By David Seymour
What do a 100 year old Nobel economics laureate and one of the granddaddies of the silicon chip have to do with your career? When you put them together they offer a deep insight into what the economy and workplace will look like over the coming decades.
First, some introductions.
In his seminal paper “The Nature of the Firm”, Ronald Coase (born 1910 and still kicking) explained why people form companies instead of just doing business as sole traders. His Nobel Prize winning answer was beautifully simple. People form companies because it cuts down on “transaction costs”. Doing business is easier if you don’t have to go out into the marketplace and find the appropriate person or the right good for every little thing. It’s easier to have people permanently on staff, and to own some of the facilities you use. Therefore we have big companies, but there is a limit to size. A company should continue growing, he reasoned, as long as its internal bureaucracy is less costly than getting what it needs from outside. At that point, the company is the right size.
Gordon Moore, meanwhile, was one of the founders of silicon chip maker Intel. His greatest claim to fame is Moore’s Law, which he kicked off in 1965 with the bold prediction that the number of transistor gates on a single chip would double every two years. His prediction has come true. In practical terms, it means that available computer power doubles every two years. The power of available computers between now and this time in 2013 will increase as much as it ever has in the history of computing, then double again by 2015 – which means that the cost of communicating will consistently shrink.
But what on earth do these two men and their ideas mean for your career? Together their combined observations are changing the structure of the economy and of the workplace by extension.
As communication technology makes it cheaper and easier to find outsiders for any task, the need for large companies shrinks. Previously, if you wanted to write an encyclopedia you needed to have a lot of people collaborating in a big building. Today, the Internet has brought us to a situation in which millions of people who have never even met can work together writing Wikipedia, whose actual paid staff is miniscule. Countless companies are getting work done by freelancers who offer their services on sites such as www.guru.com and www.freelancer.com instead of keeping extra people on staff. The way this article came to be, the editor of the magazine finding and approaching a think tank online, is just one more little example.
For someone starting her career, the lesson from Coase and Moore is that careers in big companies will become rarer, whereas individuals selling their services will come to be in stronger and stronger negotiating positions. If you’re considering the classic trade-off between the security of a big organization and the independence of working for a smaller one, or even working for yourself, the foundations of the economy and workplace are shifting in favour of the latter.
David Seymour was a senior policy analyst at the Frontier Centre for Public Policy (www.fcpp.org).