What’s good for society is good for business

Today the Henry Jackson Initiative for Inclusive Capitalism launched a very interesting paper making the case for society to move towards a more inclusive capitalism model. It’s a good read and an acknowledgement by those most in favour of market enterprise of the need for positive reforms in current models of western capitalism if it is not to come a cropper later down the line.

There are also some pretty decent recommendations in the report – not least a call to rethink the education young people are receiving in the west today to ensure they have the right skills to be employable in the economy of tomorrow. However, what really caught my eye was the the quote they put in the report from the Harvard Profess Michael Porter: “We once thought that if business just increases its profit, what’s good for business is then good for society …we need to think differently: what’s good for society is good for business.” For those of us who have been pushing for triple-bottom lines, hybrid enterprise models and robust social impact measurements over the past few years we could see this as more evidence of corporate responsibility now exploding into the mainstream of capitalist business models.

Not surprising really as we know there is good evidence that: firms with high levels of corporate responsibility are better managed, firms with mutual models of ownership were more robust in the financial crisis, firms perceived as more ethical can have an advantage in recruiting the best talent, and traditional non-profits are realising that profit can actually significantly enhance and sustain their social impact. Yet, I bet you a dollar that for all the premiums and competitive advantages that businesses believe they can gain from being ‘best in pack’ on corporate responsibility they will always default around the board room to looking at price and how they can reduce costs to maximise profit.

This is perfectly rational in the current model of capitalism as any good business person would tell you: to increase profits you need to either reduce costs or increase sales – ideally both!  Now, I think for those of us passionate about strengthening society, what we really want to see is increased sales of goods and services that increase social bonds and relationships within communities. For example sales of TVs and Xboxs that encourage people to isolate themselves in their own rooms are actually not good for society, while services such as open-air music festivals which enable people to come together and interact with each other are good.

So, a more inclusive model of capitalism is actually much more than mainstreaming corporate responsibility within the system and institutions. It is about the next generation of businesses and enterprises enabling citizens to come together and interact within communities, rather than consume in isolation. Those organisations – whether they be commercially or socially driven – who can most effectively innovative to connect people will be the ones that can do the most good for society. It’s an open question whether such collaborative goods and services will be purchased in place of personal consumer goods (which would have a profound impact on the current model of capitalism) or whether they will be purchased in addition to current personal consumption habits.

Advertisements

Frugal innovation sells

Courtney Martin’s latest post on the Stanford Social Innovation Review blog Instagram-Style Innovation in the Public Sector raises one of the most exciting questions for society and the social innovation sector has been grappling with over the past decade, and with increasing vigour since the fallout from the financial crash: “what would happen if we leveraged the ingenuity and resources in Silicon Valley for the improvement and renewal of the rest of the country—starting in D.C., where simple solutions seem all but impossible?”

Martin firstly quotes Annie Leonard, founder of The Story of Stuff (an online video information service), to explain why silicon valley companies such as Apple have had such a competitive advantage in attracting the most talented innovators: “while our “consumer muscles” have gotten a great workout over the last few decades, our “citizen muscles” have grown anemic. We’ve created gods out of entrepreneurs like Steve Jobs, inspiring a fresh batch of the most innovative graduates each fall to aspire to go into the tech industry; all the while, the public and government sectors are starving for their ingenuity and energy.”

Martin goes on to point out that the social innovation sector has failed to sell itself and its rewards to compete with those portrayed by the techies in films such as the social market. Both social innovators in the state and society need to “tell a better story about the rewards of public service and its potential for innovation” and Martin is absolutely right to explain that there is a good story to sell: While helping a dysfunctional state run more smoothly or simply improving the quality of life of the average citizen might not be the kind of innovation that makes you filthy rich, it could make you a game changer, and at the very least, it will make you proud.

Maybe there is a potential lesson for current policy makers – and me! – here. Too often those rapidly-increasing-few of us banging the drum for the mainstreaming of social innovation within the state default to Schumpeter’s theory of innovation: ‘creative destruction’ – a ceaseless cycle of new ideas smashing through previous accepted norms (shibboleths). Energy, enthusiasm and resources all follow lots of new ideas in the hope that a handful will be successfully nurtured, piloted and then scaled up. Lets call this approach the ‘radicals agenda’ You’ll find a lot of radicals fostering excellent partnership working between state institutions and society organisations in order to overcome barriers and ensure their vision (a new idea) becomes a reality. You’ll find a lot of radicals in NYC!

