Social Value UK

Tag: Social Mobility

  • Social Value Videos

    Social Value Videos

    Social value is the quantification of the relative importance that people place on the changes they experience in their lives. Some, but not all of this value is captured in market prices. It is important to consider and measure this social value from the perspective of those affected by an organisation’s work. Examples of social value might be the value we experience from increasing our confidence, or from living next to a community park. These things are important to us, but are not commonly expressed or measured in the same way that financial value is. At Social Value UK, we believe that social value has a huge potential to help us change the way we understand the world around us, and make decisions about where to invest resources. By changing the way we account for value, we believe that we will end up with a world with more equality and a more sustainable environment.

    Recently we have began sharing interesting and inspiring talks and presentations that relate to the Principles of Social Value, and our mission to improve equality and reduce environmental degradation. These videos span interests, sectors and topics but they’re all under 20 minutes and should be added to your “to watch” list. We have been sharing these videos on Twitter using the hashtag #socvalvid and will continue to do so in the weeks to come, so keep an eye out each Monday and Friday! Please search the hashtag for an enjoyable and informative afternoon distraction and share your own finds using #socvalvid.

    We have included a talk to get you started below, let us know your thoughts in the comments.

    You might not expect the chief operating officer of a major global corporation to look too far beyond either the balance sheet or the bottom line. But Harish Manwani, COO of Unilever, makes a passionate argument that doing so to include value, purpose and sustainability in top-level decision-making is not just savvy, it’s the only way to run a 21st century business responsibly.

  • Accounting and Inequality

    Accounting and Inequality

    Inequality is the most pressing issue of our times. From Joseph Stiglitz and Oxfam’s recent research to the IMF and the CEO of Goldman Sachs, many are citing it as a critical issue leading to poverty and unstable societies. However, it is not just the broad brush issues that are affected by inequality. In The Spirit Level, Kate Pickett and Richard Wilkinson made a strongly evidenced and compelling argument that inequality contributes to a wide range of society’s ills, from prison sentences to mental health, life expectancy to teenage pregnancy. It is becoming increasingly clear that it is narrower income differentials, rather than infinite economic growth, that produce happier, healthier and more resilient societies.

    This problem of inequality is systemic and getting worse. In the UK between 1977 and 2013, inequality, measured by the Gini coefficient, increased by 42%.1 In January, Oxfam announced the combined wealth of the richest 1% will overtake that of the other 99% in 2016. Whilst there are disagreements as to whether social mobility is decreasing, politics, journalism and legal professions in the UK are still dominated by people who have gone to private schools. And countries with higher levels of income inequality have lower levels of social mobility.

    Inequality is also expensive – and economically inefficient. Research from The Equality Trust found that social impacts of inequality: poor mental health; high crime rates; and low life expectancy, costs the UK over £39 billion a year.2 The rich increase spending on security services they wouldn’t otherwise need. Inequality reduces wellbeing for both rich and poor with higher rates of depression and lower levels of trust. In the worst instances inequality leads to social and political instability.

    The solutions are consequently unlikely to be straightforward or superficial. It will require a radical approach to change this broken system.

    We believe that a major issue at the root of inequality is that of resource allocation. Currently, investment decisions that lead to capital flows and allocation of resources are made on the basis of the price signals that are sent to the investors. These price signals are informed by an organisation’s financial accounts. So how are these accounts prepared? The current system is to prepare accounts with a supposed, hypothetical investor in mind. This hypothetical investor is assumed to be solely interested in the maximisation of wealth. The accounts therefore exclusively reflect this interest.

    So the first assumption is that our hypothetical investor is only interested in wealth. The second assumption is that this is an accurate reflection of real investors; that what matters to them is solely a financial return on their investment, and no other criteria are factored in to the decisions they make.

    These assumptions are rooted in the model of neo classical economics. This operates on the idea that human beings are entirely rational, wealth maximising individuals who act in a consistently self-interested manner. In practice, the assumption clearly does not bear out. As well as most people’s real life experience that humans do not behave in this way, there are countless psychological examples in decision theory that demonstrate a much more nuanced, complicated and ‘irrational’ decision making process in human beings. Whilst modern day economics has changed (to a certain extent) to adapt to these findings in behavioural psychology, accounting has not moved on; it is still stuck with this concept of a super rational, wealth maximising individual.

    So where does this leave us with inequality? There are two questions that we can ask ourselves at this juncture. Firstly, does this hypothetical wealth maximising investor accurately reflect all investors? Secondly, even if it is an accurate reflection; do we really want to live in a world where accounts are prepared with this in mind? Or would a world where accounts are prepared in the public interests to enable companies to be held to account and encourage transparency be preferable?

    To address the first question: investors surely do make decisions on evidence other than the financial impacts of a company. Many investors, and indeed consumers, would also make decisions based on a company’s social and environmental impacts – does it use child labour? Does it poison the environment through dumping of toxic waste? If these sorts of impacts were included in the financial accounts of a company, and subjected to external auditing to examine whether the impacts were a true and fair representation of that company’s accounts, investment and therefore resource allocation decisions would be reflective of these impacts. Companies which were more transparent and more accountable for their actions would demonstrate a better return on investment – where return means all material types of value, not just financial. Resources would therefore be directed towards ventures that demonstrated accountability to their stakeholders for all types of material value that were created and/or destroyed.

