Andrew G Haldane Centre for Policy Studies Lecture Bloomberg 24 - - PowerPoint PPT Presentation

Centre for Policy Studies Lecture Bloomberg 24 February 2020

Andrew G Haldane The Health, Wealth and Happiness of Nations

Adam Smith (1776)

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Smith (Wealth of Nations (1776))

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Adam Smith (1776)

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Smith (Wealth of Nations (1776)) “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” Smith (Wealth of Nations (1776))

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“Designing institutions to force (or nudge) entirely self-interested individuals to achieve better outcomes has been the major goal posited by policy analysts for governments to accomplish for much of the past half century. Extensive empirical research leads me to argue that, instead, a core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.” Elinor Ostrom (Nobel Lecture, (2009))

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Plan

• Enlightenment then
• Six Pillars of Success
• Enlightenment Now?
• The New Pillars of Success

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• “Community Capitalism”

Wealth

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Income Wealth

5,000 10,000 15,000 20,000 25,000 30,000 1270 1370 1470 1570 1670 1770 1870 1970

Real GDP per capita (2013 prices) 1776

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 1760 1800 1840 1880 1920 1960 2000

UK wealth per capita £ (2000 prices) 1776

Sources: Bank of England Millennium of Data Source: McLaughlin, E. et al. (2014) ‘Historical wealth accounts for Britain: progress and puzzles in measuring the sustainability of economic growth’

Wealth

7 25 50 75 100 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 Share of population living in extreme poverty, percent 1 2 3 4 5 6 7 8 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

Number of people (globally) living in extreme poverty (<$1.80/day) Number of people not in extreme poverty Global population, billions

Poverty rate People in poverty

Sources: Our World in Data, based on data from Bourguignon & Morrisson (1820-1992), and the World Bank (1981-2015)

Health

8 10 20 30 40 50 60 70 80 90 1623 1798 1868 1903 1938 1973 2008 UK life expectancy, years

The bronze age (starchy diets) (1,500 years) Hunter gatherers (2 million years)

1 2 3 4 5 6 1841 1866 1891 1916 1941 1966 1991 2016 Children born per woman (UK)

Survived past age 5 Died before 5

Sources: Our World in Data and Enlightenment Now

1776

Sources: Our World in Data calculations, based on Gapminder data

Happiness

9 1 200 400 600 800 1000 1200 1400 1600 1800 2000 Social development points 1000 100 10

Year

10 20 30 40 50 60 70 80 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 Hours worked (per week, average)

Year

1776

Source: Morris (2010, 2011). Sources: Bank of England Millennium of Data

1776

The Consumption Basket

10 2020 1776 1900

Luxury Essential

Sources: Bank calculations based on data from Feinstein (1998) for 1788, Feinstein (1991) for 1900, and ONS for 2020.

Political Economy

11 10 20 30 40 50 60 70 80 90 100 1500 1600 1700 1800 1900 2000 Percentage of years in which the 'Great Powers' fought one another

Sources: Levy (1992) and Bank calculations.

Political Economy

1816 2015

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Source: Our World In Data, Wimmer and Min (2006), Centre for Systemic Peace

Colony Full Autocracy Full Democracy No data

What Happened?

• Neo-classical story: private innovation inspires an (industrial) revolution

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Spinning Jenny Steam Engine Water Frame

Hargreaves (1764) Arkwright (1769) Watt (1775)

Problems with this Neo-classical Story

• How do we explain the inflection point?
• The long history of innovation
• How do we explain the patterns of growth?
• The long history of booms and busts

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Timeline of Innovation

12th C 13th C 14th C 15th C 16th C 17th C 18th C

Long-Run Growth Decomposed

16 1 2 3 4 5 6 7 1275 1300 1350 1400 1450 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 2016 Growing Shrinking Average 10-year growth (%) 1776

Sources: Broadberry and Wallis (2017) and Bank calculations

Six Pillars of Success

• Private, public and third sectors – mutually-supporting
• Institutions as much as innovation explained the Golden Era
• Public limited company
• Limited liability banking
• Measurement systems
• Public education
• Public infrastructure
• Civil society

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The Rise of the PLC

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Companies in the UK Corporate equity

0.1 0.3 0.5 10 20 30 40 50 60 70 80 1840 1865 1890 1915 1940 1965 1990 2015 Limited companies per thousand people

Sources: Company data from Companies House (1939-2018) and Levy (2014) for 1844-1865. Population data from Bank of England Millennium of Data. Sources: Revell (1967), Solomou and Weale (1997), Hannah (2014, 2015), Thomas and Dimsdale (2017), ONS and Bank calculations.

