Since posting the piece on "Debt Farming" I have come across a New York Times article reporting on one person's effort to take on the debt farmers. Steven Katz, an accountant in suburban Tuscon, Arizona, having been burned himself, advises others on how to deal with debt collectors. Like the character Howard Beale in the 1976 movie "Network", Mr. Katz…
The sale of debt obligations to ‘debt farmers’ is a particularly insidious practice of present day business. Portfolios of unpaid and disputed bills from phone, credit card, utility companies or retailers are routinely sold to specialized firms for pennies on the dollar. This may be a very profitable operation for the purchaser if the firm is able to realize even a fraction of the outstanding debt.
If, for example, ABC Farmers, Inc. pays as much as twenty cents on the dollar, the firm will make a gross profit of 20% by collecting on two out five of the outstanding bills. The more ABC collects, the greater its profit. Expenses are quite modest since all that is needed for this debt collection business is a computer for producing and emailing statements, a phone for calling ‘customers’ and a bank account for accepting payments. Also helpful is the tenacity of a pitbull in the collecting process.
This type of ‘farming’ is reminiscent of tax farming in the Roman Empire. An ancient tax farmer made an advance payment to the state in exchange for the privilege of collecting taxes within a given territory. The more the taxes collected, the more the profit. Once the ‘contract’ was let, the state effectively washed its hands of the matter. Much the same conditions hold for debt collection today.
These reflections on virtual organization are about the meaning and social significance of computers as mediators and brokers. Computers mediate between individuals by providing channels of communication in the form of messaging systems; they act as brokers in matching buyers and sellers, employees and employers, resources and work processes, etc. The explosive growth of electronic commerce on the Internet has made such functions commonplace. Computer-based mediation and brokerage lie at the heart of virtual organization, a powerful and flexible mode of organization founded on a separation of requirements from the ways in which requirements are met. Separating these elements allows managers to switch easily from one way of meeting a requirement (e.g., for an employee, a supplier, partner, etc.) to another. Used systematically, switching brings huge increases in productivity provided transaction costs are held in check. The price of this increased efficiency is that, practiced regularly, switching weakens personal and political loyalties. Absent a sense of loyalty to persons or places, virtual organizations distance themselves from the regions and countries in which they operate. Virtual organization is undermining the nation state. Government as we know it today cannot control virtual organizations and will have to cede its responsibilities and powers to them. A new feudal system is in the making.