After some busy weeks at university, here a short entry on the great Emerge conference at Said Business School, Oxford last weekend.

Great speakers ranging from Sanjit Bunker Roy (see older posts from conference in Zurich) over Tim Smit (Eden Project) and Joe Madiath (Gram Vikas) to Charmian Love (Volans).

Here some excerpts from the official Emerge blog that convey some impressions and results of the conference’s workshops:

The conference was aimed to provide students with practical insights into the field of social enterprise, something made clear in Liam Black’s opening keynote address, when he made clear that the conference was not about defining social entrepreneurship, but the work of actual entrepreneurs and professionals involved in the field.

Every breakout session at Emerge 2010 fell into one of the three categories:  LEARN IT, INNOVATION; DO IT, CAREERS; and BUILD IT, SKILLS.

Investing for Impact (funding social enterprises):

Frequent reasons why social enterprises are turned down for funding:

1. A management team — investors carefully look at your team
2. Know your numbers — do your homework, provide investors with evidence for your profitability
3. Understand your market
4. Coachability — don’t defend your venture to death, show that you are willing to learn

Raising start-up capital:

Moderated by social entrepreneur in residence at the Skoll Centre, Matt Scott, Anya Navidski of Jumpstart-up, Inc.  and Xavier Helgesen (Better World Books) gave advice around attracting funds and pitching ideas to investors.

One important note from this session:

“If you go to an investor seeking money, you’ll get advice; if you go seeking advice, you’ll get money.”

—-

Another inspiring note was the keynote address by Tim Smit on Saturday morning. Telling great anecdotes on why he only accepts every third invitation (“the best encounters are those that are not planned during events you did not plan to go to”) he delivered a speech filled with dry British humour as well as a refreshing reminder of the unconventional, the value of the unexpected and a generally positive attitude to life.

Altogether a great conference and definitively recommend for everyone around the UK and beyond interested in Social Enterprise.

It focused on the power of partnerships between citizen sector organizations (CSOs) and private businesses, employing hybrid value chains to benefit both CSOs and the cooperating businesses in its design, carrying the potential of large-scale improvements for previously disadvantaged groups in society.

Ashoka Full Economic Citizenship

Let’s consider an example to help understand the idea:

A. Large groups of people are excluded from the formal housing market in Colombia.

B. Enter a collaboration of

1.  a for-profit tile-manufacturer (Colcerámica)

+

2. a human-rights-organization (Kairos)

where the tile-manufacturer provides the necessary product+technical and financial know-how, while the CSO adds its knowledge of the local community and problems to recruited a workforce of formerly unemployed women,

=

C. and the end result is a partnership that reduced the distribution costs of the business by more than 30 percent, using part of that profit to pay the female workforce, invest in further community projects and start cooperating with other local CSOs.

Thus the partnership creates value that neither of the two actors could have created without the other, is scalable, and based not on charity or CSR, but sustainable in its profitability to both the women employed, families receiving housing, as well as the CSO and tile-manufacturer.

Concluding, it can be said that the hybrid value chain principle holds vast potential for a transformation of the private sector toward creating sustainable solutions for societal problems in win-win-cooperations with citizen sector organizations.

For more information on hybrid value chains click here and here.

Today’s post is about an interesting new society of the University of Cambridge called Beyond Profit. Its main function is to be a platform for students and starting social entrepreneurs to meet, share experiences and insights, spread awareness about new developments and offer career opportunities at the intersection of private and social sector.

Just returning from the introductory event I have to say that my first impression is very positive.  With intriguing guests such as Pamela Hartigan (Director of the Skoll Centre for Social Entrepreneurship at Oxford), Howard Chase (Enval Ltd), Neil Prem and Martin Clark (Citylife) for the first workshop on the “Future of Entrepreneurship” organized together with the Centre for Entrepreneurial Learning of the Judge Business School.

