Monday, April 23, 2018

International trade and internet commerce - why are their effects viewed differently?

The Economist has an article on the troubles of post offices as they compete with technology and new business models which threaten to upend their own business,
Their struggles are also due to delivery startups. Investors are pouring money into gig-economy couriers that use cheaper, self-employed drivers. BCG reckons that investment in such firms grew from $200m to nearly $4bn in 2014-16. Post offices, weighed down by strident unions, high labour costs and costly networks of sorting centres, struggle to compete... E-commerce giants may prove a greater threat... Amazon has already hit Britain’s Royal Mail hard by starting its own door-to-door deliveries. In California it has launched a grocery-delivery service as a way of gaining greater scale to deliver its own e-commerce parcels itself. The biggest threat of all may come from Amazon’s Chinese rival, Alibaba, which is injecting $15bn into its own delivery arm, Cainiao, and aims to expand beyond China. By doing their own deliveries in cities, where profits are juicier, these firms could leave less money on the table for post offices to cross-subsidise rural services, where costs are higher.
e-Commerce and sharing economy firms are doubtless more efficient than their brick and mortar counterparts. But an equal, if not greater, share of their competitiveness arises from regulatory arbitrage. By not adhering to the standards and safeguards applicable for brick and mortar companies, they let society bear the attendant negative social externalities. This applies across sectors, and post offices and delivery startups are no different.

This is a teachable moment in the way our worldviews inform our values.

Consider the example of two entities, A and B, who compete with each other for selling widgets. A claims that B is undercutting it by lax widget making standards in the widget factories which allows it to sell cheaper than B.

Now consider two scenarios. In the first, replace A with United States, B with India, widgets with cars, and widget making standards with labour and environmental benchmarks and safeguards in car industry. In general, the distinction would apply to developed and developing economies and the entire manufacturing sector. The latter gets a competitive advantage by their less onerous standards and lower wages, and the former demands a level playing field for their companies. 

In the second, replace A with a national Post Office, B with gig-economy couriers, widgets with delivering courier services, and widget making standards with labour protections. This would apply to a wide cross-section of sectors and their real economy and gig economy counterparts.

Why is it that the same commentators who loudly advocate global harmonisation of labour and environmental standards without batting an eyelid, stoutly oppose or at the least hesitate to endorse any regulation of the sharing economy firms?

Ironically, the same commentators were in the early nineties dismissing concerns of developing countries that the sudden global trade liberalisation and the arrival of deep-pocketed and massive multinational corporations and its products were destroying their domestic industries.

Forget the commentators, my guess is that even normal people would have the same contrasting appreciation of the two scenarios, despite their near exact similarities. 

Conventional wisdom would have had it that the cold economic logic dictated the thinking and commentary and opinions on such issues. But in the real world, our values and cognitive biases come to distort the way we view them.

Are we confusing the internet economy with efficiency, itself often perceived as an almost absolute superior attribute, and are blind to its diffuse and slowly evolving negative externalities? Are we biased towards the problems in our backyards than those of people distant to us (why should we even be asking this question, isn't it obvious!)?

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