Fixing employment with consulting call options.

Here’s a radical thought that I’ve had. There are a lot of individual cases of people auctioning off percentages of their income in exchange for immediate payments, which they use to invest in education or career-improving but costly life changes like geographical moves. Someone might trade 10% of her lifetime income in exchange for $200,000 to attend college. This has a “gimmicky” feel to it as it’s set up now, and it’s something I’d be reluctant to do anything like that for the obvious reputation reasons (it seems desperate) but there’s a gem there. There’s a potential for true synergy, not only gambling or risk transfer. If a cash infusion leads a person to have better opportunities and a more successful career, then both sides win. There should be a way for individual people to engage in this sort of payment-out-of-future-prosperity that companies can easily use (it’s called finance). However, a percentage of income is too easy to scam. We need to index it to the value of that person’s time, and the best way to do that is to have the offered security represent a call option on that person’s time.

With the cash-for-percentage-of-income trade, the “Laffer curve” effect is a problem. There’s scam potential here. What if someone sells 10% of his lifetime work income for, say, $250,000, but actually finds ten buyers? Then he gets a $2.5 million infusion right away, which is enough money not to work. He also has zero incentive to work, so he won’t, and his counterparties get screwed because he has no work income. So this idea, on its own, isn’t going to go very far. The securities (shares in someone’s income) aren’t fungible, because the number of them that are outstanding has a major effect on their value.

Let’s take a different approach altogether. This one doesn’t involve a draw against someone’s income. It’s a call option on a person’s future work time. I intend it mainly for consultants and freelancers, but as the realities of the new economy push us all toward being more individualistic and entrepreneurial, it could be extended to something that applies to everyone. It’s not this gimmicky “X percent of future income” trade that doesn’t scale up to a real market (because once the trade stops novel, we can’t trust people not to sell incentive-affecting percentages of their income, and that problem naturally limits it). How does it work? Here’s a template for what such an agreement would look like.

• Option entitles holder to T hours (typically 100; with blocks as small as 25 or as large as 2000) of seller’s time (on work that is legal) to be performed between dates S and E at a strike price of $K per hour. For a college student, typical values would be S = date of graduation and E = five years after graduation. For someone out of school, S might be set to the time of signing, and E to five years from that date. 
• Seller must publish how many such options have been sold so buyers can properly evaluate the load (e.g. no one is allowed to sell 50,000 hours of time in the next 5 years, because that much work cannot be performed.) I would, in general, agree on a 2000-hour-per-year limit. Outstanding load is publicly available information and loads exceeding 1000 hours per year should be disclosed to future employers.
• If the option is not exercised, then the no work is performed (but the writer still retains the value earned by selling it). If it is, seller receives an additional $K per hour. The option is exercised as a block (either all T hours or none) and buyer is responsible for travel and working costs.
• These options are transferrable on the market. This is essential. Few people can assess their specific needs for consulting work, but it’s much easier to determine that a bright college students’ time will be worth $100/hour to someone in five years.

One thing I haven’t figured out yet is the specific scheduling policy beyond a “act in good faith” principle. If two option-holders exercise at the same time, who gets priority? How much commitment must the consultant deliver when exercise occurs (40 hours per week, making full-time employment impossible; or 10 as an upper limit, with the work then furnished over more calendar time)? Obviously, this needs to be something that the option-writer can control; buyers simply need to know what the terms are. The other issue is the ethics factor, which doesn’t apply to most of technology but would be an issue for a small class of companies. Most people would have no problem working for a meat distributor, but we’d want an escape hatch that prevents a vegan’s time from being sold to one, for example. There has to be some right to refuse work, but only based on a genuine ethical disagreement; not because a person has suddenly decided her time is worth 10x the strike price (which will almost always be lower than the predicted value of her time). The latter would defeat the point of the whole arrangement.

In spite of those problems, I think this idea can work. Why? Well, the truth is that this sort of call-option arrangement is already in place, although with an inefficient and unfair structure that leaves both sides unhappy. It’s employment.

How much is an employee’s time actually worth to the operation? Dirty secret: no one really knows. There are so many variables on each individual, each company, and each project that it’s really hard to tell. The market is opaque and extremely inefficient.  For example, I’d guess that a programmer at my level (1.7-1.9) is worth about $1000/hour as a short-term (< 20 hours) “take a look and share ideas” consultant, $250/hour as a freelance programmer, and perhaps $750,000 per year in the context of best-case full-time employment (wherein the package includes not only 2000 hours of work, but also responsibility and commitment) but well under the market salary ($100-250k, depending on location and industry) in a worst-case employment context. Almost no employer can predict where on the spectrum an employee will land between the “best-case” and “worse-case” levels of value delivery.

Employers know that for sociological reasons, a full-time employee’s observed value delivery is going to be closer to the worst-case than best-case employment potential. If you have interesting problems and a supportive environment, then a 1.5-level programmer is easily worth $300,000 per year, and a 1.8+ is worth almost a million. Most companies, though, can’t guarantee those conditions. Hostile managers and co-workers, or inappropriate projects, or just plain bad fit, all can easily shave an order of magnitude off of someone’s potential value. In fact, since doing that involves interacting with people and controlling how they treat each other, that’s seen as boundlessly expensive. If a manager has a long-standing reputation for “delivering” but is a hard-core asshole, is it worth it to unlock the $5 million per year released when he’s forced to treat his reports better, given that there is a chance of upsetting and losing him (and the “delivery” he brings, which he’s spent years making as opaque as possible)? The answer is probably yes, but the reason why he’s a manager is that he’s convinced high-level people not to take that risk. That’s how the guy got that job in the first place.

So what is employment, then? When people join a company, they’re selling their own personal financial risk. That stuff is toxic; no one wants it, so typically people offload it to the first buyer (employer) that comes along, until they’re comfortable enough to be selective (which, for most, doesn’t happen until middle age). When it comes to personal financial risk, corporations have the magic power to dissolve dogshit. They know it, and they demand favorable terms from an expected-value perspective. The employee would rather have a reliable mediocre income than a more volatile payment structure closer (in the long run) to their actual market value. So the company offers a salary somewhere around the 10th-percentile level of that person’s long-term value delivery. If the person works out well, it’s mutually beneficial. She enjoys her work, and renders to the company several times her salary in value. Since she’s happy, and since good work environments are goddamn rare and she’s not going to roll the dice and move to another (probably bad, since most are) corporate culture; a small annual raise and a bonus are enough to keep her where she is. What if she doesn’t work out? Well, she’s fired. Ultimately, then, corporate employment is a call option on the employee’s long-term ability to render value. The problem? Employee can opt out at any time. The option is contingent not merely on personal happiness, but on fulfillment. I’ll get back to that.

Why is my call-option structure better? There are a couple reasons. Obviously, everyone should have the fundamental right to opt-out of work they find objectionable. What I do want to discourage (because it would ruin the option market) is the person who refuses to work at a $75 strike because she becomes “a rockstar” and she’s now worth $1000/hour. That’s not fair to the option-holder; it’s not ethical. However, I feel like these opt-outs will be a lot rarer than job-hopping is. Why? First, everyone knows that job-hopping is a necessity in the modern economy. Almost no one gets respect, fair pay, or interesting work without creating an implicit bidding war between employers and prospective future opportunities. Sure, some manageosaurs who mistake their companies for nursing homes still enforce the stigma against job applicants with “too many jobs”, but people who weren’t born before the Fillmore administration have generally agreed that job hopping for economic reasons is an ethically OK thing to do. Two thousand hours of work per year is a gigantic commitment and exclusive of other opportunities, and almost no one would call it a career-long ethical commitment. The ethical framework (no job hopping, ever!) that enforces the call-option value (to employer) of employment is decades out of mode. It never made sense, and now it’s laughably obsolete. I would, however, say that a person who writes a call option on 100 hours of future work has an ethical responsibility to attend to it in good faith.

An equally important thought is that consulting is a generally superior arrangement to office-holding employment, except for its inability to deliver reliable income (which a robust options market could fix). Why? Well, people quit these monolithic 2000-hour-per-year office jobs all the time (often not by actually changing jobs, but by underperforming or even acting out, until they’re fired, and that takes a long time) because they don’t feel fulfilled. That’s different from being happy. A person can be happy (in the moment) doing 100 hours of boring work if he’s getting $20,000 for it. It’s not the work of “grunt work” that makes it intolerable for most people, but the social message. That’s why true consultants (not full-time contractors called such) are less likely to underperform or silently sabotage an effort when “assigned” grunt work; employees expect their careers to be nurtured in exchange for their poor conditions, while consultants get better conditions but harbor no such expectation.

On that psychology of work, I know people who can’t clean their own houses, not because the work is intolerable (it’s just mundane) but because they can’t stand the way they feel about themselves when doing such chores. However, a sufficient hourly rate will override that social message for almost anyone. How many people wouldn’t clean someone’s house, 100 hours per year, for 10 times their hourly wage? He won’t be fulfilled at such work at any price, but that’s different. It’s not hard to find someone who will be happy to perform work that most people find unpleasant. Consulting arrangements allow a price to be found. But with full-time position-holding employment, the zero/one fulfillment distinction is much harder to bring into being. People will clean, if paid to do it, but no one wants to be a cleaner forever.

The nice thing about consulting is that the middle ground between fulfillment and misery exists. You can go and do work for someone but you don’t have to be that person’s subordinate, which means that work that is neither miserable nor fulfilling (i.e. almost all of it) can be performed without severe hedonic penalty (i.e. you don’t hate that you do it). Because of modularity and the potential for multiple employment, you can refuse an undesirable project without threatening your reputation or unrelated income streams– something that doesn’t apply in regular employment, where refusing the paint that bike-shed that hideous green-brown color will have you judged as a uniform failure by your manager, even if you’re stellar on every other project. A consultant is a mercenary who does for pay, and only identifies with work if he chooses to. He sells some of his time, but not his identity. An employee, on the other hand, is forced into a monolithic, immodular 2000-hour-per-week commitment and forces identification with the work, if only because the obligation is such a massive block (yes, the image of intestinal exertion is intentional) that it dominates the person’s life, forcing identification either in submission (Stockholm Syndrome, corporate paternalism, and the long-term seething anger of dashed expectations in those for whom management doesn’t take the promised long-term interest in their careers) or in rebellion (yours truly).

So let me tie this all together rather than continuing what threatens to become a divergent rant on employment and alienation. An employee‘s main selling point is a call option written to her employer. If she matches well with the employer’s needs and its people, and if the employer continues to fulfill her desires for industrial fulfillment (which change more radically than the matter of what someone will be merely happy to do at a fair rate; the “good enough to be happy” set of work becoming broader with age, while fulfillment requirements go the other way and get steeper), and if the salary paid to her is kept within an acceptable margin (usually 20 to 40%) of her market value, she’ll deliver labor worth several times the strike price (her agreed-upon salary, plus marginal annual wage increases). Since there are a lot of ifs involved, the salary at which a company can justify employing her is several times less than her potential to render value: a mediocre salary that forces her into long-term wage-earning employment, when the value of her work at maximum potential would justify retirement after five to six years. That’s not unfair. In fact, it’s extremely fair, but an artifact of opacity and low information quality. 

Why is it like this? The truth is that the employer doesn’t participate in her long-tail upside, as it would with a genuine call option. In the worst cases, they do not exercise the option and stop employing her, but they pay transactional fees (warning time, severance, lawsuit risk, morale issues) associated with ending an employment relationship. In the mediocre cases (middling 80%) they collect some multiplier on her salary: the call option is exercised, and the company wins enough to generate a modest but uninspiring profit. In the very-good cases, she performs so well that it’s impossible to keep this from translating into macroscopic visibility and popping her market value. Since it’s not a real call option (she has no obligation at all to continue furnishing work) there is no way for the company to collect. An actual call option on some slice of her time would be superior, from the corporate perspective, because it insures them against the risk that her overperformance leads to total departure (i.e. finding another job).

How would we value such a call option? Let’s work with three model cases. One is Zach, an 18-year-old recently admitted to Stanford intending to major in computer science, with the obvious ability to complete such a course. He needs $200,000 to go to school. Let’s say that he puts the start date of the option at his rising-sophomore summer (internship) and the end date at 5 years past graduation. What’s a fair strike price? I would say that the strike price should be, in general, somewhere around 1/1500 of the person’s expected annual salary (under normal corporate employment) at the end of the exercise window. For Zach, that might be $80 per hour. The actual productive value of this time, at that point? (We can’t use a “stock price” for a Black-Scholes model, because the value of the underlying is affected by conditions including the cash infusion attendant to the sale; that’s why it’s synergistic.) I’d guess that it’s around $120, with a (multiplicative) standard deviation of 50%, which over 9 years equates to an annualized volatility of 16.7%. Using a risk-free rate of 2%, that gives the call option a Black-Scholes value of about $56. This means Zach needs to sell about 3570 hours worth of options to finance going to college. Assuming he can commit no more than 0.3 of a year for his four years of college, that’s 576 hours per year– not of free work, but of commitment to work at a potentially below-market “strike” price of $80 per hour. I think that’s a damn good deal for Zach, especially in comparison to student debt.

 

Alice is a 30-year-old programmer. She lives in Iowa City and has maxed out at an annual salary of $90,000 per year doing very senior-level work. The only way to move up is into management, which doesn’t appeal to her. She suspects that she could do a lot better in New York or San Francisco, but she can’t get jobs there because she doesn’t know anyone and resume-walls are broken– besides, how many VC-funded startups will hire a 30-year-old female making $90,000?–  and consulting (until this options market is built) is even more word-of-mouth/broken than regular employment. She knows that she’s good. She’d like to sell 7500 hours of work to the market over the next five years. Assume the option sale is enough to kick-start her career; then, her market value after five years is $250 per hour, but she sets her strike at $90. Since she’s older and her “volatility” (uncertainty in market value) is lower, let’s put her at 13% rather than Zach’s 16.7%. The fair value of her call options is $168 per hour, so she’s able to raise $1.26 million immediately: more than enough to finance her move to a new city.

Barbara is a 43-year-old stay-at-home mother whose youngest child (of five) reached six years of age. She’s no longer needed around the house, but has enough complexity in her life that full-time employment isn’t very tenable. However, she’s been intellectually active, designing websites for various local charities and organizations for a cut rate. She’s learned Python, taken a few courses on Coursera, and excelled. She wants to work on some hard programming problems, but no one will hire her because of her age and lack of “professional” experience. She decides to look for consulting work. She’s still green as a programmer, but could justify $100 per hour with access to the full market. She’s committing 1000 hours over one year, and she decides that $30/hour is the minimum hourly rate to motivate her, so she offers that as the strike. With volatility at 15% (although that’s almost irrelevant, given the low strike) she raises $71 on each option, and gets $71,000 immediately, with 1000 hours of work practically “locked in” due to the low strike price (at which anyone would retain her).

