Today, there is a steady, inevitable growth of what many commentators refer to the “sharing economy.”  The most wellknown example of replacing sharing for ownership of a vital asset is the Zipcar business (recently acquired by Avis-Budget).  Zipcar is based on the principle that many individuals need automobiles relatively infrequently and for relatively short periods of time, so that neither ownership, nor leasing, nor even daily rentals are the most cost-efficient solutions for them.  They become a Zipcar member, rent a car for an hour at a time, pick it up at one Zipcar lot, drive it and drop it off at any Zipcar lot.

However, the sharing economy is progressing beyond the temporary use of automobiles. Airbnb is an example of a service which facilitates a process by which people may share all or part of their residences with others for a fee that, for the person needing accommodations, is lower than the cost of a hotel, and more readily available.  This service has the advantage of not only being more flexible, but enabling the use of rental property that is more conveniently located than a traditional hotel, which typically has to be in a commercially zoned part of a community.

Similarly, there are many businesses in which individuals can rent the use of a room or a suite for a meeting for an hour at a time.  Companies like Regus have a large supply of available offices for temporary use of facilities.  In my case, I have a network of friends or service providers that let me use vacant offices or conference rooms for meetings, so that I do not have to rent a very expensive hotel conference room.  The informal version of this is the use of coffee shops and restaurant spaces for regular meetings.  For example, the local coffee shops in Darien, Connecticut, where I live, are regular venues for morning and afternoon meetings, in one case,  for men’s prayer groups.  These groups do not rent a space, but simply reserve a large table and preorder breakfast or coffee for a group of 12 people.

New York City has a wonderful set of public spaces in Midtown buildings like the Park Avenue Plaza, the Sony building and the IBM building that have open lobby areas that have been converted into meeting places or even spaces where individuals can sit at a table at no cost for hours at a time.  The Park Avenue Plaza between 52^nd and 53^rd Streets between Park and Madison Avenues has gone one step further in converting a portion of its space to a group of tables for individuals to use for chess games.

A variant of this temporary use of assets is the penetration of extremely short-term rentals of equipment needed for one-time tasks often of such short duration that a purchase or even a fixed term rental is not a viable option.  My wife and I rented a dehumidifier some years ago for a period of 3-4 days when our basement had been flooded and we needed to get moisture removed from our carpet.

For communities, the use of shared services is a great alternative to having each resident separately contract for services.  My wife and I have lived in such an association for almost 20 years.  We have 19 homes, a clubhouse, two tennis courts, and significant open spaces for play areas for children.  Our lawn management, tree trimming and removal, snow removal, road maintenance, and refuse collection services are shared across the 19 residences, and, as a result, we pay far less than we would pay if each of us contracted separately for these services.

Another form of facilitated shared services is the facilitation of peer-to-peer selling of books, music, DVDs, and other tangible assets by one individual to another through sites like Amazon.com, not to mention that Amazon.com is also a major provider of shared cloud computing services.  My son James made significant money during his senior year of high school and the summer after high school collecting salable items people we knew no longer needed and selling them online to others.  He particularly helped the local Boy Scout operation sell the items that remained unsold after the annual spring tag sale.

Still another formed of shared service, which has been around for several decades, but is getting renewed life, is the use of ride-sharing for trips to and from work, and to and from places like airports and train stations. Back in the 1980’s, when I was a reverse commuter from New York to Stamford at Pitney Bowes, the Company had no shuttle service between the train station and the Company headquarters.  While I enjoyed walking between the station and my office, there were times when walking was not a practical option, typically at night when I needed to get to the station quickly to catch a train back to New York. Many people picked up and drove me to the station.  I developed some great short and long term relationships with those who regularly helped me.

What has given the sharing economy new life is the Internet, which enables those doing the sharing to have three capabilities they never previously had:

• The use of online matching between those with assets to share and those needing the use of the assets;
• An ability to get a high degree of advanced knowledge about the person providing the asset to be shared and the asset itself; and
• The ability of prior users to rate the experience and give feedback available to all future users of that asset.

For the sharing of automobiles and rides, the increased availability of insurance against both liability and damage is another factor that has enabled the sharing economy to grow, since many people are deterred by the financial risk they would appear to be taking.

I am excited about the prospect of this economy continuing to grow.  We waste and consume too much, and, by buying items, we also end up with all the burdens of ownership.

Historically, shared assets and services often got damaged more easily and got excessively intensive use, which meant that their value to others was diminished.  Cooperative associations were valued less than pure ownership situations, and the ownership of assets was associated with status, power, and freedom.

