Introduction
It has been apparent to me for a very long time that the analysis of economic performance has
been inadequate because of all the important things that are ignored and excluded. I wrote a
paper late in 2014 suggesting that we needed to look at seven (7) dimensions of capitalism,
rather than simply at the financial dimension of capitalism. This paper is a further effort to clarify
the ideas in order to set the stage for the design and deployment of metrics that are far more
relevant for the effective management of policy and everything that matters in our modern global
society.
During my student days at Cambridge, after completing the engineering tripos (Mechanical
Sciences) I migrated to economics. At the time, my student contemporaries mocked my new
involvement with 'the dismal science' and in retrospect, they had good reason!
Very quickly, I learned that the 'numbers' in economics were a whole lot less dependable than the
numbers I had become accustomed to as a student engineer. Engineers tend to work on projects
that are very tangible and measurement is relatively easy. Economists tend to work to understand
the result of an amazing arrays of complex interactions and report on these in quite simple ways,
and this work is far from easy.
The use of data by economists is fraught with peril. In many cases, though the algorithms suggest
that there is correlation, in all likelihood there is none. Worse, the results of economic analysis
are often presented without adequate clarification about the margin for error. In many cases, the
margin for error is huge and far bigger than the results being reported.
It is 50+ years since I graduated and there have been many changes in the structure of society
and the economy. Nevertheless, data collection is still expensive and often unreliable. However,
the ability to analyze really poor data has improved immensely thanks to computers and modern
information technology. Whether or not the results are good enough to use is still an open
question.
In the 1970s and 1980s I was working a lot in the fisheries sector and was
friendly with Dr. John Gulland FRS who was head of Fisheries Population
Dynamics at FAO. I remember one conversation when we were discussing the
deterioration of fisheries catch statistics around the world and the way improved
mathematics and computational power was making it possible to fill in the blanks.
But the idea that data manipulation can substitute for good raw data did not fill
me with confidence then, and does not now, more than three decades later.
Over the years, I evolved more into an effective manager more than a respected economist. My
idea about management information is simply that it should be good enough, quick enough, and
cheap enough so that the management team and all decision makers are able to make good
decisions correctly, reliably and quickly. The purpose of management information is to improve
performance in the most cost effective way possible.
I have also become very much aware that risk is important, and that the management of risk in
good decision making is critical and has to be taken into account. Risk has to be handled in an
effective way, and most often it is not. While it may be appropriate to discount the flow of future
profits in some simple mathematical way, the result of using the same approach for risk is
inappropriate and will eventually lead to catastrophic outcomes. We are already starting to see
this in the management … or lack of management … in respect of climate change risks.
Achievements of the Modern Economy
Progress … by almost any measure … has been amazing over the past (say) 300 years. There has
been amazing progress in man's ability to grow food and produce goods. A free laissez faire
market driven capitalist system has done very well in improving the quality of life and standard
of living for a lot of people over this time.
The free market capitalist system has performed way better than state driven communist systems.
But that does not mean that the system is by any means optimum. The performance relative to a
theoretical best has not been particularly good. Great technology has been used to build military
machinery rather than to do thing that would better the life of people.
Progress of technology has been amazing. I worked on a mainframe computer in
1967 with 4K of memory. Almost 50 years later a smart phone has 4G or 40G of
memory … a million or 10 million times more. Why isn't society a million times
better?
Technology and the prevailing economic system has enabled some people to amass huge
fortunes. However, only a tiny bit of the increase in the power of technology is being used to
make the enviro-socio-economic system function more nearly at its top potential.
In the last fifty years, capitalism has evolved into a system that has an unhealthy focus on the
ownership of financial wealth … an unhealthy focus on 'me', with not much attention being paid
to important issues outside financial wealth and things that are traded for money. Financial
capital is at one and the same time an amount of money and a measure … a circular computation
that has terrible implications.
