My little sister is adventurous, generous and, in the best possible way, idealistic. As I write this, she’s volunteering as a counselor at a Palestinian summer camp. So I wasn’t surprised to learn that she recently traveled to Cyprus. Nor that she stayed with a complete stranger she met online through CouchSurfing, a website—make that movement—for finding accommodation and creating a better world “one couch at a time.”
But I was somewhat surprised when I saw pictures of her accommodations. Rather than the dirty hovel you might expect from a service targeting frugal travellers, her room was spacious and immaculate, the fortunate side-effect of staying in the home of an architect’s son. And, exceeding even the common generosity of the CouchSurfing community, her host even offered use of his car, a convertible Mazda Miata perfect for booting around in the Cyprus sun.
It’s the kind of accommodation and transportation that could set you back some cash. Except for one thing: you couldn’t buy it if you tried, because CouchSurfing’s rules expressly prohibit such commercial transactions. So whereas a decent hotel in Cyprus might cost you $100 a night, an architect’s house and a convertible (not to mention meals) are free.
Free, that is, if you have a good reputation, and the right attitude. Because while CouchSurfing doesn’t allow commercial transactions, it does require you to have credibility. If fellow CouchSurfers give you a poor rating, you’re out of luck. Violate core principles, and you’re out of the community completely.
CouchSurfing’s just one example of a growing reputation-based economy. Science fiction writer Cory Doctorow’s “whuffie,” a digitally tracked future currency based on reputation, now seems one of the more prescient predictions in recent years. A confluence of developments including information (and general) abundance, social media growth and transparency, and an increasingly unreliable financial credit system have driven the trend. Make no mistake: your reputation (and, particularly, your digital reputation) is now as important to your economic future as your credit score—if not more so.
From handshakes to credit score—and back
Long ago, in the dark ages before MasterCard, personal integrity was your credit score. We didn’t need elaborate algorithms for calculating your worthiness of a loan. If you had a good reputation, you could borrow from family, friends and the community. If you had a bad reputation, you were marginalized. Your handshake was worth more than gold. And the community’s memory rivalled that of a bank mainframe. People didn’t forget. If your grandfather’s grandfather screwed people, you were born tainted.
But for most of the 20th century, we disconnected personal integrity from credit worthiness. Your credit score was largely determined by things like your equity and, bizarrely, the amount of debt you were already carrying and able to manage. One of my older sisters (not the CouchSurfer; I have three) never claimed one of those ubiquitous student credit cards while at university. When she graduated, despite having a steady job with the government, she struggled to get credit. With no history of debt, she was essentially blacklisted. Meanwhile, the Kenneth Lays and Bernie Ebbers of the world had no trouble accessing capital, despite character flaws that would ultimately lead to their undoing.
What happened? As communities grew and dispersed, our ability to track reputation disintegrated. Doing business with people overseas, for example, it’s hard to know their reputation, particularly if you don’t speak their language or know anyone in their community. Ditto when our communities grew beyond the few hundred people our brains evolved to track. And then there’s the fact that integrity is a tough thing to measure. It’s pretty hard to track how many promises or handshakes people betray.
But it’s fairly straightforward to track people’s financial transactions. So why go through the arduous process of assessing character when you can much more easily track earnings, equity, debt load and repayment history? Hence your credit score became far more important than your reputation, allowing for national and international financial institutions to build obscenely lucrative businesses by extending credit to people they’d never met, and didn’t need to.
But all of that is starting to change.
From Visa to Facebook
Something’s happening now that’s returning us to a more communal, reputation-based economy. The massive growth in goods and services sharing—things like car sharing and couch surfing—is some of the most tangible evidence, as sharing doesn’t work without ways to measure and monitor reputation (as noted by collaborative consumption guru Rachel Botsman). Then there’s the explosion of interest in personal branding, the art of managing your image the way corporations manage theirs. In fact, there are now even entire businesses built to protect your reputation.
As I see it, there are three main trends driving the return of reputational capital:
- Reputation helps us curate abundance. In his excellent book Free, Chris Anderson describes how an abundance of information on the internet helped give reputation monetary value. How so? With so much information, what’s scarce is attention. We decide what information to attend based on reputation. (That’s how Google works, for example; sites with many high-quality inbound links have a good reputation in Google’s eyes, hence rise up the search ranks.) When you have a good enough reputation to attract attention, you can monetize that attention with products, services or ads. But information isn’t the only thing that’s abundant these days. In industrialized nations, there is a general abundance of goods and services to meet our needs. We’re overwhelmed. So we determine what goods and services to attend based on reputation.
- Transparent social networks allow us to measure and track reputation. And if you don’t think this is important, note that nearly half of employers review job candidates on social networking sites. Of course, bulletin boards, forums and chat rooms have been around awhile. What’s new, as noted by David Kirkpatrick in The Facebook Effect, is the level of transparency we now have with social networks. On Facebook, you use your real name and connect (mostly) to other real people. Ditto with services like LinkedIn. Everything you share there is recorded for posterity, and we’re becoming increasingly comfortable sharing a lot. Now add rating and “liking,” and you have a way of keeping score. You can try to avoid it by abstaining from social networks. But for many industries and jobs, the benefits of social networking—like the ability to use your reputation and network to attract business—outweigh the risks. It’s now much easier to track handshakes, no matter the number, distance or language of your connections.
- Our relationship with credit is on the rocks. After the recent financial apocalypse, a lot of people have basement-dwelling credit scores. Hell, a lot of countries have basement-dwelling credit scores. And as much as governments try to stimulate economies with more borrowed cash, it’s doubtful the days of delirious debt spending are coming back. Americans in particular are maxed out, with the US now having the lowest savings rate—recently dipping into negative territory—since the Great Depression. (China’s savings rate, by comparison, is 30% to 40%, which the US has, oddly, tried to partly blame for the recent financial crisis while further spending itself into debt.) With credit no longer a clear marker of borrowing worthiness (especially in places where people have negative home equity due to the financial crisis), reputation has returned in importance.
Unlock wealth with your name
All of this suggests that cultivating a good reputation (and, generally, being a good person) could provide greater return on investment than most financial investment vehicles. For example, sellers on eBay with a good reputation tend to sell items at a higher price. And people who contribute to open source projects, like Linux, can translate their reputation-building contributions into lucrative jobs.
Let’s take a more concrete example. Imagine you put $1,000 today into an impossibly high-interest 12-month investment. Go nuts and imagine 10%, even though the highest guaranteed 12-month investment you’re likely to get with any bank right now is less than 2% in Canada. One year from now, you’d have yourself an extra $100. Which is about the cost of a one-night stay in a Cyprus hotel. Cultivate a reputation on CouchSurfing like my sister, however, and you could get yourself a weekend’s accommodation free, with food and, in at least one case, a car. Which, even just considering a two-night stay, is worth at least twice as much as your unrealistically high 10% interest return. Better yet, you need no principal (unless you want to build your reputation by hosting guests), meaning all you need to invest is your time.
So clearly, your reputation is worth something. Build it up. And try not to max it out.