Archive for September, 2018

New Ideas on How to Realize the Purpose of Capital

September 20, 2018

I’d like to offer the following in reply to James Militzer, at https://nextbillion.net/deciphering-emersons-tears-time-impact-investing-lower-expectations/.

Rapid advances toward impact investing’s highest goals of social transformation are underway in quiet technical work being done in places no one is looking. That work shares Jed Emerson’s sentiments expressed at the 2017 Social Capital Markets conference, as he is quoted in Militzer’s NextBillion.net posting, that “The purpose of capital is to advance a more progressively free and just experience of life for all.” And he is correct in what Militzer reported he said the year before, that we need a “real, profound critique of current practices within financial capitalism,” one that would “require real change in our own behavior aside from adding a few funds to our portfolios here or augmenting a reporting process there.”

But the efforts he and others are making toward fulfilling that purpose and articulating that critique are incomplete, insufficient, and inadequate. Why? How? Language is the crux of the matter, and the issues involved are complex and technical. The challenge, which may initially seem simplistic or naive, is how to bring human, social, and environmental values into words. Not just any words, but meaningful words in a common language. What is most challenging is that this language, like any everyday language, has to span the range from abstract theoretical ideals to concrete local improvisations.

That means it cannot be like our current languages for expressing human, social, and environmental value. If we are going to succeed in aligning those forms of value with financial value, we have a lot of work to do.

Though there is endless talk of metrics for managing sustainable impacts, and though the importance of these metrics for making sustainability manageable is also a topic of infinite discussion, almost no one takes the trouble to seek out and implement the state of the art in measurement science. This is a crucial way, perhaps the most essential way, in which we need to criticize current practices within financial capitalism and change our behaviors. Oddly, almost no one seems to have thought of that.

That is, one of the most universally unexamined assumptions of our culture is that numbers automatically stand for quantities. People who analyze numeric data are called quants, and all numeric data analysis is referred to as quantitative. That is the case, but almost none of these quants and quantitative methods involve actually defining, modeling, identifying, evaluating, or applying an substantive unit of something real in the world that can be meaningfully represented by numbers.

There is, of course, an extensive and longstanding literature on exactly this science of measurement. It has been a topic of research, philosophy, and practical applications for at least 90 years, going back to the work of Thurstone at the University of Chicago in the 1920s. That work continued at the University of Chicago with Rasch’s visit there in 1960, with Wright’s adoption and expansion of Rasch’s theory and methods, and with the further work done by Wright’s students and colleagues in the years since.

Most importantly, over the last ten years, metrologists, the physicists and engineers who maintain and improve the SI units, the metric system, have taken note of what’s been going on in research and practice involving the approaches to measurement developed by Rasch, Wright, and their students and colleagues (for just two of many articles in this area, see here and here). The most recent developments in this new metrology include

(a) initiatives at national metrology institutes globally (Sweden and the UK, Portugal, Ukraine, among others) to investigate potentials for a new class of unit standards;

(b) a special session on this topic at the International Measurement Confederation (IMEKO) World Congress in Belfast on 5 September 2018;

(c) the Journal of Physics Conference Series proceedings of the 2016 IMEKO Joint Symposium hosted by Mark Wilson and myself at UC Berkeley;

(d) the publication of a 2017 book on Ben Wright edited by Mark Wilson and myself in Springer’s Series on Measurement Science and Technology; and

(e) the forthcoming October 2018 special issue of Elsevier’s Measurement journal edited by Wilson and myself, and a second one currently in development.

There are profound differences between today’s assumptions about measurement and how a meaningful art and science of precision measurement proceeds. What passes for measurement in today’s sustainability economics and accounting are counts, percentages, and ratings. These merely numeric metrics do not stand for anything that adds up the way they do. In fact, it’s been repeatedly demonstrated over many years that these kinds of metrics measure in a unit that changes size depending on who or what is measured, who is measuring, and what tool is used to measure. What makes matters even worse is that the numbers are usually taken to be perfectly precise, as uncertainty ranges, error terms, and confidence intervals are only sporadically provided and are usually omitted.

