On the Oracle Layoffs (and Recent Layoffs More Generally)

Oracle used the expedient of a dawn email to dispatch thousands of employees on Tuesday morning. According to media estimates, Oracle terminated the employment of 10,000 to 30,000 employees by simply pressing the ”send” button. Regardless of whether the former or latter estimate is accurate, the numbers are staggering.

Many observers criticized how Oracle handled the dreaded reduction in force (RIF, what an acronym). The recourse to email seemed cold and impersonal, according to some, an insensitive approach to executing layoffs. Others, though, noted that layoffs at this scale couldn’t have been done any other way. When a company is shedding more than 10,000 employees at once, the logistics of face-to-face dismissals are daunting. Sometimes, two points of view, seemingly contradictory, can both be correct. This appears to be one of those times.

On LinkedIn, which has evolved into an all-purpose virtual breakroom as well as a recruiting and business-networking site, now-former Oracle employees commiserated with one another. Their posts, reflecting their reactions to dismissal, ranged from emotional devastation to stoical equanimity. Some were profoundly emotionally invested in their jobs, and they were the ones who were most despondent. Some were also worried, amid the rise of AI and a new spirit of avid cost-cutting pervading the corner offices at tech companies, about their prospects of finding new employment.

Now let’s turn our attention to the rationale that Oracle provided for its mass layoff. In the email that Oracle sent to now-former employees, the company referred ambiguously to “a broader organizational change.” That phrase could mean anything, but it seems to signify that Oracle is figuratively and literally doubling down on costly AI investments and subscribing to the current Silicon Valley mania for leaner operations and severe financial discipline.

I know that the technology industry’s chieftains will deny it, but they seem to run in relatively undifferentiated packs. Ideas come and go out of fashion, and these ostensible leaders like to follow the conventional leads of their peers. For a while there, during the COVID-19 outbreak, tech bosses were competing for talent, racing to see which of them could accumulate the most impressive reserves of brainpower. Now, amid a perceived need to spend extravagantly on massive datacenters and sticker-shock AI infrastructure, the executive intelligentsia has formed a consensus that spending in all other areas must submit to relentless frugality. Thus, employees who were passionately courted and flattered as prized hires just a few years ago are now summarily shown the door and given severance pay as a parting gift. How times change.

AI Can’t Take Clients Golfing

We know that resources are being reallocated from established lines of business to AI, but is AI displacing jobs directly? We have a paucity of hard data to go on, just anecdotes. A reasonably educated guess would cut the difference between the two extremes and aver that AI is taking jobs from humans, but not to a significant degree — yet. That might change, but even if it does, AI isn’t about to swap out your car’s tires, or attend an industry conference in Las Vegas, or take a valued client golfing. There are jobs for which AI will seem eminently suitable, and others that are simply not a fit for bots.

Humans (perhaps excepting software engineers), who ultimately still call the shots, generally like to deal with other humans, so interpersonal functions are beyond the vocational scope of AI. I think they’ll remain beyond AI’s reach indefinitely. Prove me wrong.

For his part, erstwhile entrepreneur, VC extraordinaire, and opportunistic libertarian Marc Andreessen has his own ideas on the progress AI is making in job displacement. Andreessen says, in effect, that the hype is poppycock. Yes, Silicon Valley is displaying a newfound abstemiousness and austerity. It’s that frugality, the quest for greater overall efficiency in tech companies, that results in job cuts. According to Andreessen, tech companies have suffered from staff bloat for too long. The culling of the employee herd is overdue, he claims.

Quote:

In an interview on the 20VC podcast with venture capitalist and host Harry Stebbings, the billionaire (edit: that’s Andreessen) said AI was the scapegoat for layoffs that are actually the result of overhiring in the wake of the COVID pandemic.
““Essentially, every large company is overstaffed,” he said. “It’s at least overstaffed by 25%. I think most large companies are overstaffed by 50%. I think a lot of them are overstaffed by 75%.” He added, “Now they all have the silver bullet excuse: Ah, it’s AI.”
Andreessen’s comments are nothing new in an industry that is pushing back against the “silver bullet excuse” of AI, which some tech leaders including OpenAI’s Sam Altman have coined as “AI washing,” or blaming otherwise normal layoffs on the increased use of AI. ”

Okay, let’s say we buy this argument (though I’m not sure that we do). The obvious question is: Okay, if AI isn’t up to all that much, Mr. Andreessen, why are you (and every other VC on Sand Hill Road) pumping so much money into AI startups? To which, Mr. Andreessen might reply as follows:

“This entire labor displacement thing is 100% incorrect,” Andreessen said. “It’s classic zero-sum economics.” He said that most coders, for example, are employing AI, which is taking over much of the workload. But that’s not a flashing red light that layoffs are on the way. Instead, it just means more work for those workers as AI boosts productivity rather than cutting labor costs.
The venture capitalist argues that fears of AI-driven mass layoffs stem from the “lump of labor” fallacy, the belief that there is a fixed amount of work in the economy at any given time. “It’s always been wrong; it’s going to be wrong again,” he said.”

Soft Selling the AI Revolution

So, he’s arguing that AI will deliver nothing more than a productivity boost for existing employees. Let’s scrutinize that value proposition.

Andreessen is not a dim man, so I must conclude that he’s being disingenuous. Even if AI is merely making employees more productive — and I strongly suspect it’s economic purpose is more ambitious than that — it ultimately results in less job creation (thereby fewer employees) because a vastly productive software engineer means that the hiring of other software engineers can be forestalled, perhaps obviated entirely. You can extrapolate the same labor and economic effect across a range of other disciplines where AI is seen to be dramatically enhancing productivity. Andreessen knows this, right? Of course, he does, but he probably doesn’t want to craft his AI sales pitch around a significant diminution of the labor market. Even in these mean times, it’s occasionally inadvisable to say the quiet part out loud.

And, yes, I know the history of technological disruptions on job markets. The creative destruction of techno-capitalism usually follows a pattern: job displacement is followed by job creation. The problem is, there’s typically a latency, a delay, between the former and the latter. An additional difficulty is that, thus far, nobody can identify, much less rigorously define, a wave of new jobs for those who are most threatened by the specter of AI.

Maybe those jobs (whatever they might be) will eventually arrive, just as jobs have come in past technological transformations. Or, perhaps it will be different this time. Logically, VCs should understand the contradiction they present when selling AI as a revolutionary technology and then claiming that it will have only modest, evolutionary impact. It’s either revolutionary or evolutionary. Revolutions have major benefits, but equally major ramifications. Revolutions have heft. I would respectfully ask VCs to pick a lane. As one of my former colleagues used to put it, somewhat indelicately, one shouldn’t suck and blow at the same time.

Andreessen says that many large companies might be overstaffed by up to 75%. Let’s say companies agree with his assessment and begin acting on it, slashing 75% of payroll. If every company followed suit, what would happen to an overall economy that is still significantly driven by consumer spending? I’m neither an academic nor professional economist, but I am confident in saying the result would be economically and socially disastrous.

Fortunately, few companies are overstaffed by 75%. If they are, they have only their own executive teams (and boards of directors) to blame. If I didn’t know better, I’d suspect Andreessen of preemptively attempting to put all the blame for future job cuts on profligate overstaffing rather than potential or actual job displacement wrought by AI.