| Dave Kaufman – host: | We live in a digitized society. With the simple press of a button, or tap of a keyboard, you can have whatever you need delivered right to your front door. The Amazons and Ubers of the world have all grown to become bigger and more powerful than anyone could have foreseen when the COVID-19 pandemic first took hold of society just over one year ago. And as the gig economy continues to take up more and more space, we’re still left asking whether the positives outweigh the negatives, and if it’s in fact too late to put on any safeguards that would protect gig economy workers and users of these services. Has the pandemic made the companies that benefit from digitization too powerful? If so, can anything be done? |
| Dave Kaufman – host: | Welcome to The New Normal, the podcast exploring management research brought to you by Delve, the official publication of McGill University’s Desautels Faculty of Management. I’m your host, Dave Kaufman. On this episode of The New Normal, we will discuss the effects that COVID-19 has had on the gig economy, digitization, and the growing reliance on AI and algorithms. Among the issues today’s episode will explore: how has COVID changed the direction of digitization? Is the Uberization of our world a positive thing? And has COVID created an over-reliance on the technological behemoths? |
| Dave Kaufman – host: | Joining me for this episode is Professor Samer Faraj who holds the Canada Research Chair in Technology, Innovation & Organizing at the Desautels Faculty of Management at McGill University. He is the head of the research group on complex collaboration and serves as the director of the faculty’s PhD program. Faraj has won multiple Best Published Paper awards and is currently a research fellow at the Cambridge Business School, a fellow at the Cambridge University Digital Innovation Center, and has been a visiting professor at HEC-Paris, VU University in Amsterdam, and a Senior Fulbright Scholar at the American University of Beirut. |
| Dave Kaufman – host: | I started by asking professor Faraj what he viewed as some of the major issues affecting the gig economy and its response to the COVID-19 pandemic, which he views is one of the most seismic events we’ve ever seen. |
| Samar Faraj: | COVID-19 pandemic can be seen as a breach, a natural breaching experiment of the kind sometimes ethnographers do when they challenge your daily understanding of things. So the pandemic has allowed us to challenge, or has challenged for us, has breached, our daily understanding of where we were going with digitalization. So it has revealed a number of things. We take a lot of the assumption that we all have universal access to digital services. We also realize that a lot of parts of our lives are difficult to move to the digital part. |
| Dave Kaufman – host: | Faraj also points out that the pandemic has exposed numerous flaws in the digital infrastructure that society has relied on to help us weather the pandemic. |
| Samar Faraj: | We have also discovered that certain algorithms that had been running our supply chains have been unable to deal with the interruptions that have happened. We also found ourselves with organizational surveillance entering the privacy of our homes, and being exposed also, is happening quite a bit in public spaces. |
| Samar Faraj: | So one of the things that have been exposed is this assumption of universal access. It’s clear now that not everyone has access to the same level of digital infrastructure that is needed to move to the digital realm. And these differences have exposed one of the differences between rural and urban. Some of the rural zones do not have significant infrastructure. And thus, are at a disadvantage. |
| Dave Kaufman – host: | That disadvantage, Faraj believes, is highlighted even further in lower income, marginalized, and BIPOC communities. |
| Samar Faraj: | And it even has, in the US at least, an ethnicity or a racial difference. For example, there’s a difference of almost 9% in terms of access between Black and White populations. So as we move into online services, these populations without easy access to digital infrastructure, are at risk, or at-risk of being under-serviced. And so it’s a challenge for the poor, for the elderly, for rural populations, as the digital renders already marginalized population even more invisible. |
| Dave Kaufman – host: | You touched upon that in one of your recent papers talking about students in Northern communities in Canada, who it had already shown had fallen behind those who were studying closer to more urban areas. |
| Samar Faraj: | Absolutely. And we see it even within McGill University. Our PhD students, for example, who you would assume have significant access to a digital infrastructure… We saw huge differences. Some of them had effective bandwidth, or lived in towns that had effective bandwidth, and houses that had effective bandwidth, while others were in small apartments and were reliant on much weaker services. So it makes a difference even with the mundane task of participating in a Zoom call. So you see those differences right there, and it’s completely exacerbated when you are up north, or you are in a place that has very low bandwidth. |
| Dave Kaufman – host: | There have been big picture discussions in recent years where it’s argued that the internet should be as much of a basic human right as access to water or literacy. Has the pandemic exposed this need even more? And is it just about having access? Would having access to say, dial-up internet, solve those problems? |
| Samar Faraj: | It’s a good point. It’s an important point. Because COVID laid bare these inadequacies that we do not pay attention to as we’re all happily predicting, and watching take place, this digital future. The abrupt disruption brought about by the COVID pandemic makes you rethink, what is internet access? And previously, it was perceived to be maybe more of a luxury or not necessarily a necessity. But clearly nowadays, your ability to function digitally can save lives. |
