The New York Times tweeted this yesterday:
U.S. Strategy to Fight Terrorism Increasingly Uses Proxies http://t.co/2RB35w5XdL
— The New York Times (@nytimes) May 30, 2014
Well, why not the fight against terrorism? Everything else specialises, and farms out what it is inefficient to do itself. It's the story of our age: everything uses third parties, agencies, proxies, aggregators.
I work in stockbroking operations. Since 2008 the stock market has been DEAD. For the last 3 years everyone has expected the coming year to pick up. Now we're saying 2015. Surely 2015? It has to pick up sometime!
In the meantime, as conventional brokerage has been DEAD, companies have been scrambling. The growth area (well, "growth" is a bit much - let's say "segment everyone is scrambling to") is to form small - tiny - advisory firms and build up a list of clients, and pay bigger brokers to do your trade execution. These days not only is the cost of running a brokerage firm prohibitive, but the compliance onus is very high. Only medium-to-large firms can do it now. Everyone else has given it up and is operating these tiny, ever-morphing advisory groups. Many of those groups do work for other advisory groups, so for example, Broker A has client Firm B which has direct clients but also has a client Firm C which has its own clients, one of which is Firm D..... So you end up with very diffuse, multi-layered business and client structures.
Another growth area is portfolio "wrap" services and reporting services. These are aggregators, who take in data feeds from brokers and custodians and create custom reporting, data mining or portfolio management for clients. They might do this under their own banner, or offer "white labelling" so that reports are branded for another firm who passes them on to its clients.
Among brokers, even larger players are using each other to perform some functions, or execute for some sectors of their business. No one is trying to do everything anymore.
Everywhere the same thing is happening. Insurance: a million different small firms, underwitten by the old large ones that used to do it all. And various aggregator businesses specialising in filtering options and helping you choose. Utilities: as governments have privatised services like electricity, we now have multiple providers, but it goes further: the electricity provider uses a billing service to manage its billing, and on-sells debts to a debt collection agency. I would not be surprised to learn that beyond each of these there are a further two or three "layers" or agents, responsible for different portions of the work.
Governments privatise services when they become too costly to run, which is essentially all of them in these days of low-taxing low-spending governments. Companies take them over and quickly work out they are not profitable, so the companies become more efficient and specialised and farm out or sell off the bits they can't afford to do to someone else.
Is it good? Is it bad? These questions were asked more often in the previous decade. We're all used to it now (more or less), and on balance I think it's good. It makes commerce vibrant and varied, it keeps things nimble and fosters growth and change. And it spreads risk and limits damage: if one part goes wrong it doesn't affect the whole; another small part springs up to take its place. What I can't figure out is if, holistically speaking, measuring the whole system, it is more efficient or not. I'm sure that it is, but it's hard to quantify. But regardless, whether it is or not, it is now such a fact of business and life that it's just the way it is. We could no more unwind it than we could un-layer an onion.