September 14, 2018
Korok Ray [1 of 2] – Online Outsourcing and the Future of Work
September 14, 2018
This is a fascinating episode with guest, Dr. Korok Ray, a renowned economist that has served as a senior economist on the Council of Economic Advisers for then US President George Bush, from 2007 to 2009 during the historic financial crisis.
He is an Associate Professor at the May Business School of Texas A&M University and the Director of the Mays Innovation Research Center. He earned his BS in Math and Economics from the University of Chicago and his Ph.D. in Economics from Standford University.
Korok is a labor economist. In this episode, Korok lends his views on labor and outsourcing in his essay entitled Online Outsourcing and the Future of Work.
- During his stint as the senior economist under George Bush administration in 2007 to 2009, Korok noticed how outsourcing tasks to staffs around the White House effectively and efficiently accomplished enormous tasks to unburden the President of non-presidential stuff.
- From this realization, Korok himself started to unburden himself with all the non-PhD staff like typing and Google searching. He found oDesk and started to outsource these other important but time-consuming tasks thus maximizing comparative advantage, for him to specialize on the highest and best use of his time and resources while creating superhuman productivity.
- His experience with some oDesk online workers prompted him to move into digital based outsourcing which is one of his primary interest and from where he was seeing massive economic benefits that people and even countries can gain from borderless online outsourcing. He thinks that outsourcing itself is the “undiscovered country of the future”.
- He also believed that in the future billions of people particularly from the developing countries will be adding to the world’s internet population primarily as producers or online workers. This will unlock superhuman productivity in this age of digitalization when the market has unlimited direct access to matching human capital.
- The trend is towards more outsourcing with the potential of the emerging human capital and new technology. Competition will be stiff, but this will encourage specialization on core competencies. Individuals may be displaced but either market, the consumer and the producer, wins.
- Executive level management can be the most productive and most efficient by engaging systematic labor outsourcing strategies.
- Digitalization or technology unlocks unlimited direct access to the global human capital and superhuman productivity.
- The future trend is towards more outsourcing and it is believed that billions will join digital space as online workers or the human capital.
My name is Derek Gallimore and I am really excited to bring you the leading podcast in outsourcing.
Hi, and welcome to another episode of the Outsource Accelerator Podcast. My name is Derek Gallimore, and this is Episode No. 187. So today I’m really excited to be joined by Korok Ray. He is an Associate Professor at the Mays Business School of Texas A&M University and also the Director of the Mays Innovation Research Center. He earned a PhD in Economics from Stanford University and this guy really specializes in the future of work and very specifically outsourcing. So, I’m thrilled to have Korok joined in this podcast. Korok is actually kind enough to let us host one of his latest essays on our website. That essay is called Online Outsourcing and the Future of Work.
We will have this essay in the show notes and also it would be within our white paper section of our web site. So, I really encourage you to check out this essay. It has a huge amount of insight and a lot of thoughts into the future of work and role that outsourcing plays in that.
So, I really enjoyed my conversation with Korok. I did go over, it’s about 45-minute conversation. So actually, I’m breaking this into two parts just to stay true to our short-term format podcast kind of scene. So, I hope you enjoy. This is part one. In part one we talked to Korok about his personal journey and his introduction. So, I’m sure you’ll enjoy this and of course we touched on outsourcing considerably, so enjoy this.
If you want any of these show notes or if you want to get in touch with Korok, then of course, go to our show notes which is at outsourceaccelerator.com/187.
Hi, and welcome back. Today I’m really excited to be joined by Korok Ray. I’ve got a little introduction here for Korok because he has such a stellar CV. Korok is an Associate Professor of the Mays Business School of Texas A&M University and Director of the Mays Innovation Research Center. Korok earned a PhD in Economics from Stanford University. He has taught at the University in Chicago and Georgetown University as well as Texas A&M University.
He also served on the Council of Economic Advisers of the White House from 2007 to 2009 during his stark financial crises. Significantly why I’m having a chat to Korok today is because he is a labor economist who reached out specifically the future of work and is doing a lot of work also within the outsourcing sector and as I supposed a derivative or a capitalist out there. So, thank you so much Korok for joining us and how are you today?
Korok: Great, Derek! Thank you for having me. It’s great to be here.
Derek: Absolute pleasure, absolute pleasure. And I can never, obviously, introduce yourself as well as you could do it. Is there anything you can add to that or have I done an okay job?
Korok: No, that was great.
