Coase's Penguin and Crowdsourcing

A few weeks ago there was a reading group discussion at SI about a couple of articles on Cyberwork. I wasn’t able to attend, but I did read the articles and they got me thinking about the interrelations between work, education, and the internet. I started to discuss this in my last post on the ‘just give them more education’ canard that surrounds so much discussion about outsourcing and offshoring jobs.

The articles up for discussion were Yochai Benkler’s essay “Coase’s Penguing, or, Linux and the Nature of the Firm”, “[The Rise of Crowdsourcing]()” by Jeff Howe, and “AI gets a Brain: New Technology allows software to tap real human intelligence” by Jeff Bar and Luis Felipe Cabrera.

I’ll begin with Benkler. His article is by far the deepest of the three and the arguments I sketch below are just a portion of what he has to say. According to Benkler there are three different conceptions or models of production in the world today:

  • The first is the market. It makes decisions by allocating resources based on the prices people are willing to pay. In many cases this is a highly efficient way to aggregate a lot of information from many different sources.
  • The second is the firm. This comes directly form Coase’s theory of the firm. Coase asked the question, if the market is so efficient then why do people bother to form firms or companies? The answer is that sometimes the market is inefficient and the firm can overcome that inefficiency by making it easier to share information or a management structure.
  • The third is a new form, proposed by Benkler, called ‘peer production’. His primary example is Linux. In this example the work is done by a highly distributed group of people, a group that doesn’t function like a traditional business, nor a traditional marketplace. Instead it is in between the two, relying on cooperation to coordinate activity and production.

Before the creation of ubiquitous and cheap networks, such as the internet, it was difficult for people to organize collective endeavors such as Linux. The rise of the network enables this new form of peer production to occur. Peer production, in turn, offers an alternative to the two predominant forms of capitalist economic organization, markets and firms, that have dominated the twentieth century. Benkler has written an entire book on the subject, The Wealth of Networks.

The Wired article describes crowdsourcing as the next step after outsourcing.

All these companies grew up in the Internet age and were designed to take advantage of the networked world. But now the productive potential of millions of plugged-in enthusiasts is attracting the attention of old-line businesses, too. For the last decade or so, companies have been looking overseas, to India or China, for cheap labor. But now it doesn’t matter where the laborers are – they might be down the block, they might be in Indonesia – as long as they are connected to the network.

Technological advances in everything from product design software to digital video cameras are breaking down the cost barriers that once separated amateurs from professionals. Hobbyists, part-timers, and dabblers suddenly have a market for their efforts, as smart companies in industries as disparate as pharmaceuticals and television discover ways to tap the latent talent of the crowd. The labor isn’t always free, but it costs a lot less than paying traditional employees. It’s not outsourcing; it’s crowdsourcing.

The appeal to hobbyists, dabblers, and part-timers is the crux of the article. The main example is the stock photography business. Previously this business was controlled by a few major firms. Professional photographers sold their work, often on a freelance basis, to these firms. The firms aggregated the content and then sold it to customers who were looking for stock photos. Now, claims Jeff Howe, the internet is changing the business. Amateurs are able to post their photographs and sell them for a fraction of the cost previously charged by professionals. The result is professionals are leaving stock work for contracted work, and amateurs are forming websites to centralize the distribution of their much cheaper work.

The rhetoric of the article is appealing to the peer production model of the new internet. Isn’t it just great that all of these amateurs are sticking it to the big boys. It’s the triumph of the little guy over the man.

But crowdsourcing as described in the Wired article is just another form of market organization. The market is only distributing work more cheaply than before. The new photographers that are replacing the old guard of stock photographers are not participating in peer production. They’re just substituting their own activities for the individual activities of the stock photographers, and for less money. Some communities of photographers may form along the way, and these communities can help people become better photographers. More people may indeed benefit from this by improving their skills. But the loss of pricing power will remain. What was once a professional activity that could command a wage premium is now just another casualty of the free market. The cheap always wins out.

The drive to cheapness is also a drive away from quality. The next step of the crowdsourcing model, if you follow it to its logical conclusion, is to collect all the photographs taken by everyone and put them into an even bigger pool. Now there are thousands of choices but soon there will be millions. It will be a consumers paradise.

But when the pool of photographs to choose from becomes too big we will have to find another middleman, another editor to choose the best work for our consideration. So the stock photography middleman is temporarily displaced only to return later, and the photographer who provides the goods ultimately loses out because the price drives to zero as quickly as possible. Is there anyway this can end well for the photographer? Or for the consumer?

The long tail and other ideas that have come out of Wired recently pay a lot of lip service to the democratizing ideas that motivate Benkler’s peer production economy. But so far that economy has really only worked well in technology such as the open source software movement. These changes will play out in unexpected ways but for now you can call me a skeptic.

The final article is by two of the developers working on Amazon’s mechanical turk system. The mechanical turk is a web service that allows companies or individuals to divide tasks into chunks that can be processed by humans. Workers volunteer to perform the tasks and are compensated by the requester.

Here we can see the end product of outsourcing and crowdsourcing in its nascent form. This is just piece work updated for the modern age. The sweatshops are already here. We are farming out the dreary and thinking it’s creative. We are selling our creativity to the lowest bidder. Welcome to the new economy.