The birth of philanthrocapitalism

Originally published in The Economist in February 2006.

The leading new philanthropists see themselves as social investors

“RELATIVE to the corporate environment, we are in the 1870s. But philanthropy will increasingly come to resemble the capitalist economy,” predicts Uday Khemka, a young Indian philanthropist and a director of the SUN Group investment company owned by his family. Like many of the new generation of philanthropists, he has big but well-defined ambitions. “I want to help develop the infrastructure of philanthropy,” he says.

The need for philanthropy to become more like the for-profit capital markets is a common theme among the new philanthropists, especially those who have made their fortune in finance. As they see it, three things are needed for such a philanthropic marketplace to work.

First, there must be something for philanthropists to “invest” in—something that, ideally, will be created by “social entrepreneurs”, just as in the for-profit world entrepreneurs create companies that end up traded on the stockmarket.

Second, the market requires an infrastructure, the philanthropic equivalent of stockmarkets, investment banks, research houses, management consultants and so on. This is what Mr Khemka wants to concentrate on.

Third, philanthropists themselves need to behave more like investors. That means allocating their money to make the greatest possible difference to society’s problems: in other words, to maximise their “social return”. Some might operate as relatively hands-off, diversified “social investors” and some as hands-on, engaged “venture philanthropists”, the counterparts of mainstream venture capitalists.

All this may sound fine in theory. However, the history of philanthropy suggests that there are many potential pitfalls.

America’s early charitable foundations were built by entrepreneurs. Carnegie and Rockefeller would have understood the new investment-oriented model. “Having seen their own economic activity transform the world, they thought that the foundations they left behind would be transformative organisations,” says Carl Schramm, head of the Ewing Marion Kauffman Foundation. Those foundations did remarkable things. Set up as conduits for making grants as well as running the programmes that would benefit from the money, they thought big, concentrated on clear goals and were willing to invest heavily for long periods to achieve them, says Mr Schramm. The Rockefeller Foundation, for example, found a cure for yellow fever and drove the “green revolution” in agriculture. Carnegie, among other things, built thousands of public libraries.

Yet this long-term investment ethos has proved to be the exception, not the rule. In a landmark article, “Philanthropy’s New Agenda: Creating Value”, published in the Harvard Business Review in 1999, Michael Porter and Mark Kramer described widespread flaws in America’s foundations that mostly remain to this day. For instance, little effort is devoted to measuring results, and foundations have unjustifiably high administration costs.

Michael Bailin, head of the Edna McConnell Clark Foundation, has described the typical foundation as “autocratic, ineffective and wilful, elitist, cloistered, arrogant and pampered”. There are “chronic problems in the way foundations operate”, says Joel Fleischman, former head of the unusually impressive Atlantic Philanthropies, who is writing a book on the successes and failures of foundations. He says that most of them provide little information about what they do, and are particularly secretive about their failures. As a result, says Mr Fleischman, “foundations keep reinventing the wheel.”

As for foundation governance, it is a nightmare, says Robert Monks, a veteran campaigner for better corporate governance: “Perpetual existence, no need to conform to competitive standards, it is all too much for human nature. Hence the palatial offices, fancy conferences and increasingly lavish pay for the professional philanthrocrats.”

Arguably the biggest problem is the way that foundations make grants to organisations they support. Whereas Carnegie was willing to invest for the long term, more recently foundations have tended to chop and change, says Mr Fleischman. Melissa Berman of Rockefeller Philanthropy Advisors argues that there is too much emphasis on funding individual programmes and too little on the sustainability of the non-profit organisation running the programme. Overheads are seen as a bad thing, and grants tend to be short-term.

Should the new generation of philanthropists try something different from the traditional foundation? Ebay’s Mr Omidyar thinks so. He has folded his Omidyar Foundation into Omidyar Network, which is free to make for-profit investments as well as philanthropic donations to pursue its mission of “individual self-empowerment”. “After a few years trying to be a traditional philanthropist, I asked myself, if you are doing good, trying to make the world a better place, why limit yourself to non-profit?” he explains. Although there is a separate chequebook for the foundation, his “investment team” is free to put his money in either for-profit or non-profit projects. The team’s main criterion is whether the investment will further the social mission.

