Tag: economics

Adapt to What? – An Open Letter

Dear Millennials:

Once upon a time (in the 1970s), the actor you might know as Steve Martin was a rising star in stand-up comedy.  One of his jokes began with the premise that he would tell you how to earn a million dollars and never pay taxes.  The real laugh in the bit came when Martin would say, “Ok, first get a million dollars….”  See? That’s funny.  And the reason I mention the joke here is that it seems to me quite a few peppy pundits out there are telling you a version of this joke, only they’re not kidding. They’re not saying “First, get a million dollars.”  Instead, they’re saying things like “Adapt to the market you’re inheriting,” which, in many cases, is an unfortunate euphemism for “Just become a star.”  Because if you don’t become a star in the market presently being transformed as you’re trying to enter it, you might be basically screwed.

No question it was very cool of Taylor Swift, who is obviously a superstar, to stand up to Apple on behalf of professional musicians, who will never be superstars. But as this indie artist points out, all the non-superstars (who, by the way, make most of the music you probably love) are still hosed because the streaming model is not yet sustainable, no matter whose service leads the market. And these music professionals are likely to remain hosed because we may have devalued work (not just music, but work) past the tipping point of sustainability. And you should be angry about this, even if you helped feed the problem.  This article by Rebecca Smith for Fortune explains why, for instance, the Uber business model can be a universal job killer.

“Today, as the super-rich have amassed ever greater shares of wealth, the connection between working for a living and being able to earn a decent living from work has disintegrated. Perhaps nowhere is this disparity more evident than in the growing “on-demand” economy. Companies like Uber, Lyft, Crowdflower, Homejoy, and others in transportation, delivery, hospitality, home improvement, domestic service, technology and elsewhere have adopted business models that pass the costs of doing business onto workers themselves and move the wealth their service provides upwards. The on-demand economy has already created its share of billionaires – Uber’s co-founders are worth around $5 billion each, while those who drive for Uber receive meager pay.”

So, what the “adapt” mandate implies here — again echoing Steve Martin — is “First, go invent Uber.” But there’s like 80 million of you millennials in America, and the digital-age market only has room for one or two (usually one) major player in any category at a time.  So, in terms of realistic ratios, even if a million of you might invent killer apps or become YouTube stars, neither of those enterprises will create and sustain real jobs for the  the other 79 million.  As Smith points out, and as supported in this essay by Umair Haque entitled The Servitude Bubble, the devaluation of labor and general shift toward a market of ad hoc pieceworkers, livery drivers, servants, and craftspeople all working too cheaply for a wealthy minority is not limited to any particular business sector.  As many of of my colleagues have been saying for some time, what the tech industry and free-culture consumers did to music is now manifest in other areas of the market. Smith projects your future as follows:

“Our new grad might sit down to her computer every day, wondering whether she will get enough work to make it through to tomorrow, doing mind-numbing tasks like matching names to photographs and matching the word “blue” with the color “blue,” and she’ll compete with 500,000 workers across the world who are hungry for the same micro-jobs. One researcher has found that 70% of the tasks on [Amazon’s] Mechanical Turk are worth 5 cents or less, yielding an hourly wage of less than $5.”

Maybe that prediction is more dire than necessary. I hope so.  But read between the lines in any number of trends and we see a hyper-efficient, data-centric view of the world, of culture, and of market value that appears to be fueling the growth of monopsonies empowered to dictate terms to every kind of worker from book authors to carpenters to truck drivers. And it occurs to me that for all its fluffy futility, OWS demonstrated that many of you were on the right track. You should be pissed off at the 1% and angry as hell at Wall Street.  But I’m sorry to say that the business models of the digital age are not the antidote to Wall Street; they are its worst intentions on speed.  It is insane that a company like Uber, which has yet to prove itself, which creates no real jobs, which functions like a pyramid scheme, and which could evaporate overnight is valued in the tens of billions by “the market.”  This should piss you off, not only on its own terms, but because major business owners in many sectors seem to be learning from these tech-based models how to take advantage of your talent, your time, and your costly educations for pennies on the dollar. They know the more that labor is devalued across multiple sectors and the more desperate your circumstances become, the more bargaining power they have. And it doesn’t even have to be malicious. If these economic forces drive the value of work down and the global market is flooded with millions of talented, educated people, it becomes untenable for even the most generous, well-intentioned employer to offer more than a meager going rate for your services.

But here’s a solution, at least part of a solution, as I see it:  you are the market. Right now, you’re the consumer everybody wants. Of course, because the big players figured out how to monetize your attention without asking you for any money, you won’t notice right away that you’re actually paying for the present with your own future value. (And how ironic is it that your time has been turned into a commodity pegged to advertising when studies show you will avoid advertising at all costs?)  It may not occur to you that it is contradictory to hate on Wall Street and then order up an Uber car or pirate a movie or a book, and the VCs whose names you don’t know are counting on you not to notice. You get the concept that “buying local” is an economic driver for your community, but the studies and the pundits all say you won’t even buy a digital download from your favorite band because when you were kids, some adult told you that you shouldn’t pay for music.  But that adult is a billionaire now, and he hasn’t even bothered to build a company where you might get a decent job.