    To address the second question from above: even if it is true that investors are solely interested in maximising their wealth, surely the world would be a better and more egalitarian place if accounts accurately reflected a range of impacts, rather than just the financial? If we would prefer to live in a world where resource allocation decisions are made on this wider basis, then it is time to change public policy to reflect this.

    To make this world more equal, we need profound and systemic change. Resource allocation decisions lie at the root of current inequality, and changing the evidence used to make these decisions gives us a real chance at making this change and moving towards a more equal, and therefore healthier, safer and economically stable society.

    1 Data from Gini Coefficient graph, the Equality Trust. Original data from DWP.

    2 The Cost of Inequality, The Equality Trust (2014)

     

     

  • There’s No Mobility….Like Social Mobility!

    There’s No Mobility….Like Social Mobility!

    There’s No Mobility…..Like Social Mobility!

    Jeremy Nicholls November 2013 Social Mobility 2

    The recent coverage of social mobility in the 2013 State of the Nation Report and from Phil Collins in the Times, and just how low it is, is pretty depressing. Basically the increase in mobility in the 60s and 70s wasn’t really about public policy or driven by education but resulted from changes to economic structure and an increase in the number of opportunities for white collar workers which provided lots of opportunities for people to ‘move up’ a class. Social mobility appears to be falling internationally as well with mobility in the country built on the idea of mobility, the US, now lower than in the UK. The increase in families needing help with food against a background of higher house prices seems counter intuitive (though not enough houses and the impact on house prices of those with very high incomes explains that.)

    Of course there are still examples of people being socially mobile and of course public policy has an effect. It is just that it is not a very big one. The other forces that drive both increases and decreases in social mobility are greater. Depressing enough but it gets worse. Despite increases in the number of people worldwide who have moved out of extreme poverty, from less than $1 a day, there have been increases in inequality within countries and, not surprisingly, the higher the inequality the harder it is for people on low incomes to move up. Part of the problem is that unless the number of jobs, and especially jobs with higher incomes, is increasing someone has to be going down for everyone who goes up. This is neither a popular political message nor is it something that those on higher incomes are keen to see happen. And with the higher levels of resources and connections to similar people than those wanting to be upwardly mobile, those on higher incomes will resist the risk of going down. So it will get worse. Depressing.

    But it’s much worse than this. The idea of mobility, from blue collar to white collar, from working to middle class has been driven by the experience of our parents for whom this was a massive change. But the idea of middle class is a massive con trick that we have all fallen into or are being encouraged to hang onto. It is not really just that middle class incomes are also under pressure in many parts of the world or have even been declining in some, it is that whether you think you are working class or middle class the reality is we are all in the class that works, every day, saving if we are lucky for a time when we retire where, unless you are fortunate enough to have a contract where your pension relates to your salary, you are now likely to be worse off when you do retire. There are really only two classes, working class, which includes those who want to work but for whom there are no jobs, and the not needing to work class.

    I would be interested to know what the mobility rates look like between these two classes, especially since the not needing to work class has substantial wealth where people derive their income not from earnings but from their assets, shares, land, property. I have my suspicions. Of course the number of people in this not needing to work class is growing but I suspect at a lower rate than the increase in population. And it is possible to join it if you win the Lottery or write a blockbuster and the press interest in these examples fuels the belief that we might all make it.   Depressing.

    And back to that growth in opportunities in the 60s and 70s. There doesn’t seem to be much chance of that happening again in the UK. Technological advances are increased the rate at which capital has replaced labour and increased the ability of capital to create returns from anywhere in the world. It would seem the number of jobs requiring higher skills is falling as a proportion of all jobs and the proportion of low paid low skilled jobs increasing. This is not just a UK phenomenon. Even though opportunities are increasing in what were countries with lower rates of GDP, this reflects a global sharing of employment opportunities, a kind of entropy in jobs reflected in the widening inequality within countries. And so we all become low wage economies where the distribution of opportunities for work continues to skew towards lower paid jobs, except of course for that increasingly thin veneer of the not needing to work class. A double, or is it triple blow for chances of social mobility.

    And then there is the combination of global poverty and the fact that those in poverty can switch on their televisions or access social media and see those who are not in poverty. What effect does this have?

    And so I am depressed, wondering whether this moment, these last few decades have only been a passing moment for rising incomes and social justice, fuelled by our exorbitant use of fossil fuel. What intervention could move us to a world in which our global wealth does not become increasingly unequal, a world where there are variations but without the tendency for these to widen, a world with chances of upward and yes downward mobility.

    This is where I go back to think about the drivers of investment flows which are what drive patterns of innovation, products and services. These are driven by the existing distribution of resources, demand and price signals for where to invest for returns. We can do a little but not much on the first two. But we have the opportunity to change the framework that is so important in determining price signals. Yes I am afraid that’s right that means financial accounting practice and the public policy on which this is built, hardwired into countries legislation on company reporting. We can change this, perhaps to create a basis for economic activity that doesn’t tend towards widening inequality.

    At least the thought that we can do something about this keeps me optimistic.