by John S. Niles, President, Global Telematics,
Seattle, Washington USA
Copyright 1991, Global Telematics
(Adapted from a speech he presented at the University of California - Irvine Telecommuting Conference on July 16, 1991, Hyatt Regency, Irvine, California)
You've already heard a lot of good reasons why telecommuting has a very great future in the economy of the nineties. My additional message to you now is that the telecommuting phenomenon gives economic development activists a new option for long-run regional improvement.
Economic development activists sit in 15,000 organizations around the U.S. In general, they do not know about the 5.5 million people today who are telecommuting. They do not know that the number of telecommuters is rising so rapidly that it's going to double by the year 1995.
Regional economic developers who don't grasp telecommuting are rowing upstream with one oar and probably moving downstream stern first toward the falls. People who do understand telecommuting need to educate economic developers about the probable future.
Let me state at the outset what will be the major contribution of the telecommuting phenomenon to the economic development phenomenon: The link which telecommuting provides to the chain of self-employment, entrepreneurship, small business, growing business and job creation. This process is a less visible form of economic development than attracting a big Pacific Rim electronics firm, but it is much more important, as I'll explain.
In one sense, economic development is a happening. Firms expand or contract, governments tax and spend. The net result yields a particular path of economic development in a region, whether the region is southern California or eastern Oregon. It just happens.
But beyond just watching economic development happen, there are now many local government programs, public-private partnerships, and civic organizations practicing active intervention to make development happen better than it would if left alone. Through intervention, these economic developers try to improve the overall path of a region's economic development from a public interest point of view. A typical focus of economic development intervention is creating more jobs for people who live in a region, or filling up real estate parcels with businesses. Another focus is keeping jobs from moving out of the region.
The common understanding is that economic development means promoting growth, with the idea that more growth is better than less growth. However, sophisticated professionals who do economic development are now often more focused on long-run economic quality. Growth is only one dimension of economic quality as those of us on the West Coast know from our experience in the 80's. Other dimensions include the rate of growth (where slower may be better), the stability of growth, industry mix, average household income, and so on.
Now, economic development as intervention in the path of the economy has been characterized by the Center for the New West into two categories of activity -- hunting and gardening. I'm going to talk about both.
Hunting is the form of economic development you probably know more about. That form reflects the traditional and still prevalent view that the most straightforward practical way of building up a regional economy is to attract new business facilities into the region by influencing private sector decisions about new sites.
How is hunting done? Lots of ways. I understand that here in the Los Angeles area there is a billboard beside a freeway, just up from the fiber optic cable buried along that freeway, that says "Alabama Is Open For Business." As TIME magazine puts it, "Grim commuters stuck in traffic have plenty of time to write down the toll-free number on the billboard."
Well, beyond billboards and magazine ads, and expense accounts of raiding parties, tools that economic developers use for attracting new business facilities include tax breaks, energy rate concessions, and assistance in finding and training new workers.
It's interesting that this form of economic development -- hunting -- actually evokes another definition for economic development: Moving work instead of people. Does that sound familiar? Economic developers in a region try to find work for people who live there so that the people don't have to move to find work.
The problem with hunting, as prevalent as it is, is that it doesn't work very well. There just aren't that many big facilities to go around. There are about 700 corporate moves visible to the naked eye in a given year in the whole U.S.A., and 15,000 economic development organizations chasing those moves. There's a lot of evidence that what economic development authorities do to market their region just doesn't have much to do with what corporate site planners decide. Tax abatements are certainly taken if offered, but they come out of the hides of the taxpayers already there who often say, "What the hell is going on; did I vote for this?"
Then, too, the facilities that are owned by out-of-town companies are often the very first to lay off workers or shut down completely when bad times come. And, over the course of the past decade, experience has shown that the net number of jobs added by big corporations nationwide -- the jobs created in those new facilities minus the jobs that go away when those facilities go away, the other side of hunting -- is all just a wash.
Hunting is known as "smokestack chasing." In the high-tech age, it's also known as "chip chasing". Now that telemarketing centers, credit card operations, and other back offices can be placed anywhere that has access to the world telecommunications grid and a good labor force, perhaps hunting should be called "work station chasing." Back offices full of computer and telecommunications equipment and people to use this gear, have been moving from downtowns into the suburbs for years, looking for lower rent and shorter commutes for the workers who are already employed at those facilities.
