Deepening of the Information Age: More Signs of Telecommuting

Why I don’t buy the mainstream’s embrace of the supposed deepening trend of urbanization? Because the past is hardly the future. Technological advances extrapolates to increasing decentralization of social activities. And this covers commercial activities that can be seen from corporate operations. 

Proof?

From Wall Street Journal Blog

With nearly half its employees working from home now, Aetna Inc. is convinced it is saving a good deal of money with no adverse effect on productivity.

A nine-month experiment at Ctrip, China’s largest travel agency, overseen by academic economists at Stanford and Beijing University, suggests Aetna’s experience may not be unique.

Ctrip, was looking to save money on real estate costs and cut turnover. It asked 996 employees in its Shanghai call center if they’d be interested in working at home four days a week. Half were interested, and 252 qualified for the experiment by virtue of having at least six months on the job and broadband access from a quiet corner of their home. Those with birthdays on even days were selected to work at home, those with odd birthdays stayed in the office, making this the sort of random experiment that academics relish.

And as I noted in the past

I would add that increasing specialization will hallmark the knowledge economy. And specialization will diminish the economics of urbanization.

The changing nature of work can be exemplified by the telecommuting jobs, which have been rapidly growing.

These jobs are based on the web, are flexible and are not location sensitive (working from home, or elsewhere).

The trend of web and knowledge based work localization and flexibility will further deepen.

The Kind of Education that will Get a Job in the Information Age

As I have been repeatedly saying, the information change will radically change the way we do things. This will partly include the nature of digital economy businesses which will be reflected on jobs, as well as, many aspects of the employee-employer relationship such as recruitment.

Andrew Coulson of the Cato Institute has this insightful piece of advice for job seekers.

First is to give less importance to college

So many college degrees today are intrinsically worthless that it should really not be possible to find people willing to pay for them

[Edited to add: In the US 1 out of 2 college graduates have been unemployed. In the Philippines 2 out of 5 graduates have been unemployed.]

Next is to build relevant skills through self-learning by using the web. (bold emphasis)

So what’s the alternative if you’re a high school senior seeking higher education? How about this: instead of handing control over that education to someone else, decide what it is you would like to learn over those four years and then… learn it. Thanks to the Web, the material covered in virtually every undergraduate program is readily available at little cost—and the same is true for many advanced programs. And, having learned it, spend a few hundred dollars to create a website or even simply a YouTube channel on which you demonstrate your new skills/understanding. Conduct research. Write it up. Build something. Translate Cyrano into English, maintaining the Alexandrine meter and rhyme. Whatever it is. Then, when you’re ready to apply for work, submit your resume with a link to this portfolio of relevant work.

Employers, ask yourself this question: Would you rather hire someone with a portfolio such as the one described above, visibly demonstrating competency and personal initiative, or someone with a degree that is generally supposed to signal that competency, but that you can’t readily assess for yourself?

My blog is a testament of self-learning acquired through the web. But I am self-employed.

The Geopolitics of Oil and Russia’s Knowledge Economy

Writes the Institutional Investor at the Minyanville

All it would take for Russian President Vladimir Putin’s regime to begin to crumble would be for the price of oil to slump to the $70-a-barrel range, former Secretary of State Condoleezza Rice told an audience last week.

Speaking at Everest Capital’s Emerging Markets Forum in Miami, Rice said that if the price of oil remains above the $100-a-barrel mark during the next few years, Putin’s Kremlin would have the means to continue paying off cronies and keeping the current regime — which she described as an “oil syndicate” — intact. With crude currently hovering around $110 a barrel, she said, there is no incentive for Russians to change the nature of their economy.

But the days of a Russia fueled exclusively by petrodollars is waning, especially if the price of crude begins to fall, she said. Ready to replace Putin’s petrostate is a knowledge-based economy crying to break free, said Rice, also a former national security adviser to President George W. Bush and an expert on the Russian political economy. “Wouldn’t it be refreshing to see that the basis of Russian power is the knowledge and creativity of its people? They could be a very big part of the 21st century,” she said.

