The Favor Economy

This morning, Diane Ragsdale linked a great TED talk from 2005 in her brilliant-as-usual post on institutions supporting artists at her ArtsJournal blog, Jumper.

Diane’s post is great, but I want to react mainly to the TED talk. Yes, it’s six years old. That’s why the video’s so SD looking and the speaker, Clay Shirky is talking about Flickr tagging as this newfangled thing and doesn’t mention Youtube at all. Once I’ve published this post I’m going to go read his books from 2008 and 2010, as well as his blog, and catch up on the last six years of his brain, but in the meantime, I wanted to put down some thoughts.

The basic thrust of Clay’s talk is that jobs that used to be done by institutions are now being done by big open communities, and how disruptive a force that’s going to be for the next couple decades. He really raises the stakes by comparing this shift in human organization to the progress from the Catholic church running European monarchies to the nation state being codified Treaty of Westphalia – a change he attributed to the printing press. I agree, this stuff is that important.

Accomplishments Without Even Informal Organizations

His talk focused on switching from the old institutions (companies, etc.) to new organizations like the Flickr community and standing communities of software developers. These are all standing organizations though, even if the new ones are looser and more flexible than the old ones. But maybe we shouldn’t be talking about how our new organizations will be loose and informal and non-institutional. Maybe we should be talking about how our accomplishments won’t come from established groups with stated purposes.

Maybe when we need to accomplish something we’ll turn to our existing social networks, and use these blindingly fast communication tools to get things done using our existing social connections that would otherwise have needed an institution, a loose organization or an exchange of money. Just how powerful is that Twitter following of yours? How about your Facebook friends? What about your e-mail contacts?

Favors

This linked up in my head to something I’ve been thinking about for a while, which is favors. Favors in general are non-monetary exchanges of value based on social connections. I’ll scratch your back if you scratch mine. It’s not a favor if I’m paying you for a massage. Think about this account of favors like mix tapes in the 80s. Technically it’s piracy, but it’s small enough in volume to not really disrupt existing businesses. Then Napster came along. The barrier to piracy disappeared and the businesses blew up.

I have a hunch that social media is going to do that to favors. More stuff is going to get accomplished without money changing hands, and it’ll be accomplished by existing social networks without creating long term organizations of any kind. This is going to mean more and more economic activity doesn’t involve money at all, and we’ll need new ways to think about the size of the economy and individual wealth. Dear econometricians, I’m sorry you might have to fret about Whuffie banks.

You’re right, dear reader, it’s time for an example

When I have a problem and post it on some social platform (let’s say needing a place to stay overnight in DC for my girlfriend this Friday), my friends read it. If they have a handy solution (for instance a spare couch, which I really do need) they provide it. Sometimes it’s an introduction to the right person, sometimes it’s a piece of expertise, a referral to a business that sells the right product or a wikipedia article or a forum thread explaining that you really, really shouldn’t do that to your car unless you have a Really Good Reason(tm). Also, seriously, if you’ve got a spare couch in DC that night, let me know.

Right now these are very small accomplishments almost exclusively. One person has one need, and their extended network of friends fills it. I think we’re going to figure out how to do it with much more complicated tasks. I’ve been playing with Google’s Schemer over the weekend, which could be a step in that direction, but it needs a better recommendation engine and some other tweaks to handle more complexity.

Okay, maybe. But how does that impact GDP?

Well, if I can’t find a place for my girlfriend to crash in DC that night we’re going to have to turn to a financial transaction. We’re going to pay money for a hotel room. The same kind of service is provided, but as a purchase, not a favor. What we’re hoping is that we can get a favor and spend no money. Six years ago, quick communications with hundreds of friends, like “hey, who’s got a floor for me in DC”, would have been much harder than it is now, or at least much more intrusive into my friends’ lives than a post on a social feed.

Our chances to accomplish the goal and not exchange money were much, much smaller. What does that mean? In the new world we can get more done without buying stuff. My hotel room contributes to GDP, but my crashing on your floor doesn’t, at the moment, count.

But is that how it should work? If we can find a floor to crash on (seriously, we do need one, email me), is there still economic activity happening? Is there still an exchange of value that should be understood as a supply fitting a demand? Does enough activity of this kind have the power to actually impact national prosperity? Probably, said the blogger answering his own leading question, especially if favors like this grow in number and complexity.