On the opportunities side there is an event on “Climate Change and Business” organized by Beyond Profit, bringing together students in a workshop focusing on the relevance of sustainability in a CSR context, led by Nick Pennell, Head of the Sustainability Practice at Booz & Company.  Another upcoming event will have Tom Rippin (On Purpose leadership programme) a as guest speaker on “Business and Causes” and the next generation of leadership in business.

Apart from that they are hoping to soon provide regular informal meetings for students of all disciplines to gather and exchange experience, learn from each other as well as network in order to help spread the word of social enterprise and prepare a new generation of changemakers.

Definitely a promising society, worth to keep an eye out for and joining if you’re around in Cambridge!

I just came across an interesting post by Omar Garriot on SocialEdge (link), who was intrigued by the issue of changemakers within for-profit corporations and exploring the issue based on a survey amongst his former MBA class.

While finding that most were  familiar with the issue of social entrepreneurship (well, it was Berkeley’s Haas School of Management), far fewer knew much about social INtrapreneurship.

Having come across intrapreneurship during my time as intern with Ashoka, I have some idea of it, yet was curious about the discussion of “social intrapreneurship” within for-profit companies. Not least so because of my own quest for meaning in my future professional life.

First a definition of the term as read in the extensive document “The Social Intrapreneur: A Field Guide For Corporate Changemakers” (2008)  published in cooperation by SustainAbility, Ideo, Allianz and the Skoll Foundation:

Social intrapreneur,n.

1 Someone who works inside major corporations or organizations to develop and promote practical solutions to social or environmental challenges where progress is currently stalled by market failures.

• identify emerging social intrapreneurs in their organizations;

• support (vs. thwart) the development of their innovative ideas;

• create new forms of business value which benefit the company as well as the wider communities in which they operate

Following up on a post from early April (click here for more), four days ago, the social enterprise network Senscot has confirmed that they will not advance with plans to set up a second social enterprise mark with different criteria and thresholds than the Social Enterprise Mark introduced by the Social Enterprise Coalition in England at the beginning of the year (Source: ThirdSector).

The decision came out of talks between Senscot and the Scottish Social Enterprise Coalition and formed the end of the debate that started in mid-April between the two Scottish organizations. On April 12, after first criticism from the Scottish Social Enterprise Coalition, it stated:

“The viability of a Scottish identifier would depend on the wholehearted support of our sector,” and that “This decision by our coalition changes things and raises the prospect of a protracted and potentially damaging controversy over an issue which is not central.”(ThirdSector)

To prevent wrangling about the issue, confusing the public and creating conflict within the Scottish borders on the issue Senscot has thus abandoned plans for an alternative badge, yet it keeps the suggested five criteria on its website as informative content designed to stimulate continuing productive discussions around the issue.
The five  criteria are:

Criterion 1 – Social Enterprises have social and/or environmental objectives.

Criterion 2 – Social Enterprises are trading businesses aspiring to financial independence.

Criterion 3 – Social Enterprises have an ‘asset lock’ on both trading surplus and residual assets.

Criterion 4 – A Social Enterprise cannot be the subsidiary of a public sector body.

Criterion 5 – Social Enterprises are driven by values – both in their mission and business practices.

Personally, I believe it was a good decision of Senscot to compromise on the issue and not provocate a conflict in the sector on this issue, as although I too would have supported stricter criteria, the circumstance that the social enterprise sector is still comparatively young, priority has to be given to the overall growth and recognition of social enterprises. And after all the criticism of Senscot has already sparked a debate that will now hopefully take its trajectory to discussions of a productive kind, as even when an organisation holds the current Social Enterprise Mark, no-one prohibits it to adopt stricter standard for themselves.

——-

Apart from this, news of the original Social Enterprise Mark in England suggest a steady rise in social business adopting the Mark. Although the creators were surprised by the amount of criticism after the Mark was launched in February, there now seems to be a steady trickle of applications for the mark. The company expects that in a year’s time, about 2,000 social enterprises will have adopted the Mark (Source: ThirdSector).

