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A Software World

I’ve been turning over a question in my head for the last few weeks: What happens if Marc Andreessen and others (including myself) are right and “we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy”?

Andreesen concludes that more people will need to write code. Felix Salmon concludes that we need better labor mobility, allowing more people to move to the places where the jobs are, no matter where they are in the world. I think both are right, but there’s more to it than that. Back in February I wrote the following:

It’s commonly held startup belief that the ultimate goal is to build as scalable a company as possible, which roughly translates to running your business with as few people as possible (let the computers do the work). In other words when you’re building a company today you’re trying not to create jobs. During the Google/Groupon talks one of the things people said about Groupon (can’t find a reference right now) is that they’re less impressive because they’re so human dependent (they have a large salesforce, as that’s the only proven way to do local commerce).

Software companies optimize themselves to operate with as few humans as possible and many of them seek to replace functions that humans once performed. The net loss seems irreplaceable to me, even if everyone in the world knew how to write code. I’m no economist and I hope I’m wrong for lots of reasons, but I’ve been unable to find an answer in my head or in my conversations with others that satisfies me.

What I keep landing on is an intensifying of the trends of income inequality: Those who are in are very in, creating software and services for the world economy and growing richer and richer, while those who are out, are left to rely purely on the domestic economy (which, it seems to me, will have less total spending as a result of more money being concentrated amongst a smaller group). Most of the people discussing these things (including myself) are angling to be part of this group of haves, so it’s easy to say that a transformation like this is a good thing. But I can’t help but wonder if we’ve really thought about the impact of the shift we’re pushing towards.

So what happens next? Am I totally off base? Am I missing something obvious? I think one thing I haven’t fully factored in is the economies created around good software (eBay, Google, AirBnB, Etsy), but I suspect that’s still not enough to support the gap. I’m having a hard time fully thinking this through and would love any thoughts.

August 20, 2011

Comments

  • Bud Caddell says:

    Couple things to add to this …

    1) Re: job training, job skills, and the widening distance between knowledge workers and labor workers, you MUST listen to this podcast from NPR’s Planet Money. It’s a comprehensive but succinct look into the issue:
    http://www.npr.org/blogs/money/2011/08/01/138818388/the-friday-podcast-planet-money-live

    2) While I completely agree with the trend you describe, I think you also have to look at the fastest growing sectors in the U.S. economy to future-forecast labor issues, and many of them are highly resistant to the typical optimizations you find in say the software biz (all of the healthcare related industries top most lists of fastest growing industries), but again these aren’t the most glamorous or high paying jobs either, which speaks more to #1 and the widening discrepancy between college educated and non college educated people.

    It’s a little scary, really, once you start to think about what happens when our society even more visibly splits into two factions.

  • Noah Brier says:

    Thanks Bud, will check that podcast out.

    And yeah, healthcare is a good point, except that healthcare being a big industry probably isn’t a really good thing for the economy in the long-term. Obviously you have the whole Medicare piece, but also on an employer level the more expensive healthcare gets, the more cost that will need to be passed onto employees (that, of course, is for those that even offer coverage in the first place).

  • Bud Caddell says:

    Noah, good point re: cost passed on to the employee. You really should listen to that podcast as they trace the history of employer-based coverage and what a broken system that is.

    (Since 2008, I’ve been looking for really sound economic voices that don’t try to oversimplify things, and NPR’s Planet Money has continually done an amazing job – so I’m a mega fanboy now)

  • prince campbell says:

    When Jed Clampett packed up his family and took them to Beverly Hills he probably had no idea that he was actually part of a massively complicated, global oil based economy. And chances are the already upon us software revolution will be the same way. Andreessen is right. Software will ‘eat’ everything without most people realizing it.

    But software, like oil, is pretty benign. It’s not going to make the world worse. It’s the people who spill oil and allow it to spit pollutants. It’s the same with software. Tools are only as good as the craftsmen.

    Fred Wilson said at some conference this year that his firm was trying to figure out how to fund revolutionaries. That resonated with me because it lets face it, revolutions always end up commercialized. (You’ve come a long way, baby.)

