Thursday, March 28, 2013

The Knowledge Economy's Two Classes of Workers

The knowledge economy has important implications for both workers and organizations.

Setting aside that our economy is by and large organized to benefit a State-financial Elite and the technocrat Caste that serves them, let's consider the two classes of worker in what Peter Drucker labeled the Knowledge Economy in his 1993 book Post-Capitalist Society.

At the risk of simplifying Drucker's nuanced account, here is a precis:

The Marxist class division of labor vs. capitalist/management no longer adequately describes the new economy, as knowledge workers own "the means of production" which is first and foremost knowledge. Corporations and government offer an organization within which workers can apply their knowledge (i.e. the means of production in a knowledge economy).

Since the new economy is no longer characterized by capital vs. labor, it is a post-capitalist economy.

Knowledge workers are a minority of the workforce; the majority are service workers, either skilled or low-skilled.

Economist Robert B. Reich divides the workforce into similar categories: "symbolic analysts" (knowledge workers) and two classes of service workers: "routine producers" and "in-person servers."

Since the service workers own and leverage less capital (knowledge), their ability to create surplus value and thereby demand high wages is intrinsically lower than the knowledge workers.
This creates a structural tension, as society has to establish a way to maintain the wages of the service workers in an economy where the value and income they can generate by their labor is capped.

Let's be clear about one thing: it is misplaced nostalgia to pine for the "good old days" of high-paying but soul-deadening factory jobs. Fully 40 years ago, workers were already rebelling against the yoke of rigid machine-driven production: 1970-1972: General Motors, the Lordstown struggle and the real crisis in production:
The other root cause of our present difficulties with the workforce might be termed a general lowering of employees' frustration tolerance.Many employees, particularly the younger ones, are increasingly reluctant to put up with factory conditions. Despite the significant improvements we've made in the physical environment of our plants. Because they are unfamiliar with the harsh economic facts of earlier years, they have little regard for the consequences if they take a day or two off.
For many, the traditional motivations of job security, money rewards, and opportunity for personal advancement are proving insufficient.
Large numbers of those we hire find factory life so distasteful they quit after only brief exposure to it. The general increase in real wage levels in our economy has afforded more alternatives for satisfying economic needs.
There is also, again especially among the younger employees, a growing reluctance to accept a strict authoritarian shop discipline. This is not just a shop phenomenon, rather is a manifestation in our shops of a trend we see all about us among today's youth.
More money, time and effort than ever before must now be expended in recruiting and acclimatising our quality control programs have been put to severe tests; large numbers of employees remain unmoved by all attempts to motivate them; and order in the plants is being maintained with rising difficulty.
That this is not simply a bosses' problem was expressed by youthful Gary Bryner, President of the Lordstown local of the UAW (July 25, 1972):
There are symptoms of the alienated worker in our plant-- the absentee rate, as you said, has gone continually higher. Turnover rate is enormous. The use of alcohol and drugs is becoming a bigger and bigger problem. So has apathy within our union movement towards union leaders and towards the Government ... (The worker) has become alienated to the point where he casts off the leadership of his union, his Government... He is disassociated with the whole establishment.
Here's the key quote from this excellent historical essay:

Modern capitalism can, by and large, cope with the traditional type of economic problem, for instance those dealt with by Marx, it can continue to develop production. It is in difficulties, however, when confronted with a massive resistance to its values, priorities and whole pattern of authority.

In the traditional labor vs. capital framework, we expect the resistance to come from labor; in the knowledge economy, that resistance is arising from those who own and control the means of production, the knowledge workers themselves.

This has important implications for corporations, non-profit organizations and government alike. In Drucker's view, "Every organization has to build in organized abandonment of everything it does. Increasingly, organizations will have to plan abandonment rather than try to prolong the life of a successful policy, practice or product."

In other words, creative destruction is the necessary result of constant, purposeful innovation. Any organization which fails to do so will become obsolete. The same can be said of those providing the knowledge capital to the organizations, the knowledge workers.

One consequence that none dare speak is the absolute reduction of any functional need for layers of management, or anything resembling traditional management.The Internet is a tool for eliminating management, along with generally needless/useless meetings and the other sources of unproductive friction in modern corporate and government organizations.
Management exists to minimize the problems created by its own hiring mistakes.Valve says the secret of their management-free environment is hiring good people. That sounds right to me. We don't have any weak contributors in our start-up so we have never felt a need for management.
One of the interesting aspects of better global communications, better access to information, and better mobility is that collectively it reduces the risk of making hiring mistakes. When employers were limited to hiring people who lived nearby, and the only information at their disposal was lie-filled resumes, every growing company would necessarily absorb a lot of losers. But now that entrepreneurs can hire the best people from anywhere in the world, we have for the first time in human history the ability to create teams so capable they require no management structure. That's new.
I think the manager-free model only works for a business that has high margins and depends more on creating hits than cutting costs. The videogame business fits that model, as do many Internet businesses. And in both cases entrepreneurs can hire from anywhere in the world.
So here's my summary: Management only exists to compensate for its own poor hiring decisions. The Internet makes it easier to locate and then work with capable partners. Therefore, the need for management will shrink - at least for some types of businesses - because entrepreneurs have the tools to make fewer hiring mistakes in the first place.
Management won't entirely go away, but as technology makes it easier to form competent teams without at least one disruptive or worthless worker in the group, the need for management will continue to decline.
Even organizations based on rigid command hierarchies such as the U.S. military are finding that decentralized command decisions based on proximity to information flow, field intelligence and detailed knowledge of local assets trump sclerotic centralized command structures in getting demonstrable results.

If this is true in sprawling bureaucracies, it is certainly true in smaller organizations.
This is the economy that every worker has to understand if they want to navigate it to their own benefit. Every enterprise and organization that wants the most productive workers has to understand that their task is not "managing labor," it is offering workers of all levels opportunities to be effective and to contribute.

In my view, each worker is an enterprise, and the less time, energy and money wasted on management and friction, the more time and energy there will be for wealth creation or value creation, and as a result, more money available for wages.

For more on this topic, please read The Ten Best Employers To Work For (March 28, 2013).
Via correspondent Rui N.P.: America: A Nation of Permanent Freelancers and Temps.

NEW VIDEO/PODCAST: PEAK JOBS--CHS and Gordon Long discuss the future of work and employment:

I will be attending (not as a speaker) Mish Shedlock's Wine Country Conference Investment Ideas for Unconventional Times on Friday, April 5 in Sonoma, California. $1,000 of the $1,400 fee goes to charity. The conference features an All-Star lineup of independent financial analysts: John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mish Shedlock and Chris Martenson. It's not often you get all this talent in one place for one day.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

go to print edition1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

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To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

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