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The new feudalism

Even before the 2008 financial crisis it was becoming clear that commercial property was facing change.  At the soft end of this change was the rise of serviced offices as an alternative to traditional renting.  The serviced office environment offered far more flexibility – notice periods were shorter than traditional leases, and companies could expand and contract their office space according to their needs.  In addition, meeting rooms and training facilities could be hired by the hour or the day rather than having to be rented as part of a lease.  Networks like Regus extended this model even further, for a small membership fee allowing businesses to rent office space as and when needed.  By the beginning of 2020, shared office space provider WeWork had emerged as the biggest holder of commercial property in London, as companies across the capital gradually shed unwanted office space.

The pandemic has seen this trend accelerate dramatically as whole sectors of the economy have been obliged to operate home working and, in many cases, have found it to be more productive than office-based working.  This, coupled to the large savings in rent and business rates, points to a very different economy in the 2020s to the post-crisis 2008-2019 economy.  The pretence of “back to normal” being pushed by the politicians and the establishment media stands in stark contrast to the actions of businesses which have no choice but to focus on the bottom line. 

Nor does this end with commercial property landlords taking a hit.  Pension and insurance funds have been heavily invested in a commercial property sector which has grown at a greater rate than the wider economy.  At the same time, a host of city centre peripheral services are at risk as the number of workers commuting into the city to work declines.  Everything from sandwich shops to fashion retailers and from bars to theatres is being impacted by the – probably permanent – drop in footfall.

Government also faces a shortfall as office space is left empty and city centre services go bust.  Britain’s antiquated (local tax) business rates system has remained in place largely because of the ease of collecting it.  Based on the size and location of a business’ property rather than the turnover of the business itself, in recent years the tax has helped to gut town and city centres by forcing companies to move out of town or to file for bankruptcy.  Following the pandemic, this trend will grow as companies seek to cut their property needs to a bare minimum; including by having greater numbers of employees work from home.

One government response to this was the proposed “Facebook Tax;” the attempt to recoup some of the lost income from traditional retailing by taxing the online platforms which are perceived to be the cause of the decline.  This though, is a typical ill-informed politician’s response to the superficial manifestation of a much deeper problem.  Online retail will be one of the survivors of the pandemic precisely because it is more cost-effective than traditional retailing.  With ever more of us connected to the Internet via phones, tablets, laptops and PCs, and with even grandma and grandpa discovering Zoom during the lockdown, far fewer of us are going back to physical shopping in the aftermath.

The UK government seems to have recognised the writing on the wall if William Schomberg at Reuters is correct:

“British finance minister Rishi Sunak plans to drop a tax on technology companies such as Facebook and Google because it does not raise much money and could hurt a push for a U.S. trade deal…

“Britain introduced the digital services tax in April after slow progress in global negotiations over how to tax tech giants, many of which are U.S. companies. The tax is expected to raise about 500 million pounds ($654 million) a year for Britain’s public finances. That represents only a fraction of the 200 billion pounds in extra debt the country has racked up since the start of the COVID-19 pandemic.”

The apparent U-turn is in recognition that any attempt to impose new taxes on mostly American tech platforms will require international cooperation.  Any attempt at a national solution might easily backfire as these corporations relocate and/or impose higher charges on national retailers (Amazon) and advertisers (Google, Facebook) in order to offset the taxes.

Retail, however, may be just the tip of the iceberg when it comes to the government’s post-pandemic woes.  This is because the trend to home working does not end where it began in April and May.  In the same way that businesses are realising the huge savings to be made on renting office space, so there are huge potential savings to be made from radically altering terms and conditions of employment.

Insofar as the gig economy has been in the news during the pandemic, it is in various seemingly pro-worker decisions.  California’s Assembly Bill Five (AB-5) seeks to categorise app-based Lyft and Uber drivers as employees rather than self-employed contractors.  Civil law suits in the UK have sought a similar outcome; attempting to update employment law to encompass new ways of working.  As Michael Briggs at ShoosmithsLLP explains:

“Not only do we have the impact of COVID-19, but the Supreme Court also considered earlier in the month whether or not two former drivers for Uber should be classified as workers or self-employed contractors. At the Court of Appeal stage, it was held that these two drivers were in fact workers, and were therefore entitled to basic rights such as national minimum wage and paid holiday. Uber however continues to deny this is the case, claiming that it is not a traditional taxi firm, but a ride-hailing app which engages freelance drivers who like the flexibility that comes with being self-employed. It claims also that these drivers have much more control over the way in which they choose to work in their freelance capacity, in particular because they can choose whether or not to accept rides and because they have no obligation to log onto the booking app if they don’t want to.

