Posts Tagged ‘intangible assets metric system’

Dispelling Myths about Measurement in Psychology and the Social Sciences

August 27, 2013

Seven common assumptions about measurement and method in psychology and the social sciences stand as inconsistent anomalies in the experience of those who have taken the trouble to challenge them. As evidence, theory, and instrumentation accumulate, will we see a revolutionary break and disruptive change across multiple social and economic levels and areas as a result? Will there be a slower, more gradual transition to a new paradigm? Or will the status quo simply roll on, oblivious to the potential for new questions and new directions? We shall see.

1. Myth: Qualitative data and methods cannot really be integrated with quantitative data and methods because of opposing philosophical assumptions.

Fact: Qualitative methods incorporate a critique of quantitative methods that leads to a more scientific theory and practice of measurement.

2. Myth: Statistics is the logic of measurement.

Fact: Statistics did not emerge as a discipline until the 19th century, while measurement, of course, has been around for millennia. Measurement is modeled at the individual level within a single variable whereas statistics model at the population level between variables. Data are fit to prescriptive measurement models using the Garbage-In, Garbage-Out (GIGO) Principle, while descriptive statistical models are fit to data.

3. Myth: Linear measurement from ordinal test and survey data is impossible.

Fact: Ordinal data have been used as a basis for invariant linear measures for decades.

4. Myth: Scientific laws like Newton’s laws of motion cannot be successfully formulated, tested, or validated in psychology and the social sciences.

Fact: Mathematical laws of human behavior and cognition in the same form as Newton’s laws are formulated, tested, and validated in numerous Rasch model applications.

5. Myth: Experimental manipulations of psychological and social phenomena are inherently impossible or unethical.

Fact: Decades of research across multiple fields have successfully shown how theory-informed interventions on items/indicators/questions can result in predictable, consistent, and substantively meaningful quantitative changes.

6. Myth: “Real” measurement is impossible in psychology and the social sciences.

Fact: Success in predictive theory, instrument calibration, and in maintaining stable units of comparison over time are all evidence supporting the viability of meaningful uniform units of measurement in psychology and the social sciences.

7. Myth: Efficient economic markets can incorporate only manufactured and liquid capital, and property. Human, social, and natural capital, being intangible, have permanent status as market externalities as they cannot be measured well enough to enable accountability, pricing, or transferable representations (common currency instruments).

Fact: The theory and methods necessary for establishing an Intangible Assets Metric System are in hand. What’s missing is the awareness of the scientific, human, social, and economic value that would be returned from the admittedly very large investments that would be required.

References and examples are available in other posts in this blog, in my publications, or on request.

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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.

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.

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HEY GREECE!!! One more time through the basics

May 10, 2012

As the battle between austerity and growth mindsets threatens to freeze into a brittle gridlock, it seems time once again to simplify and repeat some painfully obvious observations.

1. Human, social, and natural capital make up at least 90 percent of the capital under management in the global economy.

2. There is no system of uniform weights and measures for these forms of capital.

3. We manage what we measure; so, lacking proper measures for 90 percent of the capital in the economy, we cannot possibly manage it properly.

4. Measurement theory and practice have advanced to the point that the technical viability of a meaningful, objective, and precise system of uniform units for human, social, and natural capital is no longer an issue.

5. A metric system for intangible assets (human, social, and natural capital) is the infrastructural capacity building project capable of supporting sustainable and responsible growth we are looking for.

6. Individual citizens, philanthropists, entrepreneurs, corporations, NGOs, educators, health care advocates, innovators, researchers, and governments everywhere ought to be focusing intensely on building systems of consensus measures that take full advantage of existing technical means for instrument scaling, equating, adaptive administration, mass customization, growth modeling, data quality assessment, and diagnostic individualized reporting.

7. Uniform impact measurement will make it possible to price outcomes in ways that allow market forces to inform consumers as to where they can obtain the best cost/value relation for the money. In other words, the profit motive will be directly harnessed in growing human, social, and natural capital.

8. Happiness indexes and gross national or domestic authentic wealth products will not obtain any real practical utility until individuals, firms, NGOs, and governments can directly manage their own intangible asset bottom lines.

See other posts in this blog or the links below for more information.

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

Research Associate
BEAR Center
Graduate School of Education
University of California, Berkeley
Principal
LivingCapitalMetrics Consulting

We are what we measure.

It’s time we measured what we want to be.

