Gift economy – an idea to change the world

We live in a society organized on the principles of scarcity as driver for profit and social recognition. Our free market system works on a pretty simple principle: people exchange goods with each other with the help of a monetary system. As a result the ones that are better at playing this game get more social recognition, live longer, better and attract better mates.

Open markets vs Centralized planning.
Capitalism vs. Communism

The last hundred years proved that the open market is a better response to people’s needs and wants than the communist economic theory. Communism failed to deliver the results it promised. Centralized economic planning eventually lead to mass social movements, frustration and eventual destruction of communist regimes. The communist governments were parasitic in essence, planned the economic development and backed their decisions through military force.

There are still some communist states at the moment and the highest profile is clearly China. With a booming economy one might wonder what did China do and other communist states (such as the former Soviet Union) did not.  First of all, given time, the Chinese regime will have to change its approach to governance. It already started doing so. Right now China is not as communist as we expect it to be. Collective ownership and central planning are rarely found in China’s economy as every business is at least partly private.

Although there is still just a single party, the almighty Communist Party, the economy is a mixture between capitalism and communism, with very few Marxist methods. Local leaders are evaluated based on economic growth indicators and are encouraged to find innovative ways of fostering growth.

Therefore – the one communist regime that did make it is not that communist to start with. Basically the Chinese government managed to reach a smooth transition to capitalism.

We can see that capitalism was a better bet than communism but is there something better than capitalism? I believe so and we can see this in a very old type of economy that resurfaced in the Internet Age: the gift economy.

The gift economy

Think about the the post you are reading right now – you are getting information that was distributed freely. It is hosted on a free blogging platform, developed as open-source software, based on an open-source programming language, having data stored in an open source database. This is an example of how “free” and “open” can happen. You are able to read this because I wanted to share this information with others, some people thought of the idea of hosting blogs for free, some other people contributed freely to the blogging software and some other people developed the tools to make this happen. Asking nothing more in return than gratitude and recognition.

“I can’t buy food with gratitude and recognition”. Of course you can’t but you gratitude and recognition mean prestige and prestige is a very good way to land a good job or deal.

Have a look at what some of the best developers in the world are doing: they write free software, they get recognition, they get people using their free services and then get founded by venture capitalists to expand their software into large companies. Take Facebook for example: it charges nothing, its prototype was built and distributed freely by Mark Zuckerberg. In time the social network made Mark very rich and it all started with a gift he offered to the world.

If you think about it, what we call wealth is basically a recognition of our contribution to the world. We provide a service or product, the price people agree to pay for this is just quantified recognition. That’s basically the whole basis for our current economy.

If we were to take out the monetary system we would basically have a gift economy that would cycle through groups of individuals.

Why did the internet develop a gift economy?

I believe the Internet is not just a technology. It is a world in itself. It has its own rules, its own citizens, its own localized governing groups (highly influential internet users that can provide leadership for their friends or fans). It must develop its own economy. As this economy does not (yet) have a specific largely spread monetary system (we still use offline payment methods) we needed to find a way to address this issue.

Books and ideas as gifts: Paolo Coelho allows people to pirate his work.

Gifts are the solution and intellectual property is exactly the kind of product we can offer without losing anything and at the same time gaining prestige and recognition. Best selling writer Paulo Coelho was talking about piracy and the S.O.P.A. (Stop Online Piracy Act) in some terms we would not expect from someone that makes a living (actually a fortune) from selling his books:

As an author, I should be defending ‘intellectual property’, but I’m not.

Pirates of the world, unite and pirate everything I’ve ever written!

The good old days, when each idea had an owner, are gone forever.
First, because all anyone ever does is recycle the same four themes: a love story between two people, a love triangle, the struggle for power, and the story of a journey.
Second, because all writers want what they write to be read, whether in a newspaper, blog, pamphlet, or on a wall.

If we think about it his actions are actually very sound in terms of business: he wouldn’t sell anything unless people would know about his work. The more people know about his work, the more prone to buying they are. Behavior economics principles state that we care about other people think and we are prone to do the right thing. We know about the writer as we have read his books online. So did our friends. We know that he should get some kind of financial incentive for the work he put into writing the books. The easiest way to do that is to buy the books.

As a result Paolo Coelho, a writer that somehow pirates his own books, has sold more than 100 million books. “This has nothing to do with giving away your work for free” you might think. Yes it does. Uploading a free Russian translation of his book “The Alchemist” resulted in an increase in book sales from 1000 to 1 000 000 books per year.

Shockingly … Africa still has a poverty issue.

Piracy and Gift Economy

Piracy is an issue of great debate this days. Supposedly this form of information sharing is harming the media industry. I guess piracy plays its part. However, piracy is the cause AND effect of increasing knowledge, curiosity and need to access information.

Wealth distribution inequality

Wealth is not distributed equally. Not by a long shot and the gap is increasing fast. Here are just a few facts (Sources: The Conference Board of Canada, Fight Poverty):

  • 42 % of world income is distributed among the first 10% of world’s richest people
  • 1 % of world income goes to the poorest 10% 
  • half the world’s population lives with under 2 $ per day
  • 20% of the population consumes 86% of world’s goods

Those numbers are astonishing and poverty is not going to go  away unless we do something about it. Foreign aids do not help as corruption seems to go hand in hand with poverty. State loans don’t help either as the poorest countries seem to be the ones most prone to impose the repayment of loans to their already impoverished citizens. Humanitarian donations and philanthropic concerts performed by Bono don’t work either as they usually help the ones that need it less: the rich and powerful.

There is however something that does work: education. Studies showed that education is very effective in fighting poverty. Educated individuals improve their own life quality and help economic development.

Empowered, informed, educated

Empowered, informed, educated should be the three words on any agenda that addresses poverty issues. With the proper infrastructure anyone in the world can have access to information that can make the difference between famine and prosperity.

The gift economy can help those in need more than money can. Right now the motivated individual can find all kinds of information online regarding all sorts of topics from survival techniques to quantum physics and advanced health courses.

India GDP Growth
Source: http://www.marketresearchanalyst.com/2008/01/06/indian-civil-aviation-market-posed-for-growth/

Internet is already helping lives. The information should be free if we are serious about addressing world issues. Piracy helps. Software companies are outsourcing their IT departments to countries like India thus lowering costs. Fun fact: piracy rate in India is 64%. Do you see a correlation there? I do. Those people needed to learn  and increase their revenue before they could pay for software. If they would not have had access to software and information they would have never had the kind of skills that allows India to have the economic growth it has (see chart).

Looking at numbers and charts we cannot fully understand the impact gift economy and information sharing has had on countries like India. But think about the numbers of lives that were saved, the millions of people that could afford to eat each day and the impact this has on the future to better understand the bigger picture.

Gift economy is changing the world

Many people are worried about the impact gift economy has, the way information sharing is changing the world. That’s why we are seeing more and more talks regarding things like SOPA, ACTA or other intellectual property management acts. The media is changing, software is changing, access to information is changing and that means less money for those in control right now. It also means a better future, a future where everyone actually stands a chance at living a decent life.

There are 7 billion people in the world right now and the numbers are growing fast. Relying on centralized organizations to improve life is not the way to go. The individuals need to be empowered, informed and educated if we are to survive the next millennium. The gift economy is still in its youth but things are moving fast in the age of Internet. Ideas spread fast and the gift economy is the kind of idea that changes civilizations. As Voltaire said:

“An invasion of armies can be resisted, but not an idea whose time has come.”

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