Measurement is not primarily a matter of data analysis. Measurement requires calibrated instruments that can be read as standing for a given amount of something that stays the same, within the uncertainty range, no matter who is measuring, no matter what or who is measured, and no matter what tool is used. This is, of course, quite an accomplishment when it can be achieved, but it is not impossible and has been put to use in large scale practical ways for several decades (for instance, see here, here, and here). Universally accessible instruments calibrated to common unit standards are what make society in general, and markets in particular, efficient in the way of projecting distributed network effects, turning communities into massively parallel stochastic computers (as W. Brian Arthur put it on p. 6 of his 2014 book, Complexity Economics).

These are not unexamined assumptions or overly ideal theoretical demands. They are pragmatic ways of adapting to emergent patterns in various kinds of data that have repeatedly been showing themselves around the world for decades. Our task is to literally capitalize on these nonhuman forms of life by creating multilevel, complex ecosystems of relationships with them, letting them be what they are in ways that also let us represent ourselves to each other. (Emerson quotes Bruno Latour to this effect on page 136 in his new book, The Purpose of Capital; those familiar with my work will know I’ve been reading and citing Latour since the early 1980s).

So it seems to me that, however well-intentioned those promoting impact investing may be, there is little awareness of just how profound and sweeping the critique of current practices needs to be, or of just how much our own behaviors are going to have to change. There are, however, truly significant reasons to be optimistic and hopeful. The technical work being done in measurement and metrology points toward possibilities for extending everyday language into a pragmatic idealism that does not require caving in to either varying local circumstances or to authoritarian dictates.

The upside of the situation is that, as so often happens in the course of human history, this critique and the associated changes are likely to have that peculiar quality captured in the French expression, “plus ça change, plus c’est la même chose” (the more things change, the more they stay the same). The changes in process are transformative, but will also be recognizable repetitions of human scale patterns.

In sum, what we are doing is tuning the instruments of the human, social, and environmental sciences to better harmonize relationships. Just as jazz, folk, and world music show that creative improvisation is not constrained by–but is facilitated by–tuning standards and high tech solutions, so, too, can we make that the case in other areas.

For instance, in my presentation at the IMEKO World Congress in Belfast on 5 September, I showed that the integration of beauty and meaning we have within our grasp reiterates principles that date back to Plato. The aesthetics complement the mathematics, with variations on the same equations being traceable from the Pythagorean theorem to Newton’s laws to Rasch’s models for measurement (see, for instance, Fisher & Stenner, 2013). In many ways, the history of science and philosophy continues to be a footnote to Plato.

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LivingCapitalMetrics Blog by William P. Fisher, Jr., Ph.D. is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
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Current events in metrology for fun, profitable, and self-sustaining sustainability impacts

September 18, 2018

At the main event I attended last week at the Global Climate Action Summit in San Francisco, the #giveyouthachance philanthropic gathering at the Aquarium of the Bay, multiple people independently spoke to aligning social and environmental values with financial values, and explicitly stated that economic growth does not automatically entail environmental degradation.

As my new buddy David Traub (introduced as a consequence of the New Algorithm event in Stockholm in June with Angelica Lips da Cruz) was the MC, he put me on the program at the last minute, and gave me five minutes to speak my piece in a room of 30 people or so. A great point of departure was opened up when Carin Winter of MissionBe.org spoke to her work in mindfulness education and led a guided meditation. So I conveyed the fact that the effects of mindfulness practice are rigorously measurable, and followed that up with the analogy from music (tuning instruments to harmonize relationships),  with the argument against merely shouldering the burden of costs because it is the right thing to do, with the counter-argument for creating efficient competitive markets for sustainable impacts, and with info on the previous week’s special session on social and psychological metrology at IMEKO in Belfast. It appeared that the message of metrology as a means for making sustainability self-sustaining, fun, and profitable got through!

Next up: Unify.Earth has developed their own new iteration on blockchain, which will be announced Monday, 24 September, at the UN SDG Media Center (also see here) during the World Economic Forum’s Sustainable Development Impact Summit. The UEX (Unify Earth Exchange) fills the gap for human capital stocks left by the Universal Commons‘ exclusive focus on social and natural capital.

So I’ve decided to go to NY and have booked my travel.

