There used to be a time, decades ago, when investment capital was rare and workers were struggling to find good jobs. But now the tables may have turned. There is far more money available to invest than ever before, and new business models are relying increasingly on ideas instead of capital. What are the implications for workers and for labour unions?
How Much Money Can Be Invested, Per Worker?
Let’s take this from the top. Total financial assets are $245 trillion (US dollars) globally, as of 2017, according to the Federal Reserve Bank’s financial accounts matrix tables. By contrast, other sources estimate that the total was about $12 trillion in 1980, equivalent to $35.7 trillion in 2017 dollars. Total investment capital has grown 6.9 times in the last 37 years.
According to the International Labour Organization’s data tables, as of 2017, the global workforce was 3.46 billion, which is 46% of the global population of 7.55 billion people in 2017. In 1980 the world population was 4.5 billion people, and if 46% of that population had been available to work, I estimate the global workforce was 2.1 billion in 1980. Over the past 37 years, the global population has grown from 2.1 to 3.5 billion people or 1.65 times.
I’m interested in labour market conditions and the effect they have on society, so I’m particularly curious about the amount of investment capital available per worker. In the old economy, jobs that were supported with good machinery and good workspaces tended to be more productive and have higher potential wages and salaries. On one hand you don’t want powerful investors bossing people around just to keep their wages down, but on the other hand, you want investors to have plenty of money available to invest in tools and machinery that can make high wages possible. Global investment capital if public frenemy #1.
Looking at capital per employee on a global scale, in 1980 those 35.7 trillion dollars divided by 2.1 billion workers equals $17,000 of investment capital per worker. As of 2017, those 245 trillion dollars divided by 3.5 billion workers equals $70,000 of investment capital per worker. That’s a four-fold increase.
The implications are large because we may be approaching the end of cheap labour. Employers are still trying to keep their composure while offering unions modest wage increases and holding the line on compensation budgets. But there are persisting stories of employers having a hard time filling job vacancies, such that some businesses can’t take on new business. Businesses can no longer differentiate themselves by simply investing money in capital and employing people to operate that capital. They have to do something more.
Physical Assets Not Driving The Biggest Profits
In a 2016 article in Harvard Business Review, three researchers note that the largest profits are increasingly going to companies that have few physical assets. Their research looks at a scatter-plot of Average Multiple (how much investors pay for every $1 of revenue), against Average Net PP&E (or plant, property, and equipment as a percentage of total assets owned). They found that “The industries with the very highest [revenue] multiples were those with the lowest percentage of physical assets.” The most lucrative businesses are light on physical capital.
Their analysis broke industrial sectors into four quadrants. Builders are in capital-intensive sectors such as transportation, utilities, and communications. This is the “real work” of the old bricks-and-mortar era, and they’re still in business… but profits are light. Servers are sectors that deliver services such as health care, distribution, and consumer non-durables. These sectors have both low multiples and low investment capital. The big money-makers were called Creators, technology and technology services companies that are constantly advancing disruptive devices and novel business models that give every other sector a run for their money.
To round out the model, there is the fourth quadrant but it has nobody in it. Dreamers is a would-be category of businesses that have plenty of investment capital which generates plenty of revenue. That’s just not a thing any more:
“…suddenly, in the digital age, the physical assets that the big industrial companies have acquired are becoming more and more burdensome. Inventory depreciates and must be moved around. When geographic needs change, land is difficult to acquire or offload. And equipment must be maintained… In some cases, these assets are preventing companies from adapting, and weighing them down. It’s the corporate equivalent of having a closet full of old VHS tapes and CD cases.”
Implications For The Future of Work
This new dynamic between capital and elusive profits implies that capital has less power in the workplace. If good ideas are the main driver of business success, and capital is merely a tag-along, then the employer is more of a host for worker productivity. The investor is not really the boss any more. If things are going really well in your workplace, you probably see the equivalent of a high-functioning sports team, with everyone pulling in the same direction and the boss sitting on the sidelines, arms crossed. Coercive tendencies don’t drive new ideas, so big bundles of cash won’t “cause” productivity. Perhaps rich people are collecting empty houses because they’re running out of places to invest.
This shift in power would normally have been a boon for the labour movement if people had less fear of reprisals for signing a union card. But the world is changing in a way that is also disadvantageous to unions. In the emerging gig economy, freelance contract workers can often set up a viable business with little capital. But they’re often off-site, legally established as their own organization, and have one employee (themselves). This means they can’t be unionized.
To clarify, gig workers can’t be easily unionized, at least not under our current industrial relations model. The current model is one in which employees are in a single fixed location where capital is invested, in which employees are a clearly-defined pool of people, distinguishable from the leadership. But the future of work is not a physical location, may require little capital, and workers might be significantly outside the organization.
If I were tasked with organizing people in a way that ensures they get their fair share of the modern economy, I would most certainly choose a global perspective and look a little further back in history. Look to the deep history of the guilds of the medieval era, when people in similar trades teamed-up to establish a common rate for their work. The guilds spoke on behalf of contractors, and their efforts pre-dated the violent conflicts of 19th-century industrial relations. Labour needs to start organizing contractors, and if there are laws about that, that’s just par for the course in emerging labour struggles.
Many of these gig workers are part of the degree-educated professional services class. Labour needs to increasingly consider management and the professions as a substantial untapped pool of people whose complaints need a remedy. They don’t look the same as other workers because they’re not particularly poor. But labour can’t just be a country club of men with beards; there can’t be one “type.” Professionals who are struggling to get ahead often have a deep sense of fairness and duty. They are often over-worked, alienated, and increasingly fed up with coercive leadership styles.
Capital and labour alike are both being taken sideways by new ideas. To some extent, capitalism is becoming a misnomer. Employers are increasingly desperate to create an engaged and creative workplace where trust and inclusion are a competitive edge. To find its place, labour would need to increasingly participate in this game of new ideas.
I’m not describing a world where labour and management stand hand-in-hand singing folk songs. Rather, it’s a world where one-on-one conversations, possibly clandestine, create a web of connections across industries and across the labour-management divide. It’s through this network that ideas and feedback travel the globe. And to be clear, this is not my vision for the future, but rather it’s an observation of the way things are happening, already. It’s so much easier to predict the present.
Stuart Murray Speaks 