[61] AI Rewires Our Work Model
GM Readers!
Today let’s explore how our work (model) changes in a world with AI. Specifically, let’s look at how technology changes distribution costs and production costs at the individual level and more importantly what it means for the future of work.
Hope you enjoy!
Building Blocks:
🎨 Life in Color Relevant Essays: [The Novelty of Ideology]
The Internet (stacking on top of previous technology and innovation) moved the world from one of scarcity to one of abundance.
During each technological revolution, technology took what we considered to be “work” and did that work for us. Along the way, it lowered the cost to accessing tools, products and capabilities … increasingly at the individual level.
With the internet, consuming anything is a mere button click away.
Now with AI (artificial intelligence), creating anything is a mere button click away.
AI drastically changes our model of work, enabling the individual creator to produce (in some cases) at the level of the Firm.
The Nature of the Firm
Our predominant model of work has largely stayed the same over the last ~200 years.
The work model has two components:
An Input-Output model based on time / hours worked
A Firm exists to manage the relationship between input (workers, hours worked or anything internal to a business) and output (product, dealing with customers or anything external to a business).
Input-Output Model Based On Time
In the Industrial era, the input is the number of hours that a worker works, and the output is the product produced. More input leads to more output — to produce more of a widget you have to work more hours.
In the Information Age, the input is still the number of hours worked and the output is some knowledge-based product, like analysis as opposed to a physical widget. Generally speaking, to produce more, you have to work more (though there are diminishing returns).
In general, more hours worked led to more output. More output led to more profits. It’s largely a quantity game.
Nature of the Firm
In Ronald Coase’s essay, the Nature of the Firm, he argued that firms emerge because they are better equipped to deal with the transaction costs inherent in production and exchange than individuals are.
Basically, firms exist to drive more efficiency and better economies of scale. Instead of 100 random workers finding work to serve 100 clients (which involves the works marketing themselves, being able to accept payment, deliver the work, draft a legal contract, etc etc), a firm can aggregate all of these costs and handle all of this “business stuff” for the workers.
We can reframe and think of a Firm’s purpose is to reduce transaction costs as two types of costs:
Distribution Costs: traditionally, a Firm is more efficient and capable of taking the output from workers and getting it into the hands of customers.
Production Costs: traditionally, a Firm can get better pricing on production inputs due to its economies of scale.
The 1-Person Company
The Internet Reduced Distribution Costs
In the modern world, the assumption that a firm has to exist for you to reach a client and a customer is no longer true. There are now a number of tools and platforms for anyone to reach anyone else.
The Internet has created distribution highways for anyone (with an Internet connection) to access. The Internet creates a (near) zero cost of marginal distribution. Prior to the Internet, building something and distributing it was too costly for the average individual.
On the Internet it’s virtually free.
What this looks like today is you can be a freelance consultant / creator and leverage the different platforms and tools out there to sell and distribute your product. You can choose how to price what you create as long as there is a willing buyer / client out there that accepts your price. This has allowed individuals with a particularly rare skillset / craft to capture more of the value that they create.
The Internet changed the traditional input-output model. With the distribution rails of the Internet, your output can reach orders of magnitude more people.
For example, you can write a thoughtful piece of content and one million people may consume it. For the one million people to consume it, you do not need to engage with the one million people, and you don’t have to write one million articles separately.
Since the distribution rails are accessible to anyone, competition for attention has vastly increased. This shifts the focus from quantity to quality — which raises the bar for the products / content being produced.
AI Is Lowering Production Costs
Generative AI tools like ChatGPT is drastically lowering the cost of production.
For example, in art and graphics, generative AI tools allow anyone to create high fidelity outputs with just a few key strokes. Traditionally, humans had to create the art by hand which required a bunch of production side costs.
And it’s not just art, it’s content of any type. Most output in the knowledge work world can be reduced to content (writing, marketing campaigns, graphics, software code and etc).
AI changes the role of humans in the production process. In this new world, our skill might be prompt engineering — asking and telling AI what to create is more important than the actual creating.
AI enables 1-Person Companies
On the Internet, you can distribute content, ideas, products and services for anyone across the world to consume. The Internet supercharged distribution.
With AI, we will eventually be able to produce anything with the press of a button. We can all become artists, developers, writers, content creators, etc. AI supercharges production.
With distribution rails and production rails at the finger tips of the individual creator, creators might be able to operate at the scale of the traditional firm.
This means we go from a world of abundance enabled by the Internet to one of super-abundance enabled by the Internet and AI.
AI fundamentally changes our work model: (1) to be more individual focused and (2) to focus more on capturing attention.
Scarcity in a World of Abundance
In a world of abundant high fidelity content that is accessible anyone, the concept of scarcity will look different.
Generative AI supercharges what any one individual can create — AI is a step change in expanding access to creating.
But, while AI can produce thousands of high quality content with the press of a few buttons, the broader question will be what is considered high quality? Which ones are “good”?
In a world with endless content, options and choices, curation becomes the name of the game.
The noise-to-signal ratio is going to increase drastically. So we will look to others we trust to curate for us the thing that deserves our attention.
Scarcity goes from being about physical scarcity and constraints to being about artificial scarcity and constraints.
In this new world, what is scarce isn’t the thing itself, what is scarce is becoming the thing that captures the most attention… because attention is scarce.
Is this good or bad?
Many industries and parts of society are still trying to catch up to a digital first world. The pandemic was a good example of how far behind some industries are in technology adoption.
We now live in a world where there are multiple emerging technologies, all growing at an increasing rate.
On many levels, this is amazing because it pushes the possibilities of human beings.
The optimist in me believes that what it means to call something a “craft” will be reinvented multiple times as emerging technologies like AI hit widespread adoption.
The challenge will be the breadth and depth of change required by many industries in light of these technologies.
Rewiring how societies, industries and economies have worked for the last few hundred years will bring about growing pains.
Change is hard.
In a world of pretty much limitless abundance, how will we make sense of everything? I feel like we're already at a point with content creation where things feel seemingly endless. AI will accelerate that change, and bring about increased detail to niches in society that are already appearing infinite.
It'll be an interesting ride.