Robert J. Laubacher and Thomas W. Malone
Initiative on Inventing the Organizations of the 21st Century
Working Paper #004
Sloan School of Management
Massachusetts Institute of Technology
(c) 1997 Robert Laubacher and Thomas Malone
The job has taken a beating in recent years--it appears to have been one of the major casualties of the corporate restructuring which swept through the U.S. economy in the early 1990s. Most Americans know someone whose position has been downsized or outsourced, and a series of high-profile articles in prominent publications have suggested that "good" jobs--those offering health insurance and a pension, along with a prospect for advancement--are increasingly relics of the past.
This attention has been spurred by the rapid increase in the use of temporary employees--the number of positions filled by temporary agencies more than doubled during the first half of the 1990s--and by many highly-visible instances of corporate downsizing and outsourcing. In fast-growing, knowledge-intensive sectors of the economy, such as high technology and entertainment, skilled workers increasingly operate outside the framework of traditional jobs altogether. Instead they work as independent contractors, establishing ongoing relationships with a number of different firms.
Many observers believe that highly flexible organizational forms--often called networked organizations or virtual corporations--will become increasingly common in the future. In our research at MIT, for example, we have examined scenarios in which temporary networks of very small companies and independent contractors could undertake much of the work that is performed by large organizations today.
In many situations, these new ways of working result in much greater economic efficiency and flexibility. But what about the individuals in these flexible networks? Where will they go to fulfill the human needs that are satisfied today by large organizations? How, for instance, will they find financial security? Who will provide for their health care and retirement? Will they be lonely, working all day with their customers and suppliers, but never with colleagues?
The current conversation on these issues is highly polarized. One viewpoint, espoused by much of the business press and many conservative politicians, focuses on the benefits of flexible work arrangements, while de-emphasizing their human costs. The other stance, favored by many union leaders and liberal politicians, emphasizes the human costs, without acknowledging that the new arrangements are often more productive ways of organizing work.
Once we began thinking about these questions, we realized that there was an obvious--but not widely appreciated--possibility for answering them. What if, rather than relying on an employer or the government to meet their human needs, individual workers joined independent organizations whose primary purpose was to provide stable "homes" as they moved from job to job? We call these organizations "guilds" by analogy to the craft associations of the Middle Ages, and in this paper we examine what they might do and how they might emerge.
Historical Development of the Job
The prospect of the end of the job is so troubling because of the strong linkage which has developed between the employment relationship and having access to health insurance, a path of upward career mobility, and an identity in the economic sphere. These attributes have become so closely tied to holding a job that we cannot imagine separating them from the employment relationship. But this linkage is a relatively recent development.
Prior to the industrial revolution, most Americans worked for themselves--as farmers, artisans, small shopkeepers. And they belonged to a series of institutions--the grange, mechanics associations, and local communities--which provided mutual aid, means for finding future work, and a setting where learning and sharing of skills could occur. Perhaps most importantly, these organizations offered a forum where workers could meet and be acknowledged by their peers. Some of these institutions--most notably associations of skilled tradesmen--could trace their history back to the middle ages, having grown out of the medieval guild movement.
It was only with the coming of the industrial revolution in the 19th century that American workers' fates came to be more closely tied to the employing organization. Industrial development led to the transformation of the very meaning of the word "job." In pre-industrial society, the term had referred to a specific task of the worker's--a farmer reaping a field, a blacksmith shoeing a horse. But in the industrial era, "job" began to be used to describe a worker's ongoing relationship with a particular employer. This change in the meaning of the word symbolized a larger transformation in work patterns--the clock replaced self-regulated artisanal rhythms; the skills of many experienced tradesmen were made obsolete by machines; bitter protest was voiced at the passing of the old order. The change was highly traumatic, yet the economic growth of the decades which ensued has brought a standard of living and range of choices to our lives which would have been unthinkable to our pre-industrial forebears.
