Posts Tagged ‘complementary currencies’

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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Question Authority: Queries In the Back of the Wall Street Demonstrators’ Minds

October 2, 2011

I think the Wall Street demonstrators’ lack of goals and the admission of not having a solution is very important. All solutions offered so far are band-aids at best, and most are likely to do more harm than good.

I think I have an innovative way of articulating the questions people have on their minds. I thought of scattering small pieces of paper anywhere there are these demonstrations going on, with questions like these on them:

Feeling robbed of the trust, loyalty, and commitment you invested?

Unable to get a good return on your investment in your education?

Feeling robbed of your share of the world’s natural resources?

How many shares of social capital do you own?

How many shares of literacy capital do you have on the market?

How many shares of health capital do you own?

How many shares of natural capital do you own?

Wishing there was an easy way to know what return rate you get on your health investments?

Wishing there was an easy way to know what return rate you get on your education investments?

Why don’t you have legal title to your literacy capital shares?

Why don’t you have legal title to your social capital shares?

Why don’t you have legal title to your health capital shares?

Why don’t you have legal title to your natural capital shares?

Why don’t you know how many literacy capital shares are rightfully yours?

Why don’t you know how many social capital shares are rightfully yours?

Why don’t you know how many health capital shares are rightfully yours?

Why don’t you know how many natural capital shares are rightfully yours?

Why is there no common currency for trading on your literacy capital?

Why is there no common currency for trading on your health capital?

Why is there no common currency for trading on your social capital?

Why is there no common currency for trading on your natural capital?

Why aren’t corporations accountable for their impacts on your literacy capital investments?

Why aren’t corporations accountable for their impacts on your natural capital investments?

Why aren’t corporations accountable for their impacts on your social capital investments?

Why aren’t corporations accountable for their impacts on your health capital investments?

Why aren’t governments accountable for their impacts on your literacy capital investments?

Why aren’t governments accountable for their impacts on your natural capital investments?

Why aren’t governments accountable for their impacts on your social capital investments?

Why aren’t governments accountable for their impacts on your health capital investments?

Why are educational outcomes not comparable in a common metric?

Why are health care outcomes not comparable in a common metric?

Why are social program outcomes not comparable in a common metric?

Why are natural resource management program outcomes not comparable in a common metric?

Why do accounting and economics focus on land, labor, and manufactured capital instead of putting the value of ecosystem services, and health, literacy, and social capital, on the books and in the models, along with property and manufactured capital?

If we truly do manage what we measure, why don’t we have a metric system for literacy capital?

Can we effectively manage literacy capital if we don’t have a universally recognized and accepted metric for it?

If we truly do manage what we measure, why don’t we have a metric system for health capital?

Can we effectively manage health capital if we don’t have a universally recognized and accepted metric for it?

If we truly do manage what we measure, why don’t we have a metric system for social capital?

Can we effectively manage social capital if we don’t have a universally recognized and accepted metric for it?

If we truly do manage what we measure, why don’t we have a metric system for natural capital?

Can we effectively manage natural capital if we don’t have a universally recognized and accepted metric for it?

How is our collective imagination being stifled by the lack of a common language for literacy capital?

How is our collective imagination being stifled by the lack of a common language for health capital?

How is our collective imagination being stifled by the lack of a common language for social capital?

How is our collective imagination being stifled by the lack of a common language for natural capital?

How can the voice of the people be heard without common languages for things that are important to us?

How do we know where we stand as individuals and as a society if we can’t track the value and volume of our literacy, health, social, and natural capital shares?

Why don’t NIST and NSF fund new research into literacy, health, social, and natural capital metrics?

Why aren’t banks required to offer literacy, health, social, and natural capital accounts?

If we want to harmonize relationships between people, within and between societies, and between culture and nature, why don’t we tune the instruments on which we play the music of our lives?

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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.

Build it and they will come

February 8, 2011

“It” in the popular Kevin Costner movie, “Field of Dreams,” was a baseball diamond. He put it in a corn field. Not only did a ghost team conjure itself from the corn, so did a line of headlights on the road. There would seem to have been a stunning lack of preparation for crowds of fans, as parking, food, and toilet facilities were nowhere in sight.

Those things would be taken care of in due course, but that’s another story. The point has nothing to do with being realistic and everything to do with making dreams come true. Believing in yourself and your dreams is hard. Dreams are inherently unrealistic. As George Bernard Shaw said, reasonable people adapt to life and the world. It’s unreasonable people who think the world should adapt to them. And, accordingly, change comes about only because unreasonable and unrealistic people act to make things different.

