The New Economics of Remote Work

1.1 The dominance of the Big Firm.

The shift to remote work presents an unprecedented opportunity to harness global talent and productivity. But despite societal and technological advances that have made forming distributed teams simpler than ever, companies struggle to do so effectively. Why?

The answer lies in a fundamental mismatch between the old economy and the rapidly changing model we see before us. It rests in the fading of the traditional firm and in the rise of the “firms-of- one” that will increasingly define the future of work.

Nobel Prize-winning economist Ronald Coase laid out the roadmap for this transition in his acclaimed 1937 essay, “The Nature of the Firm.” Coase determined that firms arise when they can arrange to produce what they need internally to avoid the marketplace costs of offering goods or services.

That novel concept defied the traditional theory that the efficiency of the market would always make it cheaper to contract out work than to hire for it. And for much of the 20th century, his hypothesis proved correct: the “firm,” primarily in the form of large for-profit companies, became the building block of the old economy.

Their existence was necessary because, historically, it has been prohibitively expensive for smaller businesses and individuals in most industries to engage in the global market.

1.2 The costs of doing business.

To work independently, professionals can’t just charge the value of their time and knowledge — they also have to consider the cost of bringing that service to market.

Before the internet, professionals faced high marketplace costs for advertising, marketing, record keeping, tax withholding, benefits procurement, and other traditional business functions. Geography and physical distance amplified the costs of coordination too, as professionals relied on phone, mail, and other inefficient methods of communication.

Few could afford those marketplace costs alone. The firm shouldered those costs, allowing professionals to produce deliverables matching their core skill sets for a steady paycheck. For the perceived security of full-time employment, professionals traded their ability to earn their full profit potential by contracting directly with clients.

That arrangement proved wildly popular. Freelancing was rare and, in many industries, essentially unheard of, for the majority of the ‘70s and ‘80s — by 1990, just 12.5% of Americans described themselves as self-employed.

1.3 The rise of the “Firm-of-One.”

The factors shaping the old economic model have changed drastically in the last three decades.

The read-only internet transformed into the interactive internet of today, significantly increasing the range of services and goods that professionals could offer online. That shift coincided with the Great Recession, which undermined the traditional firm’s promise of security and forced many full- time professionals to work independently for the first time.Online job marketplaces like Fiverr and Upwork emerged in the early 2010s, lowering barriers to entry even more. The pandemic pushed professionals across industries into remote work: before 2020, 4% of high-paying jobs were remote, but 25% of North American jobs are expected to be by the end of 2022.

Once remote, many professionals discovered they could maximize their productivity and profitability without a large firm’s backing. Nearly half of those who went independent say they earn more than they did as employees. Professionals are now choosing to work for themselves at historic rates: In 2020, the United States saw a record 4.4 million new businesses created — a 51% increase over the previous decade’s average.

Professionals can do so because the marketplace costs of independent work have drastically decreased and job platforms have made spending on advertising and marketing less necessary. Human resource functions, including tax withholding, record keeping, and benefits, can be affordably sourced through software such as QuickBooks and digital collectives like Opolis.

Technology allows businesses to effectively engage the open market to meet marketplace costs directly, as the World Bank predicted in its 2019 report, “The Changing Nature of Work.” As those costs have fallen, so too has the need for firms and professionals to work together as employer and employee. Instead, they can work as peers, business to business.

Nearly a century ago, the economist Coase forecast two possible outcomes: one where a massive global firm controls the world economy and another where companies no longer exist and production is wholly dependent on autonomous markets.

We believe future resources will be coordinated not by monopolistic companies but by individuals forming “firms-of-one” while banding together to reduce marketplace costs under socially and economically aligned collectives.

This new remote work economy isn’t served by the disjointed tools and services of the old economy. Instead, it requires a platform that prioritizes the needs of professionals by reducing their costs to engage in the marketplace even further.