The tangible benefits and social meaning which we now associate with jobs accrued gradually over the era of industrialization. In the early years they were modest--old age pensions, the potential for promotion up the corporate hierarchy--and available to only a minority of workers. These benefits were at issue in many of the great struggles between labor and management at the end of the last century and start of this one and were also addressed in the landmark labor legislation passed during the New Deal and Truman years. In the years since World War Two, non-wage benefits, such as health insurance, which gained tax exempt status in 1954, have grown rapidly, effectively creating the gulf which now stands between jobs which offer benefits and those which do not.
As the coming century approaches, new structures are emerging. For many larger firms, assuming the role of paternalistic employer, which made economic sense in the 1950s and 1960s, is no longer a tenable personnel strategy. And large numbers of workers are taking the opportunity presented by new organizational structures to move away from the traditional role of employee in a large corporation. An example of this shift has been the declining relative importance of Fortune 500 firms as employers--in the early 1970s, one in five American workers was employed by a Fortune 500 company; by the early 1990s, the ratio had dropped to one in ten.
The resulting turmoil spurs a nostalgic urge in many, a desire to go back to the secure employment relationships which characterized the era of post World War Two American economic dominance. But we cannot go back; the 1950s and 1960s are gone forever. The energy devoted to lamenting their passing would be better spent building the institutions--workers' guilds are one example--which can meet the needs of the new age.
The Problem: Contingent Workers in a World Set up for Full-Timers
The widespread adoption of flexible employment practices is potentially troubling, because the current system is set up to accommodate full-time workers. Non-traditional work arrangements typically do not include important features which come with a "regular," full-time job:
Organizations Filling the Gap Today
Some organizations have already emerged to meet the needs of workers in sectors of the economy where free-lancing is common. For example, several such entities are attempting to serve independent professionals. The National Association of the Self-Employed (NASE) offers health insurance and other benefits to its members at highly competitive rates. It turns out that the self-employed lose very few workdays to illness and thus constitute a very attractive risk pool for health insurers. A recently founded organization, Working Today, provides a variety of benefits at group rates, including health insurance, retirement planning, and low cost Internet access, to white collar professionals working independently. The group also sees itself as an advocate for its members and lobbies for policy changes which would place benefits paid for by self-employed workers on the same tax footing as benefits received by traditional job-holders.
Two other areas where free-lance workers are prevalent are film production and construction. In the film industry, screen actors and writers, as well as the technicians who staff crews, typically work on a sporadic basis, and the labor organizations which serve these groups are set up to accommodate the periodic nature of employment in the industry. For example, members of the Screen Actor's Guild (SAG) need to earn only $6000 in a calendar year to qualify for full health benefits for the entire subsequent year. In recognition of the short shelf-life of many actor's careers, the Guild also provides very generous pension benefits. SAG offers a large number of educational and professional development seminars to its members as well. In order to pay for these services, SAG contracts stipulate that producers must pay a large surcharge, which amounts to as much as 30 percent of actors' base pay, into the Guild's benefits fund.
In the construction industry, workers are also typically employed on a project basis, often moving from firm to firm when they finish one project and go on to the next. To accommodate these circumstances, construction trade unions offer their members fully "portable" health and pension benefits. Members can maintain one health plan and continue paying into the same pension fund, regardless of which firm employs them on a particular project.
Unions in the manufacturing and services sectors have also recently begun initiatives to meet the needs of workers involved in flexible employment arrangements. One is series of cooperative ventures between the UAW and the Big Three auto manufacturers which focuses on training and job placement of assembly line workers. Another is an agreement between the American Federation of State, County and Municipal Employees (AFSCME) and the state of Pennsylvania, in which the union has created an internal pool of clerical temporary workers to reduce the state's reliance on private sector temporary agencies. Temporary workers in the pool are eligible to join AFSCME and are given priority for permanent job vacancies which arise.
