March 31, 2006
Paying with esteem
In a post based on his new book Tyler Cowen recently questioned whether revealed preferences, measured by monetary exchange, are an adequate framework for economic analysis. I’ve been planning to post further on non-monetary transactions and his quote has pushed me over the threshold.
In “The cost of money” I explored why so many network-mediated interactions are non-monetary, but I only looked at the negative side – the irreducible transaction costs of money. Now I want to explore the positive side – what do people get for contributing to open content production, such as testing or writing open source software, writing for Wikipedia, proofreading for the Gutenberg project, blogging, posting pictures on Flickr, etc.? With very rare exceptions contributors don’t get money, but rather are willing to spend money – they often have to pay at least a little for internet service and hosting, and open content production sites seem to get quite a few cash donations when they ask.
Obviously people get many things in return for their investment in content production, including such indirect monetary rewards as better jobs. However I argue that a dominant theme across essentially all kinds of open content production is esteem – the favorable opinion of one’s chosen reference group. We can see the importance of esteem in efforts by contributors to make sure they are properly credited, debates over priority, flame wars over design judgments, etc. Of course making contributions as investments in esteem is not new; we see very similar patterns in scientific and artistic communities going back at least hundreds of years.
Esteem is clearly sought in most cases for its intrinsic value to contributors, not for its instrumental value. For most of us the favorable opinion of our reference group is not a means to other ends, such as higher salaries, it is an end in itself. This is consonant with the recent research (e.g. 1, 2) indicating that happiness, in developed societies, is a function of social relationships and relative economic status, not material well being per se. I think that once most material needs are satisfied, wealth produces happiness largely by helping us to garner esteem.
If we take esteem seriously as an important source of intrinsic value, then we have gone a long way toward explaining how open content production can replace financially mediated content production. For many people, contribution to open content is a very efficient investment with returns in esteem– far more efficient than incurring the double transaction cost of converting work into money, and then money into investments in goods and services that may return esteem.
We are all familiar with the way digital networks are changing the cost of collaboration by reducing manufacturing and distribution costs for information goods asymptotically toward zero. Equally important, given this analysis, is the fact that networks dramatically increase the chance that someone can find a reference group that will esteem the contributions they can make. This is the dual of Benkler’s key point in “Coase’s Penguin” that networks allow for much better recruitment of contributors to projects based on the fit between them. Benkler emphasizes the ability of individuals to make contributions that are valuable to the project; I emphasize the esteem the reference group provides to the individual; but these are two sides of the same phenomenon.
However the replacement of money by esteem is not just a matter of efficiency. We can see this by observing that in many cases, we cannot use money to acquire major sources or indicators of esteem, such as Olympic gold medals, Nobel prizes, or even the laughter of friends. If any of these were known to be for sale they would lose all their value! I have some ideas about why this is true that I will address in a subsequent post.
Filed by Jed at 11:38 pm under 
1 Comment
jive.com
“we cannot use money to acquire major sources or indicators of esteem, such as Olympic gold medals, Nobel prizes, or even the laughter of friends.” Correct. These are direct indicators of a particular kind of social credential, of which there are many. The vague “social capital” waved around as substitute for financial capital in some analyses, which seems to cause people to do things like write for Wikipedia without cash, tends to define cash as something we pay out only when what we’re doing isn’t socially worthwhile and gains no volunteers.
Well, I agree with that on one level but clearly there is some deeper biological analog there too, where money=energy=food and we’ve agreed to use a common currency rather than having to zap each other with energy or eat each other for food (alternatives we have in fact taken in the past, and not the far distant past either). So while social credentials do signal a capital asset of a kind (training, discipline, insight, courage) it tends to be an individual capital asset: something inherent to persons.
Distinguish individual (talent), social (trust), instructional (encodings) even in such enterprises as sports or teaching where it seems very obvious that the textbook is not the teacher and the trust of the students is not wholly based on any talent of the instructor but also on charisma and a “fit” between their desires or dreams and those of the person they’re listening to. All of this in some combination is the “human capital”, of which only the “individual” dies with the person.
That’s the first thing neoclassical economics failed to see: that “human capital” is not simply a fundamental or underlying thing that unleashes some financial stream in the form of a salary. Most human capital probably is devoted to creating more social capital (nonprofit or volunteer work) or individual capital (raising children, coaching, counselling, helping others deal with addictions or personal emotional problems). Sure some of this is paid, but the vast majority of it, isn’t. Someone has to raise the children, teach the young, and care for the old, most of this is “women’s work”, as Marilyn Waring pointed out. Nothing in “the real economy” functions at all without these things being done.
The other thing neoclassical economics failed to do was give a role to nature’s services. Instead it sees them as reducible to commodity (”supply and demand”) or product (”substitution”). Commodity and product are wholly artificial ideas that have no basis in biological reality. You can’t say biologically that all soybeans are “the same” even with respect to the nutrition in them or the chemical content (certainly not if you get into pesticides), and ecologically they are definitely not the same (some are genetically modified, others grown organically and in sustainable ways). You can only say they’re legally the same – that the obligations of delivering one type equals that of the other. Viola! Now you have a “supply” and a “demand” that can be compared. Even if you quantify demand in terms of linguistic convention, such as, all the recipes that call for milk, you still have to admit that not all milk is “the same” and that we increasingly care about what’s in it, because what might be in it is getting broader, and scarier, and uglier. So there is no solution to this short of redefining all commodity and product relations in terms of services with contracts that we trade in, knowing that they aren’t objectively real things except in the courtroom. Nature isn’t just a pile of leftovers or “resources” but a set of functioning services, and our human infrastructure and nation-states’ services lay on more of these and interfere with the ones nature set up. Natural capital has a yield, and that yield is pollination, erosion prevention, as well as board-feet of wood and megalitres of filtered water.
A decent analysis of this latter problem, such as Hawken, Lovins, Lovins, “Natural Capitalism”, 1999, does a reasonable job of explaining how natural capital, manmade/infrastructural/manufactured capital, financial capital and the “human capital” (the former problem) interact. But looking closely at “human capital” and understanding just how it is that we assess it, via such means as medals of valour, Olympic medals, Nobel Prizes, PhDs, elections, laughter of friends, criminal records, is going to be if anything more complex than nature as capital.
So, let’s deal with nature as capital first, and run many more experiments in starting social economies, prediction markets, bidding to support various projects, before we try to decide how to optimize our deployment of human capital. Or even what it really “is”. But if you must, here’s some thinking about it
http://openpolitics.ca/Beyond+GAAP
http://openpolitics.ca/capital+asset
http://openpolitics.ca/human+capital
http://openpolitics.ca/value+reporting