(2013-04-03) Rao The Locust Economy

Venkatesh Rao: The Locust Economy. Last week, I figured out that I am a part-time locust. Here’s how it happened. I was picking the brain of a restauranteur for insight into things like Groupon. He confirmed what we all understand in the abstract: that these deals are terrible for the businesses that offer them; that they draw in nomadic deal hunters from a vast surrounding region who are unlikely to ever return; that most deal-hunters carefully ensure that they spend just the deal amount or slightly more; that a badly designed offer can bankrupt a small business.

Yet, I’ve used (and continue to use) these services and don’t feel entirely terrible about doing so, or truly complicit in the depredations of Groupon. Why? It’s because, like most of the working class, I’ve developed a locust morality

Thinking about locusts and the behavior of customers around services like Groupon, I’ve become convinced that the phrase “sharing economy” is mostly a case of putting lipstick on a pig. What we have here is a locust economy.

Why locusts? Because I just learned a fascinating fact about them: they are not a separate species. Locusts are the swarming phase of certain polymorphic grasshoppers

the more I thought about it, the more I also realized that I was a locust. Maybe 1/8 locust as a consumer, and probably 1/2 locust as an economic producer.

If you’ve ever participated in the “sharing economy” in any way, not just the worst-case act of offering or using a Groupon deal, you’re a locust too. Participation in anything from Airbnb to Zipcar (convenient A-Z phrase there) makes you at least partly a locust.

For some time now, I’ve been fond of the idea that consumers are like zombies, and that during recessions, they are scarier than big capitalists (vampires).

The identification of mindless consumerism with zombie behavior is very tempting

But locusts bring a whole new level of detail, real-world precedent and seriousness to this class of metaphors

locusts aren’t the dumb instruments of a witch doctor or a mutant virus. They are actually smart and self-interested automatons, which makes them more scary.

Whatever the biological details, the key point is that locusts devastate their foraging base.

They out-compete other species through sheer numbers, and leave others to pick up the pieces as they return to their solitary, non-swarming grasshopper phase. In this case, human farmers.

Locust economies are built around 3-way markets: a swarming platform “organizer” player who efficiently disseminates information about transient, local resource surpluses, a locust species in dormant grasshopper mode, and a base for predation that exhibits a scarcity-abundance cycle.

Unfortunately, within the human world, it seems that the prey base is usually some sort of small business sector (either independent or franchisee chains). I will call this the Jeffersonian middle class.

This is a very different class than the paycheck (salaryman) middle class

during hard times, the paycheck middle class turns into the locust class in both production and consumption behaviors.

In a locust economy, the Jeffersonian middle class is a terrible place to be.

There seems to be an implicit holier-than-thou assumption among sharing economy evangelists that social sharing is primarily about virtuous behaviors like generosity, empathy

Only secondarily do they see it as a zero-sum/negative-sum adaptation to recessionary conditions — Bruce Sterling’s favela chic. They rarely think of it as a predatory behavior at all.

Once you’ve used up your coupon from the local paper, you have to pay full price. But if you can obtain news about another coupon in the neighboring town, the game changes.

Once locusts acquire an informed kind of market mobility through better discovery mechanisms, they can range over a much larger area of wheat fields or restaurants. You can continuously derive savings at the expense of other economic actors (wheat farmers or restaurant owners).

The catch is of course, that for platform organizers to be profitable, they have to aggregate such slightly evil locust instincts and create locust swarms

A locust market is one which looks more information-efficient than grasshopper markets, but really just has a pattern of information flow that favors different actors.

I’ve been thinking a lot lately about Marc Andreessen’s famous line, “software is eating the world.” The specific choice of the word “eating” is revealing.

Locusts also eat everything. Well, almost everything.

The locust swarms cannot actually take on true Big Industry unaided, for the most part. When Big Industry owns its own last mile (think McDonald’s) it is rarely stupid enough to offer up lunch for locusts.

