SOCIAL VALUE: combining Public, Private, and Civic contributions?

 

by Colin Talbot

There has been an almost hegemonic view for several decades that value – wealth – is created solely by the private sector. The “wealth creators” are, allegedly, the entrepreneurs and innovators of the private corporate sector. The role of the state was, at most, to (re)distribute the wealth created.

This is, of course, nonsense. A convenient myth often used as justification for what is in reality more wealth extraction than wealth creation. In this article a very different perspective on what really constitutes Social Value is explored.

PRIVATE & PUBLIC VALUE CREATION

The main assault on this simplistic, and wrong, account of value production has come from economists re-evaluating the whole idea of ‘value’ and how we, as a society, account for and manage it. People like Dianne Coyle and Mariana Mazzucato have been fundamentally challenging how we measure economic and social progress, which devalues some contributions (Coyle), and that public activity creates value and does not just consume or redistribute it (Mazzucato).

The public sector does create, not just consume, value. Providing  education or health care is not just a consumption activity, it produces a healthy and well-educated workforce which is an essential component of production. Further the public sector creates value through activities like research and development, something Mazzucato has emphasised in her previous book on The Entrepreneurial State. Publicly provided infrastructure like roads and railways is as much part of the ‘production’ process for a company like Amazon as are its own warehouses and software. Mazzucato deploys a strong argument for recognizing both private and public value in the creation of value for a society as a whole.

‘Public Value’ is an idea that has gained substantial traction in recent years, since Mark Moore’s seminal book on the subject was published in 1995. Various UK organizations have adopted or adapted the idea of ‘public value’ including the BBC, British Library, and the last Labour government. The idea is now gaining adherents and interest around the globe.

This stands in stark contrast to commonly held views that public spending is just “consumption”. Spending on health and education, for example, is clearly in part at least part of creating value. In two ways.

Firstly, it creates value for those in receipt of the education and health services provided. We would certainly think of buying privately provided education or health care as providing us with value – so the state collectively buying the same things on our behalf is too.

Secondly, large parts of education and health spending go on preparing people for their working lives and keeping them productive when they are working. If a company spends money on training it is regarded as part of their production process. For some reason if the state spends money on educating people (in part) so they can be productive workers it is seen as ‘consumption’.

To give some idea of the value creating contributions of the public and private sectors here is a simple breakdown. In 2016 UK GDP was about £1.96 trillion. Of that, about 17% – £0.33 trillion – was contributed by public sector activity*.

 

Source: own calculation from ONS data

 

What this doesn’t tell us is how the public and private sectors interact to create (or sometimes destroy) value. But is does give us a rough idea of their relative contributions wo wider social value. PLURAL, OR CIVIC, VALUE

There is however also something that is sometimes called the “third sector” – value creating activity that is neither public nor private (in the commercial sense). Although some of this is sometimes recognised in the contribution that voluntary activity organised through charities and NGOs makes, the biggest contribution by far is largely ignored.
 
In 2018 the ONS released data they had been working on trying to estimate the size of activity that goes uncounted in GDP because it is not in the direct form of monetary transactions. In the snazzily named ‘Household Satellite Accounts’ they try to measure “the value of adult and childcare, household housing services, nutrition, clothing and laundry, transport and volunteering.” The results are quite staggering.
 
In 2016 they estimate the size of this unpaid household  services – or what I will call “Civic Value” – at £1.24 trillion or 63% of the size of official GDP.
 
 
 
Source: based on ONS data.
 
 
 
CREATING SOCIAL VALUE AND REFRAMING PUBLIC POLICY?
 
Looked at in this way our society is not one of ‘wealth creating private companies and markets’ on which everything else depends. Instead it is one of interconnected and interdependent sectors of value creation. The private sector is, to be sure, a massively important part of social value creation. But it only contributes about half – in economic terms – and is itself massively dependent on the other two sectors for its own success.
 
 
SOCIAL VALUE
Relative Sizes of Civic, Private and Public Value
2016 £ trillion
Source: based on ONS data.
 
And, rather ironically David Cameron’s “Big Society” (remember that?) already exists and always has – Civic Value is a far larger component of Social Value that the ‘Big Government’ he claimed was so negative and ‘crowded out’ civic action.
 
What is needed in public policy are new and innovative ways of improving how private, public and civic value interact and enhance one another in the creation of real social value. Instead a useless ideological debate about whether private or public value is best or better? These are issues I will explore further in future posts.
 
This is a very tentative and early attempt to explore these issues. Constructive contributions to the discussion welcome.
 
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* The Office for National Statistics (ONS) do not break down GDP in this way between public and private sector contributions. I have done this by dividing GDP by the percentages of people working in each sector. It is crude measure but something I checked with ONS and they agree it does provide a very rough idea of the relative contributions to GDP.

 

 

 

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