50 100 150 200 250 300 1759 1789 1819 1849 1879 1909 1939 1969 1999

Nominal paid up capital (Hannah (2014)) Nominal paid up capital (Joint stock companies incl. railways prior to 1948) Market value (Revell(1967)) Market value (PNFC and FC balance sheets) Market value (Hannah (2015) for 1910)

% of GDP

The Rise of Banking

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Broad money (% of GDP) Number of bank branches

5,000 10,000 15,000 20,000 25,000 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 20 40 60 80 100 120 1700 1750 1800 1850 1900 1950 2000 Per cent of nominal GDP

Source: Bank of England Millennium of Data. Sources: Collins, M., & Baker, M. (2003) for 1850-1913 and House of Commons Library (2020) for 1986-2019

Measurement Systems - The Rise of the Auditor

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Number of accountants

11 587 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 1800 1831 1862 1890 1921 1951 1982 2012

Sources: Haldane (2010), ICAEW (2012) and Financial Reporting Council (2019)

Measurement Systems - The Rise of GDP

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Number of countries with GDP/income estimates in UN statistical accounts

50 100 150 200 250 1940 1950 1960 1970 1980 1990 2000 2010 2020 Number of countries/areas with national income estimates UN Statistical Yearbook Publication

Sources: United Nations and Bank calculations.

The Rise of Public Education

22 10 20 30 40 50 60 70 80 90 100 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 Enrolment ratios for total population

Participation

Source: Barro and Lee (2016).

The Rise of Public Spending

23 10 20 30 40 50 60 70 80 90 100 1500 1600 1700 1800 1900 2000 Government spending as a share of output (%)

Source: Clark (2009).

The Rise of Transport

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Roads Rail

5,000 10,000 15,000 20,000 25,000 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 Miles 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 50,000 100,000 150,000 200,000 250,000 1600 1650 1700 1750 1800 1850 1900 1950 2000 Mileage Turnpike Roadway (LHS) Roads (RHS) Mileage

Source: Cambridge Group for the History of Population and Social Structure (LHS), and Department for Transport (RHS) Source: Cambridge Group for the History of Population and Social Structure and Office of Rail and Road.

The Rise of Charities

25 1837 1950 1980 Report of charity commissioners (for E&W) Charity commission 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 1837 1867 1897 1927 1957 1987 2017 Number of registered charities

Sources: Nathan Report (1952) for 1837 and 1950, Report of charity commissioners for England & Wales (various) for 1980 to 1991, and Charity Commission (2019)

Enlightenment Now?

• Wealth, health, happiness no longer ascending for everyone
• Signs of erosion of the six pillars
• From “Age of Enlightenment” to “Era of Anxiety”
• ‘Market economy’ model – “capitalism” – being questioned

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Wage Stagnation

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Real wages 50 100 150 200 250 300 350 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Index, 1965 = 100 UK US

Sources: US Bureau of Economic Analysis, ONS and Bank calculations.

Wage Stagnation

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Source: Resolution Foundation (2018).

£250 £300 £350 £400 £450 £500 £550 £600 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 1951-55 1966-70 1976-80 1981-85 Age

Median real weekly employee pay (CPIH-adjusted to 2018 prices), by age and cohort, 1975-2018

Falling Home Ownership

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Source: Resolution Foundation (2018). 0% 10% 20% 30% 40% 50% 60% 70% 80% 20 25 30 35 40 45 50 55 60 65 70 75 Age of head of family Greatest gen (1911-1925) Silent gen (1926-1945) Baby boomers (1946-1965) Millennials (1981-2000)

Home ownership rates, by age and generation: UK: 1961-2017

(In-work) Poverty Rising?

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Source: Joseph Rowntree Foundation (2020).

Peak Health?

31 70 73 76 79 82 1992 96 2000 04 08 12 16 Middlesbrough Boston (lincolnshire) Stevenage (Hertfordshire) Canterbury (Kent) Exeter (Devon) Dundee City (Scotland) Male life expectancy at birth (years) 70 73 76 79 82 1992 96 2000 04 08 12 16 Male life expectancy at birth (years) UK

Source: ONS.

