Fascinating piece in the Time Magazine, titled “Getting Rich off Those Who Work for Free” by Justin Fox, about how the new wave of open-source kind of projects are creating real riches for some:

It might seem very odd to look to a long-dead Russian anarchist for business advice. But Peter Kropotkin’s big idea–that there are important human motivations beyond what he called “reckless individualism”–is very relevant these days. That’s because one of the most interesting questions in business has become how much work people will do for free.

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Open-source, volunteer-created computer software like the Linux operating system and the Firefox Web browser have also established themselves as significant and lasting economic realities. That’s not true yet in the worlds of science, news and entertainment: we’re still figuring out what the role of volunteers will be, but that it will be much bigger than in the past seems obvious.

“The question for the past decade was, Is this real?” says Yale law professor Yochai Benkler. “The question for the next half-decade is, How do you make this damned thing work?” Benkler is a leading prophet of today’s gift economy, and he fits the part:

What might those things be? Take the case Benkler makes in his 2006 book, The Wealth of Networks (available, free, at www.benkler.org) for the economic benefits of “peer production” of software and other information products–from journalism to scientific research to videos of people mixing Mentos and Diet Coke. Peer production by people who donate small or large quantities of their time and expertise isn’t necessarily great at generating the original and the unique, but it’s very good for improving existing products (like software) and bringing together dispersed information (Wikipedia). Often better, in Benkler’s telling, than corporations armed with copyright and patent laws.

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Clever entrepreneurs and even established companies can profit from this volunteerism–but only if they don’t get too greedy. The key, Benkler says, is “managing the marriage of money and nonmoney without making nonmoney feel like a sucker.” In software, where IBM and other companies charge billions of dollars to install and run otherwise free Linux systems, this seems to be working–in part because Linux volunteers can make money from their expertise and there’s a clear understanding of what one can charge for.

In other fields, it’s not so clear. In a critique of Benkler’s work last summer, business writer Nicholas Carr speculated that Web 2.0 media sites like Digg, Flickr and YouTube are able to rely on volunteer contributions simply because a market has yet to emerge to price this “new kind of labor.” He and Benkler then entered into what has come to be widely known in Web circles as the “Carr-Benkler wager”: a bet on whether, by 2011, such sites will be driven primarily by volunteers or by professionals.

I usually love Nick Carr’s blog, but on this one I tend to agree with Benkler…People who set up open source systems do setup schemes to reward the participants in a number of non-monitory ways. Some of these rewards are recognition as a leader in the community, or enabling users to connect with other members or to enable user to share their content (youTube) with their family and friends. Most of the users find these to be suitable reward for their efforts and don’t worry about the owners of such establishments getting huge chunks of money.

I think a good parallel for the community sites on the web is hot night clubs…These clubs (like club 52 in NYC) attract a lot of people and charge substantial cover charges in addition to obscene amounts for beverages etc. and still typically have a line of people wanting to go participate. Going by Nick Analysis, such popular establishment are just exploiting their visitors (much like youTube etc.) and don’t really deserve the profits they get. I tend to think that instead of disparaging such businesses, we should be appreciating and learning from them as they are able to create an environment where community members want to participate. I think they fully deserve their riches and their rock-star statuses.

I think at the bottom of it, we need to recognize that non-monitory rewards can just be as effective as financial incentives. Human beings are really social creatures, and social interaction and recognition can be a powerful motivators for most people. Its no wonder solitary confinement is considered a punishment…I know its a hard think for most efficient market advocates to admit(full disclosure, I actually studied at U of Chicago) but I think the facts are stacked against them…

What do you think?