Derek: Fantastic. Fantastic. And, Korok, I first bumped into you online from an article that you wrote, a fantastic article that really caught my eye on the website, Foundation for Economic Education, called The Future of Outsourcing, The Largest Economic Transformation Ever. So, it is a big title. And really, it is a very big subject and one that I am passionate about. So, I supposed as a sort of origin story, as a genesis, can you tell us a little bit about yourself and how you came first into the kind of economic and academic arena, but then how you developed your interest in outsourcing.
Korok: Absolutely, I’d be happy to talk about that. So, I, as you said, am a labor economist. I earned my undergraduate in Math and Economics at the University of Chicago, and then I went to Stanford for my PhD in Economics. And then I taught at Chicago and went back to the University of Chicago to teach as a professor. And all this time, my area was primarily as a labor economist who studied labor markets and compensation. And of course, like everyone else, I was part of the growth of the internet and the expansion of digital technology around the world.
Really, what happened is I worked in the White House under George Bush in 2007 to 2009, which itself was an amazing experience. But what I noticed during that time is that when you work for the president, you realize that the president of the United States doesn’t actually do that much. He sorts of his constantly outsourcing tasks to a 5,000-person staff around the White House. I mean, he has a handful of advisors, and then those people themselves have advisors. And it is an enormous staff around it. And I noticed that this was an extremely efficient way of accomplishing tasks because it removed the burden, it shifted the burden towards other people who could then identify who the best person in the staff was to do the job, and often, that person was better than the president himself.
And so, when I left the White House, I was teaching at Georgetown, and I wanted to expand my productivity and I really wanted to leverage my time. Based off of this simple analogy, from the president, I said, “How could I, as an individual, have kind of like a presidential staff helping with my work, increasing my productivity, trying to make me more superhuman?” And that’s when I discovered oDesk, which was the first, one of these early online platforms. And I hired some online workers through oDesk. And I was having them mostly work on various research related tasks to my academic research.
There’s a lot of work that goes into publication of an academic paper, and the reality is that I didn’t need my PhD to do every single part of that job. In fact, a lot of it would be better served by people who could specialize in certain areas. Like there are people on oDesk who would type out mathematical equations as their full-time job, and they were quicker and faster and more precise than I was at doing that. So, it didn’t make sense for me to keep typing those equations out. Instead, it made sense to hire someone on oDesk to do it.
So, this was largely based on the theory of comparative advantage, which we teach in economics. And really, it is that people should, not just people, but actually, countries also should really specialize in their highest and best use of their time and resources. And what I noticed was that there was still a lot of friction in terms of working with online workers through oDesk. And so, what happened after several years of doing that is I employed many students in my research program to then oversee some of these online workers. And eventually, we built an auction website, which is a platform for distributing tasks to online workers in an efficient way which we both use regularly and also we conduct research with the mechanics of the auction itself.
And then in the last few years, what I’ve done is that I’ve made this area of outsourcing, especially digital based outsourcing, one of my primary areas of research interests. And that’s what I study, and that’s what our center is organized around. And we really try to understand what are the massive economic benefits that can accrue from online outsourcing.
Derek: Right. And so, as you develop through your sort of academic and economic journey, I suppose you’re now concentrating more on outsourcing. Is that because you see it as such a major change in society? You really do see it as one of the most transformative catalysts for how we live and work today?
Korok: I do, actually. I think it is the undiscovered country of the future. And it is the major transformation that people don’t yet know about. If you just look at the basic economics, I mean, the reality is that the internet is now penetrating the other half of the world’s population, and there are going to be billions of people coming online for the first time in the next decade or two. And a lot of these people are not coming online as consumers partly because the internet has largely already penetrated the developed countries and they’re now reaching to the developing countries. And the reality is that we’re moving into low income parts of the world where these people coming online will not really be consumers in the way consuming kind of the products that Google and Facebook are selling, but rather, they’re going to be producers. And they’re going to be people who supply their labor to the market. And what the real benefit of this is that effective outsourcing will unlock huge amounts of productivity by matching together workers on the one side and employers on the other in ways that I think the world has never yet seen.
Derek: And it’s funny, isn’t it, because outsourcing, we talk about it as a new sort of technologically enhanced thing, and there’s a lot of friction about it coming in, but it’s really as old as society itself in a way, isn’t it? Because outsourcing effectively is the essence of role specialization.
So back in the old days, in villages, when people went out hunting, society started to develop when they said, “Some people stay at home and mend the fire and make the tools, and we’ll go hunting,” which allows for sort of role specialization. It allows for people to become better at what they do, which allows for kind of a granularization of roles within the society and then an enhancement of society.
