Exploring the Interim Imperative

Forbes magazine’s Olga Khazan takes an enlightening angle on the freelance economy in this piece: How Health Insurance Premiums Drag Down the Freelance Economy.  The main thrust of the article is more relevant to the US market where private health insurance is both more critical and more expensive than elsewhere.  However, it’s also a useful starting point to explore three dimensions of the freelance / sovereign professional world.

Freelancing is no Fabrication

Firstly, that a health column in Forbes is addressing the needs of freelancers is indicative of the growing general acceptance that there is a real change underway.  Since Charles Handy in the 1990s, people have been predicting a growth in portfolio careers and freelancing (not synonyms but often closely associated).  Over recent years, technology has developed into a practical and powerful enabler of this change allowing individuals to trade across the world and to engage on a near-equal footing with large organisations as partners and suppliers as well as customers.

A confluence of other factors has further encouraged and accelerated this trend.

Globalisation is real, unavoidable and in the largest perspective, a good thing.  Earlier this year, the World Bank’s InfoDev team reported on the Virtual Economy, sizing it at $3 billion and observing that whilst the global coffee market is worth some $70 billion only $5.5 billion of that is captured by developing countries.  By contrast, nearly all of the $3.0 billion market in third-party gaming services remains in developing countries.  The world, as Thomas Friedman suggested, is increasingly flat, and freelancers from emerging markets (with correspondingly lower cost bases) are freed to compete against high-cost “locals” in the west.

Demography is also playing a part – at both ends of the spectrum.  Younger people (Generation Y) are arriving in the workplace with different ideals, seeking greater control over their lives and understanding how technology can help achieve this.  Ageing baby-boomers are realising that they either don’t want to, or can’t afford to, retire and are seeking more flexible models of earning and contributing. 

Environmental concerns are also bringing a re-think about the nature of work, the office and the commute.

However, the economy is proving to be the real accelerator of this change.  Organisations are looking for ways to become more agile, either by using outsourcing or temporary resourcing solutions to side-step over-expensive, entrenched workforces or to move to a model of a smaller core and greater use of freelance, “expertise on demand” professionals.  At the same time, individuals are exploring the freelance option for a number of reasons.  Many feel they have no choice having lost their “real” job and being unable to find alternative employment.  Others have seen the mirage of employer-paternalism shimmer to nothing through successive recessions and have realised that they would rather take responsibility for their own lives, feeling more secure with their active network of contacts and a basket of customers rather than being at the mercy of a single, over-powerful employer.

Khazan’s article includes some links to the current political debate including this piece on the “be your own boss economy” from The Atlantic and a couple of weeks ago, the Economist carried a special report – The Future of Jobs: The Great Mismatch – which covered many of the above dynamics and highlighted the apparent paradox of increasing long-term unemployment coupled with severe skills gaps in many markets. 

Earlier this year, the London Business School’s Lynda Gratton published her excellent analysis of the future of work: The Shift.

All around, policy-makers and “real people” are beginning to accept that – while you may not like it – there is an enormous change under way.  The far-sighted will do all that they can to anticipate and adapt to a new world.

The Importance of Security Infrastructure

The second point highlighted by Khazan’s article is the importance of – and the current difficulty which freelancers face in – building their own infrastructure to replace the benefits of a traditional employment relationship.  Khazan’s piece speaks about the critical importance of healthcare insurance in the US market.  In the UK and elsewhere, private medical cover is less all-encompassing and easier to get.  However, in this and all other insurances, the individual faces paying far higher premiums than a large corporate buyer. 

I wonder whether the growth of freelancing will see the establishment of bodies akin to the medieval guilds ( but without the oppressive nature that those bodies acquired): groups which represent members’ collective interests; bringing buying power to things like insurance and facilitating knowledge and skills transfer.  Some bodies are beginning along this path offering discounted, group insurance policies and other services.  These include the Institute of Interim Management (which represents the voice and interests interim managers) and looser federations of business freelancers such as the Link Management Group [disclosure: I am a member of both of these organisations].

