The economic concept of “value added” refers to the cycle of production in which the organized efforts of personnel, working with capital equipment and other factors of production, make something more useful out of whatever they started with. Value-added is a simple concept and a measurable indicator of success in industries or individual enterprises. In fact, most human endeavor can be interpreted, broadly speaking, to come under this label. The act of adding value is nothing less than participating in a wealth-creation machine – a machine producing output not just for the individual actor but for all of that individual’s society.
However, we do not generally think of ourselves as “value adders” or partners in making our neighbors wealthy. More often, we perceive our role as workers within a competitive framework, where we strive to secure our piece of a finite pie of goods.
It’s easy enough to imagine an idealized scenario of an evolving value-adding society. People initially work at obtaining or creating essential products – food, shelter, protective clothing, and tools. They soon learn that specialization results in more efficient production, and a simple monetary system makes specialization even more convenient and also provides a gauge of value for every good and service. Specialization also allows the society to respond to challenges more effectively, as long as the social system remains intact. Specialization generates more surpluses, which allows people discretion in their use of time. People soon learn that surplus resources, including time, can be put to use in a number of ways:
- To create, collectively, public works that increase productivity, such as irrigation systems.
- To create public works that increase the quality of life for residents, such as plumbing systems, and can also increase productivity by virtue of making life more efficient.
- To teach/learn, either individually or as a collective social good, skills needed by specialists, so that greater quantities of a needed good/service can be produced.
- To create, usually as an individual effort, new goods or services and generate demand, and thereby value, for these new things through marketing.
- To bargain with neighboring societies to increase trade advantages.
All of these activities add value, at least within certain parameters. There are some not-so-simple tests that reveal potential problems as to whether the value created is truly additive. For example:
- Are public costs and benefits from a collective action properly analyzed and fully revealed, and are “opportunity costs” of potential alternative uses of public resources included in the analysis and disclosure?
- Do the actions encourage activities with potential long-term or hidden negative consequences? This issue can arise from either a failure to perceive unintended consequences or to account for them.
- Are goods, whether publicly or privately produced, priced fairly? This is less an issue of overpricing, since an informed market can usually sort out price levels easily enough, but of attempting to exercise monopoly power by underpricing, price rigging among bidders, etc.
- Are customers being seduced by marketing hype for which they lack the education to fully comprehend?
The bottom line of the preceding points is that as society becomes increasingly complex it must share at least some aspects of the knowledge of this complexity fully among its members. While end users need not know the technical details of new technology or services, they very definitely need to know the implications of adopting these things. This knowledge not only gives them guidance on what innovations to embrace, it also guides their own productivity and creativity, and political opinions, in the most socially advantageous directions.
Competition of any kind, even (generally speaking) warfare, always takes place within limits. Economic competition, as with competition generally, tends to result in improved products, greater output, etc., and is thus a component of value-addition. While the goal of any competitor is ultimately to prevail over others, competition is not necessarily a zero-sum game. If a good or service, or its pricing, is truly superior to other offerings in the marketplace, everyone in the society is, at least in theory, better off. Losers in that particular competition might very well be better off applying their energies to some other purpose anyway. By conducting competition in this spirit, and observing the framework of rules described above, competitors will tend to create truly additive value.
No matter where one is on the competitive scale, we can all recognize that we share a good position on the value-added scale, if we are evolving our economy within the right set of rules.