10.28.07

The Economic Naturalist

Posted in Story Index, information hubs, economics at 11:07 am by Samantha Beinhacker

This morning I stumbled upon an essay by Robert H. Frank, an economist at the Johnson School of Management at Cornell University, and author of “The Economic Naturalist.”

He argues that the study of economics is dismally taught and dismally understood. He suggests that rather than teach all the “horrible equations and graphs,” an alternative method should be deployed– that of storytelling and narrative. He writes: “The form in which ideas are conveyed is important. Perhaps because our species evolved as storytellers, the human brain is innately receptive to information in narrative form.”

Frank asks his students to pose an interesting question based on something they’ve observed or experienced, and then they must use basic economic principles to explain it– in no more than 500 words. Most students present answers invoking the “cost-benefit” principle which says that a rational person should only take actions whose benefits outweigh their costs. Read more from Frank here.

Basic economic principles, he says, are not rocket science. They are accessible to most children (and perhaps even to those of us who are desperate to come up with methods to value the impact of the social capital market!).

This method, “the economic naturalist” principle, harkens back to the field of biology that uses Darwinian principles to interpret the traits and behaviours of living things.

My take-away over coffee this morning is, as Frank writes: “… in light of the low bar established by traditional courses, there seems little risk in trying something different.”

What shall we try?

Permalink 2 Comments

10.27.07

Philanthropy Marketplaces: Similar Questions & Challenges

Posted in exchanges, Story Index at 6:10 pm by Andrea McGrath

I came across an interesting dialogue posted in onPhilanthropy discussing a recent roundtable discussion among 40 technologists, entrepreneurs, philanthropists and analysts at a private conference in New York called “Hacking Philanthropy” (read the excerpt here). Emerging markets as an organizing principle was one of their strong themes, and while the dialogue was focused on the growing philanthropy ‘marketplaces’ - such as Kiva and Donorschoose - some of the intriguing questions this group were wrestling with are quite applicable for social enterprise ‘marketplaces’ - or exchanges -that are hoping to develop. Specifically:

Reasonable balances between supply and demand: Some of the emerging exchanges are investigating these topics right now: are there enough ‘investment-ready’ social enterprises? Is there enough interested capital from the donor/investor side to match the number of enterprises? Will this capital invest using an exchange? What can be done to keep the balances in supply and demand? Validating legitimacy: While the philanthropy roundtable focused on how best to confirm the veracity of the nonprofits or enterprises requesting loans or donations - for exchanges the issues center on the “legitimacy” of social enterprises listing. There are several aspects of the legitimacy challenge to think through in setting up an exchange - and ideas developing around solutions. For example, listing requirements may have potential solutions that mirror those in the traditional capital markets (such as listing authorities and NOMADS). Rating agencies that have potential to provide or enhance the information for exchanges may develop through some of the new efforts/groups who are incorporating environmental/social/governance (ESG) metrics to their systems - ranging from traditional investment firm to new companies - such as B CORP - that provide ‘certification of enterprise that enhance or create social and environmental value as a “B corporation”. 

Additional questions after legitimacy of those listing on an exchange center on their social impact and social value creation. How will an ‘exchange’ verify the social value of those listing? What will these measures include? How can - or will - these measures be comparable at aggregate levels? And is that necessary? Related to this topic of comparability - the onPhilanthropy author argues that in financial markets, transactions can tied to a currency and thus compared within it its own markets and across markets - but in philanthropy “there is no currency” - which I found an interesting take on how to think about comparisons. Is there a way to create a currency for social value? A ‘meta’ level above individual achievements of social impact, whereby social value can be linked to some ‘currency’ measures (to be defined) - and these can then start to be compared. NOT all the social value created could be linked, given the huge diversity of social needs being addressed and the variety of interventions undertaken by a social enterprise (in scale and in point of entry). But perhaps common measures can be captured - and some created - which will allow comparability? 

Questions, questions - not yet the solutions, but I read this posting with great interest on the content and the brain-power gathered at this session and thought without a doubt these solutions will be addressed through collective problem solving - experimentation - and to all of us being open to failing a few times as we start to get it right…

Permalink Comments

xchangexchange seeks thought partners

Posted in exchanges, information hubs, transparency at 8:36 am by Samantha Beinhacker

Lucy Bernholz, blogger extraordinaire on all aspects of “giving”, “capital markets”, and the blending of these worlds, has joined our team to consider the issues we’re posing in this dialogue of xchangexchange.

