Dec 022011
 

MSNBC is running an article entitled “Nine Jobs That Humans May Lose to Robots” that lists nine professions that are becoming increasingly automated:

  • Astronauts
  • Babysitters
  • Drivers
  • Journalists
  • Lawyers and Paralegals
  • Pharmacists
  • Rescuers
  • Soldiers
  • Store Clerks

We can expect to see more articles like this as we continue the transition that began in the final decades of the 20th Century, from an economic order driven by capital and labor to one that is driven by knowledge and service, in which the capitalist no longer can be caricatured by a Dickensian factory owner, but instead by Scott Adams’s Dilbert, a highly talented employee with specialized skills, as Peter Drucker explains in his 1993 Post-Capitalist Society.

Today, nearly a quarter-century on, we can look back to see how accurate Drucker’s predictions were, as Massachusetts Institute of Technology economists, Erik Brynjolfsson and Andrew McAfee, do in their 2011 Race against the Machine, and except for the specific technologies that Drucker cites, he was spot-on.

If you can do your job from your sofa, then that sofa can be within walking distance of your employer’s headquarters, across town, or in Jakarta. If a robot, a piece of software, or someone in Jakarta can do your job, and you are in the Global North/West, then this would be a very good time to start thinking about a career change.

In general, you have two options:

Innovation and Entrepreneurship

There is no silver bullet here. All you can do is follow your heart and heed no one’s counsel but your own. The first few times out, you probably will fall flat on your face, but console yourself with the knowledge that 95% of science is wrong, meaning that most hypotheses are rejected during the experimentation phase. However, that 5% that works is where the frontiers of knowledge and experience are expanded.

Some platitudes might be useful, but feel free to replace them with your own:

  • Follow your heart, and the money will take care of itself.
  • Set aside 20% of what you spend on equipment, and six months’ rent, so that you can cover your bills during slow periods.
  • If you create texts, music, videos, software, etc., give your work away for free.
  • Network as if your life depended on it, and remember that it is a sad dog that wag its own tail.
  • Always be learning, and be prepared to change product lines or career tracks about once every five years.

If you won the lottery, what would you do with your day? You undoubtedly are not the only human alive who is driven by whatever your answer is. There is your business plan. Don’t draft revenue projections until you’ve made several sales; you cannot predict your cash flows, if you’ve never had any. And remember that innovation is what has not been done before. If the people around you think that your idea is ludicrous, then you’re probably onto something good; if others think that your plan makes sense, then the idea is already past its expiration date, and it is already part of the background noise.

You will make mistakes and have regrets. You’ll get knocked down; get up again, and don’t let anything keep you down.

Crafts

By ‘crafts’ I mean anything that must be done locally, including landscaping, plumbing, home repair, nursing, firefighting, automotive maintenance, etc. If the idea of an activity’s being outsourced overseas is absurd, then it is a craft.

You don’t have to be a hairdresser or manicurist; you can own the shop and hire hairdressers and manicurists. John D. Rockefeller famously said that he would prefer to have 1% of the money earned by 100 others than 100% that he had to earn himself.


Whichever route you choose, do not let yourself get lulled into the false security of a ‘job’. No such thing as a job exists, as is easy to see, if one considers that, if one normally works 40 hours per week, and then starts pulling ten hours of overtime per week, one does not report that one has 1.25 jobs; similarly, if one’s schedule were cut from 40 to 30 hours per week, one would not complain that one had 3/4ths of a job.

If you measure the value of your time in dollars per hour (or euros, or pesos, or yen, or yuan, or shekels, or lira, or dinar, or whatever), then you are saying that each hour of your time is as valuable as every other hour, which means that whatever you do to earn that money is ripe for automation.

If you earn $10 or $20 per hour driving a cash register, keep an eye open for self-checkout stations to be installed where you work. Ditto paralegals and bookkeepers, secretaries and executive assistants, etc.

The global economy is increasingly integrated, and borders are fading fictions. There is a cost for every benefit, and an opportunity hiding within every cost.

And… the machines are lurking… watching… biding their time… Make your peace with them.

Invest accordingly.

Prof. Evans

Nov 182011
 

From Peter Drucker’s Post-Capitalist Society (1993) [page numbers are from the paperback edition]:

p.3

We are clearly still in the middle of this transformation; indeed, if history is any guide, it will not be completed until 2010 or 2020.”

