Well the question of tax, and how much of the newer forms of income are identified is already an issue. Some trading on eBay will inevitably hit UK capital gains thresholds but not all by any means. Airbnb rentals are absolutely akin to historic house rentals but if the owner provides (and charges for) additional services like a guided tour of the locality, cooking demonstrations, language teaching – does this become more of a formal business? The lines of distinction between business / personal; capital/income; incidental / regular will become significantly harder to define if portfolio income takes off.
And that’s before the question of where this activity will take place. Digital nomads were, at least until Covid interrupted, becoming more common. As more of our lives become virtual the question of where an activity is genuinely taking place becomes greyer. If a 3D print design is created by someone in the UK, but only drives revenue when it is used to print the item in say, USA – how does that work?
And above all there is the shift in mindset needed here. If portfolio income becomes the norm, then so many of our fundamental assumptions about the relationship between work and income will need to shift – where, who, how, what time of day, how the income is defined . . . . the list is endless. And will the complexity of these arrangements be left to the individual to sort out? Or will government need to educate, enable, facilitate and support – if for no other reason than to ensure equality of opportunity?
I’m quite sure that isn’t a definite list – more the tip of the iceberg. And I think there are many more new opportunities to come. So watch this space!
If you go back to my historic parallel of the industrial revolution it’s here that we will see the most radical shifts. And yet in some ways they are the most difficult to predict. Here’s a few that I can see today:
Almost certainly, left to the open market, leveraging one’s earnings potential will depend on financial status, range of contacts and knowledge, confidence and risk appetite amongst other attributes. Those are all criteria which favour those who already have. And few of them are hugely susceptible to tangible actions like opening up university places – indeed we are already seeing a trend where the most independent are eschewing university for real life experience. I fear therefore that inequality of opportunity will increase without some as yet unclear form of positive intervention.
Financial management of a career based on portfolio income becomes much more a matter for the individual – and again few are well equipped for this innately. A key element of education would therefore need to be around risk, financial arrangements, the purpose and availability of savings, changes to how debt is viewed today etc.
And many financial institutions would need to become much more sophisticated and integrated in their approach – mortgages, pensions etc today are predicated on some very simplistic assumptions: mortgages are predominantly assessed on regular employment income; pensions assume a steady working life (with employer contributions) with a key end date and lack of employment thereafter
Human nature and inertia of established institutions will look to maintain the status quo (think back to office working and broadening of IR35 as two signals today) – but I suspect the genie has well and truly left the bottle. The question therefore is what are our 3 wishes?
It’s a horrible phrase so I’ll try to explain the thinking. I started the above diagram about 6-7 years ago and I’ve been adding to it ever since (and it’s nowhere near complete as it will continue to grow and change. It represents three shifts which are occurring at the same time, and which the Covid appetite for freedom has really accelerated, although these are not new.
Firstly, there has been a desire for more work-life balance for years (I’m tempted to say decades) with people looking for ways to make their day less structured and prescribed. That’s the ovals here – with the outside the least structured, ie you can do the activity whenever you like (and in many cases it doesn’t take that long!).
Secondly, and I think this is at the heart of the revolution I’m seeing is the shift towards bringing in money in new and differing ways. If the industrial revolution was about what work we were doing, this revolution is about how we, as individuals, finance the cost of living. So I’ve identified (thus far at least) 4 buckets of activity which people are using to bring in money. The first is employment – that’s pretty familiar to most although it too is changing. The second is talent leverage – that’s where the familiar concept of entrepreneurs sits – people who use their own talents to create a business. But it is now so much more. The third is assetleverage – think Uber or Airbnb or Ebay. Making money from things that you items that you have and you either no longer want/need or you are underusing. The fourth is investment – which again is not new, but how it is being done today, and who is doing it has changed hugely.
