In the run-up, sorry crawl-up, to the next set of Regulatory changes due in 2013, and in light of the Standards Review currently happening behind closed doors in DCLG, I though that I would write about standards, as much to reassure myself of their purpose as for any other reason. lets start with a definition:
Standards are published documents that set out specifications and procedures designed to ensure products, services and systems are safe, reliable and consistently perform the way they are intended to. They establish a common language that defines quality and safety criteria. Standards Australia
This definition is a useful one and tells us as much about what standards aren’t as much as what they are. The word ‘benchmark’ could have been used in that definition to highlight that a standard is a foundation for an industry and represents the ‘bottom line’. Some of the demands set by ‘standards’ are placed on an industry by society, or elements of society, that wish the industry to behave better, or to change its behaviour in some way that fulfils a wider societal need. Fire and structural safety, for example, are driven by law, and reflect a desire by society that buildings should be safe, even though most of us as individuals are not particularly concerned about either, or knowledgeable about them, we simply assume that they exist. These standards do not affect our purchasing decisions, they simply underpin the entire industry. Other less-familiar UK ‘standards’ such as the Code for Sustainable Homes and Lifetime Homes, represent a different view of ‘standards’, and are proxies for demands that customers should place on an industry, but where the customer is unable to do so because the market is failing or somehow rigged by external influences. It could be reasonably said that our markets in general are unable to respond to overarching cross sectoral problems like climate change. Lord Stern said that climate change is the greatest and widest-ranging market failure ever seen (Stern Report). The current horsemeat scandal is a neat illustration of the inevitable result of chasing prices to the bottom. There comes a point in any market when cost-based competition reaches a point where the market can no longer deliver a product for the price at which it is expected.
Most purchasing behaviour of the buyer represents a need to satisfy practical concerns or emotional desires, such as numbers of bedrooms, location or a view. These desires become encoded in the product and become part of the language of sales, one-bed studio near public transport, two bed cottage with gas central heating, etc. The Code for Sustainable Homes and other ‘standards’ were placed as a demand by Government and by affordable housing providers on the UK housing industry because it was felt that the market was not responding to climate change was not building sustainable homes and any demand that it should do would fall on deaf ears, since the market was not demanding ‘sustainable two-bed houses with a view’. The question is would the demands of a sophisticated market deliver more sustainable homes if people recognised that our society needs to change, or to put it another way, is climate change a problem that lends itself to market solutions? Or is climate change in the category of risk and safety where the leadership needs to be taken by a responsible government and by the industry itself, rather than expecting the buyer to fully understand the problem and change their buying behaviour accordingly and demand more sustainable homes and products. The industry might also meet other demands like larger space standards for the same reason. I come down firmly on the side of Government and industry regulation because we do not have a sophisticated housing market that is responsive to market demands in any case. When supply is constrained, any product will do.
When markets are supply constrained purchase decisions are not based on product performance , Horace Dediu 2010 (on smartphones)
Standards seem to me to be necessary to solve a particular set of problems that manifest themselves in a market at a particular time. The need for a particular standard may come and go, and standards need to be regularly reviewed to ensure that they are necessary and relevant. In a perfect market, standards would not need to exist, and every product would fully meet the requirements of the individual purchaser, with no negative impacts.
Standards can be categorised into two main types:
- Voluntary standards which are there to be used to provide evidence to the market or regulators that the product supplied meets a particular set of performance requirements that either the market or the regulators care about. The Press Complaints Commission is a good example of a voluntary standard that doesn’t work. The meat testing regime has been pretty comprehensively demonstrated not to work. Fairtrade is a good example of one that does.
- Mandatory standards backed by legislation, which are there to protect the market or society from abuse by providers who provide products to a new, immature or poorly functioning market. This is usually a market that is not sufficiently well developed, or too complex, for performance or value signals to pass from provider to customer through pricing, or where other signals swamp performance signals. The telecoms market is a good example where standards have to be set to enable providers to meet the needs of a new market, broadcast signals need to be tightly controlled to ensure there is no interference by one service of another.
Most markets have a mixture of both types, with frequent changes to both, in what is a very fast moving world of technological change. I have often heard suppliers lament the slow speed at which regulators review standards and allow new entrants into the market, and equally often heard developers lament the continuous changes in the regulatory system which makes predicting price and performance in the future.
My view on standards is that we must respond to the market failure which is putting our environment at risk by imposing standards on industry in general that corrects the market failure. But standard should not dictate what is done, only what the outcome should be. It is industry’s job to respond to the opportunity that is offered by these standards to develop products, skills and to grow their markets, including developing products that the market didn’t realise it could have. The iPhone wasn’t designed in response to a market, it created a market. Change brought about by standards is a constant in our lives and it offers us the opportunity to do things better, more profitably, and more cheaply than before. As in ecosystems, the species that can respond most quickly to change are those that will prosper. The ones that ignore this will suffer, wilt, and in the long term, die.