#UpgradeEconomics with #SocialCapital Metrics
Social trust driven by our capacity for love and empathy have allowed humans to build civilizations and question everything about our existence and place in the universe. In the last three centuries, however, the pace of change has outpaced our understanding of the cultural operating system today described as economics. Where contemporary economics is narrowly focused on the production systems of the Industrial Age the digital economy driving the Knowledge Economy must be evaluated more holistically. Vinny Tafuro, economist and author of Unlocking the Labor Cage (LaborCage.com) takes us on a journey through key upgrades in economics to our contemporary challenge; measuring all human value as part of the economy. Tafuro points to Big Data as the digital manifestation of Adam Smith’s ‘invisible hand’ and to business innovations such as Conscious Capitalism and the B Corp movement as key opportunities to #UpgradeEconomics with #SocialCapital metrics to #GoBeyondGDP. A new era of economics where viable metrics that count what GDP cannot see are used to incentivize private investment in societal well-being, education, and scientific research.
Tafuro is a founder of the Institute for Economic Evolution (EvolveEconomics.org), a research institute advancing economic research that evaluates society holistically by including all stakeholders and all available data to better address contemporary challenges. IEE is working to evolve economics to embrace change as quickly and vibrantly as the society to which it is responsible and is part of a global network seeking Solutions for Environment, Economy, and Democracy (https://seed.uw.edu).
Author of Corporate Empathy and Unlocking the Labor Cage, he is a pioneering advocate for the twenty-first century economy disrupting society’s most rigid institutions and beliefs. His economic theories explore the societal and economic shifts being catalyzed by corporations as a result of technology, corporate personhood, and evolving human cognition. This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at https://www.ted.com/tedx
TRANSCRIPT: #UpgradeEconomics with #SocialCapital Metrics
Hello, thank you for having me here. This has been an amazing afternoon of community and connection discussions. I want to talk about connection in the digital sense. I want to talk about how social capital is the thing that connects us and that we create metrics to go beyond GDP and upgrade economics. Let me go way back to my childhood. I’ve been obsessed with computers and automation since I was a child, so much so that I build a family of robots and a cardboard computer. Believe me, that year I got a computer for Christmas. I’m still waiting on the really cool robots, though. What I want to talk about though is, what is valuable to us? We’ve heard a lot about that on the talks today. It’s parenting, it’s elder care, it’s caring for the loved ones in our lives, building community, volunteering in the community, raising awareness through walking. These are the things that are valuable to us as human beings.
But, unfortunately, in the eyes of contemporary economics, none of those things have value. They have zero value because they’re not measured. We have to look at economics as a cultural operating system for society. That means it gets upgraded over time. For most of human history, or all of human history, it’s been face to face connection and empathy that has allowed us to build a social trust, that’s allowed us to build civilization, allowed us to build nations, to come together and invent and be innovators. About 250 years ago, Adam Smith, the philosopher, codified this idea with the invention of the invisible hand as an idea.
The invisible hand was empathy, not just of market places, but of society itself. It’s the reason we could function. About the turn of the last century, the Scottish immigrant, Andrew Carnegie, he decided because of his access to libraries as a young boy, that it gave him the advantage in life. He, as the father of modern philanthropy, helped finance and fund nearly 3,000 libraries in the U.S. and Europe. About 100 years ago, Henry Ford, nearby to here and close to the manufacturing production center of America, he decided that if he paid his workers double the usual pay, they could afford to buy the vehicles they were producing.
It’s this idea that became the consumption cycle and really built the middle class in America. But, we had a problem. In 1929, we had a crash. In 1934, Congress asked economists, “What happened?” For the first time, we counted. We came up with what is now known as GDP or Gross Domestic Product. We realized that between 1929 and 1933, we lost 40 percent of our value in the economy. It was a problem. Now with GDP and a consumption cycle, post World War II America boomed and grew fast and large. We knew there was a problem. In 1968, Robert Kennedy noted that GDP “measures everything except that which makes life worthwhile.” It’s those things that make life worthwhile that are so important to us.
We trucked on anyway and we had a cycle of growth and bubbles, growth and bubbles. At the turn of this century, we had seen the real estate bubble, the dot com bubble, and the financial crisis. I’ll tell you, bubbles are not a result of greed. Bubbles happen because it’s the only way a GDP driven economy can pay for the things that we really, really feel are important. You’ll see when we’re in a bubble, we’re able to do all these things that are really, really important, but aren’t very tangible. What the bubble cycle has led to is a period of income disparity and lack of social trust that is really the biggest problem that we have to face in society today.
Fortunately, in the last 10 years we’ve had some great business innovations. Those business innovations are things like Conscious Capitalism, of which I’m a huge proponent for and a new corporate structure like Benefit Corporations, that look at capitalism and look at business as a force for good that can elevate humanity and raise people out of poverty. The other innovation that we have is this new idea of big data. The digital footprint and all of the information that we’re connected with in our devices and the Internet is allowing us to rebuild social trust. It’s allowed me to travel the world using websites like Couchsurfing or Airbnb, or to get into an Uber and Lyft knowing the rating of the different users that I’m interacting with.
Another example of big data in the new economy is Wikipedia. Wikipedia completely evaporated the Encyclopedia industry. It’s gone now. But, it has no value in GDP. This is mostly, this is not a problem that Wikipedia has by not monetizing itself, it’s the problem in the field of economics to properly value Wikipedia’s place within society. What does the work of the future look like? If we have automation and we have metrics that don’t count things, I believe the work of the future is all those things that GDP doesn’t count. It’s care taking, it’s taking classes that teach stability, it’s walking for awareness, it’s doing all of the things that make us human. The problem right now is all that data in the digital economy is a black box. Economics looks at big data as a black box to extract advertising revenue from.
We’re seeing that play out this last month with Facebook having their Cambridge Analytics issues and the fact that right now the technology sector has only one metric, GDP and advertising, to realize the value of the data they possess. What I’m proposing is that data is actually the digital manifestation of Adam Smith’s invisible hand. That by providing metrics for that data natively, we can start to build a new model for funding and cycling currency within the economy. The challenge we have is finding a crossover point. We have other metrics like Gross Happiness Index, but the problem with those indexes is they don’t translate to the tangible economy. When we went from a barter system to coining money, you could still trade your cows and grain or you could still trade your gold for cows and grain.
How do we trade the industrial economy and have a crossover point to the digital economy? My background in advertising brought me to this figure. It’s called Average Revenue Per User (ARPU). Most technology companies have this figure. Facebook, at the end of last year, the Average Revenue Per Use in the U.S. and Canada was about $26 a person. What happens is the higher socioeconomic education level of the user population, the higher their Average Revenue Per User is. So, like Ford 100 years ago, we can create a new consumption cycle for the digital economy instead of the industrial economy. This cycle allows private capital to be invested in education, human welfare, and societal well being. Therefore, building social capital, which returns to higher revenues to the company, growing the entire market similar to the way the middle class was built 100 years ago.
What we’re doing now is with the Institute for Economic Evolution, we’re asking these questions, how can we start analyzing big data? How can we start looking at the metrics we have to invest in medical research? Investing in medical research isn’t a liability on society, it’s an asset to society. Money spent on research, money spent on families, money spent on education is all money that goes right back into the digital economy. I believe that this new digital economy is much vaster and larger than the industrial economy ever could have dreamt to be, but the problem right now is we’re locked into one metric. I’m hoping that we can build these new metrics and in a varied number of those metrics so that we can build a better economy built on social trust that values people first. Thank you.