Risk

There's an interesting article in the Economist about the 'on-demand' economy.  As you would expect, they are very positive about the rise of things like Uber, but even they recognise that this isn't a pain-free future. Here are the final few paras:

Consumers are clear winners; so are Western workers who value flexibility over security, such as women who want to combine work with child-rearing. Taxpayers stand to gain if on-demand labour is used to improve efficiency in the provision of public services. But workers who value security over flexibility, including a lot of middle-aged lawyers, doctors and taxi drivers, feel justifiably threatened. And the on-demand economy certainly produces unfairnesses: taxpayers will also end up supporting many contract workers who have never built up pensions.
...Many European tax systems treat freelances as second-class citizens, while American states have different rules for “contract workers” that could be tidied up. Too much of the welfare state is delivered through employers, especially pensions and health care: both should be tied to the individual and made portable, one area where Obamacare was a big step forward.
But even if governments adjust their policies to a more individualistic age, the on-demand economy clearly imposes more risk on individuals. People will have to master multiple skills if they are to survive in such a world—and keep those skills up to date. Professional sorts in big service firms will have to take more responsibility for educating themselves. People will also have to learn how to sell themselves, through personal networking and social media or, if they are really ambitious, turning themselves into brands. In a more fluid world, everybody will need to learn how to manage You Inc.

To be honest, the last bit about people having to develop their own personal brand sounds to me like the perfect background to some sci-fi dystopia. But the point about the individualisation of risk is what I find most interesting. This is actually part of a broader process. For example, it is undoubtedly happening in the pensions world in the UK as DB disappears and is replaced by DC. Companies made this switch precisely because they didn't want to shoulder investment risk, and their investors tend to agree. It's notable that there was a very positive response when Tesco announced, along with other moves, that it was considering planning to close its pension scheme. Similarly, labour market practices like zero hours contracts and self-employment promoted in terms of how 'flexible' they are, but again it is the individual who bears the risk. 

Often you get told that employees like this flexibility too, but I do wonder if this is in part because the risk is difficult to grasp. Certainly the DB to DC shift was accomplished in the private with little resistance, which I think was only possible because people didn't really get what was going on (maybe also because initially it only affected new employees). The same may be true of other forms of flexibility. It seems that quite a few of the Citylink drivers were self-employed, and it's when the company runs into trouble that the nature of risk becomes very real, and flexibility more double-edged.

The outcome of these processes is that actual living human beings are expected to shoulder more risk in their working lives (even if they don't quite understand it) in order that risks within companies are controlled. And this is welcomed and encouraged by market participants, who are often investment intermediaries for the same people onto whose shoulders risk is being shifted, on the basis that this is good for the company and its investors. There seems to be a disconnect between between this being a good thing at an aggregate and/or abstract level (i.e. what does it mean to say offloading risk is a good thing for companies, who specifically is benefitting?) whilst being potentially very damaging in real individuals' lives. 

FWIW I don't think the directors of the companies offloading such risk like it in their own lives. As PwC have pointed out, many directors don't like variable pay very much and, they argue, the total scale of executive reward probably partly reflects an attempt to address this. However, they seem quite comfortable making others with significantly lower incomes and less wealth take more risk.