Personal insurances are one thing but larger financial instruments can present a bigger problem for freelancers.  Try getting a mortgage without a “proper job”.  In his 2001 book, Free Agent Nation, Daniel Pink anticipated a more mature financial world where independents might issue bonds, following in the footsteps of David Bowie’s Bowie Bonds.  Since Pink’s book was originally published, the sub-prime mortgage adventure has, perhaps, rendered financial institutions a little more conservative.  That said though, the market will out and as demand increases, the more innovative banks will arrive at products which meet the needs of individuals: banks need to lend to make money and initiatives like the UK’s Project Merlin demonstrate the extent to which small businesses in general feel starved of loan capital.

A Good Map

The third point that came back to me in reading the Forbes article was also highlighted in Free Agent Nation, ten years ago.  There is still no clear data or definitions in this field.  Much of the more frothy-mouthed commentary talks about the rise of freelancing as if it were a new post-industrial phenomenon.  Suggest that to your plumber. 

In reality, many tradespeople, corner-shop owners, individual accountant and law firms and jobbing labourers in construction and agriculture have always been one-man-band, independent, freelance, “solopreneurs”.  As have many in the creative industries: the behind-the-scenes technicians as well as writers, actors and musicians. 

Over the last couple of years, I have been using the term Sovereign Professional to describe those newly-liberated freelancers. 

“Sovereign” because these people have taken responsibility for their careers and lives: their healthcare, their accounting, their marketing and their future.  I borrowed the word from The Sovereign Individual, the prescient book from the 1990s by William Rees-Mogg and James Dale Davidson, although “sovereign individual”originates with Nietzsche. 

“Professional” because what we are really describing is the post-Industrial Revolution rise of B2B (business to business) professionals – project managers, web designers, marketers, management accountants (as opposed to accountants in public practice), HR managers, business recovery experts etc. – those individuals who supply expertise on demand to organisations.

But, even accepting that as a definition, there is really no solid data.  Last year, the Professional Contractors Group (PCG) estimated that there were 1.4 million freelancers in the UK with a combined turnover of £82 billion but how much of that comes from “traditional” sole traders?  And how do you describe and find these people?  In the B2B world, most (but not all)  Sovereign Professionals will be incorporated as VAT-registered limited companies.  Aside from any tax advantages, this gives a veneer of established credibility to their business.  However, many of those companies will report a spouse or social partner as a fellow director and possibly shareholder.  These partners may or may not take an active part in the business.  Looking at zero, one or two-employee companies is not the answer.  Late last year, Experian produced some data on micro-business entrepreneurs which also divided the field into business sectors.  Micro-businesses providing “business management and consultancy” services – a definition which seems fairly close to what we want – had grown by 181 per cent in five years.

So there appears to be substantial growth there are no definitive statistics to help track this.  Those that are closest may be muddied by tax-saving imperatives.

The other aspect of market confusion which the article highlighted for me is the need to distinguish between types of (B2B) freelancers.  This lack of distinction was at the heart of much negotiation and debate over the Agency Workers Regulations (AWR) which come into force in the UK on October 1st.  Much of the political focus, and union concern, has been upon preventing the exploitation and abuse of low-paid workers.  The apparent use of temporary workers to avoid costly healthcare insurance in the US described in Khazan’s article is one example of this.  The provisions at the heart of AWR, requiring parity of earnings are a prime example of the focus.  However, such protective measures – if not carefully thought through – can actively inhibit the growth of a sector of highly-skilled, highly-agile and highly-paid Sovereign Professionals; exactly the type of individual required to enable the flexible, agile economy.

A Gathering Storm?

Not necessarily.  That change is occurring is, I think, indisputable.  What has been presaged for decades is quickly coming to pass; enabled by technology, encouraged by the forces of demography, globalisation and the environment and adopted and driven by the economic needs of organisations, individuals and – still a little reluctantly – by growth hungry governments.

We should all pause, reflect and steer a personal course through this change.  It promises immense opportunity but not without significant discomfort along the way.