| Dave Kaufman – host: | As the conversation continued, I wanted to shift to the challenges our world faces due to the digitization of society. The gig economy is flourishing, at least for some. And to use Uber as an example, I think it could be argued that that particular app highlights the disparities we see in our world today. |
| Samar Faraj: | Indeed. Uberization, it’s a new word for a phenomenon where we are doing a lot of organizing onto a digital platform. A platform that is reshaping work and labor markets and is changing even the way we think about organizing. Uber-type platforms are touted to solve coordination problems, such as matching drivers with people needing rides. And this model is expanding now to food delivery, and even medicine delivery, and package deliveries, and so on. |
| Samar Faraj: | While it may be very comfortable for the person sitting at home to receive their goods… Every day in my own household, we receive multiple packages. So I am not going to complain about the help. It provides in the comfort, and the safety it provides at a time of pandemic. But it is true that for the drivers, there’s a certain amount of precarity in those jobs. |
| Dave Kaufman – host: | Can you tell me some of the ways that that job is precarious? |
| Samar Faraj: | The pay is low. It takes a lot of people to make it happen. It takes away from traditional businesses, and we end up with situations where these companies gain a great competitive advantage over the competition. They have economies of scale and scope that the little, regional taxi company, for example, or delivery companies, cannot match. |
| Samar Faraj: | So these companies keep on growing and getting bigger, and they become dominant in their market. So if you think about the food delivery business, you may have somebody like Uber and maybe somebody like DoorDash, and it gets very thin after that. |
| Dave Kaufman – host: | And it isn’t just the driver who’s working with Uber that’s getting the short end of the stick. Faraj also cites how the already struggling restaurant industry is further affected by digitization as well. |
| Samar Faraj: | So we’re changing what used to be a mom-and-pop type situation… Where, for example, the Chinese restaurant at the corner could rely on a couple students or people who are willing to drive to deliver food, into this complete different set of relationship with an Uber. And you see it with the prices. Some of these delivery services force restaurants to charge different prices, and they collect a huge cut of the price of the food. So you’re buying into not just a service that helps you deliver goods, but you’re buying into a new type of relationship where the internet access to your restaurant is now mediated by places like Uber. |
| Samar Faraj: | This is another thing about PPE. When PPE or when the grocery comes, we always talk that we should have local manufacturing. We should have security of supply, let’s say. That is the most important. Whether local or not, the question is security of supply, and that we should be able to get it when we want it, in the reasonable quantity that we want it. |
| Dave Kaufman – host: | We see a similar technological leap with Amazon, where we’ve heard stories of outbreaks at multiple Amazon facilities. And it’s very easy to forget that at the end of the day, these are people that are putting themselves at risk, once again, for very low pay, very little security, and so that we can stay at home and be safe. |
| Samar Faraj: | Indeed. The business model underlying the Uber-like platforms is that you are considered a glorified consultant or an independent contractor. And thus, the costs of things like vacation time, healthcare, retirement benefits, are all carried by the driver. Even the car is provided by the driver. So everything has become an externality to the Uber-like company. |
| Samar Faraj: | And in return, they can offer a service that’s a bit cheaper than let’s say the competition. But some of the positives are actually fairly limited because there was a reason why we had institutional arrangements like a taxi commission, people needing to have a taxi permit, standards for car qualities, and an extensive amount of training. |
| Dave Kaufman – host: | Faraj then uses the taxi industry to highlight the benefits of technology and digitization. |
| Samar Faraj: | Something gets lost as we move to these platform-type companies. Yet I do want to state that there are advantages too. So technology in itself can provide some amazing advantages and help to everybody. For example, this idea that taxi drivers needed to be tested for their ability to navigate streets, figure out shortcuts to take people in large cities, turned out to be overrated. Because with the availability of apps like Google Maps, or Waze, those map-like services, any driver can now find his or her way through a complex city, and by avoiding traffic. So the expertise that used to be required by the human, by the driver, has been migrated to the algorithm. And in that sense, it’s a very positive development. |
| Samar Faraj: | Absolutely, so taxi drivers did not see this coming. They had a fairly protected set of institutional requirements. They dealt only with the government, and there were certain qualities of service that they had to ensure. There was a market for medallions, which simply implied that medallion supply was limited, so prices were high. So it was very well regulated. So this is an example of a disruption. Some new company comes along and takes advantage of the inefficiencies of such an institutional arrangement on such a market. And initially, at the very least, starts by charging a lower price. |
| Dave Kaufman – host: | Only initially. |
| Samar Faraj: | You may have noticed, like most consumers have noticed, that the prices of Uber, and Lyft, and companies of that nature, started out lower at the beginning. Enough to drive out some of the competition or reduce it. And then in recent years, the prices have gone back up. And so this is the typical model of you get into a market and weaken the competition, or drive it out completely, as has happened in some US cities. And then you can reestablish a certain pricing structure that gives you significant profits. |
