The Politics of the Labor Force

pol-laborAs some of you know, I have been in business for myself for about 24 years. In that time, I have employed many individuals in two countries. My business has grown from a one-man operation to as large as a 15-men operation including subcontractors in two countries. I know and understand the many issues faced by employees. I have had to meet payroll, sometimes even at the expense of my own paycheck. It is with this perspective that I hear the ongoing debate about minimum wages and free trade agreements raging in many countries. Along with that, I also notice the political debate in El Paso about the effects of NAFTA, wage disputes and the economic growth of El Paso.

These are all issues that are related to each other and I believe many do not realize it. Hang in there as you read this lengthy piece and I promise you I will offer a solution to wages and El Paso’s economy when you get to the end. However, I have to lay out my reasoning first.

Let us forget the rhetoric of business owners versus employees for a moment and let us focus on two undeniable facts that I have learned over the years through my businesses.

The first undeniable fact is that consumers, every one of you will spend as little as possible on the goods you consume. Of course, the individual that can walk in and pay cash for a Rolex watch may not be as price conscious as you because their access to greater disposable income allows them the ability to make purchasing decisions on other factors, such as personal service.

The second is that micro and macroeconomics are always in flux and evolving. The cost of gasoline always goes up yet the ability to pay for it by individuals evolves as well. Although $4.00 a gallon seems like a huge jump from the 99-cents a gallon from years ago, the individuals able to fill up their fuel tanks have not risen or decreased in relation to the price of gasoline. Each evolution is not linked to the other. You all know that rising wages do not equate to rising prices. Look closely at your spending habits today and compare them to your spending habits from 10 or 20 years ago. The prices are different and so are your spending habits. The two do not always coincide, as there are other factors at play.

Those two facts – consumers spending as little as possible and the unrelenting changes in the economic engine are the nexus to the politics of wages. Accepting these two factors as a fact then allows us to peel away the politics and focus on the solution to the problem.

Some of you may have noticed the advertisement on my blog for Authorized Registrar. Authorized Registrar is the latest evolution of my business journey. It is another facet of how I generate my income.

Taking the two facts as undeniable, low costs and the economy in flux, has forced me to evolve my business through the years. When I first started in business, I was reselling IBM compatible computers. That evolved into building compatible IBM computers, then custom software development and then unto web-related development. Each of the evolutions of my business were the result of outside forces forcing me to adapt.

Someone will always offer a cheaper version of your product and consumers will buy it.

Through all of the evolutions of my businesses there has always been one constant reality – labor costs are the single most expensive cost to all of my businesses. Because consumers demand cheaper products and employees demand higher wages, the two remain incompatible with each other.

I took the manufacturing of computers and the development of website products to the lowest price point possible and yet it was not enough because my labor costs continued to rise. When my cost to produce a product outweighed the price point consumers were willing to pay for it, it resulted in the next evolution of my business. This is true for all business.

Authorized Registrar is my next evolution because web hosting and domain registration services have reached the lowest possible price-point because of GoDaddy and other providers. The key to GoDaddy is automation and self-service.

That is the future of business, discarding employees and forcing prices to the lowest possible price-point.

At Cognent, we charge $29 annually for domain registration services. At Authorized Registrar, we charge less than $10 for a dot com registration. Why the price difference?

The truth is that it costs me the same amount to register a domain name for my client. The difference for the consumer is that at $29 a year the client receives full-managed care. In other words, they get to speak to someone who can answer their questions for them and help them through the process. Cognent is a full-managed service provider meaning that the products we sell are fully managed by us for our clients. Domain names, for example, are not allowed to expire because someone forgot to notify the registrar that the email address has changed. Updating name server records are completed by qualified engineers.

Authorized Registrar and GoDaddy for that matter, relies on the individual to manage all aspects of their domain name registration and other web related services. In other words, it is a self-managed service provider. By bypassing the necessity to keep an employee answering questions, the price dropped from $29 a year to less than $10 a year.

As more consumers become more technically informed, they begin bypassing the full services offered by Cognent and go directly to Authorized Registrar services to lower their costs. As a business owner, I have to understand this and either allow my customers to go to GoDaddy or provide them the service they request, at the price they are willing to pay for it.

Does that mean the end for Cognent services?

I have been shedding employees over the last few years and automating as many of my processes as possible through a mixture of contract labor and automation.

Reducing my labor costs have significantly allowed me the ability to compete directly with GoDaddy-type service companies. Interestingly, the reduction in labor force has allowed me to also increase my infrastructure and access to a much larger customer base. For example, before I kept server clusters in Canada and in the United States.

Through Authorized Registrar I now offer servers in India, Hong Kong, Turkey and, of course the United States. I have plans to begin offering server solutions in Mexico as well as soon as the telecom regulations evolve in Mexico to allow such services at competitive prices.

Many of you are employees and your reaction to my reduction of my labor force angers you. I understand why and although I can explain to you why I was forced to do so, it nonetheless will not resonate within you.

However, there is a positive aspect in my experiences for El Paso’s economic woes and the future of labor, especially in the United States.

The underlining problem is that cost of labor.

Reducing costs through labor automation will continue to happen no matter how many government policies are enacted to protect employee benefits or raise the minimum wage.

However, there is one thing that automation may mimic but it will not replace in the near future.

It is creative expression in its many forms.

Hang on; I’m not advocating everyone study to become artists or musicians although those types of individuals have a very bright future because the Internet is all about creative expression.

What I am advocating is the type of service that cannot be replace by machines.

For example, a bank teller takes deposits and credits your account or cashes a check and debits the account holder. It is a repetitive task that can be automated, and as you can see, it is already automated by ATM machines.