The data suggest that the system of capitalism that served very well for a long time started to
become less effective around the 1970s. The system of metrics that were being used to assess
economic progress and performance are partly to blame for this. Simple money measures that
served as proxies for social performance as well as economic performance do not work in the
same way when the system has endemic surplus as is the case when supply and demand are more
in balance.
Computers and all sorts of technological innovation have enabled higher economic productivity,
meaning more output of goods and services with less money spent on labor. More output
translates into more profit, corporate wealth and investor wealth. More output also means that the
GDP measure looks good … meaning GDP Is bigger.
Of course, more output also
There are no metrics for the which in turn made it possible to make more profit while using less
labor. With this change, labor lost its bargaining power, a little at first, and eventually almost all
of it.
Many of the metrics that served as reasonably proxies for people progress in a shortage economy
did not work in the same way in a surplus economy. When there is a surplus in a market
economy, the price drops. This is the same whether the market is for goods or the market is for
labor.
Complexity
The modern global socio-enviro-economic system is very complex. It is local and it is global. It
is industrial and it is artisanal. It is agriculture and it is manufacturing. It is urban and it is rural.
It is democratic and it is authoritarian. It is generous and it is greedy. There are many histories
and many old scores to settle.
How can such a complex array of issues be managed in an optimum way for the present and for
the future?
What is certain, is that any simple measure such as GDP growth is unlikely to get the right
answer, and the idea that corporate profits and stock market performance are good proxies for a
great society is increasingly at odds with reality.
While the fundamental architecture of economics is founded on ideas that might have worked
well in the days of Adam Smith when the world had a very much simpler 'structure' and 'scale'
than what has existed since the end of the Second World War, and that this basic architecture
needs to be revisited to take into account modern complexity.
Rather than optimizing for financial performance and especially corporate and stock market
performance, much more weight should be given to the happiness of people, the fairness of
society and the sustainability of the environment. As Peter Drucker famously said … 'You
manage what you measure' so if we want to manage the economy then we had better measure
everything that matters.
The complex modern world operates with multiple economies … subsets if you will. These are:
- The financial economy
- The people economy
- The natural economy
- The real economy
Each of these are complex, and worse, they are all interconnected in a variety of ways, some of
which are not easily understood. Scientists have figured out some of this complexity, but in
general very little of this scientific knowledge has been applied yet for the metrics and
management of these economies.
The Appalling State of the Metrics
Multi Dimension Capitalism for the 21st Century
The idea of equating progress to an increase in capital … financial capital … can be applied in a
broader sense to everything … to every dimension of capital.
Financial wealth has come from somewhere. It has come from the use of all sorts of resources in
all sorts of ways to produce goods and services that people needed and wanted to improve their
quality of life and standard of living. All of this could be accounted for by 'accounting for the
money' associated with all of these transactions.
In times past impact on the resources, on the people, on the environment were not a part of the
accounting, and the capital changes … depletion or increase … in all these areas was simply
ignored. Nor did this matter very much. Better business did translate into more need for labor
and the scale of economic activity relative to the available natural resources was modest. To put
this in perspective, in just over a hundred years the level of economic activity on the planet has
increased more than 40 fold … the population was 1.7 billion in 1900 and grew by 2014 to
around 7.1 billion. Standard of living is maybe 10 times better … or more. This puts stress on
resources and the environment that is dangerous and we have little or no idea what consequences
there will be.
For the 21st century we should not be ignoring the other dimensions of capital. They should be
accounted for with as much rigor as there is for financial capital and the associated money
transactions.
A Three Component System with Seven Capitals
The big picture is that there are three segments making up the global enviro-socio-economic
system. These are:
- Nature and natural bounty;
- Man built structures and systems; and
- People.
