Automation is not to blame for all the job destruction and wage stagnation. But you can still do great harm if you build it for the wrong reasons.
We’re told that automation is destroying jobs, that technology is replacing people, making them dumber, less capable. These are lies, with just enough truth to confuse us. You can have my robot washing machines when you pry them from my cold, wet hands.
I’m not some Pollyanna, thinking tech is only ever positive. Its potential for abuse and hurt is visible across the centuries, and especially so today. But I’m more optimistic about the upside than I am pessimistic about the down, and I’m uninterested in scaremongering screeds against it.
And yet. Technology and automation are not forces of nature. They’re made by people. By you. And the choices you make help to determine just how much good or bad they do. Even with the best of intentions, you might be doing great harm. And if you don’t have good intentions at all, or you don’t think ethics are part of your job, then you are probably downright dangerous.
I’m here to convince you that you have a role in deciding the future impact of the technology you build, and to provide you - especially you founders, tool builders, automators - some tactical advice on how to have the best impact, and avoid the dark timeline.
As I was building Puppet, explaining that I was developing automation for operations teams, execs and sales people would think they got it: “Oh, right, so you can fire SysAdmins!”
When prospective customers asked for this, I offered them a choice: You can keep the same service quality and cut costs, or you can keep the same cost, and increase service quality. For sysadmins, that meant shipping better software, more often.
Their response? “Wait, that’s an option?!” They only knew how to think about their jobs in terms of cost. I had to teach them to think about quality. This is what the whole DevOps movement is about, and the years of DevOps reports Puppet has published: Helping people understand what quality means, so they can stop focusing on cost.
And those few people who said they still wanted to reduce cost, not increase quality? I didn’t sell to them.
Not because they were wrong. There were real pressures on them to reduce costs, but I was only interested in helping people who wanted to make things better, not cheaper. My mission was completely at odds with their needs, so I was unwilling to build a product to help them fire their people.
This might have been stupid. There are good reasons why a CEO might naturally build what these people want. The hardest thing in the world to find for a new product is a motivated prospective customer who has spending authority, and here they are, asking for help. The signal is really clear:
You do a bunch of user interviews, they all tell the same story of needing to reduce cost, and in every case, budgets are shrinking and the major cost is labor. Great, I’ll build some automation, and it will increase productivity by X%, thus enabling a downsizing. The customer is happy, I get rich, and, ah, well, if you get fired you probably deserved it for not investing enough in your career. (I heard this last bit from a founder recently. Yay.)
This reasoning is common, but that does not make it right. (Or ethical.) And you’ll probably fail because of your bad decisions.
Let’s start with the fact that you have not done any user interviews. None.
The only users in this story are the ones you’re trying to fire. Executives aren’t users. Managers aren’t users. It seems like you should listen to them, because they have a lot of opinions, and they’re the ones writing checks, but nope.
This has a couple of consequences. First, you don’t understand the problem if you only talk to buyers, because they only see it at a distance. You have to talk to people on the ground who are doing the work. Be careful when talking to them, though, because you might start to empathize with them, which makes it harder to help fire them.
Even if you do manage to understand the problem, your product will still likely fail. As much as buyers center themselves in the story of adopting new technology, they’re largely irrelevant. Only the people at the front line really matter. I mean, it’s in the word: Users use the software. Someone, somewhere, has to say: Yes, I will use this thing you’ve built, every day, to do my job.
If you’ve only talked to buyers, you have built a buyer-centric product, rather than a user-centric one. Sure, maybe you got lucky and were able to build something pretty good while only talking to managers and disrespecting the workers so much that you think they’re worthless. But I doubt it. You’ll experience the classic enterprise problem of closing a deal but getting no adoption, and thus not getting that crucial renewal. Given that you usually don’t actually make money from a customer until the second or third year of the relationship… not so great.
Users aren’t stupid. Yes, I know we like to act like they are. But they aren’t. If your value promise is, “Adopt my software and 10% of your team is going to get fired,” people know. And they won’t use it, unless they really don’t have a choice. Some of that is selfish - no one wants to help team members get fired, and even if they’re safe today, they know they’re on the block for the next round of cuts. But it’s just as likely to be pragmatic. You’re so focused on downsizing the team that you never stopped to ask what they need. Why would someone adopt something that didn’t solve their problems?
