Direct: The Rise of the Middleman Economy and the Power of Going to the Source -Kathryn Judge
From last thirty years, middlemen have built a dense, intricate and widespread network/frameworks in financial and retail empires capable of moving goods across and around the country. This rise of middlemen transformed the economy and our lives to a great extent. While on one side, we do enjoy the benefits of it — instantaneous transactions, plethora of choices and convenience, but this all is coming up at a steep price.
In this book, Kathryn talks about how the overgrown middlemen became the backbone of modern capitalism and the cause of many of its ailments as well. Middlemen are shaping how people think, analyze, how they invest and what they consume. With the use of big data along with advanced AI algorithms, these big retail behemoths lure customers by enhancing the recommendations provided to the consumers. They use their massive profits and expertise to lobby lawmakers, tilting the playing field in their favor. Drawing on a decade of research, Judge shows how to fight back: Go to the source.
The process of direct exchange — and the resulting ecosystem of makers and consumers, investors and entrepreneurs — fosters connection and community and helps promote a more just, resilient, and accountable economic system. Direct exchange reminds us that our actions always and inevitably impact others, as it rekindles an appreciation of our inherent interconnectedness. As Judge reveals in this much-needed book, direct exchange is both the cornerstone of the solution and a tool for revealing just how much is at stake in decisions about “through whom” to buy, invest and give.
Have you ever been to a remote place, away from the city and explored going to restaurant? You would have been a little skeptical of food quality being served in such remote place, but when you eat the food there, surprisingly there is not find much difference. This is the power of middlemen. Imagine, you ordered a chicken sandwich in the restaurant. Now, for a minute think about how and where this food was served to you on your plate, in the first place. The chicken could be one of the multiple poultry chickens raised by farmer. Tons of those poultry chicken travelling to a place where they get slaughtered, then goes to one of the middlemen layer for correct processing/preserving & packaging of it so that it can stay for long. Then, there are middlemen like Kroger and many more who take up the role of distribution to stores in various states and cities. These middlemen then interact with local middlemen who can help in distributing the meat to all the local shops in the area till it ends up coming to that restaurant where you are eating that chicken sandwich. Consider the amount of time needed to travel, contamination added in each layer due to delays, processing etc. Similar travel story would apply to the bread of the sandwich too which would include different set of middlemen. This is how middlemen mesh exists and is deepening wide as there is enormous mass production of food/things scaled up to satisfy consumer needs.
Everyone has heard these companies — PepsiCo, Nestle, Coca-cola and have enjoyed their products from past several years. These companies not only have their own independent branded products in the market, but they also play a role of powerful middlemen in most of the cases. For instance, if you heard of Blue Bottle Coffee, its not an independent company by itself. But its controlled by Nestle. So you would have thought, Blue Bottle Coffee to be an independent product, but you are actually consuming a Nestle product. Similarly other items like Kitkat, Haagen Daz etc. are Nestle controlled. PepsiCo makes and controls several different food items/drinks out there in the market. The food middlemen actively promote a diversity appearance that obscure just how much control lies in these giant middlemen. There is no authenticity or transparency maintained on their websites mentioning the control of these hidden middlemen. This results in spreading of the evil disastrous pandemic of middlemen even farther. These companies attract customers with low prices and high convenience (Amazon/Walmart) but often has dire consequences when there is a huge compromise on the quality of the product. Kathryn says, “The process of allowing these large middlemen to play such a dominant role feed into these long supply chains that were severely disrupted by the COVID-19 pandemic and are exposed to geopolitical risk”.
Katheryn also states a shocking example where a girl in the city felt sick due to stomach bug. After this was reverse engineered back into the pernicious layers of middlemen, it was revealed that there was some issue or lack of proper following of process which led to her sickness. After reading this, it was all quite evident why we see an increase in the rise of diabetes, cancer growing all over the globe.
Kathryn confesses her own love and addiction to chocolates and who doesnt love them! But when she finds and reveals in this book that the candy that we consume may have been made with cocoa harvested by children and forced laborers in Ghana, its sends chills in our spines. And she says that “fair-trade” cocoa “certified” by third-party middlemen, such as the Rainforest Alliance, is often merely virtue signaling for companies and gives the false impression that they care about the well-being of their essential workers.
