Posts Tagged ‘capital’

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”?

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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.

Professional capital as product of human, social, and decisional capitals

April 18, 2014

Leslie Pendrill gave me a tip on a very interesting book, Professional Capital, by Michael Fullan. The author’s distinction between business capital and professional capital is somewhat akin to my distinction (Fisher, 2011) between dead and living capital. The primary point of contact between Fullan’s sense of capital and mine stems from his inclusion of social and decisional capital as crucial enhancements of human capital.

Of course, defining human capital as talent, as Fullan does, is not going to go very far toward supporting generalized management of it. Efficient markets require that capital be represented in transparent and universally available instruments (common currencies or metrics). Transparent, systematic representation makes it possible to act on capital abstractly, in laboratories, courts, and banks, without having to do anything at all with the physical resource itself. (Contrast this with socialism’s focus on controlling the actual concrete resources, and the resulting empty store shelves, unfulfilled five-year plans, pogroms and purges, and overall failure.) Universally accessible transparent representations make capital additive (amounts can be accrued), divisible (it can be divided into shares), and mobile (it can be moved around in networks accepting the currency/metric). (See references below for more information.)

Fullan cites research by Carrie Leanna at the U of Pittsburgh showing that teachers with high social capital increased their students math scores by 5.7% more than teachers with low social capital. The teachers with the highest skill levels (most human capital) and high social capital did the overall best. Low-ability teachers in schools with high social capital did as well as average teachers.

This is great, but the real cream of Fullan’s argument concerns the importance of what he calls decisional capital. I don’t think this will likely work out to be entirely separate from human capital, but his point is well taken: the capacity to consistently engage with students with competence, good judgment, insight, inspiration, creative improvisation, and openness to feedback in a context of shared responsibility is vital. All of this is quite consistent with recent work on collective intelligence (Fischer, Giaccardi, Eden, et al., 2005; Hutchins, 2010; Magnus, 2007; Nersessian, 2006; Woolley, Chabris, Pentland, et al., 2010; Woolley and Fuchs, 2011).

And, of course, you can see this coming: decisional capital is precisely what better measurement provides. Integrated formative and summative assessment informs decision making at the individual level in ways that are otherwise impossible. When those assessments are expressed in uniformly interpretable and applicable units of measurement, collective intelligence and social capital are boosted in the ways documented by Leanna as enhancing teacher performance and boosting student outcomes.

Anyway, just wanted to share that. It fits right in with the trading zone concept I presented at IOMW (the slides are available on my LinkedIn page).

Fischer, G., Giaccardi, E., Eden, H., Sugimoto, M., & Ye, Y. (2005). Beyond binary choices: Integrating individual and social creativity. International Journal of Human-Computer Studies, 63, 482-512.

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). Measurement and communities of inquiry. Rasch Measurement Transactions, 17(3), 936-938 [http://www.rasch.org/rmt/rmt173.pdf].

Fisher, W. P., Jr. (2004a, 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. Perth, Western Australia:  Murdoch University.

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

Fisher, W. P., Jr. (2005a). Daredevil barnstorming to the tipping point: New aspirations for the human sciences. Journal of Applied Measurement, 6(3), 173-179.

Fisher, W. P., Jr. (2005b, 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. Pope Auditorium, Lowenstein Bldg, Fordham University.

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

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

Fisher, W. P., Jr. (2008b, March 28). Rasch, Frisch, two Fishers and the prehistory of the Separability Theorem. In J. William P. Fisher (Ed.), Session 67.056. Reading Rasch Closely: The History and Future of Measurement. American Educational Research Association. New York City [Paper available at SSRN: http://ssrn.com/abstract=1698919%5D: Rasch Measurement SIG.

Fisher, W. P., Jr. (2009a, November). 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 (p. http://ssrn.com/abstract=2340674). Bridge to Business Postdoctoral Certification, Freeman School of Business: Tulane University.

Fisher, W. P., Jr. (2010c). 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. (2011a). Bringing human, social, and natural capital to life: Practical consequences and opportunities. In N. Brown, B. Duckor, K. Draney & M. Wilson (Eds.), Advances in Rasch Measurement, Vol. 2 (pp. 1-27). Maple Grove, MN: JAM Press.

Fisher, W. P., Jr. (2011b). Measuring genuine progress by scaling economic indicators to think global & act local: An example from the UN Millennium Development Goals project. LivingCapitalMetrics.com [Online]. Available: http://ssrn.com/abstract=1739386 (Accessed 18 January 2011).