Photo: Mind&Life /Manuel Bauer

Finally I find the time to complete the series of posts on the Compassion in Economics conference in Zurich from April!
The last session was devoted to questions of leadership for more altruistic economic systems and future directions of research.

The first speaker was William George, MBA lecturer of ethics and economics at the Kennedy School of Government at Harvard:

As key component of a transformation of the system, George emphasized the need for authentic leadership. Apart from this he confirmed what others had mentioned on the conference, that the current crisis is one based on a failure to recognize that material wealth alone does not bring happiness. Thus naturally we need compassionate and authentic leadership as an essential part of a healthy society. Especially in times when studies show that two out of three people don’t trust their leaders.

Leaders need to recognize that their role is primarily to serve, not to command, driven by intrinsic goals rather than extrinsic ones. Furthermore he advocated a style of leadership that is empowering people within an organization to become leaders of their own projects, in order not only to have “leadership above” but “leadership throughout” Also important were emotional intelligence, humility and the recognition of blind spots. Concluding he mentioned that he himself had been practicing meditation for over 20 years and in accord with research findings stated that it is another way of gaining clarity on issues in daily life, fuel creativity an build up resilience.

The Dalai Lama welcomed the focus on the inner values and mentioned again the importance of education in shaping future generations mindset and hte need of cultivating these values. He reminded the panel and audience that these values and the focus on human relationships HAS been there in many cultures, yet technological advance and the increasing focus on the material dimensions of life have led many societies away from this knowledge.

Next in the concluding was Richard Davidson, PhD again, summarizing the findings presented within the conference and thanked the Dalai Lama for his presence.

Ernst Fehr,PhD also summarized the need for more research in neuroeconomics to further our understanding of the crucial issues of altruistic behavior, the obstacle of social comparison and what is needed to initiate and stimulate concern for the welfare of others in people.

The discussion then went over to the very interesting question of the extent to which Buddhism was needed in order to reform the economic systems in question.
The Dalai Lama answered that it is important to distinguish Buddhism as Buddhist science; philosophie; and religion, and that the element that is most useful for the secular sciences and economic systems is most probably that of Buddhist science and the practices such as meditation that can clearly be transferred to secular contexts effectively.

The conference ended with hopeful comments on the spreading of the word and message of this conference to pay more attention to the inner dimension,values and well-being and shift the balance a little back from its distortion towards the material dimension.

A very encouraging end indeed and I am looking back at the conference with a smile, hoping that many will read the series of posts here and get some inspiration for their own lives, professions and goals in life.

Thank you for reading .

“I got one of these snobbish and expensive educations as you have them in India and in many other parts of the world. I was all set, as it is with Indian families sometimes: my future was all laid out for me. Had a degree and the jobs were ready for me just after I finished my studies.

At that time there was the Bihar famine sweeping through India and they were looking for student volunteers to help out. So I went there and helped for 14 days in a village. When I  came back I had made the decision that I wanted to work and live in a village.

I told my mother and she was shocked. The first question was: What do you want to work as in a village? And I replied: I want to work as an unskilled laborer, digging wells. My mother fell in a coma.

When I arrived in the village and told the elders I wanted to live there, they were disbelievingly asking: Is the police searching for you? Did you fail your exams?, as all educated people in India leave for the city its jobs. But I didn’t want this. Sometimes this expensive education can destroy you.

So I worked in that village for five years, digging wells.  And what I found was the extraordinary knowledge the poor there had and I wanted to bring this to the city and mainstream awareness. That is why I founded Barefoot College in 1972. And my first insight was: I don’t want any academic there with high degrees as teachers. No PhDs allowed. I wanted people who worked with their hands.