Cedar City High is a top suburban public high school in eastern Massachusetts. They’d like to have an elective course on technology entrepreneurship, and student demand is sufficient to justify two periods per day. Teaching time, including grading and preparation, will be 16 hours per week, times 40 weeks per year, for 640 hours. That’s not enough to justify a full-time teaching position, and it’d preferably be taught by someone with experience in the field. Dave is coming off yet-another startup, and has had some successes and failures but, right now, he’s decide that he wants to do something useful. He’s sick of this VC-funded, social-media nonsense. He’s not looking to get rich, but he needs to deliver some value to the community, and get paid enough for it to survive. He sets a minimum strike at $70 per hour, and he’s looking for about that 640 hours of work. Based on their assessments, Cedar City agrees to pay $15 for the options and exercise them, meaning they pay $85 per hour (or $54,400 per year, less than the cost of a full-time teacher) for the work.

Emily’s a 27-year-old investment banker who has decided that she hates the hours demanded by the industry and wants out. Her last performance review was mediocre, because the monotony of the work and the hours are starting to drain her. With her knowledge of finance and technology, she knows that she’ll be killing it in the future– if she can get out of her current career trap. However, five years of 80-hour work weeks have left her stressed-out and without a network. She’ll need a six-month break to travel, but FiDi rent (she can’t live elsewhere, given her demanding work schedule) has bled her dry and she has no savings. She realizes that the long-term five-years-out hourly value of her work– if she can get out of where she is now– is $300 per hour at median, with an annualized volatility of about 30% (she is stressed out). Unsure about her long-term career path, she offers a mere 500 hours (100 per year) with a five-year window. She sells the options at a $200/hour strike. The Black-Scholes value of them is $146 per hour, or $73,000 for the block. That gives her more than enough to finance her six months of travel, regain her normal emotional state, and find her next job.

So this is a good idea. That’s clear. What, pray tell, are we waiting for? As a generation, we need to build this damn thing.

Why we must shut down the Corporate System

I’ve come to the conclusion that the Corporate System deserves to be shut down. What is the Corporate System? No, it’s not the same thing as “corporations”. Corporations are just legal entities. In fact, they’re good things. Limited liability in good-faith business failure is, if not quite a right, a privilege of extreme value to society. The Corporate System is the authority structure that grew up within it: the internal credibility markets of businesses, the attempt to create distributed social status through resumes and references, and all the other nonsense designed to scare the hell out of people so they compliantly execute the ideas handed to them from on high. Most people experience it as managerial authority while society, as a whole, gets the butt-end of externalized costs (e.g. pollution). These might not seem connected, but they are intimately linked. Externalized costs are permitted to exist in a world where people are terrified of long-term career ramifications at the hands of vindictive executives. 

It’s not business or capitalism that we need to shut down. Far from it. As a syncretist at heart, I don’t believe that we can build a decent society while taking innovations only from Column A (capitalism) or Column B (socialism). We need both. Nor do we need to get rid of corporations as the legal abstraction. Again, limited liability under good-faith business failure is one of the best ideas this society has come up with. Rather, the enemy is the network of extortions, lies maintained due to careerist fear, and social exclusion that enables a small set of well-connected parasites to rob investors and employees both, as well as society at large via externalized costs, at an obscene scale.

At any rate, outlawing capitalistic activity (in addition to being morally wrong) just doesn’t work. The problem with capitalism and communism both is that, when rigidly enforced on people, they tend to generate a shitty version of the other. Corporate capitalism is, for the 99%, the worst of both systems. Look at air travel: capitalistic price volatility, but Soviet-style service. For the well-connected 1%, it’s the best of both systems. What we really need is a hybrid system dedicated toward providing the best of each for everyone, but I’ve gone on for megawords about that.

Still, the Corporate System is an expensive, inefficient, authoritarian, self-contradicting dinosaur. It’s time to kill it. Let me establish why we should tear it down. We ask one simple question: why do we allow private business to exist?

Answers are:

1. People have a right to trade services and resources with the market, so long as they aren’t hurting others by doing so. I think this is a pretty straightforward moral claim. If I can do something that confers only benefit to the stakeholders, I shouldn’t have to ask anyone for permission.
   
2. Central authorities can’t reliably outguess markets. Pricing and exchange rates are an NP-complete computational problem in theory and, in practice, even harder because the information informing fair levels is (a) scarce, and (b) constantly changing. Markets aren’t perfect, but they have a much greater information surface area than a central bureaucracy.
3. If people are deprived of the right to interact with the market independently, the government owns them. A political authority that outlaws private business is making itself The Boss, and making fair competition impossible. (Competition will exist, but involving personal risk, because it’s illegal.)

Private business has a lot of problems. It generates economic inequality. It tends toward organizational sociopathy (although I believe that problem can be solved, by taking a K-selective approach to process and value reproduction where quality trumps rapid growth). Some regulatory oversight is required. It can’t solve all of our economic problems; we need a socialist infrastructure that protects the unlucky. Yet, for all its flaws, the capitalistic market economy is still a wonderful, necessary thing. (I say this as a 3-sigma leftist, because it’s true.) It funds creation because governments can’t. It’s self-correcting. In many ways, it works– although not perfectly.

The Corporate System, however, is something else. It provides none of the benefits of private business that mandate our acceptance of it. Rather, it’s an attempt to build a corrupt blatnoy bureaucracy within capitalism. It occurs when the entrenched grow tired and no longer want to live in a world where ambitious up-and-comers can compete with them. It’s not entrepreneurial. In fact, it’s the deployment of managerial authority (within a company or, in the VC-istan case, via the reputation economy of the most credible investors) to shut down true innovation.

This is the fundamental reason why Corporate Authority is such a pile of self-contradicting, hypocritical dogshit. Government authority (e.g. to enforce speed limits) is just necessary in small doses. There are problems that require authority to solve it. Knowing the abuses that occur when such authority is unaccountable, we demand the right to fire the elected representatives at the top of that structure. However, capitalism, properly practiced, is not about authority. They don’t belong in the same room together. Rather, we allow capitalism to exist (in spite of its flaws, such as inequality) because we know authority is inadequate to solve all problems, and has no right to go into most spheres of human endeavor. Capitalism, done right, is about the removal of authority.

This is why the interfering, self-serving managerial authority that makes Corporate America such hell deserves to end. Now. It’s bad for us and it’s bad for capitalism. We must make it retreat in disgrace.

“Job hopping” is often fast learning and shouldn’t be stigmatized

One of the traits of the business world that I’d love to see die, even if it were to take people with it, is the stigma against “job hopping”. I don’t see how people can not see that this is oppression, plain and simple. The stigma exists to deny employees of the one bit of leverage they have, which is to leave a job and get a better one.

The argument made in favor of the stigma is that (a) companies put a lot of effort into training people, and (b) very few employees earn back their salary in the first year. Let me address both of these. For the first, about the huge amount of effort put into training new hires, that’s not true. It may have been the case in 1987, but not anymore. There might be an orientation lasting a week or two, or an assigned mentor who sometimes does a great job and is sometimes absentee, but the idea that companies still invest significant resources into new hires as a general policy is outdated. They don’t. Sink or swim is “the new normal”. The companies that are exceptions to this will sometimes lose a good person, but they don’t have the systemic retention problems that leave them wringing their hands about “job hoppers”. For the second, this is true in some cases and not in others, but I would generally blame this (at least in technology) on the employer. If someone who is basically competent and diligent spends 6 months at a company and doesn’t contribute something– perhaps a time-saving script, a new system, or a design insight– that is worth that person’s total employment costs (salary, plus taxes, plus overhead) then there is something wrong with the corporate environment. Perhaps he’s been loaded up with fourth quadrant work of minimal importance. People should be able to start making useful contributions right away, and if they can’t, then the company needs to improve the feedback cycle. That will make everyone happier.

The claimed corporate perspective of “job hoppers” is that they’re a money leak, because they cost more than they are worth in the early years. However, that’s not true. I’d call it an out-and-out lie. Plenty of companies can pay young programmers market salaries and turn a profit. In fact, companies doing low-end work (which may still be profitable) often fire older programmers to replace them with young ones. What this means is that the fiction of new hires being worth less than a market salary holds no water. Actually, employing decent programmers (young or old, novice or expert) at market compensation is an enormous position of profit. (I’d call it an “arbitrage”, but having done real arbitrage I prefer to avoid this colloquialism.)

The first reason why companies don’t like “job hoppers” is not that new hires are incapable of doing useful work, but that companies intentionally prevent new people from doing useful work. The “dues paying” period is evaluative. The people who fare poorly or make their dislike of the low-end work obvious are the failures who are either fired or, more likely, given the indication that they won’t graduate to better things, which compels them to leave– but on the company’s terms. The dues-paying period leaks at the top. In actuality, it always did. It just leaks in a different way now. In the past, the smartest people would become impatient and bored with the low-yield, evaluative nonsense, just as they do now, but be less able to change companies. They’d lose motivation, and start to underperform, leaving the employer feeling comfortable with the loss. (“Not a team player; we didn’t want him anyway.”) In the “job hopping” era, they leave before they have the motivational crash and there is something to be missed.

The second problem that companies have with “job hoppers” is that they keep the market fluid and, additionally, transmit information. Job hoppers are the ones who tell their friends at the old company that a new startup is paying 30% better salaries and runs open allocation. They not only grab external promotions for themselves when they “hop”, but they learn and disseminate industry information that transfers power to engineers.

I’ve recently learned first-hand about the fear that companies have of talent leaks. For a few months last winter, I worked at a startup with crappy management, but excellent engineers, and I left when I was asked to commit perjury against some of my colleagues. (No, this wasn’t Google. First, Google is not a startup. Second, Google is a great company with outdated and ineffective HR but well-intended upper management. This, on the other hand, was a company with evil management.) There’s a lot of rumor surrounding what happened and, honestly, the story was so bizarre that even I am not sure what really went on. I won the good faith of the engineers by exposing unethical management practices, and became somewhat of a folk hero. I introduced a number of their best engineers to recruiters and helped them get out of that awful place. Then I moved on, or so I thought. Toward the end of 2012, I discovered that their Head of Marketing was working to destroy my reputation (I don’t know if he succeeded, but I’ve seen the attempts) inside that company by generating a bunch of spammy Internet activity, and attempting to make it look like it was me doing it. He wanted to make damn sure I couldn’t continue the talent bleed, even though my only interaction was to introduce a few people (who already wanted to leave) to recruiters. These are the extents to which a crappy company will go to plug a talent hole (when those efforts would be better spent fixing the company).

Finally, “job hopping” is a slight to a manager’s ego. Bosses like to dump on their own terms. After a few experiences with the “It’s not you, it’s me” talk, after which the reports often go to better jobs than the boss’s, managers develop a general distaste for these “job hoppers”.

These are the real reasons why there is so much dislike for people who leave jobs. The “job hopper” isn’t stealing from the company. If a company can employ a highly talented technical person for 6 months and not profit from the person’s work, the company is stealing from itself.

All this said, I wouldn’t be a fan of someone who joined companies with the intention of “hopping”, but I think very few people intend to run their careers that way. I have the resume of a “job hopper”, but when I take a job, I have no idea whether I’ll be there for 8 months or 8 years. I’d prefer the 8 years, to be honest. I’m sick of having to change employers every year, but I’m not one to suffer stagnation either.

My observation has been that most “job hoppers” are people who learn rapidly, and become competent at their jobs quickly. In fact, they enter jobs with a pre-existing and often uncommon skill set. Most of the job hoppers I know would be profitable to hire as consultants at twice their salary. Because they’re smart, they learn fast and quickly outgrow the roles that their companies expect them to fill. They’re ready to move beyond the years-long dues-paying period at two months, but often can’t. Because they leave once they hit this political wall, they become extremely competent.

The idea that the “job hopper” is an archetype of Millennial “entitlement” is one I find ridiculous. Actually, we should blame this epidemic of job hopping on efficient education. How so? Fifty years ago, education was much more uniform and, for the smartest people, a lot slower than it is today. Honors courses were rare, and for gifted students to be given extra challenges was uncommon. This was true within as well as between schools. Ivy League mathematics majors would encounter calculus around the third year of college, and the subjects that are now undergraduate staples (real analysis, abstract algebra) were solidly graduate-level. There were a few high-profile exceptions who could start college at age 14 but, for most people, being smart didn’t result in a faster track. You progressed at the same pace as everyone else. This broke down for two reasons. First, smart people get bored on the pokey track, and in a world that’s increasingly full of distractions, that boredom becomes crippling. Second, the frontiers of disciplines like mathematics are now so far out and specialized that society can’t afford to have the smartest people dicking around at quarter-speed until graduate school.

So we now have a world with honors and AP courses, and with the best students taking real college courses by the time they’re in high school. College is even more open. A freshman who is intellectually qualified to take graduate-level courses can do it. That’s not seen as a sign of “entitlement”. It’s encouraged.

This is the opposite of the corporate system, which has failed to keep up with modernity. A high-potential hire who outgrows starter projects and low-yield, dues-paying grunt work after 3 months does not get to skip the typical 1-2 years of it just because she’s not learning anything from it. People who make that move, either explicitly by expressing their boredom, or simply by losing motivation and grinding to a halt, often end up getting fired. You don’t get to skip grades in the corporate world.

Unfortunately, companies can’t easily promote people fast, because there are political problems. Rapid promotion, even of a person whose skill and quick learning merit it, becomes a morale problem. Companies additionally have a stronger need to emphasize “the team” (as in, “team player”, as much as I hate that phrase) than schools. In school, cheating is well-defined and uncommon, so individualism works. At work, where the ethical rules are often undefined, group cohesion is often prioritized over individual morale, as individualism is viewed as dangerous. This makes rapid promotion of high-potential people such a political liability that most companies don’t even want to get involved. Job hoppers are the people who rely on external promotion because they often grow faster than it is politically feasible for a typical corporation to advance them.

For all that is said to the negative about job hoppers, I know few who intentionally wish to “hop”. Most people will stay with a job for 5 years, if they continue to grow at a reasonable pace. The reason they move around so much is that they rarely do. So is it worth it to hire job hoppers, given the flight risk associated with top talent? I would say, without hesitation, “yes”. Their average tenures “of record” are short, but they tend to be the high-power contributors who get a lot done in a short period of time. Also, given that one might become a long-term employee if treated well, delivering both top talent and longevity, I’d say there’s a serious call option here.

“Job hopping” shouldn’t be stigmatized because it’s the corporate system that’s broken. Most corporate denizens spend most of their time on low-yield make-work that isn’t important, but largely exists because of managerial problems or is evaluative in purpose. The smart people who figure out quickly that they’re wasting their time tend to want to move on to something better. Closed-allocation companies make this extremely difficult and as politically rickety as a promotion system, so often they decide to move on. Without the “job hopping” stigma, they’d be able to quit and leave when this happens, but that reputation risk encourages them, instead, to quit and stay. For companies, this is much worse.