Today, the world is different.  We have virtual offices, which are enabled by our ability to stay in touch with the world via our smart phones, Ipads, and laptops.  We have more ubiquitous cloud computing, which obviates the need for us to own servers.  We also have more online networks that are changing how we share information with one another across organizational and community boundaries. The concept of sharing space and other assets is not as strange as it once seemed.

I have learned how to do more of this with the need to manage a start-up business, Dossia, and to manage our film project.  It is a wonderful trend that, over time, is making our quality of life far better than it once was.

James B. Stewart, a reporter and author wrote on Op-Ed piece in the Saturday, February 16, 2013, issue of The New York Times, entitled “The Myth of the Rich Who Flee From Taxes.”  His major argument is summarized in the following statement:

“At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.”

As a person who knows many wealthy people who have moved to states with no income or inheritance taxes, and many who have chosen not to do so, I am often asked by many people why we do not leave Connecticut and establish a primary residence in a state like Florida, where I could save millions of dollars in taxes over the rest of my life.  My view is that Stewart is only partially correct and partially wrong in his assertion that higher taxes do not drive people to change where they live.

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As we end 2012 and enter 2013, I have some observations about the world as I see it.

The economic environment

This is a very difficult economic environment for people of all ages, but particularly for young people leaving college, graduate school, or professional schools, except for those with very specific trade-based skills in which demand exceeds supply or for men and women with science, technology, engineering and math degrees.

Our colleges and universities are run highly inefficiently and tuition, book, room and board costs are wildly inflated.  They burden our students with huge debt loads and force them into long term financial servitude with education that, in many cases, is of marginal value in terms of their earning power.

However, what makes the situation worse is that what we reward throughout traditional education, including college, is the mastery of a bodies of knowledge as defined by school boards and individual teachers and professors, not the skill to use that knowledge to solve problems and propose solutions.  Our young people coming out of school are generally clueless on how to navigate the worlds they enter, whether those are business, government, the educational sector, or the nonprofit sector.  Part of this navigation process is recognizing that knowledge gets obsolete fast, but adaptability and emotional intelligence skills need to continue to improve.

The most destructive aspect of our education system is that it teaches both conformity and the creation of regulatory and legal obstacles to engineer risks out of our lives, and, while it achieves destructive conformity, it can never succeed in getting rid of life’s inherent risks.

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As my family and I celebrate the holidays this year, we truly feel that we have gone through a rebirth from the many challenges we have faced in the past few years.  Objectively, our path to get our film into the market has been strewn with obstacles, some of which resulted from our inexperience and others of which resulted from the fact that we are trying to do something very different from the kind of film traditional studios produce, finance, and/or distribute. Similarly, my efforts to battle the day-to-day challenges of leading Dossia have presented challenges I did not encounter when I led a more established business at Pitney Bowes.

Oddly enough, we are more energized and happier at this time than ever before.  As I reflect on this strange feeling of happiness as a result of the adversity we have experienced, I think of a quote from Helen Keller:

“A happy life consists not in the absence, but in the mastery, of hardships.”

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Many people have asked about the status of our From the Rough film project.  It is alive and well, and we have taken most of 2012 to take a fresh look at every component of the project. We are getting close to finalizing it, and expect the film to be released in 2013.

We looked more closely at the origin of our title, which came from a quote by Seve Ballesteros, the late, great Spanish golfer, who, when asked about what he would have wanted to be different about golf, said: “I’d like to see the fairways more narrow. Then everyone would have to play from the rough. Not just me.”

Initially, we understood his comment to be half-kidding and half-serious.  The serious part of his comment arose from the fact that he was the best player of his time, maybe the best of all time, in designing and executing on shots from the rough, or from any difficult lie or location.  What we did not understand was how these unique skills were foundational to who he was and why he succeeded.

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Vocational and Technical Education

As we just observed the Labor Day weekend, there is a tendency for the media and for elected officials to reinforce obsolete views of labor and of vocational and technical skills required to compete in the global economy. There is also a tendency to celebrate the wrong qualities of people they would generally characterize as being part of the “working class.” As a result many of us have image of “blue collar jobs,” the skills required to do them well, and vocational and technical education required to prepare people for them that is wildly out of date.

Why What We Celebrate is Obsolete

Blogger David Burr concisely described why the Labor Day holiday was created:

“The holiday originated in 1882 as a result of the labor movement and was intended to be a day of rest to recognize the efforts of the average working man.”

We need to reinvent what we honor for this holiday.  Labor Day was designed to recognize the value of the “average worker,” collective activity, labor union membership rights, and “hard work.”  The typical image of the “blue collar” worker is someone using muscular power to do a physically demanding, backbreaking task.  When I think of Labor Day as it has been celebrated historically, I am more likely to think of either the folklore of John Henry as a “steel driver” or the cleaning woman celebrated in Donna Summer’s great song “She Works Hard for the Money.”

