Opening Speech by Prof. Erik Bichard on behalf of RealWorth at the Improving Models for Valuing Social Impact in Urban Development event in Malmö (Sweden) on October 5th 2016 organised by the Urban Innovation Lab.
I recently wrote this thought piece for the British property sector in the hope that it would spark a debate on the benefits of adopting sustainable valuation practices;
Too often, property development is seen by the communities in which it takes place as an exploitative act perpetrated by faceless profit-driven corporations or high net worth individuals. While some developers may be motived in this way, most would defend their placemaking designs as benefiting both local people and the surrounding environment. Communicating these benefits by painting pictures of a modern and desirable future are not always successful when the story falls on cynical and sceptical ears. What if it was possible to explain the social and environmental value of placemaking in language that everyone understands; money.
The piece kindly suggests that developers are broadly altruistic, perhaps almost apologetically making a profit while doing good things for society. I am sure that, on a human level, most of the CEOs in charge of these companies would say this is at least in part what got them into the sector. But they would almost certainly also say that they have a duty to run a profitable business, and that business is governed by some much engrained truths about the single-minded interests of business.
Adam Smith wrote in Wealth of Nations about business owners; “By pursuing [their] own interests [they] frequently promote that of the society more effectually than when [they] really intend to promote it.” This is the basis of trickle-down economics, a theory that, despite all the evidence to the contrary, has stubbornly resisted all attempts to be rejected.
Jeremy Nicholls, the founder of Social Value International says that ‘this idea, that self-interest is the best way to help society and create value, is a founding principle of our current world economic system’. But he points out that this way of thinking has had unintended consequences. Those consequences are manifest most obviously in inequality between and within global societies, and in the degradation of environmental conditions such as climate change, poor air quality and the collapsing viability of terrestrial and oceanic habitats. Of course, many economists (Thomas Picketty, Joseph Stigliz and the writers of ‘The Spirt Level’ Pickett and Wilkinson among them) have been saying for a while that inequality and limited social mobility has both social and economic costs.
Nicholls says that ‘whatever economists suggest are the causes and solutions to inequality, or whatever politicians and businesses try to do to address its consequences, it will come to nought if financial accounting continues to drive resource allocation on the basis of individual financial interest’. So why don’t we account for the human and environmental consequences of policies, investment and development? The answer lies in what society thinks is a material issue when we think about economic success. The best way to illustrate this is by talking about the way we value the creation of wealth through productivity.
Robert (Bobby) Kennedy, speaking in 1968 while running for President puts it as well as anybody:
Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts …rifles and …knives, and television advertising aimed at …children.
Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans. If this is true here at home, so it is true elsewhere in world.
Three months later Bobby Kennedy was shot dead by an assailant in a Los Angeles hotel, ending the possibility of a powerful world leader who actually understood the importance of sustainable value.
In the world of property development and regeneration, things have not changed much in the almost 50 years since Kennedy made that speech. That is the motivation behind the creation of RealWorth, the company I set up with my business partner Phil Higham. We believe that the time has arrived for a new way of thinking about how to value the impacts of policies, investments and development.
The conventional way of doing this is to use market-based valuation methods such as Cost Benefit Analysis. But even adaptations such as Social CBA tend to focus on the costs and benefits derived from transactions. This is because the driver behind property investment is often the generation of jobs and economic growth.
But when you talk to the people who are most affected by these decisions (residents, employees, visitors etc.), unsurprisingly factors such as crime, health, jobs and wellbeing are the main concerns to both individuals and whole communities. The advantage of monetising social and environmental impacts is that all of the influences of the project can be weighed using the same metric; money. A further difficulty with CBA-type calculations is that they can overlook indirect impacts of interventions that are not tangible or have no market value. Examples of this are similar to the ones Bobby Kenney picked out including better community relations, skills and life chances for the excluded, reductions in chronic disability caused by poverty, and the healing effects of well-maintained urban green space.
Market valuation methods like CBA shy away from non-market methods because of what is known as monetary incommensurability, i.e., individuals are unable and often refuse to measure them along the scale of money. As a consequence, it is treated as either unreliable or too difficult and therefore often ignored. But this changes when methods are introduced that value the first-hand experiences of people affected by development using transparent and robust researched values and statistical precedent.
Fortunately there are now many different ways to look at the non-market value of change in the built environment. Approaches such as Social Return on Investment, Wellbeing Valuation and Ecosystem Services are just some of the approaches that RealWorth use when applying the principles of wellbeing economics.
Social and environmental change can be monetised for both the instrumental and the intrinsic value of the project. Instrumental wellbeing might result in an individual getting a better jobs that can also boost the local economy. It may also mean that feeling healthier leads to savings to the health service or lower insurance claims. Intrinsic wellbeing values are often derived from a willingness to pay (to feel greater self-esteem for example), or from survey or panel-based data where people relate levels of income to degrees of other improvements to their lives.
Now that we have the technical ability to put a price of social and environmental change, there is a pressing need to return to Bobby Kennedy’s plea for a new mind-set which values the things that really matter to society.
These tools offer the numbers that decision-makers can get behind, – but this needs to be accompanied with permission to account for sustainable success in very different, human ways. When this happens, those in the public sector will be in a better position to justify decisions and expenditure in the face of increasing scrutiny and accountability. Early adoption by private and third sectors designers and service providers will lead to a competitive advantage because their evidence-based approach will show off the full range of sustainable benefits to society.
Delivered on the 5th October 2016 by Prof. Erik Bichard