Want a hole? Rent a drill! Really?

3 minute read

tl;dr: Michael Munger, transaction costs, and limits to the gig economy.

NOTE: This article was originally published in my Civility and Truth Substack newsletter. I have republished it here without changes.

Michael Munger, a libertarian economist at Duke University, recently published a book Tomorrow 3.0: Transaction Costs and the Sharing Economy , in which he discusses how lowered transaction costs are changing the economy by opening up new models for employment and production. I haven’t read the book yet (though I plan to), but I have read a number of Munger’s articles on this topic, including the recent “Maybe Bosses Do Wear Bunny Slippers”. In it he highlights the example of film-making in Hollywood in support of his argument:

… “studios” now are distributors, and movies are made by “gig” workers, hired for the duration of the shooting of the film. There are about 150 different disciplines involved in making a movie, ….

If you make a movie, you go to LinkedIn and choose one of each of these workers. On the first day of shooting, the team works well together because the refinements of division of labor in the industry are clear and well- organized. After the film is completed, the gig is over.

I’ve always found Munger’s thoughts on transaction costs and the gig economy interesting, so I thought it would be fun to interrogate his argument further, specifically with respect to this example:

First, a film is a self-contained product that once created and released requires no ongoing support other than the work of licensing it for distribution through various channels. The model of bringing a bunch of different people together for a limited period of time and then having them disperse again seems very compatible with this. Would the same strategy work for products that require ongoing support, especially products sold in the business-to-business market? Or could it be made to work in those cases? (Or, closer to the original example, how is the Hollywood employment model modified, if at all, for long-running projects like multi-year TV series?)

Second, with the Hollywood model there has to be some way of determining that the person you’re hiring for this temporary film-making gig is actually competent, won’t be a disruptive force on set, etc. Is this done purely through LinkedIn-style online references, or is it a function of ongoing personal relationships and reputations built up among people working in the same (relatively small) community over long periods? If the latter, how far could the Hollywood model be extended, and how well would it work, in an environment where transactions are more anonymous and online reputations can be more easily gamed?

Finally, although workers in Hollywood don’t necessarily work long-term for a single employer, a lot of them (most of them?) do have a long-term relationship with an institution, namely their labor union. How much of the success of the Hollywood employment model depends on the presence of those unions? My quick take is that unions might provide an ongoing nexus for training and reputation-building and some protection against exploitation of workers, but could also lock into place a relatively strict division of labor that might hinder innovation. I get the impression that people who do VFX work aren’t unionized, but also that VFX work is organized at the level of firms and not at the level of individual contractors. If so, why is that? Just historical contingency? Or something in the nature of the work, for example the need to maintain a critical mass of capital, e.g., in the form of proprietary in-house-developed VFX software?

I don’t have answers ready to hand to the questions above. But from my naive perspective the Hollywood example that Munger touts seems a long way from the idealized “want a hole? rent a drill” model that he sees taking over the world due to lowered transaction costs.