In economic theory, humans are utility-maximizing. Utility is the amount of satisfaction one receives from the consumption of a good or service. You might remember the “law of diminishing marginal utility,” in which the consumer gets slightly less satisfaction from every additional piece of pizza consumed.

If we think of this in terms of the IPO model of the individual, utility is effectively input minus output. An individual wants the most possible from his inputs (income and goods consumed) and the least possible from his outputs (work exherted and cost of goods). An individual wants to receive the highest quality good while paying as little as possible for it. He also wants to receive the highest possible income while exherting as little work as possible.

For the individual in a free market economy, the amount of work he exherts as an output will have an effect, immediate or not, on the income he inputs. With that greater input, he is now able to output more money back into his economy, by purchasing more goods and services that he feels will maxmize his utility (or promote his brand). The utility of those goods and services will now motivate him to perform more labor, and thus continue the cycle of ever-increasing the gap between input and output. With an unlimited potential income, the individual is motivated be productive as he pleases or believes possible.

For the individual in the communist system, the inputs are fixed. His work exerted is unlikely to lead to a higher income by which he can afford greater goods and services, so there is no motivation to produce. His utility-maximizing instinct will tell him that because his input will never change, the best thing for him to do would be to do as little work as possible or not at all.

I think this model makes it very clear that the proprietist operating in a free-market capitalist system is a completely sovereign, self-owned entity. He is in control of his own productivity, and therefore his utility. He is in control of his brand, his craft, and his reputation. He is only at the mercy of his customers, who are kept in check by market competition.

I’d like to offer a challenge to Americans during this government shutdown: be mindful of how little your life is impacted by it.

Even more: think about all the money you pay in taxes every year. What else could you do with that money? Could it compensate for the inconvenience you’ve suffered as a result of the government being closed?

Voluntaryism is a philosophy, most compatible with laissez-faire capitalism or anarcho-capitalism in which public goods and services are funded on a voluntary basis. For most of us, this sounds like a preposterous notion; the concept of government as a necessity is hard-wired into our psyche. But for every public good provided by the government (roads, emergency services, military, education), there are practical private models, and I won’t go into detail about them here for this discussion.

How could we ever go from welfare capitalism to a voluntary anarcho-capitalism? The answer is actually relatively simple. On this page, I offered a survey that asked how you would prefer to allocate your tax dollars, if given the opportunity to choose. A choose-where-your-tax goes society is a put-your-money-where-your-mouth-is democracy that effectively privatizes the public sector.

Think about it: taxpayers, not politicians, would decide what’s important, and what consequently gets funded. So what if something important gets horribly underfunded? If it negatively affects enough of the population, they’ll correct the mistake next year. Soon, all public services would consist of organizations that have to work hard for taxpayers money, as opposed to the sloppy shitshow most government organizations are (see here for the theoretical argument as to why a fixed income destroys productivity). Eventually, government would dissolve as all public services become either privatized or voluntary.

So how then, would we transition from our current society to one in which taxpayers choose where their taxes go? What government would ever agree to do this? The answer is again relatively simple: proprietist evolution.

While large employers remove income tax from their employees’ checks, self employed people have to submit their taxes to the IRS. Free agents voluntarily give up a portion of their earnings either because they believe in paying taxes, or because they don’t want to be audited and reprimanded for not doing so. If these independent workers (as much as 40% of the workforce) were to join forces, they could themselves vote on tax dollar allocation using means similar to the survey. The free agent nation could then tell the government:

US Treasury,

We the proprietists represent $709,045,266.30 of your total tax revenue. [I made this number up of course]. We believe that this portion of the total tax dollars the government spends this year should be allocated as follows:

[Here would be a list of the free agent’s tax dollar allocation]
$212,076,388.10 on education
$89,209,260.55 on military
$11.00 on welfare
$160,052,979.45 on infrastructure
[…and so on]

Failure to agree to the above allocation will result in our systematic voluntary evasion of taxes, and a $709,045,266.30 loss of revenue to the United States government.

Can you imagine trying to bust 60 million people for evading taxes? Now that would be a government shutdown!

Western “cowboy” Capitalism has had more than its fair share of casualties. If I had to pick a low-point, I’d say the Homestead Strike of 1892. In the late 19th century, and throughout the 20th century, workers rights increased and became the norm. I have a controversial theory as to why this occured: The Communist Manifesto was a self-defeating prophecy. True Marxism involved the workers overthrowing the owners in a highly industrialized capitalist society (The Bolshevik revolution and others were NOT this). The viral spread of Marx’s ominous ideas in the middle and late 19th century caused business owners to lighten up a little. The bug entered their heads: “I could either make some reasonable financial sacrifices that would increase the happiness of my workers, or I could continue to exploit them until they kill me.” Whether coerced or voluntary, employers over the last century and a half have given far greater respect to their workers and their rights.

