Preternatural Greenies

This article, written by our occasional arts correspondent Olivia, was posted well over a year ago, but it still gets a steady flow of hits, mainly from people searching Google for some combination of “Second”, “Life” and “Greenies”.

Most of the Rezzable sims reviewed in Olivia’s piece disappeared from the main SL grid last year, and have since taken up residence on Open Sim, but the Greenies Home hung in there, still drawing in the crowds with its whimsical charm.

But now an era is drawing to a close as the loveable little aliens prepare to blast off for pastures new. Is this an omen? There are many stories of animals mysteriously sensing impending natural disasters, such as these reports from Sri Lanka of the 2004 Boxing Day Tsunami. Perhaps our diminutive green friends have forseen the coming apocalypse, and are getting out while their Linden dollars are still worth something.

I too shall be disappearing, but only temporarily, as I venture out of the range of 3G and WiFi for a summer break. I’ll be back in a few weeks, to find out if Second Life is still around for me to write about.

The Linden Principle

Towards the end of last year the BBC aired a documentary on the Great Banking Crisis of 2008, which featured various bankers, government ministers and officials recounting the emergency meetings where the decision was taken to nationalise large parts of the British financial system. The Royal Bank of Scotland, once one of the most successful institutions in the world, had, by late 2008, been reduced by an ill-advised expansion strategy to a virtual basket-case, and was only hours away from total collapse. Faced with the prospect of millions of citizens waking up to find their accounts frozen, the government called the RBS management into the Treasury to finalise the details of the deal that would eventually see the state acquire 84% of the bank. During the course of this meeting, officials realised that Fred Goodwin, RBS Chief Executive, seemed to have only the flimsiest grasp of the trouble his bank was in, believing that a modest cash injection would be enough to stabilise things. Goodwin retired shortly afterwards, with a generous pension, leaving the taxpayers to contemplate the lesson that, as Chancellor Alistair Darling ruefully noted, when it comes to running banks it’s a good idea to hire people who know what they are doing.

We tend to assume that, when someone reaches a position of responsibility, this must be as a result of some rational process that evaluated their competence for it. However we are often faced with evidence, like the poor decision making that led to the financial crisis, that contradicts this, and suggests that other, unknown factors must play a part in the selection of our leaders.

Laurence J. Peter, who died in 1990, is best known as the author of the Peter Principle, which states that “In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence.” Workers who are good at their jobs are promoted until they are in a job they can’t do, at which point they get stuck. Since big organisations tend to find it difficult to get rid of people, eventually every position will be filled by someone who is incompetent to manage it.

I was thinking of all this when I read about Linden Lab’s latest marketing wheeze; an advertising campaign that seeks to dispel a supposed “Fat Naked Guy in a Basement Anti-Second Life Meme” by showcasing the attractive people behind selected avatars. This seems to me to be wrong-headed on so many levels that it does raise doubts about how well the Lab management understand their own product and what makes it attractive to their paying customers. One only has to google “Linden Lab incompetence” to come up with plenty other examples of Lab strategy that have proved unpopular with the resident community.

On the other hand, Mark Kingdon has an MBA from the Wharton School of Business, and years of experience in senior management, whereas I am an embittered loser with a blog (though, I must point out, reasonably slim, fully clothed, and currently resident above ground). Who would you trust to run a successful company?

Brother, can you spare me an ISK?

More virtual-life-imitates-real-life news from the futuristic universe of EVE Online, where EBANK, one of the game’s largest financial institutions, has frozen all deposits after new management discovered a 1.2 trillion ISK (InterStellar Kredit) hole in the accounts.

At first glance this seems to be a repeat of the Second Life banking fiascos of 2007, but, to be fair to the directors of EB, they do seem to have been trying to run a proper retail banking operation rather than just a glorified Ponzi scheme, with interest paid to depositors theoretically covered by interest charged to creditors.

The initial stories of EB’s troubles focused on the embezzlement of 250 billion ISK by the bank’s former CEO, but what really seems to have done the damage is the spectacularly high level of bad-debt provision. Just about the whole of EB’s loan book looks to be unrecoverable, a failure of risk-management that makes even the most delinquent of real-life banks look ultra-cautious.

It is, I think, another example of cargo cult consciousness, the belief that you can capture the essence of something by replicating its superficial form. In this case EB did the things that a real bank does, like taking deposits and making loans, but without the social infrastructure than underpins such a business in the real world, like a legal system that allows creditors to pursue their debtors and seize their assets. More importantly, institutions of finance capital can only exist in the context of a system where there is actual value being produced, rather than an imaginary universe where work ultimately counts for practically nothing.