Within these three components of the system there are seven (7) capitals:
- Nature and natural bounty:
- Man built structures and systems:
- Physical Capital (PC)
- Institutional Capital (IC)
- Knowledge Capital (KC)
- Financial Capital (FC)
- Social Capital (SC)
- People
The Financial Economy
Economics in the main refers to the financial economy. This is the economy where money is the
measure. There was a time when society was simpler and money served quite well to link the
financial economy with the real economy. Money flowed in one direction round the economy
and goods flowed in the other direction. The productivity of the day meant that there were too
few goods and the system functioned with 'shortage' everywhere.
The agricultural revolution and then the industrial revolution resulted in much improved
productivity, and in the last 40 years the modern advanced societies have been operating not in a
shortage mode, but in a state of endemic surplus.
As productivity has improved, less people are needed to make an abundance of goods and
services and one would expect that society would flourish. The data show that in fact society has
not flourished … rather it has flatlined … while financial profits has increased enormously.
Financial Capital (FC)
Financial capital is also man made. Financial capital is the only capital that really does not exist
per se, but is a function of the ownership and deployment of the other capitals. This is clear from
a company balance sheet where the financial capital of the company is represented by the
(physical) assets of the company less the liabilities. Similarly an individual's wealth (financial
capital) may be represented by ownership interest in various assets … house, car, personal
property, stocks and bonds, insurance policies, etc … less liabilities. Financial capital presently is
the dominant component in the perception of success.
The People Economy
There are very strong management metrics for the financial economy, and almost nothing for the
people economy.
In an economically poor society, more product (goods and services) results in an improved
quality of life. Typically more product is a result of more production and a result of more
productivity. In this setting more productivity results in an improved quality of life.
In many post Second World War industrialized societies there was substantial improvement in
quality of life as people worked to fix up all the damage of war and catch up on all the shortages
that war had created. For about 30 years the quality of life of working people improved very
substantially, and productivity translated into improved quality of life.
In the 1970s the post war economic model stopped working. Part of this was brought about by
excesses in the 'gogo' years of the 1960s when financial engineering started to be fashionable,
and then was discovered to be unsustainable. Part of this was the 'oil shocks' and the advent of
the OPEC oil cartel. Part of this was continuing improvement in productivity, and of course, the
beginning of computerization.
Since the mid-seventies productivity has been improving exponentially. People have become
surplus to requirement and while profits have increases, wages have flatlined … exacerbated in
some part by technology that has enabled global supply chains and a corporate race to places
where people are paid the least, the workplace regulations are the most lax, and environmental
regulations virtually do not exist.
Economists who study labor economics know all of this. Society as a whole does not. The
metrics that dominate the conversation about economic performance are financial numbers and it
is these that get into the headlines. The people economy is quite unimportant in the decision
making that dominates investment allocation and policy formulation.
Social Capital (SC)
Social capital is not the same as human capital, but is closely related. It is about community and
friends and the good that emerges from a group of people. Social capital feeds into human capital
and vice versa. Social capital is what people as a whole contribute to a community or place.
Social capital is influenced by the institutional capital that exists in a place, especially things like
religious organizations, cultural organizations, sports organizations and the security services that
keep violence at bay.
Human Capital (HC)
Human capital is about an individual. An individual's wealth (financial capital) as described
above is a part of an individual's human capital, but only a part. Human capital in the present has
been achieved by an individual's history … such things as parenting, nutritious food, good
healthcare, good education, good surroundings, role models and so forth. Skills and experience
are accumulated over time. There is a historic cost to getting these things, but the value
accumulation is reflected in the present. Past earnings that are not spent but saved, factor into the
human capital of the present. Society or community also feeds into an individual's human capital.
A society that has no violence and is supportive of an individual adds to human capital. A society
where there is a future full of opportunity is also part of the state of human capital in the present.
The present value of the future depends on what the future looks like, but also depends on what
the individual has done in the past to be in a position to take advantage of the future.
The Natural Economy
In the last 100 years it has become increasingly apparent that converting nature's wealth into
financial wealth has become a losing proposition.
The natural economy has remained more or less in equilibrium for many thousands, if not
millions of years. Plants and animal life has evolved to be in balance, together with natural
processes that result in climate stability as well balances in other aspects of nature that are
needed for living things, including people.
