BERL Wānanga are designed for korero to confront and challenge the ‘business-as-usual’ mindset. In our 2019 Wānanga we aim to explore the way the market mechanism has entrenched a status quo set of values. We want to question and challenge the way we view value. This note puts down some starting pointers that we will tackle at our Wānanga. Register your interest to attend (below) or return to our website for a post-Wānanga update.
Market value or economic value – and why the difference is important
The definition of value is something that economists skirt around even though it is central to everything we do.
Trainee economists are taught that price is value and value is price. In other words, the price is what people are prepared to pay for something and hence it is the value they put on the item of interest.
However, for this to hold there are numerous tests (or assumptions) that need to be met. In particular, the consumer needs to be fully aware of all the costs associated with their purchase, and all these costs need to be embedded in the price that the consumer is paying (i.e. there are no external costs that the consumer avoids paying (e.g. pollution)). Further, the consumer is able to appropriately assess its quality in comparison to competitor products (e.g. an arts degree vs a commerce degree).
In contrast though, there is the sometime oft-heard refrain usually, but not solely, directed at the younger generation that many “know the price of everything, but the value of nothing”. This implies that value and price are quite different notions. However, only a small set of economists truly believe price and value are the same – we all know the market imperfections and failures result in a divergence.
For example, the market values financial market speculators extremely highly (as is reflected in their at times exorbitant pay rates). However, the market values artists differentially, but usually towards the lower end of the spectrum as is reflected by the need for philanthropy to support arts, culture, and heritage activities. And the market values home care workers at barely above the minimum wage. The respective value that communities and society place on these three groups of workers are unlikely to be so divergent. (Indeed, some might value home care workers at significant multiples above financial market speculators!)
Why is this important?
If market valuations are so incorrect in reflecting community and society values then we need some guidance or framework on values (or valuations) for decision-making processes (i.e. to decide what we are prepared to trade off). In the context of business and policy decisions (and economic analysis) it is important that we understand the varying perspectives on value.
The much-vaunted business case is a classic example. “I want a case that gives me value for money”, is code for “the case needs to prove that we’re going to get back more dollars than we put in”. Alternatively, there may be an explicit ROI (return on investment) or BCR (benefit-cost ratio) calculation. However, more often than not, there is likely to be an implicit acceptance of market valuations when building these business cases for investment or spending decisions. So, any policy or investment option that values home care workers based on their market wage is going to be severely disadvantaged against options that include financial market speculators.
Of course, few are calling for an economy with no carers/cleaners and lots of lawyers and accountants. However, that is the logical conclusion of calls for to “move up the value chain”, where ‘value’ is defined narrowly in terms of dollars generated in the market place.
In this context, a robust, comprehensive, and inclusive definition of the term value is needed. Interestingly, many organisations, corporates, government agencies, and others are keen to state their values on their website or corporate panui. Without being too cynical, some values are common to many organisations – e.g. integrity, honesty, innovation, creativity and the like. Other organisations may go further – e.g. success, leadership, manaakitanga, kaitiakitanga, kotahitanga, inclusivity. But, for all the effort some organisations put into agreeing their values, few make the connection between these values and the value of what they undertake.
Questions to tackle
- Would your organisation/managers/board be aware that a narrow ‘value for money’ perspective may be inconsistent with your organisation’s own objectives?
- In these conversations is ‘value’ automatically a metaphor for dollars?
- Which groups are excluded when restricting our concept of value to that of the market?
- Is government (central, local, agencies) aware that adopting the narrow ‘value for money’ perspective effectively demotes (or makes invisible) contributions of volunteers, carers, lower paid people, and those in lower-paid sectors?
- Is the concept of wellbeing useful in this conversation, or does it confuse? How would we incorporate the concept of contributing to wellbeing?
- What alternatives are there to ensure everybody’s contributions/value are properly reflected in decision making?
How we define value is central to the framework against which we assess the ‘worth’ of spending, or the ‘return’ we measure for investment options. If we continue to abide by the market valuations of people, resources, and efforts, then we will be unable to properly address challenges that the market has difficulty with.
This is not to deny the corner-stone of economics – the imperative to decide trade-offs in the face of constrained resources (or opportunities). But until we value trade-offs properly we will continue to advise or conclude incorrectly (for example, ceasing oil exploration will ‘cost’ the country billions of dollars; or lifting the minimum wage will ‘cost’ the country millions and millions of dollars; or we are unable to ‘afford’ quality childcare.
BERL Wānanga 2019
Value or values? Money or mana?
Tuesday 3 September 2019, Wellington
Should you wish to join the BERL team for lively kōrero with presentations from panellists
- Hon Julie Anne Genter, Minister for Women
- Traci Houpapa, Chair Federation of Māori Authorities
- Murray Edridge, Wellington City Missioner
Register your interest and complete a short survey here.