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Joseph Stiglitz, a renowned economist, has just published a book entitled The Price of Inequality, in which he directly tackles the cost and root causes of societal inequality. While I do not agree with his broad recommendations or his overall view of the world, I believe that he correctly identifies inequality of political access and influence as the source of economic inequality.

Based on the experiences of being involved with both government and private sector marketplaces in which individuals have gotten very rich or successful, I would make four broad observations about economic inequality:

• More complex customer procurement rules or political systems increase inequality;
• More intensive government regulation to redistribute opportunity increases inequality;
• “Stimulative” government programs to increase opportunity increase inequality; and
• Many well-intended, but flawed, rating, ranking and measurement increase inequality.

Complexity, over-reaching government regulation, stimulus programs and badly designed rating, ranking, and measurement systems benefit people with pre-existing advantages and widen their advantages, and, in some cases, they become obscenely rich.

Increasing system complexity increases inequality.

When I was at Pitney Bowes, we were investigated several times for having achieved leadership positions in mail-related markets.  The Justice Department assumed that we must have done something wrong to have a leadership position that spanned several decades.  They were wrong, and, eventually, after five investigations in 22 years, they implicitly admitted that something other than bad conduct was behind our leadership position.

The technical and process complexity of how we evidenced and collected postal revenues, both through postage meters and mail service operations, gave us a huge advantage.  The postal rate structure for work-sharing discounts was extremely complex.  Success depended on successfully making arguments that caused the Postal Service and the Postal Regulatory Commission to approve increases in particular discounts of as little as .1 cents.  Every .1 cent discount increase we received gave us over $10 million of operating income.  To make these arguments required us to hire and educate postal economic specialists, who understood the unique economics of postal mail processing.  Without the complexity of postal economics, which few economists could master, we would not have the significant competitive advantage that enabled us to grow and be profitable.

There was nothing sinister about this complexity.  It was no different from the economics of other public utility pricing systems, but, because postal mail economics was a smaller perceived business opportunity, few economists attempted to master it, which gave us a big opportunity.

The more complex the discount structures became, the more difficult it became for our smaller competitors, many of whom were anxious to have us acquire them. Our experience is replicated every day as large private sector companies create very complex procurement processes that benefit incumbents or large, resource-rich vendors, at the expense of start-up businesses.

More intrusive government regulation and attempts to redistribute wealth, income, and opportunity have exactly the opposite effect.

This is the point at which I most completely diverge from Stiglitz and others sharing his point of view.  When governments try to “level the playing field” between those they believe to be advantaged and disadvantaged, they are more likely to increase inequality.

Complex and comprehensive laws and regulations that attempt to micromanage the economy to redistribute wealth increase inequality in two ways:

• They give advantages to those with more know how and resources to figure out how to play more effectively within the new rules.

New York City rent control laws have been in place since 1947. They have benefited wealthy people who can maintain a New York apartment and spend their own money for capital improvements, since no honest landlord can afford to invest in upgrading rent-controlled apartments for lower-income tenants. They also benefit unscrupulous landlords, because they are designed to protect absurdly low rents only while the existing tenant is in place.  Instead of improving the housing stock to increase the value of the property, landlords finding creative ways to force out or buy out rent-controlled tenants, either by renting adjacent apartments to rock musicians or motorcycle gangs, refusing to make basic repairs, or engaging in noisy construction. The rent control laws induce this dysfunctional behavior because they create a wide gap between the market rate and the rent control rate.  Wealthy tenants can fight these abuses, but the lower-income tenants rent control laws are designed to protect cannot fight back easily.

• They create a new class of people who thrive on being intermediaries, consultants, or other service providers in the marketplace created by these redistribution schemes.  Addressing the needs of these various intermediaries adds cost, complexity, and inequality to any marketplace these intermediaries touch.

Public sector labor unions clearly thrive when the government creates more jobs to “redistribute” wealth, since more government employees are needed in such an environment.  Civil service professionals do well by “monitoring” the disbursement of funds from government to “disadvantaged” people. Major agricultural corporations benefit from highly profitable food stamp programs.  Firms that provide specialized software for managing government social service programs make a lot of money licensing that software to non-profits that have to comply with complex government requirements.  Ross Perot became a billionaire because he mastered the intricacies of serving government programs, first at EDS and later at Perot Systems.  Not surprisingly, an individual, a small business, or an under-resourced large business will have an even greater disadvantage the more of these intermediaries with which they have to deal.

