Photo by Greg Rakozy

How Do We Create A New System of Value?

Just published is the latest Blueprint from r3.0 an organisation that “promotes Redesign for Resilience and Regeneration.” As “a global common good not-for-profit platform, r3.0 crowdsources open recommendations for necessary transformations across diverse fields and sectors, in response to the ecological and social collapses humanity is experiencing, in order to achieve a thriving, regenerative and distributive economy and society”.

Broadly speaking the aims and objectives of the organisation are aligned to those of the Enlightened Enterprise Academy which advocates the idea enterprise in all forms and all sectors should be driven by the goal of achieving sustainable widely shared prosperity measured in terms of human flourishing and wellbeing — what Aristotle called eudaimonia.

The Blueprint just published is the result of efforts by a working group of which I was a part. Called “Value Cycles” it argues, “Humanity is currently confronting a value crisis: in order to prop up a perpetual increase of financial value, we are degenerating the very social and ecological resources that undergird the intrinsic value of living. Therefore, we must create a new system of value — one predicated on continually regenerating the social and ecological resources that are vital to the wellbeing of all living beings, in the spirit of interconnectedness”.

This statement is in line with my argument that our current economic systems are primarily driven by a focus on value extraction — rent seeking as economists call it — rather than value creation. I have therefore argued for an evolution of our systems, including capitalism as the dominant economic model.

The evolution I think we should seek I have named Valueism. The focus of it is sustainable widely shared prosperity measured in terms of human flourishing and wellbeing.

The Blueprint goes on to call for System Value Cycles, a synthesis of notions of System Value and Value Cycles, to “displace the current regime of social and ecological value extraction to support financial value concentration, with an approach that dynamically balances the creation of value across all systems — ecological, social, and economic”.

It goes on to argue, “to make this System Value creation durably flourishing, we must shift from the linear and even circular notions of value creation, and instead embrace cyclical and spiral value creation structures, which mimic how natural living systems function”.

Again, this is consistent with my repeated arguments, that we need to understand that our societies depend on interconnected and interdependent systems-of-systems. But, importantly, the systems are also very different in scale, type, nature, and importance in the overall scheme of things. For this reason, I question the generalisation implicit in r3.0’s statement, that we “embrace cyclical and spiral value creation structures, which mimic how natural living systems function.”

In my view, not all our systems mimic how natural living systems function, and those that do are likely to do so in such different ways that the generalisation is unhelpful.

Interestingly “the Blueprint kicks off by distilling down the most fundamental definition of value”. It argues, “in order to actualize value in the real world, we must align what is with what ought to be”. Then it acknowledges, “while definitions of value may differ at the individual level, at the collective level, sustainability is a universal baseline of value — the minimum bar of what’s fit, desirable, and possible.” And it talks about sustainability in term of the “capacity thresholds” of vital resources (natural, social, human, etc.).

“In Chapter 2, the Blueprint traces an evolutionary trajectory from Shareholder Value to Shared Value to Valueism. It then pauses to consider the confounding question of Valuation to set the foundation for identifying the shortcomings of Impact Valuation — namely, that it considers impacts across diverse capital resources (natural, social, human, etc.) to be interchangeable, and it fails to account for the carrying capacity thresholds of these vital capitals resources”.

Then it moves on to “address these shortcomings” and proposes “the next developmental evolution to System Value, which inherently accounts for Intrinsic Value”. And the chapter ends by “asserting the need to shift to conceive of Economies as Ecosystems, which would enable the actualization of System Value in a Regenerative and Distributive Economy”.

It is the points raised in the last two paragraphs that I will try to focus on in this article.

So, Chapter 2 on Value begins by noting, we have shrunk our notion of value “into the strict confines of neoclassical capitalistic financialization, shoehorning into our consciousness what was previously a much more expansive understanding of what’s fit and desirable and possible. The irony, as Mariana Mazzucato’s epigraph [The Value of Everything] points out, is that we have essentially turned the definition of value on its head, mistaking value extraction for value creation”.

It goes on to say, “This, of course, has resulted in catastrophic consequences, as we are incentivizing ourselves to hold the very suicidal gun to our own heads with the expectation of positive results: “progress.” It then states, “We identify different definitions of value that are vying for primacy”, and lays out a case for navigating from Shareholder Value and Shared Value and Valueism to the more holistic and regenerative notion of System Value, in r3.0’s own vie for primacy.