What’s that you say? You ignored their problems because you were focused on the boss’s needs? This is why no one uses your software. Your disrespect resulted in a crappy product.
Call me a communist, but I think most people are skilled at their jobs. I am confident that I can find a learned skill in even the “low skill” labor. I absolutely know I can in most areas people are building software.
I was talking to a friend in a data science group in a software company recently, and he was noting how hard it was to sell their software. He said every prospective buyer had two experts in the basement who they could never seem to get past. So I asked him, are you trying to help those experts, or replace them?
He said, well, our software is so great, they aren’t really necessary any more.
There’s your problem. You’re promising to fire the only two people in the whole company who understand what you do. So I challenged him: What would your product, your company look like if you saw your job as making them do better work faster, rather than eliminating the need for them?
It’s a big shift. But it’s an important one. In his case, I think it’s necessary to reduce the friction in his sales process, and even more importantly, to keep those experts in house and making their employers smarter, rather than moving them on and losing years of experience and knowledge.
The stakes can get much bigger than downsizing. In his new book, Ruined By Design, Mike Monteiro has made it clear that designers and developers make ethical choices every day. Just because Uber’s and Instacart’s business model requires that they mistreat and underpay workers doesn’t mean you need to help them. While I don’t think technology is at fault for most job losses, there absolutely are people out there who see the opportunity to make money by destroying industries.
This is not fundamentally different than the strip mining that happened to corporations in the 1980s, except back then they were making money by removing profit margin in companies and now they’re making money by removing “profit” margin in people’s lives. Jeff Bezos of Amazon has famously said your margin is his opportunity, and his warehouse workers’ experiences makes clear that he thinks that’s as true of his employees as it is of his suppliers and competitors.
Just because they’re going to get rich ruining people’s lives doesn’t mean you have to help.
I think your job matters. I think software can and should have a hugely positive impact on the world; not that one project can by itself make the world better, but that every person could have their life improved by the right product or service.
But that will only happen if we truthfully, honestly try to help our users.
When, instead, we focus too much on margin, on disruption, on buyers, on business problems…. we become the problem.
Look, I have to say it: You’re weird. Even if I don’t know you, I’m confident: Somewhere, maybe lurking deep inside, something about you is just not right. I don’t know what, specifically. For all I know, you might be one of those weirdos whose particular strangeness is just how authentically normal you are. shudder.
This might be insulting to you, calling you weird. It happens a lot: I think I’m complimenting someone and they get all huffy. Conversely, people are often afraid I’ll be hurt when they shyly let me know that I, ah, don’t really fit. Don’t worry; you’d need to know me a lot better to successfully offend me.
Society is not a huge fan of weirdness - I mean, the definition is pretty much, “does not fit into society” - and it trains you away from it. We’re social animals, so you probably do what you can to conceal, or at least downplay, anything different. It makes sense. It’s a basic survival mechanism.
I know I do it. I can’t hide everything - some stuff just can’t be covered up - but I can usually skate through a conversation or two before people back up a step and give me that funny, sometimes frightened, look. Being on the west coast helps; I’m a little less weird here than I was in the south. It probably also helps that I cut my mohawk, and the spiked leather jacket and knee high boots stay in the closet now.
I’ve written a bit about my struggles to balance authenticity and fitting in. I think it’s important to call out it out, because those who experience this struggle rarely have the luxury of admitting it. I’m lucky enough in multiple ways that I can be up front about it now. But resolving this conflict matters for more than psychological reasons. Our own goals usually require that we learn to embrace our weird. Not just grab on to it, actually, but really live in it. Inhabit it.
That weirdness is how we win.
This is easiest to show in investing. We have a natural tendency to do what is proven to work, but that is only assured of getting “market” - in other words, mediocre - returns. If you study the best investors, they’re all doing something that seems weird. Or at least, it did when they started. The first people who paid to string fiber from NYC to Chicago to make trades a couple milliseconds faster were considered pretty weird, but they knew the truth: Normal behavior gets normal returns, anything more requires true weirdness. (Well, or fraud. There’s always that if you’re afraid to stand out.)