Hopefully we’ve matured as a society to the point of understanding that worker’s rights are not just something you honor because the government is forcing you to do so. Extending rights to your workers makes the most sense for your business, because happy workers are loyal and productive. As proprietism continues to emerge, most “employers” will grant considerable and fair rights to their workers without coersion from a higher authority. Those who do not respect their workers rights will face a threat akin to the one discussed in The Consumer-Regulated Business.” Remember that proprietism is built off the Internet–“employers” who treat their workers poorly can be exposed easily in a connected world, which may have a devestating impact on their business.

That answer will definitely not satisfy everyone. What if someone who hired badmouths you even though you treated them well? They will probably be exposed for who they are soon enough. What if someone hires you, treats you poorly, but systematically holds you back from speaking freely? Try to get a different job. What if you were treated poorly by an employer, spoke up about it, but nobody cares? Eventually, people will care. If it sounds to you like I believe that karma exists in the business world, you are right. Bad business is bad business, and the only ones who can get away with it are the ones who exploit a system like our current one.

I find the proprietist model interesting because to the sole-proprietor, there is no difference between customer and boss. Both are paying the proprietor an income in exchange for a service performed.

Customer service is a big deal to me. Without customers, your company would have no revenue, and therefore would not exist. This seems like a straightforward concept, yet it must not be. At many companies, it is common for employees to feel that only personnel from sales and customer service should ever have to interact with customers. I don’t believe that “the customer is always right,” but I do believe that customers should be treated as what they are: your company’s source of income. This means neither treating them like a pain in the ass, nor kissing theirs. A sales manager I know puts it to his customers well: “I work 49% for you, and 51% for my company.”

I was recently in a dispute with DirecTV regarding a hefty cancellation penalty. I started service with them because there were no other providers at my former residence. When I moved, a DirecTV customer service representative told me that I would have to pay a $260 cancellation fee unless I continued the remaining two months of my one year agreement. (Note: I never actually read my terms of agreement, something about which I was very honest throughout the dispute.) After moving in, my first bill was $30 higher, which I paid because even though DirecTV’s bills are are cluttered with ambiguous and meaningless credits and debits, it appeared as though I was paying a pro-rated dish installation fee. Desirable? Not really. Fair? Sure. When I called again to cancel service at the end of my alleged one year contract, a CSR told me that I would be paying a cancellation fee of $280 (went up for some reason) because my contract was actually 2 years. He also told me that my dish installation was free, but my bill went up by $30 to $75 per month because I was getting a “special rate” at my old apartment. The one year rebate was for $20 off per month, so basically I was about to be paying $95 per month for the middle package and no Internet.

I cancelled service and drafted a letter to dispute the cancellation fee (which ended up being $225). I kept it very short and objective, stating that any terms in the contract are no longer valid because DirecTV materially altered the contract by changing my rate. Minutes before dropping it in the mail, my wife texted me.

“Did you pay DirecTV!?”

“No wtf why?”

“Check the account.”

DirecTV did in fact remove $231 (changed again) from our checking account. To be clear, we never opted for any sort of automatic bill pay. I let my bank know what was going on, redrafted the letter, and copied the BBB. The office of the president at DirecTV responded to my complaint and defended the company’s actions, while their credit department continued to pursue the fee from me with increasing aggression. I don’t want to belabor the point, so let’s say there were a lot of priceless exchanges between myself and representatives of the company, and I kept my rebuttals free of insults and criticism staying (mostly) objective. Ultimately, their inability to pull the phone conversations I had with CSRs was the technicality by which I won. Oh yeah, and I guess the cancelation fee changed once more; they reimbursed us $260, not $231. I brought that to their attention because to me the dispute wasn’t so much about getting paid as it was about right and wrong. They did not respond so I kept the $29.

I understand contracts, and I understand setup costs, so I understand cancellation fees. I think what was so outrageous to me was the notion of any company assuming that they possess the authority to subjugate their customers. Sustainable income comes from open and honest relationships with customers, not imposing and enforcing rules upon them. DirecTV should have given up the moment I involved the BBB. You can never prove this, but among the circle of family and friends and coworkers aware of my dispute, several mentioned that they might never chose DirecTV after hearing how everything went down. The company possibly lost tens of thousands of dollars in future sales over the pursuit of $231.

“The customer is always right” maxim was quite purposefully an extreme over-exaggeration. Marshall Fields coined the phrase around the turn of the 20th century in order to boldly set a contrast to the existing customer service paradigm at the time, which could most accurately be described as “buyer beware.” The phrase raised awareness to the fact that customer satisfaction leads to loyal customers, who offer both repeat business and word-of-mouth promotion.

