Aligning Value Creation with Profitability Across Society

Most students of economics understand that one can more deeply align entrepreneurial value creation with environmental sustainability by ensuring that the costs of environmental degradation are internalized into the prices of products.  To take a simple example, because in most locations water users pay too little for water, aquifers around the world are being depleted more rapidly than they can be refilled.  All prices for products that use water from such aquifers (agriculture, golf courses, electricity production, etc.) are too low.  If governments charged enough water so that the aquifers were not being depleted, then the prices of all the goods being produced using that water would then be aligned with sustainable water usage practices.

As an educator I’ve often been concerned that the value that educators contribute is not reflected in the compensation they receive.  This notion is often reflected in the sentiment that “Teachers are underpaid.”

The more time that I’ve spend in the world of education, however, the more I would say that SOME educators are underpaid and SOME educators are massively overpaid.

Teachers should be paid only for the value that they add.  Insofar as there are multiple rationales for education, there may be multiple modes of value that they add.  Suppose, for instance, we were to suggest that education should:

1.  Increase the student’s capacity to earn an income as an adult.

2.  Increase the student’s capacity to live a happy, healthy, and meaningful life.

3.  Increase the student’s capacity to contribute positively to the lives of others as an adult.

If these are the goals, then teachers are valuable only insofar as, and in proportion to, they contribute to these goals (if people want to add other goals then the same rule applies).

But much of what currently passes for education does not succeed in adding much value by any of these metrics.  (Indeed, I think that much secondary education in inner city schools leaves people less capable at 18 than they were at 12).

How can we monetize valuable education?  How can we internalize the benefits provided by great educators?

Several strategies have occurred to me:

1.  Schools often determine local property values.  At some point we will see for-profit real estate developers partnering with for-profit educational chains that specialize in adding value to the communities.  Because the schools are adding value to the communities, the for-profit educational chains that are most successful at this will obtain ever growing premiums, and the educational program designers and the educators who work for these organizations will be paid increasingly large salaries.

2.  The incidence of almost all health issues (chronic diseases, addictions, most accidents, STDs, etc.) are highly dependent on lifestyle choices.  The CDC estimates that 75% of health care costs are due to chronic diseases alone; when one adds the full range of lifestyle choices, it is likely that 95% or more of health care costs are lifestyle dependent.  As educational chains develop that specialize in developing positive mental, emotional, and physical habits, it will become clear that the alumni of such schools will have much lower lifetime health care costs.  Likewise most crime is dependent on lifestyle choices.  And, finally, the well-being of family and relationships could be improved by better education.  Thus in a full-blown insurance market, those alumni of schools that brilliantly improved mental, emotional, and physical well-being, including reducing the incidence of criminal behavior and family dysfunction, the alumni of those schools would face extremely insurance premiums for health care, accidents, etc.  They would be sought after members of communities and sought after as partners.  If governments did not subsidize bad behavior, we would find that educators who were, in fact, successful at certifying good behavior would be increasingly sought after and valued.

3.  I would also be in favor of allowing educators to obtain a fraction of lifetime earnings of graduates.  There are many complex contracting issues that would need to be settled to ensure that the contracts were a win-win for both the students and the educators, but over time we would see contracts that allowed young people with particular gifts to have access to much higher quality training much earlier on if great educators were able to participate in the upside of the talented students.

The path that I am sketching is so radically different from the reality within which we live that few people can imagine the richly diverse world that could result.  Of course the path is tricky and there will be many mistakes along the way.  We must level the playing field so that various human pathologies are no longer subsidized by governments.  We must eliminate occupational licensing so that innovative educators can help the next generation become far more brilliant at teaching, healing, curing, counseling, advising, etc.

Ultimately we will see a world in which the largest corporations are lifestyle corporations that specialize in the creation of communities, including health, education, and welfare, in which human beings experience happiness and well-being beyond that which most of us can imagine.  At present capitalism is largely a materialistic set of enterprises focused on satisfying material needs, from food and lodging to yachts and sports cars.  The materialism of capitalism as we know it is not intrinsic to capitalism per se.  To some extent it is due to Maslow’s hierarchy; we needed to satisfy basic needs before we could work on satisfying higher level needs.

But now that many of us should be evolving towards self-actualization, the primary reason we are not climbing higher faster is due to the fact that essentially all of the industries that should be focused in deepening and improving human wellness – education, healthcare, and community formation – are dominated by government.  Governments are not and cannot become innovative, adaptive, creative, and responsive to individual human needs.  Capitalism is uniquely capable of responding brilliantly to every individual’s needs at the most granular level (some may respond righteously that capitalism responds to human needs “If they have the ability to pay.”  Fine, then let’s implement Citizen’s Dividends so that they can pay, but still we must let the entrepreneurs be free to innovate).

But in order to create paradise on earth, we need to allow capital to flow freely towards those entrepreneurs, and the individuals they hire, who are most capable of improving the human condition.  Those entrepreneurs need a level playing field in which they are free to experiment with new and better ways to educate, to heal, to improve wellness, to refine experience, and to create communities of meaning and purpose.  And we need to allow for free markets in education, insurance, health care, legal systems, and community formation in order to allow those educators who are truly brilliant at improving the human condition to reap the rewards due them.

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About Michael Strong

Co-founder, Ko School + Incubator, Conscious Capitalism, Radical Social Entrepreneurs, lead author of Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World's Problems, author of The Habit of Thought: From Socratic Seminars to Socratic Practice.
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