January 15, 2015    EducationBusiness

Arbitrage Economy—Why We All Have to Be a Business Major

In the old days, if you tried to sell baskets that you weaved, the main criteria by which your potential customers made their purchasing decisions was how useful they were and how nice they looked. Today, the main criteria is how cheaply they can buy the same thing elsewhere. I would call this “arbitrage economy” because it’s about gaining from market discrepancies/inaccuracies (finding something cheaper in one market and selling it for more in another market). Arbitrage was a game that only the social elites who had access to necessary information played in the old days; now everyone plays it. This makes it impossible to have a conventional business locally as you would always be competing on price with everyone around the world.

The types of local businesses that are relatively immune to this effect, like those that cannot compete globally for physical limitations (like restaurants, firefighters, and nurses), would also be affected as more people flock to those jobs.

But to start an unconventional/novel business is extremely difficult and risky, and requires specialized knowledge and access to capital. Everything is specialized these days; business is no longer something you can learn on the side. Even if you don’t have an MBA, you would need to be equivalently competent in “business administration”.

Just think about it. If you studied archeology in college, by the time you graduate, your knowledge of that subject would be far superior to the average people who did not study it. This means the gap between your knowledge of business as compared to those who studied business in school would be about the same. You simply won’t be able to compete with those business majors because today’s economy requires specialized knowledge of business in order to have a viable business. If you don’t, you simply become an arbitrage opportunity for the business majors.

Even though tangible skills and talents are still required for any business to exist, you cannot make money without playing the game of arbitrage. Right now, business-savvy people can still find many arbitrage opportunities precisely because there are still many people around the world who do not know the accurate prices for what they are offering, and that’s partly because they’ve never studied business.