On Shareholder Value the report says, “shareholder primacy is far from being fit and desirable in any kind of universal sense. The fact that the minority for whom shareholder primacy is fit and desirable have convinced the rest of us that it is also fit and desirable for us, even though it does not benefit us (and in fact harms us), is perhaps history’s greatest sleight-of-hand”.

On the concept of Shared Value the report says, “In sum, Porter’s [Michael Porter] Value Chain and Creating Shared Value approach represent a deeply engrained understanding of a throughput economy, and cannot solve existing overarching economic model shortcomings by adding additional efficiency or curing elements. In that context their 2011 claim that Creating Shared Value ‘has the power to unleash the next wave of global growth and to redefine capitalism’ looks shallow and unrealistic. A complete rethink of economic theory is necessary, sub-optimization within an existing exploitative system is just curing symptoms but won’t solve the root causes of our economic system failure”.

Section three of chapter two introduced Valueism and correctly quotes me as saying, “I have been making the case for Valueism, which I refer to as the next evolution of capitalism. The aim is to get business focused on the creation of real value once again. And I define value broadly, not only on monetary terms. The terms I use to define value relate to the generation of lasting, widely shared prosperity, where prosperity means well-being and human flourishing.”

It continues to quote me as saying, “the vast majority of people know that the current form of capitalism, based on the discredited ideas of neo-liberal economists, is broken. But it is equally clear that the change we need requires radical new thinking and practices in three areas: economics, accounting, and management. These changes must also be made simultaneously. A huge challenge, but I believe there is an appetite for it in each discipline. And we can achieve the necessary changes if each ‘profession’ shares a common purpose”.

Then I am quoted introducing another concept, “To be of any real use financial accounting needs to be supplemented by what I call ‘social contract accounting’. The concept of social contract accounting can apply equally at the society level to replace GDP, in addition to being a means of measuring the performance of organisations of all types and in all sectors, including the public sector, government and non-profit sectors. That is because it does not focus only on monetary value”.

The above is all fair and accurate. But then they refer to my comments on the Johnson & Johnson Credo, as an example of a social contract upon which a new accounting regime could be based. They acknowledge that I did qualify this suggestion with my caveat, “that is not to say the firm has had no problems over its history, but the credo led to decisions that got it back on track when it needed to”.

The report then dismiss the potential value of a Johnson & Johnson like credo as an early prototype for the ideas of social contract accounting saying, “This caveat may not carry much truck with the opioid addicts to whom the company was held accountable (to the tune of $572 million) for how it “intentionally played down the dangers and oversold the benefits of opioids.”

In my view this is an unacceptably flippant and mistaken dismissal of the idea, particularly as the report authors are fully aware that the Johnson and Johnson Credo is only a two-page statement of commitments, not a fully developed methodology and system of accounting, which is what social contract accounting will be.

After their flippant dismissal they say, “this raises the question of just how social contract accounting measures value.” But it does not, because there is no mention in the above of how social contract accounting would measure value.

The report goes on to say the approach they propose instead “calls for setting clear thresholds predicated on duties and obligations owed to rightsholders”. And “in the opioid case, Johnson & Johnson’s customers have a clear right to be free from the “exponentially increasing rates of addiction, overdose deaths” and babies born exposed to opioids caused by the company’s “false, misleading, and dangerous marketing campaigns,” according to the court decision.”

It then adds, “in other words, the threshold in this instance would be zero addiction, overdose deaths, and babies born exposed to opioids, which would require the company to refrain completely from false, misleading and dangerous marketing campaigns”. They then note that I am “skeptical of a thresholds-based approach”.

They quote me as saying, ““thresholds”, whether environmental or social, are less valuable than the idea of a new theory of value that is based on flourishing / thriving. They perhaps represent ‘sustainability’ but that is far from adequate in my view… I define prosperity as human flourishing and wellbeing for this and future generations (which goes far beyond sustainability or regeneration, which are just necessary steps on the journey and a necessary condition for the ultimate goal). So, I am referring to eudaimonia. In practical terms, I think much work has been done to create many measures of sustainability. Also measures of Human development and even happiness. But they would all be more useful with a widely understood and shared “theory of value” that extends beyond economic value.”

These remain my views. Whilst I fully accept that sustainability might be based on a thresholds-based approach, and I also support regeneration, I am adamant that neither are sufficient to achieve prosperity defined as human flourishing and wellbeing which should be the ultimate goal.

