Thursday, November 21, 2013

A Little Night Music

[Highsec] industrialists will clamor and fight over single-percentage-point margins... and null industry will not exist when it's essentially raw cost plus shipping to get it to front lines.
   - Lockefox, quoting The Mittani®

Here's a little thought experiment:

It's morning. You roll out of bed, wander down to the kitchen. You put on the coffee (this is my thought experiment, so we're drinking coffee) and while the staff of life drips into the carafe you turn on the computer and log into a website that earns you $600 an hour. Between sips of coffee you look up from your newspaper to make sure the website is doing its thing. Once in a while you have to set down your newspaper and enter a few keystrokes, but otherwise it's pretty light work. After two hours you check your bank account, note that the anticipated $1,200 has been deposited, and log off the work site. You rinse out your coffee cup and put the newspaper in the recycling bin.

The rest of the day is yours.

In this way you earn roughly $312,000 per year for a two hour work day.  In fact, everybody in your town has the same sweet deal and earns money in pretty much the same way.

Being the thoughtful readership you are, you're probably already thinking, "What about inflation, Mord? After all, if everybody makes that much money that easily, shouldn't inflation kick in and the cost for goods and services rise to reflect the town's access to such easy money?"  

Happily, while some things do cost more in your town, your town is largely untouched by inflation. Why? Because there is a class of people who cannot make money the way you do. They don't live in your town, they live ... elsewhere. However they are very, very interested in selling goods and services to the prosperous folk in your neighborhood.  In fact, they compete aggressively for the opportunity to do so. They compete so aggressively that the price of most goods are kept very, very low.

And that's a good thing for you and your neighbors. Despite the fact that your money is very easy to come by in your town, your income retains its value. Which is, you must admit, a pretty sweet deal.

This is, to a large extent, the situation in nullsec today.

Nullsec's population is, from an economic consumer's standpoint, sitting in the catbird seat. ISK are easy to make and there are all manner of people competing aggressively to make and sell stuff to nullsec buyers. In fact, they compete so aggressively to be the maker/seller of choice that profit margins for many items are razor thin. In some cases the competition is so fierce that producers heavily discount their own in-game labor as a production cost. 

Of course, this might be a bad thing if it were putting nullsec players out of work. However, the fact that these producers are falling all over themselves to undercut each others' prices has no impact on a nullsec player's ability to make 60M ISK an hour ratting in a semi-AFK Ishtar. Indeed, most nullsec players regard the fact that someone else is willing to grub ore at 7M ISK an hour as a public service rather than a stolen opportunity; particularly if it keeps the price of ratting Ishtars low.

Thus an economic symbiosis has evolved over time, a product of basic labor economics and player preferences. While it's been a particularly sweet deal for nullsec, it's been pretty much a win-win for all involved. 

Alas, every party needs a pooper, and certain lords of nullsec are determined to put a floater in the punch bowl.

Hopefully while I was away you had an opportunity to listen to Xander's interview of CSM Mynnna and Eve Prosper's Lockefox (both of Goonswarm) on Crossing Zebras last September.  If you haven't it's certainly worth your time.

First of all, you get to hear Xander, a genuine Scottish roughneck, practically a-giggle with delight over Mynnna's participation in the interview. It's truly eyebrow-raising and not to be missed. See if you can listen without the words 'man-crush' coming to mind.

You will also hear Mynnna admit that nullsec industry is indeed suffering from a labor shortage.   Despite the Odyssey improvements to nullsec mining, there hasn't been a parade of industrial bears lining up to fill Mynnna's hangers with low-end ores and/or minerals.  And it seems that parade won't form up until the hourly wage for mining and hauling Tritanium is competitive with the 60M ISK per hour (as Mynnna reckons it) that one can earn doing far less onerous tasks in nullsec.

Yeah. I was right. Mynnna was wrong. All right, move along. Nothing to see here.

Then there's that lovely rendition of The Mittani®'s favorite aria from La fanciulla del Deklein.  My Italian is a little rusty but, roughly translated, the lyric goes something like this:  
Woe is me! Behold the rapacious merchants of highsec.
They vie like raging beasts, one against the other,
For the honor of selling me my hearts' desires.
See how their prices fall, how their profit margins dwindle!
The market-house is like unto the floor of an abattoir; 
So awash is it in blood-red ink. 

But ah, my poor heart!
Though I delight in low prices, yet do I sorrow.
For Nullsec industry shall n'er quicken and grow,
Lest I pay in excess for my purchases, and lavishly so.
Alas for nullsec bears, who live piteous lives of penury
While greedy highsec bears grow rich by mining ore for free

Which is, of course, a big, wet load of Puccini. 