But I’m not so sure if the radicals agenda really is the one to pursue to get the truly creative-minded and technically-gifted people that silicon valley attracts in their truck load. To me – and this is an open question – I suspect most radicals are those disillusioned with the injustices in their society, have an inherent desire to be either politically active or socially active in their community (which is a good thing!) or are just seeking to do social good. If this is the case, then – like the current problem with the political classes being disconnected from the rest of society – social innovation is at risk of being something that is  only for a certain type of person with certain values.

Maybe then state and academic institutions in California keen to promote social innovation to a wider audience should consider pushing an alternative to the east coast agenda. Perhaps we should be looking at the highly successful honey bee network in India whose focus is on ‘Frugal innovation’ – the design of simple solutions to society’s problems. Interestingly the network has a highly diverse membership (many of whom wouldn’t dream of calling themselves inventors, social entrepreneurs or radicals!) and is highly effective at building collaborations through the network (the sort of skills you see being employed in the open-source movement). While not flash, many of the frugal innovations coming out of the network are game changers – perhaps such an approach could connect more effectively with the next generation of creatives and techies that are destined for Apple?

Library crowdfunding

This month the California State Library, opposite the Capitol in Sacramento, is celebrating the 75th birthday of San Francisco’s fabled Golden Gate Bridge. On May 16, the monthly “A Night at the State Library” program will present the 1968 film Bullitt, starring Steve McQueen as a San Francisco police lieutenant and “showcasing an almost 11-minute car chase in which the Golden Gate Bridge is visible”. Brilliant!

These programs, which enhance access to and engagement with great public institutions such as libraries, are a positive contribution the state can make to help strengthen society. They not only promote greater knowledge and learning but, more importantly, also provide opportunities for people to come together, connect and exchange ideas with each other – the very fabric of a good society. This is why the work of the California State Library Foundation (CSLF) is so important – it provides private support (through membership, donations, grant-bids) to enhance the role of the state library as an active partner within society (i.e. Governors book fund, California research bureau work, Saturday hours program, etc)

For scholars of social innovation though, there is surely a huge opportunity here to work with the Foundation to expand entrepreneurial support for those using the library to develop their innovative ideas. Many potential entrepreneurs (regardless of whether they realise they are one yet) do spend time thinking, researching and meeting in Californian state libraries. Some of these may have some outstandingly good ideas, but most of which will never get off the ground for various reasons (i.e. not realising potential market, lack connections to angel investors in the Bay Area, lack critical mass support, etc)

How can the California State Library Foundation help? Well, it could provide an on-line platform for a Californian state library user with an idea to pitch it to the whole membership (all users) of state libraries. The platform would allow members, if they like the idea, to collaborate virtually and provide start-up capital for idea to become a social venture. For example 1000 members could all like a pitch they read about, and the first 500 to sign up $10 each to support the new social venture could each be given 0.1% equity share in the venture (it would be an open question what dividends they are investing for: could be financial or social impact returns).

Obviously such investment platforms are not new – we know them as ‘crowdfunding’ – but they are rapidly becoming more credible with new technological innovation. State institutions – such as libraries – which are in the fortunate position of already possessing access to both potential innovators as well as a critical mass of potential investors should look to exploit this institutional advantage to catalyse more connections, for the benefit of society. This is especially the case given the recent passing of the JOBS Act that now allows crowdfunders to receive equity in small companies

For entrepreneurs using the State library, an in-house crowdfunding platform has three extremely powerful advantages. Firstly, in an era when credit and institutional VC is more risk-averse, the platform provides a much needed alternative to raise seed capital and – given risk will be dispersed across a collaboration of micro-investors rather than concentrated in the hands of a couple of big ones – ideas with greater social returns (but bigger financial risks) are more likely to be funded. Secondly, it provides an instant feedback mechanism for aspiring entrepreneurs and their ideas: if people don’t think it will work they won’t invest – this is invaluable information for entrepreneurs as it signals a sharp return to the drawing board before any more resource is wasted pursuing an unsustainable idea. Finally, it connects the idea with a potential market: the mass of people who see it and invest in it may also provide the first wave of customers / participants for any new product / service.

