Nothing is free

In 1938 an American newspaper published a joke that had been circulating for a while. Remember that the Great Depression was still in force and competing economic theories were hotly debated to determine the best way to get the economy moving again. Remember also that the president of the US at the time was Franklin Roosevelt, whose enemies would see him as autocratic and who would eventually serve as president longer than any other man in the nation’s history.

Anyway, to the joke. A king calls all his economic advisers together and asks them to define economics in a “short and simple” way. The advisors all launch into lengthy explanations which do nothing more than to confuse the king even further. He orders their executions. Finally the last advisor speaks up, and says he can define economics in nine words: “There ain’t no such thing as a free lunch.”

I didn’t say the joke was funny. Economic jokes never are.

The punch line became quite popular, especially when the concept was used as the central theme in the science-fiction book “The Moon Is a Harsh Mistress” by Robert Heinlein. The phrase was finally cemented into mainstream economic theory by Nobel Prize winner Milton Friedman, who used it as the title of a 1975 book. I studied under Professor Friedman in 1975 and can recall his constant use of the phrase in lectures.

At its most basic, “TANSTAAFL” refers to opportunity cost. To get one thing we want, we must give up something else. Economic life at its most basic is a zero-sum game, and all decisions require trading off one thing for another. We can see this effect today with the European debt crisis. All politicians (and most people) know that budgets must be cut. But budget cuts require sacrifices, giving things up, and people are most reluctant to do so (and politicians most reluctant to vote for things they know are unpopular). We see this also in the budget stalemate in America, where taxes must be raised or spending must be cut, and no one can agree. Raising taxes will pay for things and help reduce the budget deficit, but cause economic hardship. Cutting the budget will cause the economy to shrink. TANSTAAFL.

The concept has recently come alive once again with the advent of “free” software or apps. We all love “free” and we all love to download apps for our Ipad or android phone. Software, games, social media … what better way to kill time stuck in a taxi than to whip out your phone and waste 20 minutes?

But is it really free? If you’re not paying for something, then you’re not the customer – you’re the product being sold.

Think about it. The first thing any “free” software does is ask for your personal information. This may be done with or without your knowledge. Facebook recently asked me to install a messenger service “for free”. When I saw the list of permissions I had to grant … access to virtually everything private in my phone, including the ability to read all my SMSs and emails, I was horrified at the potential invasion of privacy. Do you really want unknown people in Menlo Park reading every thing you write?

Google scares me too. I might search for something, and for the next six months every website I go onto, for business or pleasure, will show me ads for that thing.

I was playing a “free” game on my phone the other day when all of a sudden the game stopped and a shampoo ad came on! What made it worse was that it was for a product I used to work for years ago. Every five minutes of game time had that ad reappearing, until I quit in disgust and frustration.

Your personal data is what you have paid to get free stuff. The game or app or software wasn’t ever “free” since you paid with something other than money. Now there is nothing wrong with that, as long as you know about it, accept it, and agree to it. In fact, as a businessman you probably do it all the time. How often have you asked a customer (or potential customer) to give you their email address? Why? Obviously because you want to build up a database of prospects that you can “mine” later.

Customer data is probably the single most valuable thing any business has. Launching a new product? Send an email to previous purchasers. Changing address of your restaurant? Send an email? Taking a new job? Send an email and let your associates know. It’s fast, cheap (free), and easy to do in bulk. One “send” and a million people have your message. Wonder why you get so much spam? Because spammers know that if they send out a million messages someone, somewhere, will respond.

Free lunches are something we must be wary of as individuals, yet use to our advantage as businessmen. Although Ralph Waldo Emerson never said “Build a better mousetrap, and the world will beat a path to your door” (and the advice is wrong in any case), in today’s world the better advice might be “Offer a free mousetrap and the world will beat a path to your door.”

 

Eric Rosenkranz is chairman and founder of e.three, a strategic advisory helping companies in Southeast Asia develop growth-oriented strategies. He can be reached at [email protected].