Thursday, December 11, 2008

The Stock Market Goes Social

Note: This is a shortened version of my recent blog post for Wokai. Wokai is an organization that I volunteer with and a cause that I am rooting for: it raises loan capital for micro-entrepreneurs in rural China, connecting people like you and me to borrowers via a peer-to-peer Internet platform. The following post is a general discussion of a hypothetical stock market that is based on social returns. To see how it relates to Wokai, refer to my original post.

In just ten minutes, I lost $400,000 dollars, and it hurt. No, I wasn’t on the NASDAQ – I was trading on the Social Stock Exchange, bidding and asking prices for the stocks of social businesses. This one guy managed to walk away with $4 million dollars. I was impressed! But to his dismay and my delight, we were not real social investors yet, and a social stock market was only a figment of our imaginations, thanks to the simulation game we were both players in. I know…phew, right?

The Wharton Social Stock Exchange is a simulation game that was designed for this year’s Net Impact Conference, which took place in November at the Wharton School of the University of Pennsylvania. (The three-day conference drew a diverse group of participants – business school students and professionals from both the private and public sectors – to discuss how to leverage business for good.) The 20 or so players in my session were all placed in front of computers and given stock profiles (including company description and stock ticker), dividend charts, and an initial allocation of stocks and cash. Using an interactive real-time trading platform, investments were valued and trades were made based on a company’s social (not just financial) performance. As popup windows brought social news updates (e.g., ethical sourcing, environmental practices) to us players, the room filled with pauses and then clicks, interrupted with the occasional sighs of frustration and relief. People were getting competitive.

Yunus book cover The goal of the simulation exercise is to allow players to test out for themselves Muhammad Yunus’s proposed social stock market theory. In his book Creating a World Without Poverty, Yunus talks about how, as social businesses become more prevalent, financial institutions will open up and adapt to meet their financing needs. We will see more social venture capital funds, social mutual funds…all culminating in the rise of a separate stock market for social businesses only. Definitely hard to believe, given the current state of international markets, but going on a slight tangent now…

(start of tangent)

…What is a social business anyway? A social business is like a profit-maximizing business (PMB) in the sense that it is financially sustainable through the products and/or services that it offers. However, unlike PMBs, a social business’s ultimate goal is to achieve social impact – measured for instance by the lives it touches. Any profits turned are reinvested into the business, as opposed to being passed along to investors (no dividends). Thus, a social business operates on a non-loss and non-dividend basis. Why should social businesses exist? I like Yunus’s explanation and the logic that it represents: free markets are good --> then why have they failed the poor? --> because they are based on a single-track concept of capitalism that assumes that the pursuit of profit maximization leads to happiness --> but this is wrong, humans are multi-dimensional --> not all businesses need to serve profit alone…

(end of tangent)

Back to social stock markets, and why they are so important to the growth and development of social businesses. I’m a firm believer in incentives. As with PMBs, the budding entrepreneurs and CEOs of social businesses will catch onto bigger problems and come up with better solutions only when the financial and investor communities are ready to become more involved. Other benefits Yunus highlights include:

1. Increased liquidity for shareholders to choose their social investments

2. Heightened public scrutiny to avoid potential deception and fraud

3. Greater exposure to social businesses to attract more capital into the new market

So, as Yunus predicts, heads up that you might start seeing The Social Wall Street Journal reporting that so and so social business did such and such, increasing its share price from 10.00 to 12.50. Or that two complementary social businesses merged, increasing their share values in the eyes of social investors. And don’t be surprised if you see the Social Dow Jones Index alongside the other indexes. I’m telling you, it may seem like a far-fetched vision, but it’s only a matter of time. I think I’ll change my Facebook status to, Jessica is waiting for the stock market to go social.

Monday, November 24, 2008

A Marriage Proposal in a Taxi

I was in the middle of Philadelphia, frantically trying to flag down a taxi. Except for the fact that I was standing at an intersection, I really had no strategy on how to efficiently secure one. I needed to catch my train to NYC! After walking down the same street multiple times, a taxi finally pulled up beside me and offered its services to me. I sat in the front seat, and we zoomed off. A few seconds passed by, and the driver finally mustered the courage to state, "You don't ride in taxis very often." I was not supposed to sit in the front seat because it can potentially put the driver in danger. Oops!