We kept it simple and were inspired by Ghandi’s ideas that the knowledge, skills and wisdom found in villages should be used for its development before getting skills from the outside. Today there is too much happening in a top-down manner, first you need to develop the skills in the village. The simplicity is kept throughout our organization, we live and eat on the floor and no one ever earns more than 100 dollars a month; you don’t come for the money, you come for the challenge.“

Barefoot college trains illiterate people from villages and proves the prejudice wrong that teachers, doctors or architects have to be literate or educated in expensive schools.  The college’s own solar engineer (Barefoot college is the only college in India completely running on solar energy) is a Hindu priest with altogether 8 years of education and has kept the system running from 1986 until today. He showed how the most sophisticated parabolic solar-cooker was installed by some illiterate women and went on to fascinating achievements in African countries with solar engineering.

Other projects included:

- The use of traditional local puppetry that was used to convey ideas of treating women better, using clean drinking water, embedded in the entertaining aspects and widely embraced by villages in India. Little side-comment that brought laughter from the audience: they made the puppets of old world bank reports (“So they finally found some real use“)

- Night schools through solar power, 7000 in 150 schools in villages across India

- Solarizing hundreds of villages (Comment from a women in the desert: “It’s the first time I see my husband’s face in winter”)

“As for educating solar engineers in other villages, he maintained that grandmothers are the best investments. They are committed to their village, enthusiastic to learn. Men are the worst. They always want some kind of diploma and then run of to the city.”

Taking their work with illiterate women from Afghanistan as an example, Bunker Roy explained that first of all the men were astounded when they asked to train two women in five villages as first solar engineers in their country (comment: “They don’t even want to leave the house, how do you want to get them to India?”). Yet they came and they were trained in six months, and came back empowered, confident and proud to bring solar lighting to their village and train others to spread the skills. That was in 2005, and by then there was no single village solarfied, despite about 700 UN-consultants sitting in Kabul. When they asked him how much the whole undertaking had cost Bunker Roy replied: “As much as one UN-consultant sitting in Kabul for one year.” Now there are more than 200 illiterate women, spreading the word, training more solar engineers and bringing light to villages.

“We now have 21 countries with more than 100 grandmothers in 75 villages and altogether 7000 houses with solar lighting for two million dollar. That’s what Jeffrey Sachs spends on ONE village!”

After showing this video exemplifying the solar-engineering grandmothers, he closed the speech with Ghandi’s wonderful words:

First they ignore you, then they laugh at you, then they fight you, and then you win.

The following discussion also carried some interesting content, such as that it is crucial to enhance the quality of living in villages in order to halt migration to urban areas.

In a more general discussion of how to bring compassion into corporate culture it was emphasized again how important the executive level was in starting to bring about change. The John Lewis Partnership in the UK was an example, where about 76,000 employees were paid out benefits altogether amounting to 150 million pounds in 2009.  Thupten Jinpa added the priority of an Indian tea company which went out of the stock exchange to avoid the shareholder-value-driven pressure to fight intracompany competition and greed, making long-term employment the priority.

Before the session ended the attention came once more back onto Sanjit Bunker Roy, telling this shockingly amusing story in response to a question from the audience on whether Barefoot College was concerned also with water and not only with solar power:

“Rainwater collection is crucial. I remember the case of a village in Sikkim, India, where I approached the local governor if I could begin a rainwater project in the mountains in a remote part of his province. First thing he did was declare it impossible and far too expensive, saying: “Ahh you, one of these crazy people who think they can do anything”, but he said okay you can try, just leave me alone and don’t ask for money.

So I went and together with the people from the village we installed rainwater collection facilities and when we had 160,000 liters of collected rainwater I went back to the governor and told him what I did. “Oh”, he said, “already?” And I invited him to come and have a look. He said “Can I bring my chief engineer along?” Sure I said, bring him along. So we went and they had a look at it and it was fine and they impressed. And I went on to ask the chief engineer: Do you see the rainwater we collected, do you see it? And then the chief engineer said something stupid: “It wasn’t on my curriculum.” Now come on, a little common sense is really a good thing. It’s rain! But that’s often the problem, consultants come up with all kind of complicated solutions, pumping up river water through expensive and energy-intensive technology, and everyone gets money along the way, but it really is a waste of resource.