Fisher, W. P., Jr. (2012). 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., & Stenner, A. J. (2005, Tuesday, April 12). Creating a common market for the liberation of literacy capital. In R. E. Schumacker (Ed.), Rasch Measurement: Philosophical, Biological and Attitudinal Impacts. American Educational Research Association. Montreal, Canada: Rasch Measurement SIG.

Fisher, W. P., Jr., & Stenner, A. J. (2011a, January). Metrology for the social, behavioral, and economic sciences. Available: http://www.nsf.gov/sbe/sbe_2020/submission_detail.cfm?upld_id=36 (Accessed 12 January 2014).

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.

Hutchins, E. (2010). Cognitive ecology. Topics in Cognitive Science, 2, 705-715.

Magnus, P. D. (2007). Distributed cognition and the task of science. Social Studies of Science, 37(2), 297-310.

Nersessian, N. J. (2006, December). Model-based reasoning in distributed cognitive systems. Philosophy of Science, pp. 699-709.

Woolley, A. W., Chabris, C. F., Pentland, A., Hashmi, N., & Malone, T. W. (2010, 29 October). Evidence for a collective intelligence factor in the performance of human groups. Science, pp. 686-688.

Woolley, A. W., & Fuchs, E. (2011, September-October). Collective intelligence in the organization of science. Organization Science, pp. 1359-1367.

The New Information Platform No One Sees Coming

December 6, 2012

I’d like to draw your attention to a fundamentally important area of disruptive innovations no one seems to see coming. The biggest thing rising in the world of science today that does not appear to be on anyone’s radar is measurement. Transformative potential beyond that of the Internet itself is available.

Realizing that potential will require an Intangible Assets Metric System. This system will connect together all the different ways any one thing is measured, bringing common languages for representing human, social, and economic value into play everywhere. We need these metrics on the front lines of education, health care, social services, and in human, reputation, and natural resource management, as well as in the economic models and financial spreadsheets informing policy, and in the scientific research conducted in dozens of fields.

All reading ability measures, for instance, should be transparently, inexpensively, and effortlessly expressed in a universally uniform metric, in the same way that standardized measures of weight and volume inform grocery store purchasing decisions. We have made starts at such systems for reading, writing, and math ability measures, and for health status, functionality, and chronic disease management measures. There oddly seems to be, however, little awareness of the full value that stands to be gained from uniform metrics in these areas, despite the overwhelming human, economic, and scientific value derived from standardized units in the existing economy. There has accordingly been virtually no leadership or investment in this area.

Measurement practice in business is woefully out of touch with the true paradigm shift that has been underway in psychometrics for years, even though the mantra “you manage what you measure” is repeated far and wide. In a fascinating twist, practically the only ones who notice the business world’s conceptual shortfall in measurement practice are the contrarians who observe that quantification can often be more of a distraction from management than the medium of its execution—but this is true only when measures are poorly conceived, designed, and implemented.

Demand for better measurement—measurement that reduces data volume not only with no loss of information but with the addition of otherwise unavailable interstitial information; that supports mass customized comparability for informed purchasing and quality improvement decisions; and that enables common product definitions for outcomes-based budgeting—is growing hand in hand with the spread of resilient, nimble, lean, and adaptive business models, and with the ongoing geometrical growth in data volume.

An even bigger source of demand for the features of advanced measurement is the increasing dependence of the economy on intangible assets, those forms of human, social, and natural capital that comprise 90% or more of the total capital under management. We will bring these now economically dead forms of capital to life by systematically standardizing representations of their quality and quantity. The Internet is the planetary nervous system through which basic information travels, and the Intangible Assets Metric System will be the global cerebrum, where higher order thinking takes place.

It will not be possible to realize the full potential of lean thinking in the information- and service-based economy without an Intangible Assets Metric System. Given the long-proven business value of standards and the role of measurement in management, it seems self-evident that our ongoing economic difficulties stem largely from our failure to develop and deploy an Intangible Assets Metric System providing common currencies for the exchange of authentic wealth. The future of sustainable and socially responsible business practices must surely depend extensively on universal access to flexible and practical uniform metrics for intangible assets.

Of course, for global intangible assets standards to be viable, they must be adaptable to local business demands and conditions without compromising their comparability. And that is just what is most powerfully disruptive about contemporary measurement methods: they make mass customization a reality. They’ve been doing so in computerized testing since the 1970s. Isn’t it time we started putting this technology to systematic use in a wide range of applications, from human and environmental resource management to education, health care, and social services?

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.

Measuring/Managing Social Value

August 28, 2012

From my December 1, 2008 personal journal, written not long after the October 2008 SoCap conference. I’ve updated a few things that have changed in the intervening years.

