The New Economy.

Once upon a time, most American workers were essentially independent contractors: small farmers selling to the local market or craftsmen with their own shops. Then came the Industrial Revolution and massive immigration. Armies of semi-skilled employees replaced the independent contractors and petty entrepreneurs. Giant corporations arose to manage the mass-production industries. Much hand-wringing and teeth gnashing followed. Unions and government both stepped in to regulate the working time, working conditions, and pay of the industrial armies. Much hand-wringing and teeth gnashing followed. This economy flourished through the 1970s.

Then began the great disruption of the American economy. Foreign competition returned to the global market long dominated by Americans (1945-1975). The “oil shocks” (1973, 1979) set off a grave inflation and pushed foreign car-makers toward fuel efficiency. American labor unions not only refused to adapt: they went on the offensive by launching a tidal wave of strikes intended to defend and expand their existing benefits. Companies responded by moving jobs to “right-to-work” states and overseas. Much hand-wringing and teeth gnashing followed.

Then, by 1991, Communism and the centrally-planned economy had been defeated. China, and other socialist countries began a rapid shift toward open markets. Many American jobs disappeared over-seas (although Americans were—short-sightedly—prone to blame NAFTA. Much hand-wringing and teeth gnashing followed. Thereafter, Americans struggled to find some new way of making an adequate living.

Then came the “Great Recession.” Today, about one-third of American workers work part-time, or as temp workers, or day by day. This, in my mind, has been one of the great economic and political preoccupations of the last twenty years.[1]

Uber, the ride-sharing service, and Airbnb, the home-sharing service, are often cited as the fore-runners of a new “sharing” economy. One element of Uber’s business plan has been to define Uber drivers as “independent contractors,” rather than as employees. The upside of this is the great efficiencies and flexibility for both Uber and for its drivers, not to mention the savings on labor costs like benefits. For Uber, the drivers are doing piece-work; for the drivers, they get to structure work around other aspects of their lives by working when and how much they work.

On the other hand, it drives Democrats and their clients in the “old” industries crazy. Independent contractors have no right to unionize; they have no right to benefits; they aren’t subject to government regulation; they don’t get compensated for wait-time; they can work for two different companies; they are all profit-oriented, rather than submissive to the moral strictures of Democratic voters; and they’re entrepreneurial, rather than locked into a known and established institution.[2]

Probably, the goal should be to prevent the exploitation of independent contract labor, rather than to stifle economic change an innovation. This would require treating these workers as some sort of middle ground. Social Security and Medicare with-holding should apply and they should be part of pools for health insurance. The “gig economy” should have to succeed on the strength of its business model, rather than by “screwing labor down to the lowest peg,” as was so often the case in early industrialization. At the same time, Washington shouldn’t try to create a Greek economy.

[1] Greg Ip, ”New Rules for the Gig Economy,” WSJ, 10 December 2015.

[2] Alas, this litany of differences suggests that the “normal” American working conditions are unsustainable in a competitive global economy.

2 thoughts on “The New Economy.

  1. Pingback: The Age of Revolt 1. | waroftheworldblog

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