In other words, that really is the light at the end of the tunnel, and not an oncoming train.


pp.4, 5 & 6

That the new society will be both a non-socialist and a post-capitalist society is practically certain… The market will surely remain the effective integrator of economic activity. But as a society, the developed countries have also already moved into post-capitalism. It is fast becoming a society of new “classes,” with a new central resource at its core… Instead of capitalists and proletarians, the classes of the post-capitalist society are knowledge workers and service workers.”

All you old-school Prius socialists and throwback anarchocapitalists, just… stop. You’re both right, and you’re both wrong.


p.8

Value is now created by ‘productivity’ and ‘innovation’, both applications of knowledge to work… The social challenge of the post-capitalist society will, however, be the dignity of the second class in post-capitalist society: the service workers.”

This is what all the ruckus is about, and not Marxists versus Objectivists, both of whom stare fixedly at the 19th Century in the rearview mirror.

The most radical thing you can do to help The People and to bring dignity to service workers, would be to start a service work firm, hire disenfranchised service workers, distribute the shares among them, and find clients to contract their service jobs to you. Then, let the service workers run the show and create opportunities for advancement among the ranks. In this way, your, e.g., janitorial workers will have seized the means of production, and they will have a chance of rising above their current stations within your firm, rather than wander the halls as Invisible People in someone else’s. Ditto clerical work. Ditto anything else that can be outsourced and does not require higher education.


p.10

Political theory and constitutional law still know only the sovereign state… [S]ince the end of World War II, the sovereign nation-state has steadily been losing its position as the sole organ of power.”

The solution to social discord is not political. Politicians, are by definition individuals who have chosen careers in the pursuit of power, rather than producing something of value. At best they are caretakers; at worst they are rulers who exempt themselves from the statutes and regulations that they impose on the rest of society.

The occasional bone that they throw to members of special interest groups is an attempt to buy votes, no matter how pretty the words, how forceful the scowl, or how many times the speaker repeats a phrase.

It is not within the framework of a nation-state that individuals create wealth. One does not vote wealth into existence. If one wants to create more wealth for the poor, one must look to where wealth is created.


p.14

I also consider it highly probable that within the next decade or two there will be new and startling ‘economic miracles’, in which poor, backward Third World countries transform themselves, virtually overnight, into fast-growth economics powers.”

viz. Hans Rosling’s TED presentations, the BRIC countries (Brazil, Russia, India, and China), and The Next 11 countries (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam).


Invest accordingly.

Prof. Evans

Nov 132011
 

Max Weber (1864-1920) was one of the fathers of modern sociology, back when Sociology and Economics were still on speaking terms, before the invention of Macroeconomics in the 1930s and the conquest of Sociology by collectivists in the middle decades of the 20th Century.

Weber’s work on charisma* is particularly relevant today.

The term ‘charisma’ will be applied to a certain quality of an individual personality by virtue of which he is set apart from ordinary men and treated as endowed with supernatural, superhuman, or at least specifically exceptional powers or qualities… [I]t is the duty of those who have been called to a charismatic mission to recognize its quality and to act accordingly… No elective king or military leader has ever treated those who have resisted him or tried to ignore him otherwise than as delinquent in duty. (pp.358-360) [italics in original]

In other words, charisma is sanctimonious narcissism with a band of disciples.

Charismatic authority… is sharply opposed both to rational, and particularly bureaucratic, authority, and to traditional authority… Both rational and traditional authority are specifically forms of everyday routine control of actions; while the charismatic type is the direct antithesis of this. Bureaucratic authority is specifically rational in the sense of being bound to intellectually analysable rules; while charismatic authority is specifically irrational in the sense of being foreign to all rules. Traditional authority is bound to the precedents handed down from the past and to this extent is also oriented to rules… [C]harismatic authority repudiates the past, and… it recognizes no appropriation of position of power by virtue of the possession of property

The rallying cry of the charismatic ruler is, “Change!” with no reference to what the ultimate goal of that change is. It is a tantrum and not a strategic plan.

The only basis of legitimacy for it is personal charisma… as long as it receives recognition and is able to satisfy the followers or disciples. (p.361-362)

As long as a charismatic ruler holds his or her disciples in thrall, they bestow authority upon him or her. However, when the shine begins to tarnish, and the façade begins to crumble, the disciples withdraw, if they do not openly denounce and condemn.

