The Currencies
How new impact currencies fuel the solution economy
World of Warcraft is one of the most massively successful video games of the last decade. The game has more than ten million players worldwide, a community larger than the entire population of Sweden.1 Its devotees pour hundreds of hours into building stashes of online gold, virtual experience levels, and quest objects, spending real-world dollars to purchase high-level characters or Warcraft gold.
The global GDP of virtual games such as World of Warcraft, according to market trading estimates, is as high as $28 billion.2 The third-party gaming services industry, providing microtasks such as gold farming, which employs an estimated hundred thousand workers providing player-for-hire services worldwide, generates about $3 billion in annual revenue, most of which stays in developing countries.3
Warcraft’s economy, however, incorporates more than virtual goods and money. Characters can earn reputation points that vary for each in-game faction: for instance, if you slay a pirate from the Black-water Raiders, your reputation among that group drops drastically, but you gain reputation among their rivals, the Bloodsail Buccaneers. An “honor system” currency rewards players for vanquishing one another, while certain currencies, such as a type of holy dust, are valuable only within certain factions.
In video games, virtual economies are built in an attempt to simulate the real economy. Often the games will draw from elements of real world behavior systems like reputation. A developer, for instance, does not earn official reputation points when he or she reinvigorates parts of a city, but the developer’s reputation can gain a very real value. The developer can spend a painstakingly built reputation all at once in a drunk-driving accident, or lend his or her good reputation to an up-and-coming entrepreneur through an endorsement. And some currencies are valuable only to specific factions; you’ll certainly find a higher value placed on carbon credits in some circles than in others.
These unofficial currencies circulate beneath people’s daily interactions, even if a bottom-of-the-screen score and soundtrack don’t track people’s day-to-day triumphs and defeats. Even if less quantifiable, the rewards and consequences stemming from people’s actions reinforce all sorts of positive and negative behavior. The gap between good intentions and quantified rewards, however, is closing from both ends.
Businesspeople such as Google’s Sergey Brin, Whole Foods Market’s John Mackey, and Virgin’s Richard Branson place increasing value on social returns rather than mere profits. And new technologies are making it easier to identify and calculate such returns into tradable measures of value.
One company trying to think beyond the dollar is Zappos. When Amazon.com bought Zappos in 2009, Tony Hsieh, the company’s quirky chief executive, decided to reinvest some of the $1.2 billion from the sale by moving Zappos to Las Vegas and improving the city itself. Vegas, he hoped, could become “the most community-focused large city in the world.”4
The Downtown Project is Hsieh’s $350 million experiment with a new business formula: fill a space with creative and motivated people, foster community, and thus ensure sustainable businesses and neighborhoods. Where better to gamble with an idea than Las Vegas?
Hsieh set aside a portion of the money for buying land, apartments, and offices in the city’s dilapidated downtown area. Another portion will fund tech companies and small businesses that agree to move to the area. And $50 million will fund improved educational resources. Hsieh believes that if he can transform the Vegas urban core into an appealing place to live, it will boost his company’s ability to attract and retain talent.
Hsieh scrutinizes the impact of each of these investments on his bottom line: community well-being. “Every factory in the world is doing everything they can to maximize ROI,” says Hsieh. “We’re doing everything to maximize ROC [return on community].”5
The wavemakers who value social return, like Hsieh, gauge success by the positive impacts they produce, impacts often measured in unorthodox units, such as children educated, prisoners reformed, or obesity rates reduced. By advancing how these units are measured, the wavemakers build the basis for quantifying and rewarding improvements, a concept best understood in the context of currencies. While it may be a while before Hsieh’s “return on community” can be calculated in an agreed-upon fashion, it’s valuable to recognize the forms these new currencies can take.
New Currencies for Public Value
When people discuss currencies, they tend to think of paper notes—American dollars, Japanese yen, or euros. Printed money, however, is only one form of currency. Throughout history, currencies have come in many novel forms. World of Warcraft’s holy dust is only the latest in a long history of unconventional currencies, from the storied stone wheels of the Yap islanders to cowries, the mollusk shells that became a popular means of exchange in China more than three millennia ago.
Currencies have evolved over time from stones and seashells to the sophisticated currencies that enable today’s global financial transactions. This evolution of the notion of currency continues today, as a number of new, alternative currencies grow in popularity.
Currency is how we create and exchange economic value through place and time. As in World of Warcraft, in the solution economy, value creation and exchange take place in new and different ways, and unsurprisingly, we’re witnessing an explosion in the types of currencies in use—new currencies that can spur new ways of creating public value.
To understand the solution economy, we must rethink our conception of currencies. Currency can be anything that provides the various economic functions we currently associate with fiat money. It is anything that can serve as a medium of exchange, something that can be “cashed out” for goods and services or used to pay debt or to store value for future use.6 As we will see in the examples that follow, new currencies are a key enabler of the solution economy, encouraging participation where existing monetary currencies fall short and incentivizing action where conventional commodities may be lacking.
Traditional, monetary contracts certainly have their place. But societal problem solvers are not being limited by these methods. Now more than ever, creative means of promoting public outcomes by attracting, targeting, and rewarding resources in creative ways form part of the solution design. Table 4-1 summarizes some characteristics of these “impact” currencies, and the following pages examine each of them.
