Daniel Altman
Chief Economist, Big Think
02:17

The Middleman Takes Center Stage, Part I

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Economist and Author Daniel Altman explains why middlemen are thriving in the global economy.

Daniel Altman

Daniel Altman is Big Think's Chief Economist and an adjunct faculty member at New York University's Stern School of Business.  Daniel wrote economic commentary for The Economist, The New York Times, and The International Herald Tribune before founding North Yard Economics, a non-profit consulting firm serving developing countries, in 2008.  In between, he served as an economic advisor in the British government and wrote four books, most recently Outrageous Fortunes: The Twelve Surprising Trends That Will Reshape the Global Economy.

Transcript

Daniel Altman: Globalization today is not just the spread of products and ideas and money and even people around the world. It's also about the arrangements that are made by companies to start operating in new countries to open up new factories and plants and service operations.  When companies do those things they typically need middlemen to help them enter those new markets.  And those middlemen can have a variety of different occupations. You need translators. You need lawyers who can help you to adapt to a new legal system. You need accountants because there are always new accounting systems and regulations too. You need fixers who can help you to find locations for your new operation, help you to deal with local officials. You need a whole variety of people who are middlemen because they operate between the foreign company that is coming in and all of the domestic actors, whether they be governments or companies or citizens groups on the ground. This is truly important for globalization.

Now, where do these middlemen get their return? Well, they usually get paid a fee upfront because the company is entering the new market saying, "Hey there is some value to our being here, and we’re willing to pay a small percentage of that value to the people who help us to open our operation."  And that small percentage is what the middlemen receive. They get that upfront payment.  If you’re a middleman this is fantastic because you can help one company to open an operation in a new country and then you can help another company and another, and each time you’re going to get that little percentage of the total value of that company’s engagement with that new country.

Now, middlemen have lots of opportunities here. They could specialize in a sector. You could work only with companies in oil and gas industries. They could specialize in a country.  You could say, "We’re going to be the law firm for any American company that wants to enter Ghana," for example. There are many ways that they could structure their business, and economists have found that they are able to get this significant upfront payment. 

You could say, well, isn’t this damaging? Doesn’t this take money away from the company and from the people on the ground who might have benefited from the company’s operations there? Well, not really, because there had to be some sort of opening of the gates to allow these companies to come in, and this is what the middlemen provide. In the long term, it's good for the economies on both sides.

Directed / Produced by
Jonathan Fowler & Elizabeth Rodd

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