The Emerging Institutions Of Entrepreneurship:Are Digital Marketspaces The Last Free Market Frontier?
In his book, The Theory of Moral Sentiments, Adam Smith said of producers: “They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made had the earth been divided into equal portions among all inhabitants; and thus, without intending it, without knowing it, advance the interest of society, and afford means to the multiplication of the species.” As an institution of entrepreneurship, the digital marketspace is the modern version of Smith’s invisible hand: a complex phenomenon that has not been designed by any one single person but has emerged as a result of the usefulness that it provides to individuals pursuing their goals by serving other marketspace participants through value-providing exchanges.
These value-providing economic participants are people that are not highly capitalized, not holders of special permits, and have not paid large sums in startup fees. Many are retirees, stay-at-home parents, or young adults who want to start small. All of them have much to gain from the advent of the digital marketspace. They are everyday entrepreneurs who are prospering in unprecedented ways via the marketspace.
Today, more than ever before, everyday entrepreneurs are using eCommerce and social platforms because they have lower barriers to entry, comparatively lower startup costs, minimum fees, and in many cases, no costly permits. We know it to be universally true that fees, permits, licenses, and undue barriers automatically write a portion of the population out of the economic picture. Not to mention the growing eCommerce trends are reflecting changes in individual habits along with shifts in social conventions:
- Compared with the brick-and-mortar marketplace model, the digital marketspace demonstrates the explicit rationale for why everyday people choose the digital hand: ease of entry into entrepreneurship.
- The digital hand allows mutually beneficial exchanges to happen and relative freedom of access to often closed or uncontested markets.
- The digital hand guides the digitalpreneurs to apply their resources to the best use in the marketspace.
- The marketspace rewards individual purposeful action and provides the incentive for individual discovery opportunities.
The digital hand is the proximate cause of millions of people entering the emerging digitalpreneurs class – those who sell products and services via e-platforms on digital devices.
The dead hand, in contrast, is an emerging anti-market hand. The dead hand imposes a heavy counterweight effect by its interventionist, antimarket, anti-innovative policies that adversely affect the rising class of digitalpreneurs in the long run. The dead hand tends toward intervention; increasing regulatory requirements, requiring large amounts of startup capital, imposing licensing requirements, and other fees of entry that hamper the positive effect of digitalpreneurship for everyday people. Unlike the digital hand, the dead hand does not create wealth or create value; it seizes resources, eliminates wealth creation, and it does so by disallowing individual, privately-held resources to be employed in higher uses in the marketspace. The dead hand disrupts the fundamental entrepreneurial institutions of private ownership and freedom of exchange.
The dead hand intends to intervene in a growing and prosperous economic process with policies and regulations that have good intentions but adverse effects on this rising class of people. Just think, the resale market is expected to reach 30 billion by 2030, according to Allison Prang of the Wall Street Journal. Imagine a free space in the market where people who do not have millions of dollars in seed money or capital equipment on hand or a storefront with overhead costs can enter a market space and serve others and themselves. They may be collectors who later decide to resell their collection or they may be individual creators of products (creating it yourself or CIY) of their art, or music, or crafted furniture, etc. The dead hand does not peer beyond the tangible, measurable, and visible effects of an individual’s ability to engage and prosper in marketspace. It does not recognize the opulence of the nonvisible effects, of peaceful, energetic, and voluntary exchanges that are bettering life circumstances for many individuals in the pursuit of their purpose.
The dead hand may be getting stronger. Recently a proliferation of restraints and regulations have been imposed on marketplace sellers on social and eCommerce platforms. The dead hand seeks to assert itself against the last free-market frontier. The dead hand may be a well-meaning hand, but its force has unintended effects. Case in point, brick-and-mortar is unattainable for some, has become marginalized by pandemics, and startup costs and barriers are high. Brick-and-mortar still has its place, but digital marketspaces are growing at an astronomical rate. In perspective, eCommerce had approximately 2.1 billion digital buyers in 2020. The rise of the dead hand will destroy this last frontier where everyday people can flourish via the economic process.
