"Let us say that you own a small airline company."
You are a very modern person; having attended many conferences and spoken to consultants, you believe that the traditional company is a thing of the past: everything can be organized through a web of contractors. It is more efficient to do so, you are certain.
Bob is a pilot with whom you have entered into a specific contract, in a well-defined drawn-out legal agreement, for precise flights, commitments made a long time in advance, which includes a penalty for nonperformance.
Bob supplies the co-pilot and an alternative pilot in case someone is sick. Tomorrow evening you will be operating a scheduled flight to Munich as part of an Oktoberfest special. The flight is full with motivated budget passengers, some of whom went on a preparatory diet; they have been waiting a whole year for this Gargantuan episode of beer, pretzels, and sausage in laughter-filled hangars.
Bob calls you at five P.M. to let you know that he and the copilot, well, they love you…but, you know, they will not fly the plane tomorrow. You know, they had an offer from a Saudi Arabian Sheikh, a devout man who wants to take a special party to Las Vegas, and needs Bob and his team to run the flight. The Sheikh and his retinue were impressed with Bob’s manners, the fact that Bob had never had a drop of alcohol in his life, his expertise in fermented yoghurt drinks, and told him that money was no object. The offer is so generous that it covers whatever penalty there is for a breach of a competing contract by Bob.
You kick yourself. There are plenty of lawyers on these Oktoberfest flights, and, worse, retired lawyers without hobbies who love to sue as a way to kill time, regardless of outcome.
Consider the chain reaction:
If your plane doesn’t take off, you will not have the equipment to bring the beer-fattened passengers back from Munich—and you will most certainly miss many round trips. Rerouting passengers is costly and not guaranteed. You make a few phone calls and it turns out that it is easier to find an academic economist with common sense than find another pilot—that is, an event of probability zero. You have all this equity in a firm that is now under severe financial threat. You are certain that you will go bust.
You start thinking: well, you know, if Bob were a slave, someone you own, you know, these kind of things would not be possible. Slave? But wait…what Bob just did isn’t something that employees who are in the business of being employees do! People who are employees for a living don’t behave so opportunistically. Contractors are exceedingly free; as risk-takers, they fear mostly the law. But employees have a reputation to protect. And they can be fired.
People you find in employment love the regularity of the payroll, with that special envelop on their desk the last day of the month, and without which they would act as a baby deprived of mother’s milk. You realize that had Bob been an employee rather than something that appeared to be cheaper, that contractor thing, then you wouldn’t be having so much trouble.
But employees are expensive. You have to pay them even when you’ve got nothing for them to do. You lose your flexibility. Talent for talent, they cost a lot more. Lovers of paychecks are lazy… but they would never let you down at times like these.
So employees exist because they have significant skin in the game—and the risk is shared with them, enough risk for it to be a deterrent and a penalty for acts of undependability, such as failing to show up on time.
You are buying dependability.
And dependability is a driver behind many transactions. People of some means have a country house—which is inefficient compared to hotels or rentals—because they want to make sure it is available if they decide they want to use it on a whim. There is a trader’s expression: “Never buy when you can rent the three Fs: what you Float, what you Fly, and what you…(that something else).” Yet many people own boats and planes and end up stuck with that something else.
True, a contractor has downside, a financial penalty that can be built into the contract, in addition to reputational costs. But consider that an employee will always have more risk.
And conditional on someone being an employee, such a person will be risk averse. By being employees they signal a certain type of domestication.
Someone who has been employed for a while is giving you strong evidence of submission.
Evidence of submission is displayed by the employee’s going through years depriving himself of his personal freedom for nine hours every day, his ritualistic and punctual arrival at an office, his denying himself his own schedule, and his not having beaten up anyone on the way back home after a bad day. He is an obedient, housebroken dog.
- from 'Hidden Asymmetries in Daily Life', Nassim Nicholas Taleb