Monetizability

Monetizability is an ugly word, but you cannot understand many features of the economy without it.
It is, quite simply, the ability to turn a good or service into cash flow. And this, in turn depends upon the power to exclude - the power to deny customers a valuable product if they don’t pay, or the power to exclude potential rivals from one’s market.
Take, for example, the question of whether the Guardian should have a paywall, whether it can monetize its online content. This depends upon its power to exclude. If it has a sufficient monopoly over the supply of upper-class sanctimoniousness, then a paywall  makes sense, as it can force people to pay for this sanctimoniousness. But if there’s an alternative, free, supply of it - say, from blogs such as this - then a paywall won’t bring in much revenue as people will merely substitute towards that free supply.
Or take the question of whether ITV can monetize its ITV player. This too depends upon its power to exclude. If we can only see special webisodes of Corrie by paying, then the strategy might work. But if ITV tries to make us pay to see programmes it has already broadcast, it won’t; we’ll simply remember to use Sky+, or ITV2 or ITV+1 instead. ITV’s power to exclude is then weak, and so is its monetizability.
Shell, Centrica and Apple might not seem to have much in common. But they do. All have announced high profits recently. And the common factor is that their profitability is founded upon a power to exclude rivals - by high capital costs in the case of Shell and Centrica, and by a powerful brand in Apple’s case. The crisis of newspapers and the music industry, by contrast, originates from the fact that technical change has reduced their power to exclude and hence their monetizability.
And I suspect that a big factor behind the investment dearth is that firms appreciate that innovation is not monetizable. This might be because they’ve wised up to an old fact. Or it might be that changes in capital requirements, technology, globalization or social norms (“what, you expect me to, like, pay for stuff, dude?“) have reduced monetizability.
So far, so conventional.
But there’s more. Monetizability applies also to workers.
Put it this way. Imagine you could get 600 people to pay you just 20p per day - less than 3p per hour. Doesn’t seem a big ask, does it? But if you could do this, you’d earn more than the median wage.
So why do most people earn less? It could be that their marginal product is very low. But it could also be that they lack the power to monetize their services - that, as Marx said, workers bring nothing to the market but their own hide and expect nothing but a hiding.  As Stephen Margin famously pointed out, the origin of the factory system lay not so much in its technical superiority, but in the fact that it transferred power from workers to capitalists.
And this inequality of power, of monetizability, has increased in recent years, through (at least) three forces:
1. Globalization means capitalists are more able to exclude workers from a share of revenues: they have used competition from cheap Asian labour to drive wages down.
2. Technical change has reduced workers’ power to either withhold their services by shirking or to monetize them by little fiddles.
3. Bosses have increased their monetizability by an ideological con-trick. They’ve managed to persuade us that management is a rare and indispensable talent that can only be motivated by massive salaries.
4. Some strategically powerful people - traders at banks or  bosses in ordinary firms - have the power to ruin a firm, for example by selling off assets cheaply or by undertaking destructive ventures. This power to destroy a firm confers upon them the power to, in effect, demand huge salaries. It’s a form of protection racket.
My point here is simple. Crises in particular industries, the lack of investment and the growing power of capitalists over workers have a common origin - in changes in monetizability.

Comments

[Leigh Caldwell]

Breaking news: economist discovers many things are governed by supply and demand

[Paolo Siciliani]

I have been reading your blog for a while, because I kind of share your view of the world, but you seem to repeat yourself periodically. Yes there is a problem of market power in the labour market, with seniority commanding unfair premiums at the expense of lower ranks, regardless of professional skill sets (Krugman argued back in 94 that wage inequality has a fractal pattern in that it repeats itself even within the same profession).
Great diagnosis, dude, let's now work out how to address this market failure, shall we?

[Andrew]

Well I thought it was a very interesting post.

Could the concept of monetizability not be subsumed into "market value". Value at a given price is increased if the supplier can exclude alternative offerings, or if there is a natural dearth of such offerings.

[Andrew]

I'm new to this Marxist thing, but find your theme of power relations (and the neglect of their consideration by conventional economics) very attractive; they have been my intuitive criticism of the simplistic libertarianism so rife on the web.

However, could not power relations also be implicit in market value? Can't we simply regard power as an economic asset (and economic assets as power)? This would then reduce your critique of mainstream economics to an insufficient accounting of intangible (social) assets.

[Andrew]

To follow this line of thought, you could then reduce an increase in the power of capital relative to workers to an increase in value of capital relative to wages.

And isn't that just what's happened? Doesn't it just boil down to an increase in the supply of labour due to globalisation?

And can't it be argued that this is merely the breaking up of a Western labour cartel by allowing access to the labour market of non-Western workers?

[Tom Addison]

The first part of your article seems to be inline with what I've just read in The Undercover Economist, scarcity and unique selling points and all that. I'd say that The Guardian's USP is Jonathan Wilson, just as at The Times it is Gab Marcotti.

Regarding globalisation though, hasn't the increased competition that this has brought about meant that workers have gained via the price reductions on products that they buy? I know this doesn't apply to all products, but we must have gained a bit from this.

I'm with you on point 3 though, Dan Ariely explains it well in his book, although it seems that it doesn't apply to footballers (there seems to be a positive relationship between ability and pay, as Rooney proved in the second half of the season), although I guess that this is because their contribution is there for all to see and measure.

[Leigh Caldwell]

(to Andrew) I suppose the missing link in that approach is to understand from where the change comes. If you simply say that the value of capital has changed, it implies it's exogenous and random. But in fact you can develop a model in which the power relation is endogenous. I am not sure if Chris has an explicit model for this but in principle it could be developed.

