Social business and fascinating market inefficiencies

I’m fascinated by those small market inefficiencies and the way they get sorted out – and often not sorted out – by business and government. 

There’s an article in The Age this morning (‘Housing Shortage: nobody’s home‘) about the number of residential properties standing empty in metropolitan Melbourne. Apparently, it can be easier and more cost-effective for an owner of an investment property to keep it maintained but empty than to sell it or rent it out. The article cites the council rates differential between occupied land and vacant land; it’s cheaper to just land bank in many cases. I remember a similar story in the Progress Press (Camberwell area) years ago, about the number of empty flats above the old-fashioned shops along Burke Road and similar shopping strips.

Here are some other examples:

Jobs/labour market: I have lost count of the number of times I have met a highly qualified scientist/professional/manager who wants to work, but has given up trying to find a part-time job. There are thousands of intellectually fired-up experts all over Australia who, because of child rearing responsibilities, disabilities or age are only able to work part-time. One could staff an entire multinational corporation that operates from 10am to 3pm every day and be highly competitive against other multinationals who never turn their lights out.

Consumer debt market (arbitrage) – seems like a good idea at the time, but just how much of a debt ever actually gets collected? Just how profitable is it to collect debts from people who can’t pay them? When I was in sales, the golden rule was, the only objection you really need to stop at is when people genuinely can’t afford the product or service. Yet thousands of debt collectors sit on the phone every day trying to do exactly that.

Taxis. In another story in the same edition of The Age, Taxi drivers are the new working poor. How can that be? When one looks at the basic mechanics of a taxi service, it is: 1) person willing to pay to be driven somewhere 2) person with car wants to earn money 3) they decide between them how much that costs. Too many vehicles and not enough customers, price low. Too many customers and not enough vehicles, price high. Why is this not working out?

There are some great internet-based businesses that are already taking care of market inefficiencies. My favourite example at the moment is Airtasker, where you can post a chore or some small task that you can’t get done yourself, and people bid to do it. We also have Drive My Car and Rent My Carpark. And many, many more. Of course, there are some great old-fashioned businesses that are growing and developing, such as op shops (charity thrift shops).

Little market inefficiencies are often caused by or solved by government policy, but it’s a clumsy and tiresome task to sift through policies for examples of such glitches compared to announcing policies that everyone will like, or your friends will like, and shoving a welfare payment or tax break at the problem instead.

It would be better to let entrepreneurs sort those problems out, in my view. But the problem is, the market for entrepreneurial problem-solving is itself inefficient. Capital will always find its best home, and honey, at the moment that home seems to be in vacant land in inner city Melbourne, not small, high-growth ventures. Innovation in small cap investing regulation is years away, unless someone like Malcolm Turnbull gets involved. Even then, people like Turnbull who advocate for such innovation often turn off the voting, investment-property-owning public with their fancy talk. We probably need the kind of economic leadership shown by Paul Keating when he introduced compulsory superannuation.




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