 

We should pay people not to subordinate

In the very long term, technological society will need to implement a basic income, as soon as full employment becomes untenable. Basic income (BI) is an income paid to all people, with no conditions. Alaska already has a small one, derived from its oil wealth. In the long term, however, full employment will be impossible due to the need for ongoing, intensive, and traditionally unpaid training.

Today, I’m not going to talk about basic income, because we’re probably a couple of decades before society absolutely needs one, and even farther away from one being implemented, because of the monumental political hurdles such an effort would encounter. Instead, I’m going to talk about right now– January 7, 2013– and something we need to do in order to maintain our capacity to innovate. I will address something that society ought to do in order to prevent a pointless and extreme destruction of human capital.

Peter Thiel has created a program (“20 Under 20″) that pays high-potential young people to skip college, but the entry-level grunt work most people spend the first few years of their careers on is, in my opinion, much more damaging, especially given its indefinite duration. (I don’t think undergraduate college is that damaging at all, but that’s another debate.) There is some busywork in college, and there are a few (but they’re very rare) incompetent professors, but more creativity is lost during the typical workplace’s years-long dues-paying period, which habituates people to subordination, than to any educational program. I do not intend to say that there aren’t problems with schools, but the institutions for which the schools prepare people are worse. At least grading in school is fair. A professor as corrupt and partial in grading as the typical corporate manager would be fired– and professors don’t get fired often.

In terms of expected value (that is, the average performance one would observe given an indefinite number of attempts) the market rewards creativity, which is insubordinate. However, when it comes to personal income, expectancy is completely meaningless, at least for us poors who need a month-to-month income to pay rent. Most people would rather have a guaranteed $100,000 per year than a 1-in-1000 shot (every year) at $500 million, with a 99.9% chance of no income, even though the latter deal has more expectancy in it. Risk-adjusted, people of average means are rewarded for taking stable jobs, which often require subordination.

Technically speaking, people are paid for work, not subordination, but the process that exists to evaluate the work is so corrupt and rife with abuse that it devolves into a game that requires subordination. For a thought experiment, consider what would happen to a typical officer worker who, without subversion or deception to hide her priorities, did the following:

• worked on projects she considers most important, regardless of her manager’s priorities,
• prioritized her long-term career growth over short-term assignments, and
• expressed high-yield, creative ideas regardless of their political ramifications.

These activities are good for society, because she becomes better at her job, and obviously for her. They’re even good for her company. However, this course of action is likely to get her fired. Certainly, there’s enough risk of that to invalidate the major benefit of being an employee, which is stability.

So, in truth, society pays people to be subordinate, and that’s a real problem. In theory, capitalist society pays for valuable work, but the people trusted to evaluate the work inevitably become a source of corruption as they demand personal loyalty (which is rarely repaid in kind) rather than productivity itself. However, the long-term effect of subordination is to cause creative atrophy. To quote Paul Graham, in “You Weren’t Meant to Have a Boss“:

If you’re not allowed to implement new ideas, you stop having them. And vice versa: when you can do whatever you want, you have more ideas about what to do. So working for yourself makes your brain more powerful in the same way a low-restriction exhaust system makes an engine more powerful.

I would take this even farther. I believe that, after a certain age and constellation of conditions, creativity can be lost effectively forever. People who keep their creativity up don’t lose it– and lifelong creative people seem to peak in their 50s or later, which should kill the notion that it’s a property of the young only– but people who fall into the typical corporate slog develop a mindset and conditioning that render them irreversibly dismal. It only seems to take a few years for this to happen. Protecting one’s creativity practically demands insubordination, making it almost impossible to win the corporate ladder and remain creative. This should explain quite clearly the lack of decent leadership our society exhibits.

We should offset this by finding a way to reward people for not subordinating. To make it clear, I’m not saying we should pay people not to work. In fact, that’s a terrible idea. Instead, we should find a repeatable, robust, and eventually universal way to reward people who work in non-subordinate, creative ways, thereby rewarding the skills that our society actually needs, instead of the mindless subordination that complacent corporations have come to expect. By doing this, we can forestall the silent but catastrophic loss that is the wholesale destruction of human creative capital.

Why I wiped my LinkedIn profile

I wiped my LinkedIn profile recently. It now says:

I don’t reveal history without a reason, so my past jobs summary is blank.

I’m a New York-based software engineer who specializes in functional programming, machine learning, and language design.

This might not be the best move for my career. I’m mulling over whether I should delete the profile outright, rather than leaving a short note that appears cagey. I have a valid point– it really isn’t the rest of the world’s business what companies I have worked for– but I’m taking an unusual position that leaves me looking like a “tinfoiler”. For that, I’m honestly not, but I do believe in personal privacy. Privacy’s value is insurance against low-probability, high-impact harms. I don’t consider it likely that I’ll ever damage myself by publicly airing past employment history. It’s actually very unlikely. But why take the chance? I am old enough to know that not all people in the world are good, and this fact requires caution in the sharing of information, no matter how innocuous it might seem.

Consistency risk

My personal belief is that more people will damage their careers through respectable avenues such as LinkedIn than on Facebook, the more classic “digital dirt” culprit. For most jobs, no one is going to care what a now-35 software engineer said when he was 19 about getting drunk. Breaking news: all adults were teenagers, and teenagers are sometimes stupid! On the other hand, people could be burned by inconsistencies between two accounts of their career histories. Let’s say that someone’s CV says “March 2003 – February 2009″ while his LinkedIn profile says “March 2003 – November 2008“. Uh-oh. HR catches this discrepancy, flags it, and brings the candidate in for a follow-on interview, and the candidate discloses that he was on severance (and technically employed, but with no responsibilities) for 3 months. There was no lie. It was a benign difference of accounting. Still, the candidate has now disclosed receipt of a severance payment. There’s a story there. Whoops. In a superficial world, that could mean losing the job offer.

This isn’t a made-up story. The dates were different, but I know someone who ended up having to disclose a termination because of an inconsistency of this kind. (LinkedIn, in the case of which I’m aware, wasn’t the culprit.) So consistency risk is real.

Because the white-collar corporate world has so little in the way of actual ethics, the appearance of being ethical is extremely important. Even minor inconsistencies admit a kind of scrutiny that no one wishes to tolerate. This career oversharing that a lot of young people are participating in is something I find quite dangerous. Not everything that can damage a person’s reputation is a drunk picture. Most threats and mistakes are more subtle than that, and consistency risk is a big deal.

Replicating a broken system

My ideological issue, however, with LinkedIn isn’t the risk that’s involved. I’ll readily concede that those risks are very mild for the vast majority of people. The benefits of using such a service quite possibly outweigh them. The bigger problem I have with it is that it exists to replicate broken ways of doing things.

In 2013, the employment market is extremely inefficient in almost all domains, whether we’re talking about full-time jobs, consulting gigs, or startup funding. It’s a system so broken that no one trusts it, and when people distrust front-door channels or find them clogged and unusable, they retreat to back-door elitism and nepotism. Too much trust is given to word-of-mouth references (that are slow to travel, unreliable, and often an artifact of a legal settlement) and low-quality signals such as educational degrees, prestige of prior employers, and durations of employment. Local influences have a pernicious effect, the result of which is unaffordable real estate in virtually any location where a career can be built. Highly-qualified people struggle to find jobs– especially their first engagements– while companies complain of a dearth of appropriate talent. They’re both right, in a way. This is a matching problem related to the “curse of dimensionality“. We have a broken system that no one seems to know how to fix.

LinkedIn, at least in this incarnation, is an online implementation of the old-style, inefficient way of doing things. If you want an impressive profile, you have to troll for, trade, and if you’ve had a bad separation, use the legal system to demand in a settlement, recommendations and endorsements. You list the companies where you worked, job titles, and dates of employment, even if you honestly fucking hate some of those companies. We’ve used the Internet to give wings to an antiquated set of mechanics for evaluating other people, when we should be trying to do something better.

None of this is intended as a slight against LinkedIn itself. It’s a good product, and I’m sure they’re a great company. I just have an ideological dislike– and I realize that I hold a minority opinion– for the archaic and inefficient way we match people to jobs. It doesn’t even work anymore, seeing as most resumes are read for a few seconds then discarded.

Resumes are broken in an especially irritating way, because they often require people to retain a lasting association with an organization that may have behaved in a tasteless way. I have, most would say, a “good” resume. It’s better than what 98 percent of people my age have: reputable companies, increasing scope of responsibility. Yet, it’s a document through which I associate my name with a variety of organizations. Some of these I like, and some I despise. There is one for which I would prefer for the world never to know that I was associated with it. Of course, if I’m asked, “Tell me about your experience at <X>” in a job interview, for certain execrable values of X, social protocol forbids me from telling the truth.

I’ll play by the rules, when I’m job searching. I’ll send a resume, because it’s part of the process. Currently, however, I’m not searching. This leaves me with little interest in building an online “brand” in a regime vested in the old, archaic protocols. Trolling for endorsements, in my free time, when I’m employed? Are you kidding me?

The legitimacy problem

Why do I so hate these “old, archaic protocols”? It’s not that I have a problem, personally. I have a good resume, strong accomplishments for someone of my age, and I can easily get solid recommendations. I have no need to have a personal gripe here. What bothers me is something else, something philosophical that doesn’t anger a person until she thinks of it in the right way. It’s this: any current matching system between employers and employees has to answer questions regarding legitimacy, and the existing one gets some core bits seriously wrong.

What are the most important features of a person’s resume? For this exercise, let’s assume that we’re talking about a typical white-collar office worker, at least 5 years out of school. Then I would say that “work experience” trumps education, even if that person has a Harvard Ph.D. What constitutes “work experience”? There’s some degree of “buzzword compliance”, but that factor I’m willing to treat as noise. Sometimes, that aspect will go in a candidate’s favor, and sometimes it won’t, but I don’t see it conferring a systemic advantage. I’m also going to say that workplace accomplishments mean very little. Why? Because an unverifiable line on a resume (“built awesome top-secret system you’ve never heard of”) is going to be assumed, by most evaluators, to be inflated and possibly dishonest. So the only bits of a resume that will be taken seriously are the objectively verifiable ones. This leaves:

• Company prestige. That’s the big one, but it’s also ridiculously meaningless, because prestigious companies hire idiots all the time. 
• Job titles. This is the trusted metric of professional accomplishment. If you weren’t promoted for it, it didn’t happen.
• Length of tenure. This one’s nonlinear, because short tenures are embarrassing, but long stints without promotions are equally bad.
• Gaps in employment. Related to the above, large gaps in job history make a candidate unattractive.
• Salary history, if a person is stupid enough to reveal it.
• Recommendations, preferably from management.

There are other things that matter, such as overlap between stated skills and what a particular company needs, but when it comes to “grading” people, look no farther than the above. Those factors determine where a person’s social status starts in the negotiation. Social status isn’t, of course, the only thing that companies care about in hiring… but it’s always advantageous to have it in one’s favor.

What’s disgusting and wrong about this regime is that all of these accolades come from a morally illegitimate source: corporate management. That’s where job titles, for example, come from. They come from a caste of high priests called “managers” who are anointed by a higher caste called “executives” who derive their legitimacy from a pseudo-democracy of shareholders who (while their financial needs and rights deserve respect) honestly haven’t a clue how to run a company. Now, I wouldn’t advise people to let most corporate executives around their kids, because I’ve known enough in my life to know that most of them aren’t good people. So why are we assigning legitimacy to evaluations coming from such an unreliable and often corrupt source? It makes no sense. It’s a slave mentality.

First scratch at a solution

I don’t think resumes scale. They provide low-signal data, and that fails us in a world where there are just so many of the damn things around that a sub-1% acceptance rate is inevitable. I’m not faulting companies for discarding most resumes that they get. What else would they be expected to do? Most resumes come from unqualified candidates who bulk-mail them. Now that it’s free to send a resume anywhere in the world, a lot of people (and recruiters) spam, and that clogs the channels for everyone. The truth, I think, is that we need to do away with resumes– at least of the current form– altogether.

That’s essentially what has happened in New York and Silicon Valley. You don’t look for jobs by sending cold resumes. You can try it, but it’s usually ineffective, even if you’re one of those “rock star” engineers who is always in demand. Instead, you go to meetups and conferences and meet people in-person. That approach works well, and it’s really the only reliable way to get leads. This is less of an option for someone in Anchorage or Tbilisi, however. What we should be trying to do with technology is to build these “post-resume” search avenues on the Internet– not the same old shit that doesn’t work.

So, all of this said, what are resumes good for? I’ve come to the conclusion that there is one very strong purpose for resumes, and one that justifies not discarding the concept altogether. A resume is a list of things one is willing to be asked about in the context of a job interview. If you put Scala on your resume, you’re making it clear that you’re confident enough in your knowledge of that language to take questions about it, and possibly lose a job offer if you actually don’t know anything about it. I think the “Ask me about <X>” feature of resumes is probably the single saving grace of this otherwise uninformative piece of paper.

If I were to make a naive first scratch at solving this problem, here’s how I’d “futurize” the resume. Companies, titles, and dates all become irrelevant. Leave that clutter off. Likewise, I’d ask that companies drop the requirement nonsense where they put 5 years of experience in a 3-year-old technology as a “must have” bullet point. Since requirement sprawl is “free”, it occurs, and few people actually meet any sufficiently long requirement set to the letter, so that seems to select against people who actually read the requirements. Instead, here’s the lightweight solution: allocate 20 points. (The reason for the number 20 is to impose granularity; fractional points are not allowed.) For example, an engineering candidate might put herself forward like so:

• Machine learning: 6
• Functional programming: 5
• Clojure: 3
• Project management: 3
• R: 2
• Python: 1

These points might seem “meaningless”, because there’s no natural unit for them. but they’re not. What they show, clearly, is that a candidate has a clear interest (and is willing to be grilled for knowledge) in machine learning and functional programming, moderate experience in project management and with Clojure, and a little bit of experience in Python and R. There’s a lot of information there, as long as the allocation of points is done in good faith and, if not, that person won’t pass many interviews. Job requirements would be published in the same way: assign importance to the things according to how much they really matter, and keep the total at 20 points.

Since the points have different meanings on each side– for the employee, they represent fractions of experience; for the company, they represent relative importance– it goes without saying that a person who self-assigns 5 points in a technology isn’t ineligible for a job posting that places an importance of 6 for that technology. Rather, it indicates that there’s a rough match in how much weight each party assigns to that competency. This data could be mined to match employees to job listings for initial interviews and, quite likely, this approach (while imperfect) would perform better than the existing resume-driven regime. What used to involve overwhelmed gatekeepers is now a “simple matter” of unsupervised learning.

