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Wednesday, September 18, 2019

California Is Trying to Roll Back the Gig Economy but “Natural Liberty” Will Prevail

Gig workers and those with work-at-home employment arrangements are not bound by state lines.

Photo by Kai Pilger on Unsplash

More than 20 years ago, Dan Pink, former chief speechwriter for Vice President Al Gore, foresaw the gig economy. In a 1997 essay, “Free Agent Nation,” for the then-fledgling magazine Fast Company, Pink estimated “more than 16% of the American workforce” were free agents—”people who move from project to project and who work on their own, sometimes for months, sometimes for days.” Today, Pink’s free agents are called gig workers.

California’s New Law Restricting the Gig Economy 

By 2017, Brittany Hunter reports, the gig economy had more than doubled, representing over 35 percent of the workforce. By 2020, estimates suggest the number in the gig economy will grow to 43 percent.

Hunter’s FEE essay covered the recent passage of California’s new law “changing the status of workers within the state from freelancers to actual employees.”

California’s passage of their worker status bill will harm the economy of California and grow the gig economy in surrounding states.

A movement that has been building for many decades will not be easily defeated. As Pink observed in his book, A Whole New Mind,

change is inevitable, and when it happens, the wisest response is not to wail or whine but to suck it up and deal with it.

Authoritarian measures designed to defeat change won’t work; they will only distort change and send it elsewhere.

Deborah Risi’s Mindset

Pink introduced us to Deborah Risi—at the time a 40-year-old California marketing professional. Risi “was tired of working incredibly hard for companies that lacked leadership and didn’t share [her] values.”

She became a free agent “juggling four to six clients at a time and bringing in a lot more money than she earned during her years in corporate America.”

Today, 22 years later, she is still in the gig economy.

Pink explained that

just as sensible investors would never sink all their financial capital into one stock, free agents like Risi are questioning the wisdom of investing all their human capital in a single employer.

Remember, Pink was writing back in 1997. Already, Risi and others believed the old workplace model of “You gave loyalty; you got security” was dying. For free agents, “Not only is it more interesting to have six clients instead of one boss; it also may be safer.”

Risi and other early free agents were sick of dysfunctional workplaces marred by “infighting and office politics” and “colleagues who don’t pull their weight.” They’re eager for challenging work, “they don’t want to put up with brain-dead distractions.”

Fifteen years after he wrote his essay, Pink pointed to the increasing value of free agents:

Today, talented individuals need organizations a lot less than organizations need talented individuals. What’s interesting is that this situation has forced companies to treat their internal workforce more like an external workforce. They must now provide a greater degree of autonomy, more freedom, more opportunity for challenge, more flexibility and so on.

Pink added,

It used to be that there was a stark boundary between who’s working on their own and who’s working in corporate America. The boundary is now more permeable.

By 2012, Pink saw free agency extending into health care—”nurses, allied health professionals and doctors… working on a contract basis.” Pink also saw “companies tap C-level talent—CEOs, CFOs, CIOs and CTOs—for short-term stints.”

What about Benefits?

Supporters of California’s new law claim it will protect the rights of workers. “I have tears in my eyes and goosebumps on my limbs,” an emotional Veena Dubal, a law professor at the University of California, Hastings, tweeted after the new law passed.

Others disagree.

Sara Horowitz was another free agent pioneer that Pink introduced; a labor lawyer, her grandfather was the vice president of the International Ladies’ Garment Workers’ Union. Back in 1995, at the age of 32, Horowitz founded Working Today, an organization dedicated to helping those in the gig economy meet the challenges of free agency, such as obtaining health insurance.

Later, Horowitz became a MacArthur Foundation “Genius” fellow and deputy chair of the Federal Reserve of New York. She is still executive director of Working Today.

Back in 1997, Sara questioned the assumption that there are “economic and moral” reasons “why Americans get health insurance and pensions from their jobs.”