And we see that very commonly in business. Most businesses outsource their accounting. Most business outsource many functions. But then it seems that as soon as the evolution of that, which is sort of the internet, enhanced cross-border service outsourcing, then suddenly, there’s kind of friction because people are concerned about the economic implications of that, the nationalistic and the sort of cross-border implications. Do you see that the kind of waters have been muddied slightly? I mean, the way I see it, it’s almost just a linear progression, but it’s kind of muddied because of the sort of the domestic economic interest of each acting country.
Korok: Yes, you’re right. I think you made two points. Yes. And you are right that outsourcing has always been around. I think what’s new this time is that the internet is making it more available faster and more transparent, and it’s getting rid of the intermediaries, which before, you would have to have a large corporation and many middlemen in between the steps. And now, we can lead to almost direct contracting between the employer and the worker. So, you’re right. The linear transformation, I think this is now accelerated by the disintermediation of the internet.
Your second point is also true. I do think there’s a little bit of a wave of nationalism that’s spreading across both the U.S. and, collaterally, across other countries. And I think outsourcing, you can think of, is a form of trade and especially free trade where one person is trading their service for an income. And for that to really work in the best sense, you really want to allow free trade and not to put up barriers to trade that nationalism inherently does. So, there is an inherent conflict there. But I’m actually optimistic that the profit motive will drive enough businesses and employers to continually search for value, and that will drive the push towards outsourcing, even if it is politically unpopular at times.
Derek: Yes. There’s profit-driven development, but also efficiency isn’t there, and it’s very commonly said, right?
Derek: Like businesses and societies are forced towards a more efficient outcome effect around this and there’s no…
Korok: That’s right.
Derek: …real option in that regard. So, in terms of that you mentioned the political environment, and you were in the White House with Bush. And then we have Trump obviously, quite outspoken with outsourcing. And as you said in your papers that outsourcing a bit, well, there’s many sort of stages of outsourcing, but one of the sort of bigger aspects was manufacturing, so physical product outsourcing in the ‘60s.
Now, that’s easier to control. You can control the migration of fiscal products across the borders, of course. And also, with human migration, you can, of course, control that over the borders. But now, with the internet, as you say, the distant mediation of all of this, the sort of burgeoning potential workforce, which is potentially kind of seven billion people in a few years. Can any of this actually be policed? If someone sent you an email with, let’s say, $10,000 of productivity contained with that email, is it possible to monitor this, to control it, to regulate it?
Korok: I hope not, and I don’t think it is. I think it is very difficult to police this and really unnecessary. Really, that we shouldn’t try, I think to be protectionist. And I think that would end up with causing a lot of economic harm because even trying to figure out the location of work and when it’s done and why it’s done, it’s very hard to actually narrow that down precisely, and so I think it’s hopeless to even try. I mean, there’s the simple example of, like, even if you look at a pencil, a pencil that anyone uses has parts of it that are made around the world, from the graphite in the center to the wood casing, to the metal ring. And digital work eventually will have that same feature where all the work that you see, like when you put together your PowerPoint slide deck, could be sourced from multiple countries. And trying to locate the source of that work is not really productive rather I think that would be a mistake to try to set up some regulatory regime around that.
Derek: So where do you see the continued evolution? As well, I suppose, this ties into the proliferation of the internet across the world, which you have, of course, written about, but then also, there’s the essence of automation and ARN things like that. You talk about reduction of friction. You talk about sort of more efficient markets, creating less friction, which means that there’s more distant mediation, which means that there’s more sort of one to one trade which fundamentally is positive. But where does all this go when, potentially, there will be a sort of equilibrium shift as sort of wealth and populations are potentially more evenly spread?
Korok: Yes. I mean, there are some harsh truths to face, and as an academic, I am happy to address them and try to face them. With trade, there are always winners and there are always losers. Net gain is positive, but you have to be aware that some people will win, and others will lose. And in outsourcing, it’s no different. I think overall productivity will grow, and overall economic surplus will rise, but what will happen is that industries that are somewhat protected from that, like, an example would be transcription in the United States will be exposed to global competition, and those typists in the US who make 10 times the amount of pay as a similar typist in Manila or Hong Kong will be out of a job. That, to me, is while it may seem unfortunate, maybe even sad for the American, the reality is that it’s globally efficient and that that person should reallocate and retrain themselves into other kinds of jobs that have higher value in the marketplace.
