This is Part 2.
In Part 1, I discuss why rents vs tolls is an increasingly relevant and powerful descriptor of business models (from a revenue generation perspective) and why it matters.
While rent-seeking behavior is generally not…well received, rent-seeking behavior is a very natural and logical outcome when the conditions allow it.
Most people would likely love to be landlords and rent-seekers if they have a choice even if they are currently on the receiving end of rent-seeking behavior.
The truth is rent-seeking behavior is usually most prevalent in areas where the objective (or subjective) value of the good is deemed to be very high or priceless.
And this perception of high value and pricelessness is what allows rent-seeking behavior to perpetuate despite consumers despising it.
Housing is a straightforward example. For most people, moving on short notice is not easy and potentially not possible. And the value of housing is often considered priceless. When faced with a rent increase, most people will not have a choice and will accept the increase if the alternative is homelessness. Yes $4k rent (if you live in a big city like New York or San Francisco) is egregious and not welcomed, but the consumer still accepts it because housing is priceless. The consumer still accepts it because despite the egregious price, the consumer still perceives the received value of housing to be higher than the price paid.
Another area that has fallen into controversy in recent years is the price of healthcare. How much should a hospital stay and treatment cost? Currently that price (in the US) is a lot! Medical bills is one of the leading reasons for bankruptcies in this country. Yet people pay (or at least agree to pay even if there is no realistic ability to pay) because the value of health and life is priceless.
There is no price too high for the priceless value of health and life!
(The keen reader may point out that I’ve pulled a fast one in that last example – technically healthcare bills are a toll rather than a rent as I’ve defined it, since the price is paid for services rendered. However, this is a good example that shows how rents and tolls can blend. But there is no question this is a rent presented as a toll because in a medical emergency, there is usually but one option – the one closest to you. What allows the price of healthcare in a medical emergency to be high is not the service rendered but the power of rents and proximity to where you are. This is why non-emergency medical treatments are often cheaper. In a non-emergency, you are not paying rents to exist, you are only paying tolls for service. Every dentist – dental work is largely viewed as discretionary – struggles, for example. Dental work is a pure toll.)
There are plenty more examples.
The more of these you go through like I have, the more you will start to see a common thread:
The conditions that allow rent-seeking behavior to arise are always the situations that involve our rights to life and our rights to existence.
Interestingly, these are the situations that are simultaneously viewed as priceless yet increasingly are also viewed as human rights for which profit generation is viewed as unseemly.
The gap between what these things are worth and what people think is fair in terms of profit generation is very wide and growing.
Rights to housing.
Rights to healthcare.
Rights to safe and fulfilling work.
Rights to freedom and speech.
Rights to internet access (in 2016 the UN General Assembly declared internet access a human right!).
Rights to life.
This last one is the one that will connect the whole discussion back to where we started – technology.
Technology is a very young field, at least when it comes to software and digital technology. Years ago, technology was just nice to have. Something that companies may adopt to save some costs or make the business more efficient. For consumers, technology was mostly a toy.
But now technology is everything. Technology is becoming life.
And as technology subsumes life, this also means technology is likely to join alongside housing and healthcare as the few sectors that can charge rents.
I invest in a lot of technology, personally, because I frankly think tech companies are the most dynamic forces in the world and make a lot of money. But a part of me also thinks I need to invest in technology because it is a hedge against the rental society that is upon us.
In years past, the victims of rent-seeking behavior are often those that are already less fortunate. For healthcare, the victims are the sick. For housing, the victims are those that can’t afford a house (likely immigrants or people of color).
But tech is everything and everywhere. And it knows no bounds and sees no color. We are all the same.
Tech companies are digital landlords now, but most of the tech companies either do not see it or willingly refuse to understand the power they now have.
In their eyes, they merely collect a small toll. If you don’t like it, don’t use it.
In the US we still (somewhat) have options. But I think often a lot about the vision that everyone is chasing – Tencent. Tencent is the life operating system in China. It’s no longer really possible to exist in China without access to WeChat. Not today, but one day, rent-seeking behavior may become commonplace. Logic says it will become commonplace. What then?
Turns out, the way to hedge against that rent-seeking behavior is probably to be the owner of it the same way that renters escape rents by owning a house…
Is there a better way? Or is rent-seeking behavior likely to be avoided simply because tech believes in doing no evil?
Every day the world turns…yet we always seem to come back to a similar place in space and time.