I dream of a playing field, too. I can’t just go clear a few acres in a field to build it, though. The kind of clearing I’m dreaming of is more abstract. But the same idea applies. I, too, am certain that, if we build it, they will come.

What is it? Who are they? “It” is a better way for each of us to represent who we are to the world, and to see where we stand in it. It is a new language for speaking the truth of what we are each capable of. It is a way of tuning the instruments of a new science that will enable us to harmonize relationships of all kinds: personal, occupational, social, and economic.

Which brings us to who “they” are. They are us. Humanity. We are the players on this field that we will clear. We are the ones who care and who desire meaning. We are the ones who have been robbed of the trust, loyalty, and commitment we’ve invested in governments, corporations, and decades of failed institutions. We are the ones who know what has been lost, and what yet could still be gained. We are the ones who possess our individual skills, motivations, and health, but yet have no easy, transparent way to represent how much of any one of them we have, what quality it is, or how much it can be traded for. We are the ones who all share in the bounty of the earth’s fecund capacity for self-renewal, but who among us can show exactly how much the work we do every day adds or subtracts from the quality of the environment?

So why do I say, build it and they will come? Because this sort of thing is not something that can be created piecemeal. What if Costner’s character in the movie had not just built the field but had instead tried to find venture capital, recruit his dream team, set up a ticket sales vendor, hire management and staff, order uniforms and equipment, etc.? It never would have happened. It doesn’t work that way.

And so, finally, just what do we need to build? Just this: a new metric system. The task is to construct a system of measures for managing what’s most important in life: our relationships, our health, our capacity for productive and creative employment. We need a system that enables us to track our investments in intangible assets like education, health care, community, and quality of life. We need instruments tuned to the same scales, ones that take advantage of recently developed technical capacities for qualitatively meaningful quantification; for information synthesis across indicators/items/questions; for networked, collective thinking; for adaptive innovation support; and for creating fungible currencies in which human, social, and natural capital can be traded in efficient markets.

But this is not a system that can be built piecemeal. Infrastructure on this scale is too complex and too costly for any single individual, firm, or industry to create by itself. And building one part of it at a time will not work. We need to create the environment in which these new forms of life, these new species, these new markets for living capital, can take root and grow, organically. If we create that environment, with incentives and rewards capable of functioning like fertile soil, warm sun, and replenishing rain, it will be impossible to stop the growth.

You see, there are thousands of people around the world using new measurement methods to calibrate tests, surveys and assessments as valid and reliable instruments. But they are operating in an environment in which the fully viable seeds they have to plant are wasted. There’s no place for them to take root. There’s no sun, no water.

Why is the environment for the meaningful, uniform measurement of intangible assets so inhospitable? The primary answer to this question is cultural. We have ingrained and highly counterproductive attitudes toward what are often supposed to be the inherent properties of numbers. One very important attitude of this kind is that it is common to think that all numbers are quantitative. But lots of scoring systems and percentage reporting schemes involve numbers that do not stand for something that adds up. There is nothing automatic or simple about the way any given unit of calibrated measurement remains the same all up and down a scale. Arriving at a way to construct and maintain such a unit requires as much intensive research and imaginative investigation in the social sciences as it does in the natural sciences. But where the natural sciences and engineering have grown up around a focus on meaningful measurement, the social sciences have not.

One result of mistaken preconceptions about number is that even when tests, surveys, and assessments measure the same thing, they are disconnected from one another, tuned to different scales. There is no natural environment, no shared ecology, in which the growth of learning can take place in field-wide terms. There’s no common language in which to share what’s been learned. Even when research results are exactly the same, they look different.

But if there was a system of consensus-based reference standard metrics, one for each major construct–reading, writing, and math abilities; health status; physical and psychosocial functioning; quality of life; social and natural capital–there would be the expectation that instruments measuring the same thing should measure in the same unit. Researchers could be contributing to building larger systems when they calibrate new instruments and recalibrate old ones. They would more obviously be adding to the stock of human knowledge, understanding, and wisdom. Divergent results would demand explanations, and convergent ones would give us more confidence as we move forward.

