Tuesday, February 5, 2008

Broken Models, Free Lunches

As we catapult in slo-mo toward what may be the most significant recession in decades, I keep hearing the same analogy being offered in industry after industry regarding broken models of economic transactions betwixt developer and end consumer. In the business in which I work, journalism, the models of revenue generation are so broken, with ad revenues both in print and online predicted to take another steep drop in the next two quarters, that people are beginning to wonder how any news coverage outside of superficial-opinion blogs will be subsidized any more. See Brian Fuller's regular coverage of this in Greeley's Ghost.

The same is true in the electronics industry I write about. Chip developers hear of crises in broadband delivery mechanisms from everyone ranging from the top of the chain (Netflix, YouTube, Facebook) to the carriers, to the communication-equipment manufacturers, yet no one will pay them adequately for developing complex chips to handle high-speed communications. Repeat the model in the music industry, automotive, light industry, medicine -- supply chains are universally ripped asunder, folks, and they are not being cobbled back together.

In the "stakeholder" movement to push for corporate social responsibility, activists often talk of corporations having to plan for "externalities." In other words, environmental regulations, labor issues, human rights issues, are long-term external costs that don't fit into normal quarterly business plans, so companies have to work the externalities in to the way they do business.

Why wouldn't the same be true for individual consumers? We have gotten very used to the idea of free lunches in our lives, particularly since the advent of the Internet. In addition, global systems of energy, communications, and trade have gotten so complex, as Arthur C. Clarke would say, they become "indistinguishable from magic." If you wave a magic wand, you don't have to pay anyone, right?

This same factor works in state and municipal budgets. Pity the Midwestern industrial-belt states, overtaxed but unable to sustain infrastructure any longer. Then look at Western states, where libertarianism is so ingrained, folks don't want to pay for public renovation and park-system and infrastructure projects. The new model may be the mid-Atlantic and Deep South states, where people are willing to pay a little extra to get municipal redevelopment that actually works.

This might be the way to look at repairing broken supply chains in the private sector, at least as far as the end consumer is concerned, by repeating the mantra "No one rides for free, folks." We need to make explicit all the hidden costs of running shows, from maintaining a broadband Internet to making sure our bridges are in adequate states of repair. Sometimes that means paying higher bills with explicit (and well-explained) charges for externalities people take for granted. Sometimes that means (gasp) higher taxes. How do we convince people that they've been feeding off too many free-lunch troughs and that higher taxes might be good for them? Hell if I know. I just know I've lost my libertarian friends.


Greeley's Ghost said...

Some of libertarians will still hang with you, Loring! Frankly, I'd rather see more pay-at-the-point strategies than jacking taxes up to Swedish levels, which has to happen if we refuse to control ourselves as a society. Like Baby Boomers, this nation wants everything and it wants it now and it will mortgage its future, not think of the consequences and then say "oh shit. what now?" when it's too late.
In California, some very significant state parks will have to be shuttered if Arnold doesn't get his budget mess straightened out.
Maybe subsidizing roads and bridges needs to be rethought. It's $5 to cross the Golden Gate bridge. Maybe it needs to be $10. Fewer cars on 101 would be the result. Less pollution and congestion. Look at oil tonight: $89 a barrel and falling. Why? People are driving less because the economy's tanking. Supply and demand.
Now if only the price of good wine would fall.....
New York Times today: The Shift to Thrift. It's all the rage (and it's pretty much mandatory after all these years of excess).

Ruth said...

GG raises an interesting point, that it's a tough sell to rethink free lunch just when the economy shrinks and we all have less to work with. I'm with you, and I'm all for paying for what I get. And I don't need a 16 oz steak for 6$.99.

Everything in our culture screams more for less, or for nothing. And I've heard from my non-American blog friends that it is a particularly American phenom to always be looking for the cheap.