Financial Pressures and Technology Leads to Coworking

About two years ago, I discovered this “thing” called “coworking” when my company moved in to WeWork. From the moment I entered the walls of WeWork Chinatown, I knew something interesting was happening. I was captured by the abundant energy, the openness of the floor plan, and an overwhelming sense of the innovative activity was occurring all around me.

As I began to dissect the concept, I understood the overall value proposition for the entrepreneur. By sharing a larger workspace, smaller companies had the opportunity to leverage their spending. In the past, early stage startups, freelancers, and entrepreneurs were relegated to working from home or out of coffee shops. To me, it appeared WeWork was run by geniuses. They found an opportunity within a segment of the population I consider myself a member. Conceptually as a business, shared office space for small businesses was an obvious idea and I felt stupid for not having figured it out first.

Over the next few months, I researched “coworking.” When I traveled I visited “coworking” spaces. It didn’t take long for me to realize WeWork wasn’t the innovative genius I perceived them to be. But, it was clear they figured out how to scale the business of “coworking” long before the rest of the industry. The more I visited spaces, the more I understood something deeper lay beneath the growth of “coworking”.

stalker

I am innately fascinated with human behavior. I am a self-professed stalker. As I observed I traveled and researched, it became apparent “coworking” wasn’t a fad. It wasn’t a short-term change in work environments, nor a place for bearded hipsters in their skinny jeans to drink coffee and play on their computers. It became abundantly clear this “thing” of “coworking” stemmed from a deeper social context.

I concluded coworking was a direct response to economic pressures placed on companies and individuals, with technology enabling this response.

Gini, Where Did You Go Wrong?
The Gini coefficient (also known as the Gini Index or Gini Ratio) is a statistical measure of distribution. In the case of Gini (G), the dispersion among a given population of economic factors such as income, and wealth. At the heart of the G ratio is a complex equation, which puts normal people to sleep. The net result of the Gini calculation is a fractional number representing the economic equitability of a country, with “0” indicating absolute equality, and “1” indicating absolute inequality.

(This is where you bang your head against the wall…)

(Now stop…)

When examining the United States over the last 40 years, the gap between rich and poor has grown significantly. In 1969, the United States had a Gini of just less than .35 rising to .40 by the 1980’s. It continued to rise with a slight dip in the early 1990s but has continued to rise to the current ratio of .45. While a rise in ten basis points doesn’t seem high, only four developed nations have Gini numbers indicating larger inequalities in the distribution of wealth than the United States. Those benchmarks of equality are South Africa, Brazil, Nigeria, and China.

Mao

Take a moment to absorb this reality. The United States, the country my parents immigrated to in the 1970s while fleeing the Chinese communist threat to the Korean Peninsula, is today comparable to the country my parents were fleeing from.

Can you say irony?

The depth of current economic inequality in the United States is an examination of the combined net worth of the United States, more precisely the combined net worth of US households and non-profit organizations (CNW of US). According to a 2014 Wall Street Journal Article, the total value of the CNW of US is 80.7 trillion dollars. This figure is the highest ever recorded by the United States Federal Reserve. With an estimated population of 318.9 million residents, the CNW of US per person is $253,057.38. That comes out to a quarter of a million dollars debt-free per person.

mao plus nikeGreat in theory, however…

We don’t live in a utopian society where everyone shares equally; in 2010 the top 20% of the wealthiest Americans controlled more than 88% of the CNW of US. This means the wealthiest 20% of the American population each own over $1.1 million per person, leaving the bottom 80% each owning $37,958 per person. Even more unbelievable is this: the richest 31,890 people own almost the exact percentage of the CNW of the US of the bottom 90%. This type of wealth inequality hasn’t been since in the United States since the 1910s. You can say it; we are in the modern gilded age.

