… it can also lead to an interesting world view.
Arbitrage is an artful way to make money. When two (or more) items have a historical range of price relationship between them, temporary changes in these relationships provide an opportunity for profit. Often the relationships between the two different products is obscure, very indirect and sometimes quite counterintuitive. Yet many an arbitrageur (or just ‘arb’ as they are often known) has grown slowly and unflamboyantly wealthy, not in the high drama the great bull or bear markets, but just by watching relative price movements in products as diverse and seemingly unrelated as soybean oil and pork belly futures.
The same approach can be taken in other areas of endeavour too.
Globalization has brought many interesting and exciting things in its wake, not to mention hitherto unprecedented prosperity to more people on the planet than ever before. Capital is now almost totally fungible at the push of a button and this has had the effect of creating an interesting market. The sovereign law market.
I wrote about the most glaring example of this yesterday. States like to pass laws that say what their subject populations can and cannot say, write or publish. Yet now, people who wish to publish views that their local laws say are illegal have merely to host them on a server in some other country and viola! The ‘illegal’ views are on display for anyone who wishes to read them and there is not a damn thing the state can do about it. Information too is now fungible: if you can’t publish a dead tree pamphlet, a website will do just fine.
Which brings us again to laws. It use to matter very little in a nation what the laws were in some other country. But in this era of downloadable virtualized products, excellent communications, cosmopolitan entrepreneurship, ubiquitous spoken English and mobile capital, there is increasingly little reason why a business should be set up in a place which chooses to slather on tax and regulatory burdens. We are entering an era of the arbitrage of laws. Are the employment laws better in the Philippines or India? India eh? Ok, lets relocate our call centre from Los Angeles to India. What about corporate taxes? Ok, move the company’s brass plate to the British Virgin Islands. Where are the best programmers? Prague? Ok, lets outsource to a Czech codehaus…they even have the best beer there. Where will our data be safe? USA? Ok, I know a nice server farm in Fresno…yes, they have their own power generators…etc.
Rather than ‘investing’ a business in a single ‘national’ economy, the sovereign law arbitrageur modularizes and virtualizes and invests wherever their particular needs are best met by the state for that aspect of their business. No longer does he have to take a one-size fits all/one nation fits all approach. Analogous to arbitrage, this approach does not yield the big bucks won or lost by hitching one’s fortunes to a single state…yet by simply opting out of unreasonable laws by moving modularized companies to where they are best looked after (i.e. left the hell alone), capital is allowed to work more effectively.
The future is dispersed, virtual, anational and the bits send each other e-mail in English…even when one bit is in Calcutta and the other in Prague and they are talking about a client in New York. Of course an added bonus is driving the theft enforcement arm of several states utterly crazy trying to figure out not just how to tax you but just who the hell ‘you’ actually are!
The future is closer than you might think.