Most importantly, quality improvement and consumer purchasing decisions and behaviors would be fluidly coordinated with no need for communicating and negotiating the details of each individual comparison. Education and health care lack common product definitions because their outcomes are measured in fragmented, incommensurable metrics. But if we had consensus-based reference standard metrics for every major form of capital employed in the economy, we could develop reasonable expectations expressed in a common language for how much change should typically be obtained in fifth-grade mathematics or from a hip replacement.

As is well-known in the business world, innovation is highly dependent on standards. We cannot empower the front line with the authority to make changes when decisions have to be based on information that is unavailable or impossible to interpret. Most of the previous entries in this blog take up various aspects of this situation.

All of this demands a very different way of thinking about what’s possible in the realm of measurement. The issues are complex. They are usually presented in difficult mathematical terms within specialized research reports. But the biggest problem has to do with thinking laterally, with moving ideas out of the vertical hierarchies of the silos where they are trapped and into a new field we can dream in. And the first seeds to be planted in such a field are the ones that say the dream is worth dreaming. When we hear that message, we are already on the way not just to building this dream, but to creating a world in which everyone can dream and envision more specific possibilities for their lives, their families, their creativity.

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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.

You see, there are thousands of people around the world using these
new measurement methods to calibrate tests, surveys and assessments as
valid and reliable instruments. But they are operating in an
environment in which the fully viable seeds they have to plant are
wasted. There’s no place for them to take root. There’s no sun, no
water. 

This is because the instruments being calibrated are all disconnected.
Even instruments of the same kind measuring the same thing are
isolated from one another, tuned to different scales. There is no
natural environment, no shared ecology, in which the growth of
learning can take place. There’s no common language in which to share
what’s been learned. Even when results are exactly the same, they look
different.

 

You see, there are thousands of people around the world using these new measurement methods to calibrate tests, surveys and assessments as valid and reliable instruments. But they are operating in an environment in which the fully viable seeds they have to plant are wasted. There’s no place for them to take root. There’s no sun, no water. This is because the instruments being calibrated are all disconnected. Even instruments of the same kind measuring the same thing are isolated from one another, tuned to different scales. There is no natural environment, no shared ecology, in which the growth of learning can take place. There’s no common language in which to share what’s been learned. Even when results are exactly the same, they look different.

Open Letter to the Impact Investment Community

May 4, 2010

It is very encouraging to discover your web sites (GIIN, IRIS, and GIIRS) and to see the work you’re doing in advancing the concept of impact investing. The defining issue of our time is figuring out how to harness the profit motive for socially responsible and environmentally sustainable prosperity. The economic, social, and environmental disasters of today might all have been prevented or significantly mitigated had social and environmental impacts been taken into account in all investing.

My contribution is to point out that, though the profit motive must be harnessed as the engine driving responsible and sustainable business practices, the force of that power is dissipated and negated by the lack of efficient human, social, and natural capital markets. If we cannot make these markets function more like financial markets, so that money naturally flows to those places where it produces the greatest returns, we will never succeed in the fundamental reorientation of the economy toward responsible sustainability. The goal has to be one of tying financial profits to growth in realized human potential, community, and environmental quality, but to do that we need measures of these intangible forms of capital that are as scientifically rigorous as they are eminently practical and convenient.

Better measurement is key to reducing the market frictions that inflate the cost of human, social, and natural capital transactions. A truly revolutionary paradigm shift has occurred in measurement theory and practice over the last fifty years and more. New methods make it possible

* to reduce data volume dramatically with no loss of information,
* to custom tailor measures by selectively adapting indicators to the entity rated, without compromising comparability,
* to remove rater leniency or severity effects from the measures,
* to design optimally efficient measurement systems that provide the level of precision needed to support decision making,
* to establish reference standard metrics that remain universally uniform across variations in local impact assessment indicator configurations, and
* to calibrate instruments that measure in metrics intuitively meaningful to stakeholders and end users.

Unfortunately, almost all the admirable energy and resources being poured into business intelligence measures skip over these “new” developments, defaulting to mistaken assumptions about numbers and the nature of measurement. Typical ratings, checklists, and scores provide units of measurement that

* change size depending on which question is asked, which rating category is assigned, and who or what is rated,
* increase data volume with every new question asked,
* push measures up and down in uncontrolled ways depending on who is judging the performance,
* are of unknown precision, and
* cannot be compared across different composite aggregations of ratings.

