Decorporatization

In the day job, I've coined a newish word - decorporatization.

My chart shows what I mean. It shows that in recent years we haven't seen just a squeeze on wages, but also a squeeze on profits; the share of these in GDP has fallen recently. One reason for this is that the incomes of the self-employed - measured by the ONS as other incomes - have increased. This hasn't happened because the self-employed are raking it in, but because there are so many more of them.

This is what I mean by decorporatization; we're seeing a shift from corporate sector activity to the self-employed.

Some of this might be due to firms employing freelancers and one-man subcontractors rather than staff - perhaps because transactions costs have fallen. However, whilst this might have have increased profits for particular firms, it hasn't increased them in aggregate.

What might also be going on is a shift in consumption patterns. For example, if we pay a gardener £100 we have £100 less to spend in the corporate sector. And it might also be that there are countless small-scale shifts in spending happening: for example from supermarkets to farmers' markets; from banks to P2P lending; from shops to eBay; from removal companies to men with vans; from chain coffee shops and restaurants to independent ones and pop-ups. And so on. You migh think these are small changes. But they can easily add up to a couple of percentage points of GDP.

I don't know if these changes will continue. Maybe Rick is right and that as the economy picks up, poorly paid under-employed freelancers and handymen will return to employment thus reversing these trends. Or maybe they won't, perhaps because more people will want to escape corporate drudgery and downshift whilst the fashion for artisanal goods and services will continue.

But futurology isn't my point. Instead, there are two others.

One is that culture matters for macroeconomics even over shortish periods. A cultural change towards self-employment - both the supply thereof and demand for its goods - is affecting profits now.

Secondly, those hipster twats who think they can sock it to "The Man" by tweaking their "lifestyles" aren't as stupid as they look. Small-scale changes can add up to significant discomfort for big capitalism. As I've said, social change can happen without formal politics realizing it. The transition from feudalism to capitalism didn't happen quickly or because of nationally organized political protest ("What do we want? Less socage! When do we want it? Now!") so perhaps the transition from capitalism* won't either.

* Clarification for the hard of thinking: by capitalism I mean a system of ownership, not a market economy.

Comments

[PolicyGMCVO]

just on the potential of hipster twats having the right idea - this was a good exploration of the issue a while back in the NYT http://nyti.ms/1mj0E4i "Don't Mock the Artisanal Pickle Makers"

makes a suggestion that we're moving into an era of hyperspecialisation where middle class people can make a living creating niche products for other middle class people. It's a way of avoiding competition with high volume/low margin producers. Like you, I also could see that causing a shift from some of the larger corporates.

Seems largely to be limited to street food stalls and microbreweries in my experience - although that's probably more revealing about my consumption preferences than the wider economy. There is some evidence in the article that there's also a growth in "craft" manufacturing in industries such as aviation.

[Shaun P]

I can tell you that I'm like this. My wife and I don't eat at chain restaurants, preferring locally owned. The food is better anyways. I also tend to buy booze and liquor made from local distillers and brewers. Luckily I live in the Pacific Northwest in America, so the local choices are far superior to any national brands. My wife are somewhat decent earners, so we don't mind paying a little more. We also know plenty of people who have the same consumption patterns, though I wouldn't really consider us hipsters.

[tristan]

I'm guessing Kevin Carson touches a lot on this in his books 'Homebrew Industrial Revolution' and 'The Desktop Regulatory State'.

The hope I have is that this increasingly expands to include more than the middle classes and to more and more everyday items.

[Chris]

Is it also relating to companies trying to avoid profits, on which they get taxed, at least in places where they get taxed on them?

[Peter K.]

There might be something to it, but I'm still skeptical. With niche middle class selling to niche middle class, they're still cutting out the working poor. Likewise the informal economy (which includes the poor) cuts out the corporate sector to some degree.

But ultimately the government and corporate sector determine the final, aggregate demand, employment and wage levels.

Maybe this phenomenon ameliorates things, but I don't see it as a solution. I have the same view on environmentalism. Individuals recycling and driving a prius may help but you need government and big business policy changes for a sustainable solution.

[Bamber]

Those hipster twats. All those signs and leaflets saying "buy local" when what they really mean is "just get your wallet out and don't question my ridiculous markups".