There is, of course, an obvious problem with this, which is that some people have more industry experience and “deserve” more points. An out-of-college candidate might only deserve 10 points, while a seasoned veteran should get 40 or 50. I’ll admit that I haven’t come up with a good solution for that. It’s a hard problem, because (a) one wants to avoid ageism, while (b) the objective here is sparseness in presentation, and I can’t think of a quick solution that doesn’t clutter the process up with distracting details. What I will concede is that, while some people clearly deserve more points than others do, there’s no fair way to perform that evaluation at an individual level. The job market is a distributed system with numerous adversarial agents, and any attempt to impose a global social status over it will fail, both practically and morally speaking.

Indeed, if there’s something that I find specifically despicable about the current resume-and-referral-driven job search culture, it’s in the attempt to create a global social status when there’s absolutely no good reason for one to exist.

The call for rational economy

If I were to wrap the causes of humanity’s recent political progress (and, quite likely, the scientific and industrial progress that followed) up into two words, I would use rational government. Starting with Machiavelli’s championing of republics (despite his better-known satire, The Prince) in the 16th century, and culminating in the Enlightenment of the 18th, political philosophers began to approach governmental problems with a structural and proto-scientific mindset. The concept that monarchs could rule by “divine right” was discarded, secular governments replaced religious ones, and constitutional government became requisite. It’s easy to take this for granted, but for most of human history, political bodies were ruled by charismatic leaders who would allow no checks against their accumulation of power. “Don’t you trust me, as your rightful king?” (“Well, even if I did, I don’t trust your asshole son who’ll reign after you knock off.”) What makes the 18th-century political philosophers so brilliant is their insight that trusting in people was the wrong way to go, because they tend toward unreliability in the long run as power corrupts and the throne changes hands, and that it was better to build robust structures. Governance, previously existing in the context a paternalistic reign handed down “from above” and usually justified with incredible supernatural claims, was something people could debate and vote on.

Since then, what we’ve had in the West have been mostly libertarian governments, at least compared to most of human history. It hasn’t been monotonic progress, but the ideal of rational government is clearly winning. We don’t burn heretics. In fact, most governments recognize the concept of a “heretic” as meaningless. This isn’t to say we got it right from the start, and it’s still not perfect– “sodomy” laws and the opposition to gay marriage are one example of pre-rational hangover– but the ideal is well-understood and people are working toward it. Libertarian government is, by and large, the accepted norm among educated people.

Rational government likely emerged as Europeans became more mobile. Interactions among people from different countries and with radically different experiences with governments fostered an interest in comparison. What are the English doing right and wrong? How about the French? The Italian states? As Europeans developed a more complete knowledge of their history and the variety of political structures, the existing patterns began to look ridiculous. The view of hereditary divine right evolved from seeing it as a component of a fixed, natural order to considering it a dangerous, reactionary superstition. Not to overstate my country’s importance as an American, but the United States plays a major role in this trend as well. In the late 18th century, a mix of mostly English Europeans attempted to experiment with rational government on the new continent, designing a country that was, from first principles, devoid of hereditary aristocrats or state religion.

What happens when rational, libertarian government (with low corruption) becomes the norm? The good news is that these governments tend to be fair and stable. There isn’t a lot of corruption or rent-seeking by government officials. It exists, but it’s less severe than it would be in a typical theocratic or aristocratic oligarchy. So you get an industrial, capitalistic economy. (For a contrast, the extortions and bribes required in a corrupt oligarchy retard industrial and entrepreneurial progress.) That’s a good thing, but it brings its own sets of problems. One of the major and perennial ones is the ability for businesses to profit, at the expense of the world, if they’re able to externalize costs (e.g. to the environment). There is also the instability, as observed in the 1930s, of hard-line industrial capitalism. Poverty, we learned in the Great Depression, is not some “moral medicine” that makes people better. It’s a cancer that can devour an entire nation. The third problem is that a libertarian government has a hard time curtailing an unchecked corporate elite that emerges in the power vacuum.

Over time, people begin to realize that laissez-faire capitalism is not desirable. This leads to a class of government interventions (social welfare programs, regulation, high taxation rates) typically associated with socialism and, in small doses, there’s no question that they’re an improvement. However, a number of supposedly “socialist” governments have proven themselves to be immensely corrupt, brutal, left-wing authoritarian regimes no better than the right-wing dictatorships of old. I don’t think anyone educated would prefer that extreme (statist, command economies) over the current system. Empirically, they don’t work well (see: North Korea). The question of where on this purported spectrum between statist socialism (left) and laissez-faire capitalism (right) an economy should be remains open.

What is the answer? Well, I think it’s important to look at this with a scientific, data-oriented mindset. I don’t have the kind of data that it would take to find a “closed-form” answer, but let me draw some insights from machine learning and statistics. Modeling approaches tend to be global, local, or some combination of the two. Global methods assert that there is some kind of underlying structure to the problem, and use all the data to build a model. For example, if one were relating latitude to average temperature, a global model would capture the relevant global relationship: polar latitudes tend to be cold, and equatorial latitudes tend to be warm. The vast majority of the earth’s surface would be well-classified by this model. It would, however, misclassify Rome (high latitude, warm) and Mount Kilimanjaro (low latitude, cold). You’d need a richer model (altitude, ocean currents, marine west-coast effects). Linear regression is one of the simplest effective global models, and for a wide variety of problems, it does well. On the other hand, local methods of inference give a high weight to nearby data. The archetypical local method is the “nearest neighbors” approach to inference. This is what real estate appraisers use when they attempt to find a fair value for a house or plot of land: what seems to be the market rate for nearby, comparable property? There’s clearly no simple global model relating positional coordinates to land or location value, so nearby data must be used. The disadvantage that local models have (as opposed to global ones) is the paucity of useful data. For many problems, there just isn’t enough data for local methods to perform well, either because the data is hard to collect or because the space is too convoluted (high dimensionality)– or both. The lesson is that both local and global methods of inference and modeling are valuable, and neither category is uniformly superior. To solve a complex problem, it usually requires both approaches to be used.

So what do these concepts of global versus local inference have to do with economics? Well, archetypical socialism is a global-minded approach. Certain social justice constraints (“no one should have less than <X>”, “total environmental pollution cannot exceed <Y>”) are set with the intention (at least, the stated intention, as many left-wing governments have been execrably corrupt) of keeping society fair, stable, and sane. The problem is that this can lead toward a command economy, and those do a poor job of solving the fundamental wealth-creation problem: building things people want, but that they don’t have the vision yet to know that they want. Command economies can produce commodities “to spec”, but no command economy could have come up with Google. Capitalism, on the other hand, is fiercely local. It has its own intellectually defensible brand of fairness (right-libertarianism) but no interest in enforcing global social-justice constraints. It doesn’t have the tools, and it has no interest in developing them. What it does extremely well is enable the individual to exploit local information (that command-economy bureaucracies would never acquire, and over which they would never agree on an interpretation) for personal benefit. This is, in effect, what markets are: distributed, computational methods for aggregating trillions of bits of local information, aggregating a signal from millions of self-interested actors.

What I intend strongly to convey, of course, is that a modern economy must draw from both columns. Socialist command economies degenerate rapidly, in large part because they must curtail individual freedoms in order to maintain the global structure to which they’re committed. Laissez-faire, on the other hand, diverges. For a while, the use of local information conveys a computational benefit and better economic decisions are made. Unfortunately, this also has a tendency to generate inequality among individuals that, in the long term, has a pernicious effect. Inequality among ideas and companies (aggregations of effort) is a good thing, because it means that bad ideas die and good ones grow in importance. When that’s applied to people, it’s not desirable. A class of economically disenfranchised people emerges, and so does an entrenched, wealthy aristocracy. The modern corporate elite is of the latter category. The incompetence and attitude of entitlement that reside at the top of American corporate world are truly terrifying.

One of the issues with capitalism and socialism both is that they tend to generate defective versions of the other. It seems to be a natural tendency. Supposedly socialist Russia had crime-ridden, violent black markets– the kind associated with illegal psychoactive drugs in North America– over commodities as staid as light bulbs. A command economy will not eradicate the very natural will to trade, and this creates a market. Making that illegal simply denies participation to law-abiding people, making what markets will exist unregulated and inefficient. On the other hand, American capitalism has generated a perverse socialism-for-the-rich. CEOs’ kids don’t “work their way up” in a meritocracy. Their wages aren’t set by a real market, but via favor-trading within a socially closed network of self-dealing corporate officials. Their daddies buy their educational admissions and resumes and, if they’re truly too stupid to make it on their own despite immense assistance, board-position sinecures at large corporations.

Right-libertarians (the “Tea Party”) blame corporatism on the government– it’s all this damn regulation that creates the corporate problem, they say– but that’s not a useful assessment. What actually happens is that the existing elite wants badly to stay elite and will use its immense resources in order to do so. They aren’t ideologically capitalistic. They would be just as comfortable as the ruling party in a left-wing, nominally “socialistic” tyranny as long as they were at the social apex. What they are is self-protecting. If corrupting governmental and educational institutions is an option to them (and it always is, because most modern corruption is in the form of invitations to parties, not actual wads of cash) they will do it.

Corporate America has generated its own royalty. What is different about 2012 from five or ten or fifty years ago is that people are now cognizant of it. The most interesting right-wing movement in the United States is the nascent Tea Party. While I disagree with them vehemently (as a left-libertarian, and also as one who favors science over emotional argument) I will give them credit for this: at their intellectual core (and, yes, there is one) they are aggressively anti-corporate. Post-2008, Americans get that the Corporate System is not a meritocracy, not rational, and not even real capitalism. It’s designed to provide the best of two systems (socialism and capitalism) for a well-connected social and increasingly hereditary elite, regardless of merit, and the worst of both systems for everyone else. For themselves, they create an economic arrangement in which they can derive enormous personal benefit from random variables that exist in the economy, but at the same time build a jealously guard a private social-welfare system that ensures they stay rich, well-positioned, and well-connected even if they fail. For the rest, they provide mostly downside, displacement, and discomfort. A perfect metaphor for this is air travel. Well-connected people get discounted or free air travel, special lounges in the airport, and access to comfortable private aviation. The rest of us get Soviet-style service and capitalistic price volatility: the worst from both systems.

What’s changing is that people all over the world are beginning to see that we don’t have a rational economy. We have a priesthood caste of executives who rule by their own version of “divine right”, claiming that the (invisible, to most people) network of social support that has placed them represents the “wisdom of the market”. We have a world where the transference of money into power is not only politically accepted, but increasingly seen as socially normal. It’s not called “corruption” anymore when journalists and government officials attend depraved parties in Davos, La Jolla or Aspen; it’s “self-interest”.

So what are we going to do? How do we overthrow the tyranny of position, especially in a world where such entrenchment can masquerade as “reputation”? We now have a world in which private social assistance can be presented as a “talent acquisition” (or “acqui-hire”) when our forefathers at least had the insight to call it “welfare for rich people”. These people are very well-connected and extremely adept at corrupting press and educational institutions in order to make their positions seem legitimate. They’ve created their own variety of rule by divine right, with “God’s will” ascertained in accord with how much money a person has (regardless of how he got it). For one concrete example, people are usually evaluated in a professional context according to job titles. Well, what are these but knighthoods and baronies assessed “from above”, and “up” points toward an entrenched, never-elected social elite who are not so much capitalism’s “market winners” as those best positioned to exploit an increasingly industrial economy. Is there really a difference between “Senior VP at BigCo” and “Thane of Cawdor”? I don’t see one. So why is the former resume gold, while the latter is a laughable anachronism?

I’m running out of time, so I’ll stop bashing the corporates and cut to the chase. The 18th-century was when the idea of rational government came to the fore, and it changed everything. People argue that the French Revolution “failed” because it led to Napoleon, but the truth is that Napoleon was quite restrained in comparison to almost all feudal lords, much less absolute monarchs. Progress toward rational government was not monotonic, but once the ideas reached implementation, they couldn’t be rolled back outright. The ideals lived on. They continue, even now, in the darkest and most irrationally governed corners of the earth, such as the Middle East. These concepts of rational government may not be implemented yet, but they are well-known and considered superior among a large number educated people. I believe that the 21st-century is when we’ll start to see real progress toward the rational economy. Why? Because it will be the only thing that can compete in the technological world. Only societies with rational economies and true “meritocracy” will be able to grow their prosperity at a technological (possibly 10+ percent per year) rate.

The Industrial Revolution required rational government, because the theocracies and monarchies of old would never have tolerated the social and economic rise of these upstarts. Change to a technological world will meet similar opposition from our entitled social, nominally “corporate”, elite. I don’t believe in a “Singularity”, but there are phase changes in growth, and the fast-evolving new entrants frequently “win”. Immensely powerful reptiles (dinosaurs) died out, while the small, fast-evolving creatures with mutant sweat glands (mammals) were able to adapt. Tool-using animals were able to control their environment in a way that their predecessors could not, and eventually evolved into the first humans. Awareness of time and future-orientation led to the agrarian revolution, characterized by 0.05 to 1% annual economic growth, and rational government made the industrial (1 to 10% annual growth) world, emerging in the late 18th-century, possible. Now, the world is pregnant with a new possibility: a technological world characterized by rapid economic growth, general prosperity instead of poverty and, if we do it right, an end to this sickening tyranny of geography (physical and social) that has rendered most of the world’s population poor. However, we’ll need a different kind of thought to make this possible. We’ll need a world where the right people– technologically-minded people– are making the decisions, and we need an economy that is not only rational, but protects its own rationality. This requires both the protection against divergence (poverty and self-perpetuating, entitled wealth) provided by socialism and the individual, local liberty of capitalism, but it requires something more: a technologically-minded commitment to solving hard problems using approaches (such as, in software, open allocation) that would previously be considered radical.

Programmer autonomy is a $1 trillion issue.

Sometimes, I think it’s useful to focus on trillion-dollar problems. While it’s extremely difficult to capture $1 trillion worth of value, as made evident by the nonexistence of trillion-dollar companies, innovations that create that much are not uncommon, and these trillion-dollar problems often have not one good idea, but a multitude of them to explore. So a thought experiment that I sometimes run is, “What is the easiest way to generate $1 trillion in value?” Where is the lowest-hanging trillion dollars of fruit? What’s the simplest, most obvious thing that can be done to add $1 trillion of value to the economy?

I’ve written at length about the obsolescence of traditional management, due to the convex input-output relationship in modern, creative work, making variance-reductive management counter-productive. I’ve also shared a number of thoughts about Valve’s policy of open allocation, and the need for software engineers to demand the respect accorded to traditional professions: sovereignty, autonomy, and the right to work directly for the profession without risk of the indirection imposed by traditional hierarchical management. So, for this exercise, I’m going to focus on the autonomy of software engineers. How much improvement will it take to add $1 trillion in value to the economy?