Horowitz had the wisdom of a pioneer:

We need to look at the new ways people are working and say, “These legal distinctions don’t make sense. You don’t tie these rights to the job. You tie them to the individual.”

Benefits in the Free Market

The Competitive Enterprise Institute’s Iain Murray would agree with Horowitz. In his 2016 monograph Punching the Clock on a Smartphone App? The Changing Nature of Work in America and Regulatory Barriers to Success he wrote, “Today’s economy is bound by laws designed for an earlier industrial era.”

“Rigid work rules,” Murray writes, “can make a firm uncompetitive and may not be suitable to individual workers’ particular circumstances.” He adds,

Collective bargaining is a poor answer to the shift toward more flexible and entrepreneurial work arrangements that has been taking place for half a century.

Looking at the benefits issue, like Horowitz, Murray argues for a “portable benefits vehicle” that evolves in the market. He writes:

One part of the traditional regulatory definition of “employee” is benefits—health insurance and other perks, paid for by the employer. This World War II-era model badly needs an update. Different people have different needs, and they should not be held captive by a single health, dental, or retirement plan. As historian David Beito notes, this model can unfairly tie workers to jobs they do not like, and for no good reason. Workers deserve better.

Beito and Murray point to “19th century fraternal organizations, which provided pooled insurance for workers in the form of sick pay and other protections before the emergence of the socialized versions in the 20th century.” Historical evidence like this demonstrates that the market can solve the problem of providing benefits to workers in the gig economy.

Natural Liberty

Murray points us to Adam Smith’s concept of “natural liberty” introduced in Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. Smith argued that government policies that promote or hinder some industries destroyed the wealth of a nation. In Smith’s words, the alternative to government favoritism is natural liberty:

All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.

Smith argues there is no way the government can obtain the knowledge to effectively direct employment:

The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.

Murray shows how the sharing economy, which employs many gig workers, “is a good example of the rebirth of natural liberty.”

Murray explains that using “crowdsourced certification to build trust…[shared economy enterprises] make regulators redundant. They also create new markets that regulators had never considered in the first place.” Importantly, “Some highly regulated industries may find themselves wiped out by the creation of these new markets.”

FEE’s Director of Content Dan Sanchez pointed out that on the same day Apple released its new iPhones, California passed the bill crippling the gig economy. Sanchez observed,

The two simultaneous events offer a stark contrast: Progressive entrepreneurs continuing to create new possibilities, while reactionary politicians scramble to shut those possibilities down.

Those in the growing gig economy and the entrepreneurs who enable them—“agents of the possible,” in the words of Sanchez—will prevail.

Staying in a youth hostel in Switzerland in the 1970s, young people from Europe explained to me how they wanted to move to California. These youths were angry about Vietnam, but America was still the land of opportunity. And for them, California was America’s greatest symbol of opportunity. So much has changed since then.

As freedom recedes in California, people will vote with their feet. As they move, they will help spread natural liberty.

California has shed its promise as a liberal center of opportunity. With statewide rent controls, draconian bills restricting medical freedom, medieval diseases making comebacks on the streets of their cities, and excessively politically correct cultures at their tech firms, California has one of the lowest rankings for personal and economic freedom in America.

As freedom recedes in California, people will vote with their feet. California’s loss will be a gain for cities like Boise, Idaho. Gig workers and those with work-at-home employment arrangements are not bound by state lines. As they move, they will help spread natural liberty.

  • Barry Brownstein is professor emeritus of economics and leadership at the University of Baltimore. 

    To receive Barry's essays subscribe at his Substack, Mindset Shifts.

    His essays also appear at the American Institute for Economic Research, Intellectual Takeout, Learn Liberty, The Epoch Times and many other publications. Barry’s essays have been translated into many languages, most frequently Spanish and Portuguese. He is the author of The Inner-Work of Leadership.

    Barry holds a Ph.D. in economics from Rutgers University and a B.S. in mathematical statistics from CCNY.