The inevitable fate of Google...

This is a fantastic podcast from Russ Roberts:

http://www.econtalk.org/michael-munger-on-sharing-transaction-costs-and-tomorrow-3-0/

What he's basically discussing with Mike Munger in this weeks episode are a number of phenomena arising from their considerations of the technology giants in the US.

These companies are clearly of the utmost interest and relevance to our colleagues in the economics sphere as they are to some extent redefining economic models.  As old school economists try and grapple with the meaning of companies that literally manufacture nothing but at the same time are worth trillions of dollars or remnimbi, they find more and more of the gospel truths which they have held to for their careers as economists (and which previous generations of economists also espoused) being challenged by this looming spectre.

It seems strange that technology should be causing such soul searching and such existential angst among the economics fraternity, but the way in which these companies work, the fact half of them are based in a nominally communist country, and the fact that much of the internet, while subject to more and more rigourous control and "privatisation", is still a substantive force for anarchistic and demonstrably different views in the world, confounds the classic economics fraternity.

What was particularly fascinating in this episode was their consideration of the economic form of technology companies that are effectively built on input from the users (as opposed to paid employees).  The value of these companies, in fact much of their activities, are not actually provided by the companies themselves.  The companies are "platforms" which act as a form of nexus between the real participants in the economic model.  If you think about these kinds of companies, providing a bridge between participants in markets by clarifying the terms on which these businesses or individuals can interact are not entirely dissimilar from a much older and more entrenched type of intermediary which all of us are far more familiar with.  I speak of course of banks.

It is clear that the most successful forms of this we consider today (the FAANG and their Chinese equivalents) are typically for profit companies, with publicly issued shares listed on various stock exchanges held by a broad sweep of underlying owners.  However what Munger and Roberts effectively touch on, and this is very unusual for them as they are quite hardline free marketers, is that the best economic form for these kinds of company might be as not for profit entities.  They don't really explore this point further but the point is made that these entities are effectively intermediaries, and historically in order to preserve their "independence" these kinds of intermediaries have been mutually owned, municipally or government owned or owned by not for profit companies. in various forms of trust.  By removing the for profit motive, you more effectively limit the risk of misbehaviour by a marketplace.  Notice I say "more effectively limit" as opposed to "eliminate".

So what is becoming more clear as time passes is that the technology companies in their present form are coming to represent more the role of intermediaries and marketplaces and of themselves may be better transferred into a form of ownership (akin to exchanges or marketplaces in the pre-modern era) which are more disposed to not abusing their dominant position.  One of the most successful internet based companies, though one which does not garner the same attention as there is no gravity defying stock price to point at, is Wikipedia.  Who owns that...?