Archive for the ‘capitalism’ Category

A truly ambitious plan to tackle climate change 

December 3, 2015

A recent story in the NY Times asks just what a truly ambitious plan to tackle climate change would look like. Pledges of emissions cuts being made in Paris this month are projected to fall short of what is needed to solve the problem of climate change. Calls for mass mobilization on the scale of the U.S.’s entry into WWII are met with skepticism at the same time that leaders are signing on for stronger terms in the Paris agreement than their countries have agreed to.

One crucial assumption is made across the full range of the proposals for more stringent standards and innovative technologies. That assumption is that solving the problem of climate change is a matter of marshaling the will to get the job done. On the face of it, of course, it seems inane to consider something as important as will power to be part of the problem. If people don’t want to do something, how could it possibly ever get done?

But as I’ve pointed out in a number of previous posts in this blog, complex problems sometimes cannot be solved from within the conceptual framework that engendered them. We are in this situation in large part because our overall relation to the earth is based on assuming it to be a bottomless well of resources, with the only limitation being the creativity we bring to bear in tapping those resources. Though many of us, perhaps a majority, are seriously committed to reconceiving our relation to the earth in sustainable terms, practical results are nearly impossible to produce within the existing institutional framework. Our economic, legal, accounting, education, etc. systems are all set up to support a consumer ethos that hobbles and undercuts almost all efforts intended to support an alternative sustainability ethos. It is both ironic and counterproductive to formulate solutions to the problem of climate change without first changing the institutional background assumptions informing the rules, roles and responsibilities through which we conceptualize and implement those solutions.

Insight into this problem is provided by recent work on standards for sustainability accounting. It shows that, by definition, efforts targeting change in economic externalities like environmental concerns cannot be scaled up in ways that are needed. This happens simply because balancing mission and margin demands maintenance of the bottom line. Giving away the business in the name of saving the planet might be a noble gesture but it is the opposite of sustainable and more importantly does not provide a viable model for the future.

So how do we model a new kind of bottom line that balances mission and margin in a new way? A way in which institutional rules, roles and responsibilities are themselves configured into the sustainable ecological relations we need? A way in which means and ends are unified? How do we become the change we want to see? How can we mobilize an international mass movement focused on doing what needs to be done to solve the problem of climate change? What possibilities do we have for catalyzing the increasingly saturated solution of global discontent and desire for a new relation to the earth? Can natural social processes of leaderless self organizing systems be seeded and guided to fruition? What would that seeding and guidance look like?

For proposed answers to these questions and more on what a model of a truly ambitious plan to tackle climate change might look like, see other posts in this blog here, here, here, and here.

With Reich in spirit, but with a different sense of the problem and its solution

October 4, 2015

In today’s editorial in the San Francisco Chronicle, Robert Reich seeks some way of defining a solution to the pressing problems of how globalization and technological changes have made American workers less competitive. He rightly says that “reversing the scourge of widening inequality requires reversing the upward distributions [of income] within the rules of the market, and giving average people the bargaining power they need to get a larger share of the gains from growth.”

But Reich then says that the answer to this problem lies in politics, not economics. As I’ve pointed out before in this blog, focusing on marshaling political will is part of the problem, not part of the solution. Historically, politicians do not lead, they follow. As is demonstrated across events as diverse as the Arab Spring and the Preemption Act of 1841, mass movements of people have repeatedly demanded ways of cutting through the Gordian knots of injustice. And just as the political “leadership” across the Middle East and in the early U.S. dragged its feet, obstructed, and violently opposed change until it was already well underway, so, too, will that pattern repeat itself again in the current situation of inequitable income distribution.

The crux of the problem is that no one can give average people anything, not freedom (contra Dylan’s line in Blowin’ in the Wind about “allowing” people to be free) and certainly not a larger share of the gains from growth. As the old saying goes, you can lead a horse to water, but you can’t make it drink. People have to take what’s theirs. They have to want it, they have to struggle for it, and they have to pay for it, or they cannot own it and it will never be worth anything to them.

It is well known that a lack of individual property rights doomed communism and socialism because when everything is owned collectively by everyone, no one takes responsibility for it. The profit motive has the capacity to drive people to change things. The problem is not in profit itself. If birds and bees and trees and grasses did not profit from the sun, soil, and rain, there would be no life. The problem is in finding how to get a functional, self-sustaining economic ecology off the ground, not in unrealistically trying to manipulate and micromanage every detail.

The fundamental relevant characteristic of the profits being made today from intellectual property rights is that our individual rights to our own human and social capital are counter-productively restricted and undeveloped. How can it be that no one has any idea how much literacy or health capital they have, or what it is worth?! We have a metric system that tells us how much real estate and manufactured capital we own, and we can price it. But despite the well-established scientific facts of decades of measurement science research and practice, none of us can say, “I own x number of shares of stock in intellectual, literacy, or community capital, that have a value of x dollars in today’s market.” We desperately need an Intangible Assets Metric System, and the market rules, roles, and responsibilities that will make it impossible to make a profit while destroying human, social, and natural capital.

In this vein, what Reich gets absolutely correct is hidden inside his phrase, “within the rules of the market.” As I’ve so often repeated in this blog, capitalism is not inherently evil; it is, rather, unfinished. The real evil is in prolonging the time it takes to complete it. As was so eloquently stated by Miller and O’Leary (2007, p. 710):

“Markets are not spontaneously generated by the exchange activity of buyers and sellers. Rather, skilled actors produce institutional arrangements, the rules, roles and relationships that make market exchange possible. The institutions define the market, rather than the reverse.”

We have failed to set up the institutional arrangements needed to define human, social, and natural capital markets. The problem is that we cannot properly manage three of the four major forms of capital (human, social, and natural, with the fourth being manufactured/property) because we do not measure them in a common language built into scientifically, economically, legally and financially accountable titles, deeds, and other instruments.

And so, to repeat another one of my ad nauseum broken record nostrums, the problem is the problem. As long as we keep defining problems in the way we always have, as matters of marshalling political will, we will inadvertently find ourselves contributing more to prolonging tragic and needless human suffering, social discontent, and environmental degradation.

Miller, P., & O’Leary, T. (2007, October/November). Mediating instruments and making markets: Capital budgeting, science and the economy. Accounting, Organizations, and Society, 32(7-8), 701-734.

Living Capital Metrics for Financial and Sustainability Accounting Standards

May 1, 2015

I was very happy a few days ago to come across Jane Gleeson-White’s new book, Six Capitals, or Can Accountants Save the Planet? Rethinking Capitalism for the 21st Century. The special value for me in this book comes in the form of an accessible update on what’s been going on in the world of financial accounting standards. Happily, there’s been a lot of activity (check out, for instance, Amato & White, 2013; Rogers & White, 2015). Less fortunately, the activity seems to be continuing to occur in the same measurement vacuum it always has, despite my efforts in this blog to broaden the conversation to include rigorous measurement theory and practice.

But to back up a bit, recent events around sustainability metric standards don’t seem to be connected to previous controversies around financial standards and economic modeling, which were more academically oriented to problems of defining and expressing value. Gleeson-White doesn’t cite any of the extensive literature in those areas (for instance, Anielski, 2007; Baxter, 1979; Economist, 2010; Ekins, 1992, 1999; Ekins, Dresner, & Dahlstrom, 2008; Ekins, Hillman, & Hutchins, 1992; Ekins & Voituriez, 2009; Fisher, 2009b, 2009c, 2011; Young & Williams, 2010). Valuation is still a problem, of course, as is the analogy between accounting standards and scientific standards (Baxter, 1979). But much of the sensitivity of the older academic debate over accounting standards seems to have been lost in the mad, though well-intentioned, rush to devise metrics for the traditionally externalized nontraditional forms of capital.

Before addressing the thousands of metrics in circulation and the science that needs to be brought to bear on them (the ongoing theme of posts in this blog), some attention to terminology is important. Gleeson-White refers to six capitals (manufactured, liquid, intellectual, human, social, and natural), in contrast with Ekins (1992; Ekins, et al., 2008), who describes four (manufactured, human, social, and natural). Gleeson-White’s liquid capital is cash money, which can be invested in capital (a means of producing value via ongoing services) and which can be extracted as a return on capital, but is not itself capital, as is shown by the repeated historical experience in many countries of printing money without stimulating economic growth and producing value. Of her remaining five forms of capital, intellectual capital is a form of social capital that can satisfactorily be categorized alongside the other forms of organization-level properties and systems involving credibility and trust.

On pages 209-227, Gleeson-White takes up questions relevant to the measurement and information quality topics of this blog. The context here is informed by the International Integrated Reporting Council’s (IIRC) December 2013 framework for accounting reports integrating all forms of capital (Amato & White, 2013), and by related efforts of the Sustainability Accounting Standards Board (SASB) (Rogers & White, 2015). Following the IIRC, Gleeson-White asserts that

“Not all the new capitals can be quantified, yet or perhaps ever–for example, intellectual, human and social capital, much of natural capital–and so integrated reports are not expected to provide quantitative measures of each of the capitals.”

