Contractual obligations can be and often are abused. Find a loophole in the contract to exploit, then use the contract to twist your counterparty into cooperation.

Non-contractual obligations require a continuing consensus to function. If either party ever feels that it has been unfairly used, it can choose to terminate the relationship.

Working without a contract can be safer sometimes, when you aren’t certain you trust the counterparty.

A corporation or investor cannot own a predetermined % of someone’s personal earnings: this is a power only reserved solely for the state – in the US, via the 16th Amendment – and many disagree that it should even be a power of the state. Listening to proposals such as these cause irrational thoughts to start creeping into my head involving some diabolical conspiracy between the originators of the Federal Reserve, the Federal Income Tax and the future corporate ownership of human beings. Wage exploitation & extortionate rental and loan pricing already creates de facto slaves out of most of the world’s poor: let’s not add a titular element to the mix!

The fact that people are seriously discussing creating bond servant agreements between school districts and future alumni is disgusting and highly disturbing.

One commenter raises the organic, and non-contractual bonds held between parents and children in pre-industrial or developing societies. Well and good, but these “agreements” are 1. Non-contractual, 2. Non-binding and therefore 3. Unenforceable by law. These are EXTREMELY IMPORTANT distinctions between such tacit agreements based on cultural consensus, personal trust and shared values and explicit, legal ones based on written contracts.

Industrial society is already a dystopia. Let’s not accelerate the trend unnecessarily.

not so much anymore… at least not where I live. Lobstermen make great money and get the girls… at least when the price is good. Venture caps would have little interest investing in those “C” students. They are going to be looking for star athletes, debate team captians, math team captians, all state violinists, valadictorians. Your absolutely right that many of those students would already be from afluent famlies.

Even affluent famlies would love to remove the risks of a 100-200k student debt overhang for a measley 10% of lifetime earnings. Starting a business would be riskier still… but even more rewarding for the outliers.

If and only if the VC’s thought they could collect on their 10% from the elites you would be shocked how much they could pay out to the promising youngsters. Best of all they could actively aid their rising stars just as they do their start-up companies now.

The problem here is that you’re talking about an individual, not a group where statistical processes apply. While it might be worthwhile to invest in such a group if it consisted of 100,000 people (or preferably many more), your statement makes no sense if directed toward a single individual. That person may die young, or renounce their education, or simply not meet the 1MM increase you seem to expect of each of them.

Let’s talk about equity in individual people for what it really is – a bet. No government I will vote for will do that.

In dietary health studies, researchers might look for disparities in disease incidence (e.g. CHD) between people who eat different diets (e.g. a “Western diet” vs. a “Mediterranean diet”). But they don’t stop there — they also strive to factor out other dozens of other variables that might confound the association.

In the education studies that I’ve seen, researchers typically look at the average earnings of college graduates vs. the average earnings of high school graduates and stop there. No attempt to adjust for the myriad STRONG confounders that are present.

* Socio-economic status of parents. Shouldn’t surprise anybody that (on average) the offspring of wealthy parents do better than the offspring of poor parents. Of course rich kids have a much easier road to and through college.

* Personal motivation. A highly disciplined, goal-oriented personality is likely to be successful no matter what the career. But of course this is also a key trait for success in college.

* High school success. Definitely correlated both with career success and college success.

What we really need is a study that takes these confounding factors into account, especially one focusing on the margins. Does that “C” student from a working-class background earn more by taking on debt to attend college? Or by entering a trade?

Are we afraid of the answers?

(Only in this way can those who have lots of money today dun from future generations their rightful take).

What could possibly go wrong?

Machinists, tool and die makers, computer-controlled machine programmers and operators were the 2011 shortages, but factories hired foreign workers through H-1B visas, which can be extended to 6 years for foreign skilled labourers.

http://money.cnn.com/2012/03/05/smallbus iness/manufacturing-workers/index.htm

Barrnone, local governments would do well to make contracts with schools and students to ensure no brain drain, as they have done with medical students and nurses in the past. Payback the with time served or pay back the subsidies, with 2-4 years of service mandatory and with notice before moving on.

Shows like the Dragon’s den on BBC and CBC, Shark tank in USA, show how entrepreneur start ups can be helped with very little money invested, with big returns and flexible contracts offered depending on the likelihood of success, so it is inevitable that sites like “Upstart” would do the same.

