Author: Tom Snow
Institutional Economics; Production
Division of Labour
The word ‘value’ is derived from the Latin valere, which means ‘to be strong or worthy.’ Since this origin, ‘value’ has developed new connotations:
[Value] “The regard that something is held to deserve; the importance, worth, or usefulness of something.
The material or monetary worth of something.
The worth of something compared to the price paid or asked for it.
(Values) Principles of standards of behaviour; one’s judgement of what is important in life.”
The emphasis, in economics, on moral values, and economic scientific value, has evolved from an initial focus mainly on values in early societies, as social interactions dominated, to a greater focus on value in modern societies, as economic interactions have come to dominate (p19 Heilbroner et al., 2012). According to Heilbroner (1985 p107-118), in the early nineteenth century with the rise of Utilitarian philosophy, values became null and void as Utilitarianism asserted that:
“…whatever served the individual served society. By logical analogy, whatever created a profit (and thereby served the individual capitalist) also served society, so that a blanket moral exemption was, so to speak, extended over the entire range of activity that passed the profit-and-loss test of the marketplace.” Heilbroner (1985)
Up until the mid-nineteenth century, economists believed that a clear objective theory of value was a prerequisite to having a clear appreciation of the prices of services and goods in the economy.
However, after the mid-nineteenth century, the understanding of economic value shifted towards one of ‘subjectivity;’ where the price which is paid by the consumer (who has subjective ‘preferences’) in the ‘market,’ determines the value of the goods or service, which are now regularly conceptualised as being ‘scarce’ (p7 Mazzucato, 2018).
Modern economics has, according to Mazzucato (p8, 2018), all but left the study of value behind (in all its forms). What resides, such as theories of ‘share-holder value,’ ‘adding value,’ and ‘value chains’ (Porter, 1998) are often found in greater presence in modern business schools, than in the study of economics.
The business strategist, academic, and writer Michael E. Porter defines value as the following:
“In competitive terms, value is the amount buyers are willing to pay for what a firm provides them. Value is measured by total revenue, a reflection of the price a firm’s product commands and the units it can sell. A firm is profitable if the value it commands exceeds the costs involved in creating the product.” Porter (1998) p38
Competitive Value Chains
Arguably, one of the most famous studies and visual models of a ‘business view’ of value, was developed by Michael E. Porter, which he explains in his book ‘Competitive Advantage.’
Porter (1998) describes a model, that has two main levels of abstraction, the ‘macro view,’ is called ‘The Value System’ (Figure 2); and the ‘micro view,’ which Porter (1998) calls ‘The Generic Value Chain’ (Figure 3).
Porter (1998) states that, it is here, at the level of the ‘Generic Value Chain,’ that the most effective form of analysis can be made:
“The relevant level for constructing a value chain is a firm’s activities in a particular industry (the business unit). An industry- or sector- wide value chain is too broad, because it may obscure important sources of competitive
advantage.” Porter (1998) p36
Therefore, Porter (1998) therefore, that it is within ‘The Generic Value Chain,’ a form of minimal unit or cell, where internal production processes can be disaggregated (isolated and separated) into a sequence of discrete tasks (divisional ‘silos’ of labour and or mechanical processes), where they can then be analysed for improvements (relative to competitivity).
Porter does not suggest that these distinct internal ‘building blocks’ are independent of one-another; acknowledging instead, that they are interdependent activities – with specific forms of ‘linkages’ and ‘interrelationships,’ shown in Figure 4 and 5.
Need for more Systemic Models
Due to planetary wide issues such as climate change, and the destruction and pollution of eco-systems, for example, ; there is an amplified imperative for production firms (i.e., industry, agriculture, forestry and fisheries) to evolve how they do business.
And so, the reductionist emphasis on the Business Unit by Porter (1998), with its linear, disaggregated representation (at least in the visual models), combined with a predominant focus on competition and subjective value, without any explicit or implicit inclusion of moral values, may not be so relevant (or at least, sufficient) for this transition. And so, this is arguably the reason why there has been a plethora of systemic/holistic models over the last few decades.
Possibly the most internationally recognised model in this ‘systemic’ field to date, is the ‘circular economy system diagram,’ (Figure 6) developed by the Ellen MacArthur Foundation. The model builds on a central linear value chain a more expansive system of material feedback flows.
Prior to the CE diagram, there has been other ‘circular’ models, such as the ‘Cradle to Cradle’ model by Walter Stahel (Figure 7), or the ‘Comet Circle TM,’ developed by Ricoh., Ltd (Figure 8).
Also, there are input-output diagrams, promoted by the ZERI (and others,
including the Systemic Approach Foundation for instance (Figure 9).‘Input-output’ can also be used as a tool for designing new material flows through integrated production systems.
These models mentioned thus far, focus on material flows and transformations, however, there are also models within this theme that are based around embedded capitals/systems (which often also include material flows).
For example, ‘The Five Capitals’ (Figure 10), the ‘Vision – Pursuing the Ideal Society (Three Ps Balance TM)’, shown in Figure 11, and the ‘Embedded Economy’ diagram (Figure 12). There has also been a model developed by Alexandre Lemille, within his ‘Circular Humansphere’ (Figure 14), that also integrates some social priorities within the ‘circular economy system diagram.’ And Kate Raworth has also developed
another model, known as ‘The Doughnut,’ (Figure 13) which brings fundamental human needs and planetary boundaries together into one vision. The overall purpose of many of these visual models, is to illustrate some of the key elements (and the relationships) and, sometimes, the potential strategies which are available. These models can also describe different visions of the economy’s place and role in our societies, and their relative (perceived) importance.
2 The Developed Regenerative Value Systems Model
2.1 Resources Renewal – All land and ocean regenerative practices used when producing resources (e.g. bio- chemicals, fibres, and foods). Practices that also build healthy soil, ocean ecosystems, or regenerate local water and mineral cycles, bio-diversity and resilience for instance.
2.2 Systems Renewal – All regenerative practices that are used to develop natural, cultural, and economic systems within a region. Large scale land regeneration projects, social networks and festive activities, social financing and policy work for instance.
2.3 Resources Conservation – All product eco-design, production machines, and the structures in which production and transformation takes place. These structures are interdependent ‘Holon’s.’
2.4 Systems Conservation – This includes product-life-extension processes, product-service-systems, and the integration of related goods and services. These systems keep materials flowing for longer and reduce asset redundancy, whilst increasing overall efficiency of the system.
2.5 Resources Cascading – All systems that use residuals for further production activities, creating new income streams. This includes biological materials, gases or liquids, heat, or minerals for instance.
2.6 Systems Cascading – The outputs of one firm becoming the inputs of others – across industries and across firms. This includes biological materials, gases or liquids, heat, or minerals for instance.
2.7 Holistic Principles – This is the central node, the place where the context can be understood, shared, and transmitted. Where decision making can be viewed from, when actors are in the other nodes.
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