Of course, this opinion flies in the face of established evidence and theory accepted by both metrologists (weights and measures standards engineers and physicists) and psychometricians as to the viability of rigorous measurement standards for the outcomes of education, health care, social services, natural resource management, etc. (Fisher, 2009b, 2011, 2012a, 2012b; Fisher & Stenner, 2011a, 2013, 2015; Fisher & Wilson, 2015; Mari & Wilson, 2013; Pendrill, 2014; Pendrill & Fisher, 2013, 2015; Wilson, 2013; Wilson, Mari, Maul, & Torres Irribarra, 2015). Pendrill (2014, p. 26), an engineer, physicist, and past president of the European Association of National Metrology Institutes, for instance, states that “The Rasch approach…is not simply a mathematical or statistical approach, but instead [is] a specifically metrological approach to human-based measurement.” As is repeatedly shown in this blog, access to scientific measures sets the stage for a dramatic transformation of the potential for succeeding in the goal of rethinking capitalism.

Next, Gleeson-White’s references to several of the six capitals as the “living” capitals (p. 193) is a literal reference to the fact that human, social, and natural capital are all carried by people, organizations/communities, and ecosystems. The distinction between dead and living capital elaborated by De Soto (2000) and Fisher (2002, 2007, 2010b, 2011), which involves making any form of capital fungible by representing it in abstract forms negotiable in banks and courts of law, is not taken into account, though this would seem to be a basic requirement that must be fulfilled before the rethinking of capitalism could said to have been accomplished.

Gleeson-White raises the pointed question as to exactly how integrated reporting is supposed to provoke positive growth in the nontraditional forms of capital. The concept of an economic framework integrating all forms of capital relative to the profit motive, as described in Ekins’ work, for instance, and as is elaborated elsewhere in this blog, seems just over the horizon, though repeated mention is made of natural capitalism (Hawken, Lovins, & Lovins, 1999). The posing of the questions provided by Gleeson-White (pp. 216-217) is priceless, however:

“…given integrated reporting’s purported promise to contribute to sustainable development by encouraging more efficient resource allocation, how might it actually achieve this for natural and social capitals on their own terms? It seems integrated reporting does nothing to address a larger question of resource allocation….”

“To me the fact that integrated reporting cannot address such questions suggests that as with the example of human capital, its promise to foster efficient resource allocation pertains only to financial capital and not to the other capitals. If we accept that the only way to save our societies and planet is to reconceive them in terms of capital, surely the efficient valuing and allocation of all six capitals must lie at the heart of any economics and accounting for the planet’s scarce resources in the twenty-first century.
“There is a logical inconsistency here: integrated reporting might be the beginning of a new accounting paradigm, but for the moment it is being practiced by an old-paradigm corporation: essentially, one obliged to make a return on financial capital at the cost of the other capitals.”

The goal requires all forms of capital to be integrated into the financial bottom line. Where accounting for manufactured capital alone burns living capital resources for profit, a comprehensive capital accounting framework defines profit in terms of reduced waste. This is a powerful basis for economics, as waste is the common root cause of human suffering, social discontent and environmental degradation (Hawken, Lovins, & Lovins, 1999).

Multiple bottom lines are counter-productive, as they allow managers the option of choosing which stakeholder group to satisfy, often at the expense of the financial viability of the firm (Jensen, 2001; Fisher, 2010a). Economic sustainability requires that profits be legally, morally, and scientifically contingent on a balance of powers distributed across all forms of capital. Though the devil will no doubt lurk in the details, there is increasing evidence that such a balance of powers can be negotiated.

A key point here not brought up by Gleeson-White concerns the fact that markets are not created by exchange activity, but rather by institutionalized rules, roles, and responsibilities (Miller & O’Leary, 2007) codified in laws, mores, technologies, and expectations. Translating historical market-making activities as they have played out relative to manufactured capital in the new domains of human, social, and natural capital faces a number of significant challenges, adapting to a new way of thinking about tests, assessments, and surveys foremost among them (Fisher & Stenner, 2011b).

One of the most important contributions advanced measurement theory and practice (Rasch, 1960; Wright, 1977; Andrich, 1988, 2004; Fisher & Wright, 1994; Wright & Stone, 1999; Bond & Fox, 2007; Wilson, 2005; Engelhard, 2012; Stenner, Fisher, Stone, & Burdick, 2013) can make to the process of rethinking capitalism involves the sorting out of the myriad metrics that have erupted in the last several years. Gleeson-White (p. 223) reports, for instance, that the Bloomberg financial information network now has over 750 ESG (Environmental, Social, Governance) data fields, which were extracted from reports provided by over 5,000 companies in 52 countries.  Similarly, Rogers and White (2015) say that

“…today there are more than 100 organizations offering more than 400 corporate sustainability ratings products that assess some 50,000 companies on more than 8,000 metrics of environmental, social and governance (ESG) performance.”

As is also the case with the UN Millennium Development Goals (Fisher, 2011b), the typical use of these metrics as single-item “quantities” is based in counts of relevant events. This procedure misses the basic point that counts of concrete things in the world are not measures. Is it not obvious that I can have ten rocks to your two, and you can still have more rock than I do? The same thing applies to any kind of performance ratings, survey responses, or test scores. We assign the same numeric increase to every addition of one more count, but hardly anyone experimentally tests the hypothesis that the counts all work together to measure the same thing. Those who think there’s no need for precision science in this context are ignoring the decades of successful and widespread technical work in this area, at their own risk.

The repetition of history here is fascinating. As Ashworth (2004, p. 1,314) put it, historically, “The requirements of increased trade and the fiscal demands of the state fuelled the march toward a regular form of metrology.” For instance, in 1875 it was noted that “the existence of quantitative correlations between the various forms of energy, imposes upon men of science the duty of bringing all kinds of physical quantity to one common scale of comparison” (Everett, 1875, p. 9). The moral and economic  value of common scales was recognized during the French revolution, when, Alder (2002, p. 32) documents, it was asked:

“Ought not a single nation have a uniform set of measures, just as a soldier fought for a single patrie? Had not the Revolution promised equality and fraternity, not just for France, but for all the people of the world? By the same token, should not all of the world’s people use a single set of weights and measures to encourage peaceable commerce, mutual understanding, and the exchange of knowledge? That was the purpose of measuring the world.”

The value of rigorously measuring human, social and natural capital includes meaningfully integrating qualitative substance with quantitative convenience, reduced data volume, augmenting measures with uncertainty and consistency indexes, and the capacity to take missing data into account (making possible instrument equating, item banking, etc.)  In contrast with the usual methods, rigorous science demands that experiments determine which indicators cohere to measure the same thing by repeatedly giving the same values across samples, over time and space, and across subsets of indicators. Beyond such data-based results, advanced theory makes it possible to arrive at explanatory, predictive methods that add a whole new layer of efficiency to the generation of indicators (de Boeck & Wilson, 2004; Stenner, et al., 2013).

Finally, Gleeson-White (pp. 220-221) reports that “In July 2011, the SASB [Sustainability Accounting Standards Board] was launched in the United States to create standardized measures for the new capitals.” “Founded by environmental engineer and sustainability expert Jean Rogers in San Francisco, SASB is creating a full set of industry-specific standards for sustainability accounting, with the aim of making this information more consistent and comparable.” As of May 2014, the SASB vice chair is Mary Schapiro, former SEC chair, and the chairman of SASB is Michael Bloomfield, former mayor of NYC and founder of the financial information empire. The “SASB is developing nonfinancial standards for eighty-nine industries grouped in ten different sectors and aims to have completed this grueling task by February 2015. It is releasing each set of metrics as they are completed.”

Like the SASB and other groups, Gleeson-White (p. 222) reports, Bloomberg

“aims to use its metrics to start ‘standardizing the discourse around sustainability, so we’re all talking about the same things in the same way,’ as Bloomberg’s senior sustainability strategist Andrew Park put it. What companies ‘desperately want,’ he says, is ‘a legitimate voice’ to tell them: ‘This is what you need to do. You exist in this particular sector. Here are the metrics that you need to be reporting out on. So SASB will provide that. And we think that’s important, because that will help clean up the metrics that ultimately the finance community will start using.’
“Bloomberg wants to price environmental, social and governance externalities to legitimize them in the eyes of financial capital.”

Gleeson-White (p. 225) continues, saying

“Bloomberg wants to do more generally what Trucost did for Puma’s natural capital inputs: create standardized measures for the new capitals–such as ecosystem services and social impacts–so that this information can be aggregated and used by investors. Park and Ravenel call the failure to value clean air, water, stable coastlines and other environmental goods ‘as much a failure to measure as it is a market failure per se–one that could be addressed in part by providing these ‘unpriced’ resources with quantitative parameters that would enable their incorporation into market mechanisms. Such mechanisms could then appropriately ‘regulate’ the consumption of those resources.'”

Integrating well-measured living capitals into the context of appropriately configured institutional rules, roles, and responsibilities for efficient markets (Fisher, 2010b) should indeed involve a capacity to price these resources quantitatively, though this capacity alone would likely prove insufficient to the task of creating the markets (Miller & O’Leary, 2007; Williamson, 1981, 1991, 2005). Rasch’s (1960, pp. 110-115) deliberate patterning of his measurement models on the form of Maxwell’s equations for Newton’s Second Law provides a mathematical basis for connecting psychometrics with both geometry and natural laws, as well as with the law of supply and demand (Fisher, 2010c, 2015; Fisher & Stenner, 2013a).