Connect with me on LinkedIn: http://www.linkedin.com/in/livingcapitalmetrics
View my research on my SSRN Author page: http://ssrn.com/author=1090685
Read my blog at https://livingcapitalmetrics.wordpress.com.
See my web site at http://www.livingcapitalmetrics.com.
http://www.rasch.org
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.

Comments on the New ANSI Human Capital Investor Metrics Standard

April 16, 2012

The full text of the proposed standard is available here.

It’s good to see a document emerge in this area, especially one with such a broad base of support from a diverse range of stakeholders. As is stated in the standard, the metrics defined in it are a good place to start and in many instances will likely improve the quality and quantity of the information made available to investors.

There are several issues to keep in mind as the value of standards for human capital metrics becomes more widely appreciated. First, in the context of a comprehensively defined investment framework, human capital is just one of the four major forms of capital, the other three being social, natural, and manufactured (Ekins, 1992; Ekins, Dresden, and Dahlstrom, 2008). To ensure as far as possible the long term stability and sustainability of their profits, and of the economic system as a whole, investors will certainly want to expand the range of the available standards to include social and natural capital along with human capital.

Second, though we manage what we measure, investment management is seriously compromised by having high quality scientific measurement standards only for manufactured capital (length, weight, volume, temperature, energy, time, kilowatts, etc.). Over 80 years of research on ability tests, surveys, rating scales, and assessments has reached a place from which it is prepared to revolutionize the management of intangible forms of capital (Fisher, 2007, 2009a, 2009b, 2010, 2011a, 2011b; Fisher & Stenner, 2011a, 2011b; Wilson, 2011; Wright, 1999). The very large reductions in transaction costs effected by standardized metrics in the economy at large (Barzel, 1982; Benham and Benham, 2000) are likely to have a similarly profound effect on the economics of human, social, and natural capital (Fisher, 2011a, 2012a, 2012b).

The potential for dramatic change in the conceptualization of metrics is most evident in the proposed standard in the sections on leadership quality and employee engagement. For instance, in the section on leadership quality, it is stated that “Investors will be able to directly compare all organizations that are using the same vendor’s methodology.” This kind of dependency should not be allowed to stand as a significant factor in a measurement standard. Properly constructed and validated scientific measures, such as those that have been in wide use in education, psychology and health care for several decades (Andrich, 2010; Bezruzcko, 2005; Bond and Fox, 2007; Fisher and Wright, 1994; Rasch, 1960; Salzberger, 2009; Wright, 1999), are equated to a common unit. Comparability should never depend on which vendor is used. Rather, any instrument that actually measures the construct of interest (leadership quality or employee engagement) should do so in a common unit and within an acceptable range of error. “Normalizing” measures for comparability, as is suggested in the standard, means employing psychometric methods that are 50 years out of date and that are far less rigorous and practical than need be. Transparency in measurement means looking through the instrument to the thing itself. If particular instruments color or reshape what is measured, or merely change the meaning of the numbers reported, then the integrity of the standard as a standard should be re-examined.

Third, for investments in human capital to be effectively managed, each distinct aspect of it (motivations, skills and abilities, health) needs to be measured separately, just as height, weight, and temperature are. New technologies have already transformed measurement practices in ways that make the necessary processes precise and inexpensive. Of special interest are adaptively administered precalibrated instruments supporting mass customized—but globally comparable—measures (for instance, see the examples at http://blog.lexile.com/tag/oasis/ and that were presented at the recent Pearson Global Research Conference in Fremantle, Australia http://www.pearson.com.au/marketing/corporate/pearson_global/default.html; also see Wright and Bell 1984, Lunz, Bergstrom, and Gershon, 1994, Bejar, et al., 2003).

Fourth, the ownership of human capital needs clarification and legal status. If we consider each individual to own their abilities, health, and motivations, and to be solely responsible for decisions made concerning the disposition of those properties, then, in accord with their proven measured amounts of each type of human capital, everyone ought to have legal title to a specific number of shares or credits of each type. This may transform employment away from wage-based job classification compensation to an individualized investment-based continuous quality improvement platform. The same kind of legal titling system will, of course, need to be worked out for social and natural capital, as well.

Fifth, given scientific standards for each major form of capital, practical measurement technologies, and legal title to our shares of capital, we will need expanded financial accounting standards and tools for managing our individual and collective investments. Ongoing research and debates concerning these standards and tools (Siegel and Borgia, 2006; Young and Williams, 2010) have yet to connect with the larger scientific, economic, and legal issues raised here, but developments in this direction should be emerging in due course.