It’s surprising that anyone still believes that banking and other financial wizardry can magically create wealth, rather than just existing parasitically on the labour of the workers, given that recent events in the real world have shown up the masters of the universe for the frauds that they are. (ISK also stands for Icelandic Krona, and we all know how well that’s been doing recently.) A certain suspension of disbelief is required to enjoy the experience of EVE Online; perhaps for the more avid players their time in New Eden detaches them from reality altogether.

Forward to the past

This time last year I was just starting to rekindle my interest in the US presidential elections, having gone off the process a bit after my favoured candidate, Hillary Clinton, failed to clinch the Democratic nomination. At that time it looked as though the race could be uncomfortably close, but that was before the Republicans unveiled their secret weapon, VP-nominee Sarah Palin, and the world breathed a sigh of relief, safe in the knowledge that Obama had it in the bag.

Ms Palin has been back in the news this month, having decided that staying on to complete the job she was elected to do in Alaska would be the “quitter’s way out”, and that she would show she was no quitter by, er, quitting. Now that she no longer has the tiresome responsibility of looking after the wellbeing of her constituents, she is free to start building her campaign for 2012.

It amazes me that anyone in the US, even those on the right, could think that Palin is the best shot the GOP has at regaining the White House, especially after the drubbing they received back in November. The one thing sure to keep the coalition that swept Obama to power together is the sort of intolerant social conservatism that may play well to the ever-shrinking right-wing base, but just alienates the rest of the population.

The Democrats would be much more vulnerable to the sort of fiscally conservative/socially liberal approach that’s being peddled by David Cameron and the Conservatives here in the UK. In a depression no one cares too much about gay marriage or abortion; they’re too busy worrying about losing their jobs and their homes.

I guess the Democratic and Republican strategists will be waiting to see how the election here works out, when it finally comes. It seems sure to be fought on economic rather than social issues. I think that there will be a real divide between the main parties this time around, with Labour proposing a continuation of deficit-funded government spending, which will, theoreticaly, kick-start the growth that will eventually pay off the national debt, while the Conservatives will be offering painful public sector cuts now with the promise of better times in the future. It’s difficult to see a Labour victory though, since the mood of the country, like the US last year, is for change, unsurprising when one considers the economic mess we are in.

Obama doesn’t seem to be making much headway in tackling the financial crisis; there’s every chance that come 2012 he could lose to a Republican candidate promising small goverment and a balanced budget. With Cameron in charge over here it will be the Reagan/Thatcher years all over again.

On second thoughts, maybe a Palin candidacy wouldn’t be so bad…

On the margins

I don’t expect that my last post, in which I proposed that the value of virtual objects is effectively zero, will have caused a great deal of consternation in the SL commercial community, since I’m guessing that not many of them are overly impressed by Marxist economic analysis.

What if we take a look at the question from a more capitalism-friendly economic viewpoint? In general, non-Marxist analysis tends to reject the idea that commodities have intrinsic value (as is proposed by the labour theory of value) in favour of a more subjective formulation; the exchange-value of an object is what it will fetch in a free market, which in turn is dependent on the level of demand and supply.

This kind of theory is popular in financial circles, since it implies that value can be generated purely by the process of exchange, and that bankers and their ilk are actually wealth-creators, rather than parasites who have grown fat on the the toil of the labouring classes. (Though we’ve been hearing less of such triumphalist talk recently).

That aside, does a supply/demand model of value give us hope that Second Life commerce can be viable in the long-term? Sadly, no. The problem lies in the concept of marginal value. According to the theory, exchange-value is determined dynamically by the balance between the prospective buyer’s desire for an item and the level of supply. That desire is not constant though – it decreases as the buyer’s stock of an object increases. A man who has no oranges might be willing to buy them for a dollar each, but by the time he has bought ten he will probably be thinking of spending his next dollar on something else, though he may be persuaded to buy another if the price drops. The marginal value of an item is what a customer is willing to pay to get one more than he has already, and always trends towards zero. It may even go into negative territory if there is a cost associated with having too many items, such as storage charges.

The marginal value of most real-world items is maintained by their perishable nature. In Second Life though items last forever, so as residents age, and accumulate more stuff, their willingness to buy new things tends to decline. Even the most fanatical fashion-victims will eventually have enough clothes, shoes, or whatever, and retailers will have to drop their prices to tempt them into further purchases.

