The ultimate goal of socially conscious business

>I, for one, am very interested in the intersection of business and social improvement.<

This is an interesting statement, because on the face of it all business seems to be about social improvement. No one is forced to buy anything, in spite of the stories we tell. Since transactions are freely entered into, both buyer and seller must believe they are benefiting.

I guess there are two problems which socially conscious investing has arisen to address.

First, the free market allows people to repeatedly make choices which lead to financial ruin. For instance, spending too much on alcohol or gambling can lead to loss of your home and job. Kind of like a mountain road with no railings or lane markers.

We see the smashed cars below and think, we should make that road safer. Then we lobby and campaign to convince everyone to agree to put up railings. That's an uphill struggle in the case of products and services; freedom is such an important value to us.

Society has outlawed a few things like cocaine and asbestos, which arguably lead people to ruin. It has put some restrictions on tobacco, guns, sex, loan sharks, and gambling, presumably to protect individuals from their own free choices.

Socially conscious investing has this protection built into it, as part of the goal of the business. That is, a business which is designed to consistently and reliably improve its customers' (and employees', suppliers', owners', and neighbors') quality of life, and which succeeds at it, is socially conscious.

The other problem is that some things are really profitable which end up being bad for everyone, like strip mining, or tobacco growing, rhinoceros hunting, or feeding sheep brains to cattle. This is often an even more difficult struggle to restrict, because there is so much money coming out of the enterprise before anyone complains, that all the politicians are in debt to these bad boys, kind of like Chicago's court system under Al Capone.

Socially conscious business ought to leave the world at least as nice as we found it. Currently it is enough to simply do less damage than all the other companies providing the same product, as is the case with Seventh Generation disposable diapers, or organically grown vegetables that are shipped to us in diesel powered trucks.

What seems apparent in looking at this situation is that socially conscious businesses have arisen to fill a gap in government's stewardship of the common good. We are doing the government's job, because the government is being paid not to do it.

So the ultimate goal of socially conscious business has to be to transform the government. I never thought of it that way before.

Vaccine for Poverty (part 4)

If you have been following this multi-part essay on solving poverty, by now you know my rule #1: Take on the easiest cases first.

I want to say a bit more about what makes a case "easy". As you can imagine, for example, it is easier to help someone get a job if they are disciplined, qualified, and have a "good attitude", and the only thing they are lacking is some coaching on how to apply and what to say in an interview.

I am not saying that we shouldn't help poor and desperate people. I am saying that if we focus our efforts on comforting the desperate cases and ignore the marginal cases, we risk never getting there. I want to end poverty, not die trying!

I am also not saying we shouldn't seek sweeping improvements to the tax system and other aspects of government and economy. I am saying that unless you've got a track record of winning big political battles, I suggest starting with something smaller. Reform the taxes of one small town in a repeatable way (i.e. such that your influence and resources grow, not shrink, in the process), and I will join you in taking on the next easiest target.

Another way to construe what makes a case "easy" is to look at the "bang per buck". When we spend time, effort, and money on something we expect something back. Sometimes we get back less than we gave, for instance when we buy a lottery ticket and we get the fun of scratching it but it's not a winner.

Other times our effort pays off more than we put in, like I recently spent $58 on a bicycle and I've ridden it to work dozens of times so far, which is fun for me, keeps me healthy, and gets me to work, where I make money and write long essays on o/net. The kicker is that after reaping all those benefits, I still have the bicycle, which is basically still worth $58! So that investment is paying off pretty amazingly.

Buying real estate (if you know how to do it safely, and consistently) is even better. You get a place to live (or you get to provide someone else with a place to live), a tax deferral, a source of really cheap financing, and then thousands of dollars in profit when you rent or sell.

One might argue that prenatal care is an even better investment than that, the child might enjoy better health for their entire lives. Ten dollars in multivitamins might yield millions of dollars in value later.

Those are the kinds of investments we want to make! The stories I have heard about microfinance are exciting, a $50 loan transforms a person's life and provides them with the means to dig their way out of poverty, and they even pay it back! What's more, that person doesn't just impact their own family. By working and improving their lot, they inspire everyone around them.

People are incredibly sensitive to the behavior of those around them. Think about how you feel when you are in a noisy crowd. And then imagine the crowd suddenly gets quiet. Peer pressure is one of the most powerful forces in the universe. It is the wave we surf on, in all our self-actualisation.

Think of how people behave in a church or temple or a museum. Even gang members are quiet and respectful in those situations. Think of how you feel when you see people dressed in business suits rushing for a cab. Or when you see people strolling in the park. Or lurking in an alley. Why do new clothing fashions catch on so fast? Do our individual preferences actually change every season, and all in the same direction?