Rice told the audience at the emerging markets summit a story about how the former president, Dimitri Medvedev, once boasted to her that Russia produced the world’s finest mathematicians. Her response: What if they were actually working in Moscow instead of in Palo Alto and Tel Aviv? She said that Medvedev acknowledged that Russia needed to provide an ecosystem in which its homegrown talent would remain at home and help the country flourish. “The arts and sciences in Russia have been legendary even in the worst of times. Can you imagine how remarkable their economy could be if their leading scientists weren’t leaving for Silicon Valley?” she said.

Besides being extraordinarily dependent on oil, Putin’s regime has done little to censor or monitor the Internet compared to, say, China, according to Rice. The former KGB agent focuses his attention on producing state television broadcasts reminiscent of the Cold War Era — an old-line communist activity that matters little to a younger generation of Russians who receive their news over the Internet, she said.

There are two things of note here:

1. The geopolitics of oil simply posits that the survival of many of the resource dependent welfare states have been moored to high oil prices. That’s because the political leadership uses revenues from resources to buy off the public’s support to maintain their privileges (usually known as the resource curse).

The same desire to use revenues to finance pet projects of politicians also serves at the main incentive for the political leadership around the world, including the Philippines, to engage in resource nationalism during commodity booms

Yet take away the lofty price oil, say by allowing free markets to work and all these autocratic regimes, such as Iran, Venezuela and etc…, collapses. So war will never be necessary for any regime changes. Just allow free markets to clear and despots and tyrants will subsequently vanish.

But the problem is that many western friendly autocratic welfare states are also dependent on elevated oil prices like the GULF states.

Also Obama’s green energy/jobs policies depends on high oil prices too.

The Investor’s Business Daily recently noted that

Energy Secretary Steven Chu admits the administration has no interest in bringing them down…At a hearing this week, Rep. Alan Nunnelee, R-Miss., specifically asked Chu if "the overall goal" of the administration is to "get our price down." Chu's answer was no.

Since this implies that deeply entrenched vested interest groups are in command of the political environment—whose survival again greatly depends on lofty oil prices—the geopolitical imperatives will focus on the manipulation of oil supply and demand, war mongering and importantly inflationist policies. In short, oil politics greatly influence, not only national welfare politics, but also foreign policies.

So while governments may pretend to express care about consumers affected by high oil prices (say by imposing subsidies, cash giving out cash transfers and etc.) and subsequently pin the blame on private companies for greed, in reality, the geopolitics of oil is about the preservation of political entitlements through redistribution of resources from consumers to the political clients (mostly oil producers and allied industries) and their political leadership patrons.

Only free markets will undo such political economic inequality.

2. Russia’s growing knowledge economy is a demonstration of how the internet has been functioning as a pivotal force in reshaping the world’s political economy.

The internet helps spur the development of commercial activities that operates in circumvention of stifling regulations that fosters more underground economy.

Chart from pyramid research

Underground or informal or shadow economies are symptoms of arbitrary and unenforceable laws, lack of property rights, byzantine red tape, high tax regimes, choking bureaucratic regulations, corruption, weak institutions and other political impediments to commerce.

The share of informal economy to Russia’s economy is one of the highest in the world. So as with the Philippines.

I recently quoted the investment guru Doug Casey which I find relevant in the discussion of informal economies,

If you're going to have a ridiculous number of impossible laws, corruption is a good thing. Increasingly, what matters is not the number or even nature of laws on the books in the place you live, but the amount of actual control the state has over private individuals. Corruption subverts idiotic laws; it's the next best thing to abolishing them.

Aside from corruption, big informal economies are to paraphrase Mr. Casey, symptomatic of the subversion of “idiotic” laws. The other way to say this is that anarchy emerges, as expressed by the existence of informal economies, out of the abject failure of the incumbent political order for these political economies.

Quote of the Day: The Limits of Innovation

Advancement is limited only by the extent of individual creativity. A decade or two from now you will enjoy the fruits of someone else’s idea, that you yourself simply could not have imagined prior to its development.

So, while the future is not necessarily picturesque, neither is it as dark as some people suggest it may be. We live in an age that places a premium on knowledge. This represents a giant step forward.

