Debunking the myths of what startups can and cannot accomplish for battered economies
By Juan Cartagena, Cofounder and CEO at Traity
Context: I’m from Spain, a country with 25% unemployment and 47% youth unemployment.
When I read politicians say that “Startup Nation” is the way to reduce unemployment, it makes me laugh. A company like Google barely employs 40,000 people, and those intelligent highly-educated people would always find jobs anyway. Typical startups will not hire more than 100. Irrelevant compared to Walmart´s 400,000. And it´s hard to be an entrepreneur. Only people with the right backing, experience, education, drive, intellect and luck can succeed. Most people cannot be a Kravis and launch Uber.
But all of us can become micropreneurs, including people with low education, non-technical people, non-designers, limited experience, no track record, youth, elderly… a real solution to unemployment, a solution for the most hurt by macroeconomic crisis, for the most vulnerable.
The concept of micropreneur means that you can be fully dedicated to an activity working by yourself without a great idea and without a big investment, thanks to the new technologies that will just bring you customers as you work, in the era of peer to peer digital transactions. For example, driving Uber or cooking on Kitchensurfing. The collaborative economy is not just about “gigs” when you have an empty space to rent on AirBnB. It´s about professionalizing those services where the money goes to the pocket of the people who provide the service, with a better utilization of assets and no overhead since connections happen peer to peer.
Being a micropreneur in the past was harder. Want to be a taxi driver? There is a capital requirement for a license, a type of car you need to brand, and the need to dedicate yourself. Today you can just start driving in the evenings, see how it works. Then drive full time when you are confident, with no capital investment. At the same time, the technology in our pockets allows us to get customers “on-demand”, where increasingly more people trust ephemeral collaboration with others, increasing the income per hour.
Most of the people who have been unemployed for longer than 6 months come from the construction, tourism or primary-secondary sectors, typically low levels of education and socio-economic opportunities. These vulnerable people’s skills are not easily transferable, and if their industry collapses (construction), they go down with it. After a few months, they abandon hope. But these people drive and cook, and can do many other services that can be trained, bringing new hope.
What would happen if, in a country like Spain, with five million people unemployed, four million of them were “retrained” for some of those services?
– Unemployment would fall, by definition.
– Unemployment aid would shift towards growth, training skills or reducing tax, further expanding the economy.
– Income per family would increase, building a healthier economy.
– Increased services supply would lead prices to drop to the level of demand efficiency, bringing better prices for consumers.
Meanwhile, disrupted services like taxis would have to reduce their prices to compete with the additional supply of services. Hotels in the lower end are likely to have a hard time too. We can assume that this will lead to some of them closing, leading to job losses in those disrupted companies. Those people can come back to the market in the form of micropreneurs.
But can we really have four million people working in the collaboration economy? Undoubtedly. Peer to peer markets like Uber dynamically change prices based on demand, therefore drivers enter the market when the demand price makes worth their time. If the price they can demand decreases as supply of drivers increases, a new entrant will simply move to other services she can provide, which will soon be near infinite, as the collaboration economy continues to expand into every service people can need, including walking dogs, sharing construction tools, babysitting, building IKEA furniture, etc.
Essentially, we are seeing a bottom up economy raising, with real time auction prices driving the efficiency of the markets, with tiny overhead. The collaborative economy will simply become the best exponent of the well-known Austrian economics. Labor will be efficiently distributed to where it is needed, in near real time, without direction from government on what people should do.
This is good for the economy, but is it good for GDP? Where I spent $150 for a hotel night, now I spend $50 for sleeping in an empty apartment. Even with tax, the “transaction value” decreases. From an economic standpoint, I got the service, my supplier supplied the service, we were both happy and there was no un-utilized assets. However, from a macro-economic point of view, could this lead to a decrease in GDP? With four million people embracing this new form of employment, it would certainly have an impact. Since the price is cheaper, I can afford more transactions, but for nights in hotels the demand is inelastic, because there is a maximum number of nights per year I can sleep out. So we can assume GDP might decreases in such industries where the collaboration economy can disrupt at large scale.
The problem is that if politicians only see the accounting part of it, they might take Keynesian action to avoid hotel closures, fiscal incentives, etc. which would essentially hurt those micropreneurs and precisely the income of those families. It will be critical to separate economics from growth accounting.
The collaborative economy is happening by itself, but if countries want to fully benefit from the power of micropreneurship, politicians need to make important moves:
1. Enabling startups: Startups are not the ones hiring people. But they build the collaboration economy to exchange all types of products and services. Today it´s housing and driving, but in the future there will be hundreds of services we can provide to one another with low capital or high utilization of assets. Enabling startups means reducing barriers, tax and being strong against the lobbying power from disrupted industries.
2. Professionalizing the micropreneur: Micropreneurs today just earn as “gigs”. $10 here, $30 there, most of it untaxed, but also, without the benefits of social security and being a “legit” profession. Professionalise it. Create entities of Sole or micropreneur with the right tax incentives that give everyone the ability to start. Spend money on demanded skills that can be used in the collaboration economy.