And despite my rather-too-snarky comment earlier, I do believe there is a bit more to the power relationship than just supply and demand. The ability to shape preferences (through control of media or other routes) is one source of power which transcends normal supply and demand models; others are available.

[Paolo Siciliani]

Guys, cartels are good sometimes, in particular, when they are needed to rebalance bargaining power.
The best solution to this debacle where states are competing to the bottom to reduce corporate taxes under the threat that capital is fickle and can relocate would be to set up a nice international cartel between states where the "international community" uniformly increase corporation taxes and squeeze out all the record profits at the expense of salary (ever heard about the prisoners' dilemma?) .... I would propose a UN resolution to compel every member state to line up and stop competiting on bribing corporations with juicy low corporate taxe rates.
Unions were cartels basically, they were immune from antitrust law, now this is all a thing of the past I know, but there must be an institutional solution that compensate for this loss of bargaining power. In this respect, supply and demand is more complex than macro economists like to think. There are info asymmetries and many other micro sources of market failures. Chris is great at this, in that he knows all about biases and all the rest.
But please let's stop with this rant about the marxist "value" of whatever.... it's quite simple, power must be met with .... let's see, power? No moral/ethical/cultural change or whatever,but power, precisely, MARKET power.

[chris]

@ Leigh - thanks. My point was precisely that things such as power and ideology lie behind supply and demand; power is both cause and effect of S&D.
@ Paolo - some possible solutions might include: a maximum wage, eg for any business receiving government money; promotion of coops (eg by being preferred bidders for govt work); policies (eg tax breaks) to encourage cintracts in which bosses are fined for poor performance); or outright nationalization with compulsory wage cuts.

[Paolo Siciliani]

Policy, enforce transparency on salaries paid at all the levels of the corporate structure (with obvious caveats to protect privacy). This would solve the info asymmetry that affects employees in their salary negotiations vis-a-vis the employer, with the problem that the less expercenced one is and the clueless you are regarding the surplus of the employee/employer match value; it will also allow the development of trading marks (similar to the Fair Trade mark) that could provide a credible signal to consumers who could then buy from those firms who adopt the fairer employment terms (against corporate profits) across their corporate structure. I can see plenty of application developers salivating on the idea of what could be done with those raw data..... and then let's play the market game on a level playing field ....

[gastro george]

Paolo. IIRC, tax returns are publicly viewable in Sweden and maybe other parts of Scandinavia. That would be an interesting step for the UK. I can just see the first few weeks when the papers reveal just how much tax is (not) being paid.

[Jim]

@gastro george: I'd be all in favour of making tax returns public if the converse was also publicly available - ie all government spending (including who gets what benefits) was open for viewing as well. Sauce for the goose etc. If you can see how much income I have and tax I pay, I want to be able to see how much you are taking out of the system too.

[Andrew]

@Chris and Leigh - I don't find it very elegant to think about power as a cause of supply and demand, but perhaps you could explain it to me.

My objection stems from what I take to be the sense of "power" here - the ability (for a given personal cost) to intentionally change value as perceived by other market participants. This would encompass the ability to control supply and demand, the ability to control life and movement, the ability to wreck a company, and so on.

This implies that power has value (which it obviously does given your discussion of monetizing it). If power has value, then why not just regard power and value as synonymous.

From the opposite perspective, the possession of market value is always dependent on power and always confers power. Isn't the possession of a million dollars merely the practical and legal power to control those funds? In which case why say economics ignores power when it deals almost exclusively with it? Surely the criticism is merely that it take insufficient account of some power relations/intangible values?

I don't see how you can separate the two concepts to the degree you seem to wish.

[Andrew]

To link up with my earlier comments, to say that the value of capital has gone up relative to labour is to say the same thing as the power of capital has increased relative to labour.

If capital has the power to extract more labour per unit cost then by definition it has become more valuable relative to labour, surely? What element of capital power is not taken account of in a proper consideration of value?

[gastro george]

@Jim. Couldn't agree more.

[Big Fez]

@Jim/gastro ("I'd be all in favour of making tax returns public if the converse was also publicly available - ie all government spending (including who gets what benefits) was open for viewing as well. ")

In case you are not simply being mischievous -

The poster was clear that people's anonymity should be protected, and all the information on benefits (up to this necessary limit) is already publicly available. See the item 'Benefit and Pension Rates' here:
http://www.dwp.gov.uk/publications/catalogue-of-information/a-to-z-of-all-dwp-information/#b

There are parts of government whose spending is a little opaque, certainly, but the data (if not the information) is yours for the asking these days: http://data.gov.uk/dataset/coins
Have fun!

[Jim]

@BigFez: gastro george was suggesting that tax returns be publicly available (as in Sweden, with no anonymity, as what would be the use of that?).

Paolo Siciliani was suggesting corporate pay rates/structures be made public (subject to anonymity).

Two totally different ideas.

[David Friedman]

"And the common factor is that their profitability is founded upon a power to exclude rivals"

Perhaps I'm misreading you, but it sounds as though you are confusing two rather different things. One is the ability to exclude competitors, whether by economic or political barriers to entry, and thus maintain a profit rate above the market return on capital. The other is the ability to exclude consumers, and thus not let them consume what you produce unless they pay you for it.

Isn't it the latter that is the main problem for the media at this point--the fact that information is something close to a public good given very good technology for sharing it?