Photo by Tembela Bohle from Pexels
As we head into another hot January weekend in Australia, here is something to ponder while you drink that cold beer! (or something warmer if you are in the Northern Hemisphere!) Does Infrastructure HAVE value? Does it CREATE value?
What is value?
In 1981, at the height of the Michael Field’s Labor Government’s attempt to bring Tasmania back from the brink of financial catastrophe caused by excessive over borrowing, I was approached by a Minister with a request. He expressed it most diffidently. ‘If you are not too busy, could you tell me what is value?’ I gave him a mini economics tutorial on the subject which he clearly understood, but equally clearly, it did not get at his real problem. For the rest of the week I pondered on this question for it was particularly intriguing that he had prefaced his question by the statement ‘A number of us in the house have been wondering’. Now, one minister asking about value is interesting, but a whole group doing so struck me as quite unusual.
The Source of value?
After a few days, I figured the stimulus for the discussion of value at a time when major cuts were being made to all portfolios, could be that each Minister was simply trying to establish that his department was ‘too valuable’ to have its budget cut. So I wrote a small, humorous, playscript in which various Ministers (of invented portfolios to avoid angst) argued for being the major ‘source of value’ – calling on economic, historic and social support for their case. My Minister was delighted and distributed it to his cabinet colleagues. I had concluded that script by observing that ‘fragrance free soap’ could fetch a higher price than that with fragrance and looked at ways in which each minister could increase value without imposing a cost to the budget simply by removing elements that had ‘negative value’.
I had not given more thought to this question in the almost 20 years that followed until recently reading Mariana Mazzucato’s work on ‘The Value of Everything’. Just as an understanding of value was critical to that financially strapped Tasmanian Cabinet, so it is also critical to those of us involved in deciding on the shape of future infrastructure and we will look at Mariana’s ideas from this viewpoint in future posts. But, just to get the ‘little grey cells’ working, here are some basic questions to consider.
- What do you understand by value? How do we measure value when considering infrastructure projects?
- Can something that has no price be ‘of value’? For example can private education (with a price) be valuable, yet public education (free) not be? (Some years ago the Head of a major accounting association declared that private schools were assets yet public schools liabilities – purely on the ability to make a cash return. What do you think of this?)
Maurizio Cattelan’s Comedian
Can something that has a high price not be ‘of value?’ E.g. recently a banana stuck to a wall with a piece of ducktape at Art Basel in Miami Beach was sold at a price of $120K -and not once but three times. It has created a firestorm of comment and brings to the forefront the idea of ‘value’.
- Can cost be a good proxy for value? And if we substitute a more costly (although not necessarily more effective) component, does this really represent an increase in value – as distinct from simply an increase in cost?
- Pharmaceutical companies like to price their products in terms of outcomes -such as the value of better health? Should they be allowed to appropriate all of the beneficial outcomes. Why or Why not?
Do add your comments and we will examine them further next Friday.
Enjoy your weekend!