Similarly, the Google Foundation is part of Google.org, which can mix for-profit and non-profit investments. However, unlike Omidyar Network, Google.org is an arm of Google, so this is corporate philanthropy—which raises a further series of difficult questions (see article).

In principle, large foundations should be the most effective vehicle for philanthropy, argue Messrs Porter and Kramer. Not only are they free from both political and commercial pressures, they also employ professional staff that smaller outfits would not be able to afford. But the staff often become the biggest problem, especially in foundations whose founder has long been dead.

The new philanthropists are mostly young enough to be able to keep an eye on their foundations for many years to come. Nonetheless, says Mr Fleischman, they might consider setting a closing date for their foundation. For instance, the John M. Olin Foundation, a big source of finance for conservative organisations, recently shut itself down. As John Miller recounts in his new book, “A Gift of Freedom”, Olin had stipulated that all of his legacy should be spent within a generation of his death, a sunset model that kept it nimble, unbureaucratic and true to its founder’s ideas.

The new philanthropists also need to be clear what they want to do, and stick with it. That is one lesson from the Gates Foundation, which has already notched up some remarkable achievements—helped by its huge size, which allows it to do things that are beyond everyone else. Its clear mission is to tackle global health inequalities in six main areas: infectious disease, HIV/AIDS, tuberculosis, reproductive health, global health strategies and global health technologies.

Leverage is all

Crucially, it has found ways of using its money to the greatest effect. Mr Gates’s big idea is to overcome the market failure afflicting poor consumers of health care by deploying his money on behalf of the poor to generate the supply of drugs and treatments they need. For instance, the money provides market incentives for drug companies to put some of their resources to work for the needy.

The Gates Foundation also favours partnerships, even though it is big enough to pursue many projects on its own. Again, it is looking for maximum effectiveness. Other philanthropists are following similar strategies. For instance, Britain’s Dame Stephanie Shirley wanted to fund research into an autism gene, the total cost of which she reckoned would be £1 billion ($1.7 billion). She stumped up £50m herself and is raising similar sums from other donors around the world. Another “hot” idea at the moment, championed by the X-Prize Foundation, is to donate large cash prizes that will generate lots of further spending from those competing to win them.

Mr Omidyar recently donated $100m to Tufts University to invest profitably in providers of microfinance to the poor. He hopes to attract private capital to turn what has largely been a subsidised business into a profitable one, operating on a far bigger scale than today.

Other new philanthropists are piloting new models for welfare provision that, once they have proved themselves, can be taken up by governments and made available much more widely. Governments tend to be risk-averse, whereas philanthropists are free to take whatever risks they like with their money, so they can play a useful role as providers of start-up risk capital for government services.

Networks, too, are an increasingly popular way of leveraging money and experience. Peggy Rockefeller Dulany’s Global Philanthropists Circle brings together about 50 super-rich families from 20 countries to exchange ideas and experiences, mainly with a view to finding solutions to international poverty and inequality. Often this will involve the use of connections and influence as well as money.

However, there is still a lack of global giving consortiums that take on single issues, says Mr Khemka. He hopes to bring together philanthropists from around the world who want to tackle climate change.

Some foundations are now exploring new ways of funding organisations. Mr Salamon of Johns Hopkins University thinks that they should start to behave more like philanthropic banks, offering a range of financial products such as loans and loan guarantees as well as grants.

Some philanthropists are also beginning to think about how best to harness all their assets to the causes they support, rather than just concentrating on the money they are currently giving away. This point was brought home recently to Jeff Skoll, one of whose philanthropic missions is to make films with a social message. His latest film is based on the book “Fast-Food Nation”—yet he had not checked his investment portfolio to see if he owned shares in food companies such as McDonald’s that are attacked in the film.