Derek: Yes. Absolutely. And do you think there’s going to be…I mean, this is going a long way down the spectrum, but do you then think that there is going to be infinite requirement for production? Because I think it was Adam Smith back a long, long time ago that suggested that as efficiency rises, in only a couple of decades, people will only need to work 10 hours a week, but still kind of a hundred years later, we’re still working 60, 70 hours a week. But now, there is a conversation starting, isn’t there, that people might not have to work where there’ll be a living allowance. And also, through automation, will even any requirement for a lot of these more basic roles be required. So where do you see that journey?
Korok: Yes. I have been following this debate on the living wage and the universal basic income. I’m not a fan of that concept. I think we’ve got plenty of evidence that providing that kind of social assurance, it kills incentives to work and save and it could do a lot of damage to society. I also don’t believe that people will really want to completely be unproductive. I mean, if you look at the data of what’s already happened and kind of economics of how people behave and how markets work is once people’s productivity grows, they have… it’s true that… this is what we teach in microeconomics. There’s both an income and a substitution effect in the sense that it’s true that they want to…they have more income and so they’ve met their basic needs, and therefore they may be more likely to work less and to take more leisure time, but at the same time, for every hour of output, they’re earning that much more and, therefore, their productivity goes up, and so they’re more efficient at working and so that’s going to lead them to work more. I don’t think there’s a problem at all with creating a new generation of entrepreneurs or a new generation of superhuman productivity through outsourcing, and that will just increase growth and happiness and human welfare.
Derek: Yes. Ultimately, we’ll just develop more quicker as opposed to just doing the same with less…
Derek: human[?] input.
Korok: That’s right.
Derek: Because, I mean, the whole thing puts into question then, “Why would you educate your youth? And why would you kind of do anything if, actually, you don’t need to work?”
Korok: That’s right.
Derek: And there’s this sort of loss of purpose. It can be a very dangerous social experiment where it could actually put a country back by kind of a huge amount if they do something for five years work.
Korok: Well, another thing of thinking with this is think about farming technology 150 years ago or 100 years. When the tractor first came on the scene, there was a risk that all these manual farmers would have nothing to do. There’ll be massive unemployment. What would we do with them? And the reality is that what happened in the societies are farming sectors shrunk so that the labor portion of farming became very small. The capital portion became much larger. And then people who would have become farmers in the last generation decided to do other things, like enter new industries that now emerge because of this new pool of people that were able to work, like financial services. And so, I think the same thing is going to happen now with both automation, with technology-enabled change, as well as through outsourcing.
Derek: Yes. It’s fascinating, isn’t it? Because I think maybe [facilizing 00:22:00] those statistics, but with farming. But before there was technology, it took maybe 30, 40% of the population to actually generate the food required for the population whereas now, it’s like 1% of the population.
Korok: Exactly right.
Derek: As with specialization, that then let’s the other 99% go and be nuclear physicists and kind of all other specialties. Yes.
Korok: That’s right.
Derek: So, it’s a sort of progressive development, isn’t it?
Korok: That’s exactly right.
Derek: Interesting. And then your personal experience then in outsourcing, you mentioned the president effectively outsourced everything. And I have been involved in outsourcing very much, so since about 2011. I would argue that, playing devil’s advocate, that the establishment is far older than the president himself. And I would assume that the establishment has had many decades, if not centuries, to become efficient, to learn how to run the show, and then the new president pops in and almost fits into the machine. How did you find your personal journey with outsourcing with trying to create this machine around so that it kind of optimized your daily activities?
Korok: Well, it took a lot of time and a lot of retraining of myself. That was a big investment, and I think that’s a nontrivial leap. If you think about the way technology has developed today, it’s really designed around individuals and individuals doing things themselves by themselves. So, in the past, we had maybe a travel agent. Now, we have to book our own flights and search for them ourselves and do our own travel planning. And even though that maybe it has saved us time overall, it actually has increased the burden on individuals to do all of this. And so, what I had to do was to build a system such that I was primarily giving instructions to other people and then letting them handle all the details based on their own special skill sets. And that’s not something that technology enables us to do. And so now, Google is made for individuals to search for all the information on their own. Now, what I do is I give instructions to my team of outsourcers. And I actually don’t interface with the internet directly anymore at all. They kind of curate for me the search items that I need, and it’s much better than if I had searched through. I only have the patience to go through one or two Google pages, but they can go through 50 of them across five, six people. And so, it did take a little bit of retraining in the sense that it requires individuals to adopt almost an executive mindset and to imagine that you are really going to just deploy instructions to people, and then they will kind of fill in the details. And you have to be willing, in the beginning, to handle a little bit of an error rate. In the beginning, my error rate was high, and I’ve gotten it down much lower, but you have to be able to put up with that high error rate in the very beginning.