The third shift is that increasingly a portfolio income – made up of several of these at any one is becoming more common, and has been enabled by the ability to many of these in what used to be ‘leisure time’, or at least without them consuming the whole day. And this fits neatly into what Lynda Gratton and Andrew Smith in their book/site 100 year life suggests – that we need to think about work in a completely different way. Not a single career, but something which flexes with our point in life, and the life style we want and can afford. Employment has usually in the past been seen as secure – and that will be key for parts of our life. Freedom to travel, to develop and explore is much more of a characteristic of those in their late teens, twenties and increasingly healthy 60’s-80’s. There is so much scope here for choice.
Which brings me onto the big driver for all of this – connected technology. Those labels in brown are those which are only possible at scale through connective technology – internet and mobile to date but with more to come. And the caveat remains that this is not available to all – the key will be making those choices available across society as a whole, not just those with the relevant financial cushion.
So when I refer to commercialization of earnings power, what do I mean exactly – well looking back to the industrial revolution, that was done by the employer – individuals went to work but the terms on which that work was rewarded was set by the employer. Although with the advent of unions, regulation and employment laws that balance had shifted somewhat, the basic tenet that employers set the nature of the commercialization (especially how work was done, where, when and for what price) had not really changed.
The exception was to some extent self-employment – but here again market expectations and regulation of many trades, professions or activities meant that the individual had limited control over the commercialization of their time and activity. Enter technology and now suddenly all kinds of activities (many of them closer to ‘fun’ and certainly well removed from employment) become the basis of commercialization – trading on eBay, renting out on Airbnb, esports, vlogging. In every case a platform has enabled the activity without (in many cases) setting the terms of ‘employment’. The net result is that many individuals are discovering that they can commercialise their own earnings power. And that sense of freedom is not just about money or income – it’s also about how and when ‘work’ gets done.
Now this is not all sunshine – those platforms which dictate terms to their users eg Uber (akin to the old employment status, irrespective of whether the law deems them to be employers) are not offering the same degree of commercial freedom. But the areas where personal commercialization is feasible are growing all the time. Fancy yourself as an investor – check out the crowdfunding platforms. Want to build your gaming expertise? Enrol on an esports degree course.
So what’s the big driver for this growth in technologically driven opportunities? Well essentially its that sense of freedom and being able to choose what, how and when you do earn. And before Covid, the opportunity for people to look at all of this and engage was limited for the majority – who commuted or were at least office bound during the working week. All of these opportunities felt like hobbies or things to be slotted in when other commitments had been dealt with. What Covid did was highlight the opportunity for freedom – and make the prospect much more attractive.
100,000s leaving their existing work to seize new opportunities, moving from long established homes to fresh and different surroundings, abandoning traditional support networks and employment, leveraging new technologies and infrastructure. Ok, so this is another post on the Great Resignation – right?
Well, no actually – all of these things were equally true about the great migration to the industrial mill towns in the nineteenth century. The start of the industrial revolution looked, in many ways, remarkably similar to today – albeit the drivers were a little more desperate. But it’s worth thinking about the parallels because it took (if you start with the population moves and reckon that the rise of the welfare state and the origin of the NHS are somewhere towards the end) well over 100 years for all the ramifications to work through. Those years saw:
Massive technology introductions, most of which were unimaginable in their final impact when first seen – canals, trains, electricity, cars
Societal upheaval from a primarily rural economy to a global industrially based empire with education, household size and composition, democratic engagement and worker organization all changing along side
Huge inequality resulting – from the Carnegies to the poorest chimney sweeps boy, with attempts to redress this covering everything from the philanthropy of Saltaire or New Lanark to workhouses
Above all, the rise of globalization and the international connectivity of trade, politics and it seems, almost inevitably, war
With hindsight, we now recognize this as the industrial revolution. So what, if we think of today’s context, might posterity recognize as beginning today? I would argue it is the commercialization of earning power – an ugly phrase admittedly, but like the world in 1800, we have no experience of what’s coming, and hence limited language to match it.