Over the past year or so, many of the super-rich have started to ask themselves what exactly their assets are doing, says D.K. Matai, an Indian-born software entrepreneur who runs the Philanthropia Trinity, another international network of philanthropists. “What is the point of earning a high return in China if my money is helping to build Dickensian working conditions? If I have $5 billion, and am giving $4 billion away, do I really want a 17% return on activities that are wrecking the world?” To deal with that problem, the investment industry will need to improve on the strategies and products it currently offers for “ethical” or “socially responsible” investment, which often amount to little more than avoiding shares in, say, tobacco, arms manufacturing or oil.

The phrase most often used to describe the new approach to giving is “venture philanthropy”. This was first used in the 1960s by one of the Rockefellers, but is still practised relatively rarely. Perhaps the best example is a firm called Venture Philanthropy Partners. Run by Mario Morino, who made his fortune in software, it specialises in mid-sized non-profit organisations in the Washington, DC, area that work well enough, but lack the capital and talent to expand. With a $30m fund raised through a community foundation, Mr Morino behaves much like a venture capitalist. He is working intensively with 12 non-profit organisations, helping them to develop a business plan for growth and to recruit managers and board members.

Old dogs, new tricks

New foundations may be learning from the mistakes of the old ones; but what can be done to reform established foundations that are underperforming? With America’s Congress showing increased interest in foundations, Senator Charles Grassley has proposed tough new laws. His reforms would “dramatically transform the relationship between the federal government and foundations”, says Adam Meyerson of the Philanthropy Roundtable, an industry body. Among other things, Senator Grassley is proposing a five-yearly review of foundations’ charitable status and a formal government ratification regime. But Mr Meyerson thinks it would be far better for the government properly to enforce the laws that are already in place.

Better regulation is on the agenda in Britain, too, where charity is still governed by an act passed in 1601. “The governance of charities and non-profits is generally poor,” says Geraldine Peacock of Britain’s Charity Commission, which under new legislation due to take effect this year will become much more independent of government. Like Senator Grassley, Ms Peacock thinks that a charity should be licensed for a limited time—say five years—and then have to reapply.

Encouragingly, many of the older foundations themselves are becoming more concerned about effectiveness, and have started demanding more information on how the money they provide is spent, says Mr Fleischman. The recent transformation of the Edna McConnell Clark Foundation shows that an inefficient old organisation can turn itself into a cutting-edge operation. It used to hand out grants in the traditional manner for a wide range of good causes. But in the late 1990s, a new head, Mr Bailin, decided to concentrate its activities in a single field, youth development. Working closely with its chosen organisations, notably Harlem Children’s Zone, it has helped them become more effective and serve many more people.

The biggest question of all is how to measure the performance of a philanthropic organisation. A huge amount of work is going on in this field, but it is still more art than science—particularly when it comes to the fuzzier goals of some philanthropists, such as “empowering people”, “increasing the effectiveness of civil society” or “fighting climate change”.

Measures involving the so-called double bottom line (financial plus social performance) or triple bottom line (financial, social and environmental) are readily susceptible to statistical manipulation. So are popular concepts such as “changed life”—a combination of the number of people affected by an initiative and the extent to which it improves their lives.

One danger is to pay too much attention to managing inputs, which are easier to measure than output. Another is to concentrate donations on those activities that can be easily measured, such as the number of vaccinations given, even where that may not be the most effective way of tackling a problem.

Donors also need to strike the right balance, so that on one hand they ask for enough information to be able to monitor the effectiveness of the organisations they fund but on the other they do not bog them down in form-filling bureaucracy. The Gates Foundation has a good reputation for getting the mix right and tailoring it to individual circumstances.

“The risk with any metric is that people will come to see it as a description of reality, rather than a tool for a conversation about that reality,” says Rowena Young of the Skoll Foundation. “One metric or another can function well only when managers know why they are measuring and for whom…In the world of social value-creation, context is king.”

