Tuesday, December 13, 2011

Factors of Production In The Social Age

In The Wealth of Nations, Adam Smith identified the "factors of production" as land, labor and capital. Land can be expanded to include anywhere things can be produced (farmland, factories, or cubicles); labor can be expanded to include expertise, skill and knowledge; and capital may include other properties with value (things like money and ideas) that can be either exchanged for materials (money for iron or wheat) or synthesized with land and labor into something more valuable than the individual components (think of a raw idea that, over time, gets shaped into a product or service by scientists and engineers, then gets produced and sold).

Throughout the industrial and post-industrial era, there has been a tension between landlords, workers, and financiers. Standing in the middle of that tension is management. Management typically does the bidding of landlords (by collecting rent) and financiers (by maximizing the return on the financiers' investments). It doesn't take a Nobel Prize in economics to figure out that workers might often feel (rightly or wrongly) that their interests weren't being represented. The perceived devaluation of labor by landlords and investors provided the basis for Marxist theory, and set up the economic struggle for power that continues to this day.

My friend Jessica Miller-Merrell of XceptionalHR (aka @bloggingforjobs) recently shared a story with me of an organization that used a website's social tools to register their displeasure with an (admittedly) misguided policy in a big way. I mean, a REALLY big way. Big enough that it caused serious management headaches and got the policy changed.

This story really resonated with me, because it illustrated how today's workplace and economic environments have changed. I would also argue that they've changed for good. Much of the pricing power of "the market" for land or any other resource comes from the ignorance of the buyer. It's what's called "assymetric information", and it's the reason anyone who's taken an economics course knows at least one Latin phrase: caveat emptor, or "let the buyer beware". Actually, they probably also know ceteris paribus, but that'll be another post.

Today's social world makes it harder and harder for sellers to make profits based on the buyer's ignorance. Some would argue that's a bad thing, but in the end it ensures that people get the most for their money, and that's generally a good thing in the eyes of many.

The real game-changer with social media, however, is happening with labor. Jessica sees it. I see it. And any company that doesn't see it (especially since human talent is at a premium) is on thin ice. Companies no longer can simply make up rules according to their own wishes and simply for the benefit of their investors. The workers of today are too savvy and, increasingly, too connected. Tools like Change.org and sites like Glassdoor bring together worker interests and put management on notice. Smart companies recognize that their workforces produce tremendous value (in some cases, in this information and service-based economy, all of the company's value), and they treat them with respect and as partners. Antagonistic management practices still exist, and many an investor thinks that their money is more valuable than someone else's sweat (and vice versa, to be fair). The Social Revolution, though, pulls the curtain back and reveals the truth. And the truth, in this case, will set many free.