What is despised, so long as the genuinely charismatic type is adhered to is traditional or rational everyday economizing, the attainment of a regular income by continuous economic activity devoted to this end… From the point of view of rational economics activity, charisma is a typical anti-economic force. It repudiates any sort of involvement in the everyday routine world. It can only tolerate, with an attitude of complete emotional indifference, irregular, unsystematic, acquisitive acts. (p.362)

Charity, volunteerism, national service, and the like are the favored programs of the charismatic leader. Never mind that all of our clothing, food, housing, and transportation must be produced, the charismatic leader holds grubby capitalist profiteers in disdain, and rhapsodizes over sacrifice, spreading the wealth, and making the high and mighty pay their fair share.

This is one reason why charismatic rulers tend to be populists and collectivists—whether of the so-called ‘right-wing’ national socialist or ‘left-wing’ international socialist variety—and we probably never will see a charismatic libertarian… at least not one who isn’t nuttier than a squirrel’s dreams.

[I]t is conceivable that insulation from economic struggle should mean limitation of those who were really eligible to the ‘economically independent’; that is, to persons living on income from property. (p.363)

Charismatic rulers and their disciples will tend to come from those who are referred to in many places as ‘Volvo socialists’ and ‘trustafarians’. One who has become a multi-millionaire from the proceeds of a best-selling autohagiography can afford the luxury of living a charismatic life, especially if that individual is not the son or daughter of the hegemony. Those who live from paycheck to paycheck—i.e., those who are bound up in the status quo and pay the taxes that support the political and parasitic classes—are excluded from the inner circle, and only the idle and the unemployed can stay with the movement long enough to wield power in the charismatic ruler’s regime.

Weber goes on to describe how a charismatic revolutionary movement must transform into a new permanent routine structure. “The vassals, the holders of benefices, or officials are differentiated from the ‘tax payers.’ The former, instead of being the ‘followers’ of the leader, become state officials or appointed party officials.” The final stage is reached, when the animals take over the farm and change their chant from “Four legs good, two legs bad,” to “Two legs good, four legs bad.”

Invest accordingly.

Prof. Evans


* source:

Weber, Max (1964; 1947), The Theory of Social and Economic Organization (Trans., A.M. Henderson & Talcott Parsons; Ed., Talcott Parsons), New York: Free Press. ISBN: 0-684-83640-8 [return]

Oct 162011
 

In business, economies of scale means that it is less expensive, per unit of output, to produce goods, if one produces a lot rather than a few. For example, one would not build a factory, buy raw materials, and hire workers to make only one car. Similarly, one would not set up a restaurant to make only one meal.

Once the oven is hot, the freezer cold, and the employees on-site, the additional cost (what economists call the ‘marginal cost’) of producing a second meal is substantially less than the cost of going from zero to one meal. Likewise, the cost of producing the third, fourth, and subsequent meals can fall even further, as the employees get into the rhythm of the job, several items bake in the oven at a time, and the freezer is cooling more than air and empty shelves.

The larger the operation, the greater the output relative to the costto a point.

However, as with plants, animals, and essentially everything else, there is a limit to how much a firm can grow, before costs begin to rise faster than income.

Sticking with the restaurant example, let us assume that a good day’s gross income is $10,000, and that the pre-tax profit is about 15% of that, after paying for groceries, utilities, maintenance, payroll, insurance, etc. [Feel free to substitute an appropriate amount of your local currency, if you reuse this text.]

Now, imagine that the owners have hired a new general manager — we’ll call him Skippy [Feel free to substitute a culturally appropriate derogatory name here.] — who wants to double the gross revenue to $20,000 per day, even on historically slow days.

Skippy holds ‘motivational’ meetings and exhorts the employees to “work smarter” and to be “dedicated” to the “mission” and “vision” of the organization. He wants to run three eight-hour shifts per day, seven days per week including holidays, and to minimize costs.

One young man at a meeting asked, “Um… If we wanted to minimize costs, shouldn’t we just shut down? That way, costs would be reduced to zero.”

Skippy replied, “You have a bad attitude. Ask not what this firm can do for you; ask, rather, what you can do for this firm.”

One problem with selling more meals than is optimal is that one has to provide incentives for potential customers to become actual customers. One option is to offer larger servings, but customers typically eat only so much at each meal. Another option is to reduce prices, either across the board, during times that the restaurant is usually closed or business is slow, for individuals who are members of a favored category — females, a particular ethnicity, a profession, etc. — or some other form of discrimination against those who are not members of the favored category.

By doing so, the restaurant operator reduces the income from each meal sold, even though the costs of producing those meals do not fall. Quite the contrary, by running the equipment without break, one is unable to clean, maintain, or repair it, and by working one’s employees harder, they get tired, make mistakes, and become resentful; beyond the optimal scale, costs per unit of output rise.