Despite all the wailing and gnashing of teeth, there is a lot of industry going on in nullsec. It is primarily industry in which nullsec enjoys a competitive advantage and where the large returns on investment compensate for the high cost of nullsec labor inputs.  For nullsec industry to dominate manufacturing in product families that don't offer those advantages some combination of the following must occur: 
  1. The price of the finished goods must go way, way up
  2. The cost of nullsec labor inputs to the finished goods must come way, way down
That's it. One, the other, or both at once. Every possible plot, plan or scheme I've heard on this subject to date pushes one (or both) of those two buttons once you get past the wishful thinking.  Most push button number one. However, pushing either button results in a nerf to nullsec player income: They either make less ISK per hour, or the hourly ISK they make buys less. Or both. It's a pay cut either way you slice it.

Given the benefits of the status quo, the real question isn't whether the lords of nullsec can compete in the manufacture of commodity goods, but why they would want to.


  1. Null sec industry is broken by one thing and one thing only: teleporting ships.

    With players able to say screw gate camps, screw taking risks I want to teleport all my stuff in (near) perfect safety, the economy is broken.

    Hopefully the announced new continent won't support and be dominated by jump capable ships.

    1. I can't say for certain whether dropping jump ships would do the trick on its lonesome, but you could absolutely be right. The issue here, with respect to Mord's post, is that this fix would press the first button.

      No (or fewer or more limited) teleporting ships would make supply more difficult while demand remained unchanged. Prices would go up. Nullsec industry is fixed, but all nullsec players who currently buy goods coming in from highsec -- and that's an awful lot of them -- effectively take a pay cut.

      Which, honestly, I'm not opposed to. But the point stands for those that would take issue with the results.

  2. Good post Mord, and nice to see you are back.

    I see some points where the industry labor vs. other work is out of balance. As I am conducting industries myself I know something about it, but I'm obviously biased in this direction. But I will still tell you where I see opportunities to got to balance.

    T2 BPOs vs Invention => There is a big gap between the profits that can be achieved with construction of the same product. The first one has lower labor input and an better profit. The second can increase output through increased labor. But the isk / labor is way out of balance.

    Mineral compression is still a topic. Why should you mine the stuff in 0.0 if you can jump a JF full of 425mm Rails from the underpaid high sec mining crews?
    In order to reduce this effect and favor mining in 0.0 the Logistic needs some changes. It is needed and reducing jump range of JFs wouldn't solve the problem. Increased cost for Jumps would but you can't simply tenfold the fuel consume. But with dedicated cargo bays which are seen everywhere i new eden it might work.
    Limiting JFs to only 10k m³ of equipment, rounded out with Cargo for ships, PI stuff and pos fuel / ice products, a mineral bay to keep the flow of zydrine and megacyte into empire running.
    Something like this might reduce the export of minerals and increase cost for the larger ships to build in 0.0 if you don't mine it in place.

    With passive moon goo income corporations / alliances with the right towers get a lot of money for not much active work. Sure the space needs to be protected, but it is unlikely that the daily roaming gang will disrupt your moon income. Maybe now with siphon units.
    Moving this resource gathering in a group activity would increase the need of laborers to keep a solid income stream and would force alliances to respect that business.

    And finally PvE needs a major revamp that it is not as boring as it is today. I totally understand why a semi afk ratting ship is nice. But with PvE content with great reward but also a great deal of work needed to complete it the overall income would decrease as it is not something you just keep running while you organize other stuff around your desk.
    The semi afk income is the realm for mining, after all. ;-)

    1. As Mord indicated you are either pressing on button number 1 or 2.

      Nerfing jump freighter capability is button number 1. By forcing prices higher you hope to encourage people to produce locally. CCP won't take this step ---- the same jump capability that allows pilots everywhere from GE- to VFK to buy products at Jita +10% is also enabling all of the 2000-3000 pilot fights you read about. Without easy logistics all of the organizational work required to make these fights happen becomes overwhelming.

      One of the greatest obstacles to industry in null sec is entirely cultural. The image that anyone in a major empire has of themselves is the image of the gunslinger or highland warrior. That image compels a lot of social and institutional pressure against anyone that want to farm (either rocks or rats). Industry in null (aside from supers) is entirely in the hands of either a small group officially sanctioned by leadership to engage in it (usually for those supers) or renters that are carefully segregated from line members.

      Examine the CFC rental policy and one thing that pops out is the prohibition on renters being able to dock or travel to any regular CFC station/system. Ostensibly this is to protect against awoxing. The true issue is that the attitudes of most of 0.0 require that renters be treated badly. If Mynnna wanted more and better industry in CFC space, allowing renters to buy and sell products in CFC markets would be a good first step.