This is an open-ended question, so I make it more specific: how many software engineers would we have to give a high degree (open allocation) of autonomy in order to add $1 trillion? Obviously, the answer is going to depend on the assumptions that are made, so I’ll have to answer some basic questions. Because there’s uncertainty in all of these numbers, the conclusion should be treated as an estimate. However, when possible, I’ve attempted to make my assumptions as conservative as possible. Therefore, it’s quite plausible that the required number of engineers is actually less than half the number that I’ll compute here.

Question 1: How many software engineers are there? I’m going to restrict this analysis to the developed world, because it’s hard to enforce cultural changes globally. Data varies, but most surveys indicate that there are about 1.5 million software engineers in the U.S. If we further assume the U.S. to be one-fifth of “the developed world”, we get 7.5 million full-time software engineers in the world. This number could probably be increased by a factor of two by loosening the definition of “software engineer” or “developed world”, but I think it’s a good working number. The total number of software engineers is probably two to three times that.

Question 2: What is the distribution of talent among software engineers? First, here’s the scale that I developed for assessing the skill and technical maturity of a software engineer. Defining specific talent percentiles requires specifying a population, but I think the software engineer community can be decomposed into the following clusters, differing according to the managerial and cultural influences on their ability and incentive to gain competence.

Cluster A: Managed full-time (75%). These are full-time software engineers who, at least nominally, spend their working time either coding or on software-related problems (such as site reliability). If they were asked to define their jobs, they’d call themselves programmers or system administrators: not meteorologists or actuaries who happen to program software. Engineers in this cluster typically work on large corporate codebases and are placed in a typical hierarchical corporate structure. They develop an expertise within their defined job scope, but often learn very little outside of it. Excellence and creativity generally aren’t rewarded in their world, and they tend to evolve into the stereotypical “5:01 developers”. They tend to plateau around 1.2-1.3, because the more talented ones are usually tapped for management before they would reach 1.5. Multiplier-level contributions for engineers tend to be impossible to achieve in their world, due to bureaucracy, limited environments, project requirements developed by non-engineers, and an assumption that anyone decent will become a manager. I’ve assigned Cluster A a mean competence of 1.10 and a standard deviation of 0.25, meaning that 95 percent of them are between 0.6 and 1.6.

Cluster B: Novices and part-timers (15%). These are the non-engineers who write scripts occasionally, software engineers in their first few months, interns and students. They program sometimes, but they generally aren’t defined as programmers. This cluster I’ve given a mean competence of 0.80 and a standard deviation of 0.25. I assign them to a separate cluster because (a) they generally aren’t evaluated or managed as programmers, and (b) they rarely spend enough time with software to become highly competent. They’re good at other things.

Cluster B isn’t especially relevant to my analysis, and it’s also the least well-defined. Like the Earth’s atmosphere, its outer perimeter has no well-defined boundary. Uncertainty about its size is also the main reason why it’s hard to answer questions about the “number of programmers” in the world. The percentage would increase (and so would the number of programmers) if the definition of “programmer” were loosened.

Cluster C: Self-managing engineers (10%). These are the engineers who either work in conditions of unusual autonomy (being successful freelancers, company owners, or employees of open-allocation companies) or who exert unusual efforts to control their careers, education and progress. This cluster has a larger mean competence and variance than the others. I’ve assigned it a mean of 1.5 and a variance of 0.35. Consequently, almost all of the engineers who get above 2.0 are in this cluster, and this is far from surprising: 2.0-level (multiplier) work is very rare, and impossible to get under typical management.

If we mix these three distributions together, we get the following profile for the software engineering world:

Skill Percentile
1.0     38.37
1.2     65.38
1.4     85.24
1.6     94.47
1.8     97.87
2.0     99.23
2.2     99.78
2.4     99.95
2.6     99.99


How accurate is this distribution? Looking at it, I think it probably underestimates the percentage of engineers in the tail. I’m around 1.7-1.8 and I don’t think of myself as a 97th-percentile programmer (probably 94-95th). It also says that only 0.77 percent of engineers are 2.0 or higher (I’d estimate it at 1 to 2 percent). I would be inclined to give Cluster C an exponential tail on the right, rather than the quadratic-exponential decay of a Gaussian, but for the purpose of this analysis, I think the Gaussian model is good enough.

Question 3: How much value does a software engineer produce? Marginal contribution isn’t a good measure of “business value”, because it’s too widely variable based on specifics (such company size) but I wouldn’t say that employment market value is a good estimate either, because there’s a surplus of good people who (a) don’t know what they’re actually worth, and (b) are therefore willing to work for low compensation, especially because a steady salary removes variance from compensation. Companies know that they make more (a lot more) on the most talented engineers than on average ones– if they have high-level work for them. The better engineer might be worth ten times as much, but only cost twice as much, as the average. So I think of it in terms of abstract business value: given appropriate work, how much expected value (ignoring variance) can that person deliver?

This quantity I’ve assumed to be exponential with regard to engineer skill, as described above: an increment of 1.0 is a 10-fold increase in abstract business value (ABV). Is this the right multiplier? It indicates that an increment of 0.3 is a doubling of ABV, or that a 0.1-increment is a 26 percent increase in ABV. In my experience, this is about right. For some skill-intensive projects, such as technology-intensive startups, the gradient might be steeper (a 20-fold difference between 2.0 and 1.0, rather than 10) but I am ignoring that, for simplicity’s sake.

The ABV of a 1.0 software engineer I’ve estimated at $125,000 per year in a typical business environment, meaning that it would be break-even (considering payroll costs, office space, and communication overhead) to hire one at a salary around $75,000. A 95th-percentile engineer (1.63) produces an ABV of $533,000 and a 99th-percentile engineer (1.96) produces an ABV of $1.14 million. These numbers are not unreasonable at all. (In fact, if they’re wrong, I’d bet on them being low.)

This doesn’t, I should say, mean that a 99th-percentile engineer will reliably produce $1.14 million per year, every year. She has to be assigned at-level, appropriate, work. Additionally, that’s an expected return (and the variance is quite high at the upper end). She might produce $4 million in one year under one set of conditions, and zero in another arena. Since I’m interested in the macroeconomic effect of increasing engineer autonomy, I can ignore variance and focus on mean expectancy alone. This sort of variance is meaningful to the individual (it’s better to have a good year than a bad one) and small companies, but the noise cancels itself out on the macroeconomic scale.

Putting it all together: with these estimates of the distribution of engineer competence, and the ABV estimates above, it’s possible to compute an expected value for a randomly-chosen engineer in each cluster:

Cluster A: $185,469 per year.

Cluster B: $89,645 per year.

Cluster C: $546,879 per year.

All software engineers: $207,236 per year.

Software engineers can evolve in all sorts of ways, and improved education or more longevity might change the distributions of the clusters themselves. That I’m not going to model, because there are so many possibilities. Nor am I going to speculate on macroeconomic business changes that would change the ABV figures. I’m going to focus on only one aspect of economic change, although there are others with additional positive effects, and that change is the evolution of an engineer from the micromanaged world of Cluster A to the autonomous, highly-productive one of Cluster C. (Upward movement within clusters is also relevant, and that strengthens my case, but I’m excluding it for now.) I’m going to assume that it takes 5 years of education and training for that evolution to occur, and assume an engineer’s career (with some underestimation here, justified by time-value of money) lasts 20 years, meaning there are 15 years to reap the benefits in full, plus two years to account for partial improvement during that five-year evolution.

What this means is that, for each engineer who evolves in this way, it generates $361,410 per year in value for 17 years, or $6.14 million per engineer. That is the objective benefit that accrues to society in engineer skill growth alone when a software engineer moves out of a typical subordinate context and into one like Valve’s open allocation regime. Generating $1 trillion in this way requires liberating 163,000 engineers, or a mere 2.2% of the total pool. That happens even if (a) the number of software engineers remains the same (instead of increasing due to improvements to the industry) and (b) other forms of technological growth, that would increase the ABV of a good engineer, stop, although it’s extremely unlikely that they will. Also, there are the ripple effects (in terms of advancing the state of the art in software engineering) of a world with more autonomous and, thus, more skilled engineers. All of these are substantial, and they improve my case even further, but I’m removing those concerns in the interest of pursuing a lower bound for value creation. What I can say, with ironclad confidence, is that the movement of 163,000 engineers into an open-allocation regime will, by improving their skills and, over the years, their output, generate $1 trillion at minimum. That it might produce $5 or $20 trillion (or much more, in terms of long-term effects on economic growth) in eventual value, through multiplicative “ripple” effects, is more speculatory. My job here was just to get to $1 trillion.

In simpler terms, the technological economy into which our society needs to graduate is one that requires software (not to mention mathematical and scientific) talent at a level that would currently be considered elite, and the only conditions that allow such levels of talent to exist are those of extremely high autonomy, as observed at Valve and pre-apocalyptic Google. Letting programmers direct their own work, and therefore take responsibility for their own skill growth is, multiplied over the vast number of people in the world who have to work with software, easily a trillion-dollar problem. It’s worth addressing now.

The end of management

I come with good news. If I’m correct about the future of the world economy, the Era of Management is beginning to close, and will wind down over the next few decades. I’ve spent a lot of time thinking about these issues, and I’ve come to a few conclusions:

1. The quality gap between the products of managed work and unmanaged work has reversed, with unmanaged work being superior by an increasing– at this point, impossible to ignore– amount. For one notable example, open-source software is now superior to gold-plated commercial tools. Creativity and motivation matter more than uniformity and control. This was not always the case, but it has become true and this trend is accelerating.
2. This change is intrinsic and permanent. It is unnatural for people to manage or be managed, and the end of the managerial era is a return to a more natural motivational framework.
3. Approaches to business that once seemed radical, such as Valve‘s open allocation policy, will soon enough be established as the only reasonable option. Starting with top technical companies, an with the trend later moving into a wide variety of industries, firms will discard traditional management in favor of intrinsic motivation as a means of getting the best quality of work from their people.

What’s going on? I believe that there’s a simple explanation for all of this.

“We will kill them with math”

Consider payoff curves for two model tasks, each as a function of the performance of the person completing it.

Performance | A Payoff | B Payoff |
-----------------------------------

5 (Superb)  |      150 |      500 |
4 (Great)   |      148 |      300 |
3 (Good)    |      145 |      120 |
2 (Fair)    |      135 |       40 |
1 (Poor)    |      100 |       10 |
0 (Awful)   |       50 |        0 |
-----------------------------------


What might this model? Task A represents easy work for which an average (“fair”) player can achieve 90 percent of the highest potential output:135 points out of a possible 150. An employee achieving only 50 percent of that maximum is clearly failing, and will probably be replaced, and there won’t be much variation between the people who make the cut. Task B represents difficult work for which there’s much more upside, but for which the probability of success is low. Average performers contribute very little, while the difference between “good” and “superb” is large. Task B’s curve might be more applicable to high-yield R&D work, in which a person would be considered highly successful if she had success in even 30 percent of the projects she set out to do, but it increasingly applies to disciplines like computer programming, where insight, taste, and vision are worth far more than commodity code. What matters, mathematically, is that Task A’s input-output relationship flattens as performance improves, while Task B’s accelerates. Task A’s curve is concave and Task B’s is convex. For Task A, the difference in return between an excellent and an average performer is minimal, but for Task B, it’s immense.

Does excellence matter? At most jobs, the answer has traditionally been “no”. At least, it has mattered far less than uniformity, reliability, and cost reduction. The concave behavior of Task A is more appropriate to most jobs than a convex one, and that’s largely by design. The problem with creative excellence is that it’s intermittent. Creativity can’t be managed into existence, while reliable mediocrity can be. As much as we might want managers to “nurture creativity”, the fact is that they work for companies, not subordinate employees, and their job is largely to limit risk. If we expect managers to do anything different, we’re being unreasonable. For Task A, performance-middling behaviors like micromanagement are highly appropriate, because bringing the slackers into line provides much more benefit than is lost by irritating high performers, and most industrial work that humans have performed, over our history, has been more like A than B. Getting the work done has mattered more than doing it well.

One of the interesting differences between concave and convex work is the relationship between expectancy (average performance) and variance. For traditional concave work, there’s a lot of variation at the low-performing end of the curve, but very little among high performers. To consider variance uniformly bad, therefore, will not be detrimental, the upside of variation being so minimal. Managerial activities that reduce variance are generally beneficial under such a regime. Even if high performers are constrained, this is offset by the improved productivity of the slackers. For convex work, the opposite is true. In a convex world, variation and expectancy are positively correlated. It turns out to be much easier, for a manager, to control variance than it is to improve expectancy. For this reason, almost everything in the discipline of “management” that has formed over the past hundred years has been focused on risk reduction. In a concave world, that worked. Reducing variance, while it might regress individual performances into mediocrity, would nonetheless bring the aggregate team performance up to a level where no one could reliably do better with comparable inputs. For most of industrial humanity’s history, that was enough.

Variance reduction falls flat in the convex world. Managerial pressures that bring individual performance to the middle don’t guarantee that a company has an “average” number of high-performing people, but make it likely that the firm has zero such people, and the result of such mediocrity is an end to innovation. In the short term, this damage is invisible, but in the long term, it renders the company unable to compete. Its prominence and market share will be snapped up in small pieces by smaller, more agile, companies until nothing is left for it but dominance over low-margin “commodity” work. Contrary to the typical depiction of large corporate behemoths being sunk wholesale by a startup “<X> killer”, what actually tends to happen is a gradual erosion of that company’s dominance as new entrants compete against it for something more important, in the long run, than market share: talent. Talent is naturally attracted to convex, risk-friendly work environments.

For a digression into applied mathematics– specifically, optimization– I would like to point out that since maximizing a concave function (such as bulk productivity) is equivalent to minimizing a convex one, we can think of management in the concave world as somewhat akin to a convex optimization problem. This is more of a metaphor than a true isomorphism, with one being abstract mathematics and the other rooted in human psychology, but I think the metaphor’s quite useful. I’ll gloss over a lot of detail and just say this: convex optimizations (again, akin to management of concave work) are easier. A convex minimization problem is like finding the bottom of a bowl (follow gravity, or the gradient). However, if the problem is non-convex, the surface might be more convoluted, with local valleys, and one might end up in a suboptimal place (local minimum) from which no incremental improvement is possible. The first category of problem can be solved using an algorithm called gradient descent: start somewhere, and iterate by stepping in the direction that, locally, appears best. The second category of problem can’t be solved  by simple gradient descent. One can fall into a local optimum from which some sort of non-local insight (I’ll return to this, later) is required if one wants to improve.