Credits as Currency: Trading Public Goods
Alaska’s Bristol Bay is one of the world’s best salmon fisheries, the catchment for hundreds of pristine rivers and streams. It produces massive numbers of salmon (29.3 million in 2008); the area’s salmon fishing alone creates an estimated direct economic impact of $324 million annually.7 Blue mountains knife up from the ocean’s edge, and fishermen operate bobbing craft perfumed by diesel and bait.
When a school of fish is sighted, boats jockey for space, crowding each other out, sometimes snagging nets in a rival’s propeller—a difficult knot to cut loose in freezing waters. Much bad language and the occasional display of handguns have resulted.
Bristol Bay is a classic public good: a finite resource everyone shares. In traditional economics, a market with limited supply encourages individuals to seize as much as possible. It’s called the tragedy of the commons.8 It’s what depleted cod from the Grand Banks, the legendary Atlantic fishery, where resource managers now are struggling to bring the species back.9
Luckily, instead of fighting one another for salmon, Bristol Bay’s fishermen can use the fish as a currency, in the form of individual, transferable quotas—a nonmaterial representation of a public good, in this case a food source. The fishermen thereby have some control in the event of any disruption to the supply of the underlying physical goods. This liberates the market from fears of hoarding and the tragedy of the commons, because everyone’s fair take is negotiated before the boats even leave dock.
For any market to function well, of course, an independent party must manage the exchange and set rules. The Alaska Department of Fish and Game maintains Bristol Bay’s elegant system: each year, after scientists estimate the number of fish the bay can yield sustainably, the department divides the season’s catch into quotas. Each licensed crew receives a quota for tons of fish and can sell it to other fishermen, allowing some to hedge against bad luck while letting others buy enough quota permits to exploit a big haul.
This quota market is just one example of how the public sector can take a public good, which by definition fits awkwardly into market economics—how do you devise and trade a unit of wildlife sustainability?—and, with care and attention, create a viable market. Innovations such as data analytics and pay for success, which will be discussed in the next chapter, allow participants to trade contributions to the public welfare, applying market forces to the task of creating valuable if sometimes intangible public wealth. The idea, again, is to create currencies out of public value, or at least the behaviors we believe will further the goal.
In Alaska’s case, Nobel Prize–winning economist Elinor Ostrom and her husband Vincent had a profound impact. Vincent advised the drafting of Alaska’s state constitution—particularly the passage saying that natural resources belong to the citizens, not the government.10 He writes that goods need three qualities to survive in public trading: they must be excludable (not available to all), qualifiable, and quantifiable.11 In other words, they must have qualities that can be measured, valued, and traded.
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Sizing the Currencies
CARBON CREDITS
The size of the global carbon credit market was estimated to be $176 billion in 2011.
. . .
But trading quotas as a currency are not always straightforward. While carbon emissions trading, for example, is based on the same kind of quota trading as the Alaskan salmon quotas, the complexities involved are more challenging.
In the cap-and-trade system of carbon emission trading, environmental regulators allocate the right to use a resource (net carbon emissions) to industry participants. In any given year, for instance, regulators might allocate one thousand tons of carbon emissions to the power company GenCo, and GenCo would be required to buy additional emission credits on the open market if it exceeds its quota. This encourages GenCo to develop low-emission power sources, reducing the total amount of carbon in the atmosphere. Regulators may reduce total allocations over time, driving further carbon reductions. As with Alaskan salmon, the objective is to maintain a sustainable impact.
In the United States, this sort of cap-and-trade regime proved highly effective against emissions of sulfur dioxide, one of the main chemicals that causes acid rain.12 The effort to limit carbon, however, has been much more problematic. Regulators have found it difficult to estimate exactly how much carbon is produced, and how much would be produced to allow for economic growth. And modern society has so many carbon sources that the sort of monitoring equipment used in acid-rain reduction would be administratively burdensome and cost-prohibitive.
In addition, there is no real agreement on just how much carbon the climate can sustain in a given year. There is only general agreement on carbon’s effects over the next century or more. Carbon has proven difficult to definitively exclude, qualify, and quantify; it’s a big problem with a maze of unknowns.
With data analytics, however, scientists can better gauge the impacts on the larger ecosystem. Consider the carbon emitted by the nation’s electrical generation. Thousands of power plants generate electricity every day, fueled by hydrocarbons such as coal and natural gas and by alternative sources, including nuclear, hydroelectric, wind, and solar power. The grid delivers electricity from these plants to homes at nearly the speed of light, and once the electricity is on the grid, its source is physically impossible to trace. Tracking some carbon emissions from their point of consumption to their origin, then, is extremely challenging.
Increasingly, however, public and private organizations wish to share their carbon consumption information with their stakeholders. That’s where analytics come in. To make this information easier to obtain and share, the US Environmental Protection Agency has created eGRID, an analytical tool that estimates just how much carbon is emitted in a section of the grid. eGRID forms the basis for generally accepted carbon accounting protocols.13 Most organizations use eGRID to report their Scope 2 emissions—indirect emissions from power consumption. The ability to measure these effects makes it possible for companies to pay directly for their carbon footprints through renewable-energy certificates (RECs), often called offsets.
Whole Foods Market, for instance, offsets 106 percent of its carbon emissions through a combination of on-site power generation and RECs purchased from the third-party broker 3Degrees. Kohl’s department stores, the city of Austin, HSBC North America, Carnegie Mellon University, and many other organizations also offset 100 percent or more of their carbon emissions. A public good thus becomes private, available for use as a currency in a free market.14
While government has minted various types of environmental impact currencies—emissions permits, carbon offsets, and renewable-energy credits—market forces drive and determine their value, creating constraints and incentives that drive innovation.
