Subject: Re: Two things
From: (L. Peter Deutsch)
Date: Mon, 29 Aug 94 12:19:36 PDT

>    And "more efficient" means lower costs; in a completely labor-based
>    situation like free software businesses, that simply means people
>    willing to work for less money.
> I disagree entirely.  It can mean paying people less, but it can also
> mean working "smarter".  For example, keeping an el-cheapo dot matrix
> printer loaded up with FedEx forms, if you do that a lot.  It can mean
> using email instead of making phone calls.  It can mean sending things
> Priority Mail rather than FedEx Priority Overnighting EVERYTHING
> (which some people do).
> It can mean sending mail to fewer mailing lists and arguing fewer things.  :)

All of these options are also available to non-free software producers.  I
thought we were discussing reasons why free software producers might have
economic advantages over non-free ones.

>    An argument has been made that in a perfectly efficient market, no seller
>    can make a significant profit, because no one can sell significantly above
>    cost.  With the globalization of commerce (and software is a good example
>    of this), the effect of this will be to pull all prices, and hence all
>    incomes, down to that of the country with the lowest production costs --
>    both for goods and services.  That is why I get uneasy when people make
>    arguments that claim some kind of moral or natural imperative for a
>    perfectly efficient market.
> Well, speaking as a bleeding-heart liberal, I'm not sure that's such a
> bad thing.  Don't we *want* the poor to do well?

Sure we do.  But maybe I left out too many steps here.  If salaries in the
U.S. are 5x those in India in a given field, then in a perfectly efficient
market, either all the U.S. companies will go broke, or they will have to
lower their salaries so they can compete with the Indian ones, assuming
the workers in India and the U.S. are equally productive.  Of course, the
customers of those companies are now better off, because they have more $$
to spend on something other than the products of those companies.  But
this is exactly the point I was making before: Improved efficiency in a
market benefits consumers, but hurts producers (and their employees).
Moving production offshore has been pretty devastating to U.S. labor: It
destroys U.S. jobs, and it doesn't raise prevailing wages in the places
the production was exported to (although it does create more jobs, and
possibly better ones, for the people there), but it does make imported
goods cheaper for U.S. consumers.

> And, over time, a market tends toward being more and more efficient.

Where do you draw the boundaries of "a market"?  Before economic
globalization, towns, regions, etc. could have markets that were
internally efficient but globally inefficient.  Now, entire regional
economies are being destroyed by the globalization process, because of the
good-for-consumers, bad-for-producers phenomenon just mentioned.  Close to
home, the U.S. semiconductor industry was nearly destroyed by
globalization that shifted production to cheaper locations in Asia.  The
software industry hasn't been affected much yet, but I think it's only a
matter of time.

In my opinion, whether market efficiency is always a good thing is a
matter of philosophy or ethics, not of natural law.  But that's probably
too far afield for this list....

> So if you want to make money, you seek out inefficient markets, or
> create a new market.

Yes, in our business, which isn't directly linked to natural resources,
that's pretty much true.  Which do you think the free software businesses
are doing?

L. Peter Deutsch :: Aladdin Enterprises :: P.O. box 60264, Palo Alto, CA 94306, ...decwrl!aladdin!ghost ; voice 415-322-0103 ; fax 322-1734
	    "Implementation is the sincerest form of flattery."