Call for Entrepreneurs

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Perhaps you've
read one or more of the groundbreaking works on the market provision
of security:

The
Market for Liberty
by Linda and Morris Tannehill

Power
and Market
by Murray Rothbard

The
Enterprise of Law: Justice without the State
by Bruce Benson

The
Private Production of Defense
by Hans-Hermann Hoppe

(there are
many more)

And you're
thinking, "Hey, when is some security company going to call
me so I can sign up with their service, and let me put my money
where my mouth is?"

I know I've
been waiting for that call — but it hasn't come. Why not?

There are three
types of companies that we might expect to expand into this line
of work: insurance companies, home monitoring companies, and patrol/guard
companies.

Insurance
companies
are often mentioned by anarchist authors. The current
state of homeowner lines was summarized in the ad copy of a panel
held at the 2002 Casualty Actuary Society meeting:

Homeowners
insurance has become the second largest line of business in the
property/casualty product portfolio. Nevertheless, profitability
in this line has long been elusive, with the industry operating
ratio being less than 100 percent only four times in the past
20 years. Adding to the dismal picture, recent results have been
battered once again by the growth of claims related to mold and
catastrophes. The possibility of catastrophic losses due to terrorist
activities has generated an additional level of concern.

Where in this
discussion is burglary and vandalism? It turns out that there are
much bigger fish to fry. Burglary and vandalism only account for
a small portion of the exposure of homeowner's policies — the big
pieces are fire and storm – ever since the innovation of the homeowner's
policy in the 1950's. This is not to say that rising crime rates
in the 1960's and 1970's did not affect insurance companies' bottom
lines — they did. But, the response was better modeling and increased
premiums. Further, with the move away from direct verification of
burglary to high deductibles to combat fraud, homeowners were no
longer covered by most of the chrematistic losses that crime engenders.
If your house was burglarized today, and losses amounted to $1500,
you may not have even met your deductible!

Insurance companies
are not likely to return to direct verification of burglaries to
control fraud. The current arrangement is more profitable, and has
much to do with economy of scale. As such, they will likely never
innovate in the direction of offering the anarchist vision of zero-deductible
policies.

Home monitoring
companies
such as ADT might be good candidates. But, the more
one looks, the more one finds out why such an expansion is not in
the cards. The residential market segment of home monitoring companies
comprises only 15% of their business, and the major drivers in the
rest of the business are technology as a replacement for labor in
the security of governmental and corporate clients. Indeed, the
rsums of the board of directors of Tyco (parent company of ADT)
as presented in its 2005 Annual Report show that they have careers
from companies such as Motorola, Verizon, Rohm and Haas, du Pont,
and MicroWarehouse. The organization is dedicated to technological
solutions, so I suggest that employing patrol labor is the farthest
thing from their minds, and not part of either their core competency
or their business strategy.

With regard
to Guard/Patrol companies
, this is a more problematic question.
In personal communications with guard companies large and small,
I have never found one that does not operate on a cost-plus basis.
When these companies' representatives were asked about the patrol-and-restitution
model, they explained that such a direction did not appeal to them,
since it was not congruent with their business model. Also, with
their typically low profit margins — due to intense competition
— undertaking a subscription-based model and its inherent uncertainty
is too risky. Furthermore, guard/patrol companies are started up
and staffed primarily by former government patrol officers. As such,
it is postulated that their experience establishes a mindset that
government patrol is fundamental and private patrol is merely supplemental.
When these companies' representatives were told about the anarchist
business model, they were curious and had never even considered
such a thing.

The experience
of
Fred
Smith
teaches a lesson about business and entrepreneurship.
His combination of three distinct ideas — hub-and-spoke distribution,
overnight delivery, and delivery by air — into one business plan
was a sensational success. Companies such as UPS and Airborne Express
could have innovated the way that he did, but they didn't. Only
after FedEx
was successful did UPS and Airborne Express copy it. Even Delta
Airlines, a leader in the hub-and-spoke method of transporting passengers,
did not innovate the way that Fred Smith did.

The lesson
is this: a step-out business model will only be tried by a new firm.
Established firms will modify their operations a bit, but not radically
change their business model.

We can bypass
for the moment what events like this teach us about the efficient
markets hypothesis, market failure, and entrepreneurship. OK, just
one question: Was there market failure with regard to overnight
package delivery the day before FedEx began operations?

The Fred
Smith's of Anarchism?

I have defended
the notion that subscription-based patrol and restitution services
are not going to magically appear, especially from the likes of
AIG, ADT, or Guardsmark. What we need are the Fred Smith's of subscription-based
patrol and restitution services.

Napoleon
Hill
might say that what is needed is a Master Mind: a coming
together of energetic minds for a common purpose. Rob
Adams
would say that what is needed most is an execution team.
Pretty much the same thing: a complementary, competent team is needed.

Such a company
needs knowledgeable and experienced innovators in the fields of:

  • Patrol
  • Investigation
  • Adjusting
  • Insurance
  • Law
  • Management
  • Marketing

Where are these
people?

May
26, 2006

Gil
Guillory [send him mail]
recently
presented a paper On
the viability of subscription-based patrol and restitution services

at APEE. He lives near Houston in
The Woodlands, Texas.

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