The contracts wouldn’t be able to take your first born or your inheritance … although it might seem like it over time. The legal advice would consist of looking over the contract to ensure you aren’t screwing yourself before you sign it, and ensuring there is an exit point, no?

How is this different from a parent investing in their child with the expectation that the child will take care of them in old age and extend help to siblings.

In most developing countries this is the model in play. There is no social safety net nor is there a viable student loan program. The family is the source of funding with the quid quo pro expectation of the individual extending help to others within the family circle.

This was my fathers experience. My grand parents invested heavily in his education, and he over the years as served as a source of help to his parents, siblings, cousins, nieces and nephews. Its a great burden (tax) no doubt, but the collective success of the greater family is the light at the end of the tunnel. Luckily for us its worked out well. In 2 generations we’ve moved from a hamlet in an African village to professional careers all over the world.

These startups remove the need for familial connections to make it work. I am all for it!

No it isn’t…

First, it isn’t clear whether you are talking high school or college, but if you want to have a dramatic effect like that then you need to begin EARLY. You can’t simply take an illiterate teenager and plop them into Philips Andover and expect miracles (though I know a wealthy violent sadist who did well there, so perhaps they can work miracles?).

Secondly, while surveys suggest that the median college graduate earns $20k/year more than the median high school graduate, those surveys make no attempt to adjust for confounding factors (which surely abound). Nor do they separate out those who went beyond a bachelor’s degree to earn that extra money.

On the individual level, it isn’t clear that education pays for itself. It especially isn’t clear that elite private schools ($30k x 13 + $50k x 4 = $600k) pay for themselves. Financing on that $600k, whether debt or equity, would eat up any possible gain.

The equation is a bit different at the societal level, as the quality of the workforce shapes the jobs that are created. But even there, I think we could do a bang-up job of education for a lot less than $30k/year.

It would have the added benefit of more closely aligning a community’s interests with that of local youth. An equity stake, even if small, might drive education and community reforms. Thus improving the life chances of individuals and furthering the propensity for communities to act in ways that are forward looking.

http://www.amazon.com/Unincorporated-Man -Sci-Essential-Books/dp/0765318997

1.) The 13th amendment. Owning someone entirely is definitely unlawful. Is owning a partial share in an aspect of someone similarly unlawful? I’m not sure there is any case law on this question, though it’s an interesting one.

2.) Conscionability. Even if it passes 13th amendment muster, a court could invalidate such a contract as unconscionable. Here, there are some clearer guidelines. The main aspect that would make such a contract unconscionable to me is the fact that unless a buyout is built in, the seller is stuck in a contract with the legal entity for the rest of their life, no matter what.

3.) Bankruptcy. Supposing it passes 13th amendment and conscionability review, the biggest hurdle is bankruptcy law. Is this considered a debt for the purposes of bankruptcy? I think it has to, if a court is to enforce its provisions. If it’s not a debt, it’s hard to see under what structure a court would enforce it. But if it is a debt, getting out of it via bankruptcy is a huge problem. If you declare chapter 7, your debts are wiped out fully. In chapter 11, the maximum period you can be forced to make payments is 5 years. I suppose they can build the risk premium of bankruptcy into the amount you get, but it still seems like a big risk, especially when the recipient almost by definition has little other attachable collateral at the start of the contract.

One of Felix’s most often repeated themes is that the world needs less debt and more equity. There are times when people need huge assets upfront… like to finance a top notch ivy league education, to buy a home, start a business.

Lets assume that some poor white trash has somehow gotten into a great private school. The education is 200,000 and that lifetime earnings are going to increase by 1MM. That’s a pretty reasonable current estimate. The cost of the 200k education eats up 20% of all future earnings gains… and that’s pre-financing! Slap a 6% rate on there (which I think will be roughly the average rate on federal loans next year) and you’ve just spent half the difference in average future earnings!

Use equity rather than debt and 99% of society would get a massive brake because the VC’s would be banking on that 1 Steve Jobs to cover all the losses. That’s the model venture cap is based on.

And really, if your Steve Jobs do you really care if you have to fork over a billion dollars to Kleiner Perkins? You’d still have several billion other dollars left over and your still Steve Jobs!

I agree with Felix that people equity will pretty much never happen but it’s right up there with getting past the QWERTY keyboard in terms of making fantastic sence!