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Micro-Entrepreneurs and the Industrial Revolution

The human brain weighs just three pounds and yet it contains around 86 billion neurons. Neurogrid, a new circuit board developed at Stanford and modeled on the human brain, is 9,000 times faster than the average computer yet it effectively contains some 86,000 times fewer neurons and significantly less computing power. By all accounts, the human brain is an exceptional piece of bioengineering, especially considering it requires 40,000 times less power than the average computer.

The Cost of a Human Brain

How valuable is a human brain? The Titan Supercomputer, which was the fastest supercomputer in the world until 2013, cost $97 million to build. It required 18,688 CPUs and an equal number of GPUs to calculate 17.59 million billion (17.59 petaflops) instructions per second, 2.5 million billion less than Chris Westbury’s estimate of the human brain’s calculating capacity. Why waste $97 million to buy a supercomputer when you can have something even better, a human brain, for a fraction of the cost… one dime.

Commoditization of the Human Brain

In 2005, Amazon was facing a growing problem in trying to manage the millions of pages on its website. Duplicate listings for the same product made the customer experience less than ideal, but computers were not very good at figuring out if two product listings were duplicates. Peter Cohen, an Amazon employee, invented a fascinating solution by breaking down the problem into microtasks and relying on an untapped workforce of supercomputers that sat housed in the bodies of internet users across the globe.

Jeff Bezos christened the system “Mechanical Turk” as a reference to the eighteenth century chess-playing “robot” of the same name that toured Europe and America amazing everyone from Napoleon Bonaparte to Benjamin Franklin. In actuality, the eighteenth century Mechanical Turk relied on a chess whiz who was hidden within the innards of the system. Amazon’s Mechanical Turk is similar. Employers use Amazon’s web platform to post jobs (known as Human Intelligence Tasks or HITs) to the over 500,000 workers. The power of the system is that it allows companies to quickly complete a difficult task, such as tagging a database of hundreds of thousands of photos in days rather than months. The job is broken down into microtasks, such as categorizing one photo, and each worker is paid per task completed. Most tasks require several minutes and pay less than a dime.

Several studies of the Mechanical Turk system have unearthed the fact that the average hourly wage ranges from $1.25/hour to $5/hour, significantly less than the $7.25/hour federal minimum wage.

Growth of Micro-Entrepreneurship

Amazon is not alone in tapping into the growing pool of micro-entrepreneurs. Uber boasts over 160,000 active drivers who work as independent taxi drivers in the U.S. and the service is adding an additional 40,000 new drivers per month. TaskRabbit, has an army of over 30,000 contractors who perform tasks ranging from house cleaning to grocery shopping to IKEA furniture assembly. All in all, some 53 million Americans are doing some form of freelance work. That number is projected to grow from its current level at 34 percent of the total workforce to 50 percent in five short years.

On the surface, the idea of being a micro-entrepreneur, and being one’s boss, is incredibly appealing. Now you can finally be in the driver’s seat and dictate how, when and for how much you want to work. Unfortunately, reality is far different.

Technology platforms in the freelance economy love to share stories of micro-entrepreneurs who use their site to generate incomes in excess of $50,000/year, but these cases are rare. TaskRabbit estimates about 10 percent of its micro-entrepreneurs earn around $60,000/year. The vast majority of micro-entrepreneurs use these sites as supplemental income and make far less. An oversupply of eager workers on most sites drives down the price when there is no minimum floor and decreases the likelihood that a micro-entrepreneur will win a contract. Micro-entrepreneurs end up wasting lots of time trying to win work further reducing hourly wages. To make matters worse, micro-entrepreneurs largely assume the risk for providing the service.

A New Industrial Revolution

In many ways, the current trends are reminiscent of the challenges workers faced during the Industrial Revolution. In the freelance economy, employers (both customers and platforms) are largely in control and workers have very little protections. There are countless examples of micro-entrepreneurs providing a service only to have their work rejected with no explanation. Unfortunately in these situations, workers have very little recourse, because they must protect their online reputation or risk losing access to the technology platforms that are the source of their new livelihood.

Gone are the days when a company took care of its employees for life. Companies used to staff for peak periods of demand, but more and more they are staffing at minimum levels and relying on outside contractors to address fluctuating demand. The rising use of contractors and micro-entrepreneurs has shifted a substantial portion of business risk onto the backs of independent workers who can least afford it.

I’m convinced that freelancing is here to stay, but entrepreneurs and business leaders must be aware of the consequences that these trends pose. While you can argue that no one forces micro-entrepreneurs on Amazon’s Mechanical Turk system to work for a paltry $1.25/hour, the reality is that many of its workers are simply desperate for income. Desperation has a way of stealing choice away from the vulnerable.

This post originally appeared at Joel Montgomery’s blog.