It’s the same way in life. You can’t say you want something different, you want to be special, but then follow the same path as everyone else. “I’ll embrace what makes me special just as soon as I get financial security via a well-trodden path to success.” Oh yeah. We definitely believe that.
There’s a nice sleight of hand you can do, where you can say you’re doing something different, but really you’re a rare form of normal. The first few doctors and nurses were really weird. Those who recommended you wash hands before surgery were literally laughed at, considered dangerous crackpots1. But now? Most people become a doctor in pretty much the same way. Being a doctor is normal now, even if it’s not common. That’s probably good.
But what if your job is innovation? What if you’re whole story revolves around being different? Can you still follow a common path?
Because that’s what too many entrepreneurs today are doing: Trying to succeed at something different, by doing what everyone else is doing.
I mean. Not literally everyone else. But close enough.
It starts out innocently enough. There aren’t many people starting tech companies at first, and boy howdy are they weird. Someone makes a ton of money, all their weirdness gets written up - “hah hah, see how he has no sense of humanity but is somehow still a billionaire?” - and now we’ve got something to compare to. Hmm. Well. We can’t consistently duplicate Jobs, Gates, Packard. But if we tell enough stories enough times, we find some kind of average path through them. Ah! Enlightenment!
Now that we know what “most” people do, we can try it too. I mean, we have no idea if the stories about those people have anything to do with why they succeeded, but why let that get in our way? Conveniently, every time it works we’ll loudly claim success, but silently skip publishing any failures. Just ask Jim Collins: He got rich by cherry-picking data in Good to Great to “prove” there was a common path to business success. It turned out to have as much predictive value as an astrological reading, and is just business garbage dressed up in intellectual rigor, but that doesn’t seem to have hurt him.
The business world keeps buying his books. They need to believe there’s a common path that anyone can travel to victory. Otherwise, what would they sell? What would they buy?
Obviously this doesn’t work. There is no standard playbook to winning an arms race. Once there’s even a sniff of one, people copy it until it doesn’t work any more. This is pretty much the definition of the efficient market hypothesis: There’s no standard way to get above-average results. Once Warren Buffet got sufficiently rich as a value investor, so many people adopted the strategy that, well, it’s hard to make money that way. Not impossible, but nowhere near as easy as it was fifty years ago.
Of course, you can go too far in being weird. There has to be something in your business, in your strategy, that makes you different enough that you just might win. But adding a lot of other strangeness for no good reason worsens already long odds. The fact that Steve Jobs did so well even though he was a raging asshole, even to his best friends, made his success just that much less likely. Most people are a bit more like Gates and Bezos: Utterly ruthless in business, and caring not a whit for the downsides of their success, but perfectly capable of coming off as a decent person whenever required.
I’m rarely accused of being a world-class jerk, but I don’t pass the smell test as normal for very long. Jim Collins might say maybe if I were more pathological I would have succeeded more. With Jobs and Musk as examples, it seems reasonable, right? In truth, it’s just as reasonable that I would have done better by dropping out of Reed College, like Jobs did, rather than foolishly graduating from it. Think it’s too late to retroactively quit early?
Yes, you have to learn to love your weird, but it shouldn’t be arbitrary. You can’t realistically say that you’re going to rock it in business because you’re addicted to collecting gum wrappers from the 50s. I agree that that’s weird, but is it usefully so? Being a jerk is weird, and bad, but it’s not helpfully so. And really, dropping out of college isn’t that weird for someone in Jobs’s financial position at the time. It’s only if you have a bunch of money that it seems so.
I recommend you take the time, think deeply on what opinions you hold that no one else seems to, what beliefs you have that constantly surprise you by their lack in others. What do you find easy that others find impossible? What’s natural to you, but somewhere between confounding and an abomination to those who notice you doing it?
Those things aren’t all good. And in many cases, you’ll need to spend your entire professional life managing their downsides, like I have. But somewhere in that list is what sets you apart, what gives you the opportunity to truly stand out. They’re the ground you need to build your future on.
