May 16, 2007 - Which type of asymmetry can land you in jail or make you wealthy?

Information asymmetry is a term used by economists to explain the flow of money,
generally from the person who doesn't have certain information to the one who does.
Trading shares of public companies based on insider information is not considered a
healthy activity, as you can see in media reports over the past few years. But knowledge
of housing prices and trends can be very profitable for real estate agents, and rarely leads
to prison time. It's interesting that such a wide range of results stem from the same
economic concept.

I began thinking more about this recently when I picked up a copy of Freakonomics by
Steven D. Levitt. It highlighted all sorts of insightful and interesting examples about
information asymmetry and how it applies to commerce.

Mr. Levitt writes: "Information is so powerful that the assumption of information, even if
the information does not actually exist, can have a sobering effect." He cites the example
of the one-day-old car, which loses about a quarter of its value the moment it leaves the
dealer's lot.

The reason a car could lose so much of its value is "because the only person who might
logically want to resell a brand-new car is someone who found the car to be a lemon. So
even if the car isn't a lemon, a potential buyer assumes that it is. He assumes that the
seller has some information about the car that he, the buyer, does not have - and the seller
is punished for this assumed information."

Mr. Levitt also talks about the recent plunge in term life insurance prices because of the
advent of websites that give price comparisons between dozens of different companies.
"Shopping around for the cheapest policy, a process that had been convoluted and timeconsuming,
was suddenly made simple. With customers able to instantaneously find the
cheapest policy, the more expensive companies had no choice but to lower their prices."
Freakonomics makes some interesting points about how the Internet has reduced the
effect of information asymmetry - it's worth reading.

In my case, I now buy cell phones via the Internet, for a fraction of the supposed prices
cell phone providers claim they cost - unless of course you're signing a phone contract for
the rest of your natural life. The Internet has leveled the playing field, and allows
consumers to surf the whole world in search for something as simple as a cell phone with
no strings attached.

But there is more than one type of asymmetry. People in our technology community
should know about two other important types. These are asymmetry of skills and
asymmetry of resources.

Have you ever noticed how hard it is to get someone to renovate your house these days?
Rates are also going up because of the shortage of people with the ability to do such
work.

This is the asymmetry of skills - basically where one party has abilities and talents and
another party doesn't. Money flows from the client to the skilled person.

In Ottawa, the tech industry thrives on asymmetry of skills. Many years ago, a few key
tech companies needed to hire the brightest people they could get, attracting them from
all over the world. These companies also recruited local technology talent from Ottawa's
universities and further developed their skills as our technology industry grew. Money
began to flow to these people, because of the specialized skills they possessed.
Today, note the abundance of IT and software companies in Ottawa who have expert
knowledge in computer science and perform countless projects for government and
private companies each year. They are prime examples of the asymmetry of skills.
And then there's asymmetry of resources.

In Canada for example, we are blessed with a wealth of resources under the ground, and
just having access to them makes money flow. Asymmetry of resources is one reason
Canada is a great place to live. If you don't believe me, check our national trade surplus.
The United States, in comparison, has a huge national trade deficit.

This third type of asymmetry is a very important trigger for money flow.

Take a good friend of mine, a native of Abu Dhabi, in the United Arab Emirates, who,
because of their asymmetry of resources, has the benefit of working far fewer hours than
many Canadians I know - but who is much wealthier than any Canadian I know.

Techies take note: asymmetry of resources is an important concept for us too.
It doesn't just apply to what can be found underground. The equipment we use and the
software tools we use are also resources for profit.

I have a friend from Toronto who founded a company, testing integrated circuits here in
Ottawa. He made significant investments in equipment needed for such testing services,
and now tests chips for clients all over the world.

So for techies, having the right tools gives us an advantage over those who don't. Such
capital equipment and software can be a key component of our success.

Michael Wakim is president of Fidus Systems Inc., an electronic design services firm
based in Ottawa and Toronto. The company designs electronic products for a range of
industries. Fidus has designed and consulted on more than 480 projects for 120
customers across North America and Europe.