In everyday life, we try to eliminate the middleman in order to cut cost and foster closer relationship between producer and consumer. How successful are we doing that? I can see four areas where the middleman seems indispensable despite all the scandals and damages they’ve done. They are the so-called too-big-to-fail entities that need urgent reforms.
Since ancient times, humans prefer to worship God through an agent such as a village elder, a priest or an organized church through established rituals. Have we thought about seeking hope, comfort and salvation directly from God? Does God really prescribe that we must go through an agent? Being a Catholic since young age, I began to ponder this question only recently. I guess I’ll never find an answer unless through divine enlightenment.
The Internet has produced many big companies that bring large numbers of consumers and producers together through their versatile website platforms. Their success owes to the great services they provide in terms of choice, efficiency and lower price. Examples are Amazon, Uber and Airbnb. They are fast evolving and growing with plenty of things to learn and unexpected problems to solve.
Another group of companies establish the social networks that bring people together by facilitating the sharing of interests and experiences. Ironically, the dating websites have successfully revived the ancient role of the matchmaker that seemed dying in this modern age. Examples are Facebook, LinkedIn and Match.
Banking and Finance
We trust the banks by depositing our hard-earned money with them. We also trust the government to bail them out or take over responsibility when a bank fails. We never care what the banks do with our money which they use to make loans to other people, hopefully producing a profit. On the other hand, we scream when the government uses taxpayers’ money to bail them out when they fail. We tend to forget it was the big banks’ subprime-mortgage fiasco that precipitated the great recession in late 2008 from which we are still recovering almost ten years later.
The stock market represents another big middleman for sellers and buyers of financial instruments called stocks, shares and mutual funds. Since luck plays a significant part in stock trading for the average consumer (so-called small investor) who has no leverage in a bidding auction system, Wall Street operates more or less like a traditional gambling house under the heavy influence of big players and the seducing investment analytics they produce. The stock market is the best place where the strong legally eat the weak and get away with it by blaming the capitalist market and the economy.
A third big middleman operates in the insurance business. As customers, we pay regular premiums, and trust the insurance companies to compensate for our losses in case we die (life insurance) or suffer from an accident (fire, flood, earthquake and auto insurance). Again, we never care how they make use of the premiums we’ve paid because we assume they invest wisely. In any case, Warren Buffett has said that insurance is a good business where the insurers receive the money first before paying out any. When the insurer pays compensation, it mostly wins because in reality only a small percentage of the insured get into accidents or die. The laws of statistics favor them. The insurance business is based on the principle that the majority subsidizes the small minority, thus allowing the insurer to pocket the profit as a middleman. The only condition is that the insurance market must be big. It won’t work if only several thousand people buy insurance.
Health care insurance has become the norm in industrialized countries as a health maintenance program rather than an accident-compensation program. Where universal health care is practiced, the government runs the health insurance as a single payer. On the other hand, people in developing countries pay for their own health care on a piecemeal basis when they get sick. Strangely speaking, with all the medical technology available, health care is much more expensive for the average person in industrialized countries than in developing countries, especially in the United States where there is no universal health insurance. What are the causes? They can be summed up in two words, corruption and lack of competition.
The situation is very complicated in the United States where relentless health care inflation has priced out tens of millions of citizens. I will discuss this further in another post.