It does not matter if it is a restaurant, factory, bank, or whatever, each firm has its optimal size, and anything larger or smaller than that optimal size is less efficient than it would be if it were operating at the optimal scale.

If Goldilocks were a management consultant, one might hear her say, “This firm is tooo small. This firm is tooo big. And, this firm…? This firm is juuust right.”

In general, two things systematically prevent firms from operating at their optimal scales: hubris and regulation.  Things that unsystematically prevent firms from operating at their optimal scales stem from the unknowability of the future: uncertainty, surprise changes in market conditions, natural disaster, and other things that one cannot foresee.

Hubris is the kind of overconfidence that leads one to believe that one knows more than one knows, and thus can do more than one can do. It is one of the qualities of the kind of narcissist that is expert at climbing to the top of an organization, in spite of a lack of actual knowledge, talent, or skill.  Such individuals often conflate speculative hypotheses with proven conclusions, confuse ‘could’ with ‘must’, and are loath to admit when they are in error.  They speak with great bombast, demean those who ask for clarification, and typically refer to their track records when pressed for details.

In positions of power, hubris can lead to doublethink, especially a desire to minimize costs and to maximize gross sales simultaneously, in spite of the fact that there is a cost for every benefit.

Granted, one can try to minimize fraud, abuse, and waste, but any more than this implies fewer raw materials, fewer fixed assets, and less available labor, and thus reduced output; decrease costs, decrease revenue.  Similarly, if one wants to increase output, this implies more raw materials, fixed assets, and available labor, and thus increased cost; increase revenue, increase costs.

Hubris tends to result in firms that operate above their optimal scales, based on the notion that bigger is better.

Regulation leads to inefficiency most commonly through the misapplication of the observation that price tends to approximate the marginal cost of production in a competitive market.  Only in a monopolistic market can one charge a price higher than the marginal cost of production, because in a competitive market – i.e., a market that has a very large number of relatively small suppliers – if one tried to charge a higher price, a competitor would undercut the price.  This process would continue, until no one were willing to charge a lower price.

In monopoly markets with only one supplier or in oligopoly markets with a small number of relatively large suppliers, sellers can charge prices that are substantially above marginal cost, because buyers have nowhere else to go.  The choice is between paying the high price or going without.

This reasoning underlies antitrust statutes.  The idea is that, since perfectly competitive markets have the lowest profit margins, and thus the lowest prices to consumers, a small number of large suppliers is de facto bad.

This ignores economies of scale.

Some productive processes have very high barriers to entry, typically in the form of expensive equipment, as is the case with airlines, cruise ships, railroads, electrical utilities, etc.  If it makes economic sense for suppliers in these industries to be large and highly concentrated, then the tendency will be for the successful to acquire the unsuccessful.

Some suppliers operate in a ‘winner-take-all’ environment, as is the case with search engines, social network websites, operating systems, etc.  If consumers tend to favor a particular supplier to the exclusion of essentially all other competitors, then the optimal supplier will tend to be a monopoly.

Regulations that hinder concentration where it results from economies of scale serve only to force suppliers to be inefficient.

The main thing to bear in mind is that hubris is ultimately its own undoing, and, in an increasingly integrated global community, regulation at the national level is increasingly anachronistic.

BEARING THE DISCLAIMER AT THE BOTTOM OF THIS PAGE IN MIND, a contrarian speculative strategy might be to sell short assets that are darlings in the popular media (i.e., subject to hubris) and buy long assets that are under intense government scrutiny (i.e., likely to migrate from unfriendly jurisdictions to friendly jurisdictions).

Invest accordingly.

Prof. Evans

Oct 152011
 


Bureaucratics – Images by Jan Banning

Those of us who live in relatively well run places can forget that corruption is a very important factor throughout most of the world.

Dutch historian and documentary photographer Jan Banning has published a 50-photograph exhibition that is “a comparative photographic study of the culture, rituals and symbols of state civil administrations and its servants in eight countries on five continents,” called Bureaucratics.

The images are a stark reminder of what awaits entrepreneurs: underpaid individuals with the power to expedite or impede progress. It is easy to vilify corrupt officials, but they are only responding to incentives and pursuing available options for which the expected benefit exceeds the expected cost, including opportunity cost. These are some of their faces.

It might be the case that borders are increasingly meaningless in our increasingly integrated global community, but bureaucrazy follows its own rules.

Invest accordingly.

Prof. Evans