Free and GDP

A few years back, Chris Anderson wrote this book called Free, where he talked about how different models of free get their money back (advertisers, goodwill, charging for premium versions etc).

But as James Surowiecki wrote, free has far more widespread ramifications. This has become particularly true in the Internet world we live in, where:

 “Digital goods and services are everywhere you look, but their impact is hard to see in economic statistics… You may think that Wikipedia, Twitter, Snapchat, Google Maps, and so on are valuable. But, as far as G.D.P. is concerned, they barely exist.”

This problem of assessing the economic value of free can no longer be pushed under the rug. As M.I.T. economist Erik Brynjolfsson says:

“As digital goods make up a bigger share of economic activity, that means we’re likely getting a distorted picture of the economy as a whole.”

It’s not just the economic value of the free stuff isn’t being added to our GDP calculations. At times, free stuff can even reduce GDP! Like Skype which reduced international calls via old telecom drastically. Or all those free apps on your phone that now do the work of dedicated services or goods. Or how Google Maps wiped out the (paid) maps industry. Of course, capitalism is supposed to be about creative destruction, but this is different:

“Digitization is distinctive because much of the value it creates for consumers never becomes part of the economy that G.D.P. measures.”

Which is why Surowiecki concluded with:

“The value that the digital economy is creating is real. But so is the havoc.”

Amen to that.