Here’s an experiment I am sure won’t catch on, but what the hell:  stop pirating media; if you can, buy one extra album or video or book or something each month in a local, retail environment; get a subscription to a legal streaming service; and most of all, refuse to patronize or work for a businesses that wants people to work for free or is looking to turn valued labor into freelance, micro-tasks. Then, watch what happens. You’re the market. Let the damn billionaires adapt.

Read Jonathan Taplin: “Sleeping Through a Revolution”

I know I’m a little late to the party in featuring this article by Jonathan Taplin, but anyone who has not yet read “Sleeping Through a Revolution” should find time to do so. Taplin is a former motion picture and music producer and has for the last 12 years been Director of the USC Annenberg Innovation Lab. This article is certainly among the best summaries of the challenges posed by the digital age — creative, economic, ideological, social, and existential.  As others have done, Taplin emphasizes the point that the creative class is merely the proverbial canary in the coal mine, already passing out in an increasingly poisonous economic climate. Citing some chilling data, like the fact that wealth consolidation among the 1% is now more acute than it was immediately before the Great Depression, Taplin very efficiently paints us a comprehensive mural depicting the state of affairs. Unfortunately, it’s kind of like “Guenerica” if all the figures were holding smart phones. Writes Taplin:

“… within 20 years, starting with Peter Thiel’s cohort at Stanford University, the organizing philosophy of Silicon Valley was far more based on the radical libertarian ideology of Ayn Rand than the commune based notions of Ken Kesey and Stewart Brand. Thiel, the founder of PayPal, early investor in Facebook and Godfather of the PayPal Mafia that currently rules Silicon Valley has been clear about his philosophy.

He stated, “I no longer believe that freedom and democracy are compatible”, his reasoning being that “Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of “capitalist democracy” into an oxymoron.”

One theme I’d like to highlight from Taplin’s article is the way he introduces the piece, citing a period in the late sixties when he says the most “critically acclaimed movies and music were also the best selling.”  This has been a big theme of mine since starting to write about these issues.  Because my own opinion is that Hollywood’s real golden era occurred between the late sixties and roughly the catalyst we call Star Wars. This was a transformative time when the movies that had the big runs, made the most money, and earned all the award nominations were the kind of films that today we would describe as “indie.” Obvious examples would be Woody Allen’s Annie Hall or Martin Scorcese’s Taxi Driver.  It was a time when mainstream, American film dealt with sophisticated material in a way that created great works of art that also dominated at the box office.

Hollywood studios and audiences moved steadily away from that kind of mainstream fare, which is not to say that everything big studios produce today is “bad,” but it’s certainly different.  The many reasons for the shift in material, at least initially, have little to do with the post-Napster market forces that have since exacerbated the problem by devaluing works across the board.  But I think the point Taplin is making is not to decry the fact that today’s Annie Halls aren’t box-office leaders, but that they face limited opportunities to survive at all.  And we can easily imagine that destructive model replicating across multiple sectors, as what used to be the middle of the economy is subsumed into the struggling 99%.  In keeping with Taplin’s sleeping metaphor, I find it interesting that the “revolution,” which gave us the shorthand 99% and 1%, was typical of our times — just a little trend that made money for social media companies but that anyone in power could safely ignore.

Read “Sleeping Through a Revolution” by Jonathan Taplin on Medium.

The Illusion of Free Stuff

Yesterday’s New York Times offers a very well-articulated editorial by media writer David Carr on the larger economic cost of free media.  Using an example of buying fresh fruit at a neighborhood stand, Carr questions his own instinct to undervalue the price of a bunch of grapes in context to the way in which so much access to “free stuff” has skewed his own perceived value of goods and services in general. In a market like ours, value is reflected as price and always traces back to labor, someone’s labor somewhere.  So, I think Carr is right to ask whether or not the steady stream of free stuff in digital space corrupts our perception of value in other sectors of the economy, which can only have a cannibalizing effect on the value of our own labors whatever they may be.

We are taught in basic economics that goods have intrinsic value (i.e. cost of production + some margin of profit), and that they have perceived value (i.e. what the market will bear), with perceived value determining how wide that margin of profit can be.  I never formally studied economics, but it seems to me that when perceived value drops below intrinsic value, prices become “artificially” low in the sense that what the market will bear can no longer sustain production of the goods in question.  This, of course, depends partly on one’s definition of “sustainability.”  If, for instance, the price of socks at Walmart is “artificially” low because it can only be sustained by outsourcing sock production to a country with poverty-level wages and few workers rights, then this is certainly one kind of sustainability, but it is one that includes hidden costs we privileged consumers tend to ignore until it affects us directly.  The closer it gets to home (e.g. when we read about Walmart’s own employees working below the poverty line), we pay a little more attention.  A little.  And of course, prices can also be made artificially high based on perceived value. As anyone who’s ever marketed luxury goods can tell you, a wealthy buyer’s ego is worth several percentage points of mark-up.