Although restaurants can serve food and cook it through automation, the fact is that machines cannot provide the specialized service like extra mayo or bring an extra napkin to clean up a spill. It may be able to do so in the near future but waiters and chefs will be paid for the personalized service they provide in the near future. That is why even fast food establishments continue to keep employees although some have begun to automate certain parts of their operations.

That is the key to pressure on wages in the ever-changing economic environment – services.

Although I can automate logo design up to a point, human hands and especially human creativity cannot yet be replaced. However, my access to creative individuals is now across the globe. I can contract a graphics designer in India to do the labor-intensive work for a lot less than someone in the United States.

That is just a fact.

However, the expertise, cultural understanding and human interaction to design a logo to represent a company’s culture cannot be created long-distance. It must be done face-to-face.

Although there will be price conscious companies looking for a quick logo who will use the far-off designer to fill an immediate need, eventually, as the company evolves they will seek a local designer to build their brand portfolio. At that point, they will be willing to pay a premium price for that service.

I can give numerous other examples to illustrate my point such as engineers, teachers, writers, chefs, scientists, doctors and individuals willing to build with their hands. The bottom line is that the future for employees lies not in manufacturing or doing repetitive tasks but in creating something.

Creating intellectual property is the future.

In my personal case, Cognent has evolved from building and maintaining networks to creating online content for my customers. As with anything, many of my clients have learned to do many things for themselves and thus are looking to manage many aspects of their online needs themselves. That is why I have created a sister company in Authorized Registrar to give them the price point they seek and yet keep them as a revenue stream.

There will always be a need for creative content and thus Cognent remains my largest source of revenues for me, as machines cannot yet replace creative video production, written content, custom illustrations or personalized photography. At the same time, domain registration and hosting has been automated to the point that most anyone can manage those services themselves.

I promised you a solution to the economic plight of El Paso and the future of wages for most of you.

The future for employment and solving the economic woes of El Paso is not in manufacturing or offering incentives for companies to relocate to El Paso. It is foolish to continue to think that way.

The future for living wages and the El Paso economy relies on creating intellectual property.

Every sound that is mechanically created that you hear is intellectual property. Every photograph or image you see on paper, the screen or on an advertisement is intellectual property. The food you eat is intellectual property. The shoes you wear or the clothes you put on are all intellectual property. The words you are reading right now is intellectual property.

The greatest source of intellectual property is the United States.

Rather than to continue embarking on seeking manufacturing jobs, the city should be looking at creating the necessary infrastructure to cultivate and motivate intellectual property development. India, as a nation, saw this many years ago and embarked on raising poverty levels by embracing the Internet as the business model for the future.

That is why today you are likely to encounter a telephone operator in India when calling your local service provider or why graphics and programming services are mostly coming out of India today.

Intellectual property requires creativity and the willingness to create.

Many of you bemoan new call centers in El Paso and demand Hyundai build a manufacturing plant in El Paso. Guess what, car manufacturing is automating at an exponential rate. Supporting products through live operators via the telephone and via email can only be automated so far until a human interaction is required. That is why you encounter telephone trees. They lower the cost of labor but does not do away with it.

Many of you advocate higher wages but continue to shop at Walmart for your goods. Neither are wrong but they are incompatible with each other.

The solution lies in understanding what intellectual property is how to cultivate it.

Intellectual property is not only artists, musicians or videographers. Those who create intellectual property are also engineers who design buildings, computers and the Internet services among the other things that make your life more comfortable today. Architects, writers, programmers and dreamers also create intellectual property.

Not everyone can be an artist but everyone has something that a machine cannot yet replace, creativity.

For example, anyone can take a telephone call and answer questions about a product with the support of automation. All it takes is the ability to speak a language. Anyone can serve food that a chef creates. Almost anyone can be trained to drive a nail to build a house designed by an architect.

Creative development requires machines, offices, food and all sorts of other things. These “things” need the support of humans to keep them in working order. Look around you and you will clearly see where a human must be available to solve a problem. Automatons may be building the car you drive. You may even buy the car without interacting with a human. A machine could even fill your gas tank or replace the oil filter of the car but a human must keep the robots working and the software to run them updated. A human must be on hand to address any problems the machine may encounter.

More importantly, the car you buy is the creative expression of the designers that worked on it. If that were not the case then no one would buy a Porsche.

In other words, stop bemoaning call centers and stop demanding artificial minimum wages and focus on putting yourself in a place where you can fill the void a machine cannot possibly fill. That is the solution to free trade agreements and low wages.

As for an economic policy for El Paso, look no further than what your government routinely outsources in order to accomplish its projects. Architectural, engineering, legal and process management services, like the Six Sigma process are routinely outsourced outside of El Paso.

These are intellectual property driven services that are required in El Paso and all cities worldwide.

More importantly, change the mindset from trying to stall free trade and an expanding global economy and instead understand that the willingness to work by providing creative services is the key to better wages and a more robust economy for El Paso.

Unfortunately, I cannot end this piece without addressing an obvious problem that I am all too familiar with. It is the problem of undervaluing creative work. Asking an attorney “just” a quick question about a legal issue ignores that what the attorney sells is their expertise. Likewise, asking an illustrator to create a “quick” logo also ignores that they sell their talent and expertise.

Or my favorite, telling someone that they shouldn’t charge so much because they aren’t working on anything at the moment and thus they should not charge their normal rate. It usually goes something like this; wouldn’t you like to make $100 today instead no money by just making me a quick graphic?

Unfortunately, I do not have a simple solution to that problem, other than simply saying “no,” as it ties directly into the fact that consumers are always looking for the cheapest possible price.

Regardless, creating and supporting intellectual property is the future for economic development and so-called living wages.

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