This perspective on measurement is informed by an unmodern or amodern, post-positivist philosophy (Dewey, 2012; Latour, 1990, 1993), as opposed to a modern and positivist, or postmodern and anti-positivist, philosophy (Galison, 1997). The essential difference is that neither a universalist nor a relativist perspective is necessary to the adoption of practices of traceability to metrological standards. Rather, focusing on local, situated, human relationships, as described by Wilson (2004) in education, for instance, offers a way of resolving the false dilemma of that dichotomous contrast. As Golinski (2012, p. 35) puts it, “Practices of translation, replication, and metrology have taken the place of the universality that used to be assumed as an attribute of singular science.” Haraway (1996, pp. 439-440) harmonizes, saying “…embedded relationality is the prophylaxis for both relativism and transcendance.” Latour (2005, pp. 228-229) elaborates, saying:

“Standards and metrology solve practically the question of relativity that seems to intimidate so many people: Can we obtain some sort of universal agreement? Of course we can! Provided you find a way to hook up your local instrument to one of the many metrological chains whose material network can be fully described, and whose cost can be fully determined. Provided there is also no interruption, no break, no gap, and no uncertainty along any point of the transmission. Indeed, traceability is precisely what the whole of metrology is about! No discontinuity allowed, which is just what ANT [Actor Network Theory] needs for tracing social topography. Ours is the social theory that has taken metrology as the paramount example of what it is to expand locally everywhere, all while bypassing the local as well as the universal. The practical conditions for the expansion of universality have been opened to empirical inquiries. It’s not by accident that so much work has been done by historians of science into the situated and material extension of universals. Given how much modernizers have invested into universality, this is no small feat.
“As soon as you take the example of scientific metrology and standardization as your benchmark to follow the circulation of universals, you can do the same operation for other less traceable, less materialized circulations: most coordination among agents is achieved through the dissemination of quasi-standards.”

As Rasch (1980: xx) understood, “this is a huge challenge, but once the problem has been formulated it does seem possible to meet it.” Though some metrologically informed traceability networks have begun to emerge in education and health care (for instance, Fisher & Stenner, 2013, 2015; Stenner & Fisher, 2013), virtually everything remains to be done to make the coordination across stakeholders as fully elaborated as the standards in the natural sciences.

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Jensen, M. C. (2001, Fall). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8-21.

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Latour, B. (1993). We have never been modern. Cambridge, Massachusetts: Harvard University Press.

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Mari, L., & Wilson, M. (2013). A gentle introduction to Rasch measurement models for metrologists. Journal of Physics Conference Series, 459(1), http://iopscience.iop.org/1742-6596/459/1/012002/pdf/1742-6596_459_1_012002.pdf.

Miller, P., & O’Leary, T. (2007, October/November). Mediating instruments and making markets: Capital budgeting, science and the economy. Accounting, Organizations, and Society, 32(7-8), 701-734.

Pendrill, L. (2014, December). Man as a measurement instrument [Special Feature]. NCSLI Measure: The Journal of Measurement Science, 9(4), 22-33.

Pendrill, L., & Fisher, W. P., Jr. (2013). Quantifying human response: Linking metrological and psychometric characterisations of man as a measurement instrument. Journal of Physics: Conference Series, 459, http://iopscience.iop.org/1742-6596/459/1/012057.

Pendrill, L., & Fisher, W. P., Jr. (2015). Counting and quantification: Comparing psychometric and metrological perspectives on visual perceptions of number. Measurement, p. in press. doi: http://dx.doi.org/10.1016/j.measurement.2015.04.010.

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Stenner, A. J., & Fisher, W. P., Jr. (2013). Metrological traceability in the social sciences: A model from reading measurement. Journal of Physics: Conference Series, 459(012025), http://iopscience.iop.org/1742-6596/459/1/012025.

Stenner, A. J., Fisher, W. P., Jr., Stone, M. H., & Burdick, D. S. (2013, August). Causal Rasch models. Frontiers in Psychology: Quantitative Psychology and Measurement, 4(536), 1-14 [doi: 10.3389/fpsyg.2013.00536].

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Williamson, O. E. (2005). The economics of governance. American Economic Review, 95(2), 1-18.

Wilson, M. (Ed.). (2004). National Society for the Study of Education Yearbooks. Vol. 103, Part II: Towards coherence between classroom assessment and accountability. Chicago, Illinois: University of Chicago Press.

Wilson, M. (2005). Constructing measures: An item response modeling approach. Mahwah, New Jersey: Lawrence Erlbaum Associates.

Wilson, M. R. (2013). Using the concept of a measurement system to characterize measurement models used in psychometrics. Measurement, 46, 3766-3774.

Wilson, M., Mari, L., Maul, A., & Torres Irribarra, D. (2015). A comparison of measurement concepts across physical science and social science domains: Instrument design, calibration, and measurement. Journal of Physics: Conference Series, 588(012034), http://iopscience.iop.org/1742-6596/588/1/012034.

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Wright, B. D., & Stone, M. H. (1999). Measurement essentials. Wilmington, DE: Wide Range, Inc. [http://www.rasch.org/measess/me-all.pdf].

Young, J. J., & Williams, P. F. (2010, August). Sorting and comparing: Standard-setting and “ethical” categories. Critical Perspectives on Accounting, 21(6), 509-521.

Another Take on the Emerging Paradigm Shift

November 8, 2014

Over the course of human history, people have usually been able to rely on some stable source of authority and control in their lives, be it religion, the king or queen, or the social order itself. However benevolent or malevolent a regime might be, usually there have been clear lines along which blame or credit can be assigned.

So, even though the complexity and scale of success and failure in today’s world provide ample evidence that no one exerts centralized control over events, it is not surprising that many people today still find it comforting to think some individuals or groups must be manipulating others to their own ends. There is, however, an alternative point of view that may provide a more productive path toward effective action.

After all, efforts to date that have focused on the removal and replacement of any given group that appears to be in control have simply resulted in an alteration of the system, and not the institution of a fundamentally new system. Thus, socialist and communist governments have failed in large part because they were unable to manage resources as effectively as capitalist systems do (which is, of course, not all that well). That is, despite the appearance of having put in place a radically different system of priorities, the constraints of socioeconomics themselves did not change in the context of socialist and communist regimes.

The individual incumbents of social and economic positions have nothing whatsoever to do with the creation of the socioeconomic system’s likelihoods of success and failure, and if they had not accepted their roles in that system, others would have. Changing the system is much more difficult, both conceptually and practically, than merely assigning blame and replacing an individual or group with another individual or group. To the extent the system remains the same, changing the occupants within it makes little difference.

The idea is much the same as was realized in industry when it shifted from quality control’s “tail-chopping” methods to continuous quality improvement’s “curve-shifting” methods. In the former, a certain ratio of acceptable to malformed parts is dictated by the system’s materials and processes. Quality control simply removes the bad parts from the production line and does nothing to change the system. Since quality is often normally distributed, taking the statistical shape of a bell curve, it is accordingly inevitable that cutting off the bad end of that distribution (tail-chopping) only results in it being filled in again in the next production cycle.

Continuous quality improvement methods, in contrast, focus on changing the system and on reducing the likelihood of producing bad parts. Efforts of these kind move the entire quality distribution up the scale so that no parts fall in the previous distribution’s bad tail at all. Of course, the outcomes of our socioeconomic system’s processes are very different from the manufacturing of machine parts. The point of this simple illustration is only that there is remarkable value in thinking less about removing undesired individuals from a process and in thinking more about changing the process itself.

There is no denying that those who seem to be in control benefit disproportionately from others’ efforts. But even though they have had little or nothing to do with creating the system that confers these benefits on them, they certainly do have a vested interest in maintaining that system. This fact reveals another important aspect of any solution that will prove truly viable: the new system must provide benefits not available under the old one. The shift from old to new cannot be a matter of mere will power or organizational efficiency. It must come about as a result of the attractions offered by the new system, which motivate behavior changes universally with little or no persuasion. Qualitatively different classes of opportunities and rewards can come about only by integrating into the system features of the environment that were excluded from the previous system. The central problem of life today is how to provoke this kind of shift and its new integrations.

We can begin to frame this problem in its proper context when we situate it horizontally as an ecological problem and vertically as an evolutionary one. In the same way that ecological niches define the evolutionary opportunities available to species of plants and animals, historical and cultural factors set up varying circumstances to which human societies must adapt. Biological and social adaptations both become increasingly complex over time, systematically exhibiting characteristic patterns in the ways matter, energy, and information are functionally integrated.

The present form of contemporary global society has evolved largely in terms of the Western European principles of modern science, capitalism, and democracy. These principles hinge on the distinction between a concrete, solid, and objective world and an impressionistic, intuitive, and subjective mind. For instance, science and economics focus traditionally on measuring and managing material things and processes, like volts, meters, kilograms, barrels, degrees Celsius, liters, speed, flows, etc. Human, social, and environmental issues are treated statistically, not in terms of standardized metric units, and they are economically regarded as “externalities” excluded from profit and loss calculations.