In the next chapter, Kathryn talks about how best it would be to avoid these middlemen and depend directly on the original sources. One of the best ways she has found personally for direct exchange is as a member of the Genesis Farm CSA near her weekend home in Blairstown, New Jersey. Members of a CSA (community supported agriculture) pay a farmer up front for a season or two of fruits and vegetables without knowing exactly what or how much they will get each week, which often depends on the vagaries of the weather. There are several benefits with community farming though. One gets to eat fresh farm produces every time. Being a community activity, there is a good bond formation within the people in the community. It is every person’s responsibility to contribute to it, so they can help out each other by taking turns doing the farming chores or any other duties. In such communities with great bonding, children grow up together well and such community level values are inculcated into them from early, which are super vital for them in future. There are community celebrations, festivities which they can enjoy being part of the group. Such communities form a whole new world by itself. But apart from the positives, there are some dark sides to this. For instance, due to inclement weather change or so, the sowed crops gets destroyed, then the loss has to be shared by all of the people maintiaining those farms in community. Share the love, joy, happiness as well as loss and sorrow helps streghthen these communitiy people to maintain and grow rich agriculture. Now imagine, if one gets to buy these products from the farm directly. Katryn says she enjoys paying to Genesis farm as she knows the money is going to support them. But Judge on the realistis side thinks CSAs are not a panacea and continues to shop through all sorts of middlemen. The concept of CSAs is a way for her to illustrate the range of ways we consume and how we are way too far from the source of so many things in our life.
Judge talks about National Association of Realtors and Multiple Listing Services (MLS) on which America depends on house buying and selling. “It’s an important example of how powers arise from being an intermediary and how we depend on them,” she says. While the real estate agents, which are the middlemen, build expertise and relationships that enable people to connect in ways they otherwise could not, she says that also gives them outsize power.
In the American residential real estate market, sellers usually pay a broker’s commission of 5% to 6% , which is quite high as compared to other countries, constitutes a big chunk of money. Because full-service brokers earn a fee based on the value of a house, they making tremendous amount of money as housing values skyrocket, but they’re not doing any more work. Judge believes the system can be tweaked so its benefits flow to the consumer with lower prices, but often these middlemen earn their profits in such pockets with skyrocketing house prices clubbed with little or no change in their effort.
Kathryn finally arrived at Columbia Law School in 2009 after three years as a corporate associate at Latham & Watkins in San Francisco. She spent two years as an academic fellow developing a body of scholarship at the Law School’s Center for Law and Economic Studies and then joined the full-time faculty in 2011.
“I wanted to make the shift to academia because the 2008 crisis suddenly raised these really important and difficult questions, and no one had good answers. My entire focus on financial regulation was motivated by an appreciation of the ways that the crisis not only cratered the economy but disproportionately hurt the people who are most vulnerable,” she says. “It’s exciting to be an academic and be part of the overall effort by policymakers, by academics, by think tanks to understand how we got to this really bad place and to seek solutions.”
Judge ends her book with a host of policy suggestions and strategies for consumers to curtail the power of middlemen. But her suggestion is to buy from direct atleast sometime.
She is a fan of businesses like Etsy that support small makers and direct-to-consumer brands like Warby Parker (eyeglasses) and Allbirds (shoes), although none of these companies is perfect. She admires the online retailer Hanahana Beauty, a Chicago-based Black-owned business specializing in shea-based butters made by a women’s collective in Ghana. Hanahana embodies how direct exchange can transcend geographic and linguistic bounds to create new connections and move goods and money to where each is most needed without layers of middlemen. It also shows how disruptive and powerful a force that can be.
There is huge potential in direct exchange as it promotes by enabling connection, promoting community, counteracting the loneliness that remains so pervasive, and reworking hierarchies. At the end, Judge concludes saying “Direct exchange is not the right option all of the time, but it is a key ingredient to a balanced life and a healthier economy.”