    I bring up revolutions because software is not really the problem. The problem is with the way capitalism ended up. The next driver of the economy could be horses and it wouldn’t matter. If we (as a country) don’t think that their should be living wages and ways for tomorrow to be better than today (that doesn’t involve the lottery) there is going to continue to be a huge growing income inequality gap.

    But just like the chicks and the Negroes and the homosexuals, the poor are not really going to stand for not having any hope. And capitalist are not going to let potential dollars die.

    Revolutions will come. They will come in the way of new institutions, new values and new ways of thinking. Those revolutions will come and the interesting thing is that they will be financed by the last generation’s Jethros as they sip mimosas by the cement pond.

  • Brian Van says:

    My primary thought on this is that you’re exactly right. There are a lot of people on the fringe of the tech scene who are saying this exact same thing and have been since 2001 (or perhaps earlier). The thinking behind it is sound, and it’s probably more accurate than anyone in tech would like to accept.

    The reason why these people are on the “fringe” is because they’re pessimistic about the dominance of interactive media – whether it’s pessimism about financing or pessimism about social impact or pessimism about intellectual/cultural values. These sentiments, and their speakers, are dismissed by the core tech economy… consistently browbeaten among the tech elite as being “out of touch” or being referred to as “they just don’t get it.”

    So, yes, all signs point to this being a real problem, but most of our colleagues are not interested in having a discussion about it. I bet the stock response to something like this is, “Well, Foursquare is hiring!” and no further consideration given. While Foursquare and Apple and Google are indeed hiring, they’re not bringing in 10 million people for meaningful careers. Plus, these companies only want extremely-competitive candidates, not the sort of people who used to work in manufacturing who have had their jobs displaced by automation, advanced management information systems, or overseas manufacturing.

    I don’t intend to pin all of these problems on the tech industry (our overall economy is rather broken at the moment), but it royally pisses me off when our contemporaries pass moral judgment on the unemployed. “If they wanted to work, they’d learn PHP” or some other sort of uppity argument. Not only is that sort of statement despicable, but it’s also short-sighted – what if their jobs are the ones that go away at some point? Are they prepared for future shifts in the information economy? Or do they naively think that there’s no one else out there trying to profit by putting them out on the street as well?

    But overall, I am consistently disappointed in most people’s self-serving unwillingness to have this conversation. As if being relentlessly upbeat and un-critical is going to fix some of the fundamental business problems at some very well-known tech companies at the moment. (not ALL of them, of course, but a few key ones.)

  • Drew Weilage says:

    The conversation is worthy of having but I’m not sure there is a solution worth trying to engineer. It’s almost a problemless problem, if such a thing exists.

    This certainly isn’t the first time this sentiment has been shared at the introduction of technology (the ways farming has changed seems like an apropos example). Capitalist economies shift and change because of opportunity and currently that opportunity is in software. While it may grow to become the dominant industry, it will also blossom new opportunity along the way.

    Since the dawn of time our ingenuity has kept us moving forward, we have adapted just fine (more or less). Though that adaptation may be a bit more painful here simply because the pace of change is so much quicker (it gives our institutions less ability to respond). But our past success signals there will be a solution. It’s just difficult to peg what that may be until it occurs.

  • Jason Sooter says:

    1. Software is just a tool. Now a tool that may be used in many more ways in the future. And many of those ways may remove the necessity of some human labor. But technology and the work related to it always has a way of still needing people. Just in different ways

    2. There is just so much more out there than software. So many things software can never replace. Like picking the coffee beans our morning cup is made from. Or the cup, or the coffee maker, or the plastic, or the glass, or the colorant in the plastic, or the …… That is just one product. Software can make dramatic changes in how all those things are done but it never replaces it.

    Its just a tool that can really improve peoples lives and the efficiency with which things are done.

  • Scott Rafer says:

    There are other scenarios, but the key point is that software appears to be deflationary, especially when all the free/freemium models are factored in. With access to cheap hardware and networks, even the have-nots lives may get somewhat better as information and entertainment are better, and often freely, distributed.

