What is your local park, library, bridge or swimming pool worth? We can easily put a figure on the value of the land or the buildings but that number can never truly reflect the long-term return that asset provides to a city. Cities need to factor in a much wider set of measures to make an informed judgement as they make difficult decisions about where to allocate their increasingly scarce resources.
It is an especially live issue as cities continue to cope with the budgetary blow dealt by the financial crisis. Disbursements from central government are generally lower, as is the tax take from hard-pressed business. Simultaneously demands on welfare services have grown. From Sydney to Shanghai via Swansea, cities have to do more with less.
Under this pressure, it would be easy to put more value on infrastructure that generates economic growth. That could be a mistake. New factories could create economic growth. However, if those factories polluted the water supply, their effect on the population’s health and wellbeing, and the pollution of natural resources would cause economic harm.
I contributed to KPMG’s New Vision of Value report in 2014, which highlighted the need for a broader measurement system for business and this thinking is even more relevant to cities since they operate within a defined geographical area.
While working in Bristol during its year of European Green Capital, KPMG in the UK has taken the “six capitals” of the International Integrated Reporting Council and KPMG’s True Value approach to consider how cities can more consistently measure the value of city services and assets. I think considering these six capitals can help cities consider the far broader contribution of their assets to the long-term viability and wellbeing of a city.
The six areas of capital are:
Measuring value in this way lays bare how services that look like costs could in fact generate long-term value elsewhere. It also gives us a way of thinking that helps us recognize that we can often create value by optimizing the trade-offs between capitals instead of focussing on one or two without thinking of the others.
For example, a library, many of which have recently faced closure in the UK, creates intellectual capital through access to learning materials and information. It improves local people’s job prospects and increases a city’s social capital by providing a venue where isolated older people can enjoy human contact, children attend playgroups or people feel a boost simply by meeting friends for a coffee.
Closing that library would generate a short-term cost saving but could have an extremely detrimental effect on the longer-term cohesion of the community and the skills of the local workforce.
The majority of the existing measurements focus too heavily on output indicators, like the number of buses, libraries or schoolbooks you get for your money. It is considerably harder to measure the impact of that investment, as that could take years to filter through the system. However, if we truly want our decisions to be long term then I believe we really must start to factor this in much more.
By measuring the true value of each aspect of a city’s capital, we can have an evidence-based discussion about which areas really create value for that city and its people. Linking the beneficiaries of the True Value of a service or asset with its funding can create a fairer system of funding city infrastructure.