Social Impact: Putting a Value on Solutions to Society’s Problems
Within three short years of writing the code that would become eBay’s DNA, Pierre Omidyar found himself standing on the trading floor of Goldman Sachs, watching the price for shares in his company triple. He now, really and truly, had more money than he knew what to do with. As with many successful entrepreneurs, it sparked thoughts of philanthropy.15
Rather than a traditional family trust or foundation, Omidyar chose an innovative approach to fuel social good: a hybrid limited liability corporation and 501(c3). This would allow Omidyar Network (ON) to invest in both nonprofits and for-profits, choosing the organizations that create the most significant social outcomes.16 The foundation issues grants and loans, committing more than $442 million to date, and also runs equity deals as a venture capital firm would, depending on what makes the most sense for a specific fledgling enterprise. ON occupies a middle ground that welcomes constant collaboration with nonprofits, foundations, and blue-chip venture capital firms alike.
ON pursues social outcomes with cascading impacts that alter the underlying causes of problems. This is far more challenging than buying textbooks or medicine, which produce immediate but generally modest social returns. ON directs its investments to organizations that tackle complex, societal challenges in an unprecedented way, offering the potential to scale their innovations. How the organizations deliver on their goals is left to the ingenuity of individual social entrepreneurs.
“From our office in San Francisco,” says Amy Klements, a vice president at Omidyar, “we can’t identify the solutions that will be most impactful in an entrepreneur’s community and others like his. The entrepreneur has often seen the challenges firsthand in their full complexity.”17
ON can take its hands-off approach because it funds measurable outcomes rather than strategies. Measurable improvements, then, become a currency that these innovative organizations can offer to investors.
When ON was founded in 2004, much of the philanthropy community was unfamiliar with the notion of impact investing. Only a handful of organizations supplied critical, early-stage investments to social entrepreneurs. These included now widely known organizations such as Root Capital, Acumen, Skoll Foundation, Ashoka, and Echoing Green, one of the field’s earliest pioneers.
“We don’t have the financial return on investment to hang our hats on that a for-profit might have, culminating in a big exit, an IPO or acquisition,” says Cheryl Dorsey, Echoing Green CEO.18 So outcomes are the currency here, a yardstick by which an enterprise proves its effectiveness.
One of Omidyar’s investments, d.light, has a unique approach to the health problems of developing nations, offering small, affordable solar lanterns.
“One in four families in the world lacks access to electric light,” explains Omidyar. “The main alternative is kerosene, but many people can’t afford it—and it is harmful to both health and the environment.”19
The UK Health Protection Agency, for instance, says kerosene “may cause serious lung injury,” while The World Bank reports that with poor ventilation, living with this kind of lighting is as bad for health as smoking two packs of cigarettes a day.20 Kerosene is also a powerful accelerant, likely to start disastrous fires.
Sam Goldman, cofounder of d.light, recognized that the social impact of a cheap solar-powered lamp could be huge. Omidyar agreed and connected Goldman with development behemoth BRAC, which is based in Bangladesh and committed to a massive distribution of solar lanterns. By the end of 2015, d.light hopes its lanterns will have reached fifty million people worldwide. In this case, as with many others, ON was directly involved with significantly upping the impact of a social entrepreneur’s innovative idea by initiating a valuable partnership, to the benefit of all involved.21
Social entrepreneurs develop solutions. But placing a value on solutions calls for an entirely new sort of accounting. The social enterprise KaBOOM!, for instance, which addresses “play deserts,” where children lack access to safe play spaces, measures its impact in the number of playgrounds it builds—nineteen hundred by 2010.22 Similarly, proponents of a bond project in Birmingham, England, weighed the costs and benefits of providing access to physical activity sessions for 1.1 million city citizens through an initiative called BeActive. They concluded that health-care savings, improvements in quality of life, and productivity gains associated with the program would exceed its costs by £445.2 million.23
Outcome measurement also helps organizations push themselves. Increasingly, organizations are investing in monitoring and evaluation schemes to ensure that their efforts attain the desired impact. For Jigar Shah, founder of the solar energy start-up Sun Edison, the important quantity is one gigaton: the amount of annual reduction in carbon emissions needed to stabilize climate change.24
Something about this figure clicked with Shah. “Someone had finally made a measure of what it took to make a difference . . . [I]t was either, you are growing this fast and you’re getting to that end point, or you’re not,” he says. “If you’re not, you’re failing. If you are, you’re succeeding.”25
Shah joined Richard Branson’s Carbon War Room, where the benchmark is to attract enough investment in renewable energy to reduce emissions by at least five billion tons of carbon dioxide annually.26 The effort literally translates emissions benchmarks into investment dollars. Shah’s ultimate goal is a trillion dollars in annual renewable-energy investment, up from the $260 billion invested in the sector in 2012.27
Throughout the solution economy, wavemakers such as Shah are setting real-world objectives to track their progress. To satisfy them, an entirely new branch of consulting has emerged that specializes in measuring social return on investment (SROI). Just as shareholders rely on risk ratings and metrics to determine whether returns justify owning a specific stock, SROI investors want unbiased third parties to help them identify promising areas for investment. Since its 2010 debut, the Global Impact Investment Rating System (GIIRS) has rated hundreds of companies and funds and now routinely evaluates more than $4 billion in assets annually.28 (Disclosure: Deloitte is a founding partner of GIIRS.)