New avatars will still need to buy things of course, but since the percentage of people trying SL who go on to become long-term residents is quite small, it seems likely that the demographic will gradually mature, and the economy will stagnate. (There will be a subsection of the population for whom shopping is an end in itself, and for them the marginal value of new items will remain consistent, but I don’t think there are enough of them to maintain a growing economy).

So there you have it. Communists and Capitalists agree: the Second Life economy is doomed. People should stop wasting time trying to run businesses that have no future, and concentrate on exploiting the real potential of virtual worlds; the chance to create new kinds of art and entertainment, and to experience the myriad different forms of interaction that the grid gives us access to.

Less than zero

What determines the value of an object in Second Life? I’ve been thinking about that since reading this article a few weeks ago. The answer given in that post – the market strikes a balance between what a vendor wants to charge and what buyers are willing to pay, based on the perceived utility – has face validity, but also a number of problems. There are often glaring inconsistencies between price and usefulness (I got my house for free; Olivia paid L$600 for her boots), objects that are practically identical can have wildly different prices (she could have got a similar pair for L$200), and there is little price stability (this week they’re down to L$50). There are factors that partially explain these anomalies; the SL market is fragmented and inefficient, there are big differences in the usefulness of virtual objects and their real-life counterparts, and the low value of the Linden dollar compared with that of user time discourages shopping around for the best deal. Even so, the model seems rather unsatisfactory.

Is there a more objective method for calculating the intrinsic worth of virtual objects? Old Bolshevik that I am, I tend to fall back on the labour theory of value. We are interested in those objects that are produced for the purpose of exchange, that is those objects which are commodities; according to the theory the exchange-value of such items will be proportional to the socially necessary labour-time involved in their production. (Socially necessary meaning the time taken for the worker of average skill labouring under average conditions, rather than the time taken by any particular worker, who may be more or less efficient than average).

So far, so good. The value of an object appears to depend on how much work its creator puts into it, assuming they are of at least average skill, which seems fair. Virtual items are different from those in the real world in one crucial respect though – they may be copied with practically no effort. (By this I mean copied by their creator for sale, rather than pirated). However many hours of work go into making the prototype, the value of that labour is diluted, potentially infinitely, by reproduction. Thus the value of any one copy will trend towards zero.

To get around this a content creator could produce unique items, or at least very limited editions, which in theory could command premium prices. There are a couple of problems with this though; unless you are a virtual Yves Saint Laurent no one is going to pay significant sums for your work, and even if you do have exceptional prim-sculpting talent the market for such work is going to be so restricted that you are unlikely to be able to earn a living. (In the real-life fashion industry the top designers make relatively little from their haute couture collections, since the volumes they shift are tiny; the real money is in the diffusion lines). If your design skills are no better than average then you’re in an even worse spot; even if you don’t go down the mass-production route, as long as a few other producers of comparable goods do they will reduce the socially necessary labour-time for the creation of your product, and its value will inexorably decline.

Is there any empirical evidence that this theory is correct? It’s difficult to get hold of meaningful economic statistics regarding Second Life commerce, but anecdotally there does seem to be a feeling that the volume of low-price and free items available is increasing, and that the quality of the free stuff is much better than it used to be; it’s certainly significant enough to support a whole SL Freebie” blogging subculture.

Second Life is copying real life, at a characteristically accelerated pace; the declining rate of profit is on the verge of producing a crisis of over-production. In the real world the point of crisis can be postponed by expansion of credit, though when this comes unstuck, as it has done recently, things tend to go spectacularly wrong, and capitalism is forced to fall back on the traditional remedy of economic depression and/or global war, to destroy unproductive capital and create the conditions for a new round of accumulation.

I don’t think that the Second Life economy will actually collapse though; owners of chronically unprofitable virtual businesses are likely to subsidise them indefinitely, just so they can hold on to their dreams of escaping the real-life rat-race, and this constant inflow of capital should be enough to prevent a crisis. (So long as the non-virtual crisis doesn’t consume Linden Labs).

Is there a better way to solve things? My ideal would be Second Life (and real life too) operating as a cooperative, collectively owned by its residents, who would each receive a social wage, and would freely contribute their talents for the betterment of the whole virtual society. “From each according to his ability, to each according to his needs” as the saying goes. I’m sure there are a few sims running on this principle, but my feeling is that the prevailing political tendency in SL is Libertarianism rather than Communism, so it may be some time before the virtual proletarians throw off their chains.

Virtual Monopoly

The buzz around the SL blogosphere this week is all about Linden Labs’ unexpected takeover of XStreet and OnRez, the two biggest and best known of the web-based Second Life marketplaces.

Blogger opinion seems fairly unanimous in regarding this development as A Bad Thing, though reaction varies from mildly disapproving to apoplectic.