Needed for the Future: New Worker's Guilds
These early organizations represent only a beginning. If flexible working arrangements of various sorts become even more common in the future, we will need much more extensive ways of meeting the human needs of the individuals who work in them. It is common, in our industrial age mindset, to assume that meeting these needs is the responsibility of the employer, the government, or the individuals themselves.
But what if there were a new kind of organization whose purpose was not to produce any specific product, but instead, to meet the human needs of their members which were not met in any other way? These guilds could provide a stable home for their members as they moved from job to job. They could, for example, help their members by:
Ensuring workers' economic security is the function of most of the non-wage benefits provided in traditional employment arrangements. Given the current U.S. health care system, one of the most important services guilds can offer to American workers will be access to health insurance at reasonable cost. Guilds can accomplish this by bringing together their members to create risk pools of their own, which will allow for the purchase of group health coverage at competitive rates. Group life and disability insurance and group retirement plans could be purchased in a similar manner.
Another important aspect of financial security is protection against being unemployed--or under-employed. Workers in traditional jobs are protected against the ups and downs of the economic cycle in two ways. At the first level, the firm assumes some of the risk of uneven demand by paying a fixed wage to its employees and weathering fluctuations in overall revenues by adjusting variable costs and relying on its stock of working capital. Unemployment insurance is the second line of protection, with payments to workers triggered only when times are bad enough to cause layoffs.
Workers who are on their own, by contrast, assume all of the risk of economic downturns themselves. Guilds could help mitigate this risk by establishing "income smoothing" plans. For example, imagine that members paid a fraction of their income to the guild in good times, in return for a guaranteed minimum income in the bad times. This is, of course, a kind of unemployment insurance. But unlike conventional unemployment insurance, this form would possess an additional feature--guild members would have an incentive to help their out-of-work peers to find jobs, to ensure that they gained the skills needed to be productive, and to exert social pressure on any guild members who were not trying.
Job placement and training
In the realm of placement, guilds could play an active part in assisting their members to find work. One simple mechanism might be the establishment of electronic clearinghouses to match workers with projects according to their skills and experience. More sophisticated versions of such systems could include the issuing of electronic RFPs and bidding for available work by interested guild members.
Another role guilds could play in helping members find work would be in establishing and verifying their members' reputations. One approach might be the creation of a set of standards outlining various skill levels and recommended pay bands for each. Another could involve collecting evaluations, in an agreed-upon format, based on a worker's performance on prior projects. A system of this sort would provide the same sort of ongoing record that currently exists in an employee's personnel file at a traditional firm, even though the guild member's work might have been undertaken with a number of different companies.
In the area of professional development, guilds could organize series of formal training programs and sponsor apprenticeship programs, where more experienced professionals might play a mentoring role for younger workers. In addition, guilds could create opportunities for socializing between workers active in the same industry or functional area. Informal networking of this sort currently plays an important role in industries where free-lance employment is the norm, and it will likely play a significant part in the sectors of the future economy where guilds are prevalent.
Social networking and identity
Finally, in the social realm, guilds could provide a meeting place, either actual or virtual, where workers with similar interests and experiences might gather on a regular basis to trade stories and share advice. In this way, guilds could help recreate for future workers the daily socializing which today occurs around the office coffee machine, the factory lunch truck, or during chance encounters in the hallway. These kinds of interactions are notable not only for the social bonds they reinforce, but also for the sharing of tacit knowledge which they can promote.
If guilds become the vehicle through which workers maintain daily social connections, they are also likely to become the primary institution with which those workers come to identify. Today, most workers' primary professional identification is with their employer, and when asked what they do, the majority respond along these lines: "I work for GE." But in the future, the answer to that question may come out very differently--it could well be, "I'm a member of the Society of Automotive Engineers."
Where Will Guilds Come From?
What kinds of organizations could fill these roles? We believe that guilds are likely to emerge out of self-selecting groups of workers who come together based on affinity--for example, those who have the same profession, have shared similar experiences, or live in the same area.