For most of this time change was slow, but in the last thousand years people have increasingly
become capable to do bigger and bigger things. In the past three hundred years people have
learned to do things that have improved people's quality of life in amazing ways.
Old photographs of the logging in the United States show how this natural capital was converted
into financial capital and personal wealth.
Natural Capital (NC)
There are many components to natural capital. There is the sun. There is life … whether this is
human life or all the other life forms from single cell organisms to all sorts of fish and animals
and to plants in all their varieties. There are minerals and there are fossil fuels that represent
millions if not billions of years of sun energy capture. There is land and water and atmosphere.
There are ecosystems and biodiversity. Nature works in many mysterious ways that we know
nothing about, but are essential to the good health of people and the planet. We now know
something about the important services that the natural world provides which enable a natural
environment in which animals, including humans can thrive. We do damage to natural capital at
our peril. Despite this, there is no accounting for the impact economic activity has on natural
capital … no accounting for the depletion of resources, no accounting for the degradation of the
environment, no accounting for the good that arises in nature (biodiversity, ecosystem serves,
etc). This has to change.
Financial Capital.
Greenhouse gas emissions. Environmental degradation includes the impact of greenhouse gas
emissions on the atmosphere and the equilibrium of the weather. A unit of measure could be
based on the idea that one metric ton of carbon dioxide emissions = 1000, and everything to do
with air pollution gets related to this unit. Many things associated with atmospheric pollution
could be related to a ton of carbon dioxide emissions where 1 ton of CO2e equals 1,000 (say).
The Real Economy ... Man-Built Structures and Systems (MBSS)
Physical Capital (PC)
Physical capital is man built. Some of the physical capital is owned by people, some is owned by
companies and some is owned in the commons by the state. There are factories, machinery and
equipment, jigs and dyes, vehicles, furniture fixtures and fittings that are assets of companies and
on their balance sheets. There are roads and bridges, airports, seaports and water systems and
sewer systems that have been built by government and are maintained by government or others.
There is working capital, and specifically inventory of product, that is mainly owned by private
sector organizations. There are products that are consumed by people to satisfy their needs and
their wants. There are houses owned or occupied by people. There are commercial buildings.
There are city transit systems. There are parks, theaters for cultural events and stadiums for
sports events. There are hospitals and there are schools, universities and research apparatus.
Money is in part a piece of physical capital in the sense that physical money (or its virtual
equivalent) is needed to make transactions efficiently. Everything in physical capital has been
built using resources and impacting the environment.
Institutional Capital (IC)
Institutional capital is also man built. There are institutions that have a role in enabling an
efficient economy and better society. There are laws, rules and regulations that are man made and
part of an enabling environment. There are a variety of organizations that enable efficient
economic activities, and provide all sorts of services that make for a better society. There are
security services, there are police and courts and prisons. There are religious organizations and a
variety of organizations for recreation, the arts and sports. There are organizations that specialize
in healthcare and organizations that specialize in education and the creation of knowledge. There
are utilities that take care of the supply of water and sanitation and utilities that generate and
distribute electricity. Institutions are a critical part of the enabling environment for efficient
economic activity and for people's quality of life.
Knowledge Capital (KC)
Knowledge capital is man made. Some might argue that it is mankind's ability to build
knowledge capital that has differentiated mankind from the other animals. Knowledge has grown
at an amazing pace for the past 200 years, and continues to accelerate. The technical limit to
knowledge capital is the ability of the human brain to process information and understand. There
is a prevailing system constraint associated with money not being available to deploy and pay for
the available brains. There are other issues with knowledge. One is that some knowledge is
hidden and/or controlled by knowledge ownership otherwise referred to as intellectual property
(IP) which is used or not used at the owner's option. Another issue is that knowledge has the
potential to be used for bad rather than good. In many cases the use of knowledge results in
change with some being winners and others being losers.
