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Technology’s Relationship with Wealth

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There is a question so important to the modern economy that it often hides in plain view. I’m talking about the role that technology plays in the distribution of wealth. This connection between our distribution of societal resources and our rapidly evolving technology centers on two fundamental phenomena:

  1. The way technology displaces labor
  2. The way technology concentrates profits

Technology and Jobs

The primary way that technology displaces labor centers on productivity, which amongst most economists today is usually framed as “labor productivity,” or the amount of goods and services produced in one hour of human labor.

Labor productivity gains happen by:

a) Holding the amount of labor steady and increasing the flow of goods and services;
b) Holding the flow of goods and service steady and decreasing the amount of labor; or
c) Some combination of the two

Economists focus on “labor productivity” because, historically speaking, human labor has accounted for the largest portion of the total cost of production. As corporations have concentrated on maximizing profits over the last several decades through downsizing, restructuring and the like, it’s usually been with a heavy reliance on option “b” – i.e. replacing humans, first with hardware, and now increasingly, with software.

When a business makes a fixed investment in a new manufacturing robot or in automation software for taking airline reservations, its ongoing variable costs of operation typically decrease. With smart investments, over time these new automated processes make the firm more efficient and more productive than when these processes were done with human labor. That leads to increased profits. But more on that later.

The question that concerns us first, though, is what happens to the earnings power of those people who’ve been displaced by these investments in automation. The answer, of course, is that the job loss leads to an immediate inability to earn income, which if uncorrected, eventually erodes any wealth these employees may have once built up over the course of their working life.

I should note two things here. First, technology isn’t the only cause of job eliminations, but it is the only way of eliminating jobs without cutting into the firm’s ability to deliver economic value over time.

Second, there are questions about what happens to these employees over time; specifically with regard to their re-employability, and how easily they learn new skills that haven’t yet been addressed by automation. This is the the race against the machine,” and history has shown that we humans are pretty good at it finding hitherto unimagined, new sources of employment. Buggy whip assemblers get re-trained and go on to build Model T’s.

This argument is hard to counter, of course, because history has demonstrated it time again and again. And yet, looking at our current stage of economic development, there is something quite different from where we were even just a few short decades ago. It’s the pace and interconnectedness of technology’s evolution. You don’t have to necessarily believe in the Singularity to understand how the accelerating pace of technology won’t just eat into more and more jobs that have traditionally been done by humans, but that it will also make it harder and harder for humans to keep up with machines in learning the new jobs that the technology itself makes possible.

Just twenty years ago, most of us would have been puzzled at the idea that technology might lead to out-of-work bookshop and movie rental store employees, just as today it seems hard to believe that New York City taxi drivers will be looking for new work in not too many years. As human jobs are displaced at a faster and faster pace, ever larger portions of our population will lose their ability to generate wealth, as income disparity accelerates from the bottom up.

Technology and Profits

This is only half of the story, however, and it may not even be the most important way that technology accelerates the concentration of wealth. To understand the rest of the story, we need to look back at what happens to the increased profits that resulted from those investments in labor-saving technologies, and to do that, we need to take an accountant’s perspective.

When a company buys equipment to automate its processes, the cost of that purchase isn’t treated as an expense. Instead it’s treated as a “capital expenditure” which increases the assets on the firm’s balance sheet. As an investor, we no longer allow you to own the people who make a profit for you, but you can own the machines that displace those people. And, as the firm makes more labor saving investments in technology, its operating costs go down and its productivity – and profits – go up.

Where do the increased profits from these technology-driven productivity increases go? They go to the owners of the firm, naturally. And so, as long as the technology investments don’t somehow harm the firm’s revenue streams and as long as they result in lower operating costs – which are both pretty good bets – then, the owners of the firm generate greater earnings, either in the form of more dividends or capital gains.

That investors are entitled to a return on their investments isn’t really a point of contention – at least for me. What is is allowing investor returns to transcend all other factors as the driver of modern day capitalism. This “shareholder primacy” perspective elevates maximizing returns for shareholders as the primary purpose of the firm.