The CSLF could also move beyond simply facilitating the crowdfunding platform to being an active player in it to. In the UK Adrian Hon, the founder of the online games company Six to Start, has written recently about potential hybrid crowd and public funding models. Essentially the CSLF could take an initial stake in ideas that it thinks would benefit the work of the California State Library and the Foundation’s mission. This would firstly provide an incentive to entrepreneurs to come forward with ideas that could have direct relevance to the library and the Foundation’s mission (as they are more likely to secure funding – individual funders will be more likely to sign up if they see an insitutional investor has taken an equity stake). Secondly it could encourage both the state library and its users to work in greater active partnership as they all have a mutual interest in ensuring their investment is successful.

I think this is something the CSLF should seriously consider – it could have huge benefits for itself, the libraries users, and most importantly Californian society.

A market society

Rob Reich’s review of Harvard political philosopher Michael Sandel’s new book, What money can’t buy: The moral limits of markets, on the Stanford Social Innovation Review website is well worth a read. I love Michael Sandel’s work and by the sounds of Reich’s review it should be a good read with plenty of real-world case studies to stimulate thinking around the big question he is essentially raising: What shouldn’t money buy? A very poignant question for both state and society, especially if Sandel is right to suggest that we have “drifted from having a market economy to being a market society”

Reich writes that Sandel is not arguing against markets per se: “Rather, he proposes that markets should have limits. He identifies two moral concerns. First, when markets exist everywhere, he argues, we need to worry more about inequality. If money can buy more and more, including political influence and better health care and education, then having money matters more and more. Second, making certain goods into commodities can corrupt the very value of these goods; market norms can crowd out valuable non-market behavior.”

With regards the first argument few would disagree with a serious concern about markets and fairness. There was open (nervous) talk at Davos about the future consequences, for both state legitimacy and society well-being, of global wealth monopolised in the hands of the global winners. However the second argument about commodification is a bit more contentious.

Reich makes an interesting point about this: “Sandel could have conveyed a more sophisticated view about markets. Not all markets and marketplace exchanges are alike, or have the potential to corrupt valuable non-market norms. Take for instance the simple distinction, familiar to any reader of SSIR, between goods offered for sale by for-profit versus nonprofit organizations. Commodification looks different if the marketplace is populated by nonprofit organizations, but this distinction is lost in Sandel’s undifferentiated treatment of markets”

Building on this, one can also make an argument that markets which encourage greater physical connections, interactions and exchanges – regardless of whether profit is the underlining motive – can in itself strengthen society. Remember a stronger society is created by increasing the quantity and quality of social bonds and relationships within communities. Surely it is better for a person to turn off the TV and walk down to the local mall where they will interact with people in stores who are selling their goods for profit, rather than remain sitting isolated in front of the TV for the day in order to abstain from rampant market consumerism? Note, I pose this as a provocative question rather than a statement of fact!

Pro-social welfare

This month Michael Norton’s fantastic Tedx talk ‘How to buy happiness’ was posted on the Ted website. The central thesis of Norton’s talk was that money can indeed buy happiness, when you don’t spend it on yourself and he had research to show that ‘pro-social spending’ can benefit you, your work, and other people.

Norton cites a simple experiment done by the British Columbia University which neatly compared two randomly assigned college undergrad groups in Vancouver. Individuals in the first group were each given an envelope with money in it (either $5 or $20) and instructions to spend the money on themselves (i.e. gift for self, bill, expenses) by 5pm of that day. Individuals in the second group were each given an envelope with same amounts of money in it and instructions to spend the money on somebody else (i.e. charitable donation, gift for others) by 5pm.

The researchers phoned the participants at the end of the day to find out what they spent the money on and how happy they were now. Firstly they found that people who spent for themselves bought consumer goods (i.e. make-up) and drinks (i.e. coffee), and people who spent for other people either donated the money (i.e. homeless), or bought a gift for others (i.e. toy or coffee for others to enjoy). Most impressively though the researchers established that those who spent money on other people got happier, whilst those that spent money on themselves experienced no change in their happiness level. The other effect they found was that the amount of money doesn’t matter that much – it didn’t matter whether the individual spent $5 or $20, what really matters was the fact they actually spent it on someone else rather than on yourself.

