OldVet’s post yesterday notes that borrowers and lenders used to know each other personally. However, over time, the lenders have shifted from the local banker to big impersonal multinationals that are less likely to have a personal relationship with the borrowers, and make their business decisions accordingly. Not surprisingly, borrowers are starting to make decisions on the same basis.
This repeats a phenomenon we’ve seen elsewhere in the economy – businesses started treating employees as replaceable commodities, firing at will, and then, surprise, surprise, some years later, discovered that employees no longer had much loyalty to them either. And I wonder what this means in the long run. In the short run, when businesses first begin to treat their customers or borrowers or employees as opponents, they had an advantage over their customers or borrowers or employees and even their other competitors who hadn’t yet begun acting in the same way.
This is because their customers or borrowers or employees didn’t expect them to be acting in this way, and continued treating them as if the old paradigm, the “we’re all in this together” approach, still applied. When one side plays dirty and the other doesn’t even realize the other side is playing dirty, the side that plays dirty wins. In economic parlance, the dirty side extracts the other side’s surplus. We see that in the shift in the distribution of income from Joe Sixpack to the corporate profits over the past few decades.
But what happens when the other side starts playing the same way? Well, the big guys still have some advantage over the little guys, but there are enough big guys that they can be made to dance sometimes too. The ability to extract some surplus from the customers or borrowers or employees starts to go away as they begin to treat the big guys the same way the big guys treat them – as opponents to be taken advantage of if the opportunity presents itself. And maybe you start to see a slow shift back to a distribution of income similar to the one of days past. Not all the way back – the big guys have too many advantages for that, but there are a lot of pissed off little people.
But there is another change that we can expect in this world of “capitalism” big business has created, and its not a good one for anyone. That change is the shrinking of the proverbial pie. See, when two sides know and trust each other, it isn’t necessary to waste resources preparing for all the galaxy of contingencies made up of all the possible ways each side can be screwed by the other. And there many such ways, from pushing for changes in the law (think bankruptcy reform) to outright fraud.
The big boys – the big banks and the big corporations – have demonstrated over and over that the individuals with whom they deal, be they customers or borrowers or employees, are nothing more than numbers, unworthy of compassion or loyalty or justice if it interferes in any way with profit. And over time, the customers and borrowers have started reciprocating. The cooperation between the two sides that used to exist, the cooperation between the two sides that used to create value – is dying. And we will all be poorer as a result.