Imagine you work for a company that pays you not for the profit you produce but for the good you do. The more poor children you feed, the more money you make. The more old people you get to their doctors' appointments, the more money you make. The more graffiti and trash cleaned up in a bad neighborhood, the more money you make.
Nice, you say. But fugetaboutit. Who's going to pay for that?
The answer is: The same people who are now covering the costs of not doing those good deeds. Hospital emergency rooms. Health care insurers. Prison systems. Fire and theft insurers. Governments at all levels.
As a society, we're gradually coming around to the view that an ounce of prevention is worth a pound of cure. Annual physical exams, vaccinations and cancer screenings are now free under the Affordable Care Act. Auto insurers give lower rates to drivers with no accidents. Home insurers give premium discounts for homes with alarm systems.
Still, so much that we could do to prevent predictable (and expensive) future problems remains undone. I believe this is because we lack a coherent and well-adapted infrastructure to incubate new approaches to solving persistent social problems. Government now shoulders much of the load, but government is notoriously inefficient and, even when well-intentioned, frequently not very expert.
There is an alternative to government, though. A tried-and-true model we can pull right off the shelf. One we have used with tremendous success throughout our nation's history. One that many argue is the only model that has ever been or can ever be successful. What is this holy grail, this ideal approach to problem solving? It is greed. Or, as it's known by its polite name, capitalism.
Here's what we might do. First, we set up companies--let's call them FutureFunds--to address specific societal needs that are underserved. Then we identify the institutions that bear the long-term costs of not meeting those needs, and we offer them this deal: Pay us now to save you more (maybe much more) later.
Each new FutureFund would establish its own plan to attack the problem it is addressing: health emergencies, home fires, gang violence, teen pregnancy, crime, incarceration. The FutureFund pays its workers to get the results it has promised--reducing the costs of poverty, bad health, poor education, etc., etc.--and, Voila! Everybody's a winner.
There is a company in Nashville, Tennessee that is doing this in the healthcare area. It takes payments from health insurers of a set amount for each patient insured and promises to reduce health claims by at least the amount of the total payments. If it does not, it refunds the money it didn't save. If it does better, it and the health insurer split the savings. The way it reduces claims is by getting close to patients and helping them keep their doctors' appointments, take their medications, go to their exercise therapy. The work is labor intensive, but the company has a well-trained patient-outreach staff supported by good data systems. It's too early to tell how successful it will be, but it's in its third round of funding. And it's no charity case. It's doing this all on its own, within the incentive structure of free enterprise.
The Tennessee healthcare entrepreneur is betting that if people follow their doctors’ advice, they will have better health outcomes. This seems intuitively correct. But sometimes cause-and-effect connections that seem obvious turn out not to exist. Two things can happen at the same time—that is, be positively correlated—without one necessarily causing the other. They may both be caused by a third thing, for example. Breakfast eaters may be less likely to be obese, but is that because they eat breakfast, or is it because they are physically active, which both makes them hungry in the morning and less likely to be overweight? (Thanks for the example, Kahn Academy.)
Perhaps the foremost challenge to creating a workable model for making money by doing good is establishing cause and effect. To attract support, a FutureFund will have to make a sound, empirical case that what it plans to do will produce the desired cost-saving benefit. The good news is that we have never been better equipped to tackle this challenge. All fields of study--medicine, social sciences, economics--are getting better at sniffing out the root causes of our most persistent problems. In the past, sometimes we just haven't had enough information to know what to do. Big data, crowd-sourcing, learning software, and an overall higher level of connectedness are allowing us to peel back the layers of causality. Relatively new disciplines like behavioral economics are intersecting with psychology and sociology to help us better understand what makes us act the way we do. As we come to better understand the causes of our persistent problems, we will be able to design better solutions.
The second big challenge is patience. Even assuming we are correct in our belief that better childhood education provides long-term benefits—in health, achievement and productivity—the economic effect of those benefits for a particular child will not be realized for decades. Indeed, they will not be fully realized except over the person's lifetime. Who can we expect to make an investment with a payoff that is so deferred? The obvious answer has been government (local, state or federal). Government is the primary beneficiary of many social investments—through lower poverty rates and higher future tax revenues, for example—and it has the capital and, election-year politics aside, the necessary long-term strategic horizon. Up until now, when these kinds of strategic social investments have been made, they have, for the most part, been made by government.
I hate to say it, but the problem with government spearheading any investment is that often it’s not very good at it. We all know about the $150 hammers and the $300 toilet seats the Department of Defense buys. Private enterprise is generally better (that is to say, more disciplined) at successfully structuring and monitoring the deployment of capital and labor. The role government can usefully play is facilitator. This is an accustomed role. The tax code, for example, has long been used to encourage various kinds of investments. (Okay, I’ll admit that, given the Swiss cheese of loopholes and ill-advised tax expenditures that make up the current tax code, that may seem like a bad idea; but it’s something we can do while we’re waiting for tax reform, which seems to be hiding out with the Abominable Snowman and Santa Claus).
Government could help our private FutureFunds by funding research into cause and effect and by providing incentives like lower taxes on returns on investments in FutureFunds. FutureFunds could be non-profits, thereby making them attractive for donors wishing to support their research and operations.
But while government could give FutureFunds a leg up, the burden of financing them can and should fall to private capital. Managing risk is not new, but managing risk for profit on a contract basis is more novel. The rewards would be long term, so the capital best-suited to a FutureFund enterprise would be from investors seeking moderate but steady returns, as opposed to, say, the sky-high returns required to attract capital to new commercial technologies. There would have to be a break-in period where FutureFunds proved they could produce results, but once they had done that, the underwriters of societal risks, both private and public, would likely line up as customers. And private investors, once they are convinced of the long-term stability of the business model, would open their wallets.
Think of the fun we could have working for a FutureFund. The satisfaction. I dare say such a company would have no trouble attracting an enthusiastic workforce to the positive energy of doing something that was doing good. Half of us might line up to be on the front lines of operations and the other half might hunker down over the statistics and regressions needed to find out which solution worked and which didn't.
Would it be only do-gooders who wanted to work at a FutureFund? Most of us like doing good, but we've got families to feed and kids to support, so we need to get more out of these jobs than feeling good about ourselves. I don't see why compensation at a FutureFund couldn't rival that of any traditional business. Executives could make big bucks--perhaps not Wall-Street big bucks, but solid compensation--and workers could be paid well. The idea is not that the business would be run on the cheap, like a volunteer soup kitchen, but that it would not be making profits for shareholders. It would pay its salaries and other operating costs, it would repay it's lenders and investors, whose investment returns would be fixed to levels more like bonds and preferred stocks, rather than having the unlimited upside of common stock. There would still be plenty of other commercial enterprises for investors who wanted risky returns. But for those seeking stable, patient yields, FutureFunds would be attractive.
Think of it. No more frustrating waiting for Congress to decide whether to fund a project. No more political battles over whether a project was worthwhile. If you had solid research supporting your plan, you could attract investors and customers. If not, back to the drawing board. But you would be the master of your destiny. Not some politician. Not some shareholder who only wanted a bigger corporate jet. You. And me.