#84: The New Economy Is Here (We Can Stop Pretending Its Not)
😎 Reflections on work, life & what matters
February 29th: Happy leap day from Tenerife in the Canary Islands. This week you’ll find one longer essay with a couple of short links. Here’s a pic from some hiking we did this week…
👋 Welcome to Ana Claudia, Ravim Whahida, Suhail, Mishal, Meg, Lynette, Giovana, Victoria, Jayda, Jonathan, Averi, Samuel, James, Steve, Tim, Diane, Johannes
📍 Tenerife until March 15th, then to Las Palmas for one week and then Barcelon at the end of March#1 The new economy is here
A year before I started, the grad program I went to in 2010 was called Leaders for Manufacturing. Before I started the program was re-branded to the “Leaders for Global Operations” program to be more in line with the language and reality of the modern business world.
When I started the program, it was still involved in a number of initiatives at MIT tied to investing in manufacturing and “bringing back” good jobs in the industry. This made a lot of sense as historically manufacturing meant good middle-class jobs and overall prosperity.
However, the name change should have been a clue that the economy had moved in a new direction. The jobs are not coming back:
There was a recovery in manufacturing but it was only in financial terms not jobs. The FRED database for the US even stopped tracking the percent of the total workforce, which as of 2019 is a mere 8.6%.
My research into the modern world of work and my own experience navigating this new world has me more convinced than ever that we are already in a new paradigm. When I graduated college in 2007 “working in tech” was barely something that people thought of. Now it is the goal for any driven young person.
What has not shifted is our cultural and political norms around this new world of work. We see divisive debates around the world about how society and the economy should be structured including how money is distributed, how immigration factors into labor force decisions, what types of jobs there should be and how we think about the tension between meritocracy and egalitarianism.
This will likely take a decade to settle, but at the core of all this is something that no politician will ever tell you:
Within the current way we think about work and employment, we will not be able to guarantee economic success to the average person with a job.
This is because most people have not updated their model of the new world of work. While Derek Thompson has been the most persuasive voice explaining what is broken with our current work beliefs, Ben Thompson is the person who has best explained where we are headed.
In 2015 he coined “aggregation theory” which helps explain why tech companies have surpassed and dwarfed traditional industrial companies such as Exxon, GE and BHP Billiton. Apple and Microsoft alone are now more valuable than the top 10 companies in 2009:
Thompson argued that technology enabled “aggregators” to reach customers through the internet at zero marginal cost (meaning the cost of reaching an additional customer is negligible) which enabled companies with great technology to capture all of the demand within a market.
For the average person, just see how many days you can go without using Google, Facebook, Amazon, Netflix or Microsoft.
Offsetting the shrinking manufacturing employment, the Brookings Institute found that jobs in this “innovation sector” have led to steady increases in employment:
they have increased their share of the nation’s total innovation employment from 17.6% to 22.8% since 2005.
However, this is not the lifting all boats kind of growth. Most of the employment gains have happened in a small number of regions:
Most notably, just five top innovation metro areas—Boston, San Francisco, San Jose, Seattle, and San Diego—accounted for more than 90% of the nation’s innovation-sector growth during the years 2005 to 2017.
Further, there are less firms capturing more profit than ever before. Technology companies are not competitive like five different cereal brands might be, they are winner-take-all. Amazon or bust.
This gets to why I am so interested in work. We pretend as if this larger shift has not happened and that massive market caps mean that there are bountiful jobs being created everywhere. The associated belief is that putting your head down and working hard is still a good life strategy.
This might have been true as recent as 2008, but the game has changed.
The finance and technology industries have been the most successful at capturing the the wealth from this new economy and passing it on to employees and even more dramatically in those special regions.
If you are a worker in these areas, it is an amazing time for you and if you take inventory of the people in your life who are doing well, they likely work in technology or finance.
For technology, the numbers are staggering. With less than two years experience with coding skills, here is what you might be able to make working in tech:
This is with little to no experience!
For the small percentage of people outside of tech who own stock, they have been able to earn a dividend on this growth even if their firm or job has had more stagnant income growth.
For others, the best move to take part in this new economy and have a good job is to move into tech or to move to a superstar city. Unfortunately, most people just don’t want to move or make a radical career shift.
In my last three years being self-employed, I’ve also realized the tremendous opportunities this shift gives people who are are comfortable creating online and tapping into the potential of reaching 4 billion people across the world. It clicked for me over the last year when people from more than 25 countries enrolled in my strategy consulting skills course.
I am a 1-man team right now!
Once you see this shift happening it is hard to un-see. Despite the fact that my previous consulting job paid a lot more, I was consulting for companies that were stagnant and struggling. They were paying us for “transformation” projects but really they were just hoping that we had some answers to slow their inevitable decline.
At first I wanted to leave my job to escape the corporate world. Now, through different work I’ve done it is more about a bet that what I am learning will give me more flexibility AND opportunity in the future.
But I’m lucky. My parents encouraged my obsession with computers and never complained when I took over the phone for hours to build terrible websites on geocities, trade basketball cards and beanie babies on ebay or play with proggiez on AOL. I think back to those times when I am writing this newsletter, building my course on Teachable, experimenting with making videos on YouTube or making video calls on Zoom and laugh a bit because it seems so clearly connected in a way that I did not see until I took this crazy leap.
Unfortunately, most people don’t get a kick out of technology. Nor do most people want to constantly think about their career or have to move cities and jobs constantly. They have other more important things to do like raising a family.
Unless you are in an elite city or superstar firm, the days of blindly working hard and being taken care of are over. Those are the beliefs of the industrial age, which peaked in the past.
I’m not sure what new beliefs will emerge, but this question is at the core of what excites me most. We need a new cultural lens of how we think about work, how we move past the absurd language of “earning a living” and re-think how we deem people successful. At minimum we need to buy time while the Politicians are still promising coal and manufacturing jobs
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Odds & Ends
📚 I stumbled upon this fascinating essay from Mary Lee about Singapore and test-taking culture in 1974 called “The Great Paper Chase”
I have had my share of the pre-examination cramps. For 15 years, I was given to understand that passing examinations was the only purpose of my life.
🎧 Jason Fried On The Drive with Peter Attia is a fantastic podcast on work
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Thank you Paul! I appreciate your leadership on the rethinking of work.