Lucy has recently posted about xchangexchange in her own blog and encourages others to join in the conversation. She writes:

“So, if we’re really asking questions about the role of philanthropic funds within a social capital stream, we had best at least start with a sense of what dollars go where, what dollars come from where, and how we value, access, count, and use these dollars. In other words, we’re back to my previous question about what mix of revenue (philanthropic, social investment, commercial investment, fair trade, social venture funds, etc) is actually funding public goods/services.

This is, I believe, still the key question, and one which is being taken up by some very thoughtful folks running the xchangexchange - which has the intellectual horsepower to become a hub of thinking about the changing capital markets. I’m going to move my conversation, questions, and the insights I received about the value of various elements of the blended value map over to the xchangexchange conversation - join me over there.”

We cannot do this alone: please join us on the exploration conversation!

Permalink Comments

10.22.07

Inclusive wealth

Posted in exchanges, epistemology, bioinformatics, resilience_economics at 5:52 am by kevindjones

As we look to try to get a handle on the way value will be displayed and exchanged in the new exchanges, some analogues to the way people have learned to value things like ecosystem services might be interesting analogues. The Bejer Institute in Sweden has done some interesting research on the new kinds of accounting systems that will be required. And some of the economists looking at resilience economics have approaches that could also be helpful. The epistemology might take a few cues from bioinformatics as a way to humbly find what’s going in an extremely complex and dynamic system, where beliefs and habits, rather than biota, are changing. Mapping an evolving ecosystem of financial value and, because of observer bias, consciously trying to influence it. Yardstick influence.

Permalink 2 Comments

10.21.07

Social Marketplace: What Could This Be?

Posted in exchanges, rating agencies, Story Index, information hubs at 3:17 pm by Samantha Beinhacker

The William and Flora Hewlett Foundation is engaged in a fact-finding investigation to assess the most effective tools and models to assist decision-making in philanthropic investment. Calling it a “social marketplace” of information for the philanthropic community, the tool (or tools) would probably be some kind of technology-based application, according to Susan Bell, director of Hewlett’s philanthropy program. You can read the full interview here.

I suggest there is an important role these emergent social stock exchanges can play in the development of this information tool. Perhaps the Story Index might help? We’ve defined the Story Index as an attempt to create a Rosetta Stone between all the nascent exchanges, rating agencies and analyst groups that are arising, trying to determine common denominators of the value of “businesses doing good” that are best encapsulated in narratives.

Permalink Comments

10.20.07

October 19, 1987 - October 19, 2007: Twenty Years Revisited

Posted in exchanges, Story Index at 1:57 pm by Samantha Beinhacker

It’s now twenty years since the fateful day known as “Black Monday” when the Dow Jones Industrial Average dropped by 508 points, or 23%, making it the single worst day in the history of the American stock market, and therewith, a similar pattern of enormous drops occurred all across the world.

So, it seems appropriate, on this 20th anniversary, to reflect on that event and think about its implications, especially as we’re observing so many fledgling stock exchanges emerging globally.

I’ve been reading a bit by a fellow named Jason Zweig, a journalist for Money magazine. His new book, Your Money and Your Brain, is a fascinating examination of what goes on in our brains when we make decisions about money. The implications of his hypothesis are quite helpful in thinking through how and why we need to think about investing in a totally different way in 2007 (and beyond).

His argument, based on neuroeconomics, is that human beings are simply not hard-wired to be good investors. We think with our heart and we are not always (perhaps never) rational. He writes: “The brain is not an optimal tool for making financial decisions. The part of our brain that tells us to act like rational investors tends to be completely overtaken by much more powerful emotional impulses—impulses that make us human.”

So, what are the implications for these emergent Social Stock Exchanges? Perhaps what many of us have been calling “putting the heart into the financial” is what we’re after. Forget the attempt to overlay sophisticated technical analysis onto the work of social purpose businesses; forget the need to identify the patterns that will yield the highest margin of return. Instead: let’s turn to the irrational—the messiness of the stories that one tells about the efforts and work—and try to make some sense out of that.

As my friend Kevin Jones has said a thousand times: “Trying to compress our value into spreadsheet thinking is reducing their inherent value. We are learning to tell a story that uses spreadsheet thinking, that is clearheaded as investing, while being as warmhearted as giving.”

