Liberty as Market Innovation

Markets do not simply transfer money around the world; they spread knowledge and improve lives.

Every day, individuals satisfy the economic needs of total strangers. Despite not knowing or sharing the personal opinions, politics, religious inclinations, or nationality of others, they identify challenges faced in the world and then work to create solutions. In this way, thousands (or millions!) of disparate market actors can act on information only they know, follow their own self-interest, and still ultimately improve the welfare of themselves and others.

And because all participants have so much to gain through market interactions, market institutions are much more than just the absence of state regulation; they are robust, dynamic institutions fueled by human ingenuity.  And consequently, when governments or interest groups try to control and contain the flow of goods and services, markets are quick to adapt. Sometimes market actors won’t just create better products for consumers, but entirely new markets and opportunities for exchange.

We’ve seen this evolution explode over the last few years with the increasingly easy flow of information and data, allowing markets to expand and encompass ever broader areas of modern life.

By Nayu Kim (CC BY 2.0)

By Nayu Kim (CC BY 2.0)

Urban Transportation

Movement of people in urban environments is a complex problem, and local governments have largely been the only actors in the space.  Solutions that were dominant until 2010 included mass transit, HOV lanes, and licensed taxi services.  With the advent of ubiquitous smartphone use, companies such as Uber, Lyft, and Sidecar have entered the market, and they have become the most recognizable symbol of market disruption and the impact of the information age on the physical world.

These companies realized customers want a simple, cheap way to get where they are going, and that was not being provided by the over-regulated taxi market. While the state was busy making it difficult for the local transportation market to help people, these companies decided they could construct their own markets, which have helped millions of passengers since.

Taxi drivers and governments have responded to this development by attempting to control and thwart this new transportation market, citing everything from operators unlicenced by the state to lack of benefits for drivers. Yet the huge upside of this transportation model for consumers and drivers alike has allowed continued strong growth in these markets.

Ultimately, market actors decided not to wait for the state to improve the lives of people; they just got to work themselves. And this pattern has repeated itself over and over again in increasingly dynamic ways.

By Grid Engine (CC0 1.0 - photoshopped)

By Grid Engine (CC0 1.0 – photoshopped)

AirBnB and the Sharing Economy

Uber, Lyft, and related companies are often referred to as “ridesharing” networks, efficiently putting to use idle resources from part-time drivers and non-dedicated vehicles, and offering them to consumers for cheap. This phenomenon, known as the Sharing Economy, has been adopted as a business model in other industries as well.

Hotels and vacation rentals are another highly regulated economic sector, but one enterprising company, Airbnb, decided to make it easier for regular homeowners to rent out extra rooms in their houses as if they were vacation properties.  Airbnb setups are cheaper than hotels and often have larger accommodations.  They also allow property owners to better leverage the full value of their residences, even when they are not there.

Before the Internet, there would have been no cheap way to distribute information about which properties were being rented out at what times and for how much. But Airbnb was able to create an entirely new market to help people have a better travel experience.

And while Airbnb is fairly well known, their “sharing” business model has been repeated in many other areas such as pet hotels (DogVacay), car sharing (Zipcar, RelayRides), bike sharing (Liquid), and even errand-running (TaskRabbit). But these companies, and the Sharing Economy generally, are only part of the incredible innovation happening in market creation.

By Sebastiaan ter Burg (CC BY 2.0)

By Sebastiaan ter Burg (CC BY 2.0)

Fundraising

A freer flow of information has allowed more efficient use of already existing resources, but it has also revolutionized how investments themselves are structured, creating new avenues in fundraising and funding creative enterprises.

Traditional funding mechanisms for new products still exist in the form of venture capital and angel investors, and this is one of the most dynamic areas in the market today.  But creativity is a constantly churning machine, and with dramatic drops in the cost of entering the market for virtually all products, venture capitalists have left holes in the supply side of the fundraising market.

These holes were not filled by government grants in research and development; instead, they were exploited by a complex array of market forces including project fundraising websites like Kickstarter and IndieGoGo, equity fundraising including peer-to-peer lending like Prosper Marketplace or Lending Tree, and even directly funding creators through services like Etsy, Patreon, and even ad-supported services like YouTube.

