Recently while As a volunteer as a union organizer for freelance journalists, I spoke with a skeptical member. “Really, what is my ROI?” I ask. I tried to explain to him that the union is not a business. There are no clients or investors. Your dues would elevate the group, but that process may benefit some more than others. I was unable to quantify or calculate any benefit to him as an individual. We tend to forget that the word “investment” has a specific technical use (money spent in pursuit of profit) and that “return on investment” is even more technical, a relationship between profits and invested capital.
This person was using “ROI” in the broadest, most colloquial sense, so eerily widespread in the American lexicon that we hardly noticed it. Without blinking, a man from New Jersey can sings praise from a local retired pastor that his “product was people’s lives” and “his return on investment was off the charts.” Scientists, trying to sort out which species should be saved from extinction, you can recommend the use of a “return on investment” approach to taxonomic research. ROI can and has been applied to early childhood education, physical activity, Y the activities of the US Army..
ROI injects the logic of investment banking throughout life. That is why a recent New York Times personal finance column can pitch caring for others as a smart financial outlay – a “prosocial investment in others” that will “pay off” in the future. It is love as an ennobling financial scheme. Investment thinking — that we should always get some solitary profit from our actions — rules our world, occluding all other forms of social relationships.
The term “return on investment” first emerged in the early 20th century, after financiers linked and herded thousands of companies into a few nation-choking monopolies. Accounting became the center of American business and money men needed a financial metric to measure success. Corporate managers, as Jonathan Levy describes in his new book, Ages of American Capitalism, found ROI to be an easy unit. It was famously implemented by the DuPont corporation and championed by Frank Donaldson Brown, then a senior executive at General Motors. For industrialists like the du Ponts (“staunch critics of organized labor,” Levy notes), the return on investment was complicated enough that only “highly trained corporate accountants” could calculate it, but arbitrary enough to be manipulated. Only accountants and managers determined which numbers would be incorporated into the formula and at what value. Someone must decide how much a factory or an hour of work is worth. Then, as now, the numbers were fungible enough to express primarily the prerogatives of whoever ran the business. As industrial capitalism calcified, return on investment and accounting made the new order seem the result of rational science, not politics. It was a critical part, Levy notes, in proving socialism wrong – everyone gets paid their fair share when it comes to ROI, see? Why do workers ask for more?
At the height of the post-World War II boom, enthusiastic conservative economists like Gary Becker of the University of Chicago began to think that the logic of corporate accounting could be applied to all facets of human life. In Becker’s influential 1962 study, “Investing in human capital: a theoretical analysis“He theorized that the cost of training and educating workers could be measured as the return on earnings and wages for employees. He called it a “powerful and unified theory.” Becker said that everything in the service of human betterment, everything we do in life, could be considered an investment and calculated with ROI, measured by whether our income increased or decreased.
This logic “legitimizes inequality and feeds the history of meritocracy,” he explains. Eli cook, professor at the University of Haifa and author of The price of progress. “If someone is rich, it’s just the return on the investment.” On the contrary, if you are poor, you clearly did not invest in yourself.
While “investing in yourself” was an idea dating back to the 1920s, Cook believes that a major factor contributing to the spread of investor thinking was the rise of 401 (k) in the 1980s, which turned everyone in investors. Ironically, as finance became more powerful in this period, large companies pushed out ROI as their preferred valuation for the most shareholder-friendly “return on equity.” But for a new generation of investors, ROI surely struck a serious and rational cable.
The problem with using ROI, Cook says, is that you get a mindset that says, “If you can’t price it, it doesn’t count.” Something less quantifiable, such as happiness or solidarity, cannot be inserted into the equation. We have rejected ethical and complicated negotiations because of limited financial certainty. But many of our relationships are not clearly transactional, like giving to the church, helping a friend move, or paying union dues. They are moments of mutual obligation. They are relationships that finances simply cannot describe.