By the way, did you knwo that until recently, rainwater collection was illegal in California? So much for common sense.”

[Click here for another nice recount of Barefoot College]

Finally on Saturday afternoon,  more applicable concepts and ideas were discussed. From Socially Responsible Investments over Microfinance to Social Entrepreneurship the speaker were diverse and deeply involved in their areas of expertise.

Antoinette Hunziker-Ebneter, MBA started with the work of Forma Futura Invest, an independent asset management company aiming for responsible investments and sustainability:

She began with emphasizing that a transformation of financial systems towards more sustainable is of crucial importance when it comes to avoiding the bubbles created in the current system as well as the purely greed-fueled speculations leading to the harm of masses of unemployed.  The values of the current system she listed as material/profit/short-term/invidual/linear thinking and altogether little concern for human beings with it. These all have to be transformed oftentimes in their exact opposites. She furthermore spoke in favor of higher own equity quotas for banks, to prevent speculation through leveraging of other’s capital. Despite some banks having increased such quotas, she judged these as too few and too little.

Mrs Hunziker-Ebneter advocated a change in the way that investment companies serve their clients, a shift from profit to profit with a purpose. There lies great potential in investment as means of shaping the future, visualized in an investment pyramid starting at the bottom with

basic needs -> financial security -> recreation -> making profit -> AWARENESS OF INVESTMENT IMPACT -> taking responsibility with investments -> shaping the future -> fostering a sustainable future

This needs to be recognized and implemented by both companies and investors.

Forma Future itself checks potential investments for more than 180 sustainability criteria and only then proceeds to a conventional financial analysis, and recent results have shown that the returns are as good or sometimes even better than conventional ones. 2009 was the first year in which sustainable companies had access to cheaper captial on the market than conventional ones: so there is hope.

In regard to the market size, responsible investments have only a share of 3% in Europe, compared to already 10% in the US. She emphasized the need for CEOs to recognize the need to integrate sustainability to extend these numbers. Another crucial aspect is that of trust within corporate structures: where there is fear, there is little room for creativity and therefore long-term profitability of companies in both human and monetary terms.

The apt comment of the Dalai Lama in reaction to her talk was that these are all good examples for the material perspective, but that the mental well-being should not be forgotten or neglected, something more difficult to measure and therefore oftentimes likely to be ignored when financial analysis dominates decision-making.

The second speaker was Arthur Vayloyan, PhD, MBA from Credit Suisse, focusing on microfinance:

Dr. Vayloyan began with the clarification that even in banks there are human beings who care about reducing poverty in the world.  He put this into the context of an attempt to bring this topic up to the Boards of the bank and was first coming across opinions like : “this is not our job” , while in the end access to financial services does play a great role in the reduction of poverty.

Despite a general decrease in the numbers of extremely poor people on the planet (down to 1.1 billion out of 7.5 in 2015), he emphasized that much remains to be done, especially because it will be the younger generations suffering most, as right now only 10% of young people are part of the first world and oftentimes existing aid is ineffective.

The proposed role that microfinance and banks can play in this, not only through microcredit but also payments, savings and insurance, are all part of classical financial services and therefore very much the job of banks.

He however also repeatedly emphasize that microfinance is by no means the ultimate solution, but that it could very well be a potential catalyst.

After naming some examples of successful microentrepreneurs from Cambodia, he also warned not to be too romantic about it: it still is mostly groups (and mostly of women) that have to form themselves before qualifying for credits.

He went on to draw a picture of the potential lying in this field, where today 155 mio are microfinance clients, this is only a small part tapped out of a total of potentially 1,5 billion people. More on these numbers here.

The way to do this best is to link the “top of the pyramid” [ToP] with the “bottom of the pyramid” [BoP], to close the gap of the top 10 million people with vast monetary resources to the bottom 4,5 billion people with less than 4$/ day (PPP).