I have over 25 years experience in the use of advanced measurement and instrument calibration methods, backed up with MA and PhD degrees from the University of Chicago. The methods in which I am trained have been standard practice in educational testing for decades, and in the last 20 years have become the methods of choice in health care outcomes assessment.

I am passionately committed to putting these methods to work in the domain of impact investing, business intelligence, and ecological economics. As is shown in my attached CV, I have dozens of peer-reviewed publications presenting technical and philosophical research in measurement theory and practice.

In the last few years, I have taken my work in the direction of documenting the ways in which measurement can and should reduce information overload and transaction costs; enhance human, social, and natural capital market efficiencies; provide the instruments embodying common currencies for the exchange of value; and inform a new kind of Genuine Progress Indicator or Happiness Index.

For more information, please see the attached 2009 article I published in Measurement on these topics, and the attached White Paper I produced last July in response to call from NIST for critical national need ideas. Various entries in my blog (https://livingcapitalmetrics.wordpress.com) elaborate on measurement technicalities, history, and philosophy, as do my web site at http://www.livingcapitalmetrics.com and my profile at http://www.linkedin.com/in/livingcapitalmetrics.

For instance, the blog post at https://livingcapitalmetrics.wordpress.com/2009/11/22/al-gore-will-is-not-the-problem/ explores the idea with which I introduced myself to you here, that the profit motive embodies our collective will for responsible and sustainable business practices, but we hobble ourselves with self-defeating inattention to the ways in which capital is brought to life in efficient markets. We have the solutions to our problems at hand, though there are no panaceas, and the challenges are huge.

Please feel free to contact me at your convenience. Whether we are ultimately able to work together or not, I enthusiastically wish you all possible success in your endeavors.

Sincerely,

William P. Fisher, Jr., Ph.D.
LivingCapitalMetrics.com
919-599-7245

We are what we measure.
It’s time we measured what we want to be.

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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.

How bad will the financial crises have to get before…?

April 30, 2010

More and more states and nations around the world face the possibility of defaulting on their financial obligations. The financial crises are of epic historical proportions. This is a disaster of the first order. And yet, it is so odd–we have the solutions and preventative measures we need at our finger tips, but no one knows about them or is looking for them.

So,  I am persuaded to once again wonder if there might now be some real interest in the possibilities of capitalizing on

  • measurement’s well-known capacity for reducing transaction costs by improving information quality and reducing information volume;
  • instruments calibrated to measure in constant units (not ordinal ones) within known error ranges (not as though the measures are perfectly precise) with known data quality;
  • measures made meaningful by their association with invariant scales defined in terms of the questions asked;
  • adaptive instrument administration methods that make all measures equally precise by targeting the questions asked;
  • judge calibration methods that remove the person rating performances as a factor influencing the measures;
  • the metaphor of transparency by calibrating instruments that we really look right through at the thing measured (risk, governance, abilities, health, performance, etc.);
  • efficient markets for human, social, and natural capital by means of the common currencies of uniform metrics, calibrated instrumentation, and metrological networks;
  • the means available for tuning the instruments of the human, social, and environmental sciences to well-tempered scales that enable us to more easily harmonize, orchestrate, arrange, and choreograph relationships;
  • our understandings that universal human rights require universal uniform measures, that fair dealing requires fair measures, and that our measures define who we are and what we value; and, last but very far from least,
  • the power of love–the back and forth of probing questions and honest answers in caring social intercourse plants seminal ideas in fertile minds that can be nurtured to maturity and Socratically midwifed as living meaning born into supportive ecologies of caring relations.

How bad do things have to get before we systematically and collectively implement the long-established and proven methods we have at our disposal? It is the most surreal kind of schizophrenia or passive-aggressive avoidance pathology to keep on tormenting ourselves with problems for which we have solutions.

For more information on these issues, see prior blogs posted here, the extensive documentation provided, and http://www.livingcapitalmetrics.com.

