Throughout human history, the single most effective technique behind the explosive economic growth was the idea of commoditising things – a mechanism of assigning value, agreeing, and facilitating the orderly transmission of ownership.
The advent of science and technology and the unstoppable forces of globalisation in the past three-hundred years enabled the creation and exchange of many new assets. Beyond real estate – asset traded for thousands of years – they featured new inventions across the booming industrial sector and its expansive value chains.
The ownership and transfer of goods and services depended on the needs they served and the countries they were in. Some bore public ownership, and some resided in private hands. To this day, such arrangements vary around the world; they depend on the cultural makeup of nations, but also, on the strength of individual property rights vis-a-vis the rights of the hosting sovereign.
The monetisation of intellectual property also accelerated significantly in the second half of the twentieth century. Most assets in S&P500 companies are no longer physical or tangible. The legacy sectors are also getting a face-lift in the way we value and interact with them. Our travel, education, entertainment, and how we relate to finance have all changed.
Fewer wars, better technology, the rise of the middle class and the convergence of norms made borrowing money easier allowing credit to fuel global growth since the turn of the century. Credit is a contract in time – it will govern the distribution of losses and redefine the future ownership of assets. Still, its very growth is a testament to the human accomplishment to commoditise finance.
Modern economic models, and seemingly our collective prosperity, continue to depend on our ability to commoditise all facets of the human activity. In addition to physical assets, services, information, knowledge, and finance we will inevitably come to commoditise the only remaining and unattributed item – the impact arising from everything we do.
As powerful forces of globalisation and technology continue testing new boundaries, we are becoming more aware of our collective footprint on the environment and each other, and that the natural resources are finite and eroding.
All economic activity generates impact, but not all of it is transparent or reported.
Companies’ revenues – which flow into the shareholder value and taxes – account for some of the impact related to the commercial activity. However, standard accounting and traditional reporting channels do not capture all impact relevant to humans, and not all of it is tradeable.
Differences in laws and standards of living invite cross-sectorial and cross-regional arbitrage. The task of profit maximisation and the asymmetry of regulations, which govern economies and societies, attract public and private balance sheets alike. Human rights violations across a corporate supply chain, depletion of natural resources, and the adverse effects on climate are all examples where the full cost of the ongoing economic activity is misrepresented – in other words, businesses’ unattributed impact.
The role of finance is to enable people to reach their full potential, to help us all thrive and afford our children the right to do the same. Our individual and collective success in achieving this goal will largely depend on how we define, measure, and manage the impact – what mechanisms we use to commoditise it as an asset.
The time in which we strive to achieve this will determine the cost, as the centuries-old trends of technology and globalisation are now joined by equally (if not more) powerful forces of rapidly changing climate and demographics.
Absent developing new conventions or formal guidance, the superior understanding of impact formation – a precursor to commoditising impact – offers a unique performance edge to those with the courage to innovate and the appetite to challenge the status quo in their field.
Resilient and inclusive growth founded on perpetual innovation and the equality of opportunity is one of the potentially countless rewards for solving the impact equation quickly.
© 2020 GOALSFIRST LTD.