The price of everything and the value of nothing?

By Matilda Macduff 19 October 2011

Next week we launch a report on the value of arts interventions in the criminal justice system, which uses economic analysis to put a number on charities’ work to reduce offending. Earlier this year we published a similar report on sport and youth crime, which also used economic analysis to calculate the value created by three charity projects.

Economic analysis is often accused of giving the price of everything and the value of nothing. By focusing purely on economic costs and benefits, it can ignore social or emotional value created. So is it still worth doing?

We recently published a report which used an economic approach to identify the most expensive problems in society and find the most cost-effective ways to tackle them. The report aimed to highlight interventions which not only save society money, but also create economic value for society, for example by getting people into work and paying taxes. However, some vital charity work doesn’t create any economic return on investment, despite vastly improving the lives of those it works with. Palliative care, for example, might not create economic savings for the country, but the social value of this work is vast. In a purely economic analysis, this social value isn’t counted.

But economic analysis does provide the other side of the coin to the emotional persuasion many charities use when fundraising. Charities have come under fire for relying too much on tugging at people’s heartstrings to get donations, without backing this up with evidence that what they’re doing is making any difference. Cold hard numbers based on rigorous economic analysis certainly answer any criticisms on this account. Economic analysis talks a different language to much charity communications, but for some people (and a lot of commissioners) it can be much more convincing.

Taking an economic approach can also highlight interventions that at first glance may look too expensive, too long-term or too unpopular, and make the case for investing in them. It can also highlight those problems which are neglected in the charity sector as they aren’t easy to create an emotional connection with—for example mental health or chaotic families—and state the case for donations clearly and convincingly.

One thing to note is that good economic analysis can be tricky to carry out due to practical challenges with the availability of data on costs of the issues being looked at—it is often inconsistent and difficult to compare. Until the sector gets better at collecting outcomes data this is a problem which will come up again and again.

Whilst economic analysis alone is not necessarily the best way to look at the impact of a charity’s work, it does have value when used as part of a wider approach which also looks at things like social impact and well-being. In straitened times, those responsible for funding decisions often start to talk the economic language of cost and return on investment: it will benefit charities to be able to join in the conversation.