  3. The ability to generate a higher and higher RMT stream for the select few running the goon empire is pretty much maxed out, because of what you have described.

    The goon sympathisers within CCP have now realized that the model of nerfing high sec into the ground would drive away too large chunk of their customer bas. Instead they figured that the goon null sec model can be imported to high sec. CCP is in the process of handing economic control of high sec to the goons.

    The high sec POCO tax stream just gifted to them is just the tip of the iceberg. Imagine the situation when CCP announces that high sec stations are conquerable, and the owner gets to dictate the tax rate on missions accepted within those stations, the refine rate tax, and the mfg slot rates.

  4. Glad your back, Mord.

    Hmm … Vastly inflated native income, reaping the benefits of everyday low prices from imports abroad, which are largely the product of paltry wages? A dearth of basic, low-end industries and manufacturing due to a lack of competitive advantage? Haven’t we been reading about all of this in the WSJ for years? Replace “highsec” with “China” and the narrative is not all that different.

    Of course, IRL, there would usually be two or more currencies at work, and unless one entity was manipulating the value of its currency in order to keep exports cheap, there would be significant upward pressure on that side of the balance of payments. Or, if it was a single currency market like New Eden, there would migratory pressure – why stay in Cheapside when all the good money is Uptown? Unless of course Cheapside is very safe and Uptown is run by insular cliques that shoot unwelcome newcomers on sight …

    Which makes Mynnna’s concerns seem so puzzling. Why upset the gravy train? If anything, the interests of the Null-lords should be to make highsec safer and more atomized, not less; keep the carebears grinding away in the sweatshops, and keep that dirt-cheap imported tritanium flowing.

    1. Assume for the sake of argument that the new plans that have been announced for future expansions create a limited ability to do logistics from highsec (Jita) into an area very similar to 0.0 but not as atomized as WH space. It becomes a trivial matter to get into that space, but once in it becomes prohibitively expensive to import anything. Therefore you have to build it yourself. Under this scenario it any alliance without the capability of dominating industry (in it's broadest definition of mining + manufacturing) is at a competitive disadvantage. Right now all of that ISK flowing into the hands of 0.0 alliances gets spent on buying ships and modules in Jita and nobody has to worry that there won't be 10,000 damage control II's or 1,000 maelstroms on the market when they need them to make good on a loss. But take away the market function currently filled by highsec and all that ISK earned is meaningless. 0.0 cut off from highsec becomes a wasteland if you can't build and maintain a thriving industrial base that replicates the high sec you won't have access to.

      The handful of bears in 0.0 handling these tasks in 0.0 alliances at present are completely incapable of meeting the demands isolation would create. True industry bears in 0.0 are at present heavily outnumbered by those running simple logistics and stocking markets. True Industry separated from the very basic logistics at present is at an entirely different place on the learning curve in Eve.

    2. It's a little different from the US/China paradigm in several key ways.

      First of all, when a factory relocates from a developed economy to a developing one, the community it leaves behind usually suffers a loss in earning capacity. That's not the case in nullsec where an individuals earning capacity is largely decoupled from the state of industry.

      Secondly, because ISK are easy to come by and inflation is low, nullsec denizens are for the most part uninterested in the low-return industry that goes on in highsec. That's often not the case when jobs are off-shored in order to leverage a less expensive workforce.

      Finally, in EVE almost all products are commodities: They are uniform and indistinguishable from each other once produced, and have utility for a large consumer population. A Vexor is a Vexor, whether it's built in Deklein or in Molden Heath. Manufacturers cannot outperform their competitors in any category but build-cost. However, in RL, the real or perceived quality of a product is often associated with where it is made - Italian suits, German automobiles and Tenessee bourbon, for example.

    3. Of course you’re correct, Mord, although I might quibble with you somewhat over points one and two. But there’s more than just a passing resemblance, in spite of the fairly limited analogy. In both cases, the key mechanisms that should be forcing an equilibrium are being thwarted by political and structural impediments put in place (or at least reinforced and supported) by those who benefit from that symbiotic status quo. Those in leadership who purport to be concerned about “balance” must either be disingenuous or idealistic, or else they are working at cross-purposes to their own best interests. Mynnna and the Mittani are certainly not fools or idiots, so that rules out two of those three. Which one is left?

    4. Though I wouldn't presume to know what's going on in M&M's heads, I feel obliged to point out that a tightly knit, insular group (like, say, the justifiably-paranoid leadership of a nullsec power bloc) does not need to be foolish or idiotic to succumb to groupthink.
      Groupthink plagues some of the smartest and most capable people around... not-infrequently with rather spectacular consequences.