Most crimes are committed when no one is looking, but the blatant exceptions to this, e.g. people being mugged on a crowded street or in the subway, really prove the rule -- the mode of behavior in these places is to avoid touching others, remain aloof and separate, as if there were an invisible bubble around each person. Helping someone fend off a mugger would break the bubble, and enmesh you in their affairs. You would then stick out in the crowd as a bubble breaker.

Malcolm Gladwell discussed the power of the environment to influence our behavior in "The Tipping Point", and many books have been written on the subject of peer pressure. The bottom line is that people are profoundly influenced by their surroundings, and in particular, the behavior of the people around them.

Consider the most expensive real estate in the world. There are three general categories of places on this list, (1) religious, historical, or artistic landmarks, e.g. Taj Mahal or the Statue of Liberty; (2) natural resources or beautiful landscapes, e.g. a gold mine or Niagra Falls; and (3) places where people behave in a highly sought-after manner, e.g. Oxford University, Wall Street, Beverly Hills. This behavior includes the kinds of buildings they build and how they maintain them.

The amazing thing about these three causes of high real estate value is that on closer examination, they all boil down to human behavior. Religious significance exists by agreement, as does the value of gold or the beauty of a particular landscape feature. If gold went out of fashion, it's value would drop, just like Beverly Hills.

Our behavior has a huge impact on the quality of life of the people around us. And their behavior has a huge impact on ours. But all behaviors, just like all fashions, and all religions, are not created equal. Some are more contagious than others.
In designing the Active Ingredient for the Poverty Vaccine, we are looking for a behavior with the following characteristics:

a) It enriches the person doing it.

b) It is easy, legal, safe, and FUN to do, and not at all embarrassing, scary, or controversial.

c) It is done out in the open, in full view of the public.

d) Rich people can do it in places where poor people live.

e) Poor people can do it too.

Part (a) ensures that it will reduce poverty, when engaged in. Part (b) ensures that once they start, people will continue doing it. Parts (c),(d),(e) allow for an effective delivery mechanism.

There may be many behaviors that fit these criteria. The one that I know intimately is buying real estate and fixing it up, and beautifying the whole neighborhood in simple, inexpensive ways, enriching the community and creating opportunities for the most enterprising poor people to quickly work their way out of poverty and inspire their less enterprising neighbors in the process.

Real estate values depend on the behavior of people in the community, and we can influence that behavior, improving the quality of life and the desirability of the real estate, which in turn rewards the community, and us.
Now the question is, "Which properties should we buy?" This is my favorite part. :)

The Poverty Vaccine, Part 3

Let's face it, solving poverty is a huge task. Huge tasks behave a little differently than small or medium sized tasks.

For example, consider weeding your vegetable garden. All the vegetable gardens I have weeded have been small enough so that I could finish weeding them in less than 2 full days. This is shorter than the reproductive cycle of a weed, so I always finish weeding before the existing weeds reproduce.

Now imagine weeding a 100 acre farm, using the same technique (pulling out each weed by hand). I imagine that would take me at least 2 days per acre, or 200 days. I'm no botanist, but I know weeds grow and spread faster than that. The point is I'd never get done.

Weeding a 100 acre garden cannot be done using techniques that work fine on a 100 sqft garden. Think about that.

I have done a fair amount of experimentation with all sorts of landscaping, and I have prided myself on never using power tools, whose noise would lower the quality of life for my neighbors. At my first major investment property (back in 1994), 22607 Valley View Dr, Hayward CA, I spent a solid week from dawn to dusk frantically digging out a retaining wall with a shovel, and literally running 20 yards uphill with my wheelbarrow full of dirt, and dumping it at the top, to terrace my steeply sloping yard. When I set my mind to something, I really give it my all.

But I bit off more than I could chew in that job, and ended up completing only one terrace (I had planned for five). See, here's another example of using a technique that is too slow. The mortgage was burdensome; I spent a full year fixing the place up before I could rent it, and I ended up selling the property before I could finish.

The most avid John Kerry supporters can probably understand my feelings. Sure, there is satisfaction in working hard on something you believe in, but a lot of satisfaction comes from succeeding, too. I have learned the hard way to pick my battles carefully.

Life is too short to screw around with slow poverty solutions. We need THE FASTEST solution possible!

Here it is.

1. Solve the easiest cases first. Starting with the easiest country, the easiest state, the easiest city, the easiest neighborhood, the easiest street, the easiest house, the easiest room in that house, and the easiest part of that room.

Remember, our failure to solve poverty in the easiest place works on our brains like psychological proof that we cannot solve it in harder places. Poverty in Los Angeles destroys any hope of ending poverty in Calcutta.

2. Solve the profitable cases first. It makes no sense to pay to accomplish something when you can just as easily get paid to accomplish the same thing.

A large portion of the poverty problem arises due to people spending too much money on things that depreciate in value rapidly (e.g. ice cream, carpet, automobiles). We aren't going to solve it by engaging in that same behavior. Every dollar we spend should come back to us bigger.