• Title IX has created a whole new cottage industry of parents, coaches, guidance counselors, college counselors, and providers of athletic equipment that benefit from building girl’s sports teams at the K-12 level. Wealthy, resourceful people “game” the college applications process at top-rated schools by getting their daughters into Title IX-induced sports like lacrosse, equestrian sports, squash, and rowing. Greater governmental intervention to redistribute wealth, income, and opportunity simply creates new opportunity for those who are already rich.  Title IX has created new opportunity for women, but has significantly skewed all sports toward wealthier women and men.  The sports programs that get cut to support a new women’s sports program in lacrosse, squash or equestrian sports are inevitably sports that are more accessible to lower income students, like baseball, track and field, or swimming.

Government “stimulus” programs get burdened by the inevitably costly, onerous and time-consuming audit and compliance programs that accompany them.  Wealthy, resourceful people are far smarter in navigating through these expensive requirements.

Elected officials so completely distrust those to whom they give money for stimulus purposes, and are so concerned about failing to catch fraud, waste, and abuse that they insert requirements that slow up the flow of money and siphon off money that should go toward stimulus.  This was amply documented in Michael Grabell’s comprehensive analysis of what went right and wrong with the stimulus legislation in Money Well Spent?  Many well-intended programs were delayed and costlier because of an excessive preoccupation with government rules and processes.

One example was the weather-stripping program that was going to reduce energy costs for homeowners, reduce environmental pollution, and provide middle-class jobs for people of moderate skills. Despite the program’s obvious merits, it was delayed for several months in communities that did not apply the resources to get the government to define “prevailing wages” for determining compensation.  Wealthier communities were far better able to drive the government to act than their economically challenged counterparts.

Major infrastructure programs end up in wealthier states and localities and major government spending programs often are disproportionately spent in wealthier communities, because these communities can marshal the resources to do what it takes to get the money, especially when the program requires matching funds.

My favorite example of this last point (although it did not arise from any stimulus legislation) was the case of Westhampton Dunes, a community formed in the early 1990’s at the western end of a barrier island in a super-wealthy resort area on Long Island.  A group of very wealthy real estate speculators bought up beachfront homes that had been severely damaged by ocean wave surges during storms in the late 1980’s, at prices ranging from $50,000 to $100,000 per property.  The damage to beaches and homes was caused by a shortsighted county supervisor decision not to fund the construction of protective barriers along several miles of beach (because he thought it only helped wealthy homeowners.)  The speculators petitioned the Army Corps of Engineers and the state of New York for 91% of the funds required for beach replenishment and the construction of protective barriers, and then assessed the wealthy owners of the beachfront properties for the remaining 9%.

After the Army Corps of Engineer project was completed, each property was worth millions of dollars.  The homeowners got very rich from this well-intentioned government program, because they had the capital and the network to assemble the property, the money and the lobbying strength.  The real estate speculators who benefited were far wealthier than those who sold their homes at $50,000 to these speculators.

Many well-intended rating, ranking, and measurement systems have the unintended consequences of increasing inequality.

Given the apparent importance of a college degree from a “good school,” the competition to get into “good schools” is more ferocious than ever.  Schools appear to be more exclusive than ever is that schools actually have the incentive to increase the number of applicants they reject.  The U.S. News & World Reports college ranking and rating system ranks schools higher, based on their “exclusivity.” As a result, many schools encourage applications from many students who, realistically, have no chance to be admitted.

The flood of applications creates additional complexity and risk for those who actually are qualified, but might be rejected, simply because admissions officers have too many applications to review and have to use shortcuts to screen out applicants.  Wealthier people spend a considerable amount of money and time working with college counselors, who help their children “game” the applications process.  The ranking system helps create the conditions that make this “gaming” necessary and more effective.

To bring greater “rationality” into the reimbursement system for physicians, Medicare and Medicaid adopted a system developed by a Harvard Medical School professor called the “Relative Value Resource Based System” in the late 1980’s.  Payments for clinical encounters were determined by a complex points system, which over-rewards complex procedures undertaken by highly-trained specialists, as opposed to simple cures through consultations by primary care physicians.  The end result: American has so lopsided a reimbursement in favor of subspecialists versus primary care physicians that we only see 4% of medical school graduates go into primary care.  This is one reason why our healthcare costs are so high relative to other developed countries.  We excessively reward skill and inadequately reward cost-effective performance.

Final comments

Stiglitz and others are correct that persistent and widening inequality is dangerous and destructive of the American dream.  However, the notion that government intervention is the “cure” for this inequality is misguided.  Government has done a great deal, in the interests of eliminating inequality in the past, to create the conditions that have led to the inequality we face now.  I do not believe that the future would be any different.