The Secondary Market

Cartagena Colombia

The more I travel the more amazed I am at the ‘secondary market.’  I’m defining that as the commerce that happens with a low barrier to entry, with no governance.  At a low end, think of a lemonade stand.  On a different end, think of motorcycle taxis and street side car washing by someone who ‘protects’ your car as you dine.

I’ve seen homeless men find cardboard to put on peoples windshields in Colombia (for a tip, hopefully).  I’ve seen taxi drivers offer free rides to the airport, then drop off and desert their passengers in a bribing jewelry shop for gas vouchers (Thailand).  There are full service street captains that will go buy you a beer if you yell out your window (Panama).

All of these things would be illegal in the US.   They are the Secondary Market.  I almost wrote a post on this, how the US needs a Secondary Market system.  Let those that are unemployed or wanting to do something new sell water on the street, provide guiding services for tourists or find a niche, and without property ownership or licenses, see what they can get up to.

Then I realized we already have this, we just hide it.

We are scared shitless of it, it seems.

Housecleaners, pool maintenance, freelancers, car mechanics, chefs, dishwashers, janitors and painters all seem to have a quite thriving market skirting many laws (immigration, employment, taxes).

It seems we have not solved it, we just hide it and are astonished when the truth bubbles up.

Look at Meg Whitman’s house cleaning staff, for instance.

Shocked I tell you, shocked.

I don’t think there is anything wrong with these markets at all, as long as they are not predatory or exploitative (the power for them to be is amazingly strong, think of the sex trade).

Does it happen in startups?  This got me thinking.

Airbnb

Airbnb is illegal in most places they operate (most towns with a college and hotel industry ban under 30 day private sublets / rentals).  They know this, but still operate, hedging that they won’t get sued.  There is too much of a land grab going on to worry about laws, their upside is far greater than their downside.

It is odd that someone providing a service better than the rest would have to take such a strategy (sad actually).  I’m still not sure if ‘lets copy couchsurfing and charge’ is a noble quest I should defend, but it sure is interesting to view.

UberCab

San Francisco based UberCab (or Uber now?)  had a pretty damn angry and legally binding letter sent to them demanding that they take down their app.  Their app made it easy to book a private town car in a way that you would book a taxi.  San Francisco has a small amount of cabs per capita, and there is a huge pain point.  They went out and ‘fixed’ the model, and without a license got shut down (to be honest I just followed this story to the point, don’t know what ended up happening to them).  Their site now reads ‘UberApp.’

There are tons of Secondary Markets in the world.  They are interesting, can be amazing drivers of employment and community.  They can also be used for evil, which is why, for good reason they are banned to oblivion.

  • I highly recommend Mystery of Capital and The Other Path by Peruvian economist Hernando de Soto. He talks a lot about the poor and capitalism — as opposed to, say, this increasingly corporatist monster we confront today.

    What you've termed “secondary markets” he refers to as the “extra-legal system.” His work in this area is fascinating and super important. It is a critical topic for us all, especially with talk of simmering Currency Wars, micro and macroeconomic crises, and much deeper calamity as an almost routine way of life for the majority of the people alive today.

    Our regular Friday Austin crew discussed his ideas recently (http://j.mp/bnnF0B), and I later posted a link to this decent overview video (http://j.mp/trnkey) so folks could get a glimpse into his thoughts. Coincidentally, over coffee that morning we also shared recommendations and ideas around several great documentary films, some of which you can also see referenced in the first link above.

    Interestingly, de Soto concludes this short video by saying, “The more I think about this, this film project is really very important because two thirds of the world, from Iraq to Afghanistan, to Peru, to China actually live like this. This is the challenge. So if you can picture this, put it into your mind, it will be much easier to take the right policy decisions. Films are very important. You can't understand this unless you really see it.” (That's also a very Edward-Tufte idea that I believe he expressed simply, “the only way to see it is to see it.”)

    It's awesome you're out there “really seeing it” as you travel the world. Kudos. Godspeed. And keep bringing back the stories and realizations, ideas and inspiration. Thanks. Hasta pronto, amigo.

  • Excellent post, Andrew. I always believed that the secondary market in fact props up the primary market – Without it, the capitalist system would cease to function. Well written.

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