Metrics ... Numbering Everything
Quantification of Financial Capital - Money Units
The money measure needs to be better understood. It is common to use a reference currency lije
the US dollar, but local currency also matters, and there may be funding currency as well.
Besides the US$, other reference currencies might be the Euro, Japanese Yen or Chinese Yuan
Quantification of Physical Capital – Money Units
Physical capital includes products, the goods and services needed for people to have a decent
quality of life, it includes buildings and infrastructure. Physical capital needs to measured both in
static and in dynamic terms, and in terms of money units and in terms of various impact units. Of
special note are products that flow through the enviro-socio-economic system delivering impact
in the form of quality of life and impact on everything else as they go through the life cycle.
Quantification of Institutional Capital
Institution capital has impact. There are money costs to support institutional capital and impact
costs when institutional capital is inadequate. There is both a static and a dynamic dimension.
Quantification of Knowledge Capital
Knowledge capital is the enabler of a high performance enviro-socio-economic system.
Knowledge may be thought to behave somewhat like energy ... potential energy, kinetic energy,
heat energy and so on. Knowledge has money costs to support research and all sorts of impacts
when knowledge is used, bot good and bad. There is both a static and a dynamic dimension.
Quantification of Social Capital
Social capital is the group version of individual human capital. Social capital has impact on
individual human capital and individual human capital has impact on social capital. There is both
a static and a dynamic dimension.
Quantification of Human Capital – Life Units
A unit of measure for quality of life may be driven by reference to the value of life itself. There is
life, and there is quality of life. The value of life should not be directly related to a money unit,
but be defined independently from money. The unit could be defined as 1 life = 1 million life
units. Everything to do with quality of life is associated to this unit.
Quantification of Natural Capital – Life Units
Natural Capital – Resource Depletion and Environmental Degradation
There need to be several units of measure within natural capital (NC) because of the many roles
that natural capital plays in the success of everything. It would be good if these could be be
summarized or consolidated into a single unit of measure of natural capital as a whole, but this
requires more understanding of natural capital values than there is at the present.
Water The value of water should be related to the value of life more than to the value of money.
The price or cost of water varies depending on the abundance of water and whether or not water
is renewable in the place where it is uses. The cost of water must include the cost of release of
polluted water into the environment. The unit of measure for water could be that 1 liter of net
water consumption = 1 water unit. Many things associated with water and water pollution could
be related to the idea that 1 liter of fresh water has a value of 1 (say).
Land The value of land should be related to a land value unit, and adjusted to reflect all the
various uses there are for land, and not just those that a priced into money units as a result of
trade. There is value in land when used for eco-services (forests for carbon, wetlands for
fisheries, wildland for bio-diversity, natural land for water purification, etc). The unit of measure
of land could be that 1 hectare of land = 1000 land units. Land use is constrained by a limited
and fixed amount of land, and the value will change depending on the use being made of the
land. Land may be used for urban development, suburban communities, rural agriculture,
industrial use, tourism and various forms of ecoservice and habitat for bio-diversity. Many things
associated with land and land use could be related to the idea that 1 hectare of undeveloped
natural land equals 1000 (say)
Mining and fossil fuel extraction. The use of minerals and fossil fuels in economic transactions
puts of price on the resource, but the loss of this resource must also be accounted for in the loss
of natural capital. The value of the resource does not need to be quantified when it remains in
situ, but when it is depleted the value could be accounted for based on the value the mineral or
energy contributes to economic performance. The unit for this can be money … the same as for
Financial Capital.
Greenhouse gas emissions. Environmental degradation includes the impact of greenhouse gas
emissions on the atmosphere and the equilibrium of the weather. A unit of measure could be
based on the idea that one metric ton of carbon dioxide emissions = 1000, and everything to do
with air pollution gets related to this unit. Many things associated with atmospheric pollution
could be related to a ton of carbon dioxide emissions where 1 ton of CO2e equals 1,000 (say).
