Fundamental limitations of the emerging "best practices" in social impact measurement

When I was in San Francisco early this month, I met Sara Olsen, Founding Partner of Social Venture Technology Group and one of our Social Value Exchange System project's advisors. (She is also one of the founders of the Global Social Venture Competition, the largest and oldest student-led social venture business plan competition.)

She is now working on the revision of "Double-Bottom Line Methods Catalog", Rockefeller Foundation paper she co-authored in 2004, and kindly suggested that we share with her the insights we gained through our Social Value Exchange System project so that she may incorporate them into her new paper with due credit.

I found the DBL Methods Catalog very neat and useful. This is exactly the kind of information that we were looking for in the beginning of our project.

I totally agree with the paper's authors that "The best use of capital will come when feasible and credible accounts of the short and long-term impacts of social organizations can be shared with confidence among a variety of constituents, including business and nonprofit leaders, governments and policymakers, and investors."

The social sector suffers from fragmentation and inefficiency due to lack of healthy competition that would help resources to be channeled to the most effective uses and beneficiaries to the most effective programs. There has been a significant increase recently in the level of interests across the social sector in the possibility of adopting market mechanisms, but the biggest unresolved question is how to assess the non-economic values created by social organizations in the absence of price mechanisms.

In the future, the emerging best practices catalogued in this and new paper may or may not evolve into the de-facto standards for social impact accounting that allow reasonable measurement and comparison of the impacts of programs that share similar well-defined objective. However, I have a serious doubt about the potential of the existing approaches, either quantitative or qualitative, to develop the workable valuation mechanisms that are conducive to development of social value exchange system, which can stimulate healthy competition among agencies and push the sector to its full potential.

This is because those approaches largely overlook the unique problems with social impact assessment, which have been long recognized by students of welfare economics, environmental economics and social choice theories:

• Social values are plural, often incommensurate with each other, and may possess intransitive relation.
• With social impact, one is affected by the consequences of other peoples' choices, whereas with private goods, the consequences of one's choice fall on oneself.
• The sphere of social impact lacks the price signal that functions as an indicator of the intensity of consumer preferences in normal markets where private goods and services are traded.

As noted by economists such as Amartya Sen, 1998 Nobel Prize Laureate in Economics, collective choice in social and environmental values often could not possibly be simply the linear aggregation of individual choices. The conventional utilitarian model of quantitative impact assessment as well as qualitative approach are both fundamentally inadequate in the sphere of public goods such as social and environmental impact. What is required instead is an alternative method of social impact assessment that:

• Can integrate plural, intransitive, incommensurate values
• Can bridge individual valuation to collective valuation
• Is cost-efficient, striking an optimum balance between feasibility and credibility
• Is fair, ensuring stakeholders' representation and accountability to not only funders but also to beneficiaries
• Provides transparent, sensible process for trading off one option against another