The curious case of second hand markets

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When I was growing up in a Lancashire mill town in the 1960s and 70s, every Friday evening we went to the fish and chip shop to buy our meal. The particular delicacy was an upside-down pea mixture: mushy peas on top of the chips, which were then soaked through and green. But this post isn’t about British culinary delicacies, but rather about what the transaction included. Because it was the practice to take your plates and dishes to the shop, where the food was placed on them and wrapped in newspaper. You were buying fish, chips, peas and some paper. This is a contrast to today’s practice of buying in addition a polystyrene tray, and a contrast to buying a meal in a restaurant, or beer in a pub, where you are buying the food and renting the plate or glass.

These reflections about the nature of the property being exchanged in a market transaction came about because I read an article in the Financial Times about a plan for a second hand market for digital goods in Europe, to be launched by ReDigi, which is running one in the US already. It sells for 60 cents songs already bought online for 99 cents. Needless to say, the company has been taken to court in the US) by Capitol Records), for breaching ‘intellectual property’ rights.This is entirely in line with the instinct of the “content owning” industry – witness the way games companies have tried to restrict the second hand market in physical games by adding one-time only codes, and requiring purchasers of pre-owned games to also buy a new code to unlock the game.

The outcome of the ReDigi case will be fascinating: the question is whether something that is ‘property’ in the initial transaction ceases to be property for the purposes of a secondary transaction. Ultimately, it might be the case that digital purchases of books and music become more explicitly a rental model, as the capacity and claimed willingness of vendors such as Amazon to delete purchased e-books or enforce restrictive DRM already hints. Digital goods are a special case because there is no degradation of the second-hand compared to the new item. There are none of the information asymmetry ‘market for lemons’ problems arising from the unknown quality of a physical good such as a car (although not a physical book or garment, which can be inspected in the charity store).

Browsing around about this subject, I’m surprised to find how little research on second hand markets is available. The few journal articles I found – mostly dating back to the 1990s or early 2000s – suggest that second hand markets can increase rather than decrease the size of new goods markets, because consumers will upgrade more often if they can recoup some of their earlier purchase from selling them second hand. What’s more, it would be incorrect to assume anyway that used goods cannibalise new sales, because at least some consumers would never buy them at the higher, new prices. (Cory Doctorow picked up this point in the context of e-books in a 2005 piece.) And of course, we apply different standards, and different concepts of property, in different markets. There is the digital/physical divide, but also the divide between, for example, books, first edition or antiquarian books, and art – rarity determines not only whether second hand cheaper or more expensive, but also our cultural attitudes to buying in the used-goods market.

In the real world, second hand is huge. It’s huge in developed markets – see, for example, this Guardian article about the post-Christmas surge for charity shops – especially during a recession. It’s bigger still in developing country markets, where clothes and other goods such as mobile phones from the richer countries are sold on a large scale in the markets. This may be one of the all-too-frequent examples of a subject not being studied by economists because there’s no readily-available online data set on the OECD or World Bank websites. The one book I managed to find on contemporary society on Amazon is a 2003 anthropological study of [amazon_link id=”1859736726″ target=”_blank” ]Second Hand Cultures[/amazon_link]. (There is also [amazon_link id=”0230229468″ target=”_blank” ]Modernity and Second Hand Trade: European Consumption Cultures and Practices 1700-1900[/amazon_link].)

[amazon_image id=”1859736726″ link=”true” target=”_blank” size=”medium” ]Second-hand Cultures (Materializing Culture)[/amazon_image]

If anybody knows of relevant books in any social science discipline, I’d love to know.  This subject is a dog that hasn’t barked, but maybe that will change.

What books have top people been reading?

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Often in January I attend a conference with French and British businessmen and women, officials and politicians, and am always fascinated by the books these important people cite when they speak. With 50% French participation, there is always far more intellectual crunchiness than you would get in a solely Anglo-Saxon conference. Anyway, this year I heard people referring to:

Andre Malraux, Outlines of a Psychology of the Cinema

[amazon_link id=”2867466008″ target=”_blank” ]Cyber China[/amazon_link], Xiaolong Qiu and Adélaïde Pralon

[amazon_image id=”2867466008″ link=”true” target=”_blank” size=”medium” ]Cyber China[/amazon_image]

Raghuram Rajan, [amazon_link id=”0691152632″ target=”_blank” ]Fault Lines[/amazon_link]

Bossuet, [amazon_link id=”0521368073″ target=”_blank” ]Politics Drawn From the words of Holy Scripture[/amazon_link]

Martin Heidegger, [amazon_link id=”1438432763″ target=”_blank” ]Being and Time[/amazon_link]

Emmanuel Levinas, [amazon_link id=”0820702455″ target=”_blank” ]Totality and infinity[/amazon_link]

Pierre Bourdieu, [amazon_link id=”B00AA8LPL0″ target=”_blank” ]The Social Structures of the Economy[/amazon_link]

Robert Caro’s [amazon_link id=”1847922171″ target=”_blank” ]The Passage of Power[/amazon_link]

[amazon_image id=”1847922171″ link=”true” target=”_blank” size=”medium” ]The Passage of Power[/amazon_image]

In general when I hear people citing, say, Heidegger’s Being and Time I permit myself some doubt as to whether they’ve really read the book. For myself, the [amazon_link id=”034080324X” target=”_blank” ]Beginner’s Guide to Heidegger [/amazon_link]was tough enough going.

[amazon_image id=”034080324X” link=”true” target=”_blank” size=”medium” ]Heidegger (Beginner’s Guides)[/amazon_image]

But in this crowd, the probability of the book mentioned having been read is pretty high, although there was of course a bit of a read-to-impress quotient: nobody was talking about the thrillers they read for relaxation.