Concave and convex work are, in kind, also sociologically different. When the work is concave, the optimization problem is (loosely speaking) convex, and the one stable equilibrium (or local optimum) is, roughly speaking, “fairness”. On average, you’ll get more if you focus your efforts on improving low performers (who will improve more quickly) than by making the best even better. A policy that often works is to standardize performance: figure out how many widgets people can produce, and develop a strategy for bringing as many people as possible to that level (and firing the few who can’t make it). Slackers are intimidated into acceptable mediocrity, incorrigible incompetents are fired, and the bulk of workers get exactly the amount of support they need to reliably hit their widget quota. It’s a “one-size-fits-all” approach that, while imperfect, has worked well for a wide variety of industrial work.

Management of convex work is, as it were, a distinctly non-convex optimization problem. It’s sociologically much more complicated, because while the concave world has a “fairness” equilibrium, convex work has multiple equilibria that are usually “unfair”. You end up with winners and losers, and the winners need to be paired with the best projects, roles and mentors, although one might argue that the winners “don’t need them” from a fairness perspective. For convex work, you don’t manage to the middle. The stars who get more support and better opportunities will improve faster, and the schlubs’ mediocrity (whether a result of inability or poor political position) will persist. The best strategy, for a managed company, would be to figure out who has “star” potential and invest heavily in them from the start, but the measurements involved (especially because people have such strong incentives to game them) are effectively impossible for most people to make, both for intrinsic and political reasons.

For convex work, excellence and creativity matter, and they can’t be forced into existence by giving orders. Additionally, the value produced in convex work is almost impossible to measure on a piece-rate basis. Achievements in concave work tend to be separable: one can determine exactly how much was accomplished in each hour, day, and week, so it’s easy to see when people are slacking off. Work that is separable by time is usually also separable by person: visible low performers can be removed, because the group’s performance is strictly additive of individual productivity. For convex work, this is nearly impossible. A person can seem nonproductive while generating ideas that lead to the next breakthrough– the archetypical “overnight success” that takes years– and a colleague who might not be publishing notable papers may still contribute to the group in an important, but invisible, way.

If your tools are traditional management tactics, then convex work is intractable, and management is often counterproductive. I think the best metaphor that I can come up with for managers and executives is “trading boredom”. There are many traders out there who could turn a profit if they stuck to what they knew well, but get bored with “grinding” and start to depart from their domains of competence, adding noise and room for mistakes, and burning up their winnings in the process. Poker players have the same problem: the game gets so boring (at 2000-3000 hours per year) that they start taking unwise risks. The 40-hour work week is so ingrained in modern people that there’s often a powerful guilt people face of feeling useless when there is no work for them to do (even if they achieve enough within 10 of those hours to “earn their keep”) and this often leads to counterproductive effort. This, I believe, explains 90 percent of managerial activity: messing with something that already works well, because watching the gauges gets boring. Whenever an executive comes up with a hare-brained HR policy that the company doesn’t need, trading boredom, and the need to still feel useful when there is no appropriate work to do, is the cause.

At concave work, this managerial “trading boredom” is a hassle that veteran workers, who have been doing the job for decades, learn to ignore. They already know how to do their jobs better than their bosses do, so they show enough compliance to keep management off their backs, but change little about what they’re actually doing unless there’s a legitimate reason for the change. They keep on working, and the function of the team or factory remains intact. For convex work, on the other hand, managerial meddling is utterly destabilizing. The pointless meetings and disruptions inflicted by overmanagement take an enormous toll. In a convex world where small differences in performance lead to large discrepancies in returns, spending 2 hours each week in pointless meetings isn’t going to reduce output by a mere 5 percent, as one might expect from a linear model (2 hours lost out of 40). It’s probably closer to 25 percent.

The corporate hierarchy: an analytical perspective.

The optimization metaphor above, I believe, explains certain functional reasons for the typical three-tiered corporate hierarchy, with executives, managers, and workers. The workers are just “inputs”– machines made of meat, with varying degrees of reliability and quality, and for which there exist well-studied psychological strategies for reducing variance in performance in order to impose as much uniformity as possible. A manager‘s job is to focus on a small region over which the optimization problem is convex (which implies that the work is concave) and perform the above-mentioned gradient descent, or to iterate step-wise toward a local optimum. The strategy is given to the manager from above, and his job is to drive execution error as close to zero as possible. As variance will, all else being equal, contribute to execution error, variance must be limited as well. The job of an executive is to have the non-local insight and knowledge required to find a global optimum rather than being stuck at a local one. Executives ask non-local “vision” questions like, “Should we make toothpaste or video games?” Managers figure out what it will take to get a group of people to produce 2 percent more toothpaste.

This hierarchy is becoming obsolete. Machines are now outperforming us at the mechanical work that defined the bottom of the traditional, three-tier hierarchy. They are far more reliable and uniform than we could ever hope to be, and they excel at menial, concave work. We can’t hope to compete with them on this; we’ll need to let them have this one. So the bottom of the three tiers is being replaced outright. In addition, specialization has created a world where there is no place for mediocrity, and, therefore, in which the individual “worker” is now responsible for finding a direction of development (a non-local, executive objective) and planning her own path to excellence (a managerial task). The most effective people have figured this out by now and become “self-executive”, which means that they take responsibility for their own advancement, and prioritize it over stated job objectives. As far as they’re concerned, their real job is to become excellent at something, and they will focus on their career rather than their immediate job responsibilities, which they perform only because it helps their career to do so. As far as self-executive people are concerned, their employers are just along for the ride– funding them, and capturing some the byproducts they generate along the way, while they work mostly on their real job: becoming really good at something, and advancing their career.

Self-executive employees are a nightmare for traditional managers. They favor their career growth over their at-moment responsibilities, have no respect for the transient managerial authority that might be used to compel them to depart from their interests, yet tend at the same time to be visibly highly competent, which means that firing them is a political mess. They’re the easiest to fire from an HR “cover your ass” perspective (they won’t sue if you fire them, because they’ll quickly get an external promotion) but the damage to morale in losing them is substantial. In concave work, a team could lose its most productive member with minimal disruption; at convex work, such a loss is crippling. Managers who want to peaceably remove such people have to make it look like something the group wanted, and so they create divisions between the self-executive and colleagues– perhaps by setting unrealistic deadlines and then citing the self-executive person’s extracurricular education as a cause for slippage– but these campaigns are disastrous for group performance in the long run.

From a corporate perspective, a self-executive employee is the opposite of a “team player” and possibly even a sociopath, but I prefer to call the self-executive attitude adaptive. What point is there in being a “team player” when that “team” will be a different set of people in 36 months, and where one can be discarded from the team at any time, often unilaterally by a non-productive player who’s not even a real part of it? None that I see. The “team player” ethic is for chumps who haven’t figured it out yet. Additionally, because the working world is increasingly convex, self-executive people are increasingly good (if chaotic good, to use a role-playing analogy) for society. They sometimes annoy their bosses, but they become extremely competent in the process and, in the long term, they will advance the world far more than anyone can do by following orders. Self-executives tend to “steal an education” from their bosses and companies, but twenty years later, they’re building superior companies.

Self-executive employees want to take risks. They want to tackle hard problems, so they get better at what they do. While managers want to reduce variance, almost obsessively, self-executives want to increase it. Also relevant is the fact that managerial fictions about intrinsic “A”, “B”, and “C” players don’t exist. Stack-ranking– the annual “low performer” witch hunt that companies engage in to scare their middling crowd– doesn’t actually do much good in personnel selection. (It excels at intimidation, which is performance-middling and thus reduces variance, but the desirability of this effect is rapidly declining.) What does exist, and seems to be intrinsic, is that there are low- and high-variance people. Low-variance workers can kick out an acceptable performance under almost any circumstances– long hours, poor health, boring work, difficult or even aggressive clients and managers. They’re reliable, not especially creative, and tend to do well at the war of attrition known as the “corporate ladder”. They make lousy executives, but are most likely to be selected for those sorts of roles. High-variance people, on the other hand, are much more creative, and tend to be self-executive, but are much less reliable in the context of managed work. Their level of output is very high if measured over a long enough timeframe, but impossible to read at the level of a single day, or even a quarter. This distinction of variance, much more than the A- and B-player junk science, seems to be intrinsic or, at the least, very slow to change for specific individuals. Unfortunately, traditional managers and high-variance individuals are natural enemies. Low-variance people tend to be selected for management positions, are easiest to manage, and (most importantly) are less likely to make their bosses insecure.

What is changing

Why is work moving from concavity to convexity in output? There are a few answers, all tightly connected. The first of these is that concave work tends to have a defined maximum value: there’s one right way to perform the task. If we can define a target, we can structure the task as a computation, and it can be automated. Machines win, no contest, at reliability as well as cost-reduction. They’re ideal workers. They never complain, work 168-hour weeks, and don’t have hidden career objectives that they place at a higher priority than what they’re asked to do. As we get better at programming machines to perform the concave work, it leaves us with the convex stuff.

Second, the technological economy enhances potential individual productivity. The best programmers deliver tens of millions of dollars per year in business value, while the worst should probably not be employed at all. The capacity to have multiplier effects across a company, rather than the additive impact of a mere workhorse, is no longer the domain of managers only. The best software architects and engineers are also multipliers, because their contributions become infrastructural in nature. I don’t think that this potential for multiplicative impact is limited to software, either. As software becomes more capable of eliminating menial tasks from peoples’ days, there’s more time available for the high-yield, high-risk endeavors at which machines do poorly. What this enables is the potential for rapid growth.

When studying finance, one often learns that high rates of growth (8% per year) in a portfolio are “unsustainable”, because anything that grows so fast will eventually “outgrow” the entire world economy, which grows at only 3 to 5 percent, as if that latter rate were an immutable maximum. This might also apply to the 10-15% per year salary growth that young people expect in their careers– also unsustainable. Wall Street (in terms of compensation) has been called “a bubble” for this reason: even average bankers experience this kind of exponential compensation growth well into middle age, and it seems that this is unreasonable, because even small-scale economies or subsectors “can’t” grow that fast, so how can a person? Can someone actually increase the business value of his knowledge and capability by 15% per year, for 40 years? It seems that there “must be” some limiting factor. I no longer believe this to be necessarily true at our current scale. (There are physical, information-theoretic upper limits to economic prosperity, but we’re so far from those that we can ignore them in the context of our natural lifespans.) Certainly, rapid growth becomes harder to maintain at scale; that is empirically true. But who says that world economic growth can’t some day reach 10% (or 50%) per year and continue at such a rate until we reach a physical maximum (far past a “post-scarcity” level at which we stop caring)? Before 1750, growth at a rate higher than 0.5% per year would have been considered impossible: 0.1 to 0.2 percent, in agrarian times, was typical. If we view our entire history in stages– evolutionary, early human, agricultural, industrial– we observe that growth rates improve at each stage. It’s faster-than-exponential. I don’t believe in a single point of nearly-infinite growth– a “Singularity”– but I think that human development is more likely than not to accelerate for the foreseeable future. In the technological era, rapid improvements are increasingly possible. Whether this will result in rapid (30% per year) macroscopic economic growth I am not qualified to say, and I don’t think anyone has the long-term answer on that one, but we are certainly in a time when local improvements on that order are commonplace. Many startups consider user growth of 10% per month to be slow.

Rapid growth and process improvements require investment into convex work, which often lacks a short-term payoff but often provides an immense upside. It’s this kind of thinking that companies need if they wish to grow at technological rather than industrial rates, and traditional variance-reduction management is at odds with that. That said, traditional management is quite a strong force in corporate America. Most companies cannot even imagine how they would run their affairs without it. For sure, the managerial and executive elites won’t go gently into that good night. The private-sector career politicians who’ve spent decades mastering this inefficient, archaic, and often stupid system are not going to give up the position they’ve worked so hard to acquire. The macroscopic economic, social, and cultural benefits to a less-managed work world are extreme, but also irrelevant to the current masters, who have a personal desire to keep their dominance over other humans. The people in charge of the current system would rather reign in hell than serve in heaven. So what will give?

There won’t be an “extinction event” for managerial dinosaurs and the numerous corporations that have adopted their mentality, so much as an inability to compete. First, consider the superior quality of open-source software over commercial alternatives for an expanding set of software. That’s indicative. Open-source projects grow organically because people value them and willingly contribute, with no managers (in the industrial-era sense) needed. Commercial products die unless their owners continue to throw money at them (and sometimes even then). Open-source contributors are intrinsically motivated to be invested in the quality of their software. They’re often users of the product, and they can also improve their careers by gaining visibility in the wider software world. They have real, technological-era, self-executive motivations for wanting to do good work. For a contrast, most commercial software products are completed at a standard of “just good enough” to appease a boss and remain in good standing. It’s software written for managers, but from a product-quality standpoint, bosses themselves rarely matter. Users do. The quality gap between non-managed work and managed work is becoming so severe that the value of managed work is (albeit slowly) declining, out-competed by superior alternatives. This is bringing us to a state where “radical” cultures such as Valve’s purportedly manager-free open allocation policy become the only acceptable option. I would be shocked, in 30 years, if open allocation weren’t the norm at leading technology companies.

The truth is that managed work and variance reduction, which made the Industrial Revolution possible, are capable of producing growth at industrial (1 to 5 percent per year) rates, but not at technological rates (and a venture-funded startup must grow at technological rates or it will die). Compared to the baseline agrarian growth rate (0.05 to 0.3% per year) of antiquity, the industrial rate was rapid. Traditional management still works just fine, if your job is to turn $1.00 into $1.03 in twelve months. If you’re already rich and looking to generate some income from your massive supply of capital, this might continue to work for you indefinitely. If you’re poor, or looking to compete in the most exciting industries, and you need to unlock the energies that turn $1.00 into $2.00, you need something different.

Does this mean that there will no longer be no role for managers? It depends on how “manager” is defined. Leadership, communication, and mentorship skills will always be in high demand. In fact, the increasing complexity of technology will put education at a premium, and the few people who can lead groups of self-executive workers are becoming immensely valuable. Although the most talented workers will evolve into self-executive free agents, they will need some way of learning what efforts are worth their time, and they’ll be learning this from other people. Some aspects of “management” will always be important, but to the extent that management lives on, it will have to be about genuine leadership rather than authority.

Fossil fools

What has a one-way ticket to the tarpit (and almost no one will miss it) is the contemporary institution of corporate management: the Bill Lumbergh, who uses authority by executive endowment to compensate for his complete lack of leadership skills.

Leaders are chosen by a group that decides to be led, whereas corporate managers are puppet governors selected by external forces (or “from above”) as a means of exerting control. They don’t have to have any leadership skill, because the people being led have no choice. They’re hand-picked by their bosses: higher-level managers and executives. Leadership often requires handling trade-offs of peoples’ interests in a fair way, but that’s impossible for a corporate manager to do. Executives will never select a manager who would support the workers’ interests at an equal level to their own. Managers play a variety of roles, but their main one is to be a buffer between two groups of people (executives and workers) who would otherwise be at opposition because, even if for no other reason, they get dramatically different proportions of the reward. Managers legitimize executives by creating the impression that the separation between the company’s real members and its workers is a continuous spectrum (and thereby support the company’s efforts to mislead people regarding their true chances of upward mobility) rather than a discrete chasm, but they also form, because of their own increasingly divergent interests, a weak link that is increasingly problematic.