But, beginning with the establishment of the Citibank credit card operation out in South Dakota in the early 1980's, information intensive operations have discovered that the whole country is the suburbs. And Sioux Falls, South Dakota is now home to a 45-acre facility employing 2,800 people processing the work, the charge slips and the phone calls, for 17 million credit cards. Telemarketing centers and back offices now dot the Great Plains. The workforce there, as you can guess, has been recruited from the more productive agricultural economy, that doesn't need as many people to grow our food.
Unfortunately for workstation hunters, the suburbs are still expanding...now globally. And this is a familiar story that ties into what we've experienced in manufacturing.
American Airlines carries 1500 pounds of airline tickets each day on a flight down to Bridgetown in the Barbados, where 500 people sitting at terminals process those tickets and send the data from them by telecommunications back up to American Airlines' computer in Tulsa, Oklahoma.
New York Life Insurance Company has 50 claims examiners in Ireland.
Doctors in New York City hospitals are sending their medical transcription work to the Philippines where trained transcribers even correct medical logic and send the work back by telecommunications.
And, I understand that a law firm is sending legal research work to be done in Asia.
Marketing your particular corner of North America has gotten a lot tougher in the global economy. And economic developers now realize that keeping business from moving their facilities out of a region is just as useful to regional economic development as hunting and bagging new ones. The most savvy economic development leaders now focus on investments which enhance competitiveness of the regional economy. Public education, work force training, business assistance, effective government services, are examples of areas that are under local control whose improvement makes a big difference to the business climate of a region.
Gardening describes these kinds of programs which improve a region's business climate. Progressive regional economic development authorities now emphasize gardening over hunting. That's the new economic development. And most states in the union have programs that flow exactly into that kind of thinking: Funds for local homegrown business development, public money for worker training.
Gardening and hunting actually come together when you realize that a business relocation team searching for a new facility site is likely to ask the region's economic development hunting team questions about how well the garden has been kept up. How good are the public schools? What's the infrastructure like? It turns out that the quality of the gardening of a region is much more important to its economic development than the quality of the hunting.
Now, let's start thinking about what telecommuting does for economic development, given this background. Enhancing choice, flexibility, productivity, adding to the depth and breadth of the workforce -- you've heard about these effects of telecommuting -- these things are all important toward improving a region's economic development path. And, therefore, telecommuting links directly into economic development in these ways.
But, I want to make the central point that the most important linkage between economic development and telecommuting is that the telecommuting employees of large companies have an increased propensity to take the plunge of starting new businesses in the future.
Encouraging business start-ups is one of the most important economic development gardening programs that a region can have, for two reasons.
Number one, despite all the negatives of starting businesses, including the odds against success, self-employment can be a very important source of family economic viability, satisfaction, hope and a kind of security. Number two, and this is critically important, the minority of small business that do grow up, do create jobs for other people in very large numbers.
Let me cover both sides of that. People become self-employed for a couple of reasons: they want to, and sometimes because they have to. Fear is a very basic block on the "want to". It's hard to start a business. There's very real risk involved. Most business start-ups are less than successful. There are lots of aborted takeoffs, lots of crash landings, even if a crater from a total crash-and-burn is relatively rare. But most successes occur only after a long and difficult number of years.
And while the emotional satisfaction may be high from self- employment, I don't want to create any illusions. The economics are not beautiful. According to I.R.S. reports, the 1988 average income from a proprietor-type business is a shade under $14,000. Entrepreneurialism is a pressure-release valve in an economy where there are many regional mismatches between the number and skills of people and the available jobs.
Two-earner families often get into this. Somebody gets laid off or transferred, and rather than disrupt the whole family and move, one of the partners may decide it's best to take the severance pay plus the knowledge that there is one regular paycheck and try to get some freelancing going.
As the July 22, 1991 issue of Business Week proclaims, "When the going gets tough, the tough get self-employed." A quarter of a million people have joined the ranks of the self-employed since last July. The U.S. total now stands at 9 million self-employed people, about 8 percent of the work force, the highest percentage in a quarter century.
I'm reminded of something George Bernard Shaw said about getting through life: "The people who get on in this world are the people who get up and look for the circumstances they want and if they can't find them, make them." And those of you who are doing your own thing, I think can have some feeling for that statement.
Now, rhetoric aside, much more important than what self-employment and entrepreneurship means for the person who does it, whether success or failure, is the fact that some new businesses grow up to become big enough to create jobs. In fact, most of the jobs created in this country over the past decade have come from small and mid-size companies, not the Fortune 1000.
That's at the heart of effective economic development. Admittedly, only 15 percent of firms create 94 percent of the jobs. But the 15 percent that do break out of the pack is very important. It's not easy to identify them when they are still small -- witness how hard it is for venture capitalists to choose the right investments. The fact remains, without those successful small firms breaking out of the pack and creating jobs, the U.S. economy would be nowhere.
