An argument with a group of socialist-minded friends gave me a great idea for a new thought experiment. Once a month (or so) I'll post a short entry with the topic of "Business Concepts for a Free Society." In a few paragraphs, these entries will describe business ventures that could serve as replacements for "necessary" socialist programs present in our own American society. The ventures will be better equipped to deal with duties we currently delegate to the government, all through the magic of my (and most people's) desire to make money. Here goes my first attempt, a particularly applicable concept in light of my work with Fresh Fork Market, Ltd.
CONCEPT: Food Safety Rating Service -- A replacement for the sluggish, bloated, and easily influenced Food and Drug Administration.
EXECUTIVE SUMMARY:
FSRS is a leading U.S. food safety and nutrition certifier, recognized in fifty states and an increasing number of international markets. While FSRS has a small but developing market share of the baked goods segment, the Company certifies over 70% of processed meat, fruit, vegetable, and both non-alchololic and alchoholic beverage products. A diverse team of expert nutritionists, biologists, and chemists utilize their combined 700 years of health-related lab experience to maintain maximum credibility and analysis efficiency. Above-market salaries and a comprehensive benefits program make possible the Company's industry-leading 3% annual employee turnover rate.
Consumers can find FSRS-certified products on the shelves of every major food retailer in the U.S. The Company maintains and grows its market share through a three-pronged strategy: 1.) highly visible and consistent branding and advertising campaigns, 2.) concise on-label health fact descriptions, and 3.) an active approach to attacking questionable health claims of competing food certifiers. Attacking competitor claims in the baked goods market segment opened the segment up to FSRS in 2008; the Company went from 2% to 10% baked goods market share over a six month period, mostly attributable to the completion of a five-year study of the negative effects of bleached flour on the kidney, a connection long ignored by baked goods segment leader US FoodCert. Consumers have favored FSRS label certificates in the meat segment since the Company launched its Growth Hormone Indicator program in 2004, a simple "none, medium, high" rating system with transparent ratings criteria listed on their public website.
Growing, processing, manufacturing, and distribution customers all pay FSRS for certification on a percent of sales basis, with its high consumer acceptance rate allowing it to justify a 10% premium over the industry average pricing scheme. The Company ensures that customers do not selectively leave certificate labels off of poor products by entering into standard one-year agreements which mandate labels for all product segments during that period. Competitor HealthyTouch has been making inroads into FSRS's core markets by offering customers a less cumbersome three-month labeling agreement, but the resulting labeling inconsistency has been met with mixed approval from consumers since the program's launch in Q1 2007.
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I hope you enjoyed reading this. I would be glad to hear arguments against my concept, as it'll help me build my strategy skills.
CONCEPT: Food Safety Rating Service -- A replacement for the sluggish, bloated, and easily influenced Food and Drug Administration.
EXECUTIVE SUMMARY:
FSRS is a leading U.S. food safety and nutrition certifier, recognized in fifty states and an increasing number of international markets. While FSRS has a small but developing market share of the baked goods segment, the Company certifies over 70% of processed meat, fruit, vegetable, and both non-alchololic and alchoholic beverage products. A diverse team of expert nutritionists, biologists, and chemists utilize their combined 700 years of health-related lab experience to maintain maximum credibility and analysis efficiency. Above-market salaries and a comprehensive benefits program make possible the Company's industry-leading 3% annual employee turnover rate.
Consumers can find FSRS-certified products on the shelves of every major food retailer in the U.S. The Company maintains and grows its market share through a three-pronged strategy: 1.) highly visible and consistent branding and advertising campaigns, 2.) concise on-label health fact descriptions, and 3.) an active approach to attacking questionable health claims of competing food certifiers. Attacking competitor claims in the baked goods market segment opened the segment up to FSRS in 2008; the Company went from 2% to 10% baked goods market share over a six month period, mostly attributable to the completion of a five-year study of the negative effects of bleached flour on the kidney, a connection long ignored by baked goods segment leader US FoodCert. Consumers have favored FSRS label certificates in the meat segment since the Company launched its Growth Hormone Indicator program in 2004, a simple "none, medium, high" rating system with transparent ratings criteria listed on their public website.
Growing, processing, manufacturing, and distribution customers all pay FSRS for certification on a percent of sales basis, with its high consumer acceptance rate allowing it to justify a 10% premium over the industry average pricing scheme. The Company ensures that customers do not selectively leave certificate labels off of poor products by entering into standard one-year agreements which mandate labels for all product segments during that period. Competitor HealthyTouch has been making inroads into FSRS's core markets by offering customers a less cumbersome three-month labeling agreement, but the resulting labeling inconsistency has been met with mixed approval from consumers since the program's launch in Q1 2007.
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I hope you enjoyed reading this. I would be glad to hear arguments against my concept, as it'll help me build my strategy skills.
Comments still require approval, fyi
What indicates that comments still need approval? I didn't need to approve your comment, so maybe there's just some sort of confusing language on the confirmation page?
The magic of most people's desire to make money did not keep credit rating agencies honest. In fact, competition forced them to lower their standards to stay in business.
What makes you think that private food rating agencies will remain honest?
That's a great question; credit rating agencies are an excellent case study regarding the role regulation plays in affecting financial market function.
There are federal laws that dictate the amount of capital reserves banks are required to hold when issuing various securities, and these laws are directly tied to ratings by Standard and Poor's and Moody's, the two major ratings agencies. For example, a bank issuing a Mortgage-Backed Security rated AAA is required to hold 1.6% of the security's value in cash. Were that security to be regraded as a BB (below investment-grade) security, that capital reserve requirement would increase to 16%. When this applies to billions of dollars in securities, the change in reserve requirement would be enormous.
With this in mind, the ratings agencies could absolutely not change the ratings on these bonds as the MBS's went south. Doing so would have legally obligated the banks to find billions of dollars of additional capital. This inability to respond for fear of a financial collapse continued even as the reality of the mortgage market set in. Early in 2008, Bloomberg released an analysis of the poorly rated securities that demonstrated the frozen MBS ratings.
Ratings agencies have a legal relationship with the US Government dating back to 1975, when the SEC created the NSRSO designation, a monopoly-inducing barrier to entry in the ratings agency market:
In an effort to meet market demands for investment grade assets with higher yields, the rating agencies created new models and approaches to rating these assets. Given the limited number of Nationally Recognized Statistical Rating Agencies (NRSROs) and requirements directing certain investors to purchase only “investment grade” rated assets, their move to rate newer asset classes strengthened their market power, or in the words of one rating industry executive, their “partner monopoly”.
-Mason and Rosen, "Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions"
To be fair, I'm not advocating that complete deregulation of these agencies would have averted the financial crash. Still, the crisis would have come and gone much more quickly. Ratings agencies would have moved faster to correct these security ratings more quickly without the pressures of regulated capital requirements, small competitor agencies would have had the ability to step in and point out the problem without having to fight against laws favoring the "partner monopoly," and the end result would have been a significantly faster correction that would have left our financial system stronger than it was before.
Regarding financial regulation in general, financial engineers dictate reality in the world of high finance. For every regulation, there is a financial engineering strategy for abusing or getting around it. As a result, the net winners of additional regulation are the financial engineers and their banks, the same banks we're spending $700bil to bail out right now...
Ha, I just realized that was a really roundabout way of saying:
I don't agree. Competition did not cause the mess, monopoly powers in significant part granted by the SEC did.