Here’s the interesting part as it relates to technology though. Within today’s ascendent shareholder primacy perspective, the main reason to make technology investments is to increase productivity and profits, and the main reason for doing that is to pass those profits on to shareholders. If those shareholders aren’t the employees or other long-term stakeholders of the firm, then technology investments essentially act as a powerful force for extracting profits from businesses and concentrating them in the hands of outside investors who are part of a rapidly shrinking percentage of the population.

As investors generate more returns, they invest in more firms, perpetuating the process in one industry after another and skewing the wealth-generating capacity of more and more sectors of our economy. As this happens, wealth is concentrated into ever fewer hands. Seemingly oxymoronic phrases like a “jobless recovery” also start to make sense as sector after sector begins generating healthy returns for investors without necessarily adding new jobs. Remember, in the United States, 88% of investment assets (excluding residential homes) are owned by just 10% of the population and more than 50% of assets are owned by just the top one percent.

As the primary source of the productivity gains and the profits these investment assets create, technology is the catalyst for most of this growing concentration of wealth.

What Do We Do?

In short, technology plays a critical role in the distribution of wealth. It erodes income generation in lower income families while concentrating profits into the hands of those with the greatest financial assets.

One of the solutions to this dilemma is to design technologies so that humans are better able to race with machines rather of just against them. Remember, labor productivity can increase by either cutting labor costs or by increasing the value of the goods and services that that labor creates. That means thinking a lot harder about how to build our technologies to better augment our human capacities rather than eliminate them.

There are clearly limits here, however. As the race with our technological progeny accelerates, there will only be so much racing with that we will be able to do. The machines will eventually outpace our ability to learn the new jobs and may one day even run our firms.

It’s my view that the real answer to this dilemma is less about technology and jobs and more about how we handle the second question – the question of technology and profits. And here, we get down to some tough questions about ownership and equity. For if ownership of the machines and their earnings potential were more broadly held, then so too would their ability to generate and maintain wealth across a broader base of humanity.

Equity is the central question that now confronts us. Do we really want a world where all of our engines of wealth generation are closely held by a minuscule segment of our citizens? The accelerating pace of technological development lends a certain urgency to this question. How far will it go?

This all raises a fundamental question about the operating instructions for the entities that now create most of our technology: our assumptions about the purpose of businesses. If it truly is shareholder primacy and simply maximizing returns for external shareholders, then we are hard-coding the next evolution of intelligence on the planet for one goal: concentrating wealth.

Surely, there must be some more noble aspiration for the Promethean fire we now hold in our hands.

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About the Author

This article was written by Gideon Rosenblatt of The Vital Edge. Gideon ran an innovative social enterprise called Groundwire for nine years. He worked at Microsoft for ten years in marketing and product development, and created CarPoint, one of the world’s first large-scale e-commerce websites in 1996. The Vital Edge explores the human experience in an era of machine intelligence.

Entrepreneurship

Is There A Coworking Space Bubble?

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An annual growth rate of nearly 100%, almost five years in a row? More than 60 coworking spaces in a city like Berlin? Are these the characteristics of a bubble? Nope, these are characteristics of a lasting change in our world of work, which has been further catalyzed by the recent economic crises in many countries. But what makes this change different to a bubble? We’ve summarized some arguments of why the coworking movement is based on a sustainable change. However, that doesn’t mean it’s an easy job to open a good working coworking space.

Five reasons why the growth of coworking spaces is based on organic and sustainable growth: 

1. Coworking spaces invest their own money and create real wealth

Already, there is a convincing argument supporting why coworking spaces are not developing in a bubble: the fact that they create real wealth.

Whether referring to the dotcom bubble a decade ago or the real estate crisis in Spain or the United States, the crisis originated in a glut of cheap money, in an environment in which the sender and the recipient were unacquainted. From funds and banks, money flowed in steady streams to investments which offered little resistance and the most promising returns – which only a little while later turned into delusions and ruined investments.

Redistributed risks create illusions. Those people who distributed the money rarely wore the risk of investment decisions. The risk was mainly taken by small shareholders or people who bought parts of those investments. This was because either both parties’ (better) judgement was drowned out by the noise of the market, or because shareholders were unaware of the risk, and were at the mercy of banks and funds for reliable information.

Another fundamental condition for the creation of bubbles are the sheer amounts of money that flow from various locations globally and are concentrated, by comparison, in much fewer places.