So, if qualitatively different classes of opportunities and rewards can come about only by integrating into the system features of the environment that were excluded from the previous system, what can we do to integrate the subjective with the objective, and to also then incorporate standardized metric units for the externalities of human, social, and environmental capital into science and economics? The question demands recognition of a) a new system of ecological niches with their own unique configurations of horizontal relationships, and b) the evolution of new species capable of adapting to life in these niches.

The problem is compounded by the complexity of seeing the new system of niches as emerging from the existing system of ecological relationships. Economically speaking, today’s cost centers will be tomorrow’s profit drivers. Scientifically speaking, sources of new repeatable and stable phenomena will have to be identified in what are today assumed to be unrepeatable and unstable phenomena, and will then have to be embodied in instrumental ensembles.

The immediate assumption, which we will have to strive to overcome, is that any such possibilities for new economic and scientific opportunities could hardly be present in the world today and not be widely known and understood. A culturally ingrained presupposition we all share to some extent is that objective facts are immediately accessible and become universally adopted for their advantages as soon as they are recognized. Claims to the contrary can safely be ignored, even if, or perhaps especially if, they represent a truly original potential for system change.

This assumption is an instance of what behavioral economists like Simon and Kahnemann refer to as bounded rationality, which is the idea that language and culture prethink things for us in ways we are usually unaware of. Research has shown that many decisions in daily life are tinged with emotion, such that a certain kind of irrationality takes an irrefutable place in how we think. Examples include choices involving various combinations of favorable and unfavorable odds of profiting from some exchange. Small but sure profits are often ignored in favor of larger and less sure profits, or mistaken calculations are assumed correct, to the disadvantage of the decision maker. There is surely method in the madness, but the pure rationality of an ideal thought process can no longer be accommodated.

Given the phenomenon of bounded rationality, and the complexity of the metasystematic shift that’s needed, how is change to be effected? As Einstein put it, problems of a certain kind cannot be solved from within the same framework that gave rise to them. As long as we continue to think in terms of marshalling resources to apply to the solution of a problem we have failed in conceiving the proper magnitude and scope of the problem we face.

We must instead think in terms of problem-solution units that themselves embody a new evolutionary species functioning within a new system of ecological niches. And these species-niche combinations must be born fully functional and viable, like birds from lizard eggs, caught up in the flow and play of their matter, energy and information streams from the moment of their arrival.

A vitally important aspect of this evolutionary leap is that the new system emerge of its own accord, seemingly with a will of its own. But it will not take shape as a result of individuals or groups deliberately executing a comprehensive design. There will be no grand master architect, though the co-incidence of multiple coordinations and alignments will seem so well planned that many may assume one exists.

It may be, however, that a new spontaneously self-organizing culture might be grown from a few well-placed spores or seeds. The seeds themselves need to be viable in terms of their growth potential and the characteristics of the particular species involved. But equally important are the characteristics of the environment in which the seeds are planted. Bernstein (2004) describes four conditions necessary to the birth of plenty in the modern world:

  1. Property rights: those who might create new forms of value need to own the fruits of their labors.
  2. Scientific rationalism: innovation requires a particular set of conceptual tools and a moral environment in which change agents need not fear retribution.
  3. Capital markets: investors must be able to identify entrepreneurs and provide them with the funds they need to pursue their visions.
  4. Transportation/communications: new products and the information needed to produce and market them must have efficient channels in which to move.

If we take the new emerging culture as unmodern, nonmodern, or amodern, might a new paradigm of plenty similarly take shape as these four conditions are applied not just to manufactured capital, land, and labor, but to human capital (abilities, health, performance), social capital (trust, honesty, dependability, etc.), and natural capital (the environmental services of watersheds, fisheries, estuaries, forests, etc.)? Should not we own legal title to defined shares of each form of capital? Should not science be systematically employed in research on each form of capital? Should not investments in each form of capital be accountable? Should not each form of capital be mobile and fungible within established networks? Should not there be common languages serving as common currencies for the exchange of each form of capital? Instead of assuming the answers to these questions are uniformly “No,” should not we at least entertain them long enough to firmly establish why they cannot be “Yes”?

An Entrepreneurial Investment Model Alternative to Picketty’s Taxation Approach to Eliminating Wealth Disparities

May 14, 2014

Is taxation the only or the best solution to inequality? The way discussions of wealth disparities inevitably focus on variations in how, whom or what to tax, it is easy to assume there are no viable alternatives to taxation. But if the point is to invest in those with the most potential for making significant gains in productivity, so as to maximize the returns we realize, do we not wrongly constrain the domain of possible solutions when we misconceive an entrepreneurial problem in welfare terms?

Why can’t we require minimum levels of investment in social capital stocks and bonds offered by schools, hospitals, NGOs, etc? In human capital instruments offered by individuals? Why should not we expect those investments to be used to create new value? What supposed law of nature says it is impossible to associate new human, social and environmental value with stable and meaningful prices? And if there is such a law (such as Kenneth Arrow (1963) proposed), how can we break it? Why can’t we reconceive human and social capital stocks and flows in new ways?

There is one very good reason why we cannot now make such requirements, and it is the same reason why liberals (including me) had better become accustomed to accepting the failure of their agenda. That reason is this: social and environmental externalities. Inequality is inevitable only as long as we do not change the ways we deal with externalities. They can no longer be measured and managed in the same ways. They must be put on the books, brought into the models, measured scientifically, and traded in efficient markets. We have to invent accountability and accounting systems that harness the energy of the profit motive for the greater good—that actually grow authentic wealth and not mere money—and we have to do this far more effectively than has ever been done before.

It’s a tall order. But there are resources available to us that have not yet been introduced into the larger conversation. There are options to consider that need close study and creative experimentation. Proceeding toward the twin futilities of premature despair or unrealistic taxation will only set up another round of self-fulfilling prophecies inexorably grinding to yet another unforeseen but fully foretold disaster. Conversations about how to shape the roles, rules and institutions that make markets what they are (Miller and O’Leary, 2007) need to take place for human, social, and natural capital (Fisher and Stenner, 2011b). Indeed, those conversations are already well underway, as can be seen in the prior entries in this blog and in the sources listed below.

Arrow, K. J. (1963). Uncertainty and the welfare economics of medical care. American Economic Review, 53, 941-973.

Fisher, W. P., Jr. (2007). Living capital metrics. Rasch Measurement Transactions, 21(1), 1092-1093 [http://www.rasch.org/rmt/rmt211.pdf].

Fisher, W. P., Jr. (2009a). Invariance and traceability for measures of human, social, and natural capital: Theory and application. Measurement, 42(9), 1278-1287.

Fisher, W. P., Jr. (2009b). NIST Critical national need idea White Paper: Metrological infrastructure for human, social, and natural capital (http://www.nist.gov/tip/wp/pswp/upload/202_metrological_infrastructure_for_human_social_natural.pdf). Washington, DC: National Institute for Standards and Technology (11 pages).

Fisher, W. P., Jr. (2010a, 22 November). Meaningfulness, measurement, value seeking, and the corporate objective function: An introduction to new possibilities. Sausalito, California: LivingCapitalMetrics.com (http://ssrn.com/abstract=1713467).

Fisher, W. P. J. (2010b). Measurement, reduced transaction costs, and the ethics of efficient markets for human, social, and natural capital (http://ssrn.com/abstract=2340674). Bridge to Business Postdoctoral Certification, Freeman School of Business: Tulane University.

Fisher, W. P., Jr. (2010c, June 13-16). Rasch, Maxwell’s method of analogy, and the Chicago tradition. In G. Cooper (Ed.), https://conference.cbs.dk/index.php/rasch/Rasch2010/paper/view/824. Probabilistic models for measurement in education, psychology, social science and health: Celebrating 50 years since the publication of Rasch’s Probabilistic Models. FUHU Conference Centre, Copenhagen, Denmark: University of Copenhagen School of Business.

Fisher, W. P., Jr. (2011a). Bringing human, social, and natural capital to life: Practical consequences and opportunities. Journal of Applied Measurement, 12(1), 49-66.

Fisher, W. P., Jr. (2011b, Thursday, September 1). Measurement, metrology and the coordination of sociotechnical networks. In S. Bercea (Ed.), New Education and Training Methods. International Measurement Confederation (IMEKO). Jena, Germany: http://www.db-thueringen.de/servlets/DerivateServlet/Derivate-24491/ilm1-2011imeko-017.pdf.

Fisher, W. P., Jr. (2012a). Measure and manage: Intangible assets metric standards for sustainability. In J. Marques, S. Dhiman & S. Holt (Eds.), Business administration education: Changes in management and leadership strategies (pp. 43-63). New York: Palgrave Macmillan.

Fisher, W. P., Jr. (2012b, May/June). What the world needs now: A bold plan for new standards [Third place, 2011 NIST/SES World Standards Day paper competition]. Standards Engineering, 64(3), 1 & 3-5 [http://ssrn.com/abstract=2083975].