Citizen Capital: Converting Citizen Efforts from a Resource to a Currency
Jason Roberts, one of the founders of the Better Block project, believes he has a new template for municipal improvements. Without help from the government, Roberts and citizens across the nation are digitally organizing and building better blocks, turning lines of abandoned storefronts into pedestrian-friendly corridors where small businesses and community life can flourish.
Better Block started with a little impatience and a lot of raw energy. After experiencing the buzzing plazas and boulevards in Europe, Roberts, an IT consultant living in the Oak Cliff neighborhood of Dallas, returned home to contemplate a different kind of urban space. Many storefronts were abandoned, and cars rather than people dominated the streets.29
Instead of petitioning city officials and waiting for help, Roberts started his own initiative—swift and conspicuously unsanctioned community action. He began by looking for vacant buildings to fix up. A little research found old, cost-prohibitive ordinances and zoning rules, such as a ban on awnings and $1,000 fees for outdoor café seating. After identifying a series of these restrictive rules, Roberts and a group of other community activists picked a weekend to break all of them.
They assembled neighbors, artists, and potential business owners to reclaim the public space on a block and to pilot new storefront concepts, setting up shops and art galleries in abandoned buildings, bringing in outdoor seating and painting bike lanes on the streets. Then they posted on building windows all the rules they were breaking. Using social media, they got the neighborhood buzzing and invited city staff and council members to attend the block party. Attendees were startled to learn that most of the improvements made were illegal.
Many of the arcane rules changed. One of the pop-up businesses, an art studio, set up shop permanently. Other entrepreneurs snapped up vacant storefronts.30
“It helps the city demonstrate how they can make a difference quickly,” Roberts said after a Better Block project in San Antonio. “Sometimes these ideas and concepts we put out here are abstract to folks until you actually build the connection. They can touch it; they can feel it; they can experience it.”31
Robert’s efforts show the potential of ordinary people. They possess untapped stores of creativity, energy, and enthusiasm. They can bypass government and NGOs entirely, directly helping each other and their communities.
Of course, there are only so many individuals willing to dedicate their Saturday mornings to volunteering for public benefit. For the rest, incentive schemes can offer a personal benefit in exchange for their efforts.
Recyclebank’s point system led populations previously uninspired by recycling campaigns to make the extra effort. As discussed earlier, crowdsourcing models often engage citizens with point systems and badges that yield rewards, as do competitions, discussed later in the book. In Manor, Texas, residents earn “innobucks” when they submit or comment on community-improving ideas. The innobucks can then be redeemed for local rewards such as dinner with the mayor.32
Incentive schemes can transform citizens’ time into a tradable commodity and another important category of impact currency. Time banks are a powerful example, allowing idled workers to trade their own efforts directly with others. Time banks allow people to volunteer their skills—tutoring English, say, or fixing a sink—in exchange for time-dollars. An hour’s worth of time-dollars can be redeemed for an hour of another member’s time. There are more than three hundred time banks in the United States and the United Kingdom, with member ships in the thousands. An additional hundred thousand members are enrolled in thirty-four other countries.33
The internet eliminates a number of constraints to human collaboration—such as the requirement that collaborators reside on the same continent. The US State Department, for example, for two centuries has housed civil servants in remote locations at a considerable price. Through its Virtual Student Foreign Service (VSFS) program, however, interns do the work once reserved for salaried career workers—work for which creative students may be better suited than desk-bound diplomats. Instead of an official foreign or domestic office, the intern’s place of work is a college library, a coffee shop, or wherever else the student likes to go online. By diverting work from State Department employees, the VSFS program’s 177 projects could save sixty-eight thousand work-hours, or more than $1.7 million in salaries, annually.34
Citizen action is powerful. In countries where volunteerism is culturally encouraged, such as the United States and New Zealand, 40 percent of the population reports volunteering time to some cause at least once a month.35 The overall impact is significant: including volunteer time in employment figures for the nonprofit sector boosts its size by 10 percent in Western Europe and 3 percent in Latin America.36 Volunteers contributed a whopping $63 billion worth of work annually to the thirty-six developing and developed countries surveyed by Johns Hopkins University, on par with the global sporting goods industry.37
Many factors can stimulate volunteer manpower. One is the use of open data. The Better Block project releases all of its project plans and strategies for other cities to adopt. Free information allows volunteerism to go viral and evolve swiftly, adapting from each iteration’s mistakes and successes.
The US Agency for International Development (USAID) used a similar model when confronted with inconsistencies in its loan information for developing nations. The agency decided to crowdsource the task of cleansing its data. It contacted volunteers with Standby Task Force, a group that standardizes and collects data for aid agencies during disasters, and GIS Corps, a volunteer group of professionals who work with geographic information systems (GIS). Each volunteer manipulated data from which personal information had been stripped. USAID offered a narrow set of tasks, keeping the work process clear and efficient. In twenty-six hours, about 150 volunteers processed more than ten thousand records to create a simple dataset. USAID had budgeted sixty hours for the task.
