Very interesting article.... one would think that with the automation from AI, the average size of a firm can be smaller (with some very big firms supporting the AI agents). For humans to be valuable in the economy, they need to provide something unique..essentially operating on the edge of knowledge creation. The good news is that a lot more of this can be done with the available tools. There seem to be two big missing pieces:
1) Education: How do we get everyone trained to be able to operate on the edge of human knowledge...especially with an education system designed in the 1800s. Massive reform is needed in the education sector. More likely, it will be replaced with private solutions.
2) Governance: There is a need for some public or private governance models to manage the issue of bad actors. My sense is a private solution is likely going to be the answer.
Finally, this comment caught my attention, "Solopreneurship has been increasing since 2008, both in absolute terms and as a percent of new business formation. Some of this is due to legal changes. The Obamacare exchanges make it easier for solopreneurs to buy their own health insurance. The Qualified Business Income deduction, the simplified home-office deduction, and other tax changes have made it more favorable to be a solopreneur."
I am curious about the evidence which shows that the government driven programs have had any impact... vs all the technological ones you have mentioned.
In many ways, a rise in self-employment would be a return to historical norms. For most of history, most people have been self-employed farmers, tradesmen, or artisans. The corporation is a relatively recent creation.
Probably both! But for reasons other than “different firms will do different things.”
There is a raging misperception in both economics and management that the make-vs-buy dichotomy governing a given transaction applies at the firm level. In fact, firms often “mix and match” (make AND buy, transfer output to internal “customers” AND sell out to the market).
As to the impact of new technology, when the internet blew through, we found that "mixing" firms were more responsive, leading to a meaningful drop in vertically-integrated transfers, in aggregate. If the logic of the internet applies with AI, I predict a similar shift -- but not necessarily to the extremes. Something funky happens at the extensive margin (probably due to fixed costs of operating in more than one governance mode, but as ever with TCE-style inquiries, those are unobservable…). As with AI, the capabilities introduced by the internet shifted the costs of BOTH internal and external coordination. Extremely important to understand not just the presence of a technology, but how it is deployed.
Evidence from U.S. Census Bureau data, representative of the entire Manufacturing sector. Direct measures of internal transfers and distinct applications of the internet. (Forman and McElheran, 2025, in Management Science: https://pubsonline.informs.org/doi/10.1287/mnsc.2019.01586)
I expect the dominant signal here for a while will be that as tasks people did in the past get easier, jobs will collapse to more tighter groups of individuals each who carries a larger bundle of tasks.. sometimes solo. But that signal will only be temporary, as the specialization will then target these new bundles to take on even more significant work. The inner complexity collapses, allowing more growth outside. At some point they are running concurrently and stability becomes closer to the norm, and at that point these other signals, like the importance of trust will be more visible.
Very important question that goes well beyond industrial organization. I think of it as, does AI help David or Goliath? Does it enable cheap slings to help the little guy win? Or does it facilitate bigger clubs to entrench the big guys even further? The analogy can be applied to the military (drones versus drone swarms?) or AI itself (open-source versus frontier models?) The history of technology seems to me to give the edge to Goliath. Current US equity market trends point the same way. Does anyone think David comes out ahead?
The future of AI alignment, both Human-AI and AI-AI, is all about established track records.
Ask your AI about the optimal evolutionary strategy in a complex multi-player game. The dominant strategy is generous tit-for-tat and the history of past actions of other players is a strategic resource. In a multi-player game, this strategic resource would need to be distributed to be unhackable. If three unrelated rating agencies agree, you are most likely looking at a true history of past actions.
Importantly, this is mathematical. AI can verify this logic as inherently true. It would see its own past track record (if positive) as a strategic resource not to be squandered.
You have to check trustpilot.com or something like it before every major transaction (better check three different sites), but after that you should be homefree.
On the other hand, anybody right now could ask AI to develop the business plan, and write all of the software, to create an alternative to Amazon -- but distributing all of the profits equally to all of its workers as they join up. Thus attempting a big, bottom-upward step toward anarcho-syndicalism.