Unless you just want to be normal. In that case, I don’t think I can help you.
This is an amazing example of sexism. The doctor’s wards had three times the fatality rates of the midwife wards, but of course, they were doing nothing wrong at all. ↩
Managing a high-growth company is the hardest thing I’ve ever done. One big reason is that I only received problems that no one else could figure out. Some were organizational problems that should naturally route to the CEO, but a lot were functional issues that I was no more capable of solving than anyone else.
I eventually discerned a repeated pattern in solving these problems. At first I would just get a few issues. I’d muddle through - do a bit of research, ask for help, and sort things out. As we grew, more and more of my time would be spent on this one kind of problem. I’d become better and better at handling it, and just about the time I’d start feeling like I knew what I was doing, I’d realize, “Oh: There are people out there who specialize in this”. I could just hire someone to do it full time, and they’d be better at it than I ever would. Duh.
I’d then spend three months, or six, or twelve, hiring for the role, and bam, suddenly my time is freed up and I’ve got an actual expert in charge. Well, kind of. At this point I’m a self-taught semi-expert who does not buy into the orthodoxy of the role, and we’ve got a year of my weird solutions, so there’s a lot of friction as we sort out just how to add this new skill set to a growing org. But the point is, my time spent on this problem drops precipitously, and I no longer have much opportunity to put my new-found skills into practice.
Usually just in time for something new to come into focus.
This pattern - gain just enough expertise to hire someone - played out again and again, for me and for other founders I’ve talked to.
In some ways it’s thrilling. You get experience with all of the key areas at the company, and you’re always learning something new.
In other ways, though, it is soul-crushing. Over the eight years I managed Puppet while in fast hiring mode, I rarely got to spend time doing anything I was good at. Humans have a psychological need to feel competent, to feel like they are in control and know what’s going on. I don’t need this all the time, but please, just a little? Sometimes? Nope. Pretty much the second I started to feel like I understood something, I had to hire for it, and my problem changed from doing to managing.
After years of this, I knew just enough about everything to suck at it, but not enough to actually be useful to anyone.
Only as my tenure as CEO came to a close did I begin to see what I uniquely added to the organization. I began being comfortable not delegating certain problems, and felt justified in spending hours on something as an individual contributor, rather than seeking leverage in everything I did.
Only once this happened did I start to feel comfortable as a CEO. I wasn’t just routing problems, I was actually solving some of them. I was not spending 100% of my time in areas I was incompetent; just most of it.
I know the advice as well as you: Great leaders delegate, they empower. If you’re doing the work yourself, you’re not a real leader.
Yes, building and running a team absolutely requires that you empower the team. But that doesn’t mean you don’t get to do anything yourself, that you hand everything off and have nothing left.
Just like everyone else, you, too, need a reason to show up, to stay engaged. You have to hold on to your own why.
If you don’t remember why you, personally, are in the job, then you’ll look up in a few years and realize it’s not there any more. You’ve moved too far from what gets you up in the morning, and suddenly you can’t do it. Or worse, the company has developed but you haven’t. You’re no better at the thing you want to master than you were when you started, because you haven’t been spending time on the problems you care most about.
Some of this is that you need a place of safety. I am a highly fireable person, and raising venture capital made for downright tenuous tenure. The less confident I was about my own strengths, my own value, the less safe I felt. And humans need to feel safe to do great work.
More than that, though, I needed a platform for learning. I was pursuing mastery, but of what, exactly? Of not mastering things?
I know other leaders really are master delegators, hirers, organizers, etc. But that was never going to be me.
I had to peel things back, really understand why I was there, what I cared about, what I wanted to be the best in the world at. And, really, what I was good enough at that I ended up in this place, running this company. Then, as the problems rolled by, I could be sure to push that forward just a little bit, even if my focus was on the organization’s needs, not my own.
The times I lost this sense of why I was there and what I was getting better at were some of my most depressing days. But the days where I could connect what I felt good at, what I spent my time on, and what the company needed from me were the best days.
I don’t think that’s any different for me, or for other founders, than it is for anyone else.
