Thinking lazily about inequality and freemium models

 

 

 

 

We had lunch at Le Cafe des Chats in the Marais a few days ago. My youngest daughter is a confirmed card-carrying ailurophile. And a delightful time was had by all. [By the way. Le Marais. Means roughly the same thing as Slough.  Life can be so unfair.]

We’d chosen a hotel, Jules et Jim in the 3rd arrondissement, located such that we could walk to most of the places we wanted to visit. Which meant that we could also have a meal at Derriere. There I sampled the finest carrot-based dish I’d ever had the privilege of being served. Julienned carrots, in coats of many colours. Some olive oil, lemon juice, fresh coriander, salt. All lightly sautéed. Heaven.

A glorious weekend. Lovely people, delightful conversations, meals to die for. Over one of those meals, the conversation meandered on to the cost of living. People at the table felt that London was far more expensive than Paris, based strictly on two criteria. Housing. Transport.

That was in the back of my mind when I was reading an article in the Economist headlined Land-shackled economies: The Paradox of Soil. Well worth a read; and if you have the time, also read Urban Land: Space and The City, in the same issue.

As the article notes, people like Thomas Piketty have already remarked on the role played by housing wealth in the growth of inequality; many of the diagrams in the Economist article are taken from Piketty’s work, Capital in the 21st Century. It also refers to the paper by Matthew Rognlie (of MIT) on Piketty and diminishing returns to capital. Also worth a read.

One particular paragraph in the Economist briefing captured my attention disproportionately:

But that process is now breaking down in many economies. For workers to move to the high wages on offer in San Francisco, they must win an auction for a home that provides access to the local labour market. The bidding in that auction pushes up housing costs until there are just enough workers interested in moving in to fill the available housing space. Salaries that should be sending come-hither signals are ending up with rentiers instead, and the unfairness can trigger protest, as it has in San Francisco. Many workers will take lower-paying jobs elsewhere because the income left over after paying for cheaper housing is more attractive. Labour ends up allocating itself toward low-productivity markets, and the whole economy suffers.

Many workers will take lower-paying jobs elsewhere because the income left over after paying for cheaper housing is more attractive. Hmmm. Just a day or two earlier, a friend of mine had tweeted links to a 2013 paper by Carl Frey and Michael Osborne for my attention: The Future of Employment: How Susceptible are Jobs to Computerisation? As you would expect, my thoughts turned to Erik Brynjolfsson and Andrew McAfee’s  The Second Machine Age (along with their prior book Race Against The Machine).

Housing wealth and inequality. Skills, jobs and inequality. Urbanisation and inequality. It was only a matter of time before I went back and delved again into the research of Geoffrey West et al. at the Santa Fe Institute on cities, scaling and sustainability. And from there it was but a short step before I found myself re-reading UN studies on urbanisation, with claims that 60% of the world’s population would be living in cities by 2030. That’s fifteen years away. That’s in the lifetime of most of the people alive today.

The UN study states that in 1800, 2% of the world’s population lived in cities. By 1950 that number was 30%. By 2000 it was 47%.

And by 2030 it will be 60%.

Over the past year I’ve had the joy (I use that word advisedly, very ill-advisedly) of making three-hour road journeys in London, Sao Paulo, Mumbai, Bengaluru and Dubai. Joy indeed. Given the choice, I would rather chop chillies bare-handed and then rub my eyes.

Choice.

Many workers will take lower-paying jobs elsewhere because the income left over after paying for cheaper housing is more attractive.

Whenever people speak of equality, I tend to think of what was drummed into me at school. A school run by Jesuits in the capital city of what was then a democratically elected communist state. I was taught to fight for the equality of opportunity, as opposed to the equality of outcome.

Choice.

The Economist article avers that we have to do radical things about planning/zoning laws in cities, particularly those that have become knowledge-economy hubs. Radical things that will sharply increase population density in those cities. That made me start imagining a San Francisco, a Berlin, a Tel Aviv, a Cambridge (Mass., or England, take your pick), with the traffic patterns of Sao Paulo or Bengaluru. Hmmm.

The rebel in me wasn’t that sure about it. Wasn’t there a Mahomet and the Mountain choice to be made, a Great Birnam Wood and High Dunsinane Hill choice to be made? Something I will be spending time thinking about.

Which reminds me. I’ve also been fascinated by the to-ing and fro-ing of arguments about freemium models.

The debates have been quite heated in the music industry, particularly since the advent of streaming services like Spotify. “Why should people be able to get to and enjoy the output of hard work by musicians? Surely musicians deserve to be paid for what they do. Surely a labourer is worthy of his salt. What’s with all this free stuff?”

You know what I mean. And it’s easy to side with such arguments. Free is stealing.

Hmmm.

I’ve tended to think of freemium a little differently. I think many societies have freemium models implicit in them. I think many communities have freemium models implicit in them.

In the UK 30 million people pay taxes. The other half don’t. Around 4.5m of the taxpayers pay higher rate taxes. In any active electronic community, there’s some sort of 80-15-5 rule in operation. 80% of the participants don’t actually participate, they lurk. Another 15% are active. And the remaining 5% are hyperactive.

Humanity is in essence social, and one of the benefits of society is to be able to deal with these asymmetries. Sometimes when I look at freemium models I see society. Some pay. Because they can. And everyone benefits.

That works as long as the sum of the payments is enough to cover the costs of everyone’s “benefits”. Which is not always the case, and why we have problems with health, education and welfare. Or for that matter music streaming.

These are some of the things I’m thinking about right now. Why do I write about it? So that I can learn from you, and from the references and pointers you give me.

In the meantime, I hope I’ve given you a few things to read and to think about. Happy reading.