Quantification … Measures Beyond Money
MDIA will incorporate multiple units of measure … and use standard values for the accounting.
Standard values are something like standard costs in cost accounting.
Money had its origins in being a measure of the price in an economic transaction. It facilitated
trade and was very much more efficient than barter. How money became a store of value is a
long story, and how money became a key component in money wealth creation an even longer
story. Money has its uses, but it is a very poor unit of measure for almost everything that is
important in the world we live in. The size of a money unit has no definition at all … it is
determined by a market that is also impossible to describe and replete with 'invisible hands' that
may or may not control everything.
The value of a product … goods or service … is not the amount that it can be bought or sold for.
That is a price. The value is what a product contributes … to a person directly and to society in
general and also taking into account the impact there is on natural capital. What this means is
that there is a need for several units of measure and related quantification along the following
lines.
The Genius of Conventional Accounting
Few people are aware of the genius of conventional double entry accounting. Developed more
than 400 years ago, the concept of double entry makes it relatively easy to account for the assets
of an enterprise and to understand the transactions that have taken place. First used by investors
funding merchant adventurers in the 15th century, the system has stood the test of time, and is
still at the core of every modern accounting system, which in turn is at the center of every good
corporate management information system.
Double entry accounting and the classification of accounts between balance sheet accounts and
profit and loss (or transaction) accounts is at the heart of conventional business accounting.
Periodic reports are summaries of the balance sheet accounts … the balance sheet … and the
transaction accounts … the profit and loss account. A key construct is that the change in the
balance sheet from the beginning of the period to the end of the period is the same as the net total
of the transactions … that is the profit or loss for the period.
With conventional accounting the financial performance of a very very large organization can be
summarized with just a few numbers … the balance sheet and the profit and loss accounts. …
just two or three sheets of paper to summarize the performance of a company with hundreds of
thousands of employees! On the other hand, up to now there has been no systemic way for the
impact on all the externalities … impact on people and planet … to be summarized and reported
with the same efficiency.
But not applied widely
Though it is widely recognized that there are many important things in life that have value but do
not get associated with a money measure, there are no metrics for these things that have anything
like the power of conventional accounting Conventional accounting embraces cost and embraces
price but does not embrace the issue of value.
Financial analysis has devised ways to incorporate a notion of value into financial analysis for
capital markets, but this does not carry into the underlying accounting. A company balance sheet
has real assets and liabilities, but the 'value' of the balance sheet is computed based on the
present value of the anticipated future cash flows and profit. All of this analysis ignores the
impact the economic activities have on people and planet.
The genius of conventional accounting is only applied to the business organization. Conventional
accounting does not take into consideration any of the impacts beyond the 'reporting envelope'
associated with the enterprise. The reporting envelope may include subsidiaries of the company,
for example, but the reporting envelope excludes everything else. Impact on people and planet
are externalities beyond this reporting envelope and not part of conventional accounting, analysis
and reporting. Business schools teach about how to improve the performance of the company,
but there are no equivalent 'society schools' that focus on how to improve the performance of
every aspect of society and take care of the environment.
Capitalism and conventional accountancy were powerful factor in enabling the agricultural
revolution and the industrial revolution and improving quality of life and standard of living for
many over a period of several hundred years, the system has performed less well in the last fifty
years. Poor performance was aggravated by measures like Gross Domestic Product (GDP) at the
macro level which was introduced in the 1930s to help understand the Great Depression and
subsequently the economic impact of war. GDP only measures economic flows, but it is used as
a proxy for the state of the economy, assuming in a very crude way that the more the GDP, the
better the economy and the better off people are. In reality, this correlation is very weak … but
paradoxically, the bigger the GDP the easier it is for the performance of business to look good.
More there is of GDP growth, the easier it is to have corporate profit growth and higher stock
prices.
Most engineering students learn something about feedback loops. The feedback loops that are
needed for a better society do not exist within the existing system or are broken. An important
step to having a better society is to have better feedback loops and for this to have better metrics.