But all the discussions of leadership I hear leave this bit out: You’re a human, too. You have to provide the why for the whole organization, but every individual deserves to be able to translate that into what they do every day. Even you.
I know I have trust issues. I don’t need the blockchain crowd telling me.
Trusting is scary. We’ve all been burned at some point. But we can also look back and see trusting someone helped us develop, personally and professionally. None of us could be who we are if we had not learned this critical skill. Knowing where and how to trust is critical to growth, to life. It’s not even just humans - we can see this in our pets, our livestock.
A cynic might say that trust limits us. That if we only had less, we could do and be more. I’m not exactly known for looking on the bright side, but even I know this is wrong. Trust is the infrastructure for our experiences. Removing it flattens everything, not just limiting what you can do but limiting why you would do it.
Our problem is too little trust, not too much.
We know the stereotype of someone who does not trust. Someone outside of society. We know a person who cannot trust is broken in some way, missing something critical, in need of healing. Many of us also know the allure of not needing to trust, or be trusted. “Ah, to be independent, to owe nothing to anyone…”
This is the dream of remembered childhood. It was always a lie. We were failing to notice the work being done in our name, for us. It was a joyous lie, made more pleasant with the golden tinge of nostalgia. Grown, we miss the lie, we reach for it.
But deep down, we know: More than anything else, life is about trust.
Great companies have been built on this truth. eBay could only exist by creating trust between unknown parties.
Some look at this and see failure. “If only eBay had not needed trust…”
One of the Blockchain’s great claims is enabling commerce between people who don’t trust each other. Never mind that of course you still have to trust something - the code, the packaging of what you’re buying, the exchange, etc. You might scoff and say these are a given, but none of those things can be trusted in the current world of the blockchain. Never mind that commerce has always been done between people with little or no trust. That’s not what matters.
It is philosophical, psychological: Given the recognition that life is enriched by trust, and more riches require more trust, what do you do? Find a way to add trust to your life, or look for a way to get riches without it?
I can’t say the blockchain people are wrong. Maybe they really do need some kind of trustless commerce. I don’t know them. Well, other than the drug dealers. I know why they want this.
But in my life, for my problems? More trust is the answer, not less.
Ironically, the blockchain can actually help with that. Without changing a thing. Its boosters are right about its utility, they’re just wrong about why it works.
I don’t like to trust people with my data. People talk about wanting to own their data, being able to share bits with Facebook but not the whole thing. It’s a nice, if naive1, idea, but that’s not what I mean.
I don’t trust you to touch it. You’ll muck it up.
Heck, I don’t even trust myself. Actually, I was never given that choice. My apps don’t trust me with my own data. They keep it hidden away somewhere, behind an API, in proprietary formats.
Their distrust is reasonable. I don’t know how the app works. The data model is hidden, the storage internal. Most importantly, they can’t tell if I mess with it, and they can’t fix what I break.
Things were in some ways better in the age of documents, but now our data is all hidden. We ask them to give us access, and they sometimes comply with simplistic APIs. But they do not trust us.
What if they did? What if I were allowed access to my own data? What if I could share it with you, my close friend, because I trust you with it?
I mean, not entirely trust. I’m not stupid. We’re not that close.
With the right tools, I could see what you did, understand it, ensure it all makes sense. You could change it, query it, hand it back to me, and I could validate the whole thing. Get the best out of your work, but keep safety lines in place.
Again, a cynic would say call this an example of eliminating trust. But is it?
Is the key to this new interaction really that I don’t trust you?
No. I don’t want just anyone to have my data. It’s for you. My close friend. Who I already trust. Mostly.
This change does not entice me to share with psychopaths, strangers, or, god forbid, the people I went to high school with. It provides just enough of a bridge that I’m willing to give you, my good friend, who I just met on the internet, rights that I’d otherwise hold back.
Of course I know this is not what blockchain people mean when they talk about trust. Meh. I’m not interested in making capitalism even less moral, less human. I don’t even want to hang out with the people who do. But I am interested in making data more useful. And I’m especially interested in connecting with other people.
And this certainly does that.