If people want to pay more money for higher quality goods (with all the subjectivity that entails) then that's up to them, but it'd be nice if:

1) The hipsters didn't make out that they're not trying to make shit loads of money and say "look at what I can afford"; and

2) They didn't criticise poor people for not buying what they buy (it's not that they have no taste, you bearded arse, it's because someone on £14k a year probably thinks £5 for a jar of jam is a bit steep).

[Metatone]

I think the missing question here is what are the other components that make up GDP?

[Vera Korol]

If you look at the 2 lines, the combined sum is not constant - so it's not a pure shift from corporate to self-employment (small mom and pop, not big corporate firms). What are the other shares? As a matter of fact, the combined share went up from (just looking at the small chart here) about 32-33% in 1987, to about 37% in 1997, to about 34% in 2014. It's not a zero sum game it seems and not a pure re-balancing.

[Paul Walker]

Chris. I put forward another possible (partial) explanation here: http://tinyurl.com/mysdcjb

[AT]

There is another point to this, and that is demographics. The ONS data (link below) suggest that a lot of the self-employed inrease is from people aged 65 or over, who have worked as SE for at least 20 years. Artisinal jam-makers are unlikely to fall into this category. To quote ONS, "entrepreneurship / business growth continues to be just a small factor"

If demographics were part of the issue, what you would expect to see is a pick up in SE income from when the first of the (employed) baby boomers retire, the self-employed do not, which at 1945+65, is from about 2010, and should be steadily increasing as the baby boom bulge works its way through the system. Or exactly what the data show.

I am not clear what is left in the data if you 'subtract' the demographic effect - I doubt that it explains it all. But eventually these self-employed over 65s will retire, the baby boom will work its way through, and the trend will reverse.

The real headline is perhaps that the self-emloyed can't afford (or don't want) to retire.

http://www.slideshare.net/statisticsONS/4-trends-in-self-employment

[chris]

@ Vera - the chart excludes wages and taxes, for clarity. The IC piece I linked to provides a fuller breakdown of the counterparts to changes in profits.
@ AT, Phil - I suspect you're right that human capital & demographics both play a role. But I'm not sure the latter will go into reverse: there might be a lot of 40/50-somethings who want to escape corporate life in the next few years.

[Dave Timoney]

The "ideal" corporation is one that owns revenue-generating assets, which increasingly means patents (historic human capital) and licences (contemporary political leverage). Fixed capital is no longer the sine qua non, because it is increasingly cheap (in most service businesses it is already commoditised), and globalisation has engineered a glut of labour (initially unskilled, increasingly skilled). The means of production are losing importance to rights of rent-extraction.

As corporations have always provided berths for hangers-on, in order to meet tacit social obligations and support networking, the evolution from a Coasian transactionally-efficient model results in many of these parasitical roles being moved into the freelance sector (this has been going on since the late-70s), some willingly and some unwillingly.

The recent increase in low-skilled self-employed obscures the secular trend by which well-paid roles (including C-suite) are now outside the boundary of the corporation and thus act to depress EBIT profits (i.e. through increased rent-extraction). It also obscures the degree to which this money is increasingly diverted offshore, thus dodging tax and understating ONS data on income.

The hipsters are largely recycling the capital of their parents: well-paid executives who made a mint over the last 30 years.

[Neil21]

Venkat is skeptical about the twats' prospects:

In every sexy-work market, automation takes away the most profitable irreducible-variety segment and leaves behind a pure attention economy segment subject to the highly random celebrity and fashion dynamics of the Internet age. This follows from the fact that people choose sexy work mostly due to conspicuous production (status and identity) considerations. They are effectively working for attention, not money.

But much of the attention (which is the scarce commodity all sexy sectors compete over) is cornered by a few at the top, leaving dregs for the rest. The Internet merely creates pocket change in the long tail and more churn in the short head. It doesn’t really change industrial-age winner-take-all dynamics.

Certainly, there is room for a few artisan-of-the-week spots in the hand-made coffee mug sector. Every year, maybe a few hundred such artisans will have a profitable year. The rest of their careers will be spent waiting for the next break. The majority will have no breaks at all and crash out of the sector, to be replaced by new hopefuls.

http://www.ribbonfarm.com/2013/07/10/you-are-not-an-artisan/

Whole thing is essential reading.

[Neil21]

Also reminds me of Dalarymples from The Meaning of Liff:

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Dalarymples are the things you pay extra for on pieces of hand-made craftwork - the rough edges, the paint smudges and the holes in the glazing
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