Multiple Perspectives
The conventional perspectives about the economy and society are these:
- Organizational performance, corporate profits and stock market prices
- Macro economics at the country level, with some drill down to more local issues
These perspectives work for the owners of physical and financial assets, for investors in
corporate organizations and corporate executives, as well as providing the political class with
talking points. However, there are other perspectives that are essential to enable an efficient
society and economy that optimizes for everything and has people as a top priority and planet at
the center. The singular focus on business performance as the driver of good results at the macro
level has to be supplemented by multiple perspectives so that everyone may be involved in
making better decisions for themselves and for the environment, society and the economy as a
system … as a whole.
The Product Perspective
In the end the economy is driven by the decisions of people who have needs and wants and are
consumers. They buy products … that is goods and services … that they need and want. In turn
companies produce these things, and so on back through the supply chain. Companies know this
and invest heavily in the advertising of their products and the building of their brands. Society
does not have any equivalent to convince consumers to act in the interest of themselves, of
society and the environment. The only interest behind advertising and influencing the consuming
public are the product manufacturers and marketers. This asymmetry is dangerous and has to be
changed.
A big step will be to have multi dimension metrics about products. The buy or not to buy
decision by a consumer should be guided by a clear information of what goes into that product
through its whole life cycle. There has been a lot of work on life cycle assessment but this work
remains academic and is not deployed in a systematic way to inform every consumer all the time,
and especially during the buy or not to buy decision time. Business informs consumers all the
time with their advertising and brand promotion … but independent objective information about
the life cycle of the product and its impact on society and the environment is missing.
The Place Perspective
Another big step will be to have better information about place. The reality is people live, work
and play in a place … or places. Places are for ever and progress or deterioration of a place can
be observed relatively easily. Better metrics about places will make it possible to track progress
and performance of a place in much the same way that analysts are able to track to performance
of a company over time. At the moment, the relationship between progress and performance in a
place is not at all clear, but it should be and could be with better analytical metrics about the
place.
The Person Perspective
Finally, there should be a better way for people to account to themselves for their progress and
performance. The idea that being wealthy is the only goal in life, is such a diminution of what
people want and are capable of … and misses completely the value of what people can contribute
to society. There is a whole lot of life that is good and valuable, but never expressed in terms of
money and money transactions. People have passion, energy and ideas that are of enormous
potential … but ignored in policy formulation that gets driven by the conventional metrics
around organizational performance and GDP growth.
The Planet Perspectives
The planet perspective is 'big picture' and important to understand, but action for change has to
come where action can be tangible. Pollution has an impact on the planet, but pollution has to be
addressed where it is created in a place, but use of a product, by an individual person or group or
by an organization. The resources of the planet and the energy of the sun are big enough to
support a huge people population if … and only if … knowledge and technology are used in a
very smart way to deliver quality of life.
The Organization Perspective
In the prevailing system of socio-economic analysis there is an assumption that what is good for
an organization is good for society. This had some validity in the past, but no more. In many
ways higher performance by an organization results in lower performance for people and the
environment. This is not captured in conventional accounting but knowledge about this and
metrics are required for the optimization of the whole enviro-socio-economic system.
Accounting for the 21st Century
Accounting for the 21st Century must include metrics that are relate to the environment, society,
and the total economy rather than merely being for the organization. This is accounting for every
part of this amazing and complex system that is the environment, the society and the economy.
The initiative for development of Multi Dimension Impact Accounting (MDIA) addresses these
problems. The goal is for MDIA to be an easy to use tool that will expand the capabilities of
conventional accounting so that the impact of economic activity on everything is brought into
account. Conventional accounting has a focus on the single dimension of money, while MDIA
accounts for not only money transactions, but also the impact of economic activity on everything
else … hence multi dimension and impact accounting. MDIA will enable analysis that embraces
not only the impact profit has on financial capital, but how economic activity impacts all the
other capitals.