On the train to and fro I started reading [amazon_link id=”0099563835″ target=”_blank” ]Into The Silence: The Great War, Mallory and the Conquest of Everest[/amazon_link]. So far, absolutely superb.

[amazon_image id=”0099563835″ link=”true” target=”_blank” size=”medium” ]Into The Silence: The Great War, Mallory and the Conquest of Everest[/amazon_image]

The future

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I’ve been reading Al Gore’s forthcoming new book [amazon_link id=”0753540487″ target=”_blank” ]The Future[/amazon_link], which I’m reviewing for The Independent so will not write about it here. But it set me thinking again about how hard it is to be long-termist, especially in the public sphere. My own book [amazon_link id=”0691156298″ target=”_blank” ]The Economics of Enough[/amazon_link] is about some of our societies’ multiple failures to respect the future. Can we hope that long-termism is at long last an emerging theme in the policy debate?

[amazon_image id=”0753540487″ link=”true” target=”_blank” size=”medium” ]The Future[/amazon_image]

Recently I went back to Paul Krugman’s 1990 paper (pdf), History versus Expectations, which shows in an endogenous growth model that the rate at which the economy grows depends fundamentally on expectations of progress. But of course the past matters in shaping current attitudes and behaviours, and hope and respect for the future will depend on appropriate deference to the past – neither being trapped by it nor overlooking it. Both past and future play their part. Browsing through some Tacitus as a delaying tactic before starting work this morning, I think his [amazon_link id=”014045540X” target=”_blank” ]Agricola[/amazon_link] summed it up:

“Think, therefore, as you advance to battle, at once of your ancestors and of your posterity.”

Proinde ituri in aciem et maiores vestros et posteros cogitate

[amazon_image id=”014045540X” link=”true” target=”_blank” size=”medium” ]Agricola and Germania (Penguin Classics)[/amazon_image]

More bankers needed?

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“Half the world is unbanked,” is the title of an early chapter of a new book, [amazon_link id=”026201842X” target=”_blank” ]Banking the World[/amazon_link], edited by Robert Cull and others. Counterintuitive as it seems, for those of us living in countries with too much banking, too little banking is a big problem. For a long time the best, indeed one of the only, books on the issue of financial services for the truly poor has been [amazon_link id=”0691148198″ target=”_blank” ]Portfolios of the Poor,[/amazon_link] edited by Daryl Collins and others (see also the terrific Portfolios of the Poor website for additional material).

[amazon_image id=”026201842X” link=”true” target=”_blank” size=”medium” ]Banking the World: Empirical Foundations of Financial Inclusion[/amazon_image]

Collins has a chapter in this new book, on measuring what financial services poor people use. It starts with an example about how important basic financial services can be in helping people earn more – a study of fertilizer use in western Kenya, where the biggest barrier to using fertilizer is timing savings in order to have enough money available to buy the fertilizer at the right time. I think access to secure means of savings is fundamental – far more important than microcredit, which has been so much the focus of research and policy debate so far.

Although I’ve not yet read all the chapters in this book, it collects together a number of empirical studies piecing together the evidence that will be needed to help develop inclusive financial services. It includes a number of intriguing ones – such as using biometrics for identification and security purposes. This is interesting because – although the chapter doesn’t address this issue – global anti-money laundering and ‘know your customer’ regulations – are wholly paper-based, which excludes people with no fixed address, no bills addressed to them, few formal documents at all, and no access to photocopiers. It is worth asking whether alternative approaches ID schemes could offer adequate security to serve the real purposes of such regulations. (I think the digital money guru Dave Birch has written about this although I can’t track down the link at present.)

I also like it that the book has a section called ‘Cautionary Tales’, included as a warning against ‘silver bullet’ thinking (“All we need to do is X and we will end poverty”). Not all financial services boost growth or encourage entrepreneurship, and some can be harmful. The examples here are the disappointing effect of remittance flows into Vietnam and the damage done by easy access to mortgages in some of the lower income Eastern European economies.

The final chapter, by the editors, lists ten unanswered questions, the first of which is the need for much more evidence on whether and how access to financial services has a beneficial impact for people on low incomes; which financial services are most valuable; why do ‘micro’ services struggle to scale up; and does growing access to financial services increase the risk of financial instability? As this list indicates, there is much that we don’t know, and the answers are relevant to financial inclusion within the rich economies as well as in low income countries. However, this book is a welcome addition to our present state of knowledge and will be of great interest to people working on this aspect of development.

The power and glory of GDP statistics

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An intriguing-looking book has arrived: [amazon_link id=”1780322739″ target=”_blank” ]Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number [/amazon_link]by Lorenzo Fioramonti. I’ve long thought people in general and economists in particular pay too little attention to statistics – how they are constructed, what they actually measure, how their availability shapes or distorts decisions, how best to present them in charts and tables to give a true and intelligible account of an underlying social reality. Most people unfortunately find the subject dull – hence the old joke about an extrovert statistician being the one who looks at your shoes, not his own, when he’s talking to you. Equally, discussion of the economy bandies the term GDP around as if it were a natural object out in the world, measured by diligent statisticians in the way meteorologists measure rainfall, when it’s entirely a social construct.

[amazon_image id=”1780322739″ link=”true” target=”_blank” size=”medium” ]Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (Economic Controversies)[/amazon_image]

Anyway, I’m looking forward to reading this book, although paging through suggests it ends up in the cul-de-sac of ‘alternative’ green indicators like the ISEW. But I won’t prejudge it.