Derek: And the error rate is reduced because I assume that you have trained a team that now know you better, but also because it’s going to be within that team, you’ve also enhanced your own processes, your own skills of transferring the requirements to the people. Is it kind of a common [crosstalk 00:25:35]?
Korok: Exactly right. That’s exactly right. That’s right. Yes.
Derek: Outsource Accelerator, we advise businesses into outsourcing. We basically try and encourage every single business to, if not outsource, at least to properly consider it. And I think businesses and especially entrepreneurs overlook the fact that, actually, there’s a lot of kind of internal training, a lot of self-learning, a lot of kind of rethinking how you do things when you bring on an outsourced team. And also, not just outsource but, like, the delegation of tasks that people would normally do for themselves.
Korok: Yes. The delegation is a mental mindset that needs to happen. And it is non-trivial. That’s why outsourcing is so interesting. The supply and the demand side are both very interesting. My wife is an example. I mean, she likes to do everything herself. I have built technologies, and I have teams of people working for me. And I’ve tried to get her to use some of them. She won’t do it because she just wants that full control. But there’s a high price to pay for that, having that 100% control, is that you can’t really leverage your time effectively. And so that’s what I’d like to encourage people to do.
Derek: Yes. And then, I mean, because everything happens in cycles, isn’t it, just in my sort of [immature own 00:27:06] observations. I mean, things sort of go through cycles of centralization and decentralization. Do you see that as a case with outsourcing in that there’s a bit of a trend now? Well, at the moment, as you say, everything is going on to the individual to book your own flights and book your own restaurants and maybe even eventually cook your own dinner in restaurants and things like that. But do you see that this is a trend? And you talk about Upwork a hell of a lot as sort of one of the leaders in this decentralized workforce, but there are now issues in terms of Upwork providing quality and standards and things like that. And people can have quite inefficient experiences on those platforms. So now, there are higher care or higher touch platforms that offer the management kind of level, so it saves you time. Do you see that things can cycle and ebb and flow and go back and forth between the two extremes?
Korok: I do. Yes. But I strongly believe that the trend is going to be towards more outsourcing in the future rather than less. So, they will have these short-term fluctuations, but I think we’re at the tip of an enormous iceberg, and that iceberg is the number of people that are going to be coming online in the next decade or two and the huge amounts of productivity and human potential that that will provide. It’s just too much to leave sitting on the table. And so, I believe companies will form that and then software will be written, and programs will solve these problems of how to harness that human capital to really take advantage of all that potential. As a society, I do think we have to make some choices to try to encourage those developments to improve outsourcing. And I think that runs against the current conventional wisdom that robots are going to do everything, and humans will have nothing to do. I don’t think that’s going to be true in the future. It’s never really been true in the past. And we need to develop more technologies that really critically engage humans rather than just simply develop the machines.
Derek: And it’s a skill shift. That’s right. Isn’t it? Because you managing your team shifts you from being Korok, the economist to Korok, the people manager, Korok, the project manager.
Derek: And actually, there’s a whole new skill set, isn’t there? And I have always been running my own companies for the last sort of 15, 20 years. And to be honest, I’m not the best people manager and I’m not the best project manager. And actually, management is actually all about that as opposed to the actual execution of the task or necessarily kind of the intellectual contribution towards the exercise. Even though I assume with you being academic, it has to tilt towards you, I don’t know, I suppose contributing the kernel of the original thought process.
Korok: Yes. It is a different skill. I mean, I’ve been able to shield myself a little bit by hiring very good people around me. And so, like, in my center, I have a great program coordinator who manages our student staff, as well as our online workers, and he’s excellent. So, it does require a little bit of a different skill set. But I also do believe that technology can serve as a very, very effective way to help coordinate and handle some of the managerial burden. The essay that I wrote on this topic is, in this sense, a little bit speculative but optimistic in that one of the best uses of technology in the future will be to develop better platforms and better methods of assigning and distributing work among a billion-person network of people. Those are things that computers eventually will be able to do very well. It’s just a matter of developing that technology.
Derek: Okay that was Korok Ray that was part one of my chat with Korok. If you want to get in touch with Korok, if you want to get his essay which he wrote which is called Online Outsourcing and the Future of Work then go to our show notes which is at outsourceaccelerator.com/187. And of course, if you want to get in touch with this author, just drop us an email to firstname.lastname@example.org
Join us next time for Part Two. That is going to be Episode 188, that is the next episode so of course ensure that you join us to hear the rest of the conversation with Korok.