“Earlier this year, the European Court of Justice also provided some clarification when determining whether or not an individual is a worker or a self-employed contractor. In that case the status of a delivery driver, who used his own vehicle and mobile phone when carry out deliveries for Yodel, within certain time windows, albeit with the ability to accept or not accepts jobs, set his own working hours and delivery routes, and who had the right to engage substitutes and work for competitors, was called into question.”

The days of the gig economy resembling the wild-west appear to be numbered as the body of regulation and case law defines the difference between an employee and a freelance worker; with those platforms which effectively coerce workers into taking jobs and accepting a predetermined rate of pay being redefined as employers.  Apparently in recognition of this, fast-food delivery company, Just Eat announced its intention to directly employ its workers in future; meaning that workers will be entitled to benefits like sickness and holiday pay.

A cynic might point out that fast food deliveries – and, indeed, food delivery of any kind – has been one of the big winners of the pandemic.  According to the BBC, three-quarters of people in the UK are now shopping online; with at least half expecting to continue with online shopping following the pandemic.  In this environment, food delivery has gone from a fringe activity to the main means by which food gets from supplier to consumer; allowing for far more stable permanent forms of employment.

Public transport services like Uber and Lyft are a different matter.  In many cities, these services have already put traditional taxi firms out of business.  And with fewer reasons to travel into and within city centres, these app-based businesses are likely to struggle to provide anything like the level of work on offer prior to the pandemic.  This will leave some cities with no point-to-point transport services at all (less of a problem in older UK and European cities which are still walkable, than in, say, Californian cities that were built around cars).

The problem with the Californian AB-5 is that it goes far wider than Uber and Lyft.  Indeed, conservative leaning commentators derived considerable mirth from the realisation that many of the left-leaning freelance journalists who lobbied for the measure would also be treated as employees rather than freelancers.  And since the journals they used to write for had no desire to offer them employment contracts, they have seen their incomes plummet.  The threat to employment goes much deeper, of course.  As Ike Brannon at Forbes explains:

“The potential disappearance of ride-sharing services across the country’s most populous state would be an unfortunate but predictable—and ironic— outcome of legislation intended to give the companies’ drivers more job security and benefits. The reality is that these well-meaning efforts will destroy jobs and reduce the incomes of tens of thousands of California workers. If such a law were implemented nationwide it would impact millions…”

The deeper problem beneath the various arguments around the growth of the gig economy after 2008 is that all sides argue from an infinite growth perspective.  Typically, conservatives like Brannon argue that if only governments get out of the way of the free market, then a new era of freelance-based prosperity will be just around the corner.  For more left-leaning commentators though, the gig economy is merely the latest way in which the 0.1 percent prevent everybody else in sharing in the fruits of economic growth.  For example, Mathew Lawrence at Prospect sees a future in which:

“The rise of platform work accelerates long-standing shifts towards outsourcing and the weakening of labour protections, with platform workers denied the hard-won rights and protections of the traditional employment contract. And though the technologies of surveillance they deploy are new, the platforms are replicating a far older trend in the history of capitalism: technologies being used to deepen the measurement and evaluation of workers in order to increase the ability for control and exploitation.

“With unemployment set to rise to its highest levels in decades by Christmas, platform work is expected to surge; they may be the only forms of work on offer for many. A canary down the mine for the future of work was the recent announcement by Hermes, the delivery firm, that they are planning to create more than 10,000 jobs as demand for home delivery continues to grow. Yet 9,000 of these jobs are set to be couriers, many of whom would be classified as self-employed, lacking basic legal protections such as the minimum wage, full sick pay or holiday benefits, and with their work organised through the platform. With the news that Hermes is set to be bought by the US private equity firm Advent International for almost £1 billion, it paints a dark picture of work in the age of the platform: deep insecurity for many workers, great rewards for a narrow set of investors”