“The records that were given to volunteers were records that we could not automate,” says Shadrock Roberts of USAID. “This means that they contained some of the most difficult, confusing, and partial geocoded data of the whole set.”38
With the clean data, USAID built an interface that entrepreneurs from developing countries could use to find nearby loan opportunities. Americans could also use the interface, to see the impact of their aid. And the volunteers, perhaps for the first time in their lives, felt it was truly their government. With USAID’s invitation, they had created a force, a currency with real economic value, offering the chance to improve the lives of others. They tapped into technology to amplify their voices and volunteered their time to create a social impact. As one member of the crowd put it, “I haven’t felt like this since the soup kitchens and food drives I used to do in college. I love this.”39 Looking ahead, the success of citizen capital rests in the ability of wavemakers to motivate even the talented individuals who are not the typical volunteering kind—who are not the typical soup-kitchen helper—to contribute their skills to public-value-boosting projects.
Datapalooza: When Information Pays
It’s early Thursday morning. On stage is Todd Park, then chief technology officer for the US Department of Health and Human Services (HHS). Park is exuberant. “The goal is to catalyze the development of an ecosystem,” he says, “an ecosystem that leverages data to improve health.”40
Eleven universities are hosting viewing parties: yes, college students are gathering—college students, awake in the morning—to watch a bureaucrat speak.41 People worldwide are streaming the video live. “America is giving you billions and billions of dollars of data for free,” says Park. He means government data, like the kind that launched a $90 billion global positioning system (GPS) industry.42 Data is the new top dollar. As he closes, the audience launches into a standing ovation.
Welcome to Health Datapalooza, a celebration of organized information. Having recently released troves of data, HHS is using the event to debut some of the best web and smartphone apps driven by open government data.43
One app, designed by Silicon Valley–based Palantir, matches patients to clinical trials. Another from the University of Rochester overlays Centers for Disease Control and Prevention data on the incidence of disease and related tweets on a map to track the spread of illness. A similar solution traces the path of a recent salmonella outbreak. Maya Designs, winner of a “code-a-thon,” used the US Department of Agriculture (USDA) Food Environment Atlas to highlight sources of cheap vegetables in America’s food deserts, areas lacking supermarkets or large grocery stores.44
Each program, if successful, promises to save or improve lives. Health-care data could add billions annually to the nation’s economy, says Park, and he wants to attract more innovators to use it. As founder of successful start-ups Athenahealth and Castlight Health, he knows an opportunity when he sees one. Similar Datapalooza events have focused on energy and environmental innovation, demonstrating the potential value of free government data in those sectors as well.45
A generation ago, mounds of government data sat in file cabinets, tucked away from all but a few government officials. At best, governments produced prepackaged statistical reports—and charged user fees for special data runs.
Not all government data is digitized yet, but a growing movement seeks to change that. Just look at what happened in the 1980s, when the government released GIS data. The release fueled an industry that now includes over thirty million monthly Google Maps users, as well as a GPS market that has grown by 26 percent annually in recent years.46 GIS data has transformed daily life for many citizens, simplifying travel and saving the time they used to spend muddling through glove compartments for maps. And GIS can be joined with complementary and cross-sector data to groundbreaking effect.
When a 2010 earthquake wreaked havoc in Haiti, for instance, response teams needed maps. Soon, the default tool for search-and-rescue teams was an open, crowdsourced application developed by the NGOs Ushahidi and Humanitarian Open Street Map. More than six hundred volunteers traced roads and encampments from aerial images into a computer program. They mapped data from The World Bank, Yahoo!, and Japan’s space agency. In support, the US military released P3 and GlobalHawk imagery.47
Search-and-rescue groups could read the resulting maps from handheld GPS units. In the evolving disaster area, the map’s crowd-sourced markers identified resources such as refugee camps and cholera response centers. Multiple nations, NGOs, volunteers, and ordinary Haitian citizens came together in an unprecedented way, sharing information to save lives.
Take another example, the evacuation of parts of New York City during Hurricane Irene in 2011. New Yorkers flooded New York City’s website seeking evacuation maps, browning out its servers. Luckily, the city had been sharing that information for more than a year. The New York Times, Google, and other organizations built evacuation maps from the city data—beautiful, interactive, and cross-referenced maps—in essence, doing the city’s job with the city’s help. “As long as the right information is getting to citizens, that’s all that matters,” says Rachel Stern, New York City’s chief digital officer.48
Enterprising citizens can build real-world solutions out of data. Data from sources as disparate as crime records, reports of power outages, and personal accounts of corruption all tell a story to those who can translate it. The possible uses for government data far exceed what even the best government agencies can devise on their own. Making such data public taps the power of vast networks of capable groups and individuals.
Since the arrival of the internet, organizations such as the Sunlight Foundation and Transparency International have pushed governments to provide data online. At least sixteen national governments have major open-data initiatives. More than a million government datasets are now available worldwide, compared with just a couple of dozen a few years ago. From Australia to Kenya, from Denmark to Canada, open-data projects are under way at all levels of government.49
Norway, for instance, has created a searchable forum for data called the Open Data Hotel, which allows any person to upload any data to an exchange accessible to anyone with a computer.50 The World Bank has released more than two thousand economic and societal indicators. Extensive open-data initiatives by the United Nations and OECD followed. These open-data efforts are becoming so widespread, countries that refuse to share their data arouse immediate suspicion.