California Work Opportunity and Responsibility to Kids (CalWORKs) welfare-to-work program serves all 58 counties in the state and is designed to assist welfare recipients to obtain or prepare for employment. We know that many (long term) welfare recipients of state benefits experience low levels of well-being and personal self-esteem and we know, from past studies in California by the nonpartisan Urban Institute act, that in itself is a major barrier to re-entering the labor market.

So, could CalWorks try using the State Aid card accounts (the same card accounts which between 2007 and 2010 were used by benefit claimants to draw $69m of welfare money from ATMs outside of the state – $11.8m alone in Las Vegas) to increase CalWorks recipients spending on other CalWorks recipients? For example CalWorks could partner with Starbucks so that say 2% of total monthly welfare put on that state aid card could only be used in a starbucks buying coffee for someone else. Perhaps this would fuel increased reciprocal exchanges (exactly the sort of actions that we know strengthen neighbourhoods) and help tackle the sort of social isolation / low self-esteem that really inhibits long-term welfare dependants from re-entering the labour market?

Of course there is the risk with such a ‘use it or lose it’ approach to spending public money on someone else that it could lead to both welfare recipients being happy just to lose it, and non-welfare recipients being anything but happy with their taxes going on coffee. However with a bit of imagination, the state could introduce a challenge so non-use of the allocated fund each month would have a negative consequence for all Californians. For example, it could be announced that all the unused funds each month will be transferred to Starbucks branches in Washington DC and be offered up as a subsidy for any Federal government bureaucrat based around Capitol Hill! So perhaps the state could galvanise all of society to support a ‘spend on others’ scheme on the West Coast?  Based on Norton’s research it really could be in all of society’s interest.

A mutual media

The UK is currently in the grip of a media frenzy about, ironically enough, the media. The fall out from the illegal hacking of private mobile phones by Rupert Murdoch’s best selling Sunday newspaper, The News of the World, has resulted in a judicial enquiry raising more serious concerns about the power media moguls have over state politicians. The allegation being that owners of the mass media use their considerable influence to extract concessions from state decision makers that are in their own (commercial / ideological) interests regardless of the negative or positive impacts on wider society.

Whether you disagree with this suggestion (like Rupert Murdoch) or you do not (seemingly all Murdoch’s past editors!) it now seems largely irrelevant as most people in the UK seem to have lost trust in the institution of the media to promote and protect the interests of society. The lack of faith in media ethics in the UK is worrying for society (and dare I say it a little bit hypocritical of a nation that craves inside gossip about the private lives of celebrities, nobody is forced to buy the sunday paper or go online to the Daily Mail). The media can play a crucial role in both holding the state to account and reflecting society’s values and emotions if done effectively. If a perceived problem of rotten ownership of the media puts that at risk, then the state has a legitimacy to intervene and reform the system – but how could it do it?

This is exactly what Lord Justice Leveson, who is heading up the judicial enquiry, has been tasked with recommending at the end of his hearings. Perhaps though Lord Leveson could be advised to take a well-earned break one weekend from the trials and tribulations of the process and fly over to Barcelona. While there he should take a trip to the Noucamp, home to Barcelona FC one of the most famous and successful soccer clubs in the world. It is also one of the sporting world’s biggest mutual – it is owned by 150,000 members all of whom have an active (voting) stake in the running of the club.

In 2009 the Birbeck sports business centre gave an interesting presentation arguing that the mutual ownership and governance structure of FC Barcelona does not appear to hamper its ability to compete in financial (and sporting) terms. In recent times there have been other leading mutual brands that have outperformed shareholder owned companies not just in terms of profit and growth but more impressively consumer confidence in that brand. This cuts across all sectors in the UK including retail (John Lewis department stores) and finance (The Co-operative bank).

So if Lord Leveson is contemplating how to restore society’s confidence in the media, as well – one might argue – as attempting to get society to have a greater stake in and take more responsibility for the media it consumes, then potentially a new mutual model (or even just part mutual) of ownership should be considered. Many would argue the transition from media oligarchy to media co-operatives would be just too difficult. This is short-sighted though and lacks the sort of vision that helped the smooth transition of google from private company to public listing.

For example, a visionary like Rupert Murdoch might be tempted to sell membership of one his papers such as the highly popular daily The Sun to its readership by adding the one-off membership price to the cost of the paper. So, say on Monday next week instead of the Sun costing £0.50 it would cost a one off £5.00, but for that extra £4.50 the reader paid on that day they are given (via some txt message registration confirmation) a life time (voting) membership of the Sun – say each year they could vote in/out the editor and president of the newspaper.