Most coworking spaces, however, receive their funding from local or nearby sources and do not operate within this financial system. In fact, the founders mainly inject the bulk of the required investment, and turn to friends or relatives for additional support. They wear the full brunt of the risks that are involved in small-time investment.

They have access to much more information, because it is their own project, rather than a foreign one thousands of miles away. This also includes failures and mistakes that are encountered along the way, but the risk is less redistributed, thereby decreasing the probability of failures.

2. Labor market changes demand on certain office types lastingly

Most users of coworking spaces are self-employed. The proportion of employees is also on the rise, in many cases simply because they work for small companies that increasingly opt to conduct their business in coworking spaces rather than in traditional offices. The industry of almost all coworkers fall within the Internet-based creative industries.

With flexibilisation of work markets, new mobile technologies that are changing work patterns, and the increase of external services purchasing from large and medium-sized enterprises (outsourcing), the labor market has changed radically in many parts of the world.

The long-term financial and emotional security of becoming an employee no longer exists, especially for younger generations of workers. Bigger companies are quicker to fire than hire, and precarious short-term contracts are on the rise. Promising options on the labor market are more often recuded to freelancer careers and starting your own company.

And that’s possible with less money to invest. All you need is a laptop, a brain and a good network. For years, the number of independent workers and small businesses has been growing worldwide – particularly in internet-based creative industries. Anyone who has sufficient specialized skills and the willingness to take risks may adapt more quickly to market conditions if they own a small business or are self employed; more so than if they were to work in a dependent position in an equally volatile market.

Coworking spaces provide an environment in which to do this. Once they have joined a (suitable) coworking space, these factors become apparent to coworkers, who will remain in their space for years to come.

Furthermore, independent workers rarely fire themselves in crises, and even small companies are less likely to give their employees the boot – compared to their large counterparts. This combination enables more sustainable business models – and less business models à la Groupon.

3. Coworking spaces don’t live on crises

Global economic growth is waning while the number of coworking spaces is continually growing. Do coworking spaces thus benefit from this crisis?

The current crises accelerate the formation and growth of coworking spaces, because they offer solutions and space for the resulting problems. Coworking spaces are therefore not a result of a crisis, but the product of change that pre-dates their existence. A crisis is simply the most visible expression of change.

The first coworking spaces emerged in the late 1990s; the movement’s strong growth started six years ago – before the onset of economic downturns in many countries.

4. Coworking spaces depend on the needs of their members

Most coworking spaces are rarely full. Does this mean they are unsuccessful? On average, only half of all desks are occupied. But the average occupancy rate of 50% refers only to a specific date.

In fact, coworking spaces generally serve more members than they can seat at any given time, since members do not use the spaces simultaneously. Coworking spaces are places for independents who want to work on flexible terms. Smaller spaces rely more on permanent members. Larger spaces can respond more flexibilty to the working hours of its members, and, can rent desks several times over.

If a coworking space is always overcrowded or totally empty, the purpose of said space would be defeated. Firstly, it is rather impossible to work in an overcrowded room. Second, it’s impossible to cowork in an empty room. Given the nature of flexible memberships, a coworking space only can survive if they fit the needs of their members. Members would otherwise be quick to leave, and membership would be much more transient.

5. The coworking market is far from saturation

Less than 2% of all self-employed – and even fewer employees – currently work in coworking spaces. Reporting on coworking may increase, but inflated reporting on the coworking movement in the mainstream media is still far away.

Coverage of coworking space are most likely to be found in the career or local sections in larger publications – front cover coverage remains the dream of many space operators. This is because the whole coworking movement can’t be photographed in one picture. What appears to be a disadvantage, however, is actually a beneficial truth: niche coverage allows the industry to grow organically, and avoid over inflation.

Conclusion

Coworking spaces don’t operate in parallel universes – like the financial market. Demand and supply are almost exclusively organic and operate in the real world economy.

For the same reason, there is no guarantee that opening a coworking spaces will be automaticly successful. Anyone who fails to learn how to deal with potential customers in their market, or is unfamiliar with how coworking communities function, will have a difficult time of making one work. In the same way that business people in other industries will fail if they do not understand their market.

Those who simply tack on the word ‘coworking’ to their space’s facade will need to work harder. The structure of most coworking spaces is based on real work, calculated risk, and real-world supply and demand.