3. Solve the cases that yield the most support first. Why start conflicts? I am still alive partly because I have spent the past 10 years figuring out ways of accomplishing the result I want such that not only does no one object, but people spontaneously help me. There is no need to boss anyone around or make anyone uncomfortable.

It might not seem like such a sure thing that this will work, if there weren't soooooo many incredibly wealthy, energetic, talented, outspoken, passionate people who want this result so bad we can taste it. This is the fastest, cheapest, easiest, most sustainable way to get there.

Now I just need to get this idea across to people in a way that sticks.

Vaccine for Poverty Part 2

The Vaccine for Poverty, continued... (part 2)

Many priests and nuns take a "Vow of Poverty" which means they do not amass personal wealth or put a lot of energy into collecting luxuries. But even the poorest priest is actually on the right side of the Poverty Line, because they are "taken care of". They don't generally starve, and the Church takes in more wealth than it needs to keep its priests healthy & comfortable, so their future is secure.

The ones that concern us have no safety net. On average, they consume all the wealth they create each day (or more), and there is no wealthy organisation committed to taking care of them.

We have defined poverty in terms of wealth, but we have not yet defined "wealth", so let us take a moment to do that now. For the purposes of this discussion, wealth refers to everything which contributes to a high quality of life.

Money is the first thing that comes to mind, because we use it to surround ourselves with security, beauty, comfort, and creative outlets. Money and everything it buys is one of three aspects of wealth -- the part that relates primarily to our immediate environment.

Most of us have experienced an acute lack of correlation between money and quality of life at some point or other. Once we have plenty of money, our quality of life still depends on intangibles like loyal friends, harmonious relationships, integrity, courage, and feeling challenged in our careers. This second aspect of wealth includes relationship and character traits required for high quality of life.

Relationship and character traits are attainable in some degree through openness, persistence, and determination, and are therefore available to anyone who chooses to pursue them. However, we can all remember times when it was the advice or encouragement of a friend, parent, teacher, or other role model that motivated us to strive for and achieve these virtues. It is difficult to say by exactly how much, but it is clear that our quality of life would have suffered if we had lacked that support in those moments.

The third aspect of wealth consists of factors requiring the cooperation of others; items ranging from the simple politeness of neighbors to things like common language and currency, institutions of education and health care, rule of law and protections of a national constitution, world peace, environmental preservation, and biodiversity. The wealthiest person on the planet is impoverished if victimised by war or environmental destruction.

Recall my formulation of the Poverty Line, being the distinction between people whose situation we felt called for humanitarian intervention and those who we felt were going to be OK regardless. Under this three part definition of wealth it is possible to imagine people to the left of the line on any one aspect, or two, or all three.

That is, a person can lack money, possessions, supplies, and commodities, and independently of that, a person can lack courage, integrity, wisdom, and role models to inspire and bring out the best in them. And finally, the person's family, neighborhood, city, or society can lack cooperative values and institutions such as freedom of speech or safe drinking water.

Recognising this complexity sheds light on the often puzzling failure of so many well funded anti-poverty programs. To take an obvious example, giving money to people who lack discipline or integrity is not going to accomplish anything meaningful. Giving education, training, and equipment to people whose communities do not support rule of law may have even led to the attacks of 9/11. What a dismal return on investment!

We begin to get a clearer picture of what the people just to the left of that line look like. They probably do not live in a country currently engulfed in civil war, for instance. Their families and communities and cities and nations probably have all the cooperative values and institutions one could wish for, and they are probably reliable, trustworthy, intelligent, thoughtful, and considerate people, who, given all those virtues, most likely also already have enough money.

Perhaps the only thing lacking is some good advice and encouragement to inspire them to take a few simple actions and step over the line, rather than remain in a situation that will tend to get more difficult the longer they stay there.

I am clearly not saying these are the people most in need of our help -- they are not. I am merely describing the situation that is the precursor to the end of poverty, similar to the strategy of injecting dead or weak smallpox virus in order to stimulate the immune system to develop an effective defense against a live, full strength smallpox virus that might be encountered at a later date.

More on this later.

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Let's return to individuals for a moment, and consider the case of an unemployed U.S. citizen living in Long Beach, California. Every day I bicycle to work past a group of poor looking people waiting on the sidewalk outside a church where I assume they receive food or clothing or some other assistance. Which side of the line are they on?

It depends on why they are there. Some of them may actually be doing fine, and using some charity just to supplement an already decent standard of living. Some may be there primarily to socialise. However (if my own experience is any guide), it seems likely that many of them are to the left of the Poverty Line.