In return the reader membership have the power to de-select the editor in the same way the proprietor now holds that power. Not only would this strengthen accountability of the paper to society, it may also improve the financial sustainability of newspapers by giving members an added incentive to support their paper – if the members don’t buy the paper (even if the price has to increase to remain viable) then they lose the asset which they now own: this creates an incentive for members to advocate readership to non-members.

Operation twist for society

On the 11th April the former San Francisco Fed chief, and now Ben Bernanke’s top lieutenant in Washington, Janet Yellen gave a speech saying the Federal Reserve is “quite willing and committed to take whatever actions are necessary” to achieve its economic goals. To date this has involved two bond-buying programs totalling $2.3 trillion to stimulate the American economy – a process known as quantitative easing to economists or simply ‘Operation Twist’ to everyone else. Essentially the Fed prints more money to buy long term government debt held by the banks, which in turn gives the banks liquidity (more cash) to lend to businesses so they can grow and employ more people.

Many economists have deemed Operation Twist a success, and a third round of quantitative easing may actually be avoided if steady economic growth continues. Well if Operation Twist has stimulated the economy, could a similar state program stimulate a stronger society? Stronger societies are built through increasing interactions between individuals that in turn fuels evermore opportunity for reciprocal exchanges, that then allows individuals to bond, support and thrive together. So the primary focus of an Operation Twist for society would be on stimulating more social interaction.

Operation Twist for the economy involved giving newly minted money to the banks to stimulate the economy. We need an institution equivalent to banks that could be given money. If we take the golden state of California as our test bed, then the immediate contender would be the 58 counties, the local administrations, as they could administer the stimulus for us. So let’s say (in a dream world!) the Fed Reserve printed $580m to be divided equally among all 58 counties in California (let’s keep this simple and avoid per captia allocation) each county now has $10m of new money to blow on strengthening society, how should it do it?

Well here’s a counterintuitive answer: it should bank it! That may sound oxymoronic, but when you stop and think about US bucks you realise that they’re highly porous (spend where you like) and highly fungible (spend on what you like) with little regard for the impact on social value and cohesion. Sure a bundle of free money can be great at stimulating exchange for a short time within a county community but that money often doesn’t stay circulating within that community. We know if often leaks out to other places leaving individuals with no physical credits in hand to go and interact with others working in their community (the true impact on society of a ‘credit crunch’). Money on its own, as a stimulator of interaction between people, is often not a self-sustaining mechanism so bottom line is its true potential to strengthen our community bonds is severely limited sadly.

But that $10m stimulus now sitting in the bank could still serve a very significant purpose. It could now act as underwriter (‘a promise’) for 10 million county IOU vouchers that a county and its public employees (i.e. law enforcement officers) could issue to its residents in return for continued or additional pro-social actions (i.e. driving kids to a midnight basketball league game). All IOU voucher transactions could be electronic and done between mobile phones.

Now here’s the strengthening society part: for individuals to convert that IOU into a real $1 (which they could spend themselves, give to friends or family, or donate to a local group) that IOU needs to have been earned and exchanged at least three times between individuals before. (Theoretically the more times a single IOU voucher is earned and exchanged the more valuable it could become relative to real money: so if exchanged 6 times it could be worth $2, if exchanged 12 times it could be worth $4, and so on up until the voucher is cashed in. But given the stimulus has a limited reserve of $10m, there could be a greater draw to cashing in vouchers almost immediately for fear of the reserve disappearing before being able to cash-in greater value vouchers) This provides an incentive for everybody to pro-actively interact and exchange promises with each other (a kind of social bartering) in our neighbourhoods so that we can unlock the real cash.

In short this version of Operation Twist is an explicit financial challenge set by the state to society: if individuals effectively collaborate together then they can unlock an additional $10m for themselves. However, in reality Operation Twist is an implicit mechanism to build more relationship capital within communities that will long continue and strengthen society even after all the $10m is unlocked and spent. I’m sure there are many other and better versions of this kind of Operation Twist to consider, but regardless of this, a first order question to address is: do the innovators in the state and society have the vision and courage to consider a stimulus for society? That is very much an open question!