Tom Peters, author of Thriving on Chaos, said something that bears on this directly. "I look at our largest corporations," he said, "and I become terribly pessimistic. Big is dead. Then I look at the legions of small and mid-sized companies and I feel a glow of hope."
Telecommuting is a vital catalyst in the process of entrepreneurship and job creation. I think it's telecommuting's most significant contribution. Let me make the case for that. There are two aspects of the catalyzing role of telecommuting in job creation. First, it's very important to view homebased telecommuting as an incubator for the transition of people from a corporate environment to business owner. And second, I think telecommuting is a very good technique for growing an enterprise beyond the entrepreneur herself.
First, homebased business proprietors have no place to commute to so they are different from "official" telecommuters. However, it's the similarities between telecommuters and homebased people that are important here. The psychological requirements of getting work done close to the refrigerator, close to the bed, are very similar, whether you're in home business or a salaried telecommuter. And because of these similarities, corporate employees who are allowed to become telecommuters, and succeed as telecommuters, are prime candidates for entrepreneurship.
Let me run through the reasons why. First, salaried homebased telecommuters are already working in the leading place for starting a business in America. Hershey Foods, Nike, Apple Computer, Hewlett-Packard, all began in kitchens, garages, or living rooms.
Second, the characteristics of a good telecommuter are very similar to the characteristics of a good entrepreneur; there is a high overlap in areas like self-motivation, self-discipline, self-management. In fact, Gil Gordon in his book says: "Encourage telecommuters to think like and manage themselves like entrepreneurs." And he adds, "within reason." I'm saying with just a little unreasonableness, entrepreneurs emerge.
Third, because of the remote supervisory requirements of telecommuting, I think there is a tendency for the migration toward management systems for managing telecommuters which establish relationships more like customer to contractor than boss to employee. This is something we tiptoe around in telecommuting. I'm talking about project management, deliverables, performance contracting, and, yes, even piecework. Plus the temptation on the part of employers to put people who work for them off-site into an independent contractor status. We've seen it in the past, we try to warn against it, but it happens. It is a management temptation that is a horror to organized labor. It may be very unfair to somebody who doesn't want to do it. But there is also the opportunity, given an understanding of business principles and pricing, of making the transition to enterprise status, which I say is the upside of these management practices.
Fourth, telecommuting creates physical and psychological distance from the mother corporation. Broadband telecommunications can get as good as you want. I claim there will always be distance between a place of work in your home and the big corporation. If there weren't that distance, why would you do it, right? And furthermore, I personally extrapolate from Jack Nilles's work, though I don't think he agrees with this, that telecommuters are going to exercise the option to move their homes further away from the city -- the new teleburbs, as my friend Don Dillman, Professor at Washington State University, says. That's my reading of the evidence, even though it's not proved yet.
Overall, I see telecommuting providing a powerful set of vectors that will move more individuals toward the step of becoming their own boss. I believe that a wise corporation management can channel employee energy going toward entrepreneurship back to corporate benefit. But I don't believe it's going to happen. I think that most of the time if someone has those feelings they, in fact, are going to move toward starting their own business.
The second dynamic about making telecommuting part of regional economic development is the usefulness of telecommuting as a technique for growing small firms. Companies under five employees already employ 40 percent of all telecommuters. It's very much a small firm phenomenon. And small innovative companies are the ones in the best position to use telecommuting to grow their entire operation. I think the greatest telecommuting potential, in fact, lies in building a firm around telecommuting right from day one.
I think of a firm like Journal Graphics, which has been described in Telecommuting Review newsletter; they run their whole company around work at home. That's the outfit that sends you the transcripts of news and talk TV shows. Journal Graphics' employees tape assigned shows in their homes, do the transcripts, and fax them to New York City for final processing. Whole companies are being built around telecommuting now.
To summarize and conclude, telecommuting is very important to the North American economy. I urge you to seek out economic development leaders as an audience to be educated. Help economic developers to discover and embrace and support those millions of employed telecommuters that already exist in hundreds of thousands of businesses. Help make support of telecommuting a part of good regional gardening. And help move telecommuting beyond productivity improvement and taking cars off the road toward becoming a vehicle for people finding self-sufficiency, new choices, better jobs, wealth, and hope.
Telecommuting is the gateway to a garden where the seeds of new businesses are planted. Some of these businesses will fail. Many of them will at best provide a temporary livelihood for the owners and their dependents. But a few of these enterprises will grow and become employers of others, a source of jobs for the future.
Last modified, February 07, 2011