I have had the debate a countless number of times with a friend. Yet, every time this idea comes up, it stirs controversy and a long argument. I ask it again, but this time here: do financial problems in Second Life make a case for failure of a free market?
The recent collapse of Sarah Nerd's real estate business is a big symbol of what is wrong. Suffering from the scandal of the World Stock Exchange and from Linden Lab's policy changes, it shows how the problems that plague SL are bringing solid and well-managed businesses down.
One can wonder why Linden Lab refuses to regulate its economy better, or at least create an independent body that can do this without a conflict of interest. I agree with people who like free markets on principle. Economic freedom is an awesome thing. Personal initiative remains the best way to make life better. On the other hand, some form of regulation, even if minimal, can be a great thing in a world where too many people got away with theft that gets punished in RL.
When you think of it, companies that cannot rely on stock exchanges in SL deserve some form of justice system so they have a way to recover from the damage. Some light regulation would eventually help to prevent some cases. What do you do when a private company is alone with access to the data of a thieve and refuses to act? Sue in a RL tribunal with a small, remote chance of winning? Thieves love situations like that. The odds are on their side.
The other issue is rather well-known. Free to do whatever it wants with this grid, even if it brings it to its long-term downfall, Linden Lab juggles with policy and drops the ball often. From the laisser-faire and banking ban to European taxes and Openspace sims, LL proved its incompetence. This reinforces my conviction that an independent body would do a better job at "governing" the grid with stable policy.
Another point that gives strenght to that is the current financial crisis. People who operate in SL have little control over their operations and more risk to deal with. SL is discretionary spending in its most extreme form. I can decide to go buy a Victoria's Secret without a learning curve in RL. SL doesn't just depend on spending decisions, but also upon people's will and ability to learn how to "live" on the grid.
All of this together makes me think that at the moment, the virtual economy is even more fragile than the RL economy, despite LL's claim that all is well. The current economic crisis in RL shows that naysayers usually are right when they doubt rosy reports. Remember how asset-backed securities were doing just fine?
This fragility means that a bit of light regulation and a bit of help from a competent pair of hands would be a great deal to go through the crisis. There are some of us who managed their businesses conservatively, especially with their land purchases, and who are not suffering that much. We are just making money at a slower rate. Some of our ventures are even doing better than before.
Sadly, it is not everyone's situation and unfortunately, Linden Lab is not qualified to handle it. An independent Securities and Exchange Commission, light-handed with a mandate from LL, could be the right answer.
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