Fisher, W. P., Jr., & Stenner, A. J. (2011a, January). Metrology for the social, behavioral, and economic sciences. http://www.nsf.gov/sbe/sbe_2020/submission_detail.cfm?upld_id=36.

Fisher, W. P., Jr., & Stenner, A. J. (2011b, August 31 to September 2). A technology roadmap for intangible assets metrology. In Fundamentals of measurement science. International Measurement Confederation (IMEKO) TC1-TC7-TC13 Joint Symposium. Jena, Germany: http://www.db-thueringen.de/servlets/DerivateServlet/Derivate-24493/ilm1-2011imeko-018.pdf.

Fisher, W. P., Jr., & Stenner, A. J. (2013a). On the potential for improved measurement in the human and social sciences. In Q. Zhang & H. Yang (Eds.), Pacific Rim Objective Measurement Symposium 2012 Conference Proceedings (pp. 1-11). Berlin, Germany: Springer-Verlag.

Fisher, W. P., Jr., & Stenner, A. J. (2013b). Overcoming the invisibility of metrology: A reading measurement network for education and the social sciences. Journal of Physics: Conference Series, 459(012024), http://iopscience.iop.org/1742-6596/459/1/012024.

Miller, P., & O’Leary, T. (2007, October/November). Mediating instruments and making markets: Capital budgeting, science and the economy. Accounting, Organizations, and Society, 32(7-8), 701-734.

What the Economy Needs?

September 5, 2012

Expanding on remarks made by Thomas Friedman in the course of an interview with Charlie Rose broadcast on August 31, 2012…

Friedman broke the problem down to three key points. We have to have 1) a plan, 2) a fair tax contribution from the rich, and 3) aspirations for improving the overall quality of life, economically and  democratically.

The plan outlined from various points of view in this blog is to create a scientific and market infrastructure for intangible assets (human, social and natural capital), assets amounting to at least 90%of the capital under management.

The plan is fair in its advancement of equal opportunity to invest in and realize returns from one’s skills, motivations, health and trustworthiness. Everyone will be able to invest in, and receive their share of the profits from, the human, social, and natural capital stocks of individuals, communities, schools, hospitals, social service agencies, firms, etc. The rich will then both contribute to the advancement of the greater good at the same time they are able to profit from the growth in the authentic wealth created by improvements to human, community, and environmental value.

The plan aspires to great accomplishments in the depth and breadth of the innovation it will facilitate, its fulfillment of democratic principles, and the new economic growth it promises.

And so I would now like to raise a couple of sets of questions. What if all the money put into Medicare, Medicaid, education, HUD, food stamps, the EPA, etc. was instead invested in an infrastructure for intangible assets metrology and HSN capital stocks (individual, organizational–school, hospital, nonprofit, NGO, firm–and community)? Usually, talk of letting the market solve social and environmental problems is nothing but a self-serving excuse for allowing greed to rule at the expense of the greater good. Those so-called market solutions do nothing to actually shape the institutions, rules, and roles by which markets are created, and so the end result would be catastrophic. But there is an essential and unnoticed inconsistency in previously proposed approaches that involves the double standards used in defining and actualizing the various forms of capital.

As previous posts (like this one or this one) in this blog, and several of my publications, have argued, manufactured capital and property have long since been brought to life by transferable representations (titles, deeds, precision quantity measures, etc.) and the various legal, financial, educational, and scientific institutions built up around them. Human, social, and natural capital have not been brought to life and so we remain unable to take proper possession of our own properties, the ones that we most value and on which life, liberty, and happiness are most dependent.

But what if we created the needed market institutions, rules, and roles? What if everyone knew how many shares of community capital they owned, and what the current price of those shares in the market was? What if tuition for an advanced degree was denominated in the shares of literacy capital one obtained, as evident in the increased literacy measures achieved? What if taxes were abolished and minimum investments in human, social, and natural capital stocks were required? What if real, efficient, functional markets in intangible assets were created, and the associated governmental programs and departments were abolished? How much would the federal budget decrease? How much would government shrink? How much might the economy grow if that much money was invested in human, social, and natural capital stocks paying even a minimal reasonable profit?

Another round of questions asks whether we have the optimal social safety net in the current institutional context, or if perhaps that safety net could be significantly improved by following through on the concepts of impact investing and outcome-based budgeting to create a truly sustainable and socially responsible economic system? What if everyone held known numbers of tradable shares of their intangible assets (their skills, motivation, health, trust)? What if the value of those shares was common public knowledge? What if the investment paths to increasing the number and value of shares held were all well known? What if monetary profit could be derived–and could only be derived–by increasing the value of human, social, and natural capital shares? What if groups of people joined together in various kinds of organizations (schools, hospitals, businesses) to collectively grow the value of their authentic wealth? What if lean thinking was applied to the 90% of the capital under management (the human, social, and natural capital) that is currently nearly unmanageable because it is not measured in universally uniform scientific units?

The balance scale is a common symbol of justice. We do not usually aspire to take that symbol as seriously as we could. We ought to have a plan for economic justice that does not have to coerce anyone to acknowledge, pay back, and re-invest in the broad support they received en route to becoming successful. And we ought to have a plan that reinvigorates the aspirations for equal opportunity and freedom that have become a model for people all over the world. Friedman got the broad strokes right. Now’s the time to start filling in the details.

Knowledge and skills as the currency of 21st-century economies

March 11, 2012

In his March 11, 2012 New York Times column, Thomas Friedman quotes the OECD’s Andreas Schleicher as saying, “knowledge and skills have become the global currency of 21st-century economies, but there is no central bank that prints this currency. Everyone has to decide on their own how much they will print.” This is a very interesting thing to say, especially because it reveals some common misconceptions about currency, capital, economics, and the institutions in which they are situated.

The question raised in many of the posts in this blog concerns just what kind of bank would print this currency, and what the currency would look like. The issue is of central economic importance, as Schleicher recognizes when he says that economic stimulus certainly has a place in countering a prolonged recession, but “the only sustainable way is to grow our way out by giving more people the knowledge and skills to compete, collaborate and connect in a way that drives our countries forward.”

Following through on the currency metaphor, obvious concerns that arise from Schleicher’s comments stem from the way he conflates the idea of a currency with the value it is supposed to represent. When he says individuals have to decide how much of the currency to print, what he means is they have to decide how much education they want to accrue. This is, of course, far different from simply printing money, which, when this is done and there is no value to back it up, is a sure way to bring about rampant inflation, as Germany learned in the 1920s. Schleicher and Friedman both know this, but the capacity of the metaphor to mislead may not be readily apparent.

Another concern that comes up is why there is no central bank printing the currency for us. Of course, it might seem as though we don’t need banks to print it for us, since, if individuals can print it, then why complicate things by bringing the banks into it? But note, again, that the focus here is on the currency, and nothing is said about the unit in which it is denominated.

The unit of value is the key to the deeper root problem, which is less one of increasing people’s stocks of skills and knowledge (though that is, of course, a great thing to do) and more one of creating the institutions and systems through which we can make order-of-magnitude improvements in the way people invest in and profit from their skills and knowledge. In other words, the problem is in having as many different currencies as there are individuals.

After all, what kind of an economy would we have if the value of the US dollars I hold was different from yours, and from everyone else’s? What if we all printed our own dollars and their value changed depending on who held them (or on how many we each printed)? Everyone would pay different amounts in the grocery store. We’d all spend half our time figuring out how to convert our own currency into someone else’s.

And this is pretty much what we do when it comes to trading on the value of our investments in stocks of knowledge, skills, health, motivations, and trust, loyalty, and commitment, some of the major forms of human and social capital. When we’re able, we put a recognized name brand behind our investments by attending a prestigious university or obtaining care at a hospital known for its stellar outcomes. But proxies like these just aggregate the currencies’ values at a bit higher level of dependence on the company you keep. It doesn’t do anything to solve the problem of actually providing transferable representations you can count on to retain a predictable value in any given exchange.

The crux of the problem is that today’s institutions define the markets in which we trade human and social capital in ways that make certain assumptions, and those assumptions are counterproductive relative to other assumptions that might be made. That is, the dominant form of economic discourse takes it for granted that markets are formed by the buying and selling activities of consumers and producers, which in turn dictates the form of institutions. But this gets the process backwards (Miller and O’Leary, 2007). Markets cannot form in the absence of institutions that define the roles, rules, and relationships embodied in economic exchange, as has been pointed out by Douglass North (1981, 1990), and a very large literature on institutional economics that has emerged from the work of North and his colleagues since the late 1970s.

And so, once again, this is why I keep repeating ad nauseum the same old lines in different ways. In this case, the repetition focuses on the institutions that “print” (so to speak) the currencies in which we express and trade economic and scientific values for mass or weight (kilograms and pounds), length (meters and yards), temperature (degrees Celsius and Fahrenheit), energy (kilowatts), etc. Economic growth and growth in scientific knowledge simultaneously erupted in the 19th century after metrological systems were created to inform trade in commodities and ideas. What we need today is a new investment of resources in the creation of a new array of standardized units for human, social, and natural capital. For more information, see prior posts in this blog, and the publications listed below.