They are being taken care of to some extent. Many of them receive other assistance as well. If they are freely choosing to seek out those services, because they prefer it to other also-good options, then that would put them on the right side of the line, in my opinion. But if they feel like they NEED that assistance, because all other options available to them involve serious health risks (like not bathing, or not eating a balanced diet), then I'd say their quality of life is unacceptable. I would not want my brother waiting there feeling that he NEEDED that assistance to prevent personal disaster. (And I feel I am related to everyone, so I don't want your brother there either, in that condition.)

To be continued...

A Vaccine For Poverty Part 1

I have been working on a solution to global poverty for the past 10 years and I have come up with one that I think will work, and I am in the process of implementing it. I will describe it to you.

First of all, consider the problem of smallpox, before the invention of the microscope. People came up with all sorts of imaginary causes and (very expensive) solutions, but none of them worked because they didn't have a working model of the disease. Once they saw the little germs under the microscope, and the white blood cells, they started manipulating them with chemicals, etc.

Then someone invented the vaccine, and convinced the government that it worked, and then the government made everyone take it. Problem solved. All the other "solutions" went poof.

Poverty is like smallpox, or hiv. What we need is to invent an effective vaccine, and then for everyone to take it. I have invented a vaccine. The reason I say it like this is that to understand what I'm talking about it helps to realise that (nearly) all the noise out there about "poverty" is just that, noise. Just look at the results produced, and then you will know how effective all the solutions that have been tried are.

Now I will describe my "microscope" which allows us to see the actual cause of poverty and address it.

Imagine we were to sort all the people in the world at this moment, by how affluent or economically successful they are. It would go from the wealthiest most successful person alive, all the way down to the person who when I finish this sentence will immediately die of starvation or thirst or suffocation or bleeding.

Somewhere in the middle of that sorted list is the Poverty Line. That is, the people to the right of that line are "OK" by our standard. Just barely, but we look at their lives and think, they may have lots of serious problems, but overall, they are doing ok, we can pretty much leave them to take care of themselves, they are going to be alright.

But the people just to the left of the line, we think, just barely, are not ok. Some (tiny) essential thing is missing from their lives. We want to help them, and get them over to the right side of the line, so we can sleep better. That's the definition of the line, it separates the cases we feel a desire to act on from the ones we feel (healthy) apathy about.

Of course, as we go farther left toward the more extreme cases, we start to feel more like Mother Teresa, like oh my god these people are in dire situations. We see those kids with distended bellies and flies on their faces and we are strongly moved to do something. People whip out their checkbooks and send $30 to FeedTheWorld and then do their best to forget about the fact that they have no idea where that $30 is going or what the ultimate effect of this action is. In the back of their mind, they are in a panic because they are worried if they spend too much time thinking about those kids they will end up going to Africa or India and giving up their lives like Mother Teresa did.

Mother Teresa was an amazing person and thousands of other amazing people followed her and did whatever she told them. Millions of people sent millions of dollars to her. And yet Calcutta still has dire poverty but no smallpox. Her work, while noble and admirable and directly beneficial to thousands, was not a vaccine for poverty.

So we have the list of people sorted by wealth. If we take the 0.0001% who are just left of the line, we are looking at the 6500 very easiest cases, requiring the least effort to get them over the line. If it were just about money, and we had $6500, each these people would require only $1, so we could redeem all of them. Wow, that'd be a big bang for the buck. Compared with the most desperate cases all the way left, which perhaps require $10,000 each to save from imminent torture and death, and another $10,000 each week thereafter in medical attention and care. We couldn't even save a single one with our $6500. That's depressing.

However, it isn't just about money. Everyone is in a different situation. A few of these people do just need a little money, others need advice, others need a workout partner, others need some encouragement to take a risk and go for an opportunity they otherwise are going to pass up.

This is why giving $6500 isn't the vaccine for poverty. Extra money only helps a few people, and just confuses the issue with all the rest. So only $10 of that $6500 was used efficiently to help someone, and people get tired of spending $6500 to get $10 worth of benefit. This is how welfare works, except that there are other disincentivising side effects so along with the $10 of benefit we also get $500 of extra problems.

And neither are job placement programs the vaccine for poverty, because they help a few people and everyone else is not in the position to really take advantage of them. Same with soup kitchens, homeless shelters, rent control, affordable housing, section 8 housing assistance, food stamps, habitat for humanity, literacy programs, etc. Each one of these strategies provides something specific for people in need. The problem is what they are providing is only useful to a few people, and it is actually harmful to many others, and they aren't careful about picking out which is which. So they do some good, but not enough, and it tends to get cancelled out. Ultimately people get frustrated because the dream isn't materialising and they go back to their day jobs.

This is how all the cures for smallpox looked, before the vaccine. Some people got the disease and survived, because they got plenty of rest. Others survived because they ate lots of food. Other survived because they kept a positive attitude. But each of these techniques worked on only a small percentage of the people, and it's depressing to keep trying "cures" and having 95 out of 100 of your patients die.

To be continued...