This is from Jonathan M.F. Catalán at the Mises Blog with bold emphasis mine. Mr. Catalán seems to be on a roll with a series of impressive articles as this

Bottom line:

For as long as people are allowed to unleash their creativity on the marketplace, innovation and economic progress will continue in spite of government intrusions

Urbanization and the Knowledge Economy

Investing guru Templeton’s Mark Mobius, reflecting on the mainstream view, believes that “Urbanization” will drive emerging market investments. ADB, for instance, has a literature on managing Asian cities here

Mark Mobius writes, (bold emphasis mine)

Over the next few decades, I believe we are likely to see an increase in several types of infrastructure investments due to rapid urbanization, which drives the increasing global demand for resources, mainly from emerging markets. I expect there will likely be many opportunities, particularly in the energy and materials sectors. Rapid urbanization in emerging markets, driven by rural populations migrating to cities in search of work and better opportunities, has put pressure on resources and prompted governments to pump money into a range of urban infrastructure-related sectors such as housing, transportation, sanitation, water, electricity and telecommunications.

I am a skeptic of the urbanization theme.

That’s because urbanization oversimplifies on the evolving trend of the global economic structure. Urbanization puts emphasis on past economic (industrial age) paradigms which it assumes will be carried forward.

Urbanization basically neglects the rapidly growing contribution and the deepening of the knowledge economy which has been reconfiguring people’s lifestyle and commerce.

Essentially urbanization focuses on the economies of scale from concentration and centralization, whereas the knowledge economy has been decentralizing socio-economic activities as a consequence of decreasing trend of communication, connectivity and transaction costs.

The Wikipedia explains the forces of the Knowledge Economy,

there are various interlocking driving forces, which are changing the rules of business and national competitiveness:

-Globalization — markets and products are more global.

-Information technology, which is related to next three:

Information/Knowledge Intensity — efficient production relies on information and know-how; over 70 per cent of workers in developed economies are information workers; many factory workers use their heads more than their hands.

New Media – New media increases the production and distribution of knowledge which in turn, results in collective intelligence. Existing knowledge becomes much easier to access as a result of networked data-bases which promote online interaction between users and producers.

Computer networking and Connectivity – developments such as the Internet bring the "global village" ever nearer.

As a result, goods and services can be developed, bought, sold, and in many cases even delivered over electronic networks.

I would add that increasing specialization will hallmark the knowledge economy. And specialization will diminish the economics of urbanization.

The changing nature of work can be exemplified by the telecommuting jobs, which have been rapidly growing.

These jobs are based on the web, are flexible and are not location sensitive (working from home, or elsewhere).

Wikipedia estimates

that over fifty million U.S. workers (about 40% of the working population) could work from home at least part of the time, yet in 2008, only 2.5 million employees (not including the self-employed) considered their home their primary place of business.

Occasional telecommuters— those who work remotely (though not necessarily at home) —totaled 17.2 million in 2008.

Very few companies employ large numbers of home-based full-time staff. The call center industry is one notable exception to this; several U.S.-based call centers employ thousands of home-based workers. For most employees, the option to work from home is granted as an employee benefit; most do so only part of the time.

In 2009 the Office of Personnel Management reported that approximately 102,000 Federal employees telework.

In the next three years, public and private sector IT decision makers expect telework to increase by 65% and 33%, respectively.

I, for one, am a Philippine based telecommuter.

As society evolves towards the knowledge economy, the incentive will largely focus on diversity dynamics from localized knowledge and commerce.

A study from McKinsey Quarterly seems to validate this perspective as local champions have been outperforming multinationals

we have found that high-performing global companies consistently score lower than more locally focused ones on several critical dimensions of organizational health—direction setting, coordination and control, innovation, and external orientation—that we have been studying at hundreds of companies over the past decade.

That’s how the knowledge economy has been changing the nature of commerce and will continue to do so.

So while I agree that infrastructure will highlight growth of emerging markets because of increased economic freedom and greater degree of free trade, emphasis on urbanization should translate to a lot of misdirected resources—yes they account for as emerging bubbles similar to China’s ghost cities and Potemkin Malls

If free markets will determine where infrastructure trends are headed for, then a more widespread development that caters to the growing forces of technology enabled specialization and diversity should be expected.

Government sponsored urbanization, thus, represents a symptom of bubble cycles at work.

