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|Date: 2022-07-07 Page is: DBtxt001.php bk0004130|
The Basic Concepts of True Value Metrics
What Are The Needs?
Needs start with people
Without people, there are no needs … up to a point! Most “needs” are related to people, the more there are people, the larger the need. In other words needs are a function of population.
But needs are more than this. Every aspect of life … plant life and animal life as well as human life have needs and all of this is part of one great complex ecosystem.
Needs are one thing … wants are another!
The basic needs for human beings are quite modest … food, water, clothing and shelter. It is appalling that there are many people in the world who have inadequate food, water, clothing and shelter.
Security is not a basic need … but the lack of security is a root cause of people not being able to access food, water, clothing and shelter.
Basic needs in the modern context
In a modern economy basic needs are more than a minimum of food, water, clothing and shelter. People also need basic healthcare, education and economic opportunity … and security and a framework of governance and rule of law.
None of these ideas are new. These ideas were already well developed way before biblical times … but the importance of these ideas continues into the modern era.
Progress out of poverty has been accomplished in large part because of improvements in productivity that now make it possible for everyone to have things they need to satisfy basic needs with plenty left over. The reason why many remain poor is because of dysfunction in the way the socio-economic system is working … too many people are economically active … that is, work … but do not gain much from the work.
A dysfunctional socio-economic system
Professor Muhammad Yunus often talks about people who work hard for fourteen hours a day, seven days a week, and remain poor. He says that this is not because the people are bad but that the socio-economic system is dysfunctional.
The modern working class society has evolved a lot in the past two centuries so that people can have enough of food, water, clothing and shelter. Maybe there is less of war and insecurity as well … and there is more widespread availability of healthcare and education … and the infrastructure of society that supports productivity has been improved. Most important … knowledge has also improved.
Middle class needs and wants
In many ways the United States of America represents the possibilities of a modern economic society … human creativity and enterprise making it possible for everyone to move into the “middle class” … what is referred to as the “American dream”.
In this economic model a profligate amount of resources were used to build a production capacity so that a massive amount of food, water, clothes and shelter were available to Americans. Economic activity that produced the goods also produced profits and wealth for both investors and workers. The model works quite well when the regulation of the system is a competitive efficient market framework, but falls apart when the market is gamed by powerful participants … something that has happened with surprising regularity.
In addition to the problem of gaming the market, this economic model is problematic because it uses resources as if there is an unlimited supply … especially land and energy. What started out as a highly productive system that enabled the formation of a middle class during the industrial revolution is now constrained by limits on the availability of land and energy … and by the damage the effluents from this system have been doing.
The idea that the middle class needs more and more and more still prevails in economic analysis and public policy … and must be replaced by a middle class dream that is about better quality of life and more happiness on top of easy access to all the basic needs of an affluent middle class. Knowledge needs to be not only accumulated for academic advancement but applied to improve productivity and the effectiveness of economic activity.
One way in which the modern economy has been weakened is the concentration of economic money wealth and power in the hands of a small number of individuals and corporate organizations. A large scale luxury sector ecosystem has emerged to serve the wants of this community … often highly profitable, but with only limited socio-economic value to society as a whole.
There is a “value” of the luxury sector that should not be ignored. Beautiful things have a place in human happiness … but the allocation of resources to luxury activities should be balanced with the allocation of resources to improving socio-economic performance where there is poverty and a dysfunctional economic environment.
Matching resources and needs
Bottom line … this is NOT being done
The institutional framework for the modern economy is very efficient in terms of relating capital market pricing to money profit performance and a range of other indicators in the “more and more” economic model. Using this framework capital flows into profit opportunities that are completely independent of any meaningful socio-economic value metrics.
Capital flows … hot money
It appears that every few years there is some economic crisis that is aggravated by global capital flows that are unstable simply because they are purely profit seeking with no value component. The situation is made worse by poor accounting and financial reporting that routinely fails to alert decision makers to problems until it is too late.
The capital flows have everything to do with making a profit … with little at all to do with achieving more socio-economic progress and improving the value dimension of society. Decisions about capital flows are disconnected from any reality that relates to quality of life in any community anywhere … the decisions are not in any way matching funds to socio-economic needs.
Little or no investment in the future
The modern capital markets invest in profit … whether it is over the next minute, next hour, next day or next quarter. The mechanisms to invest in value so that society is better off in 20 years or maybe in two generations are very rudimentary compared to the mechanisms used to trade for the short term.
What mechanism for community investment?
When the goal is to have the state of the community improve progressively over time, investment allocation should be done on a basis that changes the state of the community. This is about what people need … and how people can be better equipped to satisfy needs in an increasingly productive way.
It is also about what people want … and how people can get more of what they want by being more productive.
Everything is interconnected … and the achievement of sustainable performance is when the role of people is more important than the role of material resources and money. A community centric socio-economic model that has people as the primary resource and contribution to quality of life as the main output is paradigm shift. The model may be quite simple or incredibly complex … but with the help of Adam Smith's invisible hand becomes perfectly feasible. The key matter is to be using meaningful value metrics to inform the market and decisions about allocation of resources.
Most communities that are poor do not have access to resources to satisfy their needs, even basic needs, let alone their wants. Sometimes there are resources, but for a variety of reasons, there is no access to these resources. This may be because of external factors like the “ownership” of the resources … or it may be that the human capacity of the community is constrained by lack of education, skills and knowhow … or it may be a lack of organization or a lack of money and working capital.
Handling unmet needs probably requires some external intervention. This intervention should be such that there is community progress … not merely a “welfare” type intervention that merely makes poverty a little more bearable, and not an approach that helps the community a little bit with big profits for everyone else.
Upgrading people capacity
Upgrading people capacity to facilitate development progress should be a priority. But this needs to be more than just building educational capacity, it is a much more. The present value of education is huge … but only when it is combined with things that are valuable and need to be done. Education must deliver a skill set that enables real physical value creation. The value of education is a derivative that relates to economic opportunity in the society as well as the education itself. This is a paradigm shift in the way the goals of education are framed. Needs being satisfied is the job that human resources must do … education is needed to that people are able to do this.
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