Back in February, Angelica Lips da Cruz recounted saying six months before that it would take two years to get to where we were at that time. Now another seven months have passed and I am starting to feel that the acceleration is approaching Mach 1! At this rate, it’ll be the speed of light in the next six months….

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LivingCapitalMetrics Blog by William P. Fisher, Jr., Ph.D. is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at livingcapitalmetrics.wordpress.com.
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A Yet Simpler Take on Making Sustainability Self-Sustaining

September 1, 2018

The point of focusing on sustainability is to balance human interests with a long term view of life on earth. Depleting resources as though they will be always available plainly is no way to plan for a safe and pleasant future. But it seems to me something is missing in the way we approach sustainability. Every time I see any efforts aimed at rebalancing resource usage with a long term view of the Earth’s capacity to support us, what do I see? I see solutions that cost a lot, and people saying that the costs are the price we have to pay for the mistakes that have been made, and for a viable future. And so I also see a lot of procrastination, delays, and reluctance to commit to sustainable policies and practices.

Why? Because, first, there are a great many people who cannot afford to live in the world as it is, right now, simply bearing their existing day-to-day costs. Even in the richest countries, huge proportions of people live hand to mouth, or very nearly so. Second, it’s hard to detect and punish freeloaders. Many people, companies, and governments are willing to hold off committing to sustainability in the hope that some technological fix will come along and spare them avoidable costs.

So, my question is, and I do not say this at all in jest or with any sense of irony or sarcasm: how do we make sustainability fun and profitable? How can we make sustainability economically self-sustaining? How can we make sustainability into a growth industry?

My answer to those questions is, by improving the quality of information on sustainability impacts. What does that mean? Why should that have anything to do with making sustainability fun and profitable? What improving the quality of information on sustainability impacts means is measuring it well, using methods and models that have been used in research and practice for more than 90 years. What we need is a Human, Social, and Natural Capital Metric System. or an International System of Units for Human, Social, and Natural Capital.

As we all know from the existing SI (metric system) units, high quality information makes it much easier to communicate value. Easier communication means lower transaction costs, and lower transaction costs mean that it becomes very inexpensive to find out how much of a sustainability impact is available, and what quality it is. High quality information enables grassroots bottom up efforts coordinating the decisions and behaviors of everyone everywhere. Managers would be able to dramatically improve quality in domains of human, social, and environmental value the way they do now for manufactured value. And investors would be able to reward innovation in those areas in ways they currently cannot.

For instance, with high quality sustainability impact measures, you’d be able to buy shares of stock in a new global carbon reduction effort that realistically projects it is on track to reverse climate change back its 1980 status. If someone came out with a better carbon reduction product that would make it possible to get the job done faster or at lower cost, we would have the information we need to quickly shift the flow of resources to the better product.

Speaking to other components of the UN’s Sustainability Development Goals, maybe people need to wonder why they cannot go buy 250 units of additional literacy right now? Why can’t you get a good price on a specific amount of literacy gain for your ten-year-old child from a few minutes of competitive shopping? And while you’re at it, maybe you could catch a special sale on 470 units of improved physical functionality for your great aunt who just had a hip replacement. Oh, she doesn’t need it because she’s got herself listed in a health capital investment bond likely to pay a 6% return? Well, maybe you should sink some funds into one of those contracts!

To take up the SDG 16.1 issue, if efforts to reduce armed violence were measured with the same level of information quality as kilowatt hours, that form of social capital product would be available in market transactions just the same way manufactured capital products like electricity are now. Conversely, your personal efforts at reducing armed violence, or improving someone’s literacy, or helping your great aunt with gains in physical functionality—all of these are investments of your skills and abilities that will pay back cash value to you. And because having fun with the kids, and getting out for recreational activities, are healthful things to do, enjoyment also should pay dividends.

Maybe this focus on fun and profit in making sustainability economically self-sustaining might finally find some traction for efforts in this area. Sustainability commerce could be a way of talking about these issues that will speak to matters more directly and practically. We’ll see how that works out as I try it on people in the near future.

 

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LivingCapitalMetrics Blog by William P. Fisher, Jr., Ph.D. is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at livingcapitalmetrics.wordpress.com.
Permissions beyond the scope of this license may be available at http://www.livingcapitalmetrics.com.