To really see transparency in decision making, though, we need to hop across the equator. New Zealand updated its Police Act by posting the bill as an online wiki, inviting citizens to edit the law as they saw fit. Government employees monitored the edits for ideas before presenting them to parliament. The exercise showed that data exchange is multidirectional: governments share data with entrepreneurs and citizens, but citizens can share it back, improving government responsiveness.51
Of course, the power of massive data isn’t available to everyone. The messier the data—the more multifaceted and larger the footprint—the bigger the data divide between power users and the average citizen.
This became particularly apparent during the Bhoomi project in the southern Indian state of Karnataka, which started an ambitious, groundbreaking initiative to digitize twenty million land titles. Masses of information became available, but the population that could actually use it was limited to a wealthy, opportunistic subset that could afford lawyers to challenge land titles and contest gaps in records of property ownership. The concept backfired, calling attention to the need for careful forethought before the release of government data.52
To make government data more widely available in the United States, on his first day in office President Barack Obama signed the Memorandum on Transparency and Open Government. The memorandum ordered federal agencies to make their mountains of data available to the public through open application programming interfaces (APIs).53 An open API stores government data in a format that any programmer can use and develop, paving the way for dynamic enterprises that organize public data for social good. “A new generation doesn’t see government as a problem of ossified institutions, but as a problem of collective action,” says Jennifer Pahlka, founder of an organization called Code for America.54
Pahlka calls her organization a “Peace Corps for geeks.” It hires midcareer software developers and embeds them with city governments, where they use their creative skills in partnerships with city managers.
Most Code for America applicants took drastic salary cuts to participate. The popularity of the program (362 applicants for the first twenty spots) proves that geeks will sacrifice cash for communities—if they believe they’ll make an impact.56 It’s how Park ended up at HHS. It’s an element of start-up culture that governments can adopt: win the best talent, not with salaries but with creative opportunity and openness to new approaches. It may not be an easy shift for change-averse agencies, but the growing host of success stories offers compelling motivations for a culture adjustment.
“This suggests how government could work better,” says Pahlka. “Not more like a private company, not more like a tech company, but more like the internet itself. That means permissionless, open, and generative.”55
One Code for America fellow in Boston noticed that homeowners shoveled snow from their sidewalks but left fire hydrants buried. This led to Boston’s Adopt-a-Hydrant app, which allows citizens to commit to clearing snow from a fire hydrant, to keep it clear for fire department access. Because Code for America’s programs are open source, other cities have adapted the app; Honolulu uses it to have citizens commit to checking batteries on its tsunami warning system, Seattle to clear storm drains, and Chicago to organize volunteer snow shoveling. At least five other cities are investigating uses for the app.
These shared algorithms are a kind of currency themselves, because they save municipalities the cost of coding from scratch. They also hand citizens responsibility for their communities. “It’s not hardto do things together,” says Pahlka. “You just have to architect the systems the right way.”57
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Sizing the Currencies
OPEN DATA
In the United Kingdom, the value of public sector information was estimated to be £1.6 billion for producers and direct users of data in 2012.
. . .
Citizen coding began with city-hosted hack-a-thons to produce fixes for local government. Code for America represents its institutionalization on a nationwide scale. Governments are realizing that given the right data, citizens can produce valuable resources.
After all, as Pahlka puts it, “every point doesn’t have to go back to the center, to government. If government can instead serve to increase peer-to-peer—people helping each other—then we can have more innovative services and services that can scale.”
This is the power of open data, a vital twenty-first-century currency. And when government unlocks its databanks, shared information drives collective and sometimes massive action.
Reputation: Banking on Your Brand
Throughout history, individuals have banked on their reputations to advance their positions in society. For centuries, a connection with the right family was the best way to ensure a reputation and the influence accompanying it. The wealthy but lower-class tradesman seeking marriage with a daughter from a high-born but impoverished family was commonplace in nineteenth-century British novels—and real life.
The emergence of formal, written contracts for loans and other simple transactions is a relatively new phenomenon. In many areas of the developing world, reputation is still the only thing that counts in business. And even with all the legal trappings of a modern economy, reputation continues to be a powerful currency.58
Reputations can be built in many ways. In the developed world, it might be through signifiers: a prestigious college degree, a job with a top firm, a house in an affluent neighborhood. But today, for the millions who don’t live in that world, reputation can be built—and used—in novel and inventive ways.
The proliferation of microloans and mobile banking, for instance, is helping many of the world’s poorest build and trade on a good reputation. Consider Kiva Zip, an experimental initiative run by Kiva, one of the world’s largest and most innovative microlending platforms. Standard Kiva loans involve a microfinance institution that acts as an intermediary. Through the Kiva Zip program, however, investors can offer zero-interest loans directly to an individual on the basis of the recommendation of a “trustee,” an on-the-ground partner selected and trained by Kiva.59
The trustee’s endorsement is fully transparent and posted for review by any potential investor. Perhaps a university dean endorses a top design student, or an association leader verifies an entrepreneur’s capabilities. Others may comment on the posting, which can help or hurt the fledgling enterprise, as with reviews posted on Skillshare, Yelp, or Etsy. Programs such as these facilitate the exchange of reputation for real dollars.
Kiva president, Premal Shah, is optimistic that Kiva Zip can offer a viable alternative to conventional credit scores, extending resources to those previously considered unbankable: “Microfinance is meant for the edges of the banking world. Kiva Zip is on the edges of Kiva.”60
Some economists argue that reputation is less a currency than a form of social capital, because the standings of both trading partners intertwine. If a Kiva Zip trustee vouches for someone who defaults, both reputations suffer. A reputation’s value thus fluctuates with performance.