Over the last month, I’ve been digesting what I learned at the Social Capital Markets conference at Fort Mason in San Francisco, and at the conference I attended just afterward, Bioneers, in Marin county. Bioneers (www.Bioneers.org) could be called Natural Capital Markets. It was quite like the Social Capital Markets conference with only a slight shift in emphasis, and lots of discussion of social value.

The main thing that impressed me at both of these conferences, apart from what I already knew about the caring passion I share with so many, is the huge contrast between that passion and the quality of the data that so many are basing major decisions on. Seeing this made me step back and think harder about how to shape my message.

First, though it may not seem like it initially, there is incredible practical value to be gained from taking the trouble to construct good measures. We do indeed manage what we measure. So whatever we measure becomes what we manage. If we’re not measuring anything that has anything to do with our mission, vision, or values, then what we’re managing won’t have anything to do with those, either. And when the numbers we use as measures do not actually represent a constant unit amount that adds up the way the numbers do, then we don’t have a clue what we’re measuring and we could be managing just about anything.

This is not the way to proceed. First take-away: ask for more from your data. Don’t let it mislead you with superficial appearances. Dig deeper.

Second, to put it a little differently, percentages, scores, and counts per capita, etc. are not measures that have the same meaning or quality that measures of height, weight, time, temperature, or volts have. However, for over 50 years, we have been constructing measures mathematically equivalent to physical measures from ability tests, surveys, assessments, checklists, etc. The technical literature on this is widely available. The methods have been mainstream at ETS, ACT, state and national departments of education globally, etc for decades.

Second take-away: did I say you should ask for more from your data? You can get it. A lot of people already are, though I don’t think they’re asking for nearly as much as they could get.

Third, though the massive numbers of percentages, scores, and counts per capita are not the measures we seek, they are indeed exactly the right place to start. I have seen over and over again, in education, health care, sociology, human resource management, and most recently in the UN Millennium Development Goals data, that people do know exactly what data will form a proper basis for the measurement systems they need.

Third take-away: (one more time!) ask for more from your data. It may conceal a wealth beyond what you ever guessed.

So what are we talking about? There are methods for creating measures that give you numbers that verifiably stand for a substantive unit amount that adds up in the same way one-inch blocks do (probabilistically, and within a range of error). If the instrument is properly calibrated and administered, the unit size and meaning will not change across individuals or samples measured. You can reduce data volume dramatically, not only with no loss of information but also with false appearances of information either indicated as error or flagged for further attention. You can calibrate a continuum of less to more that is reliably and reproducibly associated with, annotated by, and interpreted through your own indicators. You can equate different collections of indicators that measure the same thing so that they do so in the same unit.

Different agencies using the same, different, or mixed collections of indicators in different countries or regions could assess their measures for comparability, and if they are of satisfactory quality, equate them so they measure in the same unit. That is, well-designed instruments written and administered in different languages routinely have their items calibrate in the same order and positions, giving the same meaning to the same unit of measurement. For instance, see the recent issue of the Journal of Applied Measurement ([link]) devoted to reports on the OECD’s Programme for International Student Assessment.

This is not a data analysis strategy. It is an instrument calibration strategy. Once calibrated, the instrument can be deployed. We need to monitor its structure, but the point is to create a tool people can take out into the world and use like a thermometer or clock.

I’ve just been looking at the Charity Navigator (for instance, [link]) and the UN’s Millenium Development Goals ([link]), and the databases that have been assembled as measures of progress toward these goals ([link]). I would suppose these web sites show data in forms that people are generally familiar with, so I’m working up analyses to use as teaching tools from the UN data.

You don’t have to take any of this at my word. It’s been documented ad nauseum in the academic literature for decades. Those interested can find out more than they ever wanted to know at http://www.Rasch.org, in the Wikipedia Rasch entry, in the articles and books at JAMPress.com, or in dozens of academic journals and hundreds of books. Though I’ve done my share of it, I’m less interested in continuing to add to that than I am in making a tangible contribution to improving people’s lives.

Sorry to go on like this. I meant to keep this short. Anyway, there it is.

PS, for real geeks: For those of you serious about learning about measurement as it is rigorously and mathematically defined, look into taking Everett Smith’s measurement course at Statistics.com ([link]) or David Andrich’s academic units at the University of Western Australia ([link]). Available software includes Mike Linacre’s Winsteps, Andrich’s RUMM, and Mark Wilson’s, at UC Berkeley, Conquest.

