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Economics & Finance - BLOG

The Future for Labour Is Self-Employment

Sami Mahroum, Academic & Executive Director of INSEAD’s Innovation and Policy Initiative and Dr. Elif Bascavusoglu-Moreau, Senior Research Fellow, INSEAD Innovation & Policy Initiative  |

The technological revolution won’t phase the human worker out of existence, but it will change the way we work.

Ever since the Industrial Revolution, humans have been ambivalent about technological progress. While new technology has been a major source of liberation, progress, and prosperity, it has also fuelled plenty of agony – not least owing to the fear that it will render labour redundant.

So far, experience has seemed to discredit this fear. Indeed, by boosting productivity and underpinning the emergence of new industries, technological progress has historically fuelled economic growth and net job creation. New innovations accelerated – rather than disrupted – this positive cycle.

But some are claiming that the cycle is now broken, especially in technologically-savvy countries like the United States. Indeed, machines are becoming smarter, with innovations like advanced robotics, 3D printing, and big data analytics enabling companies to save money by eliminating even highly skilled workers. As a result of this “productivity paradox” (sometimes called the “great decoupling”), jobless growth is here to stay. We can no longer take human prosperity for granted, however rosy the aggregate indicators for profitability and GDP growth may be.

But are we really in the throes of a Frankenstein’s dilemma, in which our own creations come back to haunt us? Or can we beat the productivity paradox by harnessing the power of machines to support development in ways that benefit more than the bottom line?

Patents and perseverance 

There is good reason to be optimistic. Many countries – even technologically-savvy ones – can still benefit from the self-reinforcing cycle of technological advancement, rising productivity, and employment growth. Luxembourg, Norway, and the Netherlands – three innovative and capital-intensive economies that regularly appear in the upper quartile of productivity per hour and employment, according to OECD data from 2001-2013 – are prime examples.

Cynics will suspect that Luxembourg and Norway have managed to sustain this dynamic only because of their peculiar economic structures (a concentration in finance in the former, and in natural resources in the latter). So let’s consider the Netherlands, which stands out as the only country that recently has appeared in the upper quartile not only in productivity and employment, but also in labour-market participation.

The Netherlands has been a champion of innovation, gaining a fifth-place ranking in the recent INSEAD Global Innovation Index. A striking 85 percent of large Dutch firms report innovative activities, while more than 50 percent of all firms are “innovation active”. Dutch firms are also world patent leaders; Eindhoven, the hometown of the electronics company Philips, is the world’s most patent-intensive city.

So what is the Dutch secret for ensuring that technological progress benefits all?

Innovation from the home

The Netherlands seems to be undergoing a sort of industrial revolution in reverse, with jobs moving from factories to homes. The Dutch labour market has the highest concentration of part-time and freelance workers in Europe, with nearly 50 percent of all Dutch workers, and 62 percent of young workers, engaged in part-time employment – a luxury afforded to them by the country’s relatively high hourly wages.

Many young Dutch work part-time as schoolteachers. But a more lucrative – and common – source of part-time employment in the Netherlands is the subcontracting of “white collar” services. Highly skilled or specialised workers sell their services to a wide range of businesses, supplementing the work of machines with human value-added activity.

Another key to the Netherlands’ success is entrepreneurship. In 1990-2010, self-employment rates fell across the OECD countries, with business ownership in the U.S., for example, having declined rapidly since 2002. In the Netherlands, however, business ownership has grown steadily since 1992, reaching 12 percent of the labour force in 2012. Almost 70 percent of Dutch business owners were exclusively self-employed in 2008.

To be sure, rates of business ownership and self-employment are also high in low-income countries like Mexico. But the Netherlands is much wealthier, and boasts high levels of per-hour productivity, employment, and participation – largely owing to its flexible and adaptive labour market.

In short, the Netherlands has restructured its economic value chain to accommodate a new division of labour between humans and machines, embracing new kinds of economic activity – especially part-time work and solo entrepreneurship – to balance human needs with technological advances. In doing so, it has highlighted the importance of “enterprising skills” – including creativity, entrepreneurship, leadership, self-management, and communications – in enabling humans to keep pace with technology.

Machines may be reaching new heights of intelligence, but they are no match for human resourcefulness, imagination, and interaction. This is a lesson that countries would do well to learn from the Dutch.

This article was originally published at the Project Syndicate website.

Sami Mahroum is Academic and Executive Director of INSEAD's Innovation and Policy Initiative, based at the school’s Abu Dhabi campus.
 
