Impact economics Series: The Value of Impact

For years now I have been actively trying to unlock, facilitate or build impact markets. Over these years I have spoken to thousands of people and have been writing about impact economics and (over)sharing my conviction that impact has intrinsic value and therefore should be an integral part of any modern economic thinking. More than that, I believe smart capital — public and private — should be flowing into impact, as it would flow into any other undervalued assets. And make no mistake — Impact is MASSIVELY undervalued.

My thinking on this topic evolved a lot over the years and I now talk about impact economics as a new, alternative economic framework, at odds with traditional growth economics and more relevant to the times we live in.

In this spirit, I am starting this new lighthearted series attempting to address some of the fundamentals of impact economics.

Sources of value

Probably the most puzzling question in economics is surprisingly simple:

What is the nature of value?

Why do some things have value and others don’t. And why is the value of one thing higher or lower than the value of the other? Is it all perception or is there something behind it?

Economists, philosophers and punters have been thinking about this for centuries (millennia?) and we are nowhere close to having a straight-forward answer.

And what of impact? If Impact, as all other things — has real value, where does this value come from?

Why don’t we look at the classic frameworks of value from traditional economics and see how impact does.

Utility: Is Impact Useful?

Utility is a big deal in economics. People pay for things because they are useful. In that sense, it is easy to see that impact often has a high utility value.

Education and health and a clean environment are super useful because they convert into wealth (and status!). In addition to being wealthier than their peers, educated people often leave fuller, higher quality lives — they take pleasure in reading books or immersing themselves in quality conversation. They spend time in museums and appreciate many of the finer things in life.

Healthy people also live more fulfilled life as they can travel and easier enjoy hobbies or quality time with friends or family and live longer happier lives.

People pay a lot of money for their own education or their health or those of their children. This is very consistent, rational economic behavior.

Turns out education and health also correlate with each other and with a bunch of other impact indicators: better educated people are healthier and healthier people tend to be better educated. They also have less children, later and these children tend to be better educated and healthier than their peers.

This stuff compounds, creating a massive gap between the educated and the lesser-eductaed; between the healthy and the less-healthy. Basically, at an individual, microeconomic level, education, health or a cleaner environment have an enormous utility and people would be willing to invest a lot into them.

The Wealth of Others

But what of the health and education of others. One’s peers, neighbours or strangers. Turns out, lack of education or health correlates with a bunch of negative things that include crime and disease. No one really enjoys having crime and disease next door, so all of a sudden, the utility of impact gets another dimension: there is value not only in one’s own health & education, but also in the health and education of one’s community.

When you think about it in these terms, a country’s decision to invest in health or education is the most utilitarian — capitalistic, even — thing imaginable.

Not accidentally, countries with free quality education or healthcare score pretty high on the wealth (and happiness) scale as well. You would be also shocked to see how many global impact funding decisions taken in rich, countries are motivated by pure utilitarian thinking — more health, education and opportunities in that poor, far away place correlates with less migration and epidemics right at home. The world’s a village, after all.

Utility is less objective than you might think. Shakespeare new what’s up:

What’s the value of a horse?

What do YOU think about the value of impact? Is there value in it? Where does this value come from?

In the next installment, we will explore other sources of value that will include: cost of productionstatus and even myth/ narrative.

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