Now my applications can expose their insides. They can be slugs instead of snails.2 I can use the apps I love, but my tools can fill their gaps. I can script my way around their missing APIs and limited reporting. Heck, I don’t need their interfaces at all. Just because they’re provided doesn’t make them good, and I can get there faster using the tools I already know.
I can pick the best app, without committing to a long-term relationship. I can give you my data, take advantage of what you offer, and if I want to change later, I don’t lose everything.
There’s a great example out there: Github. If they went away tomorrow, I would lose almost no data I care about. They host, but do not control, my most important data: my source code. I get some utility out of they’re hosting it, but they don’t get special rights.3
Github actually created a new kind of trust relationship: Because its users can trust the data store, they began to trust strangers to contribute code. If I were using Subversion, I would have to give you all or no access; in Git, I can give you qualified access. Github calls these ‘pull requests’. “Yes, you can contribute code, but I get to read it first.” That enables a flowering of trust, potentially leading to a deep relationship. That path to complete trust is much narrower, much harder without this infrastructure of gradual trust.
You can choose whether to see this as more or less trust. You can’t argue with the new bonds created, the new groups formed, all through the help of tooling. Almost like how commerce starts with low-trust exchanges of money and can lead to deep and meaningful relationships.
What would a world look like if all of my applications had just as much, or as little, ownership of my data as Github does?
Of course, the apps won’t like it much. Their trusting me with my data also gives me power over it, where today I have none.
With enough usage, our expectations start to change. Given two otherwise equivalent accounting apps, wouldn’t you pick the one that trusted you? That gave you equal access to your data, simplifying automation and reporting?
Facebook does not have all of your data because you provided a massive dump at once; they’ve painstakingly collected it over the years, bit by bit. You can be sure they’ll store every little piece you selectively reveal to them. ↩
Honestly I don’t know if slugs are more useful, but they’re certainly more vulnerable. And I could not think of a better analogy. ↩
There is some data that only they have. This is a limitation in git, more than the plan of GitHub. E.g., my follower list is not in my repo, which is probably good, but it’s not anywhere else I can access, which is probably bad. ↩
Modern capitalism raises the flag of the free market while pitting centrally planned organizations against each other
It’s quite a journey from being born on a commune to raising more than $87m in funding at a software company. This journey forced me to wrestle with existential questions about my true beliefs, and how they intersected my life as an entrepreneur. One’s work is rarely a pure reflection of ideology, but companies need a clear and authentic strategy, which requires a tight alignment between company operations and the founder’s philosophy. I have discovered more about those differences between what I believe and the best ways to grow a corporation while studying economics - that is, how money is made and exchanged - than any other area.
A worldwide conflict between communism and capitalism defined the latter half of the twentieth century. The United States’ ideological battle was the central drama of my childhood, and it was with a combination of glee, pride, and “told you so!” that my fellow Americans watched the wall fall in Berlin, and the USSR dissolve shortly thereafter. I expect few would deny that the US is the standard bearer for capitalism.
Yet, there’s a flaw at the heart of this claim. While the United States operates as a free market economy, the key agent within modern capitalism - the corporation - works more like an authoritarian state. Given how much of our world is built around corporations, this truth and its impacts are critical.
I grew up apart from America’s passion for capitalism. In the era of Reagan, I was living on a commune. My parents did not earn money for their labor, and we didn’t have personal property. My family left the Farm when I was 8, and as I matured, my ideological roots were in conflict with the US’s nonstop pro-capitalism message. As I joined the workforce and eventually started my own company, I found myself attached to neither the communal roots of my childhood nor the Wolf of Wall Street world I moved into. I grew slowly in convictions, as I encountered problems in the course of scaling a company.
The first real conflict came when it was time to hire managers. I founded a company primarily because I did not thrive as someone else’s employee, so what led me to think others would? More importantly, anyone who has ever operated at the front line is aware of the severe costs imposed by the separation between the people who do the work and the people who make the decisions in hierarchies. Hiring managers was just going to make the company do worse, not better, right? Right?