Sixth, a number of lingering moral, ethical and political questions are cast in a new light in this context. The significance of individual behaviors and decisions is informed and largely determined by the context of the culture and institutions in which those behaviors and decisions are executed. Many of the morally despicable but not illegal investment decisions leading to the recent economic downturn put individuals in the position of either setting themselves apart and threatening their careers or doing what was best for their portfolios within the limits of the law. Current efforts intended to devise new regulatory constraints are misguided in focusing on ever more microscopically defined particulars. What is needed is instead a system in which profits are contingent on the growth of human, social, and natural capital. In that framework, legal but ultimately unfair practices would drive down social capital stock values, counterbalancing ill-gotten gains and making them unprofitable.

Seventh, the International Vocabulary of Measurement, now in its third edition (VIM3), is a standard recognized by all eight international standards accrediting bodies (BIPM, etc.). The VIM3 (http://www.bipm.org/en/publications/guides/vim.html) and forthcoming VIM4 are intended to provide a uniform set of concepts and terms for all fields that employ measures across the natural and social sciences. A new dialogue on these issues has commenced in the context of the International Measurement Confederation (IMEKO), whose member organizations are the weights and standards measurement institutes from countries around the world (Conference note, 2011). The 2012 President of the Psychometric Society, Mark Wilson, gave an invited address at the September 2011 IMEKO meeting (Wilson, 2011), and a member of the VIM3 editorial board, Luca Mari, is invited to speak at the July, 2012 International Meeting of the Psychometric Society. I encourage all interested parties to become involved in efforts of these kinds in their own fields.

References

Andrich, D. (2010). Sufficiency and conditional estimation of person parameters in the polytomous Rasch model. Psychometrika, 75(2), 292-308.

Barzel, Y. (1982). Measurement costs and the organization of markets. Journal of Law and Economics, 25, 27-48.

Bejar, I., Lawless, R. R., Morley, M. E., Wagner, M. E., Bennett, R. E., & Revuelta, J. (2003, November). A feasibility study of on-the-fly item generation in adaptive testing. The Journal of Technology, Learning, and Assessment, 2(3), 1-29; http://ejournals.bc.edu/ojs/index.php/jtla/article/view/1663.

Benham, A., & Benham, L. (2000). Measuring the costs of exchange. In C. Ménard (Ed.), Institutions, contracts and organizations: Perspectives from new institutional economics (pp. 367-375). Cheltenham, UK: Edward Elgar.

Bezruczko, N. (Ed.). (2005). Rasch measurement in health sciences. Maple Grove, MN: JAM Press.

Bond, T., & Fox, C. (2007). Applying the Rasch model: Fundamental measurement in the human sciences, 2d edition. Mahwah, New Jersey: Lawrence Erlbaum Associates.

Conference note. (2011). IMEKO Symposium: August 31- September 2, 2011, Jena, Germany. Rasch Measurement Transactions, 25(1), 1318.

Ekins, P. (1992). A four-capital model of wealth creation. In P. Ekins & M. Max-Neef (Eds.), Real-life economics: Understanding wealth creation (pp. 147-155). London: Routledge.

Ekins, P., Dresner, S., & Dahlstrom, K. (2008). The four-capital method of sustainable development evaluation. European Environment, 18(2), 63-80.

Fisher, W. P., Jr. (2007). Living capital metrics. Rasch Measurement Transactions, 21(1), 1092-3 [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.

Fisher, W. P.. Jr. (2010). 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. (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). Measurement, metrology and the coordination of sociotechnical networks. In  S. Bercea (Chair), New Education and Training Methods. International Measurement Confederation (IMEKO), http://www.db-thueringen.de/servlets/DerivateServlet/Derivate-24491/ilm1-2011imeko-017.pdf, Jena, Germany.

Fisher, W. P., Jr. (2012a). 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 (pp. in press). New York: Palgrave Macmillan.

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

Fisher, W. P., Jr., & Stenner, A. J. (2011a). 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. (2011b). 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.

Fisher, W. P., Jr., & Wright, B. D. (Eds.). (1994). Applications of probabilistic conjoint measurement. International Journal of Educational Research, 21(6), 557-664.

Lunz, M. E., Bergstrom, B. A., & Gershon, R. C. (1994). Computer adaptive testing. International Journal of Educational Research, 21(6), 623-634.

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

Salzberger, T. (2009). Measurement in marketing research: An alternative framework. Northampton, MA: Edward Elgar.