The twenty-year anniversary of “Black Monday” just reminded me to stop thinking “rationally” and start feeling “irrationally.”

Permalink 1 Comment

10.18.07

Blogs: Adding value to social capital conversations

Posted in information hubs, transparency at 6:44 pm by Andrea McGrath

Sean Stannard Stockton - principal of the blog Tactical Philanthropy and a new member of the blog team at SSIR (see the full team here) - posted an interesting note on his recent conversation with Paul Brest of the Hewlett Foundation and why Paul should start a blog (Sean builds on Paul’s argument for an information marketplace on social impact data). The common thread among both of these authors is discussing the value of “marketplaces” for information. As Sean states: “marketplaces are not just a collection of transactions but a “swarm” of interpersonal interaction between people (see xigi). Financial markets are virtual - but no less human… this transition (to virtual markets) does not JUST require data but conversations”.  He argues that conversations are the key to growth in philanthropy, and we feel conversations are just as important to the growth in many types of social capital - as well as to the development of social capital market infrastructure (story behind the xchangexchange). He also makes the point that it essential for funders to join in the dialogue - and we agree (see the full post here)    

Permalink 1 Comment

10.17.07

Kenyan exchange brings transparency

Posted in transparency, safety at 7:01 pm by kevindjones

This link from my fellow researcher Andrea McGrath shows how even a traditional stock exchange is becoming a force for political and societal and economic transparency in Kenya. One overheard anecdote from the fellow from the Kenyan Social Stock Exchange delivered at the recent Belagio conference goes like this: “What is a socially responsible business in your context?” The response from the Kenyan SSE “A business that does not shoot its employees.” A powerful and good tool in a local context, the existing exchange and the prospect of a social stock exchange bring new possibilities.

Permalink Comments

Suroweicki on prediction markets

Posted in exchanges, prediction markets at 3:17 pm by kevindjones

Prediction markets bring together buyers and sellers around a collaborative project that creates the highest level of forecasting. And they don’t need regulatory approval. If the exchange conversation grows, or that in the overall social capital market space grows, it could be a great design tool for how to design the market; asking the crowd but not being hobbled by traditional consensus thinking. Suroweicki’s book Wisdom of Crowds outlines some relatively simple conditions for how to make them work. I’m also on a prediction markets listserve and learn a lot there. He wrote here about it in Forbes.

Permalink Comments

10.15.07

Emerging Developments: Exchanges, Mapping, and Social Value

Posted in exchanges, product, producers, Story Index at 2:08 pm by Andrea McGrath

There are so many exciting developments in ‘social capital markets’ - and many thoughtful groups gathering formally and informally to figure out how to develop and implement innovations as they emerge. We here at the xchangexchange aim to track these developments and find out what we can about these emerging networks and activities to help connect the dots in a truly emerging landscape…Here’s just a few of the efforts we’re learning about:
Exchanges
§         For-Profit/Blended: Social Stock Exchange (SSE) in UK, BLAB in the USA, a Kenya Social Investment Stock Exchange in Kenya, and a donor advised fund/exchange at Calvert Philanthropic Assets in the USA.
§         Nonprofits: existing exchanges such as BOVESPA in Brazil and SASIX in South Africa, as well as some in development such as Altruistiq in USA and some effort towards developing Local Exchanges
 
Landscape Mapping:
§         On the capital side, we see some developing efforts, such as a team from Collective Intelligence and Good Capital on sources of capital, funds and syndicates and a team at Rockefeller taking a sector dive into sustainable agriculture -among others
§         More generally, there are others drafting interesting ‘maps’ of the various capital sources, risks/returns, the players and intermediaries, etc… as part of existing organizational efforts and/or as part of reports on developments in the sector
 
Indices/Measures
Social impact and social value are in some ways considered an implicit element in this emerging market - both in the investments and in the expectations of investors and donors. As new efforts around exchanges are rapidly developing, the questions around how best to demonstrate social “return” (quantitatively and qualitatively) are emerging as well. Social value is often measured or demonstrated best through the use of narratives - either exclusively or in combination with numeric or financial measures. Jed Emerson is currently working on an effort investigating whether we can expand our set of indices to include the quantitative value of qualitative factors. The Story Index Project is a new effort investigating how we might compare narrative social value across organizations: are there common descriptors or language? Can these be aggregated? Can we create an Index of these similar to those in the more traditional markets?

Permalink 1 Comment