But the losses are not in equal terms: while the borrower’s loss may be predominantly financial, the reputational hit may be larger for the endorser. Indeed, the loss of credibility may be as great a blow as any financial loss. This risk explains the conservative stance of many large institutions, which often avoid involvement in riskier ventures, to the detriment of innovative approaches.
Fortunately, these risks can be shared. Just as multiple banks may underwrite an initial public stock offering for both financial and reputational reasons, public-private partnerships and crowdfunding reduce the risk of financial and reputational failure for individual sponsors.
New technology, moreover, is making it easier to quantify reputation. While any single individual’s endorsement may carry little weight, popular sentiment in the aggregate, whether through Yelp ratings of local businesses or user reviews on Amazon.com, offers powerful architecture that can support a business better than the most carefully conceived marketing campaign.
To test that structure, the field of sentiment analysis has exploded with the emergence of social media. Millions of consumers now voice their views on companies, positive or negative, and in turn influence others. Negative reviews that appear via a common Google search or a wave of caustic tweets can have devastating effects on an organization’s reputation. Ratings extend the reach of an individual’s opinion beyond a circle of friends to anyone with a computer. And consumers increasingly realize that each purchase is a vote.
Successful branding efforts now speak less to actual products and more to core traits that the company—and its consumers—want to embody. Starbucks knows that it’s selling comfort as well as coffee. Starbucks CEO Howard Schultz says that customers want “the romance of the coffee experience, the feeling of warmth and community people get in Starbucks stores.”61 Nike’s Phil Knight famously argued that Nike’s goal was to “enhance people’s lives through sports and fitness,” not just to produce shoes.62 Companies that translate lofty aspirations into an elevated consumer experience can benefit from higher premiums and stronger brand loyalty.
For consumers, a product can be an expression of self and a reflection of values, from yuppies toting biodegradable diapers to kombucha-swilling hipsters in thrift-store threads. Purchases are published on Facebook walls and hash-tagged on Instagram, and support for causes is carefully curated across a person’s public persona. A parallel exchange shadows each transaction. Transactions that once exchanged money for status symbols now trade in a new status entirely: social value. Companies such as American Apparel (which offers American-made, sweatshop-free clothing) and Origins capitalize on their customers’ desire to maximize social good alongside private utility.
New Currencies in Action: A Solution to Developing-World Waste Management
Selling investors on a radically new approach to waste disposal, one that serves impoverished regions where garbage heaps are common, is no easy feat. It’s a messy business, rife with health and environmental risks. Obtaining the necessary resources to transform waste disposal, then, requires the utmost resourcefulness. The currencies of reputation, social outcomes, and credit trading can become partial substitutes for capital, creating a basis for relationships and transactions that launch the new model.
No one knows this better than social entrepreneur Parag Gupta, who is using every variety of currency at his disposal to turn India’s trash into a social treasure, improving public health and the economy in the process. While working with top social entrepreneurs at the Schwab Foundation and the World Economic Forum, Gupta noticed something conspicuously missing from most social enterprises: scale. The deep-rooted challenges they address affect millions, yet most enterprises served only a handful of communities. Aside from microfinance, few solutions were being replicated across countries. Gupta began seeking to combine a common social issue with a business model designed from the outset to be scalable. Extensive due diligence pointed to one big issue facing the least developed countries: trash.
“When one looked at solid waste management as a whole, it was a tremendous issue that had to be dealt with, both in terms of the health and environmental issues locally but also with regards to climate change,” says Gupta.63
Gupta chose to test his innovative business model, Waste Ventures, in India, where governments and contractors collect only half of the forty million tons of garbage its cities produce each year. The rest falls to an informal economy of 1.5 million rag pickers, who collect and sift the trash and sell anything remotely reusable, down to reasonably fresh bits of food.64 A 2010 estimate indicated that 15 million people around the world depended on waste picking for their livelihoods.65
Waste picking provides some income to those who desperately need it and subsidizes cities that pay nothing for the service. But it’s a brutal way to make a living. Pickers spend their days sorting through garbage in massive landfills that reek of methane. The workers make about $1.50 a day, barely enough for food and water. Many youths forget their empty stomachs and empty lives by inhaling shoe polish or turpentine. Their parents have life expectancies of forty-five. Often, the pickers’ only direct interaction with government takes the form of brutal police beatings. And despite the cruel efficiency of the system, much of India’s trash still doesn’t get cleaned up.66
As Gupta researched waste management organizations, in collaboration with the Wharton and Harvard business schools, he was surprised to see hardly any focus on end-to-end solutions for waste removal. Some organizations had scaled composting, others recycling, and most focused on the human rights of the pickers, but few did more than one thing really well. Organizational nearsightedness was keeping profits low and prospects for scaling even lower. Gupta started Waste Ventures to change that.
Social Outcomes as Start-Up Capital
Waste Ventures used start-up capital from foundations, social-impact investors, and the Swedish International Development Agency to help pickers form waste management corporations that, with the right training, can use technology and best practices to harvest as much value as possible from trash. Rather than scrambling over dangerous garbage heaps, pickers collect refuse daily from households in a practice that improves both safety and the ability to compost and recycle. This model allows Waste Ventures to deliver social improvements in the picker’s livelihoods and health, the environment, and the municipal sanitation system all at once.