Fisher, W. P., Jr. (1997). Physical disability construct convergence across instruments: Towards a universal metric. Journal of Outcome Measurement, 1(2), 87-113.

Fisher, W. P., Jr. (1999). Foundations for health status metrology: The stability of MOS SF-36 PF-10 calibrations across samples. Journal of the Louisiana State Medical Society, 151(11), 566-578.

Fisher, W. P., Jr. (2000). Objectivity in psychosocial measurement: What, why, how. Journal of Outcome Measurement, 4(2), 527-563 [http://www.livingcapitalmetrics.com/images/WP_Fisher_Jr_2000.pdf].

Fisher, W. P., Jr. (2002, Spring). “The Mystery of Capital” and the human sciences. Rasch Measurement Transactions, 15(4), 854 [http://www.rasch.org/rmt/rmt154j.htm].

Fisher, W. P., Jr. (2003). The mathematical metaphysics of measurement and metrology: Towards meaningful quantification in the human sciences. In A. Morales (Ed.), Renascent pragmatism: Studies in law and social science (pp. 118-53). Brookfield, VT: Ashgate Publishing Co.

Fisher, W. P., Jr. (2003). Measurement and communities of inquiry. Rasch Measurement Transactions, 17(3), 936-8 [http://www.rasch.org/rmt/rmt173.pdf].

Fisher, W. P., Jr. (2004, Thursday, January 22). Bringing capital to life via measurement: A contribution to the new economics. In  R. Smith (Chair), Session 3.3B. Rasch Models in Economics and Marketing. Second International Conference on Measurement in Health, Education, Psychology, and Marketing: Developments with Rasch Models, The International Laboratory for Measurement in the Social Sciences, School of Education, Murdoch University, Perth, Western Australia.

Fisher, W. P., Jr. (2004, Wednesday, January 21). Consequences of standardized technical effects for scientific advancement. In  A. Leplège (Chair), Session 2.5A. Rasch Models: History and Philosophy. Second International Conference on Measurement in Health, Education, Psychology, and Marketing: Developments with Rasch Models, The International Laboratory for Measurement in the Social Sciences, School of Education, Murdoch University, Perth, Western Australia.

Fisher, W. P., Jr. (2004, October). Meaning and method in the social sciences. Human Studies: A Journal for Philosophy and the Social Sciences, 27(4), 429-54.

Fisher, W. P., Jr. (2004, Friday, July 2). Relational networks and trust in the measurement of social capital. Presented at the Twelfth International Objective Measurement Workshops, Cairns, Queensland, Australia: James Cook University.

Fisher, W. P., Jr. (2005). Daredevil barnstorming to the tipping point: New aspirations for the human sciences. Journal of Applied Measurement, 6(3), 173-179 [http://www.livingcapitalmetrics.com/images/FisherJAM05.pdf].

Fisher, W. P., Jr. (2005, August 1-3). Data standards for living human, social, and natural capital. In Session G: Concluding Discussion, Future Plans, Policy, etc. Conference on Entrepreneurship and Human Rights [http://www.fordham.edu/economics/vinod/ehr05.htm], Pope Auditorium, Lowenstein Bldg, Fordham University.

Fisher, W. P., Jr. (2006). Commercial measurement and academic research. Rasch Measurement Transactions, 20(2), 1058 [http://www.rasch.org/rmt/rmt202.pdf].

Fisher, W. P., Jr. (2007, Summer). Living capital metrics. Rasch Measurement Transactions, 21(1), 1092-3 [http://www.rasch.org/rmt/rmt211.pdf].

Fisher, W. P., Jr. (2007). Vanishing tricks and intellectualist condescension: Measurement, metrology, and the advancement of science. Rasch Measurement Transactions, 21(3), 1118-1121 [http://www.rasch.org/rmt/rmt213c.htm].

Fisher, W. P., Jr. (2008, 3-5 September). New metrological horizons: Invariant reference standards for instruments measuring human, social, and natural capital. Presented at the 12th IMEKO TC1-TC7 Joint Symposium on Man, Science, and Measurement, Annecy, France: University of Savoie.

Fisher, W. P., Jr. (2009, November 19). Draft legislation on development and adoption of an intangible assets metric system. Retrieved 6 January 2011, from https://livingcapitalmetrics.wordpress.com/2009/11/19/draft-legislation/.

Fisher, W. P., Jr. (2009, November). Invariance and traceability for measures of human, social, and natural capital: Theory and application. Measurement, 42(9), 1278-1287.

Fisher, W. P.. Jr. (2009). NIST Critical national need idea White Paper: metrological infrastructure for human, social, and natural capital (Tech. Rep. No. http://www.nist.gov/tip/wp/pswp/upload/202_metrological_infrastructure_for_human_social_natural.pdf). Washington, DC: National Institute for Standards and Technology.

Fisher, W. P., Jr. (2011). Bringing human, social, and natural capital to life: Practical consequences and opportunities. Journal of Applied Measurement, 12(1), 49-66.

Fisher, W. P.. Jr. (2010, June 13-16). Rasch, Maxwell’s method of analogy, and the Chicago tradition. In  G. Cooper (Chair), Https://conference.cbs.dk/index.php/rasch/Rasch2010/paper/view/824. Probabilistic models for measurement in education, psychology, social science and health: Celebrating 50 years since the publication of Rasch’s Probabilistic Models.., University of Copenhagen School of Business, FUHU Conference Centre, Copenhagen, Denmark.

Fisher, W. P., Jr. (2010). The standard model in the history of the natural sciences, econometrics, and the social sciences. Journal of Physics: Conference Series, 238(1), http://iopscience.iop.org/1742-6596/238/1/012016/pdf/1742-6596_238_1_012016.pdf.

Fisher, W. P., Jr. (2011). Stochastic and historical resonances of the unit in physics and psychometrics. Measurement: Interdisciplinary Research & Perspectives, 9, 46-50.

Fisher, W. P., Jr. (2012). Measure local, manage global: Intangible assets metric standards for sustainability. In J. Marques, S. Dhiman & S. Holt (Eds.), Business administration education: Changes in management and leadership strategies (p. in press). New York: Palgrave Macmillan.

Fisher, W. P., Jr. (2012, May/June). What the world needs now: A bold plan for new standards. Standards Engineering, 64, in press.

Fisher, W. P., Jr., Eubanks, R. L., & Marier, R. L. (1997, May). Health status measurement standards for electronic data sharing: Can the MOS SF36 and the LSU HSI physical functioning scales be equated?. Presented at the American Medical Informatics Association, San Jose, California.

Fisher, W. P., Jr., Harvey, R. F., & Kilgore, K. M. (1995). New developments in functional assessment: Probabilistic models for gold standards. NeuroRehabilitation, 5(1), 3-25.

Fisher, W. P., Jr., Harvey, R. F., Taylor, P., Kilgore, K. M., & Kelly, C. K. (1995, February). Rehabits: A common language of functional assessment. Archives of Physical Medicine and Rehabilitation, 76(2), 113-122.

Fisher, W. P., Jr., & Stenner, A. J. (2005, Tuesday, April 12). Creating a common market for the liberation of literacy capital. In  R. E. Schumacker (Chair), Rasch Measurement: Philosophical, Biological and Attitudinal Impacts. American Educational Research Association, Rasch Measurement SIG, Montreal, Canada.

Fisher, W. P., Jr., & Stenner, A. J. (2011, January). Metrology for the social, behavioral, and economic sciences (Social, Behavioral, and Economic Sciences White Paper Series). Retrieved 25 October 2011, from National Science Foundation: http://www.nsf.gov/sbe/sbe_2020/submission_detail.cfm?upld_id=36.

Fisher, W. P., Jr., & Stenner, A. J. (2011, August 31 to September 2). A technology roadmap for intangible assets metrology. In Fundamentals of measurement science. International Measurement Confederation (IMEKO) TC1-TC7-TC13 Joint Symposium, http://www.db-thueringen.de/servlets/DerivateServlet/Derivate-24493/ilm1-2011imeko-018.pdf, Jena, Germany.

Miller, P., & O’Leary, T. (2007, October/November). Mediating instruments and making markets: Capital budgeting, science and the economy. Accounting, Organizations, and Society, 32(7-8), 701-34.

North, D. C. (1981). Structure and change in economic history. New York: W. W. Norton & Co.

North, D. C. (1990). Institutions, institutional change, and economic performance. New York: Cambridge University Press.

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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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Open Letter on New Infrastructure as a Platform for Economic Growth and Scientific Innovation

December 21, 2011

Dear Thought Leaders Everywhere,

As you are no doubt well aware, one issue in particular is being brought to a head by the lingering economic malaise and the continuing situation in Europe: the austerity measures needed for countering debt problems are going to severely limit growth potentials, if they do not lead straight to recession or depression, unless sources of new efficiencies are found. Given the huge existing levels of debt, it is increasingly difficult to justify the capital injections the economy needs, so thinkers from Paul Krugman to Bill Clinton have proposed the possibility that some new technical infrastructure could provide a platform for new growth, much as the Internet has.