| Dave Kaufman – host: | As we continue to examine the role of digitization on society, one thing that is of unquestionable concern is how large the main players in each field have gotten. Is fair competition even possible when the industry behemoths have such a giant presence? |
| Samar Faraj: | So, all these technological developments are not necessarily bad in themselves. The question is, how are they deployed, and for whose benefit? So you mentioned earlier, we talked about Amazon. You have a handful of platform companies that have reached market dominance in a variety of settings. Where, for example, you take Amazon in online retail. It’s basically the only game in town. In social networking, you have Facebook. In online search, you have Google, and there are others. |
| Samar Faraj: | So these companies have divided up the world and they each protect their arena very powerfully. So powerfully that the US Congress, for example, when they did hearings last summer about their market power, these CEOs felt it was unnecessary and let it be known that they were not really interested in participating in any exploration of their market power. |
| Dave Kaufman – host: | How can the Facebooks, Ubers, and Googles get away with thumbing their noses at the US government? |
| Samar Faraj: | As they say, life is good when you’re on top, and this is the situation with those players. If you look at some of these companies, they’re worth over a trillion dollars, and that had never happened till about a couple of years ago. And by the end of the current decade, these firms are expected to reach maybe 1/3rd of the world’s gross economic output. So it’s clearly an unsustainable situation. It’s a question of regulation. It’s a question of what does society want from these companies? They are providing incredible service. |
| Samar Faraj: | It’s lovely how Amazon can provide to all these people their packages so quickly. It’s wonderful that Facebook is helping millions of people sustain connection across space and time, and so on with the others. But there is a need for society to look at what is happening and how much competition there is in that sector. Right now, these behemoths are avoiding competition. They’re buying out any competitor that emerges, or they are crushing them, not letting them develop. So there may be things that our governments should be able to do to create a healthier, more competitive setting. |
| Dave Kaufman – host: | Which I’m guessing is difficult, especially in the midst of a pandemic that has really put under a magnifying glass our over-reliance on all of these different online tools. |
| Samar Faraj: | Correct. The pandemic stopped all our thinking about this. But I think in many sectors of academia and among the general population, the pandemic has been an occasion to stop, and think, and to figure out what is important. It’s becoming clearer that there’s a need for society to control these platform companies, rather than letting them keep going the way they have been going. It’s not taking a position against these platform-type setups. It’s not against the business model. It’s just under capitalism, competition is one of the main tools available to keep everybody honest, and everybody producing the best goods possible, and serving the broader population. That has always been the case and should be a key guiding principle. |
| Dave Kaufman – host: | I’m concerned, moreso after speaking with you, that algorithms have too much power. And it’s not in the best interest of those who profit off those algorithms having too much power to do anything about it. |
| Samar Faraj: | The big question for management schools, and for management scholars, and for managers, and just working people in general, is what are algorithms, and specifically the AI variety algorithm, doing to work and managing? So very quickly, AI does three things very well. It does better predictions. So if you think of prediction as something like a data set and you apply to it some statistical techniques, AI does much better prediction using all the information available, and using a lot more variables than you would in a model developed by a human. |
| Samar Faraj: | So it does a bit better prediction. A tiny bit better, but significant enough. It also does pattern recognition very well. In a sense that you can teach an algorithm to recognize patterns in the data. So this leads us to things like in radiology, certain AI algorithms can now find lesions present in MRIs of cancerous organs. And then they can tell the radiologist, this lump here is probably cancer. |
| Dave Kaufman – host: | Wow, this highlights an incredible strength of AI algorithms. |
| Samar Faraj: | This is actually a great strength. And finally, and more important, an AI algorithm at work can basically take action based on very complicated situational and historical patterns. So I can study what you do, Dave, and I can, if I have a long historical record of what you do, apply an AI to figure out how you make decisions at work, and what the information you use, and what seems to be more important. |
| Samar Faraj: | And from that, I can create an algorithm that can replicate quite a bit of what you do. So this is the dangerous part. This is the scary part for people. And there have been surveys and studies that claim that up to 50% of jobs are likely to be lost within 10 to 15 years. |
| Dave Kaufman – host: | As you’ve heard in our conversation, Faraj highlights the many positives and negatives that digitization has brought to the forefront and have been magnified due to the COVID-19 pandemic. While the notion that 50% of jobs could be lost in the near future may seem daunting, an ever-evolving and improving society will undoubtedly provide for new opportunities in emerging fields that will contribute to provide new paths forward and towards a greater future for our ever-changing world. Stay tuned as we navigate this new normal together. |
