Over the past month, the mighty Cleveland Federal Reserve has been sending out a steady stream of tweets about one of its educational tools, a free online game called “Escape from the Barter Islands!”. It’s designed to teach kids (and adults) about how the economy works, using a fictional island with oranges, bananas, grapes, coconuts etc.

The implicit message is that primitive societies – or islands – are forced to use barter, since they have not yet discovered the joys of cash, notes, credit cards and so on; but, once these economies “grow up”, they turn to money (and central banks), thus becoming more efficient. As teaching tools go, it is a catchy offering, and I salute the Cleveland Federal Reserve for coming up with it. However, I do have one issue with the game: we haven’t really escaped from barter. 

As I wrote earlier this year, barter is very much still part of our modern cyber economy. So much so, in fact, that you cannot possibly hope to have an intelligent conversation about how to reform Big Tech unless you start by recognising its existence. To recap: many of the transactions you perform online involve money. For example, if you download music from iTunes or pay your phone bill, money will be involved. But if you exchange messages with friends, browse the internet, use a map service or peruse a shopping site, there is no monetary “payment”. 

Sometimes these transactions are described as “free”. But that is a misnomer: what is really going on is an exchange that occurs without cash – tech companies give us valuable services but they also collect our valuable data. We do not always notice or measure this, since economists tend to focus on transactions that involve money or credit. But this exchange is crucial to the economy of Amazon, Google and Facebook, and the more we demand customised services, the more this barter thrives.

This state of affairs has wider and rather timely implications, given that politicians in Washington have dived into a debate this week about whether to regulate social media – and their counterparts in Brussels are threatening to clamp down too. 

Today, it is popular for politicians to decry the way that Big Tech has exploited consumers by taking their data “for free” and then abusing this. These are valid concerns. A recent survey by the think-tank Pew Research Center suggests that 91 per cent of Americans are worried that they have lost control of their data and 64 per cent want the government to introduce more controls. 

But if you want to discuss regulatory solutions it is no good simply talking about half of this equation (the data that tech companies grab); a better way to frame the issue is to recognise that a barter trade is occurring, and then ask whether the terms of trade are “fair” – and, if not, how they could be improved. 

There are certainly ways that consumers could get more power. Right now, I suspect that most of us do not want to abandon barter trade, since we increasingly rely on these “free” services. Indeed, we would probably be horrified if we were forced to pay for them with cash. But it is perfectly possible to envisage ways to give consumers more bargaining power. Regulators could introduce mechanisms that let consumers know how their data is being used; indeed, this is one idea currently being floated by Ed Markey, a Democrat senator. 

Consumers could – and should – get real choice about who they barter with. This means that regulators need to take steps to ensure that big companies are not monopolies. European regulators are already keenly aware of this: in July, Google was fined €4.3bn for imposing anti-competitive terms on companies using the Android mobile operating system. Just last week, the European Commission announced it was investigating Amazon regarding how it uses its merchants’ data. So far, American regulators have been more reluctant to intervene.

If you wanted to be truly radical, it might be possible to devise a system where consumers were able to “own” their data and to sell it for a price. Indeed, some entrepreneurs in Silicon Valley are trying to devise innovations that would do precisely this, creating a new form of digital property rights. If this ever occurred, it would deliver more transparency to the value of the digital economy. Wibson, a decentralised data marketplace, estimates that the data Facebook harvests each year is worth, on average, $240 from every American adult; others have made higher and lower estimates. 

The technical logistics of creating digital property rights remain extremely complex. And if tech companies did start paying cash for data, they would inevitably take another step: charging us for the “free” services too. Would consumers like that better? Or do they actually prefer the current barter trade? Nobody knows for sure. But I would hazard a bet that this new cyber barter will remain in place for a long time. Maybe the Cleveland Fed should update its educational tool – and use data instead of coconuts.

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