The methods Ev, Mike, David, and Mark teach have repeatedly been proven, both in mathematical theory and in real life, to be both necessary and sufficient in the construction of meaningful, practical measurement. Any number of ways of defining objectivity in measurement have been shown to reduce to the mathematical models they use. Why all the Chicago stuff? Because of Ben Wright. I’m helping (again) to organize a conference in his honor, to be held in Chicago next March. His work won him a Career Achievement Award from the Association of Test Publishers, and the coming conference will celebrate his foundational contributions to computerized measurement in health care.

As a final note, for those of you fearing reductionistic meaninglessness, look into my philosophical work.  But enough…

Review of “Advancing Social Impact Investments Through Measurement”

August 24, 2012

Over the last few days, I have been reading several of the most recent issues of the Community Development Investment Review, especially volume 7, number 2, edited by David Erickson of the Federal Reserve Bank of San Francisco, reporting the proceedings of the March 21, 2011 conference in Washington, DC on advancing social impact investments through measurement. I am so excited to see this work that I am (truly) fairly trembling with excitement. I feel as though I’ve finally made my way home. There are so many points of contact, it’s hard to know where to start. After several days of concentrated deep breathing and close study of the CDIR, it’s now possible to formulate some coherent thoughts to share.

The CDIR papers start to sort out the complex issues involved in clarifying how measurement might contribute to the integration of impact investing and community development finance. I am heartened by the statement that “The goal of the Review is to bridge the gap between theory and practice and to enlist as many viewpoints as possible—government, nonprofits, financial institutions, and beneficiaries.” On the other hand, the omission of measurement scientists from that list of viewpoints adds another question to my long list of questions as to why measurement science is so routinely ignored by the very people who proclaim its importance. The situation is quite analogous to demanding more frequent conversational interactions from colleagues while ignoring the invention of the telephone and not providing them with the tools and network connections.

The aims shared by the CDIR contributors and myself are evident in the fact that David Erickson opens his summary of the March 21, 2011 conference with the same quote from Robert Kennedy that I placed at the end of my 2009 article in Measurement (see references below; all papers referenced are available by request if they are not already online). In that 2009 paper, in others I’ve published over the last several years, in presentations I’ve made to my measurement colleagues abroad and at home, and in various entries in my blog, I take up virtually all of the major themes that arose in the DC conference: how better measurement can attract capital to needed areas, how the cost of measurement repels many investors, how government can help by means of standard setting and regulation, how diverse and ambiguous investor and stakeholder interests can be reconciled and/or clarified, etc.

The difference, of course, is that I present these issues from the technical perspective of measurement and cannot speak authoritatively or specifically from the perspectives represented by the community development finance and impact investing fields. The bottom line take-away message for these fields from my perspective is this: unexamined assumptions may unnecessarily restrict assessments of problems and their potential solutions. As Salamon put it in his remarks in the CDIR proceedings from the Washington meeting (p. 43), “uncoordinated innovation not guided by a clear strategic concept can do more than lose its way: it can do actual harm.”

A clear strategic concept capable of coordinating innovations in social impact measurement is readily available. Multiple, highly valuable, and eminently practical measurement technologies have proven themselves in real world applications over the last 50 years. These technologies are well documented in the educational, psychological, sociological, and health care research literatures, as well as in the practical experience of high stakes testing for professional licensure and certification, for graduation, and for admissions.

Numerous reports show how to approach problems of quantification and standards with new degrees of rigor, transparency, meaningfulness, and flexibility. When measurement problems are not defined in terms of these technologies, solutions that may offer highly advantageous features are not considered. When the area of application is as far reaching and fundamental as social impact measurement, not taking new technologies into account is nothing short of tragic. I describe some of the new opportunities for you in a Technical Postscript, below.

In his Foreword to the CDIR proceedings issue, John Moon mentions having been at the 2009 SoCap event bringing together stakeholders from across the various social capital markets arenas. I was at the 2008 SoCap, and I came away from it with much the same impression as Moon, feeling that the palpable excitement in the air was more than tempered by the evident fact that people were often speaking at cross purposes, and that there did not seem to be a common object to the conversation. Moon, Erickson, and their colleagues have been in one position to sort out the issues involved, and I have been in another, but we are plainly on converging courses.

Though the science is in place and has been for decades, it will not and cannot amount to anything until the people who can best make use of it do so. The community development finance and impact investing fields are those people. Anyone interested in getting together for an informal conversation on topics of mutual interest should feel free to contact me.

