Information Technology And The Changing Role Of The Middleman

Posted on August 25, 2011 in Business and Economy

By Jayshrita Bhagabati:

The dawn of the age of information marked a significant transition in the modern period, hailing the beginning of the ‘third wave’, and transforming the world into a global village by aiding direct communication between people who are unable to meet face to face, with the help of the wonders of text messages, video conferencing, email and the like.

From business to education, and from health to finance, the advent of new technology has certainly made the lives of people easier, by facilitating their day to day activities and reducing the time and cost of carrying out these tasks. However even this boon is not, seemingly, without its disadvantages. While on one hand it has certainly reduced the problem of unemployment, by facilitating the process of matching workers with appropriate jobs, yet at the same time a number of people have predicted the elimination of a certain section of participants, commonly known as the middleman, from the economy.

In general, a middleman refers to an independent trader who serves as an intermediary between the producers and the consumers, providing the latter with valuable information regarding product availability, and its price and quality. Regardless of whether you see him/her as an indispensable part of the economy or as someone who, in a sense, robs both the hardworking producer and the long suffering consumer, the fact remains that the erstwhile middleman has always played a major and dominant role in the economy, a role, it is argued, is on a decline with the growth of websites such as e-bay and which have replaced them and the specialized information which they exclusively used to provide the consumers beforehand. In a way, we are moving toward a purer form of capitalism where producers and consumers are able to deal directly with each other with near instant access to information.

So, is the middleman really in danger of extinction or have technology enthusiasts exaggerated the role of technology and underestimated their value?

Besides getting goods of the manufacturer to the end user, the middleman also interprets, translates and catches errors, providing valuable information to the consumers about the actual worth and quality of a product, information which might not be available online. In other words, he/she adds value to the transaction. Indeed, if this wasn’t true the middleman would never have existed in the first place because the producers and the consumers would have found it much more profitable to deal directly with each other. The key value added by a middleman is trust and the absorption of risk.

In situations where the consumers and the producers belong to different cultural backgrounds or in a context, where in general, they do not know each other, the middleman absorbs the risks of misunderstanding, misinterpretation and harmful intent. We trust people who specialize in a field that is unfamiliar to us, who have experience, and who are referred by trusted acquaintances. In the absence of such a mutually trusted third party, the risks involved would inevitably reduce the number of buyers and sellers and shrink the size of the market. In addition, websites and electronic bulletin boards have been set up for people in virtually every industry and profession. But the trouble with ‘unedited’ websites is that they often lie dormant because no one is setting an agenda or intelligently hosting the online forum. And more importantly, many skilled suppliers, such as farmers or machinists, either are unable to or cannot afford to become experts at electronic commerce systems. Hence, they will hire someone to do this work for them: a new middleman.

It definitely seems as if the middle man is here to remain. Websites such as Google and Facebook also work as very powerful middlemen in a sense, aiding producers and consumers to come in contact with each other. In addition, the role of middleman as a trusted editor and filter of information should actually become more important, and not less, in the information age, though this might require them to become more tech savvy. In other words, middlemen who adapt themselves to new technology and the changing circumstances will not only continue to exist but will actually prosper in this new era.