Siegel, P., & Borgia, C. (2006). The measurement and recognition of intangible assets. Journal of Business and Public Affairs, 1(1).

Wilson, M. (2011). The role of mathematical models in measurement: A perspective from psychometrics. In L. Mari (Chair), Plenary lecture. International Measurement Confederation (IMEKO), http://www.db-thueringen.de/servlets/DerivateServlet/Derivate-24178/ilm1-2011imeko-005.pdf, Jena, Germany.

Wright, B. D. (1999). Fundamental measurement for psychology. In S. E. Embretson & S. L. Hershberger (Eds.), The new rules of measurement: What every educator and psychologist should know (pp. 65-104 [http://www.rasch.org/memo64.htm]). Hillsdale, New Jersey: Lawrence Erlbaum Associates.

Wright, B. D., & Bell, S. R. (1984, Winter). Item banks: What, why, how. Journal of Educational Measurement, 21(4), 331-345 [http://www.rasch.org/memo43.htm].

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

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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.

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

Proposed U.S. Presidential Candidate Stump Speech

December 29, 2011

Over the course of our history, we have gotten a lot of things right in this country. Our political and economic principles and practices, not to speak of our technological innovations, have been models for countries the world over. The rest of the world has looked to us for leadership for a long time, and continues to do so.

Though some say our day in the sun might be over, I say we’ve hardly begun. We have new things to show the world. The problems we are facing as a nation right now have not come about because of flaws or failings in our basic principles. Those problems have come about because we have not yet creatively applied those principles in new ways, in new areas of our lives.

We have built our democracy and our economy on the ideas of equal rights and fair play, so that everyone has a chance to get into the game and make a place for themselves. Because of the way we have invested in these ideas over the last 235 years, this country has made big gains in bringing higher standards of living to more and more of our citizens, and to the citizens of countries on every continent. Along the way, there have been times when we’ve stumbled, but we’ve always picked ourselves back up and moved on to reach even higher standards than before.

We’ve been stumbling again here over these last few years. Though we continue to succeed with creative and innovative ideas in some areas, the world is changing. It isn’t enough for us to just react to the changes going on around us, or to resist those changes. We need to initiate changes of our own. Creating the future lets us predict it, lets us own it. Let me tell you about my vision of how we can create a new future together, a future that we can all own a piece of.

We have known for a long time that the richness of our lives depends on far more than the mere accumulation of material things. But despite that, the ongoing economic crisis has come about in large part precisely because we systematically put too much weight on material things in gauging our quality of life. But real wealth–and we all know this–the things that really make life worth living are not measured by any of the numbers that appear in the financial pages’ stock and economic indexes.

So efforts have been made to come up with numbers that will rise and fall with changes in our overall quality of life. New measures of real wealth, genuine progress, or happiness have been proposed. Many of us invest our retirement funds in stock indexes tied to socially responsible or environmentally sustainable corporate behaviors.

These are all steps in the right direction. But they fall short of what we need. More importantly, they fall short of what’s possible, and what’s already proven. Advances made in the social sciences over the last 50 years and more are setting the stage for a whole new array of exciting opportunities. It’s time to move these developments out of the lab and bring them to market. For instance, instead of relying on traditional statistics summarizing what’s going on at a high level, we need new measures that help us individually manage our investments in our own resources.

We say we manage what we measure, but, as I’ve already noted, we don’t have systems for measuring what’s really important in life. Are our skills, health, trustworthiness, and environmental quality really as important to us as we say they are? It would be natural to think, if they are that important, we would know how much of each of them we have and what they are worth. We ought to have ways of measuring these things, showing how much we each own, and knowing what it’s all worth. But we don’t.

Without those measures, we can’t effectively manage our own stocks of the resources most valuable to the quality of our lives. If we don’t know where we stand relative to one another or relative to where we were last week or last year, then we lack information vital to knowing how to move forward. And if we don’t know as individuals how to move forward, then we don’t know as a nation. If we do know as individuals where we stand and how to move forward, then we will also know as communities, and as managers in firms, classrooms, clinics, and hospitals.

The role of government in our lives is supposed to be to make things easier. And so to make it easier for everyone to manage the full range of the resources they have available to them, I now propose a new array of initiatives to be undertaken by the National Science Foundation, the National Institute for Standards and Technology, and the National Institutes of Health. These initiatives will focus on the research and education programs we need to create a new set of measurement standards, a kind of metric system that will give us the meaningful and precise numbers we need to manage the sources of our real wealth.