In my opinion, you should never be afraid to do extra work to make a customer happy. Focusing on what you can do rather than what you can’t do is a tad cliche, but I believe it should permeate your every interaction with customers. The ones who don’t complain much are always worth the extra work, no matter how large or small they are. Medium to large customers who do complain but could legitimately move a large portion of their business somewhere else are usually worth it. Small customers who complain are worth one or two reasonable attempts to please, but if their complaining continues and they do not increase their business with you, set ’em straight.

In a b2b relationship, the decision might look like this: Alex could spend one hour talking to a customer account that spends $12,000 per year with his company while they agonize over every reason his company sucks, or he could politiely ignore them and spend that hour asking a $390,000 account how they’re doing and if they need anything. If his calls to the big account result in a 3% increase of the big customer’s sales, that would completely wash any loss from the smaller account. Truth be told, no matter how bad you piss off pain-in-the-ass customers, they more often than not don’t drop you entirely.

Most of this article has been information that would be true in any business, but the proprietist model gives it a bit of poetic justice: your customer is your employer–they swap you cash for a job-well-done.

As the Internet continues to make information free, sites like Angie’s list, customer review sites, blogs, forums, and even sites for whistle-blowers like wikileaks, will all start to take a dominant role in the regulation of business.

Reputation and word of mouth are pivotal to businesses, and perhaps one day they’ll be more pivotal than a state license or registration. The purpose of registration and licensure is, after all, to protect consumers and provide them with information about a firm’s legitimacy. This has been a pretty good system so far (though I agree with Milton Friedman that licensure is not unlike the guild system of the Medieval period). I predict that the Internet will effectively replace the need to have practices licensed by the state. While the Internet might not always provide perfect information regarding the safety and legitimacy of a business or practice, neither does a state-issued license.

Internet-powered business regulation won’t stop there. As a society, our behavior and decisions will be influenced by the omnipresence of social media. I believe that as we continue to put our whole lives and the lives of others on the Internet (see first couple posts about branding), we will increasingly find ourselves trying to find the ethical way out of a dilemma. As our lives become more transparent, our selfish desires will be overshadowed by the threat of being exposed.

Think of the impact that sites like wikileaks will have on the future of business. Right now, federal and state regulatory agencies aggressively investigate and prosecute businesses for anticompetitive behaviors like price-fixing and creative accounting. Likewise, there’s organizations like the EPA and the FDA. Their purpose is to monitor products and regulate operations in order to ensure the public’s health and safety. Regulatory agencies are also good, like licensure, but they’re also complex, quite easily bypassed, and they indiscriminately slow all businesses down. They’re also frequently coaxed into protecting one company from another, with overall societal benefit a moot point. A whistle-blower, however, is an omnipresent threat. In any situation, even the most Machiavellian of future managers will have to take into account the very likely threat of being exposed.

An information asymmetry is an economic term referring to a situation in which one party has access to information that another party does not, resulting in some sort of economic advantage to the one who “knows.” Information asymmetry has always been a component of business, and it’s present in all market types; the less consumers know, the more leverage a seller has. The Internet is destroying information asymmetries on multiple fronts.

As mentioned in the previous post, DIY and personal money management sites empower the self with information. At best, these sites teach you how to be thrifty. They show you how to get something done without having to pay a repair shop or consultant. Also destroying information asymmetries are sites like directly.com or pearl.com that offer expert advice. Ebay, Craigslist, Amazon, and Google aren’t DIY sites, but they cut out the search costs in any transaction, and they remove the cost of not knowing you could’ve paid less for something.

My hypothesis is this: as the Internet evolves, the equilibrium price of information continues to approach zero. Finding out how to do things and where to find things are becoming free. Buyers and sellers can find each other easily. This epitomizes the intended spirit of the free-market. It’s as though Adam Smith’s invisible hand has at last been set free to engage individuals in the most mutually beneficial transactions possible.

I debated purchasing a bicycle recently, but opted instead to fix up an old Huffy road bike that had been collecting dust in my parents garage. I don’t think I would have gotten anywhere without helpful sites all over the Internet like Park Tools. Maybe I would have gone to the library and gotten a book on bicycle repair. Probably I would have just ended up paying a bike shop to do it.

Fixing a bike is the tip of the iceberg of what you can teach yourself to do on the Internet. You can use it to teach yourself how to start a business, build a nuclear bomb, or make ice cream using a fire extinguisher. DIY sites all have the same motif: they show you how to achieve some desired end goal with cleverness rather than money.

Mr. Money Mustache, Get Rich Slowly, Early Retirement Extreme, and 4-Hour Work Week are blogs about personal money management, but I see them as extreme DIY sites. Rather than narrowing in on a specific task or DIY project, they discuss and share experiences that empower readers towards more independent, productive, and enjoyable lives. They are embodiments of a kind of DIY lifestyle that is taking hold in our society.