 

These are hard numbers to digest especially in the face of a consistently expanding United States Real Gross Domestic Product (Real GDP). In the 1970s the United States had a Real GDP of roughly 5 trillion dollars, today it is close to 16 trillion dollars,  yet over the same period of time wages have remained stagnate.Graphoi

Less With More
Over the last 40 years while US jobs were outsourced outside of North America, those positions that remained began a process of intensifying the demands on American workers.

In 1964 the wages of “production and nonsupervisory jobs” accounted for 37% of Real GDP, by 2013 that number dropped to 20% of Real GDP; yet over the same period this sector consistently comprised 60% of the total US workforce. While the overall number of workers remained the same, the total dollars their wages impacted the U.S. Real GDP fell precipitously. During this same period of overall wage decline, the US Real GDP Grew from $3.8 trillion in 1964, to $15 trillion in 2013.

Lawrence Mishel of the Economic Policy Institute calls this gap between productivity and earnings a “wedge.” Mishel charted the overall accumulated productivity growth in comparison to the hourly compensation of production and nonsupervisory workers from 1973 through 2011. The data shows an overall growth of 254.3% in productivity with hourly compensation only growing 113.1%. In 2013 workers classified as “production and nonsupervisory” roles earned 90% of the annual pay of their counterparts of the 1960s.

 

Financial Collapse to Shrinking Corporate Footprint
During the peak of the Great Recession unemployment in the United States reached 10% for the first time since the 1980s. It was a giant wake-up call for many sectors of the US economy. The years preceding the economic crisis of the early 2000s Corporations had become “multinational”, as had our entire social outlook on the world we were “globalizing.” The opportunity inherent in reaching global markets also created a major pitfall by tightly interweaving the economic viability of disparate nations together.

Follow this series of events:

The 1999 repeal of the Glass-Steagall act allowed investments banks and traditional deposit banks to coexist, providing the opportunity for shenanigans by Wall Street traders within the United States housing market. This essentially created a real estate bubble through a series of convoluted  maneuvers and exposing giant financial institutions to catastrophic loss. As U.S. homeowners caught up in the bubble defaulted on their mortgages, the banks holding those mortgages such as Lehman Brothers collapsed causing a total freeze on vital financial instruments such as commercial paper. Commercial paper is a financial tool used by large corporations to finance their short-term operational expenses.

ib330-figureAThe freezing of commercial paper  meant a complete stop to money funneling between institutions both locally, and internationally; essentially preventing companies from meeting crucial obligations such as payroll. As a result, many in countries outside of the U.S. went to work in 2006-2007 and didn’t get paid because of actions unrelated to their nation, or their company.

More importantly, many of the large banks in Europe and Asia had purchased the shenanigan ridden investments sold by US traders. What started as the repealing of a US law caused a global recession because our economies had become tightly connected.

During the financial crisis, Henry Paulson received calls from the Prime Minister of Britain, France, and Germany indicating the dire situation the entire world had become embroiled in, and the continued collapsing of certain U.S. banks would paralyze the capital markets of the entire world.

Too big too fail, damn right.

Since 2007, businesses worldwide have attempted to become more efficient and nimble. In the United States enterprise sized corporations have placed premiums on footprint optimization an effort to become dynamic. The only way to survive the uncertainty of an ever-connected global economy is rapid responsiveness  to change.

Couple the insecurity of international activities, tighter capital markets, and an ever growing rate of technological advancements and a company’s ability to be dynamic is not a luxury but a necessity. Almost like a middle aged guy who realizes he needs to be an athlete, U.S. corporations have shed the weight of encumbering infrastructure.

The optimization of footprints pushed corporations to shrink their office sizes, shrink their workforce, and outsource entry-level jobs which often require elaborate training systems. All of these moves have pushed much of their activities away from full-time employees to contract based work.

According to a 2010 report by Intuit, the makers of Quickbooks, full-time employment will shift to “free agent employment” and they estimate “80 percent of large corporations” will substantially increase the use of a flexible workforce.