Peak Health?

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Prescriptions for anti-depressants

Peak Climate?

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How concerned, if at all, are you about climate change?

Peak Happiness? - Easterlin Paradox

34 2 3 4 5 6 7 8 9 20000 40000 60000 80000 100000 120000 Life Ladder (2018 Gallup world poll) GDP per capita, PPP (current international $)

Sources: Gallup and OECD

Rising Inequality?

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Within Country Regional Inequality in UK

0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 1820 1850 1880 1910 1940 1970 2000 Mean log deviation

Within country

Source: Industrial Strategy Council (2020). Sources: Bourguignon and Morrisson (2002) for 1820-1992, Ravallion and Chen (2012) for 1981-2008

Rising Populism?

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Populist vote share in Europe

Source: The Guardian.

Death of the Public Company?

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• 6
• 4
• 2

2 4 6 8 10 12 2003 05 07 09 11 13 15 17 19 Issuance Buybacks Net Issuance £bns 500 1000 1500 2000 2500 3000 20 40 60 80 100 120 140 160 1998 2002 2006 2010 2014 2018 IPO (Main market (LHS)) Listed companies (Main market (RHS)) London Stock Exchange Net issuance

Source: London Stock Exchange and Bank calculations. Source: Bank of England and Bank calculations.

Banking for Everyone?

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Financial sector share in employment and growth Number of bank branches

5,000 10,000 15,000 20,000 25,000 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000

Source: Cecchetti and Kharroubi (2012). Sources: Collins, M., & Baker, M. (2003) for 1850-1913 and House of Commons Library (2020) for 1986-2019

Education for All?

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Source: Elliot Major and Machin (2019).

Creaking Transport Infrastructure?

40 10 20 30 40 50 60 70 80 1950 1970 1990 2010 Meters of road per car 5,000 10,000 15,000 20,000 25,000 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 Passenger journeys per mile of track

Sources: Department for Transport and Bank calculations. Source: Cambridge Group for the History of Population and Social Structure, Office of Rail and Road and Bank calculations.

Social Infrastructure Creaking?

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Source: Local Trust and OCSI.

The Trust Deficit

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10 20 30 40 50 60 70 80 Government Media Financial services NGOs Business Local community Per cent who trust

Source: Edelman Trust Barometer.

The New Model?

• More market?
• Populist right
• More state?
• Populist left
• Whither Third Pillar?
• Raghu Rajan
• Is there a non-radical alternative?
• Embraces all three pillars
• Repurposes them for 21st century, Smith-style
• Reconstruct the six pillars of success

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Purposeful Companies

• Primacy of the shareholder?
• Companies as a social, not a legal, contract
• Plural set of stakeholders– shareholders, staff, customers, creditors, society,

environment

• ‘B’-corporations, statements of purpose, corporate governance codes
• Is a new Companies Act needed?

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Purposeful Banking

• Is banking socially-purposed?
• Banking as a utility service/network?
• Branches
• Digital banking/payments
• Central bank digital currencies
• Financing companies/households
• Regional banks?
• Infrastructure banks?
• Development banks?

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New Measurment Systems

• Companies
• Beyond ‘P+L’
• ESG reporting
• Integrated reporting
• Economies
• Beyond ‘GDP’ – well-being metrics
• From Bhutan to New Zealand
• Keeping score of ‘success’ – education, health, transport, economy

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New Educational Model

• 150 years – academic education of the young
• Next 50 years
• Teaching all ages
• Academic, vocational, interpersonal
• Making lifelong learning a reality
• Educational passports, lifelong educational credits

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New Public Infrastructure

• Re-investing in existing public infrastructure
• Road, rail, bike
• Digital infrastructure
• Investing in new public infrastructures
• Open data commons
• Digital twins
• ARPA (Advanced Research Projects Agency)?

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New Civil Society

• Back to the meaning of “work”
• Making lifelong civic contributions a reality
• Recognising and rewarding civic contributions
• Volunteering passports
• Volunteering credits

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Conclusion

The stakes are high … “If [justice] is removed, the great, the immense fabric of human society […] must in a moment crumble into atoms.” Adam Smith (Moral Sentiments (1759)) The opportunities are too … “The core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.” Elinor Ostrom (Nobel Lecture (2009))

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