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Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

The Rise of the Micro-Multinational

Tuesday, December 27, 2011

How Freelancers and Technology-Savvy Start-Ups Are Driving Growth, Jobs and Innovation

We've been discussing 'is employment dying?' based on predictions that by 2050 the word 'employment' and its processes will have disappeared.

The Lisbon Council has written a report demonstrating just how dramatically the world of work is transforming. It lines up with the foregoing predictions of the demise of employment.

We've extracted some quotations from the report that provide an overview of its message. The full report is here: The Rise of the Micro-Multinational: How Freelancers and Technology-Savvy Start-Ups Are Driving Growth, Jobs and Innovation.


The economic crisis. Where are the new jobs?

As crisis engulfs the world's leading economies, there is great concern about job creation and energizing growth rates.1 The sudden arrival of subdued, Japanese-style growth prospects for North America, Europe and the rest of the developed world---combined with years of sluggish employment figures---have given increasing urgency to the task of finding effective responses.

But so far, nothing seems to have worked. That is not surprising, as traditional levers of policy intervention tend to be designed around the interests of economic incumbents---existing market players---rather than the newcomers that are today's key engine of growth and jobs.

Consider this: All net job growth in the United States between 1980 and 2005 came from firms less than five years old.2 And, interestingly, in each year between 1997 and 2008, more than 2.5 million people simply created their own job by becoming entrepreneurs (and also created more than one million additional paid employment positions each year).3 In other words, 65% of all jobs created in the US in that time were jobs that entrepreneurs created for themselves, making freelancing an increasingly important source of employment and a significant, albeit often overlooked, cornerstone of modern economic activity.

In Europe, the numbers are similar. Some 32.6 million people are classified as self-employed, which accounts for more than 15% of total employment.

The vast majority of Europe's self-employed, some 23 million, are freelancers, meaning they work for or in one-person companies. And while the crisis has had a negative impact on the overall employment situation in Europe, a European Commission study recently found that self-employed entrepreneurs were much more resilient to the economic downturn than dependent workers and employees.

The new type of company: No bureaucracy

At the forefront of this seismic shift in the way jobs are created and economic value added is a new type of company, the micro-multinational. Traditionally, these small, self-starting, service-driven companies would have been described as small-and medium-sized enterprises, or SMEs, but thanks to the Internet, the emergence of new business platforms and the increased openness of the global economy, these companies can enter markets with a minimum of bureaucracy and overhead.

Add to that their unparalleled ability to respond promptly to changing market developments, a collaborative DNA that often translates into superior innovation performance and the lack of the institutional inertia and legacy relationships plaguing larger organizations, and one begins to see the transformative and paradigm-changing potential.

The revolution: Micro-multinationals

The difference over time is a revolution in the way economic value is created, with smaller companies now able through technology to gain the scale that only larger ones could previously aspire to.

Entrepreneurship. The only game in town

Over the long-term, however, prevailing labor market trends suggest that fostering entrepreneurialism is really the only job creation game in town.

The pleasures of the traditional working role were the certainty of a parent-child relationship. You could leave it in the hands of the corporation to make the big decisions about your working life ... Now ... "the world is moving towards an adult relationship, where each of us is required to take a more thoughtful, determined and energetic approach to exercising the choices available to us."

Micro-multinationals drivers of large enterprises

Far from being the weak link in the New Work Order described above, micro-multinationals will not only be important innovators in their own right (especially given that their innovations are typically disruptive); they will also play an essential role in the innovation ecosystems of large enterprises.

In today's economy, small is an asset, and being large often a liability. That is why more and more macro-multinationals are choosing to set up new ventures that are supposed to be quick, innovative and agile outside of the mother company, thereby not subjecting them to unnecessary bureaucracy and giving them more freedom to experiment and take risks.

Micro-multinationals pose a formidable intellectual and policy challenge for domestic innovation systems. Not only do they undermine the validity of domestic showcase innovation initiatives, such as clusters, but they also hold the potential to be politically sensitive.