If one of you reading this introduces me to someone who puts my girlfriend up for the night, then we’ll owe you favors. Whether we bring a nice present (handmade or purchased) or do some work for free later, there’s still debt created (do you need animation, a theme song, or a communications strategy? We’ve got you covered). And even if that debt is never repaid (as frequently happens with favors) there’s been a relationship created along which these increasingly important favors can flow more freely in the future. The whole system just got more efficient through the creation of the relationship and reduced future costs, monetary and otherwise.

This is just the beginning

And here’s the really important part: it’ll only get bigger from here. So far this has been an account of a really simple job accomplished through favors (and that would have, pre-social media, involved money and a big institution like a hotel). There’s no reason to believe more complicated things can’t be accomplished this way as well with the right communication methods.

We’re used to thinking of big ambitious goals involving structured institutions and companies. We’re getting more and more used to thinking about big ambitious goals being accomplished by big, open collaborative communities, like the Linux or Wikipedia communities, or even Occupy Wall Street. But these are still purpose-built standing communities. If you’re in, you’re in and if you’re out, you’re out. The periphery can be really big, but it doesn’t tend to be that powerful.

But when existing social connections and favors start taking over more value exchanges and accomplishing more complex goals, we won’t have the same need for specially built collaborative communities. We’ll just collaborate with the communities we already have.

Yes, this means I think in 20 years Facebook could destroy Airbnb without breaking a sweat.

Musicians have a decent model for a favor economy already

Trying to figure out how favors will work in the future to accomplish complex goals, we should probably look around for a model of favor economies that work now. How about classical music?

I came up in the classical music world, and for the overwhelming majority of us who don’t have orchestra jobs, it’s all about favors. It’s all about who you’ve worked with, who you can call, how broad your social network is. If you can call enough of the right people, your crazy idea will probably work. If you know your phone will ring when people need help, you have what passes for job security.

There are a couple weird things about this system. One is that it’s not a zero sum game. If we’ve worked together, and it went well, chances are we’ll both come out of it feeling that we owe each other a favor. We’ll definitely be more willing to call each other for other things as well. Musicians do this because we love it, and doing the work is an end in itself for us. Honestly, the chance to do the work in the first place is often the scarcest commodity, and if you can create chances to make music your network will probably stay strong and grow quickly.

My hunch is that this will continue, and people will do things for each other less because there’s money in it and more because they want to do the thing itself. If I need my bike fixed, I probably have lots of friends who could do it, but wouldn’t it be great if my bike-crazy friend did it, and actually enjoyed herself?

Another thing is that this favor economy is really all about money in the end. The reason we trade work and favors instead of cash is that none of us has any money to trade. We spend what we get on our lives, and don’t have much surplus left over to trade with each other to make music. Our time and future favors are much more useful for value exchange than currency. But the reason we do it is so that we can earn money in the future, and so that when the rare high-paying gig does come along we’ll be the first composer, or the first singer, or the first recording engineer on everybody’s list.

My hunch is that this will change a little. My bike-crazy friend won’t obsessively focus on being the first bike person her friends call as much as my violinist friends obsess over being the first on the list. I think this largely because for most people, these activities won’t be their livelihood.

But really, this is the future we’re talking about

And none of it has happened yet. I’ll bet, though, that more and more important activity is going to be possible without any organization or community being created around a single goal. I’ll also bet that more value exchanges are going to switch from commercial exchanges of goods and services for money to social exchanges of favors taking place without money. I’ll also go in for the idea that a lot of these favors and non-monetary exchanges will in the end be about money, and will be attached to money in weird ways.

I know there’s a lot of great stuff out there I’m missing. And not just the last six years of Clay Shirky’s thought. There’s probably great economic research going back hundreds of years about non-monetary value exchanges, and how they impact money economies. There’s probably great research going back maybe half a century about how to measure the non-monetary side of economic production (studies on unpaid work by housewives come to mind). I’d guess that Facebook has people looking at deeper ways of understanding the value of the social connections they capture than just advertising revenue, though I’d also guess that they should have a couple more than they do. There’s probably also some pretty great anthropology being done about how people construct these bonds that are necessary for future collaboration, and I just know that there are plenty of theoretical mechanisms around for systematizing a reputation-based currency like Doctorow’s Whuffie.

So, instead of closing this post with the traditional “what do you think? Join the conversation in comments!” I’m going to ask, what should I be reading next? Christmas is coming and I’ll need something to crack open next to my parents’ fake fireplace.