"Therefore you should work in the office, to avoid that competition."
The problem here is the word "you". That's a misleading word, in this context.
What I wrote was instead from the point of view of entrepreneurs and managers. Consider the situation from their point of view and the argument makes sense. Also, the economist Coase was trying to answer the question "Why do corporations exist?" so his point of view was very much from that of the corporation.
I could have made that more clear, hopefully this clarifies it:
From the point of view of the corporation, if work doesn't need to be done at the office, then the corporation can ask "Can we outsource this to Vietnam, India, Romania, or Brazil?"
About this:
"Are you just hoping that being in an office is some kind of protective camouflage?"
Let's assume some computer work where what is needed is absolutely clear and easy to define and easy to check, such that a manager can easily state what they need, and the same manager can also easily see if the work was done at a high level of quality. Coase would say that all such work will eventually be outsourced, because it is easy to outsource, and outsourcing is often cheaper.
But according to Coase, there is a large category of work that is somewhat difficult to define, perhaps because the work involves a creative or spontaneous element. Or possibly because the work is multi-variate such that it is impossible to achieve quality on every variable, and so the evolution of quality in particular variables both limits and opens the door to the future of the company (in other words, Google cannot outsource the creation of the algorithm of its search engine, as that algorithm defines the future of Google). In such cases, the manager cannot easily define the work, nor can the manager easily check if the work is being done, nor can the manager easily evaluate the quality of the work. In such cases, the corporation will want to in-source the work. For such work, it is important to build long-term, trustful relationships with those doing the work.
That much is I think a straight re-statement of Coase.
I'd add, the arguments that apply to outsourcing and in-sourcing apply, to a lesser extent, to the question of "work from office" versus "work from home." We can see this in the pay being offered -- in New York City I'm seeing companies offer large pay increases to get people back into the office. The companies clearly place more value on the work done in the office, in contrast to the work being done at home.
About this:
"But if the job can be done at home"
The argument is that the vague intangible aspects of the job are probably not happening when the work is done at home.
Outlook still calls time when you're not working "Out of Office". Being "in the office" means you are working, and part of the organisation.
So to what extent is the physical proximity of colleagues an essential part of that organisational belonging? Or is it just that prior to our current technological capabilities and the pandemic, being "in the office" was a necessary part of that belonging?
Matt, I've been in a few conversations on this topic, so I finally wrote up a complete answer, and I quote your questions in my essay, which I've posted here:
To develop evidence, you would need to generate examples of vague, intangible but fundamentally valuable work. Since that is difficult, research on this subject is going to proceed slowly. Since it takes effort, on the part of the leadership, to define vague, intangible but fundamentally valuable work, doing so clearly has a cost associated with it. This extra cost is the starting point of Coase's theorem. Rather than define this cost exactly, most workers, and most management, proceed on instincts. So management says "I'm willing to pay an extra $30k a year to get workers into the office, because defining their work will cost me more than $30k a year." And then some workers say "Working in an office costs me more than $30k a year, so I won't go to the office" or some say "I'll make a profit if I take the $30k and go to the office." Rather than work out this value exactly, most are proceeding on instincts.
Still, we can reason about vague intangible factors by looking at the behavior of the top leadership. Top leadership prefers to meet other top leadership in-person. In New York City right now, the pattern I'm seeing is that leadership meets each day in the office, while less essential workers are allowed to work from home. Likewise, with the pandemic ending, most meetings of the Boards Of Directors have gone back to in-person meetings. And the best salespeople I know greatly prefer in-person sales calls rather than Zoom calls. In every case, those at the top behave as if in-person gatherings give them some extra benefit, which might be difficult to define, but whose importance is revealed by the behavior of those at the top. When a CEO meets with their Board Of Directors, they prefer to do so in-person.
This is too large a subject to get into in comments on Hacker News, but the starting point would be the question "Why do firms exist?"
That leads to other questions:
"When does a firm want to hire an employee, rather than outsourcing the work to another company?"
