Thursday, November 17, 2011

Customer vs member relationships

Libertarian and anarcho-capitalist philosophies generally espouse the voluntaryism principle that society would be better off if its members formed bilateral contracts among each other as an alternative to socialized decisions or policy. The simplest bilateral contract forms a customer-supplier relationship. The clear advantage of independent customer relationships is the right of the customer to divorce his supplier and seek another alternative.

The evils of a customer relationship, however, are that customer information knowledge is not perfect, and the supplier sales function involves educating/brainwashing its clients that their offering is to the customer's benefit, and the supplier is interested in seeing all other alternatives destroyed.

Our current Citizen-Government relationship very much represents these worst evils of customer relationships. Even if our democracies allow us a small role (1/300M) in participating in the selection of our supreme ruler, and grant us some rights of due process and speech, we are still in a position of being brainwashed/educated that invading Iraq, drug prohibition, and family law are good for us. Our rulers furthermore entitle themselves to a monopoly of rule, and alternatives are effectively prohibited.

In the battle of ideas, it is understandably difficult for people to forecast the preferred social organization because (with the libertarian path) the theoretical possibility of choosing service providers and leaving them for "better" service providers, involves giving up the protections of due process, and the enforcement against the most egregious forms of extortion and anti-competitive violence. It would be a necessarily worst outcome if a completely free market, results in the freedom to corrupt markets, and monopolies that are less accountable and "fair" than our current governments' ensure.

Shareholder-Corporate relationships are also usually customer-like relationships. Shareholders of public companies do have the power to leave easily (by selling their shares at minimal transaction costs). But because public corporations tend to have a large management-loyal shareholder group/majority, management can educate/brainwash its shareholders that it, and its actions, are good for them. Because those who are both not loyal to management and unhappy with direction will self-select themselves to leave, rather than influence management, in public companies, shareholders can be classified as either management loyal or management apathetic. A minority shareholder is just as powerless as affecting the corporation, as a citizen is powerless in affecting his government. Only monumental organization effort can hope to effect change, and even then, failure is more likely than not. The primary abuse of shareholders is to pay them insufficient dividends, and instead keep the surpluses to spend at management's discretion, usually, until the business is eventually bankrupted. One example of management's abuse of shareholders is Intel's purchase of McAffee for an overinflated amount. While shareholders had the freedom to leave upon hearing the news, their option to do so came at a cost of $4B in lowered stock price.

A membership relationship is one where members have both influence over the organization and deserve and obtain their share of operational surpluses. Ultimate membership relationships involve equality in ownership amongst members, and a decentralized organizational structure where no single administrator oversees all organizational decisions, and member initiatives are approved and led independently. The principles of ultimate memberships are the basis of natural governance, natural-finance-communal-equity, and open partnerships. The simplest rule of thumb to determine whether a relationship is customer-like or member-like is whether the administrators have the power to set their own salary, then explain how that is good for you.

The primary benefit of a membership structure is that it solves the monopoly problem. If customers have influence over the pricing and service level of their membership services then if they are overcharged, they at least benefit from the organization's profits through dividend payments of the surplus. So the harm of monopoly on its customers is neutralized. If alternate suppliers would be to the benefit of customer members, then customer members would not authorize the destruction of competition. If the membership organization is decentralized then would-be-competitors can join instead, and propose a member initiative for an alternative/supplementary service.

Car sharing services are a recent innovation leveraging the appeal of sharing culture, and modern communications infrastructure. There are 2 distinct business models: One where a fleet of company owned vehicles is made available for sharing, and the other where individual suppliers offer their car for sharing when they do not need to use it. Both models offer attractive new customer propositions compared to both traditional car ownership and car rental models. Even if they are forced by market alternatives to offer attractive customer proposals, car sharing services, even if highly democratizing the customer experience could benefit from real membership models. For instance, the real value of the organization in the business model where consumers (renters) and producers (car sharers) are matched is the marketing and matching software and processes. A membership driven organization can use its members for financing. That is consumers and producers can buy a share of the organization and/or lend funds to the organization. Spreading risk among members allows the organization to charge its members less, and still be sustainable (or charge more and pay surpluses back to members), and so can outcompete alternative capital structures and business models. Therefore, not only can membership organizations prevent the harm of monopoly on its customers, it can also provide the most efficient organizational structure possible.

An explanation for the basics of communal equity and membership organizations (at link).  A question I cannot yet answer is whether it is possible to have partial (rather than ultimate) membership features.  Membership at its core means influence and financial participation.  While a corporate or governmental PR department would appreciate creating an illusion of influence (white house petitions) or illusions of financial participation (theoretical possibility of corporate dividends), its unclear how limited influence in decisions or dividend policy can properly constitute influence rather than powerlessness.

Under libertarian philosophies, it is unclear how extortionist mafias don't become an overwhelmingly powerful protection force.  If you can't stop them, it is at least better for you to be a mafia member than an extorted mafia customer.