Social Value and Impact

The Next Bull Market or The End of Capitalism as We Know It? (Part One)

In a recent conversation with a respected and successful financier, it was suggested that, in a short space of time, social impact would soon be as important a consideration as earnings per share and cash flow in the investment decision. That shareholders of the future would not only care about the amount of return on their investment, but how it is made. ‘Doing well by doing good’, as it was put.

It’s difficult to find evidence that shareholders are developing a social conscience. It is true that, on the one hand, there are a greater number of ethical funds out there to invest in. On the other, research published in 2003 by Thomas Piketty and Emmanuel Saez showed income inequality had returned to the levels of the 1920s. It’s unlikely the situation has improved over the last 12 years.

People probably still invest overwhelmingly where they expect to receive the greatest return. If social impact is increasingly important then what else might be going on?

How do investors find ‘value’ today’s ‘new economy’?

We are increasingly living in a global economy driven by information, ideas and networks. The market cannot accurately assign these things 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 this ‘new economy’, how does the market 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. Only last year, $3 trillion was raised by new platforms like Uber, Airbnb and WhatsApp.

Private sector companies, public goods and social impact

These 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 open, collaborative, shared 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 — a non-financial value? Is it all to do with “doing good”? Or is it actually the increasing shareholder returns found in platforms that create public goods through trading ideas, information and spare capacity, for which it is impossible to accurately assign a financial value?

Oscar Wilde said, ‘Nowadays people know the price of everything and the value of nothing.’ It seems increasingly that will be turned on its head.