I expect three of you are gleefully shouting, “Yay, holacracy!” right now, while the rest are confused and either offended or think I’m an idiot. I did consider a manager-less world, but a little research provided only examples of disaster, because the only available options just replace an explicit power structure with an implicit one. In other words, it’s still hierarchical with the founder on top, but now decision making is opaque and the system is easy to exploit because of the lack of controls (which looks surprisingly like the cult/commune I grew up in).
Those who are confused or offended by the idea that managers make performance worse would be informed by a deep dip in economics. One of the core principles of the free market is that central planning committees can never be as efficient or as effective as the people doing the work. By definition a free market economy lacks a decision-making hierarchy; the ‘free’ means every agent (individual or corporation) can decide for themselves, without needing permission from a manager above.
While there are many aspects of modern American capitalism I reject, this one I wholeheartedly support1. The downsides of a strong central executive were taught to me early.
Like many other communes, the one I grew up on routinely failed to feed its people - my parents speak with horror of the ‘wheat berry winter’, when we lived on little else. While his people were short on food, the founder of the Farm was off touring Europe as the 3rd drummer in a band, “bringing our message to the world”.
Thankfully none of us starved to death, but the failing was similar to what most communist countries experienced: The central organization could not feed everyone. For years, I assumed this was just incompetence, whether at the scale of the Farm or China. The truth was far more structural. Millions starved during the Great Leap Forward because the central organization was trying something impossible: Managing the productive output of an entire country. The Planet Money podcast tells a great story of how this central planning was walked back in China, but the general point here is that these communist countries did not just nationalize the means of production, they tried to centrally control all of it from within a small group.2
When people talk about communist countries not being a free market, this is what they mean: They tell the farms what crops to produce and in what quantity, rather than letting them decide for themselves. China even went so far as to dictate what hours a farmer should start and stop working, and then directed managers to ring a bell for transition times to control every little group of farmers. Anyone who’s ever had to punch a clock into a rigid, dysfunctional hierarchy is likely getting painful flashbacks about now.
It should be immediately obvious why this fails miserably: The distance between the central planning committee and the farmer is so great that good decisions are nearly impossible. It’s nearly impossible for critical feedback to make it from the edge, where the farmers are working, to the central planning committee in time to affect decisions, and then for those decisions to make it back to the edge in time to be useful. The podcast linked above also points out how unmotivated the farmers were under this regime, cutting productivity even further. Those who have studied lean manufacturing, agile development, and DevOps are likely seeing parallels here.
The result was catastrophe. When a corporation is painfully inefficient it loses money and might have to do layoffs, but when a country fails at growing food, its people starve to death. I don’t mean to imply that central planning was the only cause of famine under communist rule - there were political operations that led to mass starvation, just like in the West - but learning more about these helped crystallize what I do truly prefer about capitalist models. It also converted the phrase ’the free market’ from a catchy slogan into something meaningful to me.3
The most important feature of free market economies is that each person within them is able to make independent decisions in their own best interests4. If you’re a farmer, you can decide what to grow, how much to grow, and when to work to develop your crop. Heck, you can even choose not to be a farmer any more. Success is merely dependent on your finding a buyer for your work at a price you can tolerate. Any given year might not be perfect, but your decision making gets better over time as you learn to respond to customer demand.
This pattern is easy to understand in any system where the people doing the work make the decisions. If you’re a jeweler, you can decide what to make, how much to sell it for, and what to spend your time on. Same if you run a small restaurant, lead local tours, or are a one-person shop doing house remodeling. It’s a free market, where you can charge what the market will bear, and you can quickly and efficiently respond to its whims, ensuring that you are getting the best use of your time.
This was a powerful organizing principle for a long time. The history of human commerce developed largely this way: One person, or as many people as could fit in one shop, would turn labor into a product, then find a buyer for it. Most large-scale efforts were organized by the state of the time: Monarchs and the landed gentry, who were the only ones capable of marshaling enough resources to build palaces, roads, and other large construction projects.
This began to change in the 17th century when corporations like the Dutch East India Company were able to deliver massive windfalls to investors by pooling money and using it to extract resources from colonies. There was a step change in the 19th century, as corporations went from generating wealth to building and owning infrastructure. It’s one thing to outfit a single ship for a year-long voyage, yet another to maintain railroad schedules across the United Kingdom, or run a telegraph network around the whole US. These aren’t just short-term money-making exercises, they’re long-term commitments with big capital outlays and large returns over years and years.
