The Anti-Geek

Tom Slee has written an essay titled “Seeing Like a Geek”. The premise of his essay is that tearing down barriers to information disadvantages local monopolists and advantages new monopolists who have superior sophistication and complementary skills.  Supposedly we are better off with local video rental stores than with Netflix.

There is a sort of odd fascination with small businessmen — a specimen famous for short-sightedness, self-satisfaction, and inefficiency.

Most small businessmen are, in fact, not very good. Their limited success makes them resistant to advice and the limited competition allows them to survive in their petty fiefdoms. If the large firm is not subject to democratic pressure, then the small firm is even more immune. Go to any city and see buildings boarded up for years — they are owned by small businessmen who refuse to rent at the market rate. Look at all the houses on the market for months that fail to sell — that is the work of someone who isn’t a professional. Small businessmen tend to have one or two key advantages that allows them to succeed in the face of limited competition and high inefficiencies. Increase the competition and they crumble, not able to pass on the firm to their sons as they had planned. As Doug Henwood points out, small businesses pay lower wages, do not provide benefits to their employees, are less likely to be unionized, are more inefficient, and pay a smaller share of revenue to labor. Despite poking fun at the inanity of HR departments and the politics of the large firm, the large firm is generally much more well run. They can do proper inventory management, they are more immune to nepotism, they discriminate less, and they have an (albeit limited) degree of accountability to other stakeholders that would cause nightmares to the “self-made” small businessman. Large businesses are more interested in moving inventory than in proving themselves right or maintaining the present social order.

I would much rather work at Netflix than at a video rental store, although the small time capitalist would be hurt. In my experience, it is the local landowner or businessman that is more myopic. Their “success” in one area is only slightly better than their failures. They are the ones more responsible for terrible investment decisions. They innovate less. They subordinate business goals for the purpose of their personality. They are often imbued with an unaccountable self-righteousness at being in a privileged spot on the local garbage dump. And of course, they are part of the stasis that hurts development. I am glad to see them go.

But what to do about the rents? For that, both labor and government are much more likely to seize some of those rents from the large business than the “unseen” small business. Increasing returns to scale and the concomitant consolidation are a good thing, not a bad thing. This creates space for rent captures by the society at large. The mechanism by which those rents are shared with local communities should be unionized wages, public infrastructure spending, and social benefit payments that are more location agnostic. To lock those rents up in the hands of a thousand local elites is not welfare improving.

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The Anti-Geek

4 thoughts on “The Anti-Geek

  1. liberal says:

    “In my experience, it is the local landowner or businessman that is more myopic.”

    Let’s just be clear about one thing—landowning at any scale is entirely a rent-collecting exercise and contributes nothing to production.

  2. question says:

    Hey RSJ,

    Is there an email we can contact you at? I wanted to ask you about this post you made at WCI:

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/07/how-many-monetary-transmission-mechanisms-are-there.html?cid=6a00d83451688169e2017616c987e5970c#comment-6a00d83451688169e2017616c987e5970c

    Under the system you describe, without IOR (or IOR = 0%), how does the FFR get established at any level? Obviously it won’t go below 0% and won’t go above the penalty rate, but why does it land anywhere in between, let alone at the FFR the central bank wants?

    To ask sort of the same question in an applied situation, Fullwiler describes the CB sometimes having to ‘nudge’ the rate by changing the quantity of reserves via OMOs, but that the CB later reverses it because reserve requirements have already been established. But then why doesn’t the FFR go back to the old level when that happens?

    1. how does the FFR get established at any level?

      In practice, an announcement is enough, but underneath that is a relationship between the rate of change of FFR and deviations between the quantity of reserves required by the banking system to function and the quantity supplied. So if the CB adds additional reserves, then FFR begins to drop, and it keeps dropping until the extra reserves are taken away. But as everyone knows this, it is enough for the CB to make an announcement in most cases.

      A better system would be a corridor system, which would pay X% and charge X+delta%, in which case FFR would be between the two values.

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