By Wingham Rowan
The author explores the case for ‘national e-markets’, which could create economic opportunities for people in poverty. These would be safe, convenient, accessible Internet marketplaces with ultra low overheads. The private sector alone cannot create these
marketplaces, but they could quickly be realized using the same model that created the National Lottery.
Imagine you were willing to pay someone to clean your kitchen after a party last night. The task would take about an hour. The person has to be reliable, competitively priced and immediately available. Assuming you did not already know an eligible person, how would you fulfil that requirement? Phoning around agencies, posting on websites or placing a local advert would quickly reveal the disproportionate overheads – in time, uncertainty and money – involved. It would be less effort to clean the kitchen yourself. That is a wasted opportunity. There could easily be a neighbour who would do the work reliably at a rate you would be willing to pay. That hour of your neighbour’s time is one example of the resources which are so small, risky and complex to trade that they barely appear in the legitimate economy at present.
These small assets, available at irregular times, can be divided into four groups:
• Formal work – retailers, caterers, leisure companies, home care providers and local authorities all need reliable, cost-effective, top-up workers for sporadic peak periods that may only last an hour or two. Jobcentres and recruitment agencies cannot broker these odd hours of work without prohibitive overheads.
• Local services – babysitting, ironing, making local deliveries, cooking meals for collection and car valeting are all local services currently filled relatively expensively through provider companies or agencies. With the right controls, these services might be obtained more cheaply, quickly and safely if bought directly from a verified local person.
• Hire of goods – home storage, bike hire, blanket-on-the-floor overnight stays, rental of video game consoles and pet shares are among the services brokered by an evolving array of single purpose websites. With a stable, ultra-low overhead marketplace for hundreds of such services, there could be an explosion in this kind of use of possessions when not required by the owner.
• Borrowing cash – even the least well off person may occasionally have £5, £10 or £20 they would like to lend, for interest, for a few days. Sites such as Zopa (www.zopa.com) provide this sort of facility to the right users for a £118.50 fee
per year plus a 1 per cent cut from the lender (Freedland, 2009). Could a much cheaper version, underpinning all the services already listed, expand the annual £50m of loans already made among Internet users in Britain (Freedland, 2009)?
These small personal trades have always been demanding to arrange. That could now change. The key is looking at this part of the economy through the prism of recent developments in the evolution of marketplaces. Background: inequality in markets.
Computerised marketplaces are a powerful tool that emerged in the last 15 years.
They can be extraordinarily transformative across entire sectors. However, there is a large disparity in the way they are used:
• A trader in a Canary Wharf financial institution can routinely sell her shares, bonds or more complex instruments if price movements as small as 0.01p in the pound are in the offing. The marketplace she uses will execute each trade for her in seconds with a couple of keystrokes, at negligible overhead. Underpinned by the authority of global banks, the marketplace will ensure that her counterparts –often dozens for each trade – are trustworthy. Data extracted from the markets, second by second, shows where there are opportunities and constantly attracts new resources into the market. This effortless trading has pushed the financial sector to exponentially increased turnover and profitability, now recovering after the financial crisis.
• By contrast, an average family in, say, Grimsby might struggle to find a babysitter this evening. That is not because people in South Humberside do not need work at the moment, and nor is it due to a lack of ability to care for children in the area. The barrier is that there is no authoritative, convenient, stable, cheap marketplace available. Grimsby, along with the rest of the UK, has hundreds of marketplaces for childcare (a Google search for +Grimsby +Babysitting produced 1,300 sites in the UK).
Some are Internet based, others are driven by agency staff making telephone calls. This can be mistaken for usefulness, until you attempt to actually enter the market. In reality, the large number of marketplaces makes life very hard for aspiring sellers. I might be a diligent, experienced babysitter wanting to work tonight.
The trajectory of consumer Internet services like Gumtree (www.gumtree.co.uk), Craigslist (www. craigslist.co.uk), Alibaba (www.alibaba.com) and eBay (www.ebay.co.uk) has generated headlines. But these sites are little more than classified adverts transplanted from the newspaper or shop window to a computer
screen. They lag far behind the usefulness the Canary Wharf bond trader takes for granted from her marketplace.