Among the organizations most likely to emerge as guilds are those based on occupational bonds: professional societies and labor unions. The examples cited previously of present-day, proto-guild organizations included several unions and professional societies, such as SAG or the UAW. The expressed purpose of these organizations is to promote the mutual benefit of groups of workers in the same line of work or industry. They thus are already involved in many realms where guilds are likely to operate; taking on the additional roles we envision for guilds will simply involve a logical extension of their current activities.
Given the growing importance of knowledge in the economy, another likely possibility is the emergence of groups of workers who have shared a common educational or work experience--university alumni associations or "alumni" groups comprised of veterans of the same firm. University alumni associations have long provided placement and professional networking services, and many now offer their members access to life insurance, low-interest credit cards, and investment advising. It is not difficult to imagine alumni associations extending their activities further into such realms as health coverage, continuing professional education, and possibly unemployment insurance.
Informal ties between those who formerly worked for well-known companies with distinctive cultures, like IBM, Digital or General Electric, have long played an important role in the business world. And in recent years, company alumni networks have become increasingly formalized through the use of such tools as directories, newsletters, and Web pages. McKinsey & Company's alumni group is an example of a strong network based on common service at a firm. Another interesting example is the Internet-facilitated network of former employees of Atex Corporation, the pioneering firm in computer-based text editing and composition systems for the publishing industry.
Groups of workers living or working in the same geographic area could also form viable guilds. True guilds would likely be based on groups organized at the micro-level of neighborhood or office park--an example here might be a technology incubator based in a suburban neighborhood, where start-up companies could rent private offices, but share with neighboring firms common space and support services, perhaps including counsel from venture capitalists and consultants
At the same time, neighborhoods, towns and cities, or even states and regions could also assume some of the functions of guilds. One example, operating at the city level, is a community-based group, Baltimoreans United in Leadership Development (BUILD). BUILD is working with the AFSCME to run a temporary employment agency, WeCare, which places Baltimore residents in clerical and light industrial jobs. At an even broader level, citizens could cooperate to enhance the economic competitiveness of their state or region. An example of such an effort is legislation recently passed by the Vermont state government mandating a pre-school program patterned after Head Start, for the expressed purpose of ensuring the competitiveness of the state's workforce in the 21st century. Such regionally-based activity can be expected to increase as competition between various parts of the world for high-wage jobs intensifies.
Families and networks of friends may also assume some of the roles of guilds in an informal way. Extended families among immigrants to America have long enhanced the economic security of their members by spreading risk over the entire family group and pooling savings to provide seed capital to start small businesses. An interesting recent phenomenon is young software engineers' practice of keeping in close contact via e-mail with networks of friends from college and the workplace. Information about technical developments and promising new places to work can spread almost instantaneously within these electronic communities, and the virtual network serves as a combination continuing education course and placement center, all outside the formal structure of the firms in which these young engineers work.
While affinity groups are likely be the primary means by which workers come together in the future, guilds can also be expected to subcontract to third-party companies for such services as insurance and retirement planning, in order to create larger actuarial pools or achieve administrative scale economies. Similarly, third-party, for-profit organizations--which might emerge out of present-day temporary agencies or educational institutions--could also play a subcontracting role in the areas of placement and professional development, providing brokering or specialized training services which would not be economical for guilds to maintain internally.
These for-profit providers will also likely offer services directly, and some workers may choose to pull together their own a la carte selections of benefits. But by offering members easy, one-stop access to a variety of services, guilds will be able to replicate many the current functions of benefits groups within large company human resources departments.
A significant obstacle to widespread adoption of the guild concept is the tax code--when self-employed workers buy their own health insurance and similar items, they cannot pay for them with fully tax-exempt dollars, as can employers, or employees making partial payments in employer-subsidized benefits plans. Without a level legal playing field, individual workers will continue to be at a disadvantage.