The corporate structure is effectively feudal. Just as medieval kings never cared how the dukes and earls treated their peasants, as long as tributes were paid, managers generally have unilateral power over the managed (as long as they don’t get the company sued). Managers are trusted to execute the corporate interest. It seems like this should create a weak link, giving managers the power to force workers to suit the manager’s career goals rather than the corporate objective. Perhaps surprisingly, though, in a concave world this doesn’t cause a major problem for the company. Managerial and corporate interests, at concave work, are aligned for reasons of sociological coincidence.

Managers have high social status and status is positively autocorrelated in time (that is, high status tends to reinforce itself) so a manager will “drift” into higher position as the group evolves, so long as nothing embarrasses him. Workers have to prove themselves in order to stand above the masses, but managers can coast and acquire seniority. In other words, a manager’s career is optimized not when he maximizes group productivity (which may be impossible to measure) but when he minimizes risk of embarrassment. A subordinate who breaks rules, no matter how trivial, embarrasses the manager– even if he’s highly productive. It’s better, from a manager’s career perspective, to have ten thoroughly average reports than nine good ones and one visible problem employee. Great employees make themselves look good, while bad ones are taken to reflect on the manager who failed to keep them in line. The consequence of this is that managers are encouraged toward risk-reduction. In a concave world, this is exactly what the company needs. So what happens in a convex world?

The convex world is different. If a company “gets” convexity (which is rare) it will begin to make allowances for individual contributors to allocate time to high-variance, high-reward activities which are often self-directed. This gives workers the opportunity to achieve visible high performance, and it’s good for the (expected) corporate profit, but managers lose out, because the worker who hits a home run will get most of the credit, not the manager. They find their subordinates increasingly interested in “side projects” and extra-hierarchical pursuits that “distract” them from their assigned work. There’s a conflict of interest that emerges between what the worker perceives as managerial mediocrity and the quest for the larger-scale excellence that can exist in convex pursuits. Because self-executive workers think non-locally (extra-hierarchical collaboration, self-directed career advancement) the appearance is that they’re jumping rank.

In the concave world, managers were the tactical muscle of the company. They drove the workers toward the local optimum in the neighborhood that the globally-oriented executives chose. In the convex world, managers are pesky middlemen. If they operate according to self-interest (and it’s unreasonable to expect otherwise of anyone) then their best bet is to use their authority to coerce their reports to prioritize the manager’s own career goals, which have now diverged from the larger objective. In other words, they become extortionists. That’s not a business that will live for much longer.

What seems clear is that middle management will decline in power and importance over the next 50 years. Increasingly convex work landscapes will decrease the use for it, and people will have less desire to fill such positions (which, in concave work, are coveted). What’s less clear is what will replace it. If this corporate middle class disappears within the current framework, what’s left is a two-tier system with workers and executives. That’s a problem. Two-class societies are extremely unstable, so I don’t think that arrangement will thrive. What’s more likely, in my (perhaps overly optimistic) opinion is that the functions of workers, managers, and executives will all blend together as individuals becomes increasingly self-executive. In many ways, this is a desirable outcome. However, it dramatically changes the styles of business that people will be able to form, making companies fairer and more creative, but also more chaotic and probably smaller. If the result of this is a macroscopic increase in creativity, progress, and individual freedom over one’s work, then a truly technological era might begin.

The Great Discouragement, and how to escape it.

I’ve recently taken an interest in the concept of the technological “Singularity”, referring to the acceleration of economic growth and social change brought along by escalating technological growth, and the potential for extreme growth (thousands of times faster than what exists now) in the future. People sometimes use “exponential” to refer to fast growth, but the reality is that (a) exponential curves do not always grow fast, and (b) economic growth has actually been faster than exponential to this point.

Life is estimated to estimated to be nearly 4 billion years old, but sexual reproduction and multicellular life are only about a billion years old. In other words, for most of its time in existence, life was relatively primitive, and growth itself was slow. Organisms themselves could reproduce quickly, but they died just as fast, and the overall change was minimal. This was true until the Cambrian Explosion, about 530 million years ago, when it accelerated. Evolution has been speeding up over time. If we represent “growth” in terms such as energy capture, energy efficiency, and neural complexity, we see that biological evolution has a faster-than-exponential “hockey stick” growth pattern. Growth was very slow for a long time, then the rate sped up.

One might model pre-Cambrian life’s growth rate at below 0.0000001% (note: these numbers are all estimates) per year, but by the age of animals it was closer to 0.000001% per year, or a doubling (of neural sophistication) every 70 million years or so, and several times faster than that in the primate era. Late in the age of animals, creatures such as birds and mammals could adapt rapidly, taking appreciably different forms in a mere few hundred thousand years. With the advent of tools and especially language (which had effects on assortative mating, and created culture) the growth rate, now factoring in culture and organization as well as evolutionary changes, skyrocketed to a blazing 0.00001% per year, in the age of hominids. Then came modern humans.

Data on the economic growth of human society paint a similar picture: accelerating exponential growth. Neolithic humans plodded along at about 0.0004% per year (still an order of magnitude faster than evolutionary change) and with the emergence of agriculture around 10000 B.C.E., that rate spend up, again, to 0.006% per year. This fostered the growth of urban, literate civilization (around 3000 B.C.E) and that boosted the growth rate to a whopping 0.1% per year, which was the prevailing economic growth rate for the world up until the Renaissance (1400 C.E.).

This level of growth– a doubling every 700 years– is rapid by the standards of most of the Earth’s history. It’s so obscenely fast that many animal and plant species have, unfortunately, been unable to adapt. They’re gone forever, and there’s a credible risk that we do ourselves in as well (although I find that unlikely). Agricultural humans increased their range by miles per year and increased the earth’s carrying capacity by orders of magnitude. Despite this progress, such a rate would be invisible to the people living in this 4,400-year span. No one had the global picture, and human lives aren’t long enough for anyone to have seen the underlying trend of progress, as opposed to the much more severe, local ups and downs. Tribes wiped each other out. Empires rose and fell. Religions were born, died, and were forgotten. Civilizations that grew too fast faced enemies (such as China, which likely would have undergone the Industrial Revolution in the 13th century had it not been susceptible to Mongol invasions). Finally, economic growth that occurred in this era was often absorbed entirely (and then some) by population growth. A convincing case can be made that the average person’s quality of life changed very little from 10000 B.C.E. to 1800 C.E., when economic growth began (for the first time) to outpace population growth.

In the 15th to 17th centuries, growth accelerated to about 0.3 percent per year: triple the baseline agricultural rate. In the 18th century, with the early stages of the Industrial Revolution, the Age of Reason, and the advent of rational government (as observed in the American experiment and French Revolution) it was 0.8 percent per year. By this point, progress was visible. Whether this advancement is desirable has never been without controversy, but by the 18th century, that it was occurring was without question. At that rate of progress, one would see a doubling of the gross world product in a long human life.

Even Malthus, the archetypical futurist pessimist, observed progress in 1798, but he made the mistake of assuming agrarian productivity to be a linear function of time, while correctly observing population growth to be exponential. In fact, economic growth has always been exponential: it was just a very slow (at that time, about 1% per year) exponential function that looked linear. On the other hand, his insight– that population growth would outpace food production capacity, leading to disaster– would have been correct, had the Industrial Revolution (then in its infancy) not accelerated. (Malthusian catastrophes are very common in history.) The gross world product increased more than six-fold in the 19th century, rising at a rate of 1.8 percent per year. Over the 20th, it continued to accelerate, with economic growth at its highest in the 1960s, at 5.7 percent per year– or a doubling every 150 months. We’re now a society that describes lower-than-average but positive growth as a “recession”.

In that sense, we’re also “in decline”. We’ve stopped growing at anything near our 1960s peak rate. We’re now plodding along at about 4.2 percent per year, if the last three decades are any indication. Most countries in the developed world would be happy to grow at half that rate.

The above numbers, and the rapid increase in the growth rate itself, describe the data behind the concept of “The Singularity”. Exponential growth emerges as a consequence of the differential equation, dy/dx = a * y, whose solution is an exponential function. Logistic growth is derived from the related equation dy/dx = a * y * (1 – y/L), where L is an upper limit or “carrying capacity”. Such limitations always exist, but I think that, with regard to economic growth, that limit is very far away– far enough away that we can ignore it for now. However, what we’ve observed is much faster than exponential growth, since the growth rate itself seems to be accelerating (also at a faster than exponential rate). So what is the correct way to model it?

One class of models for such a phenomenon is derived from the differential equation, dy/dx = a*y^(1+b), where b > 0. The solution to this differential equation (power law) is of the form y = C/(D-t)^(-1/b), the result of which is that as t -> D, growth becomes infinite. Hence, the name “Singularity”. No one actually believes that economic progress will become literally infinite, but that is a point at which it is assumed we will land comfortably in a post-scarcity, indefinite-lifespan existence. These two concepts are intimately connected and I would consider them identical. Time is the only scarce element in the life of a person middle-class or higher, but extremely so as long as our lifespans are so short compared to the complexity of the modern world (a person only gets to have one or two careers). Additionally, if people live “forever” (by which I mean millions of years, if they wish) then there will be an easy response to not being able to afford something: wait until you can. There will still be differences in status among post-scarcity people (some being at the end of a five-year waiting list for lunar tourism, and with the richest paying a premium for the prestige of having human servants) and probably some people will care deeply about them, but on the whole, I think these differences will be trivial and people will (over time) develop an immunity to the emotional problems of extreme abundance.

I should note that there are also dystopian Singularity possibilities, such as in The Matrix, in which machines become sentient and overthrow humans. I find this extremely far-fetched, because most artificial intelligence (to date) is still human intelligence applied to difficult statistical problems. We use machines to do things that we’re bad at, like multiply huge matrices in fractions of a second, and analyze game trees at 40-ply depth. I don’t see machines becoming “like us” because we’ll never have a need for them to be so. We’ll replicate functionality we want in order to solve menial tasks (with an increasingly sophisticated category of tasks being considered “menial”) but we won’t replicate the difficult behaviors and needs of humans. I don’t think we’ll fall into the trap of creating a “strong AI” that overthrows us. Sad to say it, but we’ve been quite skilled, over the millennia, at dehumanizing humans (slavery) in the attempt to make ideal workers. The upshot of this is that we’re unlikely to go to the other extreme and attempt to humanize machines. We’ll make them extremely good at performing our grunt work and leave the “human” stuff to ourselves.

Also, I don’t think a “Singularity” (in the sense of infinite growth) is likely, because I don’t think the model that produces a singularity is correct. I think that economic and technical growth are accelerating, and that we may see a post-scarcity, age-less world as early as 2100. That said, the data show deceleration over the past 50 years (from 5-6 percent to 3-4 percent annual growth) so rather than rocketing toward such a world, we seem to be coasting. I would be willing to call the past 40 years, in the developed world, an era of malaise and cultural decline. It’s the Great Discouragement, culminating a decade (2000s) of severe sociological contraction despite economic growth in the middle years, ending with a nightmare recession. What’s going on?

Roughly speaking, I think we can examine, and classify, historical periods by their growth rate, like so:

• Evolutionary (below 0.0001% per year): 3.6 billion to 1 million BCE. Modern humans not yet on the scene.
• Pre-Holocene (0.0001% to 0.01% per year): 1 million to 10,000 BCE.
• Agrarian (0.01 to 1.0% per year): 10,000 BCE to 1800 CE. Most of written human history occurred during this time. Growth was slower than population increase, hence frequent Malthusian conflict. Most labor was coerced.
• Industrial (1.0 to 10.0% per year): 1800 CE to Present. Following the advent of rational government, increasing scientific literacy, and the curtailment of religious authority, production processes could be measured and improved at rapid rates. Coercive slavery was replaced by semi-coercive wage labor.
• Technological (10.0 to 100.0+% per year): Future. This rate of growth hasn’t been observed in the world economy as a whole, ever, but we’re seeing it in technology already (Moore’s Law, cost of genome sequencing, data growth, scientific advances). We’re coming into a time where things that were once the domain of wizardry (read: impossible) such as reading other peoples’ dreams can now be done. In the technological world, labor will be non-coercive, because the labor of highly motivated people is going to be worth 10 to 100 times more than that of poorly motivated people.

Each of these ages has a certain mentality that prospers in it, and that characterizes successful leadership in such a time. In the agrarian era, the world was approximately zero-sum, and the only way for a person to become rich was to enslave others and capture their labor, or kill them and take their resources. In the early industrial era, growth became real, but not fast enough to accommodate peoples’ material ambitions, creating a sense of continuing necessity for hierarchy, intimidation, and injustice in the working world. In a truly technological era (which we have not yet entered) the work will be so meaningful and rewarding (materially and subjectively) that such control structures won’t be necessary.

In essence, these economic eras diverge radically in their attitudes toward work. Agrarian-era leaders, if they wanted to be rich, could only do so by controlling more people. Kings and warlords were assessed on the size of their armies, chattel, and harems. Industrial-era leaders focused on improving mechanical processes and gaining control of capital. They ended slavery in favor of a freer arrangement, and workplace conditions improved somewhat, but were still coarse. Technological-era leadership doesn’t exist yet, in most of the world, but its focus seems to be on the deployment of human creativity to solve novel problems. In the technological world, a motivated and happy worker isn’t 25 or 50 percent more productive than an average one, but 10 times as effective. As one era evolves into the next, the leadership of the old one proves extremely ineffective.

The clergy and kings of antiquity were quite effective rulers in a world where almost no one could afford books, land was the most important form of wealth, and people needed a literate, historically-aware authority to direct them over what to do with it. Those in authority had a deep understanding of the limitations of the world and the slow rate of human progress: much slower than population growth. They knew that life was pretty close to a zero-sum struggle, and much of religion focuses on humanity’s attempts to come to terms with such a nasty reality. These leaders also knew, in a macabre way, how to handle such a world: control reproduction, gain dominion over land through force, use religion to influence the culture and justify land “ownership”, and curtail population growth in small-scale massacres called “wars” instead of suffering famines or revolutions.

People like Johannes Gutenberg, Martin Luther, John Locke, Adam Smith, and Voltaire came late in the agrarian era changed all that. Books became affordable to middle-class Europeans, and the Reformation happened a couple centuries later. This culminated in the philosophical movement known as The Enlightenment, in which Europe and North America disavowed rule based on “divine right” or heredity and began applying principles of science and philosophy to all areas of life. By 1750, there was a world in which the clerics and landlords of the agrarian era were terrible leaders. They didn’t know the first thing about the industrial world that was appearing right in front of them. Over the next couple hundred years, they were either violently overthrown (as in France) or allowed to decline gracefully out of influence (as in England).

