address peoples concerns.

Interesting comment on Korean shipyards:

“The Korean yard unions are interesting. They are tough, smart and very disciplined. They know exactly how much money the yard is making and every five years they make sure that they obtain a sizable portion of any gains in productivity. If they don’t, they are perfectly prepared to strike. If they do, the yard is completely shutdown. You do not want to be a scab trying to cross a Korean union picket line. But once the 5 year contract is signed, they live up to it. If a Korean yard worker is not carrying his load, he will hear from both his boss and his union steward. The union wants the yard to make money because they know that will strengthen their hand at the next contract negotiations. The overall effect is that the yards’ labor productivity is more than an order of magnitude higher than on-site construction.”

Interesting comment on Korean shipyards:

A similar story emerged a few years back from VW. In return for the company guaranteeing no future job losses, the unions at VW agreed to reform working practises and increase the working week from, I think, 37.5 hours to 39 hours.

If you read up on the what defines an ‘alliance’ model of capitalism (of which Germany is the quintessential archetype), one of the features that denotes this is the collaborative (rather than adversarial) approach to industrial relations.

For example, acting as a conduit between industry and education is one aspect; the unions help ensure that the universities are developing skills and knowledge that employers need.

Isn’t this how pretty much the entire construction industry works?

When most people’s children don’t have the same or better opportunity than their parents there’s a problem!

To the OP-
I agree with many of the points that you raise, albeit that I would argue that there are a few shortcuts/conflations. For instance, I’d argue that rather than

an individual’s appetite for risk also tends to be higher (because they lack the power of colletive decision making), thus increasing the likelihood of a (new) contractor willing to take the position.

the causality is that the individual is more risk-loving that the corporation since they can capture the gains more effectively, rather than as a function of collective bargaining. This then also has the, in my view crucially important, effect that the individual will tend to overestimate their ability vis-a-vis the masses. They’re no way they’ll be the one that flunks out – the existence of a success story will tend to make them overestimate the likelihood that they will be the next example.

To mrdoberman – why?

The reason this possible is because the individuals willing to enter into the arrangement are desperate;

Sorry. I stopped at the point.

Beaten to it or was I?
“When most people’s children don’t have the same or better opportunity than their parents there’s a problem”
But why should this have to be? Why the non stop need to gain?
Things are infinite. So called improvements cannot go on for ever. Things reach a natural stopping point. Occasionally something really radical, but entirely in natural comes along and move things a step,(lets use Lemond and his bars as an analogy) but this isn’t natural.

But why should this have to be? Why the non stop need to gain?

Until life is perfect for everyone we should be striving to improve all the time. And if we don’t improve, we’ve failed, haven’t we?

I’m not necessarily talking about monetary gain here – happiness is more of an issue. And we are still in the age of scarcity which money is intimately tied up with happiness.

So called improvements cannot go on for ever.

They can. Once we have machines to mine and refine metals, grow and process food, deliver it to us, basically do everything – then people will not need to do anything. However at that point capitalism won’t work any more and we’ll need something else.

“When most people’s children don’t have the same or better opportunity than their parents there’s a problem”

http://www.politifact.com/global-news/statements/2017/mar/01/boris-johnson/yes-global-poverty-fell-dramatically-after-1990/