Sunday, April 13, 2014

Information Frees Markets

When people talk about the free market, I always think of the markets I saw in China in 1986.  Stalls lined the street, with vendors selling arrays of produce, live chickens in baskets, moon cakes, eels, crickets, knock-off purses, cheap tee-shirts, etc. I had almost no basis on which to select one vendor over another. Each offered me "best price" and tried to lure me to spend my yuan on their goods. As a foreigner with almost no Chinese language skills, I was a perfect sucker of a customer.

My biggest disadvantage was that I lacked enough information. I didn't know what a fair price should be, and amounts that seemed small to me probably far exceeded the worth of any item I purchased. Was this seller a notorious cheat? I didn't know. Did a food stall sell items that made people sick? I had no one to fill me in on these details. Without this type of information, I could only trust my instincts. I never got sick in China, but I am positive I got ripped off many times.

This experience taught me that free markets are only truly free if information is available to consumers before they make a purchase.

Say, for instance, that a food vendor in the Chinese market sells dishes made with rotten meat, and customers who eat this vendor's food regularly get sick. The sickened customers, as well as their family and friends, will stop buying from that vendor. If enough people boycott his stall, the vendor will go out of business. This is how the free market is supposed to work.

I've been thinking about free markets recently, in the wake of the resignation of Brandon Eich. He resigned only a week after becoming CEO of Mozilla, after activists alerted people that he had made a $1000 donation in 2008 to Prop 8 (the anti-gay-marriage amendment in California). The tech community is by and large a gay-friendly environment, and many software developers and engineers who work for or collaborate with Mozilla objected strenuously to Eich's opposition to marriage equality. A campaign sprung up to get people to remove Firefox from their computers, OKCupid encouraged customers who used Firefox to switch browsers, and developers had begun to leave Mozilla for other companies. Eich correctly recognized that Mozilla would suffer with him at the helm, and he stepped down.

To me, this too is how free markets should function. If people do not like the political positions of the owners or leaders of the company, they are free to refuse to do business with them. If enough people make this decision, the organization's profits will be harmed and it could go out of business. If this makes corporate leaders think twice before giving money to influence political outcomes, then this is a good thing.

No More Mister Nice Blog said it best:

It's important to understand the real context for all of this, which is the Roberts court's evisceration of campaign finance regulation. When there are no rules, the only possible accountability is public pressure.

To apply public pressure, you have to be willing to cease conducting business with companies you wish to hold accountable. I talked a little bit about this in one of my first blog posts back in 2007.

But to do this successfully, you first need knowledge on which to act. In the past few years, a variety of tools have been developed to help filter your prospective purchases according to your values. One I'm intrigued by, but don't yet use, is an app called Buycott. It allows you to scan the UPC code for an item and see its corporate parentage. Something like this would really put the power of information into people's hands.

And in my opinion, information is the most important element of a truly free market, whether that market is a company listed on the stock exchange... or a series of stalls in Guangzho.

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