Photo by Evangeline Shaw

How Can Value Be Collectively Determined?

Mariana Mazzucato wrote the article, “Who Really Creates Value in an Economy?” for Project Syndicate. In it she rightly points out the issue is not just who creates it, but who defines what it is. And she argues value must be “determined collectively, by business, workers, strategic public institutions, and civil-society organizations”. But how?

For some it has been argued capitalism must evolve beyond neoliberalism, but this will not happen by piecemeal changes designed to fix a broken system. That approach will be no more effective than ‘applying bandages to a cancer’ or ‘putting lipstick on a pig’.

Financial Times columnist Martin Wolf’s in an article examined, “Why so little has changed since the financial crash”. He, Like Mariana, says, “policymakers have barely questioned the relative roles of government and markets”, but he puts this “complacency” down to the lack of an “all-embracing new ideology”, not a lack of good new ideas.

To address the “but how?” question an all-embracing new ideology needs to be developed, but it also needs a name, so others can contribute to its development and start to practice it. Valueism is a possible name. It means business or capitalism focused on value creation, not the extraction of it.

Valueism proposes the adoption of a broad definition of value, to include both financial and non-financial and tangible and intangible value. As Muzzucato suggests, it must also be viewed through the eyes of all stakeholders.

The definition and the way Valueism is practiced must also properly account for costs, rather than allow them to be externalised to other players, including society. In short it requires a 21st century Theory of Value.

We have seen the proliferation of attempts to account for non-financial value and true costs. They include new reporting frameworks and mechanisms such as the carbon tax schemes. But they do not yet provide a means by which value or costs can be properly determined and accounted for, either collectively or by a specific business or organisation.

Given the snail’s pace speed with which the accounting profession is addressing these issues, we are unlikely to see any solution in the foreseeable future.

Valueism offers the seeds of a more radical and practical alternative. It proposes each organisation be required to articulate what value it creates, for who, and how. This should not be too difficult. It is a requirement in the 2018 UK Corporate Governance Code published in July.

To make this worthwhile for all stakeholders the information could be articulated in the form of a Social Contract, with all the non-financial accounting frameworks and data consolidated and published according to a Social Contract Accounting code, or a new accounting standard to supplement and support the standard financial accounts.

This may seem like a very radical idea but, back in 1943, Robert Wood Johnson produced what is known as the Johnson and Johnson Credo.

Instead of Credo it could have been called its Social Contract. It outlines what value the firm creates, for who, and how. It refers to all stakeholders and it refers to financial and non-financial value.

The Social Contract and related accounts also suggests the firm is happy to be held to account by reference to the code.

We could use the J&J credo concept as the starting point — an early prototype — for developing the Social Contract and Social Contract Accounting for businesses and organisations.

Contributors to the Social Contract Concept

The Social Contract is a familiar concept, but an ill-defined one when it comes to the contract between a business or organisation and society. Still, most observers would agree there is plenty of evidence the contract is broken. Desperately poor levels of trust in business, and most institutions, are good indicators.

By revisiting and properly defining what the concept means in relation to businesses and organisations, and how it should be applied, we would be taking steps to restore confidence. But for the effect to be transformational it would need to be supported by an accountability framework.

With such a framework we may then get more clarity about who really creates value in the economy, and ensure all stakeholders have a say in defining what value means. Each stakeholder would be better able to decide if the contract on offer were attractive or not, if it is well articulated.

Importantly, for a business to be sustainable in the long-run it would need to satisfy most of the stakeholders most of the time. Not to do so would be unwise and could risk the loss of the social contract i.e. the license to operate.

So, this addresses the “but how” question, and the Social Contract, Social Contract Accounting and Valueism concepts can offer an all-embracing alternative to Neoliberalism.

These concepts are currently being evolved with input from a wide range of experts from all sectors of the economy and will soon be available for further open source development. In time they will be made available as public goods and offered with guidance on their use.

The concepts will also assist in the governance and management of organisations of all types in all sectors, not only business, since all should remember they only exist for the purpose of creating value in some form.

As mentioned already, the changes required will amount to a “new theory of value” or “a 21st Century Theory of Value”. Again, this seems like a radical idea, but as Mariana Mazzucato describes very clearly in her book The Value of Everything, the theory of value offered by economists have evolved several times already.

We just need to ensure it evolves again, to be fit for our times and the future. But, for it to be fit for purpose, we cannot leave the task to one economist nor only to the economics discipline. The job must be approached in a multi-disciplinary way.

To bring the multi-disciplinary experts together and engage them in this process will require a compelling vision and a vision that is sufficiently motivating. With this in mind I propose a large scale and long-term research-led “Inquiry into the nature and causes of the prosperity of nations”.

Adam Smith

The title of the inquiry is a deliberate play on the full title of Adam Smith’s Wealth of Nations. I merely changed the word wealth for prosperity given the shift in connotations associated with the word wealth, usually taken to mean monetary wealth.

My proposal is that the inquiry be long-term because much of the value from it will be derived from the debate it stimulates, rather than the book that is published at the end.

More specifically, I propose a 7-year long project that concludes with the publication of the book on the 250th anniversary of the publication of the Wealth of Nations.

That said, let me say that I recognise the project will never really end completely. The definition of prosperity will always evolve over time, because it is a social construct and societies are dynamic in nature.

If you would to be involved in the inquiry or would like to contribute any thoughts email me: paul@thesmfglobal.com

Read more about Valueism in The Valueist and The Prosperity of Nations inquiry in in these Medium publications.

Read An Introduction to Valueism & Social Contract Accounting in an article I wrote for the London School of Economics

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Paul Barnett

Paul Barnett

Advocating the purpose of all enterprise should be contributions to sustainable widely shared prosperity measured in terms of human flourishing and wellbeing.