November 01, 2015
The New Economy and Why Direct Sellers Should Pay Attention
by DSN Staff
The New Economy
If Gen X workers began the erosion of the lifetime career by increasing the frequency with which they moved from company to company, millennials have completely obliterated it. The ideal working life is no longer about finding a safe and steady job but finding multiple gigs that combine to provide both income security and flexibility.
Also, according to the Pew Research Center, real wages—meaning the spendable income left after inflation—have been declining for most Americans for decades. This decline is now being met by the rise of the more than 80 million technologically savvy millennials, and the collision is one very big reason behind this dramatic shift in work attitudes and expectations. To add to the pile-on, employee benefits and perks have been shrinking for years, creating a middle class that feels overworked, underpaid and undervalued, all combining to undermine the appeal of traditional work.
As a result, a new economy is emerging, an economy where more and more people are working as micro-entrepreneurs and independent contractors instead of, or in addition to, a traditional job. These days the terms “gig economy,” “sharing economy,” and “on-demand economy” are even being referenced and debated in the speeches of presidential candidates.
We think that this transformation brings direct selling more into the mainstream of the conversation about how people work. More and more individuals are coming to understand and appreciate the nature of an independent association with a larger company that provides a chance to earn flexible income. This principle, of course, has been the foundation of the direct selling industry for decades. The common denominator between direct selling and these new opportunities are two words: independent contractor.
From DSN’s perspective, the gig economy represents a shift in employment ideals by the larger general public that we’ve always understood and embraced: a search for more independent ways to earn an income. As traditional careers become less compatible with the desires of this changing workforce, isn’t it only natural that creative people find new ways to employ themselves and generate their own prosperity? This initiative makes good sense to us.
However, the debate about how to respond to the rise of the new economy contains some potential landmines for direct sellers. As we watch the attention given to these ideas and the economic influence behind them, it behooves us to understand this new interest and how it impacts the entire direct selling industry.
Human Innovation and Regulatory Intervention
Unfortunately, freedom can mean one thing to regulators and politicians, and another thing to an industry that has a mission of providing opportunity to hundreds of thousands or even millions of people. If the basis of the economy is fundamentally changing, then the ripple effects will touch most of the institutions built upon and funded by that economy, including basic compensation and benefits that have been traditionally attached only to permanent employment.
All of this has been triggered both by the huge advancements made in the use of technology and the global adoption of that technology, along with the shrinking advantage of being an employee. New opportunities and economic situations have arisen as a result. Nick Hanauer and David Rolf, in an article submitted to the online journal Democracy, state, “In the technological economy of the twenty-first century, growth and prosperity are the consequences of a virtuous cycle between innovation and demand.” (“Shared Security, Shared Growth,” Summer 2015 issue, democracyjournal.org). It also is our belief that the innovation of human ingenuity and the demand of a technologically active society should work in harmony to produce new vision and new opportunity.
Politicians and policymakers reacting to the new workforce without truly understanding it could do more harm than good for independent contractors by hastily pushing regulation and/or proposing legislation. Direct sellers must pay attention, though it does appear from her recent remarks that current Federal Trade Commission (FTC) Commissioner Maureen K. Ohlhausen understands the value of taking a wait-and-see approach. When opening an FTC workshop on the sharing economy on June 9, 2015, Ohlhausen stated, “Let me be clear where I stand: The evolution of markets should be driven by consumer demand, rather than artificial, regulatory preferences for one business model over another. Misguided government regulation can be the barrier to innovation that never falls, so regulators should tread carefully, particularly when considering hypothetical rather than demonstrated consumer harm.”
Ohlhausen further defined her approach on July 30, 2015, when she addressed the American Action Forum, a Washington, D.C.-based policy institute. Ohlhausen said, in speaking about one’s inability to predict the future in response to changing marketplace dynamics, “Adopting a posture of regulatory humility is a general principle of good government. This general principle is particularly applicable when regulators encounter dynamic, rapidly changing markets that have the potential to introduce transformative benefits into society. The new ways of organizing work using modern technology represent exactly this sort of nascent, dynamic trend in the economy.”
