Jerry Lao is today’s contributing writer. He’s an aspiring entrepreneur, about to graduate from UC Berkeley. He sure has more to say than I did.

Impacted catchphrase

Recently, I’ve noticed the media has been maniacally throwing around the catchphrase, “social responsibility,” as if it were the solution to an impending apocalypse. A recent keyword search on Digg.com for social responsibility garnered 69 pages of results; Google returned a little over 20 million results. The media has inadvertently – or stupidly – jumbled a bunch of ideas on human ethics into one impacted catchphrase. Am I going to untangle this word and determine the value of every single one of its subcategories? No, I don’t have that much spare time on my hands. On the other hand, I will add to the mayhem and estimate the economic value of the phrase in its entirety.

So why is it relevant to us?

The idea of social responsibility has been around since the beginning of civilization, but few gave notice as it carried little economic value. It did carry ethical value, but ethics meant squat when daily conversations covered pillaging and plundering. We have come a long way since then as a society. We are finally beginning to realize the potential economic value of social responsibility – at least, some of us have. Once we surpass the physiological and safety levels of Maslow’s hierarchy of needs, we begin placing value on our relationships with others, and subsequently, on the monetization of social responsibility.

How much is it worth?

There are many statistics and formulas out there that attempt to value social responsibility in the US. I find most of them intriguing, but ultimately find myself more confused than before. KLD Research, Analytics, Inc. takes an interesting approach to looking at this question by measuring the performance of socially responsible corporations in the form of the Domini 400 Social Index. They came up with the following relationship to the S&P 500 Index:

DS400 Cumulative Performance as of March 31, 2008

The Domini 400 Social Index has been consistently outpacing the growth of the S&P 500 since 1990. Could this difference be the value of social responsibility to investors? Maybe, but I was out to seek an all-encompassing dollar amount. You could probably break apart that graph to find that number, but I neither have the energy nor desire to do so. Instead, I came up with my own formula:

(Total US Disposable Income) x (% of Socially Responsible Americans) x (Social Responsibility Premium %)

If you have no idea what I’m talking about, I’ll try to explain…

Total US Disposable Income: I decided to use disposable income as an initial starting point because I made the assumption that individuals would only practice socially responsible, economic behavior if they have the means to do so. If someone is barely affording staple foods, it is highly unlikely this individual would pay the extra few for fair trade coffee. In a recent Bureau of Economic Analysis news release, disposable personal income increased $29.6 billion, or 0.3 percent. This puts American disposable personal income at $9,896,266,666,667.

% of Socially Responsible Americans: In a recent survey by Fleishman Hillard, the results reveal that “More than two-thirds of consumers (67 percent) feel that knowing that a company meets global standards for being socially responsible would be either extremely or very influential if they wanted to buy a particular product or service from that company”. I will trust the American people; that they will hold true to their words.

Social Responsibility Premium %: In order to find out how much more people are willing to spend on socially responsible goods, I compared some basic commodity prices with its fair trade counterparts.

The price premium the market is willing to pay for socially responsible products seems to be around 10%. For the sake of not overestimating, I will use 8% as the conservative premium percentage.

So therefore:

$9,896,266,666,667 x 67% x 8% = $530,439,893,333.35

VALUE OF “SOCIAL RESPONSIBILITY” IN THE US: $530 billion. we estimate 530billion of those asset classes that doesnt all exist belong here in the US.

I sure want a bite of that pie. Yum.

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