My Lord, Ladies and Gentlemen. It is a real honour for me to have this opportunity to address a group of people who share my passion that standards markets can improve the world, this Association of British Certification Bodies. This is a personal address, not speaking as a non-executive director of UKAS, though I realise that probably had a bearing on inviting me here. My remarks to follow are not meant in any way as UKAS policy.
Yet non-executive directorships are not filled for money – the risks are high, the time commitments always exceed the estimates and the thanks are low – nor are directorships filled with love. If seeking a non-executive directorship is the first sign of madness; the second sign is probably taking one. In return, we non-executive directors can be your worst nightmare. In my case it’s because I have a passion for world trade and sustainable economies that I would like share with you.
To start with, I’d like to explore standards themselves. Standards are funny things. Because of my accent, I’m going to start with pronunciation standards. Because the name of the International Organization for Standardization (ISO) would have different abbreviations in different languages (IOS in English, OIN in French), back in the 1940’s it was decided to use a language-independent word derived from the Greek, isos, meaning “equal”. Therefore, the short form of the Organization’s name is always ISO – “I-S-O” – and ISO follows the “z” spelling as in “organization” and “standardization”. Is that clear? ISO’s recommendation on their website is to pronounce their name whichever way comes most naturally. “So, you can pronounce it “EZO”, “EYE-ZOH” or “EYE-ESS-OH”, we don’t have any problem with that.” What a great credential for flexible standards!
And then we have date standards – oh no, I’m not talking about the US month first versus the UK day first, or even the Chinese year first. For 38 years ISO has designated World Standards Day to recognize the thousands of experts worldwide who collaboratively develop voluntary international standards that facilitate trade, spread knowledge and share technological advances. ISO officially began to function on 23 February 1947, but 14 October was chosen as World Standards Day because on 14 October 1946 delegates from 25 countries met in London and decided to found ISO. Of course, in the spirit of standards, in 2006 India, Ghana and others celebrated World Standards Day on 13 October while Nigeria celebrated from 12 to 14 October. In 2007 the European Commission held its World Standards Day conference on 17 October, while the United States celebrated World Standards Day on 18 October. Need I say more?
The truth is that the world is a messy place. Moreover, it’s human nature to resist standards, or at least male nature. A friend of mine, Paul, is raising three boys on his own. When I asked him how he kept the house clean he explained, “Michael, men don’t have standards, women do. Men have thresholds.”
The objective of standards is to help the evolution from complete mess to complete order by putting things in boxes at the right time. Managing evolution isn’t easy. Sometimes we try to box things in too early. Other times we’re so late we just add cost and unnecessary complexity to existing commodities. But done right – ahh, there we add a lot of value to consumers, to business and to society. I recently conducted a large study with PricewaterhouseCoopers and the World Economic Forum looking at solving global risks, “Collaborate or Collapse”. We concluded that society solved global risks using four collaborative approaches – sharing knowledge, implementing policies, markets and, yes, standards.
Sometimes I wish we could have a better sense of humour about it all. I’d like us to avoid going down the path of political correctness and keep our largely scientific and engineering outlook on life and its problems. Sadly, certification and standard jokes are rarer than one might like. Perhaps we should have a comedy kite-mark. Fortunately, the only after-dinner/lunch joke on standards I know doesn’t concern an ABCB member. It is about certification taken to extremes over wine.
Two oenologists are trying to outdo each other on their exacting standards. They both grab a tasting glass of red wine from the examination table in front of them. Inhaling deeply, the first wine expert remarks that “this wine is an outstanding Bordeaux”. The second interjects, “particularly when you recognise the difficulties inherent in raising vines of character in Côtes de Bordeaux-Saint-Macaire”. “Indeed”, says the first, “and as this wine is from Saint-Macaire, the terroir in that area most suited to this interpretation of the Malbec grape is, I’d suspect, Château Malromé”. “Ahhh”, counters the second, “self-evidently Château Malromé, but clearly the south-facing side, near the old well.” “Elementary really”, replies the first oenologist, “and probably the fifth row, slightly higher up the hill”. “Mais bien-sur”, adds the second oenologist gaining the upper hand by saying, “though I’d say a late summer picking from the eighth vine in the row and, dare I add, probably by picked by Pierre.” “Well”, says the first, now delivering what he believes to be the fatal blow, “of course I detected Pierre’s hand on the grapes, after a cool morning and a late dejeuner. Though his post-prandial micturation infuses this wine with a somewhat disagreeable undertone.” “Naturally it does” says the second oenologist rather coolly, “as one must certainly ask why-oh-why did Pierre drink such an inferior claret for lunch?!”.