This vision is undoubtedly correct; although not entirely for the reasons Lawrence gives.  In an increasingly energy-constrained and resource-depleted economy, policies developed in the fossil fuel age simply cannot deliver.  In the aftermath of the 2008 crash tens of thousands of “zombie firms” and millions of “zombie households” were left to their own devices to navigate the cracks that had opened up in the neoliberal version of market economies.  Taxes like the UK’s business rates were just one obstacle to employment in a stagnating post-crisis economy.  Employers’ National Insurance (which supposedly funds social security and sickness benefits) emerged as another barrier; the National Insurance levied on eight employees equating to the wage of a ninth.  The Minimum Wage – currently £8.72 per hour – is more contentious.  While the minimum wage hasn’t (until now at least) caused employers to fire workers, it has proved a barrier to further employment.  That is, a potential employee in the private sector has to be able to generate a lot more than the £8.72 per hour they get paid in order to secure employment.

For pre-2008 employees with the wrong skillsets or with no skillset at all, the Minimum wage has been another barrier to employment, and is no doubt why so many people have ended up in the gig economy in the years since.  As Brannon observes:

“One beneficial thing that [gig economy platforms] bring to the labor market is a gig that is easy for someone to obtain. For many people finding a job can be a complicated, intimidating task: Many jobs are passed on by word of mouth or from one friend to another, and many people aren’t good at networking or find formal interviews intimidating or uncomfortable. Ride-sharing jobs preclude such worries.”

The other jaw in this vice for the most vulnerable workers is the punitive social insecurity system created by supposedly left-leaning neoliberal governments in the 1990s.  The assault on disabled people, rising retirement ages, punitive sanctions and less than adequate payments all predated the return of the Tories, even though they built upon them with relish.  As millions of people have discovered (and millions more are about to find out) life on an inadequate benefits system really is penury.  The system was deliberately designed to make any form of employment – even the most exploitative gig economy work – preferable to continuing to claim benefits.  And with any decent employer bound by the constraints of a far higher Minimum Wage, Employers National Insurance, compulsory pension contributions and business rates, for many some combination of gig work, multiple temporary and part time jobs and/or zero hours contracting was the only option on the table.

The idea that the post-pandemic economy is going to involve a decline in gig working and a return to the good old days of well-paid permanent employment is a fantasy.  As Neil Franklin at Insight reported at the end of May:

“Using research from HR and gig workers across Europe, the report, Gig Economy: Financial Security or Greater Control, claims that 26 percent of European HR directors believe their workforces will have 51-75 percent of gig workers in five years’ time, while 18 percent of UK HRDs believe 75 percent or more of their workforce will be made up of contractors in 5 years’ time…

“Matthew Lawrence, Chief Broking Officer, Health Solutions, EMEA, of Aon, said: ‘The gig economy is not new, but events have been driving its growth over the past decade – including a global talent crunch, an ideological shift towards a greater work-life balance and the need for an on-demand workforce. Now, with the COVID-19 pandemic, it’s clear to see why the gig economy has disrupted traditional workforce models and will continue to transform future labour markets.  ’In particular, the pandemic exposes a potential vulnerability of those working in the gig economy. Many people are curious to see if this crisis will accelerate potential legislation affording gig workers more labour rights and protections or whether the autonomy and flexibility it offers becomes less appealing for workers as the anticipated economic contraction takes effect. However, this way of working may become more appealing for employers looking to hire the talent needed to transform and innovate. It offers employers the ability to keep the workers they specifically need, at a specific time’.”

For employers seeking to cut costs in response to the dramatic decline in consumer spending power which the pandemic has accelerated, paying for work done rather than time spent in work look set to be the most obvious step after handing back unnecessary office space.  It is after all, only a small step from having workers operate from home to having them operate as freelancers.  And if they refuse, there are going to be plenty more unemployed workers ready to carry out the freelance contracts in their stead.

The post pandemic landscape looks a lot like a digital version of twelfth century feudalism.  Instead of handing out packages of land to various ranks of peasants who could not feed themselves without it, the new tech landlords will parcel out space on their servers on which the new gig economy peasants will post their skills and willingness to work at almost any price.  As with the feudal system, there will be just enough top ranking digital peasants, such as those offering legal services or financial advice, to legitimise the misery of those at the bottom.  But in the absence of a growing supply of cheap, energy-dense energy sources, the shrinking economy will not be able to offer much better.  Indeed, the one immediate measure which might re-empower those on the receiving end of the post-pandemic economy – raising the amount of social security closer to the Minimum Wage – is effectively ruled out by both political left and right.

As you made it to the end…

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