The best political, economic, and scientific minds in that time could see a world that grew at industrial rates that were unheard of until that time. The landowning dinosaurs from the agrarian era died out or lost power. This was not always an attractive picture, of course. One of the foremost conflicts between an industrial and an agrarian society was the American Civil War, an extremely traumatic conflict for both sides. Then there were the nightmarish World Wars of the early 20th century, which established that industrial societies can still be immensely barbaric. That said, the mentalities underlying these wars were not novel, and it wasn’t the industrial era that caused them, so much as it was a case of pre-industrial mentalities combining with industrial power, to very dangerous results.

For example, before Nazism inflamed it, racism in Germany was (although hideous) not unusual by European or world standards, then or at any point up to then. In fact, it was a normal attitude in England, the United States, Japan, and probably all of the other nation-states that were forming around that time. Racism, although I would argue it to be objectively immoral in any era, was a natural byproduct of a world whose leaders saw it necessary, for millennia, to justify dispossession, enslavement, and massacre of strangers. What the 1940s taught us, in an extreme way, is that this hangover from pre-industrial humanity, an execrable pocket of non-Reason that had persisted into industrial time, could not be accepted.

The First Enlightenment began when leading philosophers and statesmen realized that industrial rates of growth were possible in a still mostly agrarian world, and they began to work toward the sort of world in which science and reason could reign. Now we have an industrial economy, but our world is still philosophically, culturally and rationally illiterate, even in the leading ranks. Still, we live on the beginning fringe of what might be (although it is too early to tell) a “Second Enlightenment”. We now have an increasing number of technological thinkers in science and academia. We see such thinking on forums like Hacker News, Quora, and some corners of Reddit. It’s “nerd culture”. However, by and large, the world is still run by industrial minds (and the mentality underlying American religious conservatism is distinctly pre-industrial). This is the malaise that top computer programmers face in their day jobs. They have the talent and inclination to work to turn $1.00 into $2.00 on difficult, “sexy” problems (such as machine learning, bioinformatics, and the sociological problems solved by many startups) but they work for companies and managers that have spent decades perfecting the boring, reliable processes that turn $1.00 into $1.04, and I would guess that this is the kind of work with which 90% of our best technical minds are engaged: boring business bullshit instead of the high-potential R&D work that can actually change the world. The corporate world still thinks in industrial (not technological) terms, and it always will. It’s an industrial-era institution, as much as baronies and totalitarian religion are agrarian-era beasts.

Modern “nerd culture” began in the late 1940s when the U.S. government and various corporations began funding basic research and ambitious engineering and scientific projects. This produced immense prosperity, rapid growth, and an era of optimism and peace. It enabled us to land a man on the moon in 1969. (We haven’t been back since 1972.) It built Silicon Valley. It looked like the transition from industrial to technological society (with 10+ percent annual economic growth) was underway. An American in 1969 might have perceived that the Second Enlightenment was underway, with the Civil Rights Act, enormous amounts of government funding for scientific research, and a society whose leaders were, by and large, focused on ending poverty.

Then… something happened. We forgot where we came from. We took the great infrastructure that a previous generation had build for granted, and let it decay. As the memory of the Gilded Age (brought to us by a parasitic elite) and Great Depression faded, elitism became sexy again. Woodstock, Civil Rights, NASA and “the rising tide that lifts all boats” gave way to Studio 54 and the Reagan Era. Basic research was cut for its lack of short-term profit, and because the “take charge” executives (read: demented simians) that raided their companies couldn’t understand what those people did all day. (They talk about math over their two-hour lunches? They can’t be doing anything important! Fire ‘em all!) Academia melted down entirely, with tenure-track jobs becoming very scarce. America lost its collective vision entirely. The 2001 vision of flying cars and robot maids for all was replaced with a shallow and nihilistic individual vision: get as rich as you can, so you have a goddamn lifeboat when this place burns the fuck down.

The United States entered the post-war era as an industrial leader. It rebuilt Europe and Japan after the war, lifted millions out of poverty, made a concerted (if still woefully incomplete) effort to end its own racism, and had enormous technical accomplishments. Yet now it’s in a disgraceful state, with people dying of preventable illnesses because they lack health insurance, and business innovation stagnant except in a few “star cities” with enormous costs of living, where the only thing that can get funded are curious but inconsequential sociological experiments. Funding for basic research has collapsed, and the political environment has veered to the far right wing. Barack Obama– who clearly has a Second Enlightenment era mind, if a conservative one in such a frame– has done an admirable job of fighting this trend (and he’s accomplished far more than his detractors, on the left and right, give him credit for) but one man alone cannot hold back the waterfall. The 2008 recession may have been the nadir of the Great Discouragement, or the trough may still be ahead of us. Right now, it’s too early to tell. We’re clearly not out of the mess, however.

How do we escape the Great Discouragement? To put it simply, we need different leadership. If the titans of our world and our time are people who can do no better than to turn $1.00 into $1.04, then we can’t expect more of them. If we let such people dominate our politics, then we’ll have a mediocre world. This is why we need the Second Enlightenment. The First brought us the idea of rational government: authority coming from laws and structure rather than charismatic personalities, heredity, or religious claims. In the developed world, it worked! We don’t have an oppressive government in the United States. (We may have an inefficient one, and we have some very irrational politicians, but the system is shockingly robust when one considers the kinds of charismatic morons who are voted into power on a fairly regular basis.) To the extent that the U.S. government is failing, it’s because the system has been corrupted by the unchecked corporate power that has stepped into the power vacuum created by a limited, libertarian government. Solving the nation’s economic and sociological problems, and the cultural residue associated with a lack of available, affordable education, will take us a long way toward fixing the political issues we have.

The Second Enlightenment will focus on a rational economy and a fair society. We need to apply scientific thought and philosophy to these domains, just as we did for politics in the 1700s when we got rid of our kings and vicars. I don’t know what the solution will end up looking like. Neither pure socialism nor pure capitalism will do: the “right answer” is very likely to be a hybrid of the two. It is clear to me, to some extent, what conditions this achievement will require. We’ll have to eliminate the effects of inherited wealth, accumulated social connection, and the extreme and bizarre tyranny of geography in determining a person’s economic fortune. We’ll have to dismantle the current corporate elite outright; no question on that one. Industrial corporations will still exist, just as agrarian institutions do, but the obscene power held by these well-connected bureaucrats, whose jobs involve no production, will have to disappear. Just as we ended the concept of a king’s”divine right” to rule, turning such people into mere figureheads, we’ll have to do the same with corporate “executives” and their similarly baseless claims to leadership.

We had the right ideas in the Age of Reason, and the victories from that time benefit us to that day, but we have to keep fighting to keep the lights on. If we begin to work at this, we might see post-scarcity humanity in a few generations. If we don’t, we risk driving headlong into another dark age.

Competing to excel vs. competing to suffer

One of the more emotionally charged concepts in our society is competition. Even the word evokes strong feelings, some positive and others adverse. Sometimes, the association is of an impressive athletic or intellectual feat encouraged by a contest. For others, the image is one of congestion, scarcity, and degeneracy. The question I intend to examine is: Is competition good or bad? (The obvious answer is, “it depends.” So the real question is, “on what?”)

In economics, competition is regarded as an absolute necessity, and any Time Warner Cable customer will attest to the evils of monopolies: poor service, high costs, and an overall dismal situation that seems unlikely to improve. (I would argue that a monopoly situation has competition: between the sole supplier and the rest of the world. Ending the monopoly doesn’t “add” competition, but makes more fair the competition that already exists intrinsically.) Competition between firms is generally seen as better than any alternative. Competition within firms is generally regarded as corrosive, although this viewpoint isn’t without controversy.

It’s easy to find evidence that competition can be incredibly destructive. Moreover, competition in the general sense is inevitable. In a “non-competitive” business arrangement such as a monopoly or monopsony, competition is very much in force: just a very unfair variety of it. Is competition ever, however, intrinsically good? To answer this, it’s important to examine two drastically different kinds of competition: competing to excel, and competing to suffer.

Competition to excel is about doing something extremely well: possibly better than it has ever been done before. It’s not about beating the other guy. It’s about performing so well that very few people can reach that level. Was Shakespeare motivated by being better than a specific rival, or doing his own thing? Almost certainly, it was the latter. This style of competition can focus people toward goals that they might otherwise not see. When it exists, it can be a powerful motivator.

In a competition to excel, people describe the emotional frame as “competing against oneself” and enter a state comparable to a long-term analogue of flow. Any rivalries become tertiary concerns. This doesn’t mean that people in competitions to excel never care about relative performance. Everyone would rather be first place than second, so they do care about relative standing, even if absolute performance is given more weight. However, in a competition to excel, you’d rarely see someone take an action that deliberately harms other players. That would be bad sportsmanship: so far outside the spirit of the game that most would consider it cheating.

Competition to suffer is about absorbing more pain and making more sacrifices, or creating the appearance of superior sacrifice. It’s about being the last person to leave the office, even when there isn’t meaningful work left to do. It’s about taking on gnarly tasks with a wider smile on one’s face than the other guy. These contests become senseless wars of attrition. In the working world, sacrifice-oriented competitions tend to encourage an enormous amount of cheating, because people can’t realistically absorb that much pain and still perform at a decent level at basic tasks. With very few exceptions, these contests encourage a lot of bad behavior and are horrible for society.

What’s most common in the corporate world? In most companies, the people who advance are the ones who (a) visibly participate in shared suffering, (b) accept subordination the most easily, and (c) retain an acceptable performance under the highest load (rather than those who perform best under a humane load.) People are measured, in most work environments, based on their decline curves (taken as a proxy for reliability) rather than their capability. So the corporate ladder is, for the most part, a suffering-oriented competition, not an excellence-oriented one. People wonder why we get so few creative, moral, or innovative people in the upper ranks of large corporations. This is why. The selection process is biased against them.

People who do well in one style of competition tend to perform poorly in the other, and the salient trait is context-sensitivity. Highly context-sensitive people, whose performance is strongly correlated with interest in their work, lack of managerial detriment, and overall health, tend to be the most creative and capable of hitting high notes: they win at excellence-oriented contests, but they fail in the long, pointless slogs of corporate suffering contests. People with low context-sensitivity tend to be the last ones standing in suffering-oriented competitions, but they fail when excellence is required. Corporations are configured in such a way that they load up on the latter type in the upper ranks. Highly context-sensitive, creative people are decried as “not a team player” when their motivation drops (as if it were a conscious choice, when it’s probably a neurological effect) due to an environmental malady.

Suffering-oriented competitions focus on reliability and appearance: how attractively a person can do easy, stupid things. John’s TPS reports are as good as anyone else’s, but he has to be reminded to use the new cover sheet. Tom’s does his TPS reports with a smile on his face. Tom gets the promotion. Excellence-oriented competitions have much higher potential payoff. In the workplace, excellence-oriented environments have an R&D flavor: highly autonomous and implicitly trusted workers, and a long-term focus. After the short-sighted and mean-spirited cost-cutting of the past few decades, much of which has targeted R&D departments, there isn’t much excellence-oriented work left in the corporate world.

As businesses become risk-averse, they grow to favor reliability and conformity over creativity and excellence, which are intermittent (and therefore riskier) in nature. Suffering-oriented competitions dominate. Is this good for these companies? I don’t think so. Even in software, the most innovative sector right now, companies struggle so much at nurturing internal creativity that they feel forced to “acq-hire” mediocre startups at exorbitant prices in order to compensate for their own defective internal environments.

The other problem with suffering-oriented competitions is that it’s much easier to cheat, and antisocial behavior is more common. Excellence can’t be faked, and the best players inspire the others. People are encouraged to learn from the superior players, rather than trying to destroy them. In sacrifice-oriented competitions (in the corporate world, usually centered on perceived effort and conformity) the game frequently devolves into an arrangement where people spend more time trying to trip each other up, and not be tripped, than actually working.

Related to this topic, one of the more interesting financial theories is the Efficient Market Hypothesis. It’s not, of course, literally true. (Arbitrage is quite possible, for those with the computational resources.) It is, however, very close to being true. It provides reliable, excellent approximations of relationships between tradeable securities. At it’s heart, though, EMH isn’t about financial markets. It’s about competition itself, and who the prime movers are in a contest. Fair prices do not require all (possibly competing) parties to be maximally informed about the security being traded (since that’s obviously not the case). One well-informed participant (a market-maker) with enough liquidity is often enough to set prices at the fair level based on current knowledge. Competitions, in other words, tend to be dominated by a small set of players who are the “prime movers”. By whom? Excellence-oriented competitions are dominated by the best: the most skilled, capable, talented or energetic. Suffering-oriented competitions tend to be dominated by the stupidest, and by “stupidest”, I mean something that has nothing to do with intelligence but, rather, “willing to take the shittiest deal”.

That said, in the real world, the Gervais Principle applies. The stupidest (the Clueless) are a force, but those who can manipulate the competition from outside (i.e. cheat) tend to be the actual winners. They are the Sociopaths. The sociopaths shift blame, take credit, and seem to be the most reliable, best corporate citizens by holding up (socially and intellectually) under immense strain. The reality is that they aren’t suffering at all. Even if they can’t get a managerial role (and they usually can) they will find some way to delegate that shit. They win suffering-oriented competitions by externalizing the suffering, and remain socially pleasant and well-slept enough to take the rewards. So suffering-oriented competitions, if cheating is possible, aren’t really dominated by the stupidest, so much as by the slimiest.

Intuitively, people understand the difference between excellence- and suffering-oriented competition. Consider the controversy associated with doping in sports. These performance-enhancing drugs have horrific, long-term side effects. They take what would otherwise be a quintessential excellence-oriented competition and inject an element of inappropriate sacrifice: willingness to endure long-term health risks. The agent (performance-enhancing drugs) that turns an excellence competition into a sacrifice-oriented one must be disallowed. People have an emotional intuition that it’s cheating to use such a thing. Athletes are discouraged from destroying their long-term health in order to improve short-term performance, with the knowledge that allowing this behavior will require most or all of the top contestants to follow suit. But in the corporate world, no such ethics exist. Even six hours of physical inactivity (sitting at a desk) is bad for a person’s long-term health, but that’s remarkably common, and the use of performance-enhancing drugs that would not be required outside of the office context (such benzodiazepine and stimulant overuse to compensate for the unhealthy environment, after-hours “social” drinking) is widespread.

Why does corporate life so quickly devolve into competition to suffer? In truth, companies benefit little from these contests. Excellence has higher expected value than suffering. The issue is that companies don’t allow people to excel. It’s not that they flat-out forbid it, but that almost no one in a modern, so-called “lean” corporate environment has the autonomy that would make excellence even possible. R&D has been closed down, in most companies, for good. That leaves suffering as the single axis of competition. I think most people reading this know what kind of world we get out of this, and can see why it’s not acceptable.