Elif Bascavusoglu-Moreau is a Senior Research Fellow, INSEAD Innovation & Policy Initiative
 
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Comments
Danielle Borremans,

This article is so greatly written. It almost "speaks" to me. I believe that Belgium has great potential to improve its ranking in the INSEAD Global Innovation Index. We come from far away, hence we'll be fast in catching on. Maybe this is wishful thinking from my part.

joeyharp,

This can be fine to some extent, but it does nothing for Innovation, where time and again, colleague exchange leads to the compiling of knowledge, experimentation, a minor break through and the exchange that comes from working within teams. This leads to the Eureka Moment, which is more like a single point along a continuing path. Like technology. Look at what Bell Labs did, because they had teams of people doing pure research. Yet, they built upon the past mathematician's and break through's in technology, materials, etc. Look at Apple compared to Microsoft. Apple innovated, Microsoft went the software open source approach. In the end what do we have in 2015. Well, both have their place, but nobody can deny why Apple is the number one company on planet earth in all categories, and in all ways. Microsoft, with Gates out of there now, really, remains in permanent catch up mode. When we see how Jobs & Wozinak balanced each other, well... that's not going to work in the models performed here. And what works in one country economically, might not be best at all in a technological society, where innovation in everything from DNA sequencing, Nano Technology and the coming age of Quantum Computers, will meet everyday life in the services industry, wholesale and light manufacturing. Some segments of each this approach might work out, but I don't see in in America. Not at a mass scale, where we have 320-350 million people population, and on the brink of a complete collapse of what was a conservative political party called Republican, now the Internationalist party where the money backers are picking the candidates in front of the politicians of the same. America has it's hands full right now, as this party is in process of going down smoking - with zero Platform to run on in the coming election. And economic scenario that favors independence and each person being an independent contractor means a greater level of mediocrity in the work place. It is too much of a disconnect from anything other than the most base of business models in play.
WE have already seen a pull back from home based employment, when Google's CEO had people working at home come back to a central location. Productivity & Quality had to intersect. Not just efficiency and economies of scale. Money is important, but it cannot be the sole source that attempts to drive us forward. Only in the services sectors do we see that such a blatant disregard for the Human Resource, below the executive, certainly below the middle management level, is so obvious, Mass bonuses and perks going out above that level, would lead to a desire for being an Independent Contractor by the workforce below those levels. It's the only way to achieve some kind of financial parody for the expected work performance. Take career computer support people at a bank processing facility in Tempe, Arizona. One of my friends put 27 years in for one of our biggest banks.. She never pulled down a $40,000 year income! Actually, 37,500 was her tops. EVER! Now she's 67, single, has her home paid for and has so for a long time, after cashing out of her Southern California home and buying in during the growth market. She paid all cash. And that was what she came out from a divorce with long before. Her bank stock in the company 401k took a hit in 2008 and it never really recovered. So she sat in this job. She retired in late 2013. She was going to in mid 2011. The only reason she didn't get laid off numerous times was that she happened to process bank checks! Yes, those pesky devils that are still written at places like Costco and all over. And she is one of a small division that handles all their physical processing. In the end, she had to train others before she and colleagues retired. Now, would that bank allow her to be an Independent Contractor? And wouldn't they be setting the price on what they'd pay? So that takes them off the hook for providing anything for the employee, which she no longer would be. No. That's a level or "irresponsible capitalism" I do NOT condone, while those exec's take in 7 figure profits. I'm not socialist. And I'm not even liberal, whatever that is suppose to mean.. I'm into fair. If the executive elites cannot control themselves and put checks and balances on themselves, then who is to blame for regulations? There is a point where collectively, as a democracy, we need to step back and put a governance over these corporations that are justifying mediocrity in their operations, which is their fault, for not honoring voluntarily, their single most important resource: Their employees. Then, it's they who take their bonuses off shore.. Chasing tax havens, avoiding billions in taxes! Does America have too high of a tax rate, when in the end, most are still paying less than their employees Income Tax being with held annually? Finding systems around their irresponsibility might be a dangerous slide for the country of so many people, to satisfy the growth prospects of Wall Street finance. America cannot "cut" it's way to it's future governments financial needs. We must find new ways to level the corporate playing field. We can't worry about Globalization, because it's long been established (read Freeland's book, PLUTOCRATS). No. So, we should embrace it as a country, and stop the denial and political games of phony conspiracy theories. We must clean up our act and start a dialogue that has politicians willing to stand up and be counted as citizens of fairness first, rather than idiotic statements that appeals to a select few campaign donors intent on dividing Americans, for their own financial interests. One solution? A single worldwide Corporate Tax. Lets take the tax plays out of the game totally. Let capital follow innovation and quality of the work force alone, rather than tax advantages. Then incentive is brought back by each country, to improve the plight of their people and education and skill development goes from talk to practice and investment in development of their workforce. This also give investments into 3rd world countries a new hope of participation in a modern world. Democracies will continue to flourish naturally, because they work. And because we have instituted a way to keep them working, while an older, more selfish generation dies off the planet, and a new base line is created. Possible? Of course!

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