Energy might be a productive area to focus on, for instance. Others go straight to immediately available technologies, and speak of investments in existing infrastructure, such as roads and bridges. But even if a program for bringing that kind of concrete engineering up to full capacity was put in place, it would provide only a small fraction of the jobs and growth actually needed.

The basic idea is right on the mark, though no one seems to realize there are types of infrastructure beyond tangible assets like energy, or roads and bridges. Stop a second and think about it. We say we manage what we measure. Standardized weights and measures are widely recognized as an essential core feature of productivity and innovation in science, engineering, and the economy. But existing standardized metrics are exclusively focused on physics and chemistry, machines and tools, and property. And that’s the problem: manufactured capital and property make up only about 10% of all the capital under management.

What’s the other 90%? Human capital: skills, motivations, health. Social capital: trust, commitment, loyalty. Natural capital: water and air purification services, genetic variation, fisheries. Why don’t we have standardized weights and measures for managing these essential core areas of education, health care, human and natural resource management, social services, etc.? After all, if we manage what we measure, and we lack measures for the vast majority of the capital in the economy, we are probably lucky to be doing as well as we are. Our faith in efficient markets is not misplaced as much as we have not yet really made it central to the economics of every form of capital.

There are a lot of reasons why we don’t have standardized metrics for measuring individual amounts of intangible assets like human, social, and natural capital, but the supposed “subjectivity” of those forms of capital is NOT one of them. Decades of research and practice prove the viability of the technology needed for unifying the measurement of everything from literacy capital to health capital, from social capital to natural capital. What stands in our way as a society has much more to do with preconceptions and unexamined assumptions than with the supposed “soft” nature of the social sciences and psychology.

White papers published online by NIST and NSF, and a recent award-winning essay forthcoming in Standards Engineering (full references are listed below), provide rational justifications for a new research agenda focused on developing and implementing an intangible assets metric system. Such a system would enable us to act on the truth that we can accomplish far more working together cooperatively in a common framework than we can as individuals.

Better measurement is essential to better management. In the context of today’s pressing economic and social issues, new questions about the way we manage every form of resource need to be raised. You are in a position from which these questions can be effectively put forward for consideration by thought leaders across a wide array of disciplines and industries. We hope you will see fit to do so. If we can be of any further assistance, please do not hesitate to let us know. Thank you.

Sincerely,

William P. Fisher, Jr., Ph.D.

A. Jackson Stenner, Ph.D.

Fisher, W. P., Jr. (2009). NIST Critical national need idea White Paper: metrological infrastructure for human, social, and natural capital (Tech. Rep. No. http://www.nist.gov/tip/wp/pswp/upload/202_metrological_infrastructure_for_human_social_natural.pdf). Washington, DC: National Institute for Standards and Technology.

Fisher, W. P., Jr. (2012). What the world needs now: A bold plan for new standards. Standards Engineering, forthcoming. For the ANSI press release, see http://webstore.ansi.org/NewsDetail.aspx?NewsGuid=590a225c-d779-4f81-804e-4d05ef239c37.)

Fisher, W. P., Jr., & Stenner, A. J. (2011, January). Metrology for the social, behavioral, and economic sciences (Social, Behavioral, and Economic Sciences White Paper Series). Retrieved 25 October 2011, from National Science Foundation: http://www.nsf.gov/sbe/sbe_2020/submission_detail.cfm?upld_id=36.

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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.

Externalities are to markets as anomalies are to scientific laws

October 28, 2011

Economic externalities are to efficient markets as any consistent anomaly is relative to a lawful regularity. Government intervention in markets is akin to fudging the laws of physics to explain the wobble in Uranus’ orbit, or to explain why magnetized masses would not behave like wooden or stone masses in a metal catapult (Rasch’s example). Further, government intervention in markets is necessary only as long as efficient markets for externalized forms of capital are not created. The anomalous exceptions to the general rule of market efficiency have long since been shown to themselves be internally consistent lawful regularities in their own right amenable to configuration as markets for human, social and natural forms of capital.

There is an opportunity here for the concise and elegant statement of the efficient markets hypothesis, the observation of certain anomalies, the formulation of new theories concerning these forms of capital, the framing of efficient markets hypotheses concerning the behavior of these anomalies, tests of these hypotheses in terms of the inverse proportionality of two of the parameters relative to the third, proposals as to the uniform metrics by which the scientific laws will be made commercially viable expressions of capital value, etc.

We suffer from the illusion that trading activity somehow spontaneously emerges from social interactions. It’s as though comparable equivalent value is some kind of irrefutable, incontestable feature of the world to which humanity adapts its institutions. But this order of things plainly puts the cart before the horse when the emergence of markets is viewed historically. The idea of fair trade, how it is arranged, how it is recognized, when it is appropriate, etc. varies markedly across cultures and over time.

Yes, “’the price of things is in inverse ratio to the quantity offered and in direct ratio to the quantity demanded’ (Walras 1965, I, 216-17)” (Mirowski, 1988, p. 20). Yes, Pareto made “a direct extrapolation of the path-independence of equilibrium energy states in rational mechanics and thermodynamics” to “the path-independence of the realization of utility” (Mirowski, 1988, p. 21). Yes, as Ehrenfest showed, “an analogy between thermodynamics and economics” can be made, and economic concepts can be formulated “as parallels of thermodynamic concepts, with the concept of equilibrium occupying the central position in both theories” (Boumans, 2005, p. 31).  But markets are built up around these lawful regularities by skilled actors who articulate the rules, embody the roles, and initiate the relationships comprising economic, legal, and scientific institutions. “The institutions define the market, rather than the reverse” (Miller & O’Leary, 2007, p. 710). What we need are new institutions built up around the lawful regularities revealed by Rasch models. The problem is how to articulate the rules, embody the roles, and initiate the relationships.

Noyes (1936, pp. 2, 13; quoted in De Soto 2000, p. 158) provides some useful pointers:

“The chips in the economic game today are not so much the physical goods and actual services that are almost exclusively considered in economic text books, as they are that elaboration of legal relations which we call property…. One is led, by studying its development, to conceive the social reality as a web of intangible bonds–a cobweb of invisible filaments–which surround and engage the individual and which thereby organize society…. And the process of coming to grips with the actual world we live in is the process of objectivizing these relations.”

 Noyes (1936, p. 20, quoted in De Soto 2000, p. 163) continues:

“Human nature demands regularity and certainty and this demand requires that these primitive judgments be consistent and thus be permitted to crystallize into certain rules–into ‘this body of dogma or systematized prediction which we call law.’ … The practical convenience of the public … leads to the recurrent efforts to systematize the body of laws. The demand for codification is a demand of the people to be released from the mystery and uncertainty of unwritten or even of case law.” [This is quite an apt statement of the largely unstated demands of the Occupy Wall Street movement.]

  De Soto (2000, p. 158) explains:

 “Lifting the bell jar [integrating legal and extralegal property rights], then, is principally a legal challenge. The official legal order must interact with extralegal arrangements outside the bell jar to create a social contract on property and capital. To achieve this integration, many other disciplines are of course necessary … [economists, urban planners, agronomists, mappers, surveyers, IT specialists, etc]. But ultimately, an integrated national social contract will be concretized only in laws.”

  “Implementing major legal change is a political responsibility. There are various reasons for this. First, law is generally concerned with protecting property rights. However, the real task in developing and former communist countries is not so much to perfect existing rights as to give everyone a right to property rights–‘meta-rights,’ if you will. [Paraphrasing, the real task in the undeveloped domains of human, social, and natural capital is not so much the perfection of existing rights as it is to harness scientific measurement in the name of economic justice and grant everyone legal title to their shares of their ownmost personal properties, their abilities, health, motivations, and trustworthiness, along with their shares of the common stock of social and natural resources.] Bestowing such meta-rights, emancipating people from bad law, is a political job. Second, very small but powerful vested interests–mostly repre- [p. 159] sented by the countries best commercial lawyers–are likely to oppose change unless they are convinced otherwise. Bringing well-connected and moneyed people onto the bandwagon requires not consultants committed to serving their clients but talented politicians committed to serving their people. Third, creating an integrated system is not about drafting laws and regulations that look good on paper but rather about designing norms that are rooted in people’s beliefs and are thus more likely to be obeyed and enforced. Being in touch with real people is a politician’s task. Fourth, prodding underground economies to become legal is a major political sales job.”

 De Soto continues (p. 159), intending to refer only to real estate but actually speaking of the need for formal legal title to personal property of all kinds, which ought to include human, social, and natural capital:

  “Without succeeding on these legal and political fronts, no nation can overcome the legal apartheid between those who can create capital and those who cannot. Without formal property, no matter how many assets they accumulate or how hard they work, most people will not be able to prosper in a capitalist society. They will continue to remain beyond the radar of policymakers, out of the reach of official records, and thus economically invisible.”

Boumans, M. (2005). How economists model the world into numbers. New York: Routledge.

De Soto, H. (2000). The mystery of capital: Why capitalism triumphs in the West and fails everywhere else. New York: Basic Books.