The microfinance system to do so looks like the following:

The interest that is lastly paid by the recipient of the microloan is of course higher than a usual loan we would take out, but it is still significantly lower than the alternatives offered by so-called “credit sharks” in the villages.  This is obviously a point of contention, as the question arises of how much of a percentage is appropriate or fair to charge along the way.

The large growth of the CreditSuisse MIF fund exemplified the increasing amounts of money invested into it, with a growth from 4 mio in 2004 over  195 mio in 2006 and almost 1 billion in 2009, with no visible damages taken from the crisis.

The following discussion was also rather interesting, as Matthieu Ricard asked whether these are just some little well-meant attempts or whether the “big sharks” get involved in this as well? Would there be the potential for a wallstreet of prosocial businesses?

Dr. Vayloyan responded to this that the “big shots” (either he did not acoustically understand Matthieu Ricard or was not completely agreeing on calling big banks “sharks”, an interesting misunderstanding that remains a mystery) very well do get involved, they just don’t join the existing funds but take some $100 million dollar and create their own fund and then maybe come to the existing ones for advice.

To this Antoinette Hunziker-Ebneter had the valid criticism that too fast growth of microfinance is problematic as well, the large funds are eager to invest large sums, a concept that has proven to fail rapidly, as it attracts more males which then fail to repay in more than 90% of the cases.

So far we had a interesting overview of the financial applications of more responsible ways of dealing with money, yet the best part in my opinion was the following talk by Sanjit Bunker Roy on Barefoot College and his solar-panel-grandmas. But more on that in the next post!

And the conference blog keeps going! Now with the second part of Saturday morning, 10th of April at the Compassion & Altruism in Economic Systems conference in Zurich:

The second speaker was William Harbaugh,PhD, focusing on decision making towards donations and its neural connections in the brain:

Giving his own short overview of economic theory, he stated that participants in the market can often rely on self-interest and not compassion, regulated by the rules that people can sell their goods and have to pay if they harm others, this mechanism works through prices that provide incentives and information. (Although I really wondered what he meant by “harm others”, I assume he was referring to legal protection of exchanges on the market)

Ignoring all the other imperfections of markets he focused on externalities, the circumstance that some exchanges benefit people who do not pay, such as with public goods (a pity he forgot to mention the scenario of externalities that cause harm to people who are not involved in the exchange either).

Moving on to the issue of charity, he gave a series of statistics such as some numbers on how much citizens of various countries give to charity every year as part of their income:

US: 68% give something, 2.2% of their income

UK: 1% of their income ; France 0.3%; Italy 0.1%

These number however indicate by no means that one country is more altruistic than the other, as amongst other things you have to take into account the low level of public welfare in the United States for example.

Number that I myself can confirm from my times as fundraiser on shopping streets across Germany showed that low-income groups give the most to charity (below 10.000 dollar income: 5%; below 45.000: 1%; above 100.000: 3%).

Next he referred to an experiment:

- participants were given 100$; they could keep them and leave or give some money to FoodBank (charity that distributes food to the homeless)

- conditions were such that no-one would know how much they kept or spent, but they’d give the data anonymously to a lab assistant on a USB stick later

- then there were different variations in the amount of the money given that would actually reach the FoodBank [FB], from “given 15-> 45 to FB” to “given 45 -> only 15 to FB”.

-> the result was what Harbaugh called the “altruistic supply function”, as of the 80% of  participants who gave some money the pattern was such that they gave less money if it was expensive to give to the FoodBank and more if it was cheap. While this is not selfish behavior, it is still rational.

Yet the question arises: Why do they give anything at all? To check on this, Harbaugh modified the experiment again, this time simply “taxing” the participant 15dollars for the FoodBank. As there is no choice involved, it of course does not allow much in terms of a conventional analysis. Yet Harbaugh overcame this problem by connecting the participants to an iMRI scan to see how the brain reacts to the different conditions.