Altering the tax code to give benefits paid for by independent contractors the same tax-exempt status as those provided through employers' plans could be a significant factor in enabling the development of guilds. The transformation in the funding of American workers' retirement plans shows how much impact a change in policy may have.
Prior to the 1970s, the dominant form of retirement plan in the U.S. was a firm-managed pension fund which paid a fixed monthly sum. The 1974 passage of the Employee Retirement Income Security Act (ERISA) increased the regulatory burden and subtly altered the tax status of defined benefits plans; soon afterward, the inflation of the late 1970s and early 1980s made defined benefit plans less attractive to workers.
This combination of new regulatory treatment and a changed economic environment resulted in a boom for defined contribution programs--retirement plans in which workers contribute a percentage of their wages, and these sums, combined with optional matching contributions made by employers, are placed in investment accounts managed by employees themselves. Only 4 million American workers participated in such programs in 1975; by 1989, the number had increased to fifteen million and has continued to grow rapidly since. The granting of tax-exempt status to self-employed workers' contributions to health insurance plans, for example, could spark a similarly rapid shift in practice.
What Guilds Can--and Cannot--Do
Guilds appear to be an especially promising way of addressing two challenges. First, by providing insurance and pensions, professional development and placement programs, and access to a social milieu, guilds can allow workers to take advantage of flexible employment relationships--and the potential for greater productivity they offer--without having to face high risks and unattractive social repercussions.
Second, by emphasizing continuous learning for their members and the matching of workers' skills with available opportunities, the interests of guilds will be closely aligned with those of the companies for which the guilds' members will work. This new approach has the potential to radically change the terms of debates that have been central to the industrial age. Today, for instance, collective bargaining is a primary role of many unions, and we typically assume that the interests of unions and management will be in conflict. In a world of flexible networks of one-person companies, however, there would in many instances be no stable centralized management with which unions could bargain, even if they wanted to. An attractive opportunity for unions in the future, therefore, is to move toward fulfilling the needs of their members in the guild-like ways we have described. In general, we believe there are opportunities for many kinds of organizations--professional societies, unions, neighborhoods, colleges, churches, and others--to be creative and proactive in meeting needs that are likely to become increasingly urgent as flexible working arrangements become more common.
At the same time, guilds cannot magically provide better pay or benefits for workers who lack skills or bargaining power. For the same reasons that very low skilled workers are not attractive job candidates, they will also be unattractive candidates for joining guilds. But in guilds based on shared interests such as family ties, place of residence, or religious beliefs, economic considerations would be less important in determining who can join.
And even groups of workers without many economically desirable skills may still benefit from working together in new ways. In Bangladesh, for example, the Grameen Bank has been phenomenally successful at jump-starting economic activity through loans to self-policing groups of very poor people, who use the capital to start small businesses of their own. This model of micro-lending has subsequently spread throughout the developing world and to low-income neighborhoods in the U.S. Micro-enterprise circles of this sort could well serve as the basis for viable future guilds.
Overall, we believe the guild concept can alleviate some of the challenges connected with the rise of non-traditional employment arrangements, and it may help create valuable new kinds of communities. It is not, however, a panacea for addressing the problems of the working poor.
Recent changes in employment practices are so troubling because the institution of the job has played a role in the lives of American workers which extended far beyond the paycheck. As well as providing wages, the job has served as a ticket to economic security and career advancement and played a large part in establishing workers' sense of identity. As the coming century approaches, though, the organization structures within which the traditional job was embedded appear to be giving way to a new set of arrangements. In the resulting uncertainty, our first instinct is to go back to the concepts and terms of reference we have inherited from the industrial age.
But if we really are entering a different era, we may need to develop fresh approaches to thinking about these issues. We present the notion of 21st century workers guilds in that spirit. We don't claim it's the final answer to the challenges raised by flexible employment patterns. But we hope these ideas can help frame the debate in a new way.