One can extol the virtues of technology, invoke examples of historic transformations like the printing press, and cry Progress! from the rooftops in stream-of-consciousness editorials like this one by Bob Leftsetz, whose criticism of Carr reminds me of a slightly demented Kerouac, if Kerouac had hated music.   But if we clear away the smoke and dust from all that bluster, we might address the central point which is that the perceived value of a song (and we’ll let song stand for all media) has unquestionably reduced prices (or rates) to unsustainable levels for supporting the production of music itself.  So, the consequential question is whether or not we actually care.   Quite simply, the perceived value of recorded music was first reduced to zero by piracy (which is neither economic nor technological progress), then it was briefly and only partly resuscitated by digital downloads, and then it was dropped back to effectively zero by streaming services.  And one reason we know the perceived price is zero or near zero is that so many tech-utopians keep saying it is while they offer numbskull suggestions like more merchandise, more touring, and “adding value” to replace the inescapable loss of revenue from disappearing  sales.

When it comes to products like albums or motion pictures, prices are almost always flat so that the financial success of a given product is based entirely on volume of sales (i.e. popularity) and not on perceived or even intrinsic value (i.e. pricing) of each unique product.  But in a technological paradigm that has driven prices in the entire category to zero or near zero, champions of the “new models” are quick to say that producers of media will share smaller bits of a much bigger pie because the Internet makes the whole world a potential customer for no more than it costs to reach a local market.  Sounds good except for the fact that ten million times almost zero is still…y’know.  This argument always reminds me of the old joke about the guy selling cordwood for less than he buys it wholesale and figures the reason he’s losing money is that he needs a bigger truck.

But of course it’s all just progress, right?  Technological innovations that improve efficiency and availability of goods always lower prices for consumers, and there is usually a period of revenue shift from one class of workers to another.  It’s an unfortunate byproduct of change, but change is inevitable, so why shouldn’t we just embrace it and quit whining as Lefsetz and others insist we should?  Because the transformation is not holistic and because the initial and persistent, catalytic force of piracy normalized a black market, with which no legitimate industry in any sector can ever compete.

Both legal and illegal disruptions to media sales occur solely at the distribution end of the supply chain.  If the Lefsetz-like utopians were to say that the folks who used to package and ship physical CDs are just victims of natural progress, I’d have to agree; but further upstream in the supply chain that ends with a song in your ear or a movie in front of your eyes is a production process where all the costly labor, expertise, and capital are invested.  And when we devalue or become disconnected from the labor, expertise, and capital behind any product in any sector, this has that ripple effect to which I think Carr alludes in describing his gut reaction to the price of a pack of grapes.

Last week, songwriter/composer Van Dyke Parks wrote this editorial about the value of a song in the age of streaming, and I figured a guy like Lefsetz would go for the too-obvious criticism of this quote:   “Forty years ago, co-writing a song with Ringo Starr would have provided me a house and a pool. Now, estimating 100,000 plays on Spotify, we guessed we’d split about $80.”  The myopic reaction to a quote is to think either that a song should not be worth a house and a pool or that Parks and Starr have enough money; but both reactions entirely miss the economic implications of Parks’s point. If technological change drops the trade value of a popular good from a house and a pool to, say, a really nice car, then we might be looking at a modified but still sustainable market.  But if the trade value of a popular good drops from house and pool to less than a basket of groceries, sustainability has been eradicated, and I personally think anyone who views this as virtuous is the same kind of fool as the guy in the joke hauling cordwood.

Utopians like Lefsetz will say that the popular music and popular artists will still make plenty of money, and guys like Mike Masnick at Techdirt will preach the need for creators to embrace new lines of revenue.  And indeed, both are right in a way I personally wish they were not.  According to this brief post on Gawker, Grammy-winning pop star Pharrell not only performed at a recent Walmart shareholders meeting but apparently asked the crowd to “put your hands together for Walmart, guys, for making the world a happier place.”  In light of Walmart’s track record for its labor practices, my friends and I twenty years ago would certainly have called Pharrell a sell-out.  But today, anyone who loves free or almost free music and would still call him a sell-out is not only a tad hypocritical, but isn’t paying attention to what the market looks like when we break the transactional relationship between consumer and producer that ties price back to labor.

Pharrell is just one example.  We’re seeing a trend of popular artists take gigs to perform for sponsorships, corporate events, or private parties for wealthy individuals; and this move toward patronage by the elite is a direct response to the fact that we the people are no longer a source of revenue.  This will probably have the unfortunate effect of turning executives at Walmart or Pfizer or Shell Oil into the new tastemakers, which just personally makes me miss even the sleaziest producer who ever worked for a record label.  I don’t know whether or not a PR or communications person from Walmart fed that line about making the world happy to Pharrell, but my experience in corporate communications tells me it could have happened that way.  What’s for sure is that such  exchanges between execs and pop stars will happen soon, and  the pop stars will no longer dictate terms to these big patrons, who are their only paying customers.  I find it interesting that as angry as we seem to be over ceding political power to corporate interests because they can buy influence, that we are unwittingly going to cede cultural power as well, simply by abdicating our ability to vote with our pocketbooks.