Did the web “kill the economy”?

Douglas Rushkoff, in a keynote speech at the Web 2.0 conference, boldly declared that the Internet caused the economic crisis.

I wouldn’t go as far as Rushkoff goes—it’s fairly clear to me that greed, deregulation, and predatory capitalism caused the global economic crisis. But his thoughts led me to a few of my own on the nature of the Internet, value and business, and what the world economy should look like in the future.

Siva Vaidhyanathan wrote a book in 2004 called The Anarchist in the Library. In true old-media style, I found it in a used bookstore on the “just in” rack and was immediately drawn to the title.Vaidhyanathan discusses the way the Internet functions, specifically peer-to-peer filesharing networks, in a way that I think has serious relevance to debates happening right now.

Media theorists have been saying for a while that different media have biases. Marshall McLuhan famously declared “The medium is the message,” and discussions of “hot” and “cold” media seem completely inadequate when looking at the Web. After all, the Web is many things to many people—and a mystery to millions of people who still have no access. You can use it just to download porn and music, or you can link yourself in to countless ‘social networks’ and communicate with friends and strangers, give input on Internet policy, plan a protest, discuss your favorite sports team, even ask questions of the President.

But Vaidhyanathan posits that the Web’s design is fundamentally anarchistic. And it is anarchistic in the best and worst of ways—it has no central authority and is difficult or impossible to control. Yet it can be used to cut yourself off even more thoroughly from people who disagree with you—only crossing lines to shout at each other like a bad episode of Crossfire. It can facilitate conversation—or it can facilitate your own narcissism.

The Web gives everyone a platform, but it does not guarantee an audience. It gives you tools for connection, but does not guarantee that people will like you. It widens your reach, extends the likelihood of running into someone that shares your view, but occasionally it feels like shouting in the dark.

Rushkoff points out that “The Internet allows people to create value on the periphery again.” Value—capital, if you will—is now controlled by the banks, the same financial giants that we’ve had to bail out with taxpayer dollars, and the government. But the government is us—represented, yes, by mostly white, mostly older, mostly rich male elected and appointed officials, but it draws its power from the people (or would, if we ever remembered that).

The Web allows us a different hierarchy of value. Space to speak is valued. Friends on social networks serve as a sort of social capital, as do blog readers—social capital that can be translated into financial capital when corporate advertisers take notice, perhaps, or when your blogging lands you a paying writing job.

It has also allowed sites like Etsy.com to explode and within that, to translate Internet capital once again into real capital. Etsy is nothing if not a social network that allows microbusinesses—home crafters—to profit from their efforts by grouping together. It’s like a giant craft fair. It combines a little-c communist ideal—together, we are stronger than apart—with ethical capitalist motives: to allow artists to make money off their work without being exploited.

Rushkoff notes that to start a business, usually you have to borrow money. For an Etsy business owner to start her own shop, to sell her sculpture or furniture or handmade jewelry, she would have to go into debt—borrowing from a bank. But instead, she joins a site on the Web and makes what she can afford to make out of pocket, and sells it, and invests the money back into her business, growing it slowly but starting out positive, rather than in the hole.

Vaidhyanathan, in reference to Internet music trading, notes that “To reach fans, artists no longer have to go through the labels. To hear cool music, fans no longer have to turn on MTV or listen to a narrowing array of radio programs.”

Good radio died in 1996 with the Telecommunications Act’s deregulation of media ownership. But it has sprung up again on the Internet, where you can go to a band’s MySpace page to listen to their music—whether or not they have a major label contract—or hit Pandora.com to style your own radio station by entering a band you like, or join blip.fm to DJ your own radio station, song by song.

Artists are starting to realize that this direct communication can be not just a problem, but a solution. Trent Reznor of Nine Inch Nails recently escaped his recording contract to begin a business entirely under his own control—releasing his music free to his fans in exchange for a different type of capital—information.

Like Barack Obama’s famous “List” of names, Reznor collects the names and contact information of his fans. But he also makes his music available for remixing by people at home, who again gain no money for their work. To make money, he markets live shows and other events—but has also, even with free downloads available to everyone, managed to sell 250,000 copies of his self-produced record. The only loser in this model? The record company.

Jill Sobule went a different route. Not as famous or as rich as Reznor, but just as independent, and with a loyal fan base, she raised $75,000 to produce her latest album by herself. Fans who donated money to her got gifts ranging from free downloads of the album to a guest spot singing with Sobule on the record. Again, she avoided debt and borrowing, and she gave something of value in return for the money.

Looking at another media crisis—the newspaper industry—we must realize that just as the crisis in recording is not about art but about the current model, the crisis is mainly with the newspaper industry. The way the news is funded has created many of journalism’s problems. News should be free, because it is necessary for democracy.

Just like we have decided that education and policing are things that are required for the society to pay for, news – journalism – should be subsidized and provided to all, not provided only to those who can pay. This would be, in effect, like adding a 21st century poll tax—the only people who can afford to be informed enough would be active citizens. But while the government debates, we can look to these models to try and find a way to support journalism—a better journalism.

So what does this have to do with the economic crisis? Like I said, I don’t agree with Rushkoff that the Web killed the economy, but I do see in all these examples (and many, many more) a way around the stranglehold the big banks have on our economy. Sure, they may be too big to fail, but that’s not a permanent situation, even if the “Geithner plan” works and the financial institutions go back to solvency.

The problem with the financial industry and business as we know it is that it’s based on the assumption that money is the only good—that the value of a company is only what it’s worth when it’s sold on the open market. “Mark-to-market” accounting is a symptom of this thought process. A financial institution that only shuffles money around may in fact be worth far less than what it can garner on an open market, while an auto company, with its legions of experienced workers and manufacturing business, is worth far more in the lives of its workers and in what it can produce than what it is worth on the market.

Suddenly, our economic system demands change not simply because it’s broken, but because we’re already starting to change it. Etsy and Trent Reznor’s plans, not to mention Vaidhyanathan’s book, were around well before the financial institutions revealed themselves to be little more than giant Ponzi schemes.

The death of our manufacturing base is a fact, but Americans are still making things, just on a different scale, and with an eye, as Rushkoff said, “to build and keep businesses rather than selling them off.”

The Web does away with the idea of scarcity—information and creative works are available to all who can get online. It doesn’t do away with our need to make money in order to eat, but it places the value back where it belongs—on the product, not on the shuffling of money. There are lessons in here that are valid as we look at extracting ourselves from this point of crisis and rebuilding a sustainable system built not on shuffling debt around, but on creating something of value.