Technical Postscript

There are at least six areas in efforts to advance social impact investments via measurement that will be most affected by contemporary methods. The first has to do with scale quality. I won’t go into the technical details, but numbers do not automatically stand for something that adds up the way they do. Mapping a substantive construct onto a number line requires specific technical expertise; there is no evidence of that expertise in any of the literature I’ve seen on social impact investing, or on measuring intangible assets. This is not an arbitrary bit of philosophical esoterica or technical nicety. This is one of those areas where the practical value of scientific rigor and precision comes into its own. It makes all the difference in being able to realize goals for measurement, investment, and redefining profit in terms of social impacts.

A second area in which thinking on social impact measurement will be profoundly altered by current scaling methods concerns the capacity to reduce data volume with no loss of information. In current systems, each indicator has its own separate metric. Data volume quickly multiplies when tracking separate organizations for each of several time periods in various locales. Given sufficient adherence to data quality and meaningfulness requirements, today’s scaling methods allow these indicators to be combined into a single composite measure—from which each individual observation can be inferred.

Elaborating this second point a bit further, I noted that some speakers at the 2011 conference in Washington thought reducing data volume is a matter of limiting the number of indicators that are tracked. This strategy is self-defeating, however, as having fewer independent observations increases uncertainty and risk. It would be far better to set up systems in which the metrics are designed so as to incorporate the amount of uncertainty that can be tolerated in any given decision support application.

The third area I have in mind deals with the diverse spectrum of varying interests and preferences brought to the table by investors, beneficiaries, and other stakeholders. Contemporary approaches in measurement make it possible to adapt the content of the particular indicators (counts or frequencies of events, or responses to survey questions or test items) to the needs of the user, without compromising the comparability of the resulting quantitative measure. This feature makes it possible to mass customize the content of the metrics employed depending on the substantive nature of the needs at that time and place.

Fourth, it is well known that different people judging performances or assigning numbers to observations bring different personal standards to bear as they make their ratings. Contemporary measurement methods enable the evaluation and scaling of raters and judges relative to one another, when data are gathered in a manner facilitating such comparisons. The end result is a basis for fair comparisons, instead of scores that vary depending more on which rater is observing than on the quality of the performance.

Fifth, much of the discussion at the conference in Washington last year emphasized the need for shared data formatting and reporting standards. As might be guessed from the prior four areas I’ve described, significant advances have occurred in standard setting methods. It is suggested in the CDIR proceedings that the Treasury Department should be the home to a new institute for social impact measurement standards. In a series of publications over the last few years, I have suggested a need for an Intangible Assets Metric System to NIST and NSF (see below for references and links; all papers are available on request). That suggestion comes up again in my third-prize winning entry in the 2011 World Standards Day paper competition, sponsored by NIST and SES (the Society for Standards Professionals), entitled “What the World Needs Now: A Bold Plan for New Standards.” (See below for link.)

Sixth, as noted by Salamon (p. 43), “metrics are not neutral. They not only measure impact, they can also shape it.” Though this is not likely exactly what Salamon meant, one of the most exciting areas in measurement applications in education in recent years, one led in many ways by my colleague, Mark Wilson, and his group at UC Berkeley, concerns exactly this feedback loop between measurement and impact. In education, it has become apparent that test scaling reveals the order in which lessons are learned. Difficult problems that require mastery of easier problems are necessarily answered correctly less often than the easier problems. When the difficulty order of test questions in a given subject remains constant over time and across thousands of students, one may infer that the scale reveals the path of least resistance. Individualizing instruction by targeting lessons at the student’s measure has given rise to a concept of formative assessment, distinct from the summative assessment of accountability applications. I suspect this kind of a distinction may also prove of value in social impact applications.

Relevant Publications and Presentations

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

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 International Measurement Confederation (IMEKO) TC1-TC7 Joint Symposium on Man, Science, and Measurement, Annecy, France: University of Savoie.

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., 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. (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). Bringing human, social, and natural capital to life: Practical consequences and opportunities. In N. Brown, B. Duckor, K. Draney & M. Wilson (Eds.), Advances in Rasch Measurement, Vol. 2 (pp. 1-27). Maple Grove, MN: JAM Press.

Fisher, W. P., Jr. (2011). Measuring genuine progress by scaling economic indicators to think global & act local: An example from the UN Millennium Development Goals project. LivingCapitalMetrics.com. Retrieved 18 January 2011, from Social Science Research Network: http://ssrn.com/abstract=1739386.

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

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.

Creative Commons License
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.

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.

Creative Commons License
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.

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.
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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.
Based on a work at livingcapitalmetrics.wordpress.com.
Permissions beyond the scope of this license may be available at http://www.livingcapitalmetrics.com.