We still live in a free market economy, but it’s not one Adam Smith would recognize. Instead of individual or small operators, ours is composed almost entirely of corporations. Really big corporations. And these companies, they use the same kind of central planning that we so despise in communist systems. I know. I’ve done it.
By the time my company got near 500 people, we had a multi-week planning process, where the leadership (i.e., me and my lieutenants) set out top-level goals, built a top-down plan to accomplish them, then drew information from the front line to see where it needed change. We called this a bottom-up plan, but it was only bottom-up from the perspective of numbers - how much money we’d have, what our costs were, etc. - rather than from the bottom of the organization. We could see no way to have a system where the people doing the work built a plan for the organization. Even thinking about it now, my reaction is, “How would they know what my goals are?”
That’s the kind of question you can only ask in an authoritarian state, not in a free market economy. My goals became my company’s goals, and the only real way to ensure people worked toward them was providing a plan. You might argue that a corporation should focus on shareholder value, but that doesn’t help make decisions about what the company should actually do.
Great leaders find a way to listen to everyone in the company, but in the end, leadership is about making decisions. That’s essentially the definition of the word. And we all know leaders who did not bother to listen, or just did not need to in order to be great; today’s most vaunted tech leader, Steve Jobs, was famously disrespectful of the opinions of others, yet made a lot of world-changing decisions (not all for the better).
This is exactly why working in a big corporation is so stifling. If you’re in a small company, the executives are close enough to the front line that it’s more like working in a tribe, but in a big company, the leadership is so removed from whose who do the work that executive teams operate like the politburo we so decry in communist countries. Certainly the bureaucracies are no more enjoyable or forgiving.
I find it both ironic and painful that my inability to work for someone else resulted in my creating a company that involved a lot of smart, capable people working for someone else.
I wish I had a solution. If this were an easy problem, its solution would already be pervasive, because the benefits are massive. Just in terms of efficiency, we’ve seen how much better the free market is than planned economies, but it also has a hugely positive impact on quality of life. People are happier when they’re in control.
I know the solution is not more freelancing and contract work, which America’s corporations are addicted to. That’s the worst of both worlds: The exploitative nature of capitalism with the inefficient bureaucracies of communism. Transactions on the free market work because they’re good for both sides, but most people only accept part-time contract relationships today when they have no other real choices.
Holacracy certainly isn’t the answer. It’s fundamentally flawed because of its implicit power structure - Tony Hsieh still runs Zappos, even if he does not use a central planning committee to do it - but the biggest problem is it makes no mention of economics. Without a clear system for scoring the transactions (i.e., money) it’s impossible to build a free market.
This problem of how to handle economics within a non-hierarchical company might lead some to think of using blockchain tokens as an internal currency. This is impossible today, beyond the fact that the world of blockchain is mostly about fraud and black market sales. The biggest problem is that we have no idea how to value most of the work people do. I mean, we might know that what a developer should get paid for a year’s work, but how much is that work worth? The majority of the work done in modern corporations is incredibly hard to value, which is partially why companies are so inefficient and make so many bad decisions.
That brings up an even bigger problem - companies today hire workers to make money from their labor. In other words, they generate profit because they pay their employees less than they’re worth. If everyone could trade their labor for exactly the amount of money it was worth, the corporations that employ them would have a much harder time making money. Instead, in modern corporations the shareholders and the executive team - again, the central planning committee we so despise - make the majority of the money, while the front line does all the work and makes very little. This is true even at the big tech firms; software developers might be well paid relative to hotel workers, but they’re paid a pittance compared to the founders and executives. This might speak to why we have no solution yet - free market corporations would tend to reduce concentrations of wealth, which would be terribly disruptive to the current system.
Like I said, I don’t have a solution. But at least now I know what makes the current system so painful, and it gives me some hope that we actually can come up with a better answer. I know I’ll be working harder in the future to manage the downsides of what we have today.
Although I might stress the “well regulated” part more than most modern economists. ↩