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About the Author

This article was produced by Deskmag. Deskmag is the magazine about the new type of work and their places, how they look, how they function, how they could be improved and how we work in them. They especially focus on coworking spaces which are home to the new breed of independent workers and small companies. see more.

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Callum Connects

Dextre Teh, Founder of Rebirth Academy

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Dextre Teh is a consultant and marketing guru, helping F&B businesses to tighten their operations and grow their businesses.

What’s your story?
I help frustrated F&B business owners stuck in day to day operation transform from a glorified operator into a real business owner. I’m a 27 year old Singaporean second generation restaurant owner and a F&B business consultant. Entering the industry at 13 years old, I have always been obsessed with operations and systemisation. At the age of 25, I joined the insurance industry and earned a six figure yearly income. However, I left the high pay behind because it was not my passion and returned to the F&B industry. Now I help other F&B companies to tighten operations and grow their businesses with my consulting and marketing services.

What excites you most about your industry?
The food. I’m a big lover of food and even have a YouTube show on food in development. But that aside, it is really about impacting people through food. Creating moments and memories for people, be it a dating couple or families or friends. Providing that refuge from the daily grind of life. So in educating my consulting clients and training their staff to provide a better experience for their customers, I aim to shift the industry in the direction of creating memories instead of just selling food.

What’s your connection to Asia?
I was born and bred in Singapore. I love the culture, the food and travelling in Asia.

Favourite city in Asia for business and why?
Singapore hands down. The environment here is built for businesses to thrive. The government is pro business and the infrastructure is built around supporting business growth. Not to mention the numerous amount of grants available in helping people start and even grow business. If I’m not mistaken, the Singaporean government is the only government in the world that offers grants to home grown businesses for overseas expansion.

What’s the best piece of advice you ever received?
Learning to do things you do not intend to master is a BIG mistake in business. Focus on what you are good at and pay others to do the rest.

Many business owners including myself are so overwhelmed by the 10,000 things that they feel they need to do everyday. We try to do everything ourselves because we think it saves us money. The only thing that, that does for us is overload our schedules and give us mediocre results. Instead we should focus on what we do best and bring in support for the rest.

Who inspires you?
Christopher M Duncan.

At 29, Chris has built multiple 7 figure businesses. He opened me to the possibility of building a business on the thing that I loved and gave me a blueprint of how to do it. He also showed me that being young doesn’t mean you cannot do great things.

Imran Mohammad and Fazil Musa
They are my mentors and inspire me every single day to pursue my dreams, to focus on celebrating life and enjoying the process of getting to where I want to be.

What have you just learnt recently that blew you away?
Time is always more expensive than money. Money, you can earn over and over again but time, once you spend it, will never come back.

If you had your time again, what would you do differently?
I am a firm believer that your experiences shape who you are. I am grateful for every single moment of my life be it the highs or the lows, the successes and the failures because all these experiences have led me to become the person I am and brought me to the place that I’m at so I will probably do things the same way as everything was perfect in its time.

How do you unwind?
Chilling out in a live music bar with a drink in hand, listening to my favourite live band, 53A. Other than that I’m big on retail therapy, buying cool and geeky stuff.

Favourite Asian destination for relaxation? Why?
Bangkok. It feels like a home away from home where the cost of living is relatively low, the food is good and the people are friendly.

Everyone in business should read this book:
Everything you know about business is wrong by Alastair Dryburgh. It is a book that challenges commonly accepted business “truths” and inspires you to go against the grain, think different, take risks and stand your ground in the face of the challenges that will come your way as a business owner.

Shameless plug for your business:
I’m the creator of the world’s first Chilli Crab Challenge. It gained viral celebrity earlier this year with 3 major newspaper features and more than a dozen blog and online publications featuring it in the span of two weeks. In the span of the two weeks, the campaign reached well over a million people in exposure without a single cent spent in ads.

Now I help F&B companies to tighten operations, increase profits and grow their businesses with my consulting and marketing services. Chilli Crab Challenge (https://www.chillicrab.com/nationalday)

How can people connect with you?
You can connect with me on Facebook (www.facebook.com/djtehkh) or visit www.rebirthacademy.sg for more information or book a 10 minute call with me @ www.tinyurl.com/dexclar

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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