This is the first of a three-part series by Dan Ebanks, where he looks at the growing role of social value in the way our social and economic resources are allocated, the future role therein for national and supra-national governments, and how technology can support this transition.
Shifting investor attitudes and a place for social impact
Social impact will soon be almost as important a consideration as earnings per share and cash flow when making investment decisions. Shareholders of the future will not only care about the return on their investment, but how it is made. This may run counter to what a lot of people feel, perhaps unfairly: that investors don’t care.
It’s difficult to find evidence that shareholders are increasingly manifesting a social conscience in their investment decisions, given today’s levels of economic inequality. Research published in 2003 by Thomas Piketty and Emmanuel Saez showed that income inequality had returned to the levels of the 1920s, and it’s unlikely that the situation has improved over the last 12 years.
It would appear that people invest where they believe they will receive the greatest return. Social impact is increasingly important, but not necessarily because investors are developing a conscience.
Why non-financial value is increasingly important in the global economy
If the notion that investors are developing a conscience is questionable, we should consider the wider context. How do investors understand value today’s environment? And what does that environment look like?
We are increasingly living in a global economy driven by information, ideas, and networks. And these things are essentially priceless – the market cannot assign them a price.
As Thomas Jefferson said, “he who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” In more prosaic terms, ideas are used freely and information is abundant.
But price is based on scarcity. In the new economy, how does the market set prices? How does it assign value? Neither the cost of gathering ideas and information, nor their market value, nor the income from their future use can be adequately calculated.
Work by Professor Karel Williams at the University of Manchester shows how the meaning of value changed in justifying inflated tech-stock prices before the crash of 2000. Companies with no assets, no history, no cost recovery strategy, no earnings and no profits, had initial public offerings often valued higher than established blue chip companies that had been around for decades. Last year, $4.7 trillion was raised by new peer-to-peer platforms like Uber, Airbnb and WhatsApp.
Private sector companies, public goods and social impact
These new platforms enable a vast number of users to slice and dice untapped resources to turn them into new and highly accessible products and services. It is because of this that these open, collaborative, peer-to-peer platforms have the potential to deliver the greatest amount of shareholder return.
Yet these platforms are typically free and open to everyone – Facebook, Twitter and Google, for example. And the benefits they produce are non-rivalrous and non-excludable. In other words, one person using it doesn’t stop anyone else from doing the same, and everyone benefits whether or not they pay for it. Private companies, then, are increasingly creating public goods.
Is this the reason why markets are becoming increasingly interested in social impact? Is it all to do with “doing good”? Or is it actually the increasing shareholder returns found in peer-to-peer platforms that create public goods through the trade in ideas, information and spare capacity, for which it is impossible to set a fair price?
Oscar Wilde said that nowadays people know the price of everything and the value of nothing. It seems that increasingly that will be turned on its head.
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