Those who believe that the Internet-enabled economy is going to replace “hierarchies with networks” everywhere (whatever that mathematically nonsensical phrase is supposed to mean) are perversely choosing to ignore the reality of what is happening. It isn’t the 1% fat cats who are becoming victims of the new economy. It is the little capitalist in the middle. The brave little Jeffersonian middle class capitalist (SmallCo) who could.

Hotels, taxis, education, music, publishing, restaurants. The list of locust-devastated/soon-to-be-devastated industries is growing longer every day.

The smart Big Money is moving rapidly into swarming infrastructure (with apologies to John Hagel, I am starting to think “Pull Platform” is also lipstick on a pig — the 1% figuring out a way to use the 90% to feed on the 9% via a temporary alliance for mutual benefit).

Is there a way to reclaim the middle? Is there hope for the Jeffersonian Middle Class?

The Jeffersonian middle is the place where decency, goodness, hard work, an admirable work ethic, modest and non-predatory entrepreneurial ambitions and mainstream culture live. This is not the regular middle class but the Jeffersonian middle class that idealistically seeks an autonomous, meaningful existence.

The typical member of this class does not want to either build a billion dollar company or live off a passive-income lifestyle business based on exploitative arbitrage. He or she wants to work hard at a meaningful activity and asks only to be left alone to be content with modest rewards and economic autonomy. These are the Clueless of the economy.

It is also the class that foolishly believes in resilience without mobility at a small scale

it is not the Big Guys alone that you have to figure out. It is the Big Guys in an alliance with locusts whom you are predisposed to be contemptuous of, but are capable of sneaking through your defenses.

Being in the locust swarm full-time or part-time, sucks. But it is often the only way to make ends meet in the long tail.

But being in the Jeffersonian middle is probably the worst position to be in. Jeffersonian middle class dreams are not resilient even in grasshopper economies.

small-scale capitalists barely have enough resilience to ride out the economic volatility of a single human lifetime.

Since industrialization began, there has rarely been a period where small business has been good business

The resilience of the Jeffersonian middle class is a myth based on the false sense of security that comes with owning a business rather than relying on a paycheck. A very special kind of self-sustaining myth based on continuous churn.

To take coffee shops as an example, an unending supply of idealistic wannabe cafe owners enters the sector every year, operates at a loss for a few years, and exits. The result is that even under normal business conditions, without swarming locust consumers, this is a loss-making business with an extinction rate of around 90% at the 5 year point in the US. Starbucks has the scale to be profitable and resilient

Being a locust, and allying with the Big Guys to prey on the Medium-Sized Guys is no picnic either. Ultimately, it is a pact with the devil. Locusts are created out of a downwardly mobile paycheck middle class via dynamics I’ve written about before. (ActingDead)

what happens to locusts when all the crops have been eaten? To take an example close to home for me, what happens when traditional media is really gone, and there’s nobody slogging away to provide blogging fodder for locust media types in armchairs, like me? Almost all of my own consumption is traditional media — books, news stories and such — that I am helping Amazon and Google kill.

Turns out, in nature, locusts most likely turn to cannibalism

If traditional old media gets killed and bloggers are forced to primarily work off each other’s work, an unpleasant endgame and shakeout will be triggered. I hope it does not come to that.

When software eats everything by turning inefficient grasshopper consumers into efficiently swarming locust consumers, we pay for small new income streams and cheap deals by way of increased economic coordination costs and shadow labor.

participating as a provider in a p2p network like Airbnb or sharing a car is simply more inconvenient than owning your own place or car and having it always available.

In the sharing economy, we may not be eating each other literally, but we’re certainly eating into what Richard Dawkins called the extended phenotype of our neighbors. To the extent that your belongings are a logical expression of your genes and memes sharing them amounts to allowing others to eat them.

We call it peer production and prosumer economics, but it isn’t Jeffersonian producerism. It is locusts in their cannibalistic phase.