Think Bigger. Aim Higher. Go Further.

Month: April 2013

The Everlasting Endowment of Social Capital

Big social changes are always controversial; industrial revolution, voting rights, woman’s rights, civil rights, etc – each were truly radical ideas in their time.  Social scientists suggest that such changes have three oppositional features;   

  1. They had advantages and disadvantages
  2. They were good for some people and bad for others
  3. They impart some initial costs before providing substantial benefits
For example;
The industrial revolution was dirty and dangerous and exploitive.  This was the initial social cost which drew the attention of academics who studied the movement.  This drew the ire of activists who pushed the politicians into regulations regarding workplace safety, collective bargaining, and child labor laws.  In the end of the cycle, the benefits of the industrial revolution included both better means of production and positive shifts in cultural norms.  In addition, many new disciplines are born which improve and accelerate future social changes paying dividends to an everlasting endowment of social capital.

Social Capital; a label for many different things.

We are all familiar with physical capital such as a tool into which we invest our energy in order to fix things better.  We are also familiar with the idea of human capital; the investment in education and training so that people can use the physical capital to become more productive.   Likewise, Social Capital includes those features in our community that make us more (or less) productive.  

There is nothing strange or different about this type of capital and there is no less of a need to invest in developing high social capital environments.  In Fact, may very familiar ideals have social capital as their foundation, such as collaboration, teamwork, resilience, communication, connections and generalized reciprocity of favors, empathy, and mutual best interests.

Social Capital In the Construction Industry

So when we introduce an innovation to a market, such as we are doing with The Value Game in the condominium reconstruction market – physical capital and human capital are obvious requirements of engineers and tradesmen.  However, the explicit introduction of social capital to the construction industry may have significant consequences as outlined in steps 1 through 3 above.  What are the advantages and the disadvantages to introducing this social change to the construction market?  To whom is it beneficial and/or detrimental – the resident or the contractor?  What are the initial costs and what are the expected future benefits?  

Case Study:

Our current case study involves the repiping of a 25+ floor high rise condominium.  The trick is to replace the potable water system while the building is fully occupied maximizing the uptime for all residents and absolutely NO overnight shut downs for anyone.

Our solution is to build a parallel water system right next to the old one, and then switch them over condo by condo.  In order to accomplish this, the contractors need to pass through the structure floor by floor at least 3 times.  First to install access doors; second, to replace the risers; and third, to plumb each individual unit, etc.  Now, try to imagine the permutations of connectivity required to minimize disturbance to affected units – as well as the non-affected units!!!

Capital accounting;

Obviously the physical capital includes a lot of plumbing tools and fixtures.  Indeed, human capital is intact where all the plumbers are certified and all the engineers are licensed.  However, this problem is still 90% social capital.  That is, those features in our community that make us more (or less) productive.

Bringing social change to a construction project will be controversial as people will need to collaborate with their neighbors and several crews of plumbers.  Some people will take easily to the requirements, others will not.  Initially, there may be a significant amount of discomfort.  However, when this project is complete, the community will be own something as important as life water itself;  new discipline will be born which improve and accelerate future collaboration thus paying dividends to an everlasting endowment of social capital. 

A 100 Billion Dollar Value Game

By deploying Intangibles, The Ingenesist Project offers a simple Value Game worth upwards of 100 billion dollars.  This value is currently underwritten by the insurance industry as water damage risk that can be reassessed at pennies on the dollar and transformed to liquidity in the real estate market.

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The Problem: 

The condominium maintenance and reconstruction industry is enormous.  Condominium associations are challenged to manage modern maintenance and construction practices. The insurance industry covers perils such as water damage through the roof, building envelope, ground water, or plumbing system.  Many of these critical systems are coming of terminal age. 

Magnitude of the problem:

In 1990, there were about 4.5 million condominium units in the US.  41% were built before 1980.  The US has added approximately 1,000,000 condominium units per decade.  Water intrusion failures can cost up to $10.00 per square foot per exposure.  The insurance industry covers over 10 billion square feet – a $100 billion risk pool.   

Innovation:

The vast majority of water failures can be avoided with minimal and timely engineering interaction for a wise and engaged community.   Unfortunately, this is not the natural course of events in shared asset communities.

The Value Game can help the condominium community to self-manage as a collaborative social network instead of a collection of competing interests.  This may eliminate negligence, substandard maintenance, construction defects and associated litigation. Arguably, these are the most significant cause of water intrusion failures.

Technology:

The Value Game, in essence, creates a social network for the building.  The Game creates a system of incentives where stakeholders are rewarded for acting in the best interest of the shared asset.  Players include residents, engineers, maintenance personnel, insurance carriers, bankers, real estate market, as well as the larger neighborhood community.  All collaborate to preserve the asset.  The Value Game is infinitely scalable using existing Internet technologies. 

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100 billion dollars is the amount of money on the game table being adjusted, pooled, and diversified against risk exposures.  The value game causes the “plays” to be modified by any of the players.  When hedged with Real Estate valuation, liquidity can be substantial for all of the players changing incentives strongly in favor of collaboration rather than competition.

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