The New Business of Indentured Servitude

An article in The Economist June 15th, 2013 Edition struck me this week. I know, I'm a bit behind on my reading. The article is about crowdsourcing future earnings. Basically, there are a number of new websites like Upstart, Pave, CareerConcept and Lumni that are giving people a chance to write a dossier about themselves and what they would do with the money that people can invest in them. In return the "investors would receive a percentage of the person's pre-tax income over a number of years" (The Economist, pp75).

The scary thing about this is that it sounds like a new version of the indentured servitude model that was so in vogue during the early colonial period of immigration to the United States. Investors pay for the way to the new world and in doing so the party who was invested in would serve as a "servant" for an agreed upon number of years. The potential for abuse in this hundreds year old scenario were borne out of desperation. Desperate to find some better economic conditions the indentured would stay on longer than the original contract. The free labor that the landowners got made the wealthier even wealthy. As today's economic prospects for young, educated but highly indebted college graduates continues to stay stagnant the desperation seems to be rising throughout the country. While each of these sites seems to put a cap on the amount that the invested in party has to pay out (10% for pave, 7% for Upstart and Upstart caps the total amount the invested in party has to pay at 5x the initial investment), there still seems to be a scary precedent being set here.

The one that seems to strike me as most dangerous is Lumni. Lumni focuses on low-income students in countries like Mexico, Chile and America. The other bit that makes me feel a bit queasy is the terminology associated with this type of investing. This whole concept is called "human-capital contracts". Oren Bass, a co-founder of Pave prefers to call them "social financial agreements". I like to call my gambling losses "economic lessons", but the lessons or losses seem to have the same effect on me.