Measuring Social Capital: Modern Metrics for the Digital Age

Social trust is the ‘invisible hand’ our economy is cradled in and relies on our cumulative social capital.
Social trust is the ‘invisible hand’ our economy is cradled in and relies on our cumulative social capital.

Philosopher, Adam Smith noted in 1776 that one of the greatest improvements made to the first fire-engines of his time was “the discovery of a boy who wanted to save his own labour” in order to “leave him at liberty to divert himself with his playfellows.” In an 1842 journal entry, Henry David Thoreau wrote that the “really efficient laborer will be found not to crowd his day with work, but will saunter to his task surrounded by a wide halo of ease and leisure.” Nearly 90 years ago John Maynard Keynes predicted that technology could soon solve the “economic problem” of scarcity and that “mankind will be deprived of its traditional purpose.” And in 1945 Einstein wrote that, “combinatory play seems to be the essential feature in productive thought.”

The current limited economic paradigm of people existing as labor is setting the global economy up for catastrophe. Today, human labor as identified by Smith is being eliminated as an independent factor of production. It is being absorbed into capital in the form of robotic and algorithmic automation. This technological unemployment will relentlessly continue at an exponentially increasing speed as innovative humans continue to “save” labor and free humanity to focus on higher level pursuits.

Current political jockeying to raise the minimum wage or “bring back” manufacturing jobs will only hasten the conversion of “saved” jobs to automation. Similarly suggestions from tech sector father figures, Bill Gates and Elon Musk, calling for a “robot tax” and universal basic income (UBI) respectively are not only politically and logistically impossible but would lead to massive financial instability. Would a robot tax retroactively impact ATM machines and automated telephone systems? Would UBI lead to the collapse of processed food prices as superstores gave away junk food to incentivize higher margin product sales?

As Keynes foretold, none of the above attempt to suggest what our new human purpose might be. None attempt to push the human race forward. When we left hunting and gathering our new purpose was agriculture. When we left agriculture our new purpose was production. And as we now leave production our new purpose must become the acquisition and mastery of knowledge.

For the entirety of recorded human history, wide access to knowledge was extremely limited. Just 40 years ago graduating college was a novelty in the United States. There was no Internet. Today the knowledge economy has been primed to redefine our society and is a competitive meritocracy capable of sustaining itself similar to the industrial economy; if given the proper metrics.

Gross Domestic Product, the sole industrial economy metric, counts the production and distribution of goods and services. Any societal value that is not commercially monetized is simply not counted. From stay home parents and community volunteers, to the value of journalism and the the hundred million plus hours invested in Wikipedia, GDP simply ignores it all.

While GDP still serves the production economy, we must build metrics to serve the knowledge economy. While production runs on monetary transactions, society relies on social trust. Social trust is the foundational yet unmeasured ‘dark matter’ of the economy. It relies on the cumulative social capital of all human beings. Until now, no quantitative metrics have been proposed.

User Generated Content (UGC) serves as both social capital and currency in the digital economy. Companies accumulate and monetize UGC through customer engagement and digital advertising. According to the Interactive Advertising Bureau (IAB), digital advertising revenues increased 19% for the first half of 2016 to $32.7 billion for the same period in 2015. While UGC is actively traded for digital advertising dollars, its value as social capital is neither measured nor cultivated. GDP cannot “see” UGC in the economy unless it is monetized. For a global economy running on big data and machine learning, ignoring the value of UGC is fundamentally unacceptable.

Fortunately, a data point has emerged where most UGC is monetized, known as average revenue per user (ARPU). This widely used metric is where knowledge economy social capital crosses over to the production economy as GDP through digital advertising sales.

For example, Facebook’s first quarter 2016 worldwide ARPU was $2.50 which accounted for revenue of $5.38 billion. Facebook’s ARPU varies widely from 91 cents in parts of the world to $12.43 in the U.S. and Canada. The $5.38 billion simultaneously represents a small percentage of total related goods and services sold and a small percentage of the cumulative social capital value of Facebook’s entire user population. While the cumulative value of the goods and services show up as GDP the cumulative social capital value is completely unmeasured and invisible.

In 1759—17 years before The Wealth of Nations, Smith identified an ‘invisible hand’ of society, driven by human empathy. Social trust is the ‘invisible hand’ our economy is cradled in and relies on our cumulative social capital. Social capital that must be acknowledged, measured, and cultivated.

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