We have to ask whether eCommerce and social platforms will remain free and unhampered in the long run. In the long run, will everyday entrepreneurs (i.e., stay-at-home parents, work-from-home contractors, retirees, young adults) employ digital means to participate in the economic process? In other words, will the dead hand discourage people from using their resources to produce a product or offer superior service, thereby making either a profit or loss in marketspaces? If they profit, will they be able to save and reinvest their profit back into the business or will the dead hand take it away? Or will the dead hand make saving impossible by charging higher fees and taxes and associated permits? The dead hand seeks to raise the barrier to marketspaces and costs associated with eCommerce and digital platforms, making it an unattractive option for many who do not have the millions of dollars in financial capital to pursue entrepreneurial opportunities under the traditional brick-and-mortar business model.
We face a potential conflict. There is a rising class of digitalpreneurs and a rising dead hand that seeks to impose restrictions on them. The appeal of the digital hand is that it opens up entry barriers for everyday people to prosper in the economic processes. What would hold any entrepreneur back from the utilization of this free entry? Only the dead hand that restricts market entry. Put into the larger context, the dead hand, if you will, does not ensure socially discovered opportunities held privately by individuals. The dead hand alters individual purposeful action, which guides individuals to optimal courses of action when discoveries are apparent.
Well, it has been said that all good things come to an end; hopefully, marketspaces will remain a good option for people as an entry into the entrepreneurial process, but the indicator of current trends suggest that the dead hand could be dominant sooner than later, and it will lay down a heavy hand on marketspaces which will have unintended consequences for digitalpreneurs. The trends include controls and regulations that are unnecessarily restrictive to everyday people in the real world. Limits imposed by the dead hand are overt and make it impossible to use the market to enter the economic process.
Fortunately for some, who represent the growing portion of the millions of individuals using the digital hand in the market space, they have reaped benefits from the digital hand. Real people serving online consumers have a significant ripple effect outside of the consumer market. The everyday digitalpreneur is part of the increased revenue and profitability for many industries in the form of drop shipping services, mobile shopping, and transportation and logistics.
Howard Baetjer Jr, in his book, Economics and Free Markets, asked, “should competent adults be allowed to exchange freely with one another?” I assert that we all agree, yes. The dead hand restricts freedom of exchange with an individual’s property and services on “mutually agreeable” terms. The digital marketspace operates so that the average person can rise in society through the acquisition and disposition of privately-held resources, talents, and skills that have value to other digital buyers sold at a price deemed sufficient by the buyer.
Is the digital hand the last frontier for the average person to do good business in marketspaces? The problem with the dead hand is that it imposes barriers that eliminate the incentive for many to consider selling on eBay, Esty, Poshmark, etc. A requirement for permits and upfront fees to start entrepreneurial activities will impose disincentives to conduct business in marketspaces. Why?
F.A Hayek said to this point,
“it would seem that a rational economic policy should confine itself to creating the conditions in which the market will function as well as possible, but should not regard it as its task to influence or guide the individual activities.”
The dead hand and its adverse effects on future digitalpreneurs are emerging. As it emerges, we must consider the short-run and long-run consequences of disincentivizing people from voluntarily exchanging their private resources using eCommerce platforms. If the dead hand takes hold of the emerging entrepreneurial class, what kind of market remains for people to earn, save, and reinvest their savings to enter the economic process? What are the long-run consequences of alternative market decisions for entrepreneurs and their freedom to prosper using their knowledge and personal property? The acquisition and disposition of private property suggest that human action leans toward future aims to substitute less satisfactory with more satisfactory circumstances, said Ludwig von Mises. Technological advancements and higher living standards are likely to produce self-expressive market activities geared toward creating better prospects for one’s future.
In the short run, will marketspace barriers remain low over time for absorption of newcomer entry, or will the barriers to entry to eCommerce rise and increase the costs of doing good business outside the bounds of the average person’s capital investment? We may not find answers to these immediate effects the dead hand will have on digitalpreneurs, but in the long run, its effects will become apparent if the incentive to use the digital hand ensures increasing significant gains rather than losses. It is what Bernard Mandeville, the 18th-century philosopher, meant when he wrote in his famous exposition Fable of the Bees: “It is not insight but restraints imposed upon men by the institutions and traditions of society which make their actions appear rational.” Restraints of time and place and the artificiality of consumer choice are the effects of entrepreneurial plans that are the causes of the diverting of human action towards the digital hand. Will the dead hand prevail? Is the marketspace the final free market frontier?
View previous article in this series, The Emerging Institutions Of Entrepreneurship.