Complex Made Simple

Rise of new luxuries in an on-demand economy

In the early 20th century, Henry Ford combined moving assembly lines with mass labour to make building cars much cheaper and quicker, and in doing so changed the automobile from a rich man’s toy into transportation for the masses.

Today a growing group of entrepreneurs is striving to do the same to services, bringing together computer power with freelance workers to supply luxuries that once were reserved for the wealthy. Uber provides chauffeurs. Handy supplies cleaners. SpoonRocket delivers restaurant meals to your door, while Instacart keeps your refrigerator stocked. In San Francisco a young computer programmer already can live like a princess.

This on-demand economy goes much wider than the occasional luxury. Click on MediCast’s app, and a doctor will knock on your door within two hours. Want a lawyer or a consultant? Axiom will supply the former, Eden McCallum  the latter. Other companies offer prizes to freelancers to solve research-and-development problems or to come up with advertising ideas.

The on-demand economy is small, but it is growing quickly. Uber, founded in San Francisco in 2009, now operates in 53 countries, had sales exceeding $1 billion in 2014 and is valued at $40bn. Like the moving-assembly line, the idea of connecting people with freelancers to solve their problems sounds simple – but, like mass production, it has profound implications for everything from the organisation of work to the nature of the social contract in a capitalist society.

Since the 1970s the economy that Henry Ford helped create, with big firms and big trade unions, has withered. Some 53 million American workers already work as freelancers.

Two powerful forces are speeding this up, however, and pushing it into ever more parts of the economy.

The first is technology. Cheap computing power means that a lone amateur with an Apple Mac can create videos that rival those of Hollywood studios. Complex tasks, such as programming a computer or writing a legal brief, now can be divided into their component parts and subcontracted to specialists around the world. The on-demand economy allows society to tap into its underused resources.

The other great force is changing social habits. Karl Marx said that the world would be divided into people who owned the means of production, the idle rich, and people who worked for them. In fact it is increasingly being divided between people who have money but no time and people who have time but no money. The on-demand economy provides a way for these two groups to trade with each other.

This will push service companies to follow manufacturers and focus on their core competencies. The “transaction cost” of using an outsider to fix something, as opposed to keeping that function within your company, is falling. Rather than controlling fixed resources, on-demand companies are middlemen, arranging connections and overseeing quality.

Techno-optimists argue that on-demand economy gives consumers greater choice, while letting people work whenever they want.

The truth is more nuanced. Consumers are clear winners, and so are Western workers who value flexibility over security, such as women who want to combine work with child-rearing.

However, workers who value security over flexibility, including many middle-aged lawyers, doctors and taxi drivers, justifiably feel threatened. The on-demand economy certainly produces unfairnesses: Taxpayers will end up supporting many contract workers who never built up pensions.

The ways governments measure employment and wages will have to change. Many European tax systems treat freelancers as second-class citizens, while American states have different rules for “contract workers” that could be tidied up. Too much of the welfare state is delivered through employers, especially pensions and health care. Both should be tied to the individual and made portable, one area in which ObamaCare is a big step forward.

Even if governments adjust their policies to a more individualistic age, the on-demand economy clearly imposes more risk on individuals. People will have to master multiple skills if they are to survive in such a world, and will have to keep those skills up to date. Professional workers in big service firms will have to take more responsibility for educating themselves. People also will have to learn how to sell themselves through personal networking and social media or, if they are really ambitious, turning themselves into brands.

In a more fluid world, everybody will need to learn how to manage You Inc.

© The New York Times 2015