    The producers will certainly be better off, but the savviest consumers may not be far behind the least of the producers. And, that threshold will get fuzzier and fuzzier as languages get higher and higher level.

    What we don’t know is how to manage a long-term deflationary economy, especially one in which the quickest deflation happens in the most advanced economies.

  • Noah Brier says:

    Drew, I’m not really suggested engineering a solution as much as trying to understand the problem, which I think is definitely worthwhile.

    And while I agree that this is definitely a sentiment that has been echoed before, and that makes me a bit uneasy, what I’m not seeing is the complimentary industries sprouting off the current family of tech. I mean I get the theory and many point to eBay (I did in this post, in fact), the thing I just don’t know about is whether the guy selling stuff on eBay is making enough to get by, especially when compared to the guy making eBay (maybe a bad example for a company, but you get my point).

    I know we keep moving forward and I believe that I’m probably wrong and we will probably find a way, but because of the multitude of different factors it feels slightly more precarious than earlier times. For what it’s worth, I’m apparently not alone in this feeling either, upon someone’s suggestion I started reading Tyler Cowen’s essay The Great Stagnation, which basically argues that we are not in a period of intense innovation, but rather in a period of intense slowdown. He argues we have picked off all the low hanging fruit we can and that while we are building lots of new tech, the effect on our lives is ultimately less than the effect of tech on our grandparents. Now I’m not sure I go that far, but it’s an interesting viewpoint and it does jibe with my feeling that things are not changing more quickly than some other period of time.

    Anyway, thanks for the comment, sorry for the long response.

  • Noah Brier says:

    Jason, I understand and agree with that. My question there is about the gap in income between the person picking the coffee bean and the person writing java. There is no doubt we’re seeing levels of inequality we’ve never seen before and I don’t know how the economy will react to that long term. The way I’ve been thinking about it, and again I’m no economist, is that if one person has $1 million and spends $50 on dinner that’s $50 in the economy. However, if 20 people have $50,000 (right around the current median household income I believe) and each spend $5 on dinner that’s $100 in the economy, meaning even the service industry will suffer: Fewer baristas and ultimately fewer people picking coffee.

  • Adrian says:

    Not a direct answer to your question but I think its easy to get caught up in new economy euphoria and forget that tangible goods, manufacturing and physical activities are still vital to economies. Look at England who are now very vulnerable with banking as the dominant industry. It’s now widely agreed that shutting down manufacturing was a big mistake for the overall health of the economy.

  • Abe says:

    Wow Noah, had no idea you were such a raging marxist!

    Joking of course, but the fact is that Marx and his many followers have basically been making this exact argument for 160 years. The only difference is they saw industrial machines taking over all the jobs not software. One of Marx’s many flaws was that he left little room for cultural evolution, he understood society changed but could only conceive it in a relatively linear fashion. At his core he was right on some key points, for instance that industrialists and their machines would eliminate much of the manual labor that was once the core of the world economy. But that didn’t mean less jobs overall, it meant more. There are vast amount more people working today than there were in Marx’s lifetime, and most of the jobs they do did not exist back then.

    Personally I think Andreessen’s argument is way overblown. He’s way too deep in the software/computer tech forest to see that there are meadows, lakes and oceans of other industries outside it’s borders. Yes software companies are some the fastest growing companies lately, but that’s because they operate in a networked environment that means they can scale faster than any other industry. They grow fast and collapse nearly as fast as well. You can’t scale say a food or robotics company that way because your supply chain and manufacturing will threshold your growth rate dramatically.

    The growth rate shows you something, but without also factoring in both the half-life of companies started and the net number of startups it doesn’t give you much to build off of. There is no doubt that software is an important industry for our future, but in the end people still need to eat, wear clothes, build houses, stay entertained, show off and travel (and if history is a guide we also unfortunately seem to need to wage war.) As long as that stays true there is going to be a whole lot of non software jobs for a long time to come…

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  • Genesis says:

    Incredible points. Sound arguments. Keep up the great effort.

  • Software toko says:

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    before but after looking at many of the posts I realized it’s
    new to me. Anyhow, I’m definitely happy I found it and I’ll be book-marking it and checking back frequently!

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