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Globalization in Nepal be not allowed at cost of national interest

Published in Telegraph Nepal in February 2015

Prof Ram Kumar Dahal, Senior Political analyst,TU Nepal

With the process of globalization, the decision making power of the government is gradually shifting to international institutions – MNCs and donor agencies, thus weakening the former’s capability. In some cases, discussion on the topics of high importance like – national interest and priorities, national sovereignty human rights and so on – is not allowed. Under the powerful pressure of these international institutions, the national governments are forced to conclude that they have no alternative left but to accept their harsh conditions. National officials are pressured into signing on the dotted line when the Bretton Woods authorities appear in a backward country with highly sophisticated computerized statistics and already formulated policy prescriptions (Bruin, 1996: 7). The market reform processes in the developing world, as Rehman Sobhan opines, “introduced by multilateral agencies have undermined democratic institutions and disempowered states and citizens” (International IDEA, 1997: 85). In most underdeveloped countries, they have, rushed like as Schwab and Smadja opine “a brakeless train wreaking havoc” and the globalization process is “threatening a very disruptive impact on economic activity and social stability in many countries. The mood in these democracies is one of helplessness and anxiety, which helps explain the rise of a new brand of populist politicians (which) can easily turn into revolt. The human and social costs of the globalization process are multiplying to a level that “tests the social fabric of the democracies in an unprecedented way” (Klaus and Claude, 1996). “National politics has more or less has lost control. Many democratic governments are facing this problem today and people are asking why we are letting the markets rule our countries” (International IDEA, 1997: 83).

The process of globalization in Nepal, as in other countries of the Third World, has pressurized the state to redefine the traditional notion of power, legitimacy, sovereignty and political authority. It has also led to the growth of elitist democracy and the rise of a comprador class into power. People are being pulled, across the nation state for the creation of a larger political order based on different rules (as European Union) coming very close to pooling the citizen’s loyalties and shaping their common economic, political and social life (Dahal, 1998).

The transnational corporate power has been able to enhance the repressive power of the state to silence the opposition, the only viable institution resisting the harmful effects of globalization and its tools within the national boundary. Moreover, the integration of all the components of the national economy – information, transportation, labor, raw materials- to a unified system of market naturally erodes the viability of national economies and the capacity of the governments to govern. The declining capacity of the government has caused a crisis of proper political representation and raised a serious question of independent status within the state. This process has also paved the way for the depletion of the ecological base of life on this planet and marginalized the majority of the powerless citizens. The authority of governments that flowed from the institutional position and election is also decaying under the weight of planned modernity. So is the ability of the state to mediate between the contending gender identities, social classes, social groups and political parties. To-day’s well developed information mechanism (global media) has weakened the citizens’ bonds with the nation-state (such as family), faith in community, neighborhood and enhanced the power of the governments to compromise the democratic values for the satisfaction of their economic ends. In many countries, the government, political parties, national police and armies serve not the nation but, the security of these international institutions which often violate the supreme laws of the land.

As privatization and globalization processes have led citizens towards capitalization, the feeling of nationalism has become weak. Those who talk about national upliftment, nationalism and national interests are considered as the mad stray dogs barking unnecessarily without realizing the hard reality of life in Nepal. To become multimillionaire overnight and to have capital reserves in foreign banks by deceiving the people and betraying the nation have become the ideals of the political elite. The process of economic globalization has made it difficult for the rulers to rule effectively. The undermining role of the legislature in Nepal, had led to “ineffective enforcement of the law” and the “inability of the government to enact legislations that it may consider necessary for fighting corruption” (Pandey and Chitrakar, 1996: 1). If the parliamentarians are just there to endorse or ratify the readymade decisions coming through the MNCs and BWIs, what is the need of the people’s supreme legislative body in Nepal? Why cannot the MPs assert their role? The three organs of government have met on the common forum, when their personal interests were concerned. The facilities, enjoyed by them often unconstitutional and illegal especially duty free Pajero, have rendered the theory of separation of powers and the checks and balances of the organs of government redundant. Indeed the process of globalization has led to a conflict between nationalism and corporate class. The position of the VAT, as imposed on the recommendation of the World Bank, and the Arun-III became highly controversial among the nationalist forces (INHURED International, 1995; Bruin, 1996: 62).