Project fundraising means that products like the Pebble Watch or newer 3D printers don’t have to convince corporate backers, but can go directly to consumers, while Patreon, Etsy, and similar services allow creators to analogously bypass distributors.  The barriers for starting a gaming Twitch channel or a comedy YouTube channel are incredibly low and yet many can turn their channels into successful businesses.

Independent lending services can even use crowdsourcing to bypass the normal banking system.  While creative minds have always existed, these new fundraising markets are breaking down the boundaries in the ways those creative minds get access to resources.

Free thinking is unleashing a wave of financing mechanisms which will drive a new revolution of creative thinking.  Even more radical is the creation not just of new funding mechanisms, but new media of exchange with which to move resources through the economy.

By BTC Keychain (CC BY 2.0)

By BTC Keychain (CC BY 2.0)

Currency

Money today is denominated in currencies set by government (or government backed) agencies.  That means that while not all transactions are directly regulated, all trade is influenced by policy set by a central bank on a macroeconomic scale.

Some currencies are managed better than others, but all may not have individuals’ best interests at heart (especially if individual interests cross international boundaries).  Moreover, current digital payment systems (like PayPal and Visa) are centralized and can subject transactions to arbitrary rules or exclusions. In fact, most people on earth have limited access to credit cards or other methods to transact with people outside of their local currency or region. But many people do have access to the Internet.

Bitcoin began in 2009 as a mode of exchange that required no central bank and could be done anonymously and across the Internet.  The concept of a “blockchain” allowed for trusted transactions between people who had never met before, and its cryptographic provisions allow for anonymous but secure transactions.   It is helping to revolutionize the way money and transactions work on the Internet.

Today, anyone can set up a transaction on the Internet without needing to register with a bank and receive money as securely and as easily as cash, from anyone on the planet with Internet access. Bitcoin itself may not become a widespread method of exchange, but the technology behind Bitcoin will continue to drive innovation in this area for as long as people are interested in exchange uncontrolled by the government and unhampered by regulation.

In this way, markets are helping to transform industries, modify the ways in which creativity is funded, and even inventing a new medium in which exchange and funding can occur.

By René C. Nielsen (CC BY-SA 2.0 -- photoshopped)

By René C. Nielsen (CC BY-SA 2.0 — photoshopped)

Non-Traditional Markets

We usually consider markets to be limited to financial transactions; but they can exist whenever there are voluntary interactions between individuals. Online dating has revolutionized the way people meet, and despite the cheesy commercials, these websites’ advanced analytics have helped many participants to “clear” in the dating market.

But relationship markets exist outside the norms of traditional dating, and apps such as Tinder have stepped in to fill this information void of people looking for casual hook-ups. It’s important to realize that this is not because newer generations are more interested in hook-ups than previous ones; rather the cost of information has gotten so low that new markets have arrived to cater to interested market participants in almost every industry, even including sex and dating.

Another interesting use of information markets is the Waze app, which crowdsources road information on traffic, weather conditions, gas prices, and even police speed traps. Waze (now owned by Google) turns a profit through exposing its large user base to ads. But users themselves gain benefits largely from user-generated content when other drivers post information about road conditions.

Traffic is a difficult problem that arises partially due to the collective ownership of roads and highways, resulting in a daily “tragedy of the commons” where most drivers do not take into account the cost they have on others. The Waze app helps to at least add additional information to the market.

Its use to avoid police traps is especially interesting, since it provides a mechanism to avoid a state-sponsored revenue scheme with few benefits to the larger society. Simply put, most people would rather avoid paying the state for participating in normal behavior, so the market found a way to help drivers avoid the state.

By Michael Seeley (CC BY 2.0)

By Michael Seeley (CC BY 2.0)

The Future

The freedom inherent in markets tells us something important about the future: We don’t have to wait for political reform or political dialogue to shift in the direction of liberty. We can get started immediately.  The state is always slow to move and slow to respond, and even when it does, it often makes the world worse.

But as we’ve discussed here, the rapid decrease in the cost of sending information in the past 20 years has allowed innovation to revolutionize markets in all aspects of human life. Political involvement is still an interesting avenue that cannot be entirely ignored, but progress towards liberty is not something we have to wait for.

Products, services, funding, and even currency have not escaped market forces. We are limited only by our own creativity.


The featured image is by Celso Flores (CC BY 2.0).