Social value

Matthew Taylor recently blogged on the report commissioned by President Sarkozy on different measures of progress – non-economic ones such as well-being and environmental impact. The writers argue that if these indicators had played a bigger role in deciding economic policy then we wouldn’t have had our gaze fixated on high economic growth at all costs. And so we might have spotted the systemic threat of the credit crunch on the horizon.

Matthew Taylor recently blogged on the report commissioned by President Sarkozy on different measures of progress – non-economic ones such as well-being and environmental impact. The writers argue that if these indicators had played a bigger role in deciding economic policy then we wouldn’t have had our gaze fixated on high economic growth at all costs. And so we might have spotted the systemic threat of the credit crunch on the horizon.

The one year anniversary of Lehman Brothers going bust has also just passed. This event started the slew of huge bank bail-outs across the world that put some governments into massive debt. It would be disingenuous not to admit our own role in the crisis that Lehman’s collapse kicked off in earnest. Most of us took advantage of cheap credit, living for today at the expense of tomorrow. But despite some schemes to ward against house repossessions, we consumers are all still exposed to what economists call moral hazard – if we take undue risks we get punished by bankruptcy or house repossession. Not so big banks and insurance companies it seems. Their role as credit suppliers to consumers and business means they pose ‘systemic risk’ if they collapse. Hence the slogan ‘too big to fail’.

But this notion of systemic risk justifying protection from moral hazard seems to be morphing into simply ‘damage to society’ or ‘loss of social value’ justifying such protection. I noticed that corporate construction companies have been complaining about being fined for defrauding the taxpayer out of millions of pounds, through collusive and rigged bidding processes.

There are two issues here. The first is that if private companies rip off the public sector they should be punished. This already occurs through fines and black-listing, and perhaps checks and balances should be strengthened in this area. The second issue is that of moral hazard and wider social value. The construction companies complain that given the recession, if heavy fines are imposed, they will be in serious difficulty and swathes of jobs will be lost. In other words, they want to be excused from moral hazard because of the damage to society (loss of jobs) appropriate punishments would bring.

What interests me here is the implicit assumption by the construction companies that producing social value (providing jobs) makes a business worthy of support from the public purse. If that’s the case, then isn’t the relationship two way? Can’t the public expect support from business – can’t we expect business to take responsibility for reductions in social value that certain activities might bring about?

Perhaps economists could devise a social value index a la Sarkozy? Modest tax breaks for high values and no public contracts for low values. It would also help guide consumers and investors that cared about such things.

Just a thought.