In defence of their own thinking they note, another member of the Working Group that generated this report, Mark McElroy, “turned the tables on this formulation [of the idea of human flourishing being the goal to strive for] by pointing out “it is possible to achieve human flourishing in ways that are unsustainable.” He went on to argue, “viewed from this perspective, sustainability is the primary priority, with flourishing / thriving as a secondary objective.”

In response, I totally reject this argument against Valueism. It ignores the fact “I define value broadly, not only on monetary terms. The terms I use to define value relate to the generation of lasting, widely shared prosperity, where prosperity means well-being and human flourishing,” as the report itself quotes in the first paragraph introducing Valueism.

To McElroy’s point is that flourishing / thriving is a secondary objective. Of course they are. But they are also the ultimate goals we should be striving for. And to focus only on sustainability based on thresholds, would be a very sub-optimal outcome.

As a result of their thinking on the topic of value, the report recommendations state, “This Blueprint identifies shortcomings of the major value schemes and regimes that currently hold sway, including Shareholder Value and Shared Value, as well as emerging concepts such as Valueism and Impact Valuation. All of these approaches fall short because they fail to identify the dividing line between what’s sustainable and what’s not. Therefore, regardless of how strong and valid the concepts are otherwise, they simply cannot create lasting solutions (except by pure accident) unless they consciously and purposely embrace an approach the integrates the thresholds that define sustainability”.

In response I can say that Valueism will most certainly “identify the dividing line between what’s sustainable and what’s not”, as part of ensuring that widely shared prosperity is sustainable. It will be a lasting solution, and not by accident. But Valueism is not going to be satisfied with only achieving and maintaining thresholds.

The ambition needs to be far greater if we are ever to realise an objective almost every nation in the world signed up to more than seventy years ago, when the right to a life of dignity was made the first article in the United Nations Declaration of Human Rights. And beyond being able to live a dignified life, everyone should also be able able to expect the opportunity to achieve greater levels of wellbeing and flourish.

Various commitments have been made and broken already: that we would end hunger and poverty; The Millennium Development Goals; the Sustainable Development Goals. These plans, focused on only achieving thresholds have been, or will be, broken. They all share one thing in common. They were, or are, driven by the aim of meeting minimum thresholds in order to solve a problem.

In my view we should be approaching the challenges as problems to be solved. We should view them as obstacles to be overcome, or milestones to be reached, on the path to realising the great opportunity of humanity’s full potential.

Building up to the argument the report authors make, for a focus on Value Cycles, they state, “this Blueprint advances the thesis that lasting value for all is created cyclically and systemically”. They speak of “how systems actually create, destroy, and recycle value ongoingly.” To me this makes a great deal of sense.

They go on to say, “to make this System Value creation durably flourishing, we must shift from the linear and even circular notions of value creation, and instead embrace cyclical and spiral value creation structures, which mimic how natural living systems function”. This comment, I find problematic for reasons already stated. I repeat, I do not believe all our systems of value creation mimic how natural living systems function. Additionally, I do not think all are cyclical or spiral either.

In sum, whilst I agree systems thinking is absolutely vital in understanding how the systems we depend on to achieve sustainable widely shared prosperity are absolutely essential, I do not think we should embrace cyclical and spiral value creation structures, which mimic how natural living systems function. We should not focus on Value Cycles, but in Value Systems. And, before we start designing and re-designing our systems, we most certainly need a 21st Century Theory of Value to guide us.

The 21st Century Theory of Value needs to be based on a deep understanding of our values. It should also inform our understanding of how we can achieve sustainable widely shared prosperity. It is for these reasons the Enlightened Enterprise Academy will soon launch three major multi-disciplinary Inquiries, to run simultaneously.

The first inquiry will seek to establish a “21st Century Theory of Moral Sentiments”, to articulate the values. Its findings will inform the second inquiry, a “21st Century Theory of Value”. And the third will be “An Inquiry into the Nature and Causes of the Prosperity of Nations”. The references to Adam Smith’s works are deliberate, for reasons I have explained in detail elsewhere. And more details about these inquiries can be found on the academy website.

To conclude, I was pleased to take part in the working group that produced this report but could have been happier with the outcome had a few things about Valueism not been misunderstood and misconstrued. That said, I know that r3.0 are keen to achieve very similar objectives as the Enlightened Enterprise Academy.

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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.