The middleman economy did not come from nowhere-it was not foisted upon us-rather, it was a response to our demands for ever-cheaper goods and ever-greater convenience. Going direct is not a naïve call to cut out middlemen wherever they lie. Instead, they are made abroad and at a scale that justified disaggregating production.” 2. “Goods are rarely made in the United States anymore. So, it’s no longer happening in one factory, but across a number of nodes that can span continents. Instead, they are made abroad and at a scale that justified disaggregating production. Goods are rarely made in the United States anymore. But partly because of their scale, there’s been a transformation in production. They allow incredible choice and convenience. They are the two biggest revenue producers in the country. Amazon and Walmart are numbers one and two on the Fortune 500. As a result, figuring out where the grains in your cereal were grown is nearly impossible. But they are playing an outsized role shaping the overall system. Cargill is the biggest private company in the country, and other food giants, such as Nestlé, play critical roles facilitating the flow of food from farm to table. Most farms in the United States continue to be relatively small, family-controlled enterprises, but the middlemen are not. This has been enabled by commodification-that veneer of standardization akin to what happened with home loans. Most of the corn and soy my cousin in Illinois grows ends up feeding animals in Asia. Today, farmers operate in a globally competitive market. In food, farmers used to grow crops primarily for local consumption. These two trends of large middlemen and longer, more complex supply chains dominated other sectors of the economy as well. We had much larger banks, much more complex supply chains, and some real benefits in terms of access to capital. This facilitated new sources of capital which provided a backbone that led to securitization, where loans were packaged with other loans and put into newly created entities that were funded by investors the world over. They used standardization and data to figure out who deserves loans. Not only did they become bigger, but they had a different way of making loans. Suddenly the four largest banks dominated banking. Then, starting in the 1980s, there was a significant shift as banks began buying up other banks. They did so through what they knew about the people to whom they were loaning money. They tended to be small organizations taking money from local depositors and using it to make loans to small businesses and homeowners in the area. It used to be, in the United States, that we had community banks spanning the country. Our economy has a lot of middlemen, and they play a structural role in shaping the economy. Listen to the audio version-read by Kathryn herself-in the Next Big Idea App. Below, she shares 5 key insights from her new book, Direct: The Rise of the Middleman Economy and the Power of Going to the Source. Kathryn Judge is a law professor at Columbia University, with most of her work regarding banking and finance.
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