"Why does hierarchy exist?"
I don't think much work has been done on the specific issue of "work from home" but presumably the arguments for and against outsourcing apply in lesser form to "work from home".
Module theory can contribute something to the conversation, there is a nice overview here:
It is possible that the issue is best understood the other way around: look at the failures of outsourcing and then notice what they have in common with "work from home". Here is a good essay on the failures of outsourcing:
"Carillion consisted, essentially, of a sales and contract management organisation that hunted public-sector service contracts and then hired subcontractors to carry them out. This is a fairly pure statement of the firm as a network of contracts. It grew largely through a succession of mergers and acquisitions, buying up the facilities management divisions of British construction companies to get their government contracts. This had an important effect on the company – it became a conglomerate that had only one real specialisation, bidding on government contracts. It is not surprising that it didn’t do a great job."
Many advocates of "work from home" argue "Why should it matter where I do my work, so long as I get my work done? If I'm doing excellent work, and getting it done on time, then I should be allowed to that work from home." This argument depends on someone up in the hierarchy defining the work to a high level of specification, so that everyone can clearly understand what the work is, and what it means to get it done on time. In such cases, the managers have to become specialists in defining the work to a high level of specification, in the same way that Carillion became a conglomerate that had only one real specialisation: bidding on government contracts. Some managers feel they have other work to do which is more important, so they'd rather just pay extra and get people back into the office. That is why work-from-office is going to survive, and that is why it will be better paid than work-from-home.
As an aside, I used to work for a technical services company that was bought by a company who aggressively acquired other similar companies. Their only skill it turned out was doing this, and they ran them all into the ground.
I don't believe that working from home is related to outsourcing in any meaningful way, but I can relate to that story on a personal level!
Interesting, thanks for the response. I agree we can't take this further in HN comments.
I would only observe that alternate explanations for this behaviour than there being any actual value to being in the office are quite plausible, for example, demonstrating committment, or being afraid of being judged as less committed.
"Therefore you should work in the office, to avoid that competition."
The problem here is the word "you". That's a misleading word, in this context.
What I wrote was instead from the point of view of entrepreneurs and managers. Consider the situation from their point of view and the argument makes sense. Also, the economist Coase was trying to answer the question "Why do corporations exist?" so his point of view was very much from that of the corporation.
I could have made that more clear, hopefully this clarifies it:
From the point of view of the corporation, if work doesn't need to be done at the office, then the corporation can ask "Can we outsource this to Vietnam, India, Romania, or Brazil?"
About this:
"Are you just hoping that being in an office is some kind of protective camouflage?"
Let's assume some computer work where what is needed is absolutely clear and easy to define and easy to check, such that a manager can easily state what they need, and the same manager can also easily see if the work was done at a high level of quality. Coase would say that all such work will eventually be outsourced, because it is easy to outsource, and outsourcing is often cheaper.
But according to Coase, there is a large category of work that is somewhat difficult to define, perhaps because the work involves a creative or spontaneous element. Or possibly because the work is multi-variate such that it is impossible to achieve quality on every variable, and so the evolution of quality in particular variables both limits and opens the door to the future of the company (in other words, Google cannot outsource the creation of the algorithm of its search engine, as that algorithm defines the future of Google). In such cases, the manager cannot easily define the work, nor can the manager easily check if the work is being done, nor can the manager easily evaluate the quality of the work. In such cases, the corporation will want to in-source the work. For such work, it is important to build long-term, trustful relationships with those doing the work.
That much is I think a straight re-statement of Coase.
I'd add, the arguments that apply to outsourcing and in-sourcing apply, to a lesser extent, to the question of "work from office" versus "work from home." We can see this in the pay being offered -- in New York City I'm seeing companies offer large pay increases to get people back into the office. The companies clearly place more value on the work done in the office, in contrast to the work being done at home.
About this:
"But if the job can be done at home"
The argument is that the vague intangible aspects of the job are probably not happening when the work is done at home.