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August, 2011

A Software World

Exploring the implications of a potential software-dominated economy and its impact on income inequality.

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
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