The Work From Home “Revolution” – The Future is Now.
At the turn of the 21st century, there were talks of several ‘revolutions’; including but not limited to the biotechnology, nanotechnology, 3-D printing revolutions. However, after two decades, these technologies have disappointed their early enthusiasts.
Not that they have failed to deliver completely, the world was able to develop Covid-19 vaccines in a short time because of the mRNA technology, which itself is a result of the biotechnology revolution. But the initial promise of these technologies were far greater. Biotechnology was supposed to extend human lifespans, nanotechnology was supposed to deliver personalized medicine with nanobots, and 3-D printing was supposed to make manufacturing a household activity. Compared to those dreams, these revolutions have underperformed.
These days however, there is a new revolution in town, and unlike the ones we discussed, its impact is not in the foreseeable future, but one already upon us – the “Work from Home” revolution. It is already impacting millions in the corporate world and those indirectly dependent on the corporate world. According to many surveys, corporates around the world are considering this as a long-term arrangement.
Some have highlighted the fallout of such a disruption, especially on a developing economy like India. It is rightly observed that this arrangement has hit many low skilled jobs hard, like office maintenance staff, office canteens, and road side food vendors near office complexes. It will also negatively effect the growth of real estate in corporate centers like Bengaluru and Gurgaon where a lot of office and residential space has become vacant.
However, if one only looks at this side of the picture, one will remain blind to the immense productivity gains this massive restructuring is producing and the exciting future that can result from that.
So what is happening is something like this: lets assume an IT startup with a small workforce of engineers. Until the pandemic, the CEO of the startup had to hire a team of maintenance staff, pay electricity bills and rent for the office complex and spend on movement of employees for official meetings. These are low value services towards which a part of the startup’s resources had to be spent to keep it running. But no more. Suddenly all these resources have been freed up and can be spent on higher value services. The CEO can instead now decide to hire more engineers for the company for example.
Obviously, a lot of jobs have been lost, and most of them by people who are not well off. On the other hand, more engineers have got jobs than before, although the jobs gained here would be much less than those lost. Further, since the CEO has invested in higher value services, he will get a higher return. The company can work on more projects with the increased skilled workforce and get more profits.
This scenario shows that essentially this revolution is pushing resources up the value chain i.e. resources are being diverted from less skilled workers to more skilled ones, higher up on the value chain.
If one concludes the observation at this point, it seems like an arrangement in which the poor are getting a raw deal. Indeed, Karl Marx came to a similar conclusion 150 years ago, when he wrote in Das Capital that increased usage of fixed capital (technology) by the capitalist in the production process, would eventually concentrate all wealth among the bourgeoise and impoverish the proletariat.
He was wrong! This is what Thomas Sowell calls ‘Stage-1 thinking’ i.e., accounting for the seen effects but not for the unseen ones which will happen in the future. Coming back to our example, when the CEO of the startup used his newly freed up resources towards higher value services, he increased the efficiency of his firm. Newly hired engineers produced more returns on the investment and created more wealth for the company and the CEO. This increased wealth would also be spent hereafter by the CEO in consuming various kinds of consumer products. This will enhance demand and eventually jobs at the back-end of the production of those products.
So we see two contradictory trends in employment. Some jobs are being lost, while others are being gained. Which of the trends dominate, is an empirical question. And the answer is clear from the 250 years history of capitalism. As better technology brings more efficiency to the production process, not only more jobs are created that are being lost, but much better paid ones are created. This enhances the living standards of all, from top to bottom. All boats rise, albeit unequally, and not at the same time.
Business and jobs are flow concepts, the less efficient are continuously replaced by the more efficient ones. It enhances productivity and wealth of the entire economy over time. Swaminathan Aiyer provocatively wrote in his weekly column in 2012 that “job losses are good for us” and that “US destroys around three million jobs every month… and creates three million new ones”.
But ‘Work from home’ is not just about money. Had it been, it would not be called a revolution. Work from home is about enhancing value in the people’s lives. Millions of people have freed up not just money but time, which they can spend in more valuable ways than distressful ones like commuting.
Such an employee can now spend more quality time with his spouse, or take care of his child better, or meditate, or just relax in the way that suits him the most. Crypto guru Naval Ravikant has called ‘Work from home’ an exit from the 9-5 routine. According to him, it’s a part of the march of individuals who are exiting institutions and taking control of their lives. It may be a little farfetched, but there is some truth to it.
Marc Andreessen wrote in the Wall Street Journal in 2011 that “software is eating the world”. Indeed the process has been going on for decades now. As an example, email ate up the postal services and reduced demand for paper than what would have been. But the earlier ‘eating up’ was more subtle and this has been more into our faces, and that’s what makes it exciting.
Robert J. Gordon writes in his book The Rise and fall of American Growth that, the digital revolution had a real but a relatively minor impact on the Total Factor Productivity of the economy, and this impact was mostly over by 2004. When I read this, I reflexively disagreed. The ‘Work from Home’ revolution shows that I may be right and that the digital revolution still has miles to go before it sleeps.
About the Author: Yuvraj is a part time researcher and aspiring public intellectual. He is an avid reader and leans libertarian. His interests include history, economics and philosophy.