It becomes much easier for a large entity to scale up or down when a large part of its workforce are on an “on demand” basis. More importantly using contract-based employees reduces the company’s overhead. Employees on a contract basis are not entitled health care, retirement, or benefits.

Fewer employees and less office space equal more profits and maneuverability. The use of flex and remote workers prior to 2007 was a fad. In 2015, it’s so ubiquitous there a term for shared office space within large corporations – hoteling.

Technology as the Catalyst
In 1995, there were 16 million users of the Internet globally, roughly 0.04% of the world’s population. As of 2014 that number jumped to 42% and 3 billion users. Smartphones are attached to our hands like nothing in human history, perhaps clubs during the Paleolithic era. Steve Jobs released the iPhone in 2007,  and while Apple didn’t invent the smartphone it made it useable and accidentally started a social revolution. One view of Job’s iPhone release speech and you’ll realize how far we’ve come.

Global internet usage has doubled since 2007, the smartphone-enabled access to the internet in ways the PC never could. The lower financial barrier of entry and the untethered way digital data is accessible. In the US internet access has increased 30% since 2000, and more than 10% since 2007.

The ability to connect to data, people, and resources wirelessly has fundamentally our world. Mobile devices and applications significantly altered life as we knew it, and mobility continues to evolve the way we work. The constant portability of online access means a workforce readily available anywhere, anytime, and anyplace.

The mobility of the workforce has been supported by the evolution of cloud-based software. With Google Drive, Dropbox, or Box, I can connect to my library of files, and documents from anywhere as long as I have an Internet connection. By untethering workers from files and desktop computers, the global workforce has become untethered from physical locations.

So What?
I am by no means a class warrior or socialist. I am a realist, humanist, stoic, and a capitalist. I write about the inequality of income and wealth because it’s a major factor shaping the world. The underclass of the gilded age ate shit because they had no alternatives, in this gilded age technology has provided opportunity, freedom, and a fighting chance. In fact because I am a capitalist, I am acutely aware of the financial shifts in the world. I just won’t lie to you about it.

If one doesn’t believe coworking is a direct response to financial inequality one only has to look at the countries where coworking is growing fastest. Southeast Asia, parts of Africa, and the most expensive areas of Europe have coworking in their DNA. Economic change and social change are innately intertwined like our global economy.

In my full-time profession, I am an investor, primarily in real estate. I focus on the commercial office and mixed-use sectors. The commercial office market, in particular, is in the shitter. Moments like these I live for. I see opportunity in areas where “smarter more experienced” people don’t.

Real estate in general is experiencing the disruptive change other segments of the economy have undergone for decades. Historically landowners competed with each other purely on price, while the functionality of space always mattered the amenities and ambiance were ignored.

Today’s savvy economically pressured consumer demands more. They want an experience. It’s a feeling you don’t know you have until you see it. This experience factor is what hit me so hard at WeWork.

Companies want to create this type of experience too because the employees they keep expect it. The days of enterprise size corporations taking up 250-500k square feet to show off their size are dead. They are as dead as Lehman Brothers. Why use 200k sqft when you can use 100k sqft and hotel your workforce. 

My office is in Arlington, Virginia which, according to Fortune’s 2010 list of the Richest County’s in America, is the 9th wealthiest with a median income over $96,000.00. Yet, countywide office vacancy rates exceed 20%, and in some submarkets reach 30%.

All of this because the commercial real estate world as a whole doesn’t see disruption when it’s smacking them in the face. That’s an opportunity for me, an opportunity for coworking, and an opportunity for you, if you see it.

The world has changed, and will continue to change. Coworking is part of a disruptive response to the financial pressures placed on individuals, workers, and companies rooted in the growing wealth disparity and growing financial pressures of a globalized world.

The TED Talk below is an added bonus, Paul Tudor Jones, a hedge fund guy saying the systems broken, says quite a bit.

 

CategoriesTags

Related Posts