Bank on reputation as our future currency
With two-thirds of the global workforce set to be in the ‘shadow economy’ by 2020, a good name is likely to grow in value
Growth of web-based social networks will lead to a lot more reputation-based economic exchanges, according to author Joshua Klein
The explosion of web-based social networks and exchanges creates the possibility that a new form of currency could one day rival what we know today as money. This more human form of currency is reputation, says Joshua Klein, author of a new book, Reputation Economics.
As less developed parts of the world rise economically, this idea will gain traction, he says. “Right now, people who are most invested in old models of exchanges are banks and corporations in the developed world, because they are working well. For a lot of the world, that’s not the case. The large bureaucratic organisations are not necessarily helpful for ordinary citizens who don’t have a social security number, a fixed address or literacy skills,” he tells The Irish Times.
In many parts of the world people rely on community-based networks to survive, with trade in the form of barter and goodwill – in effect, reputation-based exchanges.
“Those are the people who are going to come online in the years ahead. They may not be able to get a bank account but they can get a bitcoin wallet or equivalent and there will be lots of them,” Klein notes.
In 2009, the OECD concluded that about half of the world’s workers – some 1.9 billion – were employed not in the traditional economy but in some form of shadow economy and predicted that this would grow to represent two-thirds of the world’s workforce by 2020, he says.
“Most markets are unregulated and end up relying on the same methods of social control that are central to all of our modern social software and exchange platforms – reputation.
“We’re essentially seeing the original market enjoying resurgence in the face of a rapidly eroding global financial system, which is in many ways failing to meet our demands,” he says.
This is not just a developing world phenomenon either: “We’re starting to see lots of platforms that are allowing people to exchange value in non-financial ways. You can go online now and get reputation information about anybody. This allows you to make assessments not only of the relative value of someone in an exchange but also how much and what they might want,” he says.
Klein cites an example of a student who might want an internship in a company but who does not have the right contacts. Through his social network, he lends his World of Warcraft video game account to another student who then lends his car to another student who wants to take a girl on a date. That third student then convinces his father to endorse the first student for an internship at his company. Services that ordinarily would be difficult to access are thus exchanged because of the trust between the people in the network.
In another example of how networks can change the notion of currency, in Pasadena, California, he says, there is a group of homeless people doing bitcoin mining instead of begging, by interacting with websites. The value they extract via the online cryptocurrency can then be exchanged into gift cards for shelter or food at the point they need to pay for it. “This is a safer way for them to establish a resource base, given that they are vulnerable through homelessness,” he notes.
Reputation economics has a levelling effect in the business world, allowing niche to thrive alongside multinational.
Klein has another cute example regarding the website Etsy. com, where craftspeople get to sell their wares online. His tale here concerns a daughter who spent $40 on a tea-cosy as a gift to her mother even though a comparable item could be bought for a mere $2 at Walmart.
Every week she got a video from the little old lady in the American midwest who was knitting the cosy, discussing the yarns being used and the various tribulations of the project. When the gift package arrived five weeks later, it came with hand-pressed flowers from the old lady’s garden, because she had established through email exchanges that the buyer’s mother really liked these flowers.
Crowd-funding platforms, such as Kickstarter, provide a further example, Klein notes.
“Kickstarter allows you to get the market already invested. You don’t have to meet the costs of production and then hope that someone will come and buy. You can identify the community, speak to them and determine exactly what they think of your idea and what they are willing to invest and if it’s adequate for you to go to market, you can then go and produce it.”
The convergence between this nimble digitally driven economy and the corporate behemoths has already begun. “Trends like transparency, corporate accountability, community outreach, these are all forays into that idea about brand and companies striving to have a more personal relationship with their consumers,” says Klein.
Reputation Economics by Joshua Klein is published by Palgrave Macmillan