This article was written by Geoff Mulgan, Chief Executive for Nesta. For more like this, see our government innovation newsfeed.
Understanding public value is pretty vital if you care about what governments do.
Unfortunately, the available methods remain crude. Indeed until the 1990s, international accounting conventions assumed that public sector productivity never improved: the value of public provision was assumed to be equal to its cost.
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This approach is not hard to criticise and reflects the limitations of mainstream economics which struggles to capture externalities and social benefits.
But over the last twenty years, serious attention has turned to finding better alternatives. Public bodies like the BBC commissioned detailed studies of the public value they were creating back in the 2000s, and for a time the Cabinet Office promoted new methods of assessing public value.
There’s been a parallel push in civil society, mainly driven by funders wanting better measures of social impact and social returns; better measures for the impact in “impact investment”; and better ways to compare the results of spending in different fields. A plethora of organisations have been set up to help map and measure value and impact, and — like GIIN, to establish some common standards for fields like clean energy or healthcare. Others offer to measure social value.
At least four distinct communities have been having very similar discussions about value, though with surprisingly little cross-pollination: statisticians attempting to measure well-being and outcomes of all kinds (for example brought together in the OECD Better Life Index); economists applying measurement tools to new fields, such as carbon and natural capital; philanthropists and NGOs interested in impact investment; and activists using new measures as a tool for social change (for example measuring or revealing carbon footprints or social neglect).
Not too far from these, there has also been an explosion of methods for measuring intangibles — the value of ideas, knowledge, creativity — many of which Nesta has been closely involved in. Some measure innovation spending and the value it creates; others measure the inputs and outputs of the creative economy.
Better metrics do not by themselves deliver better outcomes.
You can’t fatten a pig by weighing it. But if you don’t have some means of weighing it, you may find yourself unable to persuade others that it’s as fat as you believe.
Many methods try to put a price on value. The idea that the value to be gained from a new training programme can be directly compared with the value from a health screening programme or water conservation is immediately appealing to busy bureaucrats and ministers who have to justify spending money on one area over another, as it is to foundations.
So how can this be done?
Traditional economic valuation methods usually draw either on what people say they would pay for a service or outcome (“stated preference”) or on the choices people have made in related fields (“revealed preference”).
These methods also try to adjust the estimated benefits of public services for quality of outcomes – for example comparing school exam results, or the success of operations.
Value can be mapped and measured — but not usually monetised
Decision-making becomes a lot easier if any option can be turned into a comparable number, and there have been many attempts to create such tools. Governments would love to be able to use a single metric to compare spending on a scheme for housing the homeless, primary education, bridges and defence, though none have come even remotely close to having such a tool.
Other attempts include Cost Benefit Analysis (widely used in infrastructures, but very problematic elsewhere), and, in the social sector, SROIs (social return on investment), and more recently Y Analytics and the IMM, a single number now being promoted to adjust company valuations to take account of all their impacts.
Methods, not calculators
These attempts are all well-intentioned. But paying too much attention to monetary equivalence can easily lead to bad decisions.
Why is this? Some of the reasons involve principle (the plurality of approaches to valuation in different fields or spheres – all of us intuitively apply different approaches to, say, looking after children or buying furniture).
Some reasons fall on the boundaries of theory and practice (such as what discount rates to apply to different activities); and some are reasons of practicality (the experience that different methods used to assess value can generate wildly different numbers, and often miss out what people turn out to value most (because people may not be willing to countenance trading off the things they care about most).
So instead of focusing on the search for single numbers it’s better to map, measure and explore. That’s what we have done at Nesta over the last few years, looking in detail at value in fields ranging from healthcare to the arts. We have shown that value can be mapped and measured — but not usually monetised.
The best methods feed into better quality discussions, negotiations and decisions rather than offering a calculator that can substitute for them. They also often useful disaggregation rather than trying to aggregate everything into a single metric.
Our aim has been to give a sense of what that means in practice.
Everyone can agree on the limits of traditional measures of value or of GDP. That’s the easy bit. The interesting work starts when you try to put alternatives into practice.
We go more in depth with how we tackle these questions in our new report, Public Value: How can it be measured, managed and grown? — Geoff Mulgan
(Photo credit: Death to the stock photo)