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