What he found firstly matched with Tania Singers findings that the areas for self-rewards was active as well when the reward went to others (“warm-glow”), and secondly that these areas were even active (if to a lesser degree) when they did not even make the decision themselves (tax-scenario and “pure altruism”).

The problem in the real world is however that if we act in a large economy, it is easy to help someone if you’re the only one around, but if there’s a thousand other people people around as well, we tend to hope that someone else helps. Harbaugh therefore advocated warm-glow altruism, as although it seems more egoistic it motivates other too to help.

The last speaker of the morning session was once more Ernst Fehr, PhD from the University of Zurich:

Stressing once more how economist’s perspective have changed over the past 20 years by research into human behavior and neuroscience and the previous evidence that prosocial behavior activates the same reward-centres, he came back to the issue of public goods.

Public goods’ special relevance is that they can be consumed by anyone regardless of their contribution to financing of it.

-> While this is partly an altruistic act by those financing it, it also gives incentives for free-rider behavior.

He went on to broaden the concept of public goods to democratic liberties (considering the historical cost of people struggling, dying for them so we can benefit today) as well as the avoidance of global warming.

The problem he saw is that of an undersupply of public goods if selfishness prevails.To see how these mechanisms of altruistic behavior within groups toward a common “project” work he went on to explain an experiment:

- there is groups of 10 people, they don’t know each other and can’t actively communicate with each other but see what the others do;

- each is given $10 that they can either keep or contribute to the “project”; for each dollar given to the project, everyone in the group gets back 20 cents, practically meaning that if everybody would give all their money, the group would double its income!

- this is repeated over 10 periods

-> the results: while in the beginning 40-60% give some money, but over time this behavior goes down (results validated across 15 countries): a pretty meager outcome when just having established how capable we are of altruism!

Why does this happen? Fehr’s answer: while about 50% contribute more money if they believe others will do so too (“conditional cooperators”), there are also a selfish 30% who do not contribute anything, regardless of the others actions. So what happens is that the conditional cooperators see free-riders and don’t want to support them, which leads to a downward spiral. The less people cooperate the less you are willing too, it’s the same with corruption, if you live in a corrupt environment, you are more prone to becoming so yourself. So how can we prevent this!?

We have to contribute to the expectations that we and others cooperate. Yet this seems not enough, Fehr argues, we need institutions and to constrain and sanction free-riders.

In terms of the experiment he added the possibility of “altruistic punishment” from period 11. That means you can spend 1 dollar to take 3 away from someone else, a seeming lose-lose situation as there are costs for both, so why would we do this?

Yet we see what happens when this possibility is introduced:

Fehr & Gächter

People DO punish altruistically and the same group with the exact same people suddenly begins to cooperate. Yet, punishment is not automatically making the group better off! We have seen that in some societies that those who are punished before for selfish behavior in one period, strike back in the next at all others, a somewhat blind revenge and therefore “anti-social punishment”. Evidence for such behavior has been collected for example in Greece, while the US, UK and Nordic countries show high levels of prosocial sanctioning.

Fehr attributed these differences mostly to civic norms , which in combination with altruistic sanctioning serve as the foundation of overcoming the common goods problem in a society. Altruistic cooperation is not enough he concludes, as even a minority of free-riders might drag down the system. It is the same with financial markets: how else to prevent the detrimental effects of markets and transform the “dysmal” science of economics?

Altogether another interesting session, yet for my taste still a bit too theoretical after I had hoped to really see how all these insights can be translated into more practical solutions. But in the aftermath I believe that this hope was maybe still a little too optimistic, despite the circumstance that the conference as whole in its interdisciplinary was probably well ahead of the curve in terms of transforming the economic systems of this world. Yet, the session to come was in my opinion the most interesting and inspiring.  Micro-finance & solar-grandma-engineers coming up, stay tuned!

Image: Mind & Life

The Saturday morning session of the Compassion in Economics conference in Zurich was devoted to the issue of economic research on altruistic/prosocial behavior, moderated by Gert Scobel (who by the way wrote a great book on wisdom, maybe I find some time to talk about it later in my blog).

