Sunday, 6 November 2016

Why Trade-Me will rule the world

The first dynamic here is the connectedness of the internet, not only internationally, but domestically as well.

The New Zealand internet is the section where the culture, opinions and norms expressed are Kiwi. It's the part of the internet where no one defends Chinese internet censorship, or defends passionately the tradition of stoning people to death. There are mainstream sites on the internet - in other languages - where those are the dominant opinions expressed, and simply reflect the culture of the people who post there.

The internet spans the whole world in much the same way the real world does, and like the real world, there are portions of it with their own norms, mores, behaviours, cultures, biases, etc. The part of the internet in which you spend 100% of your time is not at all the same internet frequented by someone in Iraq. Is there an Iraqi site like Blogger out there? If so, it'll be just as easy for you to read it as it is for you to read this. But you don't read that one, and furthermore you don't know if it exists. It doesn't matter if you are reading Blogger from Japan or Chile or if you are Japanese or Chilean. It's a matter of culture.

The internet can connect you with every kind of person in the world. But nearly everyone uses it to connect with people who are just like them, not physically or ethnically, but culturally, politically and behaviourally. And the part I'm interested in is the domestic selling platforms such as Trade-Me or E-Bay. Because the second dynamic is the weakening of export data from major exporting countries.

Chinese exports fell 2.8% in August compared to the same time last year, while Japanese exports declined 4.8%. German exports dipped 10% year-over-year in July, while the European Union’s overall exports fell 2% between January and July compared to a year earlier. Other data suggest US demand for imports is declining, threatening to further undermine the stability of already struggling exporters.

The US is not only the world’s largest economy but also its biggest importer. It accounted for 14% of global imports in 2015. Demand in the US for new foreign goods is a key engine of economic growth elsewhere. New Zealand imports most of its new consumer goods as well. But the most important word here is "new" goods. My curiosity is why the economies of New Zealand and the US seem to be working fine even though the purchase of new goods is declining. By the logic of the status quo, economies need a steady flow of new goods to maintain productivity growth. But productivity seems to still be functioning, even though the data suggests it's not. Something's screwy here.

Perhaps the answer is in the impact of the relatively new online domestic trading platforms. Trade-Me and E-Bay facilitate the transference of goods from owner to owner. From an economic perspective, they do not encourage new goods to be created, they only encourage buying and selling existing goods. Before Trade-Me was invented, most goods were discarded and replaced by new goods because of planned obsolescence or people needing to replace the object due to advertising pressure. Objects weren't sold on to second, third or fourth buyers with the product lasting years within the system longer than it otherwise would have and avoiding a fate at the landfill.

If a smartphone is being used by a second person for three years longer than it would have by a single person, then for three years no new smartphone is purchased by that second person and therefore no new smartphone was created. Multiply this by hundreds of thousands of types of goods and hundreds of millions of high-cost goods (because only goods with worth are usually sold on those online trading platforms). It will appear as though the economy hasn't grown. That may be illusory because if the goods still operate as expected by the second or third owner, then there's nothing to worry about from the perspective of that subsequent owner and the task still gets done - hence, productivity growth.

Sure, if an economy relies on wages and the resultant consumption based on those wages being spent back into the economy, which are both predicated on capital earned by a company selling new goods to primary purchasers, then the economy will APPEAR to weaken if that process is disrupted.

Yet if wages are decreasing because new goods aren't being sold, people will compensate by purchasing second-hand objects on Trade-Me and thereby obviating a need to spend money on new objects, so there is no practical effect on the economy if wages decrease - old goods can still be bought at cheaper prices. In this dynamic, the utility of an economy made possible by the sum of existing goods in that economy can maintain the functioning of that economy far longer than historically possible before those goods require replacement with new goods. This appears to be a decline, but that's a partial illusion - at worst it's a long lag. The functioning of the economy continues. The only thing that changes is the amount of new goods produced and sold into that economy, not the amount of goods being used for particular functions in that economy.

I have a sneaky suspicion this is part of the story of the so-called exporter's crisis. The data suggests there should be a problem within our economies because new goods sales are down, but everything seems to be working fine. The (partial) answer: goods which would have been thrown away are still in use. The bubble created by a consumer culture of buy-new-buy-now-buy-often is what's changing, and the business world will have to adapt (or double-down on advertising/marketing to pull us away from E-Bay and back to shopping malls) or those companies reliant on bloated and outdated systems of consumption will begin to fail and cede ground to new businesses - such as Trade-Me.

So it's not so much a financial crisis or an exporter's crisis which is hitting us as it is a natural convergence within advanced economies of major internet domestic trading platforms and a saturation of identical and interchangeable goods. There's no need to purchase AS MANY new items, which means what we're actually witnessing is a change in the assumptions of how the consumer society is organised.

Which also suggests a significant chunk of power once held by manufacturers to accumulate wealth and control over economies could be flowing to online trading platforms. Better get on board with Trade-Me or E-Bay stocks now while they're still cheap.

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