Sitting in the front is so different than in the back. When you're in the back, the plastic barrier between you and the driver makes you talk about the weather, tourist attractions that you happen to pass by, how business is...if even that. In the front, you talk about life. The driver was from Morocco. In Morocco, he used to be a physics and math teacher; but, after coming to the U.S., he could not find a teaching job and had to become a taxi driver to pay his bills. When he is not driving, he spends his time reading physics books. Wow, I became intrigued...

"Can I teach you two lessons that I've learned in life?" Of course I say yes, and he proceeds to share two very simple principles that we've all heard since we were babies:
  1. Don't talk behind anyone's back. Just the day before I complained to a friend about a mutual friend's "immature" behavior...
  2. Don't steal. I thought I was safe from this one until the driver reminded me that you can steal time. Do I Gchat/Facebook a tad too much at work?
The driver explained to me that even though he is not in a situation that he wants to be in, he finds his bliss in life by following the above. Growing up, my dad used to tell me that wherever you are, among three strangers, at least one can teach you something. I'm not sure where he got that probability, but I thought of his words during this very unique encounter.

We were now parked at the train station, and I thanked him for everything. His final words to me were, "If you were Moroccan, I would ask you to marry me." So there you go: my first quasi marriage proposal. The front really is a different place: try it, it's refreshing!

Saturday, June 28, 2008

Serious Confusion

So apparently I'm not the first one to come up with "jelly theory". In 1845, Sir George G. Stokes coined the term when he was trying to make sense of the dual nature of the ether: was it a perfect fluid or a perfect jelly? I'm no scientist, but I like what Stokes' "jelly-theory of the ether" stands for. Logical contradiction. Debate. Confusion to the max. In the spirit of the ether debate, my first blog post goes to a topic that has seriously confused me for a long, long time. Moral philosophy. This post is also dedicated to my favorite budding philosopher Kevin Kambo, who is likely the sole reader of my young blog.

Moral philosophy attempts to answer the rather weighty question of what is morally good, specifically what kinds of actions carry moral worth? Let's say you're walking along, and you see a woman giving money to a homeless person. On the surface this act seems to have moral value, but how can we be sure if we are excluded from the woman's inner thoughts? What of motives? Suppose the woman gives because it makes her feel like a better person. Is she serving her selfish interests, or is the pleasure she gets from giving a mere byproduct of serving the homeless person? Does it even matter in the end? Some thoughts on a couple theories out there...

Bentham, the father of utilitarianism, argued that the moral life is one fat utility calculation. The highest goal in life is to maximize pleasure and minimize pain. Thus, an action is said to have moral worth when it maximizes pleasure. For an individual, we're talking about the maximization of pleasure across time; for a society, it's about the maximization of pleasure across individuals. If Bentham is right, then a lot of people are out of luck. Suppose there's a hypothetical situation in which person x must kill person y in order to save the entire world. According to Bentham, the answer is easy. Just look at the cost benefit analysis! He would argue that person x should kill person y, and that this act would have moral worth because aggregate utility is being achieved. And yet we're talking outright murder. Justice seems to be missing from Bentham's calculation.

Then there's Kant, who believes that a moral action is one that comes purely from the motive of duty. People are governed by both desire and duty, and only when duty wins the inner struggle can an action be seen as moral. For example, a person who is unbearably miserable wishes to end his life, but instead preserves it out of the duty that he ought to respect his life. Kant would applaud this man. When it's all said and done, morality is about following one's duty. But duty is too forced in my opinion. Moral living shouldn't be that hard, should it?

Aristotle, Hume, Mill, Hobbes, Rand (more modern), etc. The list of moral philosophers who have shaped the debate on morality goes on and on. I almost never understand what these philosophers are trying to say, but in those light bulb moments in between, I'm so into them...albeit seriously confused.

Saturday, March 8, 2008