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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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Just posted on www.economist.com in response to Sept 26 Schumpeter article

September 29, 2009

Let’s cut through the Gordian Knot to the real issue. That we manage what we measure is as close to an absolute truth as there ever was. What got us into this mess was the inadequacy of the vast majority of our measures. So-called “measures” that only get in the way of management are a sign that new standards, criteria, and methods of measurement are needed. The core issue we face is how to transform socialized externalities into capitalized internalities. Transaction costs are the most important and largest costs in any economic exchange. We reduce and control these via measurement. Human, social, and natural capital transaction costs are virtually uncontrolled and unmeasured. We need a metric system for universally uniform measures of abilities and skills, health, motivation, loyalty and trust, and environmental quality. And we needed it yesterday. But who is working on it? Who is talking about it? Most importantly, who is taking advantage of the huge strides that have been made in measurement science over the last 50 years, strides that have made measurement far more rigorous, practical, and flexible than anyone in business seems to know. As to business being an art, so is music, but music is played on and reproduced by some of the highest technology and finest precision instrumentation around. What we need to do is tune the instruments of the management arts and sciences so that we can harmonize our relationships, get with the beat, and sing the melodies we feel in our hearts and souls. For more information, see http://www.livingcapitalmetrics.com, or my blog at https://livingcapitalmetrics.wordpress.com.

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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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Graphic Illustrations of Why Scores, Ratings, and Percentages Are Not Measures, Part Two

July 2, 2009

Part One of this two-part blog offered pictures illustrating the difference between numbers that stand for something that adds up and those that do not. The uncontrolled variation in the numbers that pass for measures in health care, education, satisfaction surveys, performance assessments, etc. is analogous to the variation in weights and measures found in Medieval European markets. It is well established that metric uniformity played a vital role in the industrial and scientific revolutions of the nineteenth century. Metrology will inevitably play a similarly central role in the economic and scientific revolutions taking place today.

Clients and students often express their need for measures that are manageable, understandable, and relevant. But sometimes it turns out that we do not understand what we think we understand. New understandings can make what previously seemed manageable and relevant appear unmanageable and irrelevant. Perhaps our misunderstandings about measurement will one day explain why we have failed to innovate and improve as much as we could have.

Of course, there are statistical methods for standardizing scores and proportions that make them comparable across different normal distributions, but I’ve never once seen them applied to employee, customer, or patient survey results reported to business or hospital managers. They certainly are not used in determining comparable proficiency levels of students under No Child Left Behind. Perhaps there are consultants and reporting systems that make standardized z-scores a routine part of their practices, but even if they are, why should anyone willingly base their decisions on the assumption that normal distributions have been obtained? Why not use methods that give the same result no matter how scores are distributed?

To bring the point home, if statistical standardization is a form of measurement, why don’t we use the z-scores for height distributions instead of the direct measures of how tall we each are? Plainly, the two kinds of numbers have different applications. Somehow, though, we try to make do without the measures in many applications involving tests and surveys, with the unfortunate consequence of much lost information and many lost opportunities for better communication.

Sometimes I wonder, if we would give a test on the meaning of the scores, percentages, and logits discussed in Part One to managers, executives, and entrepreneurs, would many do any better on the parts they think they understand than on the parts they find unfamiliar? I suspect not. Some executives whose pay-for-performance bonuses are inflated by statistical accidents are going to be unhappy with what I’m going to say here, but, as I’ve been saying for years, clarifying financial implications will go a long way toward motivating the needed changes.

How could that be true? Well, consider the way we treat percentages. Imagine that three different hospitals see their patients’ percents agreement with a key survey item change as follows. Which one changed the most?

 

A. from 30.85% to 50.00%: a 19.15% change

B. from 6.68% to 15.87%: a 9.18% change

C. from 69.15% to 84.13%: a 14.99% change

As is illustrated in Figure 1 below, given that all three pairs of administrations of the survey are included together in the same measure distribution, it is likely that the three changes were all the same size.

In this scenario, all the survey administrations shared the same standard deviation in the underlying measure distribution that the key item’s percentage was drawn from, and they started from different initial measures. Different ranges in the measures are associated with different parts of the sample’s distribution, and so different numbers and percentages of patients are associated with the same amount of measured change. It is easy to see that 100-unit measured gains in the range of 50-150 or 1000-1100 on the horizontal axis would scarcely amount to 1% changes, but the same measured gain in the middle of the distribution could be as much as 25%.

Figure 1. Different Percents, Same Measures

Figure 1. Different Percentages, Same Measures

Figure 1 shows how the same measured gain can look wildly different when expressed as a percentage, depending on where the initial measure is positioned in the distribution. But what happens when percentage gains are situated in different distributions that have different patterns of variation?

More specifically, consider a situation in which three different hospitals see their percents agreement with a key survey item change as follows.

