For your weekend reflection over a cold beer – or libation of choice.
In 1999 my friend and colleague, @KC Leong, organised the first AM conference in Malaysia. It was held in Kuching, Sarawak. Not only was asset management very new but even the concept of an asset was pretty new so that the Minister opening our conference felt that he needed to explain what an asset was. ‘An asset’, he said, ‘is anything of value’. Then he paused, thought for a moment, and added ‘ and also anything not of value’ for, he explained ‘ it could become of value later’!
But what does it mean to be ‘of value’ ? This is something that we started exploring last weekend. I learnt a lot from our discussion and sincerely thank @Adam.Lea-Bischinger, @Gosh Jacewicz, @Ruth Wallsgrove, @Gregory Punshon, @Christopher Silke for their contributions. What this showed, is that we cannot simply assume that all infrastructure is (a) ‘of value’ and (b) certainly not ‘of equal value’. So how do we decide what projects should get our attention?
Today I would like to take this further by considering some of the arguments presented by Mariana Mazzucato. Mariana is an Italian-American economist whose research into the eocnomics of innovation and the high technology industry revealed that far from the private sector being the wellspring of all innovation, nearly all of the significant innovations that are now in common use (and just about all of the features of the iPhone) were actually developed in the public sector. She does not detract from what the private sector has done with these innovations but she does bring out the importance of state investment, which has featured so heavily, especially in the early, high risk stage, so necessary to subsequent development. In her first book ‘The Entrepreneurial State’ she debunks the myth that the State is merely a dull and stodgy administrator and shows that much of the real innovative work is done in the public sector.
Consider Australia’s own CSIRO (Commonwealth Scientific and Industrial Research Organisation). From its development of wifi using complex mathematics known as ‘fast Fourier transforms’ as well as detailed knowledge about radio waves and their behaviour in different environments, to Aerogard developed way back in 1938 and now used by Mortein to protect us from disease producing insects. Its research beginning in 1968 resulted in the world’s first plastic banknote which protects against forgery. This basic research was carried out by the CSIRO as part of the public sector. Now required to finance itself, the CSIRO has less scope for basic research (which is expensive and so hard to fund in the market) and has instead to focus on applied research. Which is all well and good, but where are the next basic research breakthroughs to come from? Is this an example of short run gain at the expense of long term loss?
A similar problem arises if we focus on the infrastructure that ‘supports the market’ rather than infrastructure that ‘supports the community’. In her 2017 book ‘The Value of Everything’ Mariana argues that modern economies reward activities that extract value rather than create it and that this must change to ensure a capitalism that works for us all. For those of you who would like a quick insight into her work, I would recommend the article in ‘Wired’(with thanks to @Rohan Fernandez who introduced me to her work via this article). She also has some fascinating TED talks on Youtube.
I have selected just three questions today from Mariana’s 2019 Ted Talk ‘What is economic value and who creates it?’ (which is worth watching, she packs a lot into 18 minutes), but you may add (and answer) other questions that you think relevant to infrastructure decisionmaking. The important thing is that we thing about these things, because if we don’t the choice will not be ours, and may be to our dis-benefit.
- Who are the value creators? Who is not creating value? (e.g. who are just extracting value, or taking it from someone else; and who are actually destroying value?) Who are these people?
- What is the difference between productive and unproductive activity?
- When agriculture was the dominant output, land was considered to be the major ‘source of value’, when we reached the industrial revolution, capital became the dominant source. Now as Mariana shows when we focus on ‘preferences’ the source of value becomes rather vague. How does this impact our infrastructure decisions?
What other questions do you think we need to think about when considering value?
I look forward to hearing your ideas
Have a great weekend!