Very interesting article.... one would think that with the automation from AI, the average size of a firm can be smaller (with some very big firms supporting the AI agents). For humans to be valuable in the economy, they need to provide something unique..essentially operating on the edge of knowledge creation. The good news is that a lot more of this can be done with the available tools. There seem to be two big missing pieces:
1) Education: How do we get everyone trained to be able to operate on the edge of human knowledge...especially with an education system designed in the 1800s. Massive reform is needed in the education sector. More likely, it will be replaced with private solutions.
2) Governance: There is a need for some public or private governance models to manage the issue of bad actors. My sense is a private solution is likely going to be the answer.
Finally, this comment caught my attention, "Solopreneurship has been increasing since 2008, both in absolute terms and as a percent of new business formation. Some of this is due to legal changes. The Obamacare exchanges make it easier for solopreneurs to buy their own health insurance. The Qualified Business Income deduction, the simplified home-office deduction, and other tax changes have made it more favorable to be a solopreneur."
I am curious about the evidence which shows that the government driven programs have had any impact... vs all the technological ones you have mentioned.
This is one of many research publications showing the Affordable Care Act increased self-employment:
https://onlinelibrary.wiley.com/doi/abs/10.1002/hec.3500?casa_token=64KuNZ4eK1gAAAAA%3AqP_XAk1OkkdhYMW2Ry3ChLhnK0bkBZthsRaQ_-IHuweB2-6uXpKWH0KHe3KU7oQPhu7LWR_YSxzikLk
In many ways, a rise in self-employment would be a return to historical norms. For most of history, most people have been self-employed farmers, tradesmen, or artisans. The corporation is a relatively recent creation.
Probably both! But for reasons other than “different firms will do different things.”
There is a raging misperception in both economics and management that the make-vs-buy dichotomy governing a given transaction applies at the firm level. In fact, firms often “mix and match” (make AND buy, transfer output to internal “customers” AND sell out to the market).
As to the impact of new technology, when the internet blew through, we found that "mixing" firms were more responsive, leading to a meaningful drop in vertically-integrated transfers, in aggregate. If the logic of the internet applies with AI, I predict a similar shift -- but not necessarily to the extremes. Something funky happens at the extensive margin (probably due to fixed costs of operating in more than one governance mode, but as ever with TCE-style inquiries, those are unobservable…). As with AI, the capabilities introduced by the internet shifted the costs of BOTH internal and external coordination. Extremely important to understand not just the presence of a technology, but how it is deployed.
Evidence from U.S. Census Bureau data, representative of the entire Manufacturing sector. Direct measures of internal transfers and distinct applications of the internet. (Forman and McElheran, 2025, in Management Science: https://pubsonline.informs.org/doi/10.1287/mnsc.2019.01586)
Working paper version: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3396116
I expect the dominant signal here for a while will be that as tasks people did in the past get easier, jobs will collapse to more tighter groups of individuals each who carries a larger bundle of tasks.. sometimes solo. But that signal will only be temporary, as the specialization will then target these new bundles to take on even more significant work. The inner complexity collapses, allowing more growth outside. At some point they are running concurrently and stability becomes closer to the norm, and at that point these other signals, like the importance of trust will be more visible.
Very important question that goes well beyond industrial organization. I think of it as, does AI help David or Goliath? Does it enable cheap slings to help the little guy win? Or does it facilitate bigger clubs to entrench the big guys even further? The analogy can be applied to the military (drones versus drone swarms?) or AI itself (open-source versus frontier models?) The history of technology seems to me to give the edge to Goliath. Current US equity market trends point the same way. Does anyone think David comes out ahead?
The future of AI alignment, both Human-AI and AI-AI, is all about established track records.
Ask your AI about the optimal evolutionary strategy in a complex multi-player game. The dominant strategy is generous tit-for-tat and the history of past actions of other players is a strategic resource. In a multi-player game, this strategic resource would need to be distributed to be unhackable. If three unrelated rating agencies agree, you are most likely looking at a true history of past actions.
Importantly, this is mathematical. AI can verify this logic as inherently true. It would see its own past track record (if positive) as a strategic resource not to be squandered.
You have to check trustpilot.com or something like it before every major transaction (better check three different sites), but after that you should be homefree.
You mean…cyberpunk is right again?
On the other hand, anybody right now could ask AI to develop the business plan, and write all of the software, to create an alternative to Amazon -- but distributing all of the profits equally to all of its workers as they join up. Thus attempting a big, bottom-upward step toward anarcho-syndicalism.