A. from 30.85% to 50.00%: a 19.15% change

B. from 30.85% to 50.00%: a 19.15% change

C. from 30.85% to 50.00%: a 19.15% change

Did one change more than the others? Of course, the three percentages are all the same, so we would naturally think that the three increases are all the same. But what if the standard deviations characterizing the three different hospitals’ score distributions are different?

Figure 2, below, shows that the three 19.15% changes could be associated with quite different measured gains. When the distribution is wider and the standard deviation is larger, any given percentage change will be associated with a larger measured change than in cases with narrower distributions and smaller standard deviations.

Same Percentage Gains, Different Measured Gains

Figure 2. Same Percentage Gains, Different Measured Gains

And if this is not enough evidence as to the foolhardiness of treating percentages as measures, bear with me through one more example. Imagine another situation in which three different hospitals see their percents agreement with a key survey item change as follows.

A. from 30.85% to 50.00%: a 19.15% change

B. from 36.96% to 50.00%: a 13.04% change

C. from 36.96% to 50.00%: a 13.04% change

Did one change more than the others? Plainly A obtains the largest percentage gain. But Figure 3 shows that, depending on the underlying distribution, A’s 19.15% gain might be a smaller measured change than either B’s or C’s. Further, B’s and C’s measures might not be identical, contrary to what would be expected from the percentages alone.

Figure 3. Percentages Completely at Odds with Measures

Figure 3. Percentages Completely at Odds with Measures

Now we have a fuller appreciation of the scope of the problems associated with the changing unit size illustrated in Part One. Though we think we understand percentages and insist on using them as something familiar and routine, the world that they present to us is as crazily distorted as a carnival funhouse. And we won’t even begin to consider how things look in the context of distributions skewed toward one end of the continuum or the other! There is similarly no point at all in going to bimodal or multimodal distributions (ones that have more than one peak). The vast majority of business applications employing scores, ratings, and percentages as measures do not take the underlying distribution into account. Given the problems that arise in optimal conditions (i.e., with a normal distribution), there is no need to belabor the issue with an enumeration of all the possible things that could be going wrong. Far better to simply move on and construct measurement systems that remain invariant across the different shapes of local data sets’ particular distributions.

How could we have gone so far in making these nonsensical numbers the focus of our attention? To put things back in perspective, we need to keep in mind the evolving magnitude of the problems we face. When Florence Nightingale was deploring the lack of any available indications of the effectiveness of her efforts, a little bit of flawed information was a significant improvement over no information. Ordinal, situation-specific numbers provided highly useful information when problems emerged in local contexts on a scale that could be comprehended and addressed by individuals and small groups.

We no longer live in that world. Today’s problems require kinds of information that must be more meaningful, precise, and actionable than ever before. And not only that, this information cannot remain accessible only to managers, executives, researchers, and data managers. It must be brought to bear in every transaction and information exchange in the industry.

Information has to be formatted in the common currency of uniform metrics to make it as fluid and empowering as possible. Would the auto industry have been able to bring off a quality revolution if every worker’s toolkit was calibrated in a different unit? Could we expect to coordinate schedules easily if we each had clocks scaled in different time units? Obviously not; why should we expect quality revolutions in health care and education when nearly all of our relevant metrics are incommensurable?

Management consultants realized decades ago that information creates a sense of responsibility in the person who possesses it. We cannot expect clinicians and teachers to take full responsibility for the outcomes they produce until they have the information they need to evaluate and improve them. Existing data and systems plainly are not up to the task.

The problem is far less a matter of complex or difficult issues than it is one of culture and priorities. It often takes less effort to remain in a dysfunctional rut and deal with massive inefficiencies than it does to get out of the rut and invent a new system with new potentials. Big changes tend to take place only when systems become so bogged down by their problems that new systems emerge simply out of the need to find some way to keep things in motion. These blogs are written in the hope that we might be able to find our way to new methods without suffering the catastrophes of total system failure. One might well imagine an entrepreneurially-minded consortium of providers, researchers, payors, accreditors, and patient advocates joining forces in small pilot projects testing out new experimental systems.

To know how much of something we’re getting for our money and whether its a fair bargain, we need to be able to compare amounts across providers, vendors, treatment options, teaching methods, etc. Scores summed from tests, surveys, or assessments, individual ratings, and percentages of a maximum possible score or frequency do not provide this information because they are not measures. Their unit sizes vary across individuals, collections of indicators (instruments), time, and space. The consequences of treating scores and percentages as measures are not trivial. We will eventually come to see that measurement quality is the primary source of the differences between the current health care and education systems’ regional variations and endlessly spiralling costs, on the one hand, and the geographically uniform quality, costs, and improvements in the systems we will create in the future.