I will furthermore propose new legislation establishing an Intangible Assets Metric System as the legally binding terms for expressing the sources of real wealth in our lives. This law, when passed, as I’m sure it will be, will also establish each individual’s right to the free and clear ownership of their shares of human, social, and natural capital. Nothing is more important to the future of our nation, morally and economically, than each of us having a clear understanding of the value and worth of our reading, writing and math abilities, our health, our social relationships, and our environmental quality.

My administration will also reach out to industries and standards organizations of all kinds, but especially in economics, finance and accounting, to seek new creative ways for applying these measurement standards in managing our resources. I will also implement a new executive order establishing a wide range of new economic incentives designed to encourage investment in information systems for managing the new metrics in personalized accounts.

This series of initiatives will enable us to harmonize our efforts in new ways. We all know we can accomplish more working together as a team than we can alone. A new system of scientific, legal, and financial tools for managing our real wealth will make us a better team than ever. With these tools we will once again assert our leadership as innovators on a global scale, keeping the dream of a better life alive.

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For more on the science behind these ideas, and their potential applications, see previous posts in this blog, and the following:

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, 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). 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.

Fisher, W. P., Jr. (2010, 30 September). Distinguishing between consistency and error in reliability coefficients: Improving the estimation and interpretation of information on measurement precision. LivingCapitalMetrics.com, Sausalito, California. Social Science Research Network [Online]. Available: http://ssrn.com/abstract=1685556 .

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

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. (2010). Statistics and measurement: Clarifying the differences. Rasch Measurement Transactions, 23(4), 1229-1230 [http://www.rasch.org/rmt/rmt234.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, Sausalito, California. Social Science Research Network [Online]. (http://ssrn.com/abstract=1739386).

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 (in press). New York: Palgrave Macmillan.

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

Fisher, W. P., Jr., & Burton, E. (2010). Embedding measurement within existing computerized data systems: Scaling clinical laboratory and medical records heart failure data to predict ICU admission. Journal of Applied Measurement, 11(2), 271-287.

Fisher, W. P., Jr., Elbaum, B., & Coulter, W. A. (2012). Construction and validation of two parent-report scales for the evaluation of early intervention programs. Journal of Applied Measurement, 13, in press.

Fisher, W. P., Jr., Eubanks, R. L., & Marier, R. L. (1997). Equating the MOS SF36 and the LSU HSI physical functioning scales. Journal of Outcome Measurement, 1(4), 329-362.

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., & Karabatsos, G. (2005). Fundamental measurement for the MEPS and CAHPS quality of care scales. In N. Bezruczko (Ed.), Rasch measurement in the health sciences (pp. 373-410). Maple Grove, MN: JAM Press.

Fisher, W. P., Jr., & Stenner, A. J. (2011). Geometric and algebraic formulations of scientific laws: Mathematical principles for phenomenology. Journal of Phenomenological Psychology, in review.

Fisher, W. P., Jr., & Stenner, A. J. (2011, April). Integrating qualitative and quantitative research approaches via the phenomenological method. International Journal of Multiple Research Approaches, 5(1), 89-103.

Fisher, W. P., Jr., & Stenner, A. J. (2011). Making clear what something is:  Scientific law, construct validity and reliability in measuring reading ability. Psychological Methods, in review.

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., & Wright, B. D. (Eds.). (1994). Applications of probabilistic conjoint measurement (Special Issue). International Journal of Educational Research, 21(6), 557-664.

Heinemann, A. W., Fisher, W. P., Jr., & Gershon, R. (2006). Improving health care quality with outcomes management. Journal of Prosthetics and Orthotics, 18(1), 46-50 [http://www.oandp.org/jpo/library/2006_01S_046.asp] .

Solloway, S., & Fisher, W. P., Jr. (2007). Mindfulness in measurement: Reconsidering the measurable in mindfulness. International Journal of Transpersonal Studies, 26, 58-81 [http://www.transpersonalstudies.org/volume_26_2007.html].

Sumner, J., & Fisher, W. P., Jr. (2008). The moral construct of caring in nursing as communicative action: The theory and practice of a caring science. Advances in Nursing Science, 31(4), E19-E36.

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LivingCapitalMetrics Blog by William P. Fisher, Jr., Ph.D. is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
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Open Letter on New Infrastructure as a Platform for Economic Growth and Scientific Innovation

December 21, 2011

Dear Thought Leaders Everywhere,

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

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

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

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

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

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

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

Sincerely,

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

A. Jackson Stenner, Ph.D.

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

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

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

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

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.