MDIA aims to be a tool that can be used in many different situations. The same data and data
architecture works for a person, for a product, for a place and for the profit and impact of an
economic activity or an organization.
The logic is relatively simple … but as usual, the devil is in the detail.
Experience over the last 40 years suggests that there has been a growing dysfunction in the
systems driving global society and the economy. There is some amazing progress in knowledge,
technology, and manufacturing productivity, but there has been far less progress for society, for
most people and their quality of life. There is dangerous depletion of resources and degradation
of the environment. Progress for some has been wonderful, but not for others. For too many
people, opportunity has become a cruel mirage. This is a system problem, and calls for a system
solution … but what might that be?
In spite the amazing progress in technology over the past 50 years … with computational power
millions of times more powerful, materials are better, knowledge is growing faster and faster,
more and more people have decent education. But in spite of all of this, the state of society …
the state of the world is something of a shambles.
Conventional approaches to problem solving and policy making do not seem to work. As an
engineer / economist turned accountant, I see the issue of metrics as being a major component of
the dysfunction. Most of the metrics used every day to determine progress and performance of
society and the economy are badly designed and cannot work. Corporate profit, stock prices and
GDP growth are the dominant metrics, and they do not correlate to better quality of life and
standard of living for the majority of the world's population nor do they provide any incentive to
sort out the problems of resource depletion and environmental degradation.
At the outset I want to acknowledge that there is an enormous amount of work going on to
address the problems of the environment, society and the economy that have been identified.
These include both legislation and voluntary initiatives to improve the reporting by companies of
their social responsibility, sustainability, workplace conditions, environmental impact and so
forth. In general, these initiatives address the issue of reporting, with less attention to the matter
of underlying metrics and accounting.
Follow up … Request for Feedback
Getting these ideas fleshed out into a clear, simple but comprehensive structure is a big job and
remains a work-in-progress. Many organizations are making progress with this, but there is no
broad universal framework yet that will enable all the pieces to come together and work
efficiently.
I would like to get feedback from anyone and everyone to help move this initiative forward.
While I have some clear concepts about much of this architecture, there are many details that I
do not know enough about and need help. So, please feel free to contact me. If you email, please
put something relevant and catchy in the subject line.
Peter Burgess – TrueValueMetrics … Multi Dimension Impact Accounting
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TrueValueMetrics – Many Dimensions of the Economy
Contact information for Peter Burgess: Founder / CEO ... TrueValueMetrics
Website: http://www.truevaluemetrics,org
Email: peterbnyc@gmail.com
Skype: peterburgessnyc
Twitter: @truevaluemetric
LinkedIn for Peter Burgess : www.linkedin.com/in/peterburgess1/
Link to PDF:
http://www.truevaluemetrics.org/DBpdfs/MDIA/TVM-Short-Introduction-to-7D-Capitalism-and-MDIA-141212a .pdf
http://www.truevaluemetrics.org/DBpdfs/Burgess/MDIA/TVM-Many-Dimensions-of-the-Economy-150820.pdf
How interests are being categorized in contemporary society
This is from LinkedIn Slideshare
- • Most Popular
- • Editor's Picks
- • Art & Photos
- • Automotive
- • Business
- • Career
- • Data & Analytics
- • Design
- • Devices & Hardware
- • Economy & Finance
- • Education
- • Engineering
- • Entertainment & Humor
- • Environment
- • Food
- • Government & Nonprofit
- • Health & Medicine
- • Healthcare
- • Internet
- • Investor Relations
- • Law
- • Leadership & Management
- • Lifestyle
- • Marketing
- • Mobile
- • News & Politics
- • Presentations & Public Speaking
- • Real Estate
- • Recruiting & HR
- • Retail
- • Sales
- • Science
- • Self Improvement
- • Services
- • Small Business & Entrepreneurship
- • Social Media
- • Software
- • Spiritual
- • Sports
- • Technology
- • Travel
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