Uncertainty and Conflicting Opinions
So what really has attracted so much media attention to the gig economy and sharing economy? The direct selling business model has been around for over 100 years and represents not only a “gig opportunity” but also a career opportunity for the few who get serious about building a business. Perhaps politicians are paying attention because no one is quite sure what the impact will be on our overall economy over the next 10 to 20 years, when the tax base shifts from those who are employed to a growing percentage of workers who may be self-employed or “gig-employed.”
What happens to Social Security benefits if a great percentage of the population is now working as independent contractors? How does this shift in attitudes about work impact the tax base? What happens to the benefit of being able to participate in a 401(k) plan? How will independent contractors ensure that they are not exploited? Where will workers in the new economy find a parallel to the benefits available in the “old economy”? What is earned in an irregular economy can produce irregular results. The inability to nail this down decisively can produce a lot of anxiety for some people, and certainly the new manner of working should not be an opportunity for exploiting people who need an income. The changing nature of employment could be a time of glorious freedom, but not if it occurs at the expense of those who are making it happen. These are some of the concerns of those working hard to impose restrictions on companies who utilize independent contractors. We all share in the responsibility to ensure no worker is taken advantage of, and that all workers can enjoy the freedom to pursue their own choice of how they work.
Uber is perhaps the most famous example of a sharing economy opportunity, and the debate surrounding the status of the independent contractor has lately centered on the class-action suit against Uber in California. The suit argues that Uber drivers have been treated as employees and should be compensated as such, with the traditional benefits long associated with employment such as vehicle maintenance, gasoline and health insurance. Obviously, Uber disagrees, citing the freedom and flexibility inherent in the gig—drivers can work whenever and however long they choose. They have complete freedom in determining their hours and their area of driving. These freedoms have been hallmarks of the independent contractor.
This lawsuit is only one attempt to clarify terminology, working conditions and requirements. Local, state and even the federal government also are attempting to understand the new phenomena as these opportunities compete directly with the old guard of the labor union and traditional employment. The suit against Uber contends that the company is saddling drivers with all of the obligations of an employee, but with none of the benefits. But is it really fair to apply old standards to new situations?
Dissension exists among Uber drivers themselves. Some drivers have expressed indignation that the company doesn’t provide those traditional benefits, while others are drawn to the opportunity precisely because they aren’t employees and can work when they want to. Might it be time to create a new definition of worker to go along with the new definition of economy?
For direct sellers, of course, these questions are not new. The issues explored in this article facing the gig workers have been “downside risks” to direct sellers for many years, and some are reasons why many direct sellers have been part-time. The current environment has simply brought these issues further to the forefront. With hundreds of thousands of people now involved in this new working “class,” the challenge for policymakers and lawmakers is to find a new form of contract that suits and supports the flexibility independent contractors desire, not to force a round peg into a square hole.
Leading the Way
Maybe this is the time for direct selling companies to take the lead. What companies in this industry always have provided to their independent business owners is a system, a specific compensation plan that rewards more for more successful effort and a specific guide for learning the skills associated with the new business opportunity. The opportunity always has been recognized by some as being the franchise type of opportunity without the franchise investment. How might our opportunity be expanded to be inclusive of this new worker?
Perhaps direct selling companies, because of their experience, might seize this opportunity to invent more of the benefits an independent workforce desires but currently cannot find. A 401(k) is an attractive investment for an employee who is encouraged by the company to save for the future. What might similar instruments designed to support independent contractors look like? Independent contractors earn, in some cases, commissions that are considered above the average of what a traditional employee might earn. What could be invented by direct selling companies or by third parties at the influence of direct selling companies that would make it attractive for independent contractors to invest in their future in a very structured manner? Some of these ideas would require changes in law and policy because support for the independent contractor, in many cases, is actually discouraged under current law. But innovation and new thinking can be extended into the regulatory and political arenas of our country as well as the economic. Perhaps as independent contractors get more exposure, labor protection, investment opportunities and other options can be developed for this particular workforce.
As the irregular economy continues to grow and the terms “gig” and “sharing” continue to evolve, and even change, the role of the independent contractor appears to be here to stay, opening up more opportunities for the direct seller. We must be attentive to guard against encroachments made upon the independent contractor status that we have fought so hard to protect. Embracing the new breed of workers could work mightily to our advantage. There is strength in numbers, as the old saying goes.