A government policy framework

For sure, the New Work Order described earlier in this policy brief has arrived without much prompting from policymakers, and has largely been driven by advances in technology, entrepreneurial ingenuity and changing work-life preferences.

The ensuing rise of micro-multinationals has already seen positive spillover effects on the larger economy but their potential is far from exhausted. Indeed, faced with horrid unemployment rates and low growth, changing policy levers to empower these dynamic players would go a long way to driving growth, jobs and innovation.

What governments should do

  • Encourage new company start-ups,
  • Accelerate movement towards a fully functioning digital economy and modern intellectual property regimes. … (creating) an integrated digital economy needs to be accompanied by a review of the intellectual property regime (IPR). As is, IPR is now often the legal shield behind which current rights holders –hide to prevent others from developing new products and services
  • Recognize the importance of internationalization and immigration.
  • Encourage companies to become intensive users of technology.
  • Develop and encourage the range and quality of services on offer to local businesses and individuals.
  • Create the right incentive structures for freelancers and the self-employed. For example, unemployment benefits and health insurance coverage should neither be tied to an employer nor should they be denied to freelancers or the self-employed (US and EU)
  • Prioritize education and skills development to ensure a large proportion of the unemployed population has a pathway to succeed in the new economy.
  • Develop data and statistics that are commensurate with a new economic age.

Finally

    "We're dealing with an outdated employment system---it was built for a workforce from the 1930s, and it no longer works for us today," says Sara Horowitz, founder of the Freelancers Union, a non-profit organization that represents America's independent workforce. Ms. Horowitz is right.
The Freelancers Union founded by Ms. Horowitz already offers a system of protections and supports ranging from health, dental and disability insurance to 401K retirement plans to its network of 150,000 independent members.

The Freelancers Union is not alone. In Britain, the Professional Contractors Group does something similar. oDesk has also negotiated benefits packages for contractors using its site. Cooperative health and benefit plans provided by organized networks of freelancers are a step in the right direction, if not an ultimate solution.



About The Lisbon Council

(From its website: http://www.lisboncouncil.net/about-us/vision.html)

A Think Tank for the 21st Century

Society is facing unprecedented challenges. Large parts of Europe, North America and Asia are struggling to exit the worst economic crisis in 60 years, to cope with unprecedented levels of debt, to curb the excess of climate change and to prepare for a demographic time bomb that will change the shape and balance of the world as we know it. At the same time, developing economies around the globe, particularly the BRIC countries, are charging ahead with high growth rates and dramatically improved innovation capabilities, rapidly catching up with their G-7 counterparts.

While the verdict is out as to what this new, re-jigged world will ultimately look like, one thing is for certain: modern life---and the arrival of a globally integrated, technology-powered network economy---offers unprecedented opportunity for individuals, organisations, regions and countries to drive forward innovation and positive change.

Against this backdrop, The Lisbon Council for Economic Competitiveness and Social Renewal is committed to defining and articulating mature, holistic and evidence-based strategies for managing current and future challenges. Above all, we seek strategies based on inclusion, opportunity and sustainability that will make the benefits of modernisation and technological advancement available to all our citizens.

We stand for innovation---the willingness to embrace the future as a challenge we can meet, and the determination to start that effort today. We want our unique platform to serve as an incubator for novel ideas that offer new approaches to key challenges.

At the centre of our activities are solution-oriented seminars, thought-provoking publications, media appearances and public advocacy. These days, there are more than 5,000 people in our global network of top innovators and entrepreneurs, leading-edge thinkers and researchers, public figures and civil servants, business strategists and corporate leaders, third-sector pioneers and philanthropists---all of them lending their energy, brain power and dedication to use innovation as a force for good and apply it to solve the great economic and social challenges of our times. Founded in 2003, the Lisbon Council is incorporated in Belgium as an independent, non-profit and non-partisan association.
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