Impact on Bureaucracy:

The de-bureaucratization process, under the pressure of the BWIs to cut down the administrative budget, brought the retrenchment of more than nineteen thousands civil servants leading to politicization of bureaucracy and political instability in the country. Under the influence of globalization, there has been a change of attitude towards Nepalese bureaucracy. The bureaucracy in Nepal is the first to be shaken. During 1990-1998, the civil servants have been moved, removed, replaced and inducted so many times with each change of government that the civil service has become paralyzed as a public institution. Obviously, the civil service remains at the mercy of the ruling authority and its role has been confined primarily to that of the executor of the ruler’s order. The democratically elected governments of Nepal during 1991-98 have thought about the “spoil system” along the line of the US which has made the bureaucracy a mere rubber stamp. “Successive governments, “have looked at the civil services not as an ally but as a rival for executive power and also as a berth for their relatives or party workers and henchmen ostensibly to ensure that their programs or ‘manifestoes’ would be carried out faithfully by their own trusted men rather than the so called civil servants appointed by an earlier government” (Malhotra, Sunday Despatch, January 25-31, 1998: p. 1). The process of globalization has led to the growth of corrupt practices in Nepal. “Eradication of corruption” “needs a broad based attack which cannot be constrained let alone eradicated without reforming the political process. The current social values sanctified by the ethos of the so called market economy and liberalization,” “need to be recast. Battle against corruption must be made an integral part of foreign aid strategy. Networking among concerns and institutions interested in clean governance and cost-effective aid must be developed” (Pandey, 1995: 1-10).

Mechanism to Minimize the Negative Effects of Globalization:

The growing negative impacts of globalization have adversely affected the operation of present day Nepalese political system. It would be, thus, essential to develop effective mechanisms to minimize them and to maximize the positive ones. In this connection, it would be essential to identify the agencies (both national and international) of globalization and to study the approaches, methods, strategies and tactics used by them to achieve their targeted goals. Are they not like the Summer Institute of Linguistics (SIL) that once worked against Nepal’s national interests by encouraging and distributing money to the supporters of Free Tibet Movement with a view to damaging or adversely affecting Nepal’s age-old ties with its northern neighbor? It would also be appropriate to study their vested interests and their short and long term strategies separately. If it is long term one, can we sacrifice the short term interests, benefits and its side effects? Is it essential to develop a separate mechanism to meet the challenges created by them (if they are long term ones)?

In Nepal’s particular case, it is a must to search for an appropriate answer whether the reckless globalization process we are welcoming here, which does not provide goods, services and benefits to the larger masses, can be considered globalization in a real sense or not. Only a process which in fact does maximum well to the maximum number of people should be welcomed. Moreover, while adopting the process, priority should be given to the mobilization of local resources, protection of indigenous culture, promotion of sustainable development and participatory democracy at local level and the acceptance of foreign aid accordingly. The traditional socio cultural and economic organizations and the service focused NGOs should be encouraged and strengthened at local level that, in fact, does not endanger indigenous culture, life styles and habits and nationalism should be encouraged and strengthened at local level.

As Nepalese economy and polity are not self reliant, they have certainly to accept or adopt the process of globalization, but while doing so, Nepal should strictly preserve its national interest and benefits, national identity and values. Globalization at the cost of national interest should never be permitted. In order to prevent the Nepalese society from the negative effects of globalization, the political parties, political and non-political groups, interest and pressure groups and the conscious section of people have to play an important role. The political parties, with their sister organizations under their fold, in particular, have to develop national consensus over the most controversial and important issues like security, nationalism and national interests, goals and objectives; acceptance of foreign aid in different sectors, giving approval to the agents of globalization, to mention a few. A scientific and most up to date record of the agencies of globalization; NGOs and INGOs and current statistics concerning the movement of foreigners within Nepal and Nepalese citizens residing outside Nepal – must be maintained in HMG particularly in Foreign and Finance Ministries.

