Digital Migrants And A Stark Economic Future

Why we'll see a very tough transient labor market for a couple of decades, with slowing or declining economic growth.
Even adjusting for these leverage effects, digital native businesses can't fully occupy the underutilized labor force resulting from the declining old economy. To understand this notion, you need to work through some 1:9:90 math (what is known as participation inequality). User-generated content tends to follow a pattern where for every one dedicated contributor, there are nine casual contributors and 90 least-effort contributors (who do no more than the equivalent of hitting a Like button).

Moving the contribution distribution curve higher up along the value-addition axis to prosumer economics, the word "ecosystem" that we all love so much gets defined as "nine contractors and 90 part-time freelancers for every full-time employee."

Making a living in a 1:9:90 economy is much harder than people think. The reality beneath exciting words and phrases like free agent, ecosystem, and empowerment is a very harsh one: Firing your boss and being your own master comes with costs that not all people will be able to pay.

The result is going to be a very tough transient labor market for a couple of decades, until the imbalance between available, productive work and willing workers is fixed naturally by an aging population and declining birth rates. In the interim, economic growth will slow and possibly enter into a long, slow decline.

There are those who think that ingenious ways will be found to bring this underutilized labor force into the 2.0 economy. I have grown increasingly skeptical of this position.

The Shallowness Of Cognitive Surplus

Clay Shirky's notion of cognitive surplus is at the heart of the excitement about the potential of E2.0 models.

Sure, everybody can take mediocre pictures, bag his own groceries, and write restaurant reviews. But not everybody can participate in complicated and specialized activities like programming or airplane design. What would it take for that to happen? Is the current craze for DIY drone-building an indicator that LinusBus might one day disrupt Airbus and Boeing?

For leveraged 2.0 labor economics to be extended to more complicated industrial activities, businesses will have to learn to do complicated things by coordinating larger numbers of less capable (and lower-paid) people. This isn't always possible, but where it is, failure to adopt the model will destroy companies.

If you can figure out a mix of automation and clever coordination through which a hundred high school graduates with pre-calculus level skills can replace one aerospace engineer with a graduate degree, you could replace one labor unit paid $100,000 a year with a 100 labor units, each paid $900 a year (likely through a gamified compensation scheme that distributes rewards unequally, and effectively at a rate lower than the minimum wage).

What this means is that cognitive surplus is a broad but shallow resource. Using it effectively is a problem analogous to distributed computing. If you can invent a "Hadoop for people" technology, there's a good chance you will become the next Internet billionaire. Amazon's Mechanical Turk and flash mobs are the early signs of this kind of human-coordination technology.

The future of the E2.0 revolution depends on the limits to distributed labor-computing, with people clouds comprising cheap, low-power, highly replaceable, and unreliable human parts. And the ability of those parts to survive on much lower real incomes through lifestyle design innovations.

It may sound bleak to those rhapsodizing about how, in the future, everybody will be empowered to express his or her unique individual humanness and creativity, but it is where we are headed. You need to see the deeper romance of this emerging world in order to not be depressed by it.

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