Regular readers of SLS will know that we have long been sceptical of the idea that it is possible to make serious money through in-world commerce, but the existence of services like XStreet and OnRez presents a challenge to our doubts, since they provide a route by which cash can be extracted from the grid without showing up on the official Linden Lab statistics. Perhaps sellers in these marketplaces are turning over significant sums, enough to make a living comparable to having a real-life job. Even if this isn’t true, the markets themselves may be handling enough transactions that a commission of even a couple of L$ a time would be enough to make running them a lucrative business.

Does the fact that the Lindens have bought into the action provide any support for the theory that the web-based marketplaces were making money? One might speculate that L-Labs is worried about a fall-off in the subscriber base due to the recession, and is looking to secure other revenue streams. On the other hand, if XStreet and OnRez were profitable it seems strange that their developers would have sold out, unless the offer was irresistible. Throw in the fact that OnRez was owned by virtual world cheerleaders-turned-jeremiahs The Electric Sheep Company, and it begins to look like the picture wasn’t so rosy after all.

Linden Labs may well have taken advantage of the economic crisis to increase their stranglehold over Second Life commerce by snapping up two companies that, had they had time to develop further, may have grown to challenge L-Labs’ dominant position as the people who actually make money from the grid.

A Hard Rain’s a-Gonna Fall

What is there to do on Boxing Day except sit around eating, drinking and randomly surfing the net? Lots of things probably, like spending quality time with my loved ones, or taking some exercise, or doing something socially useful by serving turkey to vagrants at the homeless shelter, but I fearlessly embraced the crisps/lager/web option, so that I would have something to post about.

I did try to stay on-topic by browsing through Second Life-themed blogs. Amongst the numerous posts on various pressing issues in the world of SL fashion, there were contrasting views on what the future holds for the grid.

There are definite signs that SL residents are feeling a chill from the cold financial winds that are blowing through the real world. “The Quiet”, an iconic piece of SL sculpture, is due to disappear next month, as its creators can’t keep up with the rent. More generally, hundreds of sims are being abandoned, after Linden Labs increased the tier fees and decreased the prim allowance on the class of land known as “Openspace”. The flight of corporate investment is an old story, though you don’t read about it so much now that Reuters have closed their SL bureau. Even The Electric Sheep Company, who pioneered SL marketing for RL companies, are talking gloomily about a virtual recession.

Not everyone is downbeat though. Dennis wants to convince us (and perhaps himself) that the virtual economy is likely to grow in 2009. Perhaps not coincidentally, Dennis is in the business of organising virtual trade shows.

My own view is that Second Life will survive, since there does seem to be a critical mass of users who are willing to pay a few dollars a month to play out their various fantasies, or at least watch whilst others do so, but nobody except L-Labs is going to be making any serious money.

It’s the end of the world as we know it

I woke up this morning to find that I now have a bank account with the government. This is quite a development, when one considers that the institution that I previously dealt with was until a few weeks ago considered one of the pillars of free market capitalism in this country, and not a basket case that has had to be nationalised to save it from bankruptcy.

I should be feeling fine, I am after all a hard-core leftist, and have marched many a time calling for the commanding heights of the economy to be seized by the state. It’s hard to feel good though, when “depression” stops being something that you can treat with Prozac, and starts being something that will throw millions into poverty.

I’ll probably be OK personally; I work in the public sector, and everybody seems to be a Keynesian these days, so I don’t think my job will be cut. They might even give me a raise, in the hope I’ll rush out and buy a new house. There will be no shortage of business anyhow; human misery is the lifeblood of my profession.

At least REM will be happy; they must be raking in the royalties now that every news show is playing their song over footage of stock traders looking shocked and people queuing up outside banks.

Questions of character

The “Troopergate” enquiry has found that Sarah Palin was guilty of abuse of power and violation of ethics laws, though it also concluded that her decision to fire Alaska Public Safety Commissioner Walt Monegan was “a proper and lawful exercise of her constitutional and statutory authority”.

Even with my partisan bias I’m struggling to see this as a fatal blow for the McCain/Palin ticket, though clearly it raises serious questions about her judgement. It’s likely that this report will just strengthen people’s existing views; the left will think that it proves that Palin is unfit for office, and the right will point to it as more evidence that the liberal media elite are out to get her.

It’s a sideshow to the main event anyhow; the economy continues to slide, which is bad news for the GOP, hence McCain’s increasingly desperate attempts to shift the debate on to the “character” issue. Things are likely to get even worse before November, and the election is Obama’s to lose.

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