In order to minimize the weaknesses of globalization, the conscious section of the society has an important role to play by watching the activities of the agencies of globalizations: international institutions, NGOs and INGOs operating within Nepal’s territorial jurisdiction. They should also work as the watchdogs of democracy strictly observing the behavior of their democratic leaders, especially those in power. The political parties, like other interest and pressure groups of Nepal – the Human Rights Organizations, the trade unions, student organizations, women and youth groups, to mention a few – are trying to globalize themselves by establishing links with similar organizations throughout the world and their participation, thus, is increasing at global level. These groups could play effective roles in lessening the negative impacts of the process of globalization by stressing key concepts like nationalism, national interests, goals and objectives. They must try to make Nepal self reliant rather than emphasize dependency theories. The core laws of the state should be strengthened so as to solve the existing problems (e. g. citizenship). The share of the state in the GDP and in utilizing indigenous local resources should be increased. The public power should not benefit the comprador class and a few private individuals; rather it should be utilized for the welfare and benefit of the larger section of the people, especially the marginalized ones.

Nepal to-day needs production revolution, not the consumption one, to direct the political economy towards self-reliance and the sovereign state should enjoy complete autonomy in this respect. As this process has affected each and every sphere of Nepalese life, mass consciousness has to be aroused so as to judge to what level and extent, they should welcome the globalized agencies and for what. As to-day’s Nepalese state is based on class and is largely determined by money power, it has in fact promoted elitist democracy and the outright betrayal of the mass and participatory democracy, though the ruling elite never admits this openly. Nepal should also actively participate in the regional process strengthening its relations with the neighboring countries and stopping reckless globalization. A powerful and active cell in the governmental machinery particularly within the Ministry of Finance and Foreign Affairs should be established to overview the impacts of globalization, particularly towards minimizing its negative effects on Nepalese polity

As nationalism is a strong device to mitigate the evils of globalization, its base should also be strengthened; and the people’s legitimate right to development should be established. When the public sector becomes weak, it negatively affects the state and thus the concept of good governance should also be encouraged so as to encounter the negative impacts of globalization. The parliamentarians, the most trusted and democratically elected leaders of the people, should play assertive and dynamic roles within and outside parliament in minimizing them. Instead of putting their Lyapche or approving blindly the ready-made package policies prepared by BWIs and other institutions, the MPs should effectively play the policy making role keeping in view the key concepts of nationalism, national interest and public welfare. The power elite can play an effective and dynamic role in this direction. They should serve the interests of the electorate who have elected them, not to the BWIs, other international institutions, INGOs businessmen, comprador class and a few elites or their Yes men and the so called the Tatha-Batha or their Chumchas only. They must not be guided by personal interests but by nationalistic concepts, national interests and objectives. Moreover, the cabinet itself can develop an effective mechanism or cell to check the negative impacts of globalization.

Conclusion:

The impact of globalization on the Nepalese polity is two-fold. On the one hand, it has helped to democratize, liberalize and decentralize the power of the state while on the other, it has stripped away the vital decision- making power of the government to govern: to formulate public policies and execute them. Globalization has also led to the homogenization of the ideologies of mainstream political parties, induced “identity politics” and generated political factionalism.

The effect of globalization on the Nepalese polity is the proliferation of laws, rights, and institutions without corresponding increase in enforcing mechanisms, resources, responsibilities and viabilities for policy effectiveness. The levers of globalization (privatization, denationalization, decontrol, deregulation, etc.) have made Nepalese democracy a surrogate of market forces and delinked the social web of state power. In a multi-ethnic, multi-religious and multi-racial society where development is uneven, the globalization process has intensified the rich-poor, urban-rural gaps, notwithstanding its positive contribution to renewed consciousness towards the universalization of rights, international cooperation, gender issues, environmental ethics, and a move toward demilitarization of development. How can the Nepalese citizen enforce accountability of their leaders, maintain the transparency of the regime, and legitimacy of their political order? Evidently, the answer lies more on devising the competitive ability of the citizens to obtain benefit from the global distribution of opportunities and minimizing the risks, social, economic and political in nature to the multi party dispensation. Text courtesy. Impact of Globalization in Nepal, NEFAS publication, 1998. Thanks NEFAS and the distinguished author Dr. Dahal. Some more to follow: Ed. 