Markets are dysfunctional when quality and costs cannot be evaluated in common terms by consumers, providers’ quality improvement specialists, researchers, accreditors, and payers. There are widespread calls for greater transparency in purchasing decisions, but transparency is not being defined and operationalized meaningfully or usefully. As currently employed, transparency refers to making key data available for public scrutiny. But these data are almost always expressed as scores, ratings, or percentages that are anything but transparent. In addition to not adding up, these data are also usually presented in indigestibly large volumes, and are not quality assessed.

All things considered, we’re doing amazingly well with our health care and education systems given the way we’ve hobbled ourselves with dysfunctional, incommensurable measures. And that gives us real cause for hope! What will we be able to accomplish when we really put our minds to measuring what we want to manage? How much better will we be able to do when entrepreneurs have the tools they need to innovate new efficiences? Who knows what we’ll be capable of when we have meaningful measures that stand for amounts that really add up, when data volumes are dramatically reduced to manageable levels, and when data quality is effectively assessed and improved?

For more on the problems associated with these kinds of percentages in the context of NCLB, see Andrew Dean Ho’s article in the August/September, 2008 issue of Educational Researcher, and Charles Murray’s “By the Numbers” column in the July 25, 2006 Wall Street Journal.

This is not the end of the story as to what the new measurement paradigm brings to bear. Next, I’ll post a table contrasting the features of scores, ratings, and percentages with those of measures. Until then, check out the latest issue of the Journal of Applied Measurement at http://www.jampress.org, see what’s new in measurement software at http://www.winsteps.com or http://www.rummlab.com.au, or look into what’s up in the way of measurement research projects with the BEAR group at UC Berkeley (http://gse.berkeley.edu/research/BEAR/research.html).

Finally, keep in mind that we are what we measure. It’s time we measured what we want to be.

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Infrastructure and Health Care Reform

June 25, 2009

As an educator and researcher involved in the theory and application of advanced measurement methods, I am both encouraged by the (June 14) New York Times Sunday magazine’s focus on infrastructure, and chagrined at the uninformed level at which ongoing health care and economic reform discussions and analyses are taking place (as evident in the Sunday, June 21, Times editorial and business pages).

Socialistic solutions to problems in education, health care, and the economy at large are the inevitable outcome of our incomplete implementation and understanding of market capitalism. Take, for instance, the rancorous debate as to whether we should create a new public health insurance plan to compete with private plans. None of the proposals or counter proposals amount to anything more than alternate ways of manhandling health care resources toward one or another politically predetermined end. Accordingly, we find ourselves in the dilemma of choosing between equally real dangers. On the one hand, reduced payments and cost-cutting might do nothing but lower the quality and quantity of the available services, and, on the other hand, maintaining quality and quantity will eventually make health care completely unaffordable.

And here is what really gets me: apart from blind faith in the power of reduced payments to promote innovation, there is nary a word about how to set up a market infrastructure that will allow the invisible hand to do its work in bringing supply and demand efficiently into balance. Far from seeking ways in which costs can be reduced and profits enhanced at the same time, as they are in other industries, the automatic assumption in health care always seems to be that lower costs mean lower profits. We have always thought socialistically about health care, with economists, since Arrow, widely holding that health care is constitutionally incapable of sustaining a market economy. Hope that the economists are wrong appears to spring eternal, but who is doing the work to find a new way?

A new direction shows itself when we listen more closely to ourselves, and follow through on our basically valid intuitions. For instance, issues of sustainability, justice, and responsibility in the economic conversation employ the word “capital” to refer to a wide variety of resources essential to productivity, such as health, literacy, numeracy, community, and the air, water, and food services provided by nature.

The problem is that there seems to be little or no interest in figuring out how to transform this usage from an empty metaphor into a powerful tool. We similarly repeat ad nauseum the mantra, “you manage what you measure,” but almost nothing is being done to employ the highly advantageous features of advanced measurement theory and practice in the management of intangible forms of capital.