But standards are not just about quality and one-up-manship. Adam Smith advanced the metaphor of “the invisible hand”, that an individual pursuing trade tends to promote the good of his community. Yet the Doha round is stymied. Valid social and ethical concerns transmogrify into trade restrictions. Property rights are a battleground, from carbon emissions to intellectual capital. Already, emerging carbon standards are being sharpened as weapons in future carbon dumping wars. Our state sectors swell out of recognition, crowding out the private sector that delivers value. Standards and certification markets exist to improve the functioning of global markets and trade, and even to inject market approaches into monopolistic service delivery.
Adam Smith knew that markets alone are not enough. Smith’s argument is too rich to take after an excellent meal, but what I admire about certification bodies is that you exemplify Smith’s Moral Sentiments of Propriety, Prudence, and Benevolence, combined with Reason. As ABCB members you do set high standards, think to the long-term, explore new ways to help society advance and make business and government think about risk. You realize that there is more to economic life than money – as comedian Steve Wright says – “You can’t have everything, where would you put it?”
Things change fast with trade. Looking back to post-war Japan and thinking of Japan today reminds me of the apocryphal quality control tale about relevant standards. A western company had some components manufactured in Japan in a trial project. In the specification to the Japanese, the company said that it would accept three defective parts per 10,000. When the shipment arrived from Japan, the accompanying letter stated something like: “as you requested, the three defective parts per 10,000 have been separately manufactured and have been included in the consignment. We hope this pleases you.”
Today China is the sobering reminder of the importance of trade. I heard a great sound-bite at the IOD China Interest Group two years ago, “we’ve had a commercial break these past 200 years, but now we’re back, on air”. In the 18th century China was the world’s biggest economy, with a GDP seven times that of Britain’s. But China closed its doors to trade missing the industrial revolution, the capital revolution and the information revolution. There is a children’s joke that “you should never meddle in the affairs of dragons, because you are crunchy and taste good with brown sauce.” But we must mix-it-up with the Dragon. Money is odourless and poverty stinks. We must reach out to all the returnees to world trade. And we must ensure that our own standards markets are open and competitive, in turn helping world trade be open and competitive.
So, is today’s luncheon talk supposed to be slick & humorous, a call to arms or an academic lecture? Actually I want to end by emphasising the importance of conflict. Regulatory capture is a phenomenon in which a regulatory agency which is supposed to be acting in the public interest becomes dominated by the vested interests of the existing incumbents in the industry that it oversees. In public choice theory, regulatory capture arises from the fact that vested interests have a concentrated stake in the outcomes of political decisions, thus ensuring that they will find means – direct or indirect – to capture decision makers. Conflict and competition, not calm quiescence or silence, are key signs that things are working well in standards markets.
Accreditation and certification only work when the entire system is a market system, not a bureaucratic one. We are good, but we can do better. For example,
- development of a standard should be an open process involving interested stakeholders, but many ISO affiliates typically charge three figures for short documents that could be supplied electronically at no charge;
- despite our claims for openness, transparency and public benefit, certification agencies often fail to be open oto the general public about whom they’ve audited for what. Outputs such as certifications and grades awarded could be better published so that they can be validated – yet the industry complains about the ‘grey’ certification market;
- accreditors must be vigilant regulators and ensure the separation of standards development from the commercial elements of implementation and review. Yet accreditors must be realistic and engage in meaningful dialogue with the industry while avoiding regulatory capture.
I could go further and talk about the widest view of standards from financial audit through to social, ethical and environmental standards with which I also work. I’d even mention that to me, ideally, certifiers should bear some indemnity that can, with the price paid by the buyer, be made publicly available. Developing countries rightfully worry that “the things that come to those that wait may be the things left by those who got there first”. Sustainable commerce means doing things differently. We must clasp the hands of the developing countries, support the invisible hand of commerce, restrain the visible hand of government and slap the grabbing hands of special interests. We must prove that a global Commerce Manifesto deserves to replace a soiled Communist Manifesto. We must keep our standard and certification markets open, transparent and competitive.
Standards markets are the great alternative to over-regulation or naked greed. We professionals committed to standards prevent both the abuse of capitalism, red in tooth and claw, and the abuse of government regulation, 1984 but without Orwell’s sense of humour. We open up trade. Let’s sell standards markets as the new third way to the sustainable economics everyone wants.
On behalf of all the guests I salute the ABCB’s hospitality and its great work on behalf of standards markets. Thank you!