How will the sharing economy reshape our spending?

Published in World Economic Forum in February 2015

When we talk about technology, frequently we’re focused on how it makes our lives easier—but we often look past the way it can completely reshape the economy. When I was in China last month, I spoke to a group of business students about these ideas. As I explored in my last post, we discussed how the drop in oil prices will act as a massive tax cut—today, I want to talk about how new technologies can reshape spending.

According to the International Energy Agency, daily demand for oil has increased by about 600,000 barrels over the past year. But thanks in part to new technologies like hydraulic fracturing, we’ve seen an increase in supply of over 2 million barrels a day. We’re now in the midst of price discovery, and while it’s hard to say where oil will settle, I think it’s likely to be around $75 to $85 a barrel.

The oligopoly is confused. And one reason why is that they did not anticipate the rapid growth in new oil extraction technologies. Fracking represents just a fraction of the 90 million barrels of oil produced each day, but it has a profound impact on the industry as a whole.

It’s a good example of how quickly new technology can destabilize an industry—even one as entrenched and established as oil—and even be missed by many of those within the business.

These changes took place over a number of years, and are happening at the margins. But you can also see technology precipitate incredibly rapid changes, like what we’ve seen with the rise of the “sharing economy.” Best exemplified by home-rental services such as Airbnb or taxi services like Uber (and a Chinese equivalent called Kuadi), they represent a completely different mindset for the use of capital, especially among young people.

We tend to think of these services in terms of the way they affect convenience—how they change behaviors. But as we saw with oil, new technologies can have a profound effect on prices, markets, and the way we spend our money.

For generations, young people all around the world have focused on acquiring two key pieces of property: a home and a car. These purchases are partly status-driven, partly practical. And they’re not identical, of course: Cars tend to depreciate, while homes are seen as an investment. But both purchases require large amounts of capital or credit—money that could be used elsewhere.

With the advent of technologies like Uber and Airbnb, these long-accepted financial decisions may start to change. Why bother with the big upfront investment, the hassles of maintenance and parking, or the liability of owning a car, if you can have one available within minutes with one tap of your phone.

As more and more people use sharing services for transportation, for example, personal vehicles will become less important, both financially and in terms of status. People may decide—and I think this would be the right decision for many —to take the cash they would spend on a vehicle and direct it instead towards smart investments.

Think about the scale of this change—Uber was founded just five years ago. In another five years, car-sharing technologies could be replacing car ownership at a meaningful scale. That has significant implications for the global economy, simply by changing the way capital flows through it.

New technology can also have some unpleasant effects. For example, increasing automation is putting significant downward pressure on employment. Take driverless cars, for example: While it’s true that they will eliminate congestion and accidents, over time, they will also eliminate jobs for people like taxi and truck drivers.

The countries that will get ahead will be the ones that train enough workers to do the skilled jobs—designing and maintaining sophisticated machines, or writing the code that helps them run.

This article is published in collaboration with Linkedin. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Larry Fink is the Chairman and CEO at BlackRock.

Image: An illustration picture shows the logo of car-sharing service app Uber on a smartphone next to the picture of an official German taxi sign in Frankfurt. REUTERS/Kai Pfaffenbach

The Future Role of Civil Society

Published in Berkeley Center for Religion, Peace and Work Affairs in January 2013

The Future Role of Civil Society examines the evolving role of NGOs, labor organizations, and faith groups, among others, in building civil society in the global arena. The report is a compilation of insights from over 200 leaders in government, business, international organizations, and civil society at large, 80 expert interviews, and 5 related workshops. The report aims to engage civil society in reaction to anticipation of ongoing changes in politics, technology, economy, as well as government, business, and international organization leaders who are interested in further collaborating with civil society actors. It includes discussion of the role of religious leaders, faith communities, and faith-based organizations in building civil society. The World Economic Forum partnered with KPMG to produce the report.

Download the Report

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