Better measurement of living capital is, however, absolutely essential to health care reform, entrepreneurial innovations in education, and to reinventing capitalism.  Instead of continuing to rely on highly variable local efforts at measuring and managing human, social, and natural capital, we need a broad program of capacity building focused on a metrological infrastructure of living capital, and its implementations.  If there is any one single blind spot that prevents us from fully learning the lessons of our recent economic disasters, it is the potential that new measurement technologies offer for reduced frictions and lower transaction costs in the intangible capital markets.

We know where to start, from two basic principles of market economics. First, we know the transaction costs are the most important costs in any market.  High transaction costs can strangle a market as the flow of capital is stifled. Second, we know that innovation, essential to product development, improvements, marketing, and enhanced profitability, is almost never accomplished by an individual working in isolation. Innovation requires an environment in which it is safe to play, to make mistakes, and through which new value can be immediately and decisively recognized for what it is.

How can living capital market frictions be reduced? For starters, we could focus on effecting order-of-magnitude improvements in the meaningfulness of the metrics we use for screening, diagnosis, research, and accountability. We can do whatever arithmetic we want with the numbers we have at hand, but most of the numbers that pass for measures of health, functionality, quality of life and care, etc. do not actually stand for something that adds up. The good news is that, again, the intuitions informing our efforts so far are largely valid, and have the ball rolling in the right direction.

How can better measurement advance the cause of innovation in health care? By providing a common language that all stakeholders can think and act in together, harmoniously. Research over the last 80 years has repeatedly proven the viability of a kind of a metric system for the things we measure with surveys, assessments, and tests. Such a system of universally uniform metrics would provide the common currency unifying the health care economy and establishing the basis for market self-organization. But contrary to our predominant metaphysical faith, scientifically proven results do not magically propagate themselves into the world. We have to invent and construct the systems we need.

Our efforts in this direction are stymied, as Tom Vanderbilt put it in the Times Sunday magazine on infrastructure, to the extent that we have “an inimical incuriosity” about the banal fundamentals of the systems that shape our world. We simply take dry technicalities for granted, and notice them only when they fail us. Our problem with intangibles measurement, then, is compounded by the fact that the infrastructure we are taking for granted is not just invisible or broken, it is nonexistent. Until we make the effort to build our capacity for managing health and other forms of living capital by creating reference standard common currencies for expressing, managing, and trading on their value, all of our efforts at health care reform–and at reinventing capitalism–will fall far short of what is possible.
William P. Fisher, Jr., Ph.D.
william@livingcapitalmetrics.com
http://www.LivingCapitalMetrics.com

We are what we measure.
It’s time we measured what we want to be.

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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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The Irony of the Situation

May 28, 2009

You can call it greed or the logical consequences of capitalist logic, but the truth of the matter is highly ironic. Any resolution of the economic situation that both effectively and efficiently prevents future excesses of the kind we’re suffering from now must inevitably extend the free play of market forces further into the domain of social capital. Far from socializing traditional capital, what must be accomplished is much more a kind of capitalization of the stock of social resources, such as trust, commitment, loyalty, and care.

Capitalizing social resources will require that they be represented in a way that makes them fungible. So how do we create a common currency that we can use as a medium of exchange for social capital? By calibrating measures of social capital and equating them to a shared metric, that’s how.

The process is not much different from what happened in Western Europe in the late 18th and early 19th centuries, when two major systems of measurement standards were devised and implemented. Social capital today is measured and exchanged today in units of measurement that vary markedly from time to time, place to place, and person to person, much as weights and measures in Medieval markets varied. Today’s unjust social capital market traders are just as unscrupulous as the Medieval merchants and nobles who took unfair advantage of the metric confusion in the markets of their day, buying with one set of measures and selling with another at their whim, depending on who the customer or taxpayer was.

What we need, of course, are publicly available and high quality expressions of the amounts of social capital possessed at any one time by any individual, organization, firm, or government. Scientifically rigorous methods of calibrating instruments providing precision measures of social capital have been available and in use for decades. Their commercial applications have been restricted to high stakes tests, for the most part, but they are increasingly used in research in health care and the social sciences.

We use the balance scale as a symbol for justice for the simple reason that it clearly represent the values of the Golden Rule. Far from trying to destroy opportunities for personal profit, what we need to do is figure out how to extend the long experience we already have in using the profit motive to build social capital. In actual fact, social capital has always been essential to making money, and there has almost always been some kind of positive social benefits from business profits, though they’re not always easy to find. What we need to do is focus on those benefits, and make them easier to find. So easy, in fact, that any socially responsible way of making money will produce them.