The end of Doha and the World of Warcraft

The Doha trade talks failed this week...and Dani Rodrik asks so what? In his view, the probable gains from this further trade liberalization were not significant. I would add that at least in some sectors, formal trade liberalization is becoming increasingly irrelevant. The internet has created the possiblity for ever greater amounts of trade in services that are largely under the radar of the World Trade Organization and, to some extent, government tax collectors.

One example is that of outsourcing of tutors. India now supplies online tutoring help for many of America's struggling high school students. But tutoring may be just the tip of the iceberg. One estimate has it that gold farming - the practice of earning virtual currency in an online game and exchanging it for real currency - amounts to some US$500 million per year. Gold farmers, many of them based in China, sell the virtual currency to players in rich countries through websites like this one. Perhaps the World of Warcraft is rendering the World Trade Organization a bit less relevant? 

In a new - and perhaps the first - academic paper on the topic, Richard Heeks of the Institute for Development Policy and Management has explored the phenomenon of gold farming and its potential impact on development (Hat tip: Giulio Quaggiotto). While Heeks has to rely on a lot of sketchy data, he does his best to come up with reasonable estimates of the size and reach of this phenomenon:

In basic terms, gold-farming is a sizeable phenomenon. The rather wobbly-legged best guesses for 2008 are that 400,000 gold farmers earning an average US$145 per month produced a global market worth US$500m; but we could easily more than double the latter to over US$1bn. There are probably 5-10m consumers of gold farming services. The main uncertainty of estimation relates to the gold-farming market in East Asia, which appears much larger than that in the US/EU.

Heeks also suggests an additional benefit of gold farming - a reduction in unemployment. Given the informal nature of this activity, new entrants can easily start playing World of Warcraft or other online games with a minimal initial capital outlay. Of course, what constitutes a minimal capital outlay varies from place to place. It seems that the most important variable in the spread of gold farming is the growth of ICT infrastructure. This helps explain why gold farming is so much more widespread in China than in India; despite India's reputation as a technology powerhouse, the country has only about 3 million broadband subscribers, according to Heeks. (Of course, we shouldn't ignore differences in exchange rates, which may make it more worthwhile to engage in this activity in China.)

What are we to make of the impact of this phenomenon on development? Writing in the New York Times, Julian Dibbell suggests there is a dark side to gold farming:

But as a matter of everyday practice, it is the [gold] farmers who catch it in the face. Consider, for example, a typical interlude in the workday of the 21-year-old gold farmer Min Qinghai. Min spends most of his time within the confines of a former manufacturing space 200 miles south of Nanjing in the midsize city of Jinhua. He works two floors below the plywood bunks of the workers’ dorm where he sleeps. In two years of 84-hour farming weeks, he has rarely stepped outside for longer than it takes to eat a meal.

I can't say that sounds like a lot of fun. Dibbell and others have described some gold farming operations as a form of virtual sweatshop. Heeks has a response to this criticism - we have to view gold farming in light of whatever the next best option is. And Heeks thinks gold farming is an improvement:

Gold farming seems to represent an efficient use of capital in job-creation terms (estimated at less than US$800 per job), with wages representing at most 50% of revenue. The main jobs created are those of in-game "playbourers" who are predominantly male and 18-25 years old, pushed into the sector by the lack of alternative employment. Most are paid on a piecework or quota basis but with food and accommodation thrown in. Most work 12-hour shifts, 7 days per week and can be considered semi-skilled or skilled labour.

How we view this depends on the benchmark. Pay and conditions are poor by Western standards but as good or better than the alternatives that gold farmers face: in wage, in work content, and in other ways. We may not know how gold farmers' careers progress but we can say that most enjoy their work and that the oft-applied "virtual sweatshop" label is at best partial and at worst inappropriate.

I think if we take a longer view, we can arrive at an even more positive viewpoint of the phenomenon. Returning to the original point about the general rise in trade of services through the internet, gold farming is only one stage of development in an increasingly complex set of economic relationships. As internet infrastructure spreads further in the developing world, entrepreneurs will take advantage of low wages to outsource more complex (and perhaps better paid) online services to China and elsewhere. And the world's entrepreneurs aren't going to wait for another Doha round to make that happen.