Global Shift in Value Exchange

Most people think about creating value with their work (and many see work as working in a coal mine) in exchange for money. What if you went to work but didn’t get paid in money? Or what if you created something that doesn’t exist…but has enough value that people are willing to give you value for your virtual creation?

A post on 3PointD today about this Reuters article entitled, “US Congress launches probe into virtual economies” got me to thinking about some dots I’ve been trying to connect for the last year or so. The dots are that I’m seeing a global shift in value exchange that may make much knowledge (i.e., intellectual property) free and the implication of free on capitalism and geopolitics will be profound.

Booming virtual economies in online worlds such as Second Life and World of Warcraft have drawn the attention of a U.S. congressional committee, which is investigating how virtual assets and incomes should be taxed.

Why is Congress doing this?

  • Think for a moment about the global shift that is occurring in intellectual property. Open source software, as one example, is a manifestation of “value for value exchange” of the highest order. People from around the world invest energy, effort and intellectual capital in the creation and delivery of software value that is non-monetary and non-barter in nature. The relevance and intrinsic value of any of these projects could, I argue, be directly related to the number of people actually using them.

So far, no government has attempted to tax me on the “value” of open source software I use. Is a Linux desktop worth 80% of the value of Mac OS X or WindowsXP? If so, I’m receiving roughly $100 worth of value if I use it. Same thing with content management systems, blogs, wikis and all the other amazingly valuable open source packages I use instead of buying commercial off the shelf software or using hosted services. A very rough, back-of-the-envelope calculation shows that I use tens of thousands of dollars worth of open source package value (if one were to look at commercial alternatives for each).

  • Look at the acceleration in the use of virtual worlds and people making money in them. This is the real reason for Congress’ action: not if…but when virtual worlds have good enough resolution to facilitate an increasing amount of value exchange and commerce occuring within them, how will earnings be taxed? What if the world is hosted, say, in one country and the value-creator in another. Will the country where the value is created (and the virtual world company located) tax the virtual value and transactions or will the tax be on the individual value-creator and their virtual real estate and commerce businesses? What if a company holds a contest and gives a prize of an island with structures on it? Will I receive a 1099 for its “virtual worth” and have to claim it as income on my tax return?

All of this goes way beyond labor and workin’ in a coal mine for money. Alot of really smart people are examining these questions and many more important ones. Yale Law School has their Access to Knowledge project and event. Yochai Benkler has written a fabulous examination of the impacts of networks on production, macroeconomics and the profound shifts occurring. If you are in a leadership or strategic role in any company or government you already should be wrestling with these questions. Or if you are a parent or guide who cares about the future of work and where your progeny may be directed then it behooves you to at least think about the changes and shifts happening right now as the world connects.

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  1. Lars Plougmann on November 9, 2006 at 8:27 am

    I suspect governments are looking into virtual economies because they look a bit like frequent flyer mile schemes – a huge economy with a virtual currency which is already regarded as taxable income in many countries.

    As for open source, I certainly hope that the “commons” approach will prevail and that benefit derived does not become equated with taxable income. That is, benefiting from free software (and hence others’ work) should be regarded in line with the benefit you get from, say, admiring impressive architecture when moving around a city.

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About Steve Borsch

Strategist. Learner. Idea Guy. Salesman. Connector of Dots. Friend. Husband & Dad. CEO. Janitor. More here.

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Podcasting hit the mainstream in July of 2005 when Apple added podcast show support within iTunes. I'd seen this coming so started podcasting in May of 2005 and kept going until August of 2007. Unfortunately was never 'discovered' by national broadcasters, but made a delightfully large number of connections with people all over the world because of these shows. Click here to view the archive of my podcast posts.