I decided to divide the posts on the sessions into more than one post as it’s easier to digest . Enjoy!

The session was started off by Lord Richard Layard, PhD, one of the key economists (together with Bruno Frey) to begin research on the relevance of wellbeing and happiness within the discipline:

Lord Layard began his presentation by pointing out the problematic nature of the assumption that free and competitive markets make: that people derive happiness from satisfying their demand for material goods in the market.

Ignoring the fact that non-market relations of people are at least as important, this assumption has lead to a large increase in income (at least in Western countries) but none in happiness. An important part of this problem is that of social comparison, the fact that we tend to not value what we have in terms of the economic comfort it gives us by itself but that we compare ourselves with those around us. 

Lord Layard continued to explain that economic is no longer a zero-sum game, but that there there can be more than the sum of its parts when we recognized how much human relationships matter. Although economic growth fueled by the creativity of humanity can be positive, it cannot contribute much to our lives when it happens on the cost of our relationships with others!

The example of the reduction of financial regulation leading up to the crisis we see that it helped to achieve faster economic growth, but on the cost of less stable markets and unemployment. The right balance between competition and cooperation was the way he put forward, pointing out that a system completely based on cooperation such as was aimed at in Communism is not exactly desirable either, as the radical limitation of our freedoms decreases our happiness as well. To demonstrate this he showed the following graph of data from the early to mid-1990s, which shows not only most ex-communist with lowest happiness scores but also that money does not make a difference above a certain average income.

Of course these scores are based on self-reported, yet the self-reported satisfaction with one’s life does strongly correlate to peer-reported ones. The measuring method is furthermore supported by neuroscientific evidence. In response to the graph, the Dalai Lama asked how this would relate to other research he heard of that had shown that happiness on Cuba is actually higher than in the UK? Lord Layards reply was that this would probably be based on the happiness-score seen as relative to the low income on Cuba.

Luckily however Western governments are increasingly recognizing that GDP per capita is no longer adequate as single measurement of the wellbeing of its population and that in the UK governments are establishing other, wellbeing-related, indicators as alternatives to GDP.

Lastly he pointed to the decreasing trust in our societies to stress the importance of focusing more on our inner lives, relationships and nurture trust. To the question “Do you think most other people could be trusted” he referred to a decrease over time from 60% in the US and UK to now just 35%. He pondered on the possibilities of an increasingly individualistic society that sees others as competitors  rather than cooperators as reason for this shift. Another possibility was the global movement from rural (smaller communities-> easier to trust)  to urban (more anonymous-> less trust) areas. He furthermore mentioned that trust and income equality were correlated, with the Nordic countries and the Netherlands scoring highest.

As direction for possibilities to nurture more cooperation and trust in our too competition-biased society he suggested education as crucial to build an ethos of mutual respect. In the workplace he emphasized the importance of rewarding group efforts and team work. In general he also advocated the need to focus more on our mental well-being, a cause for which he shortly mentioned the “Movement for Happiness” (everybody sign up!!!) that is to be launched this September.

The Dalai Lama added to this by pointing out the fact that all the gatherings of the powerful in the world such as G8 or G20 are overly focused on purely material economic matters, wondering why they did not spend more time and efforts on topic such as trust or mental well-being? What we need is to recognize that we are all part of one world to overcome disruptive notions of “us and them”.

In the short discussion following Lord Layards presentation, Ernst Fehr came back to the central role of social comparison, stating that economic growth might heighten the income of all groups but because our happiness depends on how much better we are off compared with our neighbours we are rarely happy with what we have. He continued to emphasize that this is exactly an entry point for insights from the Buddhist traditions and practices, to help train our brain in helpful ways and not compete for material goods anymore but focus more on happiness instead.

Next was William Harbaugh on economic research on altruistic behavior in the form of giving to charity, but more on that in the next post!