The enterprise holds itself accountable to, and measures progress against, specific targets: triple a waste picker’s daily earnings, cut waste accumulation by 80 percent, and reduce greenhouse gases that would otherwise be released. Tracking these social outcomes is essential because, says Gupta, “it’s linked to our financial well-being as a business.”67 Such measures of success point to a sector-wide shift toward safe, inclusive, and profitable waste management. For many impact investors, that progress is well worth the investment.
Reputational Advantage
By Gupta’s own account, he could not shape this sector-wide shift on his own. Breaking into unfamiliar territory as a brand-new social enterprise would have been significantly more challenging without the extensive network Gupta had established long before founding Waste Ventures. His reputation offered a currency of its own, opening doors to new partnerships, mentors, and experts in the field.
In India, it quickly became apparent that acting in isolation would be the quickest path to failure. Instead, Waste Ventures built corporations based on existing groups of pickers, often formed by local NGOs. These NGOs also proved to be critical allies in engaging communities and keeping a trained eye out for corruption, a rampant problem in India.68 For Gupta, the time invested in understanding the local environment and building critical relationships is inherently productive. It builds trust and paves the way for future agreements essential to scaling.
Credits for the Environment and the Bottom Line
The Waste Ventures approach offers more-immediate dividends as well. Pooling compost made pickers eligible for carbon credits, opening new income streams. Now, besides selling recyclables, waste-picker corporations can offer composted biofertilizer and carbon credits.69 When combined with the $1 monthly fees charged to households for daily trash collection, Waste Ventures’ corporations are four times more profitable than alternative methods for waste collection in the region.70
The environmental effects are also dramatically better, reducing methane gas—a greenhouse gas twenty-three times more harmful than carbon dioxide—which otherwise festers in towering trash heaps. Worker life expectancy, as forecasted according to sick days and reported disease incidence, continues to improve, as does workers’ pay, which has already doubled and is on target to triple.71
Beyond Measuring Expenditures
Throughout this chapter, we have shown how the solution economy engenders new ways to measure public value. Public data can be harvested and shaped into products that create real value. The time and talent that citizens bring to public challenges offer tangible benefits that can be measured and even traded. Social entrepreneurs are addressing stubborn problems sustainably and are building enterprises that create tangible value at the bottom of the pyramid. Even the biggest corporations have discovered the advantage of reputation that comes from public acts of goodwill. Benefits once vaguely viewed as valuable now carry increasingly quantifiable, shareable worth.
In this multidimensional environment, government is no longer the sole issuer of currency. Dollars, euros, and yen may dominate global capital markets, but a growing number of exchanges, to be discussed in chapter 5, spur wider adoption of these new currencies, encouraging citizens to transact in the resources at their disposal. A greater diversity of contributions means that more needs are met than whatever money—and big funders like government—alone can supply.
THE CURRENCIES: IN A NUTSHELL
THE BIG IDEA
To understand the solution economy, we need to entirely rethink currencies. Value creation and exchange are taking place in new ways. We are witnessing an explosion in the types of currencies in use—intangibles such as social outcomes or government data—as new approaches to measurement and exchange evolve. A growing host of wavemakers now deploys these vital inputs toward a wide array of productive uses, collaborating to help this new currency appreciate in value.
NEW CURRENCIES
• Credits: Investors can buy and trade credits, store wealth in credit form, and include the value of credits while tabulating net worth.
• Social impact: Sometimes the most important results of an endeavor are the hardest to measure: education improved or sickness avoided, for example. The more we quantify and reward value, the more resources we can attract and exchange toward solving a problem.
• Citizen capital: Citizen time can be transformed from a massive and growing public resource into a tradable commodity via mechanisms like time banks, micro tasking, and game-based incentive structures.
• Data: In the right hands, data can produce billions of dollars in value. Governments are a prime source.
• Reputation: The value of reputation encourages corporations to contribute to public causes, because they know a brand translates into dollars. Meanwhile, social entrepreneurs can trade on their reputation to obtain needed resources.
THE NUMBERS
• Carbon credits trade in a $176 billion market.
• The Global Impact Investment Rating System routinely evaluates more than $4 billion in assets.
• Globally, people provide more than $1.3 trillion in volunteer services.
• More than one million government data sets have been opened up to the public in recent years.
SAMPLE TRADES IN IMPACT CURRENCIES
• Richard Branson’s Carbon War Room invests dollars in renewable energy and yields reduced carbon emissions.
• The US government released GIS data, investing in an alternative currency that yielded a $70 billion GPS market.
• More than a hundred thousand ordinary people trade volunteer hours via time banks in thirty-four countries.
• Alaska’s transferable fishing quotas allow fishermen to trade shares of a public good, much like carbon offsets.
NOTABLE “MINTS” OF NEW CURRENCIES
• Omidyar Network invests in outcomes—outcomes that it expects the entities it funds to produce.
• The US government is opening troves of data to those who can use it to produce public value.
• Code for America produces open code for trade, most of which helps harness and organize citizen volunteers.
• Kiva Zip allows informal reputation to replace a credit score, letting investors accept reputation as loan collateral.
CHALLENGES
As markets for these currencies evolve, participants must beware of currency manipulation. The early days of carbon credits were notorious for abuse.
QUESTIONS FOR THOUGHT
Had you ever considered the time of volunteers or the reputation of those you admire a form of currency? How might these currencies be leveraged and exchanged to build partnerships that bring value to your organization and the public?
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