This new sense of self-empowerment is a sign of the rise of proprietism within our society. As our culture begins to popularize the DIY lifestyle, we will feel increasingly compelled to use social media tools to share our own thrifty habits. In other words, promote our brands.

There are some folks who have really embraced their brand and have learned to sell it in both their social and professional spheres. They are the bread and butter of the proprietist movement–the rising army of independent-contract workers. This phenomenon is well covered on the blogosphere (for example by EMSI, and this interesting organization), and in Daniel H. Pink’s  “Free Agent Nation,” though the data backing this movement is at times opaque due to the lack of a universally agreed upon definition for free workers. According to a 2011 study by Kelly Services, 4 in 10 workers are “free agents,” who consult, perform temporary, freelance, or contract work, or have their own business, up from 26% in 2008. Most statistics from Kelly and EMSI are pulling data from the US Department of Labor or from the  Bureau of Economic Analysis at the US Department of Commerce. Perhaps a thorough meta analysis should be conducted, but I find the data quite convincing.

As of right now, of these independent workers have a craft. They’re web masters, programmers, writers, artists, consultants, and various specialists. Their work is typically needed for one particular project, so from the employer’s perspective there’s little point in hiring them as an employee if they will not have permanent daily tasks. Pink calls this a trend in shorter job cycles.

The movement is enabled by the Internet, and fueled by businesses following outsourcing models for projects.The self-employed lack the security of a constant source of income, and that’s certainly a lifestyle adjustment to be made. The Internet allows many of them work from home. It also helps them find more work, build their brand, and hone their craft.

The Internet makes valuable information free and easily accessible. This empowers all people, self-employed or not, and it is a profound paradigm in its own. Next post will be about the DIY revolution.

In undergrad, I once attended a résumé workshop hosted by business department faculty. They frequently used language that encouraged us, the attendees, to think of ourselves as a product. Our résumés are like sell sheets; they enumerate the benefits* of you and your skillet to your potential customer employer.

This is very similar to the concept introduced in the last post. With a résumé, you promote your brand to the professional world. With a Facebook page, you’re promoting your brand to the social world. LinkedIn’s business model is based on this similarity. Perhaps many of us would like to think of our social selves and our professional selves as two separate brands, but the paradigm of this new world is that they’re inescapably not.

To put it more explicitly, employers can and often do use the Internet to access information about individuals. But we don’t have to fear this; I wouldn’t want to work for an organization that decided not to hire somebody because of a picture of that person spilling their solo cup on their shirts.

The zeitgeist has reached a consensus: networks are the way to get a job. The concept is as old as mankind itself; family and friends have always hired each other, but the Internet has raised our awareness of it considerably. Some may believe their social and professional networks are compartmentalized. If that’s so, I don’t think the challenge in maintaining that separation over the course of their careers would be worth the trouble, but that’s me.

Of course there’s risk to hiring or recommending an acquaintance or a close friend. If he fails, it might inflict a little collateral damage on your own reputation.  My opinion is that overall, communication flows easily across friendly lines, and there’s nothing wrong with a healthy bit of social pressure not to fail.

The new proprietist paradigm is this: embrace your brand, and sell it well in both your social and professional spheres.

* “Sell benefits, not features!” -Paul Kurke Sr, a retired and hardened veteran of sales and sales training

Facebook was new when I was a sophomore in college. Back then, the only photo was your profile picture, so you wanted to pick one that made a strong statement about yourself. We proudly advertised our favorite movies, books, music, and political views on our profiles. Zuckerberg’s world was allegedly rather black and white back then; the options for your political perspective were “very conservative, conservative, moderate, liberal,” and “very liberal.”

Facebook users could create a “group,” replete with its own profile picture and the ability to invite members and appoint officers. Facebook groups were on your profile, and they could be anything from a communication hub for real-life organizations (like SGA) to something totally silly. My second most successful Facebook group was “I was peer pressured into Facebook.” I uploaded a picture of an array of illicit substances as the group’s profile picture (which seemed funny to me at the time, and I’d like to think it was the inspiration for the world’s first Facebook/crack cocaine comparison). Facebook took the picture down, and I of course re-uploaded it thinking there must have been some technical problem.

It was exciting. We were exploring a new frontier in which there was no cost to sum up your entire identity in a page and post it for everyone to see. Facebook is much more complex now, and it propagates this sense of individualism just as well as it ever did. Twitter and YouTube are very similar; they give you the chance to market your identity.

Put another way, social media services let you develop and advertise your own personal brand. Your brand is as unique as your fingerprint, and you control how much of it other people see. You can put your brand out there for others to consume; maybe they’ll love you, maybe they won’t. Maybe your brand is so outrageous that people want to show it to their friends, or maybe your brand is so normal that its forgettable. Maybe your brand is inspiring and others will mimic it.

This concept of personal brand is central to understanding proprietism in our society. Next post, I’ll expand upon the concept of personal brand.