This Viewpoint focuses on addressing this disparity. As traditional jobs dry up, with questions hanging over whether they will return (The Guardian, 14 September 2009), perhaps more fluid models of economic activity need to be fostered. How can we enable anyone, however unskilled, poor or techno-illiterate, to put their currently hidden resources into the most useful marketplace imaginable?
Why is there this disparity? Why has the private sector not delivered marketplaces that mine the untraded assets held by those who are less well off? In some sectors it has: eBay, the dominant online auction site, has helped millions of people to sell
collectibles and second-hand goods. But this is a tiny part of the resources waiting to be brought into play.
The recurring assets of individuals are based on hours of hire, not one-off transfer of ownership. Give a man an auction site and you enable him to empty his attic for a one-off profit. But give him a deep marketplace where he can sell his spare hours, or the hours of anything he owns, and you create a daily pipeline of evolving opportunities. Marketplaces based on hiring people or resources for short periods have to be more sophisticated than auction sites. The risks of such transactions are higher. Many companies have tackled this challenge, but few have lasted. None has come close to the dominance and usefulness eBay has achieved for sales of items.
The classic case study of failure is Handshake.com, which set out to create a marketplace for house cleaners, decorators and handymen across the US. Handshake burnt through millions of dollars of venture capital establishing a fundamental truth of services marketplaces: anyone can launch one, and will do so if there is the faintest chance of eBay-style returns.
The result is paralysis. It is pointless funding a marketplace launch outside of a tight niche because the service will never be allowed to establish itself before a flood of competitors undercut profitability. That is why the private sector alone cannot unleash the value trapped at the lowest levels of the economy. Even if a dominant marketplace covering the thousands of sectors in which individuals could most usefully sell were to emerge from the private sector, its usefulness would probably be curtailed by commercial imperatives.
A powerful marketplace can pick from a menu of ways to make money from its position. Percentages deducted from each transaction can be ramped up. Sellers may be charged for enhanced listings. The market can be skewed to favour big, more profitable, sellers. EBay has yielded to all of these temptations (see, for example, Sunday Times, 22 June 2008).
Waiting for a truly state-of-the-art, consistently lowcost marketplace for the bottom of the economy to spontaneously emerge is probably going to be fruitless. Those assets will remain untraded even as growing numbers of ‘socially useless’ financial instruments zip around the world’s money markets with increasing sophistication and profitability.
The public purse picks up the tab when individuals cannot engage in economic activity. So it is probably reasonable to see deficiencies in the opportunities available to ordinary people as a government problem. What could government do about it in terms of policy? The first step is to understand what functions online markets would need to perform to unleash new resources from the lowest levels of the economy.
When it comes to all the sectors that need to be unlocked at the lowest levels of the economy, government bodies are the only comparable authority. That role could be subtly leveraged. An enlightened government might be able to nudge key players into
shaping a new generation of marketplaces. It could be that a little judicious rechanneling of research and development (R&D) grants or innovation pilots would motivate technology suppliers to shape the systems required. Public exhortation aimed at the high-tech sector might produce progress.
The technology needed to make NEMs a reality has only recently become economically viable for such small transactions. What needs to happen next if NEMs is to deliver on its potential for economic inclusion? There is much work to be done in fleshing out the technology specifications, legislative points and funding package that such a system would require. The private sector may do this in anticipation of a government concession.
But it is more likely to happen if government, which could include the bodies for Scotland, Northern Ireland or Wales, shows that it is seriously examining this new potential for citizens.
How is that effort to be justified? If NEMs were to get launched, evaluating its success or otherwise would be simple. The marketplaces could produce metrics that would come to rival the FTSE or Dow Jones as indicators of economic progress. On an hourly basis, NEMs could report how much was being turned over, how many people were selling, which sectors were rising, and where in the country activity was peaking. Above all, however, NEMs would be about the individual’s potential. I might be interested to know about trends in the ‘people’s markets’ across the UK.
Wingham Rowan is a former technology journalist. The content of this paper is expanded at www.NationalMarkets.com