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| The gig economy is a new type of economic peonage. How will you escape this trap? |
About 20 years ago there was a Website called AllExperts.Com. It was an early Internet community where people could ask any question about any topic. People who claimed to be experts signed up to answer questions and provide advice. They did this for free. It was like Wikipedia on steroids but without all the stupid infighting and administrator incompetence. Contributing experts became known for their knowledge and wisdom.
And then one day the founder of the Website sent an email to all the "experts" in the community. He told them he had sold the Website for a lot of money. He wished them well and hoped they would continue to contribute to the success of the site. They never heard from him again. And they did not get any money, either.
My friend felt cheated and betrayed. He along with thousands of other knowledge experts had given of their time and effort to create what they thought was a community. Instead it was an investment in someone else's future. They never received any compensation for their work. He swore he would never fall for that scam again.
Despite that personal promise he eventually drifted into the Wikipedia community. As a subject expert he believed he could improve the quality of the articles. Instead he found that the Wikipedia community's rules only encouraged abuse and propaganda. He was chastized for correcting factually erroneous articles because he kept reverting edits from people who were spreading misinformation. He gave up on Wikipedia after a year because it was a hopeless morass of politics, propaganda, and personal attacks on the only people qualified to fix the articles.
Economies of Scale Reduce Costs
Why is it so hard to start up a company that manufactures cars? The answer is simple: Unless you have a vast manufacturing and distribution network in place, it's more expensive for you (a small company) to design, produce, ship, and sell new cars. That's why the rare but occasional new car manufacturer begins building and selling high-end models. They need to make as much profit as they can on as few sales as possible.
By turning revenue into profit small companies prove to banks and potential investors they can compete with larger companies. Once they borrow or attract enough investment they can build bigger factories that produce more units at less cost. That is what economies of scale is all about. The more units you can make of a thing using the same production process the less each unit costs to make.
You must negotiate lower costs for raw materials, parts, and labor to bring down the costs of production. One way to negotiate is to buy or build equipment that operates more efficiently. Another way to negotiate is to spark a competition between suppliers. They will lower the prices they charge you in order to get your business. They'll have to improve their own costs to make a profit but that's not your problem.
Bigger is not always better. Bigger is only better when being big means you can make more units at lower costs per unit.
Crowdsourcing Makes Achieving Economies of Scale Easier
When you turn to crowdsourcing you're bypassing a lot of the long, expensive build up process that today's large manufacturers went through. Instead of waiting 100 years for your company to acquire land, expertise, and wealth to build vast factories and warehouses you turn to the Internet. The "crowd" does most of your work for you. If you can sell the idea to them the right way they will do a lot of that work, perhaps all of it, for free.
As long as you don't have to pay anyone to work for you your cost-per-unit of whatever you want to sell is very low.
Suppose you want to start a taxi-cab company. If you have the money you can buy a lot of cars, hire a lot of drivers, and apply for operating licenses in big cities. Some places, like New York City, restrict the number of taxi cabs that can operate in their boundaries. This prevents new companies from coming in.
So instead you do what Uber did. You launch an app and get the crowd to contribute their cars and time as drivers. You charge their customers a fee that costs less than cab fare and you take a cut, paying the rest of the fee to the drivers. You don't have to buy any cars or hire many employees to do that. You don't have to apply for licenses all those cities. And you can even compete with the taxi companies in New York City.
This story has played at many times over the past 20 years. Someone comes up with an expensive idea and turns to the Internet for funding and labor. The crowd does all the hard work and the company founder gets millions, sometimes billions of dollars.
Look at the people who started companies like Facebook and Twitter. What did they do that was worth billions of dollars? They created websites that millions of other people used. I'm not saying they didn't run up costs. It takes thousands of computers and a lot of programmers to manage these social media sites. But they make money by selling ads to show to their "members". The members are doing all the work: creating the content, logging in, looking at and clicking on the ads, and so on.
Crowdsourcing Prevents You from Negotiating for Your Work
When someone is just asking for money, like on GoFundMe, you can decide whether to contribute money or not. That's a simple personal financial decision.
But when you learn about a cool new Website where you can do something for free, you're contributing your time and effort to someone else's profit. They will never pay you any money for making them rich. And it doesn't matter how many competitors they have, none of those people will pay you any money for your time and effort, either.
When you are part of the crowd you have nothing to negotiate with. You're just free labor for someone else's wealth-building.
My friend decided long ago he had to get something in return, more than just "being a part of the next big thing". Every app he uses benefits his life in some way. Every Website he joins helps him in some way. He's no longer just there being that wise helper with all the knowledge and experience. If you want his help you must offer some quid pro quo, value for value.
Money is always good but free service is also good. If he's paying for something today and you'll give it to him for free tomorrow, he's down with that.
In the Crowd You Can Only Negotiate with Yourself
Here is an example my friend shared with me. He switched from Microsoft Office, a very good suite of programs, to WPS Office. Microsoft wants money for Office. They'll charge you over $100 a year to use it.
You can use Google Docs and other online services but you don't have control over your data. With less expensive software like WPS Office he can do everything he was doing in Microsoft Office but for free. All he has to do is put up with some advertising that WPS Office displays on his computer.
The ads are annoying but they save my friend money. He isn't just making money for someone else he is getting something in return. That is what "value for value" means.
Your negotiation is about what you are willing to pay and what you are willing to live with. You can't force these companies to pay you by going on strike. You can only pick the apps and services that give you value for value. If they want to show you advertising they need to do something for you in return.
Gig Workers Will Always be Paid Bottom Dollar
The gig economy works on the assumption that there is always another person desperate enough to replace whomever you just lost. You have an endless crowd of people who don't think about the value they give you without asking anything in return.
Companies like Uber and Lyft can charge less than taxi companies because the Uber and Lyft drivers cannot negotiate higher fees. If someone doesn't like working for Uber or Lyft they can go look for a gig elsewhere, but Uber and Lyft don't change their prices. They have no incentive to offer a better deal because there is always another sucker.
The story is the same with writing services like Fiverr and Upwork. Although you can gradually work your way up the scale by proving you are a better writer, you must start at the bottom. Every time you change freelance platform you start at the bottom.
No matter who you are or what you do, if you sell your labor in the gig economy you start at the bottom. And there may be no way to earn more with some companies. You get what you get and never get a raise.
That's because these companies have achieved the economies of scale without working for them. The crowd makes that possible. It's like everyone in town got together to build your factory and come work there for free while you sell the products they make and keep the profit.
The gig economy will only last as long as this self-induced peonage satisfies people. As soon as someone finds a way to make money without enriching some startup founder everyone will begin heading for the EXIT sign.