Miller, P., & O’Leary, T. (2007, October/November). Mediating instruments and making markets: Capital budgeting, science and the economy. Accounting, Organizations, and Society, 32(7-8), 701-34.

Mirowski, P. (1988). Against mechanism: Protecting economics from science. Lanham, MD: Rowman & Littlefield.

Noyes, C. R. (1936). The institution of property. New York: Longman’s Green.

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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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Permissions beyond the scope of this license may be available at http://www.livingcapitalmetrics.com.

Rasch Measurement as a Basis for a New Standards Framework

October 26, 2011

The 2011 U.S. celebration of World Standards Day took place on October 13 at the Fairmont Hotel in Washington, D.C., with the theme of “Advancing Safety and Sustainability Standards Worldwide.” The evening began with a reception in a hall of exhibits from the celebrations sponsors, which included the National Institute for Standards and Technology (NIST), the Society for Standards Professionals (SES), the American National Standards Institute (ANSI), Microsoft, IEEE, Underwriters Laboratories, the Consumer Electronics Association, ASME, ASTM International, Qualcomm, Techstreet, and many others. Several speakers took the podium after dinner to welcome the 400 or so attendees and to present the World Standards Day Paper Competition Awards and the Ronald H. Brown Standards Leadership Award.

Dr. Patrick Gallagher, Under Secretary of Commerce for Standards and Technology, and Director of NIST, was the first speaker after dinner. He directed his remarks at the value of a decentralized, voluntary, and demand-driven system of standards in promoting innovation and economic prosperity. Gallagher emphasized that “standards provide the common language that keeps domestic and international trade flowing,” concluding that “it is difficult to overestimate their critical value to both the U.S. and global economy.”

James Shannon, President of the National Fire Protection Association (NFPA), accepted the R. H. Brown Standards Leadership Award in recognition for his work initiating or improving the National Electrical Code, the Life Safety Code, and the Fire Safe Cigarette and Residential Sprinkler Campaigns.

Ellen Emard, President of SES, introduced the paper competition award winners. As of this writing the titles and authors of the first and second place awards are not yet available on the SES web site (http://www.ses-standards.org/displaycommon.cfm?an=1&subarticlenbr=56). I took third place for my paper, “What the World Needs Now: A Bold Plan for New Standards.” Where the other winning papers took up traditional engineering issues concerning the role of standards in advancing safety and sustainability issues, my paper spoke to the potential scientific and economic benefits that could be realized by standard metrics and common product definitions for outcomes in education, health care, social services, and environmental resource management. All three of the award-winning papers will appear in a forthcoming issue of Standards Engineering, the journal of SES.

I was coincidentally seated at the dinner alongside Gordon Gillerman, winner of third place in the 2004 paper competition (http://www.ses-standards.org/associations/3698/files/WSD%202004%20-%203%20-%20Gillerman.pdf) and currently Chief of the Standards Services Division at NIST. Gillerman has a broad range of experience in coordinating standards across multiple domains, including environmental protection, homeland security, safety, and health care. Having recently been involved in a workshop focused on measuring, evaluating, and improving the usability of electronic health records (http://www.nist.gov/healthcare/usability/upload/EHR-Usability-Workshop-2011-6-03-2011_final.pdf), Gillerman was quite interested in the potential Rasch measurement techniques hold for reducing data volume with no loss of information, and so for streamlining computer interfaces.

Robert Massof of Johns Hopkins University accompanied me to the dinner, and was seated at a nearby table. Also at Massof’s table were several representatives of the National Institute of Building Sciences, some of whom Massof had recently met at a workshop on adaptations for persons with low vision disabilities. Massof’s work equating the main instruments used for assessing visual function in low vision rehabilitation could lead to a standard metric useful in improving the safety and convenience of buildings.

As is stated in educational materials distributed at the World Standards Day celebration by ANSI, standards are a constant behind-the-scenes presence in nearly all areas of everyday life. Everything from air, water, and food to buildings, clothing, automobiles, roads, and electricity are produced in conformity with voluntary consensus standards of various kinds. In the U.S. alone, more than 100,000 standards specify product and system features and interconnections, making it possible for appliances to tap the electrical grid with the same results no matter where they are plugged in, and for products of all kinds to be purchased with confidence. Life is safer and more convenient, and science and industry are more innovative and profitable, because of standards.

The point of my third-place paper is that life could be even safer and more convenient, and science and industry could be yet more innovative and profitable, if standards and conformity assessment procedures for outcomes in education, health care, social services, and environmental resource management were developed and implemented. Rasch measurement demonstrates the consistent reproducibility of meaningful measures across samples and different collections of construct-relevant items. Within any specific area of interest, then, Rasch measures have the potential of serving as the kind of mediating instruments or objects recognized as essential to the process of linking science with the economy (Fisher & Stenner, 2011b; Hussenot & Missonier, 2010; Miller & O’Leary, 2007). Recent white papers published by NIST and NSF document the challenges and benefits likely to be encountered and produced by initiatives moving in this direction (Fisher, 2009; Fisher & Stenner, 2011a).

A diverse array of Rasch measurement presentations were made at the recent International Measurement Confederation (IMEKO) meeting of metrology engineers in Jena, Germany (see RMT 25 (1), p. 1318). With that start at a new dialogue between the natural and social sciences, the NIST and NSF white papers, and with the award in the World Standards Day paper competition, the U.S. and international standards development communities have shown their interest in exploring possibilities for a new array of standard units of measurement, standardized outcome product definitions, standard conformity assessment procedures, and outcome product quality standards. The increasing acceptance and recognition of the viability of such standards is a logical consequence of observations like these:

  • “Where this law [relating reading ability and text difficulty to comprehension rate] can be applied it provides a principle of measurement on a ratio scale of both stimulus parameters and object parameters, the conceptual status of which is comparable to that of measuring mass and force. Thus…the reading accuracy of a child…can be measured with the same kind of objectivity as we may tell its weight” (Rasch, 1960, p. 115).
  • “Today there is no methodological reason why social science cannot become as stable, as reproducible, and hence as useful as physics” (Wright, 1997, p. 44).
  • “…when the key features of a statistical model relevant to the analysis of social science data are the same as those of the laws of physics, then those features are difficult to ignore” (Andrich, 1988, p. 22).

Rasch’s work has been wrongly assimilated in social science research practice as just another example of the “standard model” of statistical analysis. Rasch measurement rightly ought instead to be treated as a general articulation of the three-variable structure of natural law useful in framing the context of scientific practice. That is, Rasch’s models ought to be employed primarily in calibrating instruments quantitatively interpretable at the point of use in a mathematical language shared by a community of research and practice. To be shared in this way as a universally uniform coin of the realm, that language must be embodied in a consensus standard defining universally uniform units of comparison.

Rasch measurement offers the potential of shifting the focus of quantitative psychosocial research away from data analysis to integrated qualitative and quantitative methods enabling the definition of standard units and the calibration of instruments measuring in that unit. An intangible assets metric system will, in turn, support the emergence of new product- and performance-based standards, management system standards, and personnel certification standards. Reiterating once again Rasch’s (1960, p. xx) insight, we can acknowledge with him that “this is a huge challenge, but once the problem has been formulated it does seem possible to meet it.”

 References

Andrich, D. (1988). Rasch models for measurement. (Vols. series no. 07-068). Sage University Paper Series on Quantitative Applications in the Social Sciences. Beverly Hills, California: Sage Publications.

Fisher, W. P.. Jr. (2009). Metrological infrastructure for human, social, and natural capital (NIST Critical National Need Idea White Paper Series, Retrieved 25 October 2011 from http://www.nist.gov/tip/wp/pswp/upload/202_metrological_infrastructure_for_human_social_natural.pdf). Washington, DC: National Institute for Standards and Technology.

Fisher, W. P., Jr., & Stenner, A. J. (2011a, January). Metrology for the social, behavioral, and economic sciences (Social, Behavioral, and Economic Sciences White Paper Series). Retrieved 25 October 2011 from http://www.nsf.gov/sbe/sbe_2020/submission_detail.cfm?upld_id=36. Washington, DC: National Science Foundation.

Fisher, W. P., Jr., & Stenner, A. J. (2011b). A technology roadmap for intangible assets metrology. In Fundamentals of measurement science. International Measurement Confederation (IMEKO), Jena, Germany, August 31 to September 2.

Hussenot, A., & Missonier, S. (2010). A deeper understanding of evolution of the role of the object in organizational process. The concept of ‘mediation object.’ Journal of Organizational Change Management, 23(3), 269-286.

Miller, P., & O’Leary, T. (2007, October/November). Mediating instruments and making markets: Capital budgeting, science and the economy. Accounting, Organizations, and Society, 32(7-8), 701-34.

Rasch, G. (1960). Probabilistic models for some intelligence and attainment tests (Reprint, with Foreword and Afterword by B. D. Wright, Chicago: University of Chicago Press, 1980). Copenhagen, Denmark: Danmarks Paedogogiske Institut.

Wright, B. D. (1997, Winter). A history of social science measurement. Educational Measurement: Issues and Practice, 16(4), 33-45, 52 [http://www.rasch.org/memo62.htm].

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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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