Video: Paul Romer on how 'Charter Cities' can change the world

Stanford and New York University's Paul Romer gives a fascinating talk at the TED on how rule based Charter Cities which empowers choices for people and leaders, can significantly improve the world. (hat tip: Tom Palmer)

Mr. Romer concludes with a noteworthy quote,

The reason we can be so well off even though there are so many people on earth is because of the power of ideas. We can share ideas with other people when they discover them they share with us. It’s not like scarce objects where sharing means we each gets less, when we share ideas we get more. When we think about ideas in that way we usually think about technologies, but there is another class of ideas, the rules that govern how we interact with each other...

If we can keep innovating in our space of rules, and particularly innovate in the sense for coming up with rules for changing rules so we don’t get stuck with bad rules then we can keep moving progress forward and truly make a better place...

The Web Is Changing The Global Political Order

Here is futurist Alvin Toffler as interviewed by the Gartner fellows in 2006: (bold emphasis mine)

I also think there's going to be a great boom when we stop thinking about companies and start thinking about restructuring governments - and completely restructuring these gigantic pyramidal bureaucracies that we rely on and that no longer function. So I think that there's going to be a huge market for software in new kinds of organizations. Now, I'm not sure whether it'll still be called software or what, but as you no doubt read in the book, I expect to see one big institution after another collapse just like the Katrina experience with FEMA and the government and so on. That our corporate structures are designed for the industrial age - and that made sense then and Max Weber wrote about it in 1910 and so forth and so on - but they're clearly inappropriate to the systems that are now growing up, economic, social, cultural and all the rest.

The web became an instrumental tool in uprooting Tunisia’s dictatorship as shown here and here.

Sensing the same fate that might befall the 30 year authoritarian regime, Egypt’s President Hosni Mubarak swiftly orders communications cut as riots has escalated.

From Business Insider

From the New York Times

For the first time since the 1980s, Mr. Mubarak felt compelled to call the military into the streets of the major cities to restore order and enforce a national 6 p.m. curfew. He also ordered that Egypt be essentially severed from the global Internet and telecommunications systems. Even so, videos from Cairo and other major cities showed protesters openly defying the curfew and few efforts being made to enforce it. (emphasis mine)

Old political structures designed for the Industrial era appear to be crumbling exactly as Mr. Toffler predicted. This is only part of the ongoing adjustment towards the “knowledge economy”.

Update:

I’d like to add that the transition to the knowledge economy is being fed by the forces of decentralization brought about by connectivity and information dissemination. And this is what governments are afraid of.

Of course, another major factor that contributes to this societal discontent has been inflationism- seen through rising politically sensitive commodity prices.

As we have long been saying, these are two major forces in collision.

In The US, New Businesses Surge in 2009!

In the US, the Kauffman Institute claims a record surge of new business activities in 2009.
Here is an excerpt of the press release "Despite Recession US Entrepreneurial activity Rate Rises In 2009 To Highest Rate in 14 years" (hat tip: Mark Perry)

"Rather than making history for its deep recession and record unemployment, 2009 might instead be remembered as the year business startups reached their highest level in 14 years – even exceeding the number of startups during the peak 1999-2000 technology boom.

"According to the Kauffman Index of Entrepreneurial Activity, a leading indicator of new-business creation in the United States, the number of new businesses created during the 2007–2009 recession years increased steadily year to year. In 2009, the 340 out of 100,000 adults who started businesses each month represent a 4 percent increase over 2008, or 27,000 more starts per month than in 2008 and 60,000 more starts per month than in 2007.

"Challenging economic times can serve as a motivational boost to individuals who have been laid-off to become their own employers and future job creators,"said Carl Schramm, president and CEO of the Kauffman Foundation. "Because entrepreneurs drive the economy, the growth in 2009 business startups is encouraging and hopefully points to a hopeful trend in terms of our economic recovery.”

Read the rest of Kauffman's press release here.

My comment: While the Kauffman institute does provide some details over geographical distribution of entrepreneurial activities (press releases naturally provides limited info), it doesn't make a breakdown on the industries where these activities have seen the surges.

My suspicion is that they'd probably be centered on technology or technology related activities.

But the point is, it's simply wrong to write off the elan of entrepreneurs, in spite of all the troubles (aftereffects of bubbles cycles, government intervention, bailouts, prospective high taxes, growth of government relative to the economy and etc..).

The ramifications of the deepening knowledge based economy is one of the x factors that can sustain free enterprise.