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The Human Welfare Economy
The RSA’s strategy commits us to work in three areas; public services and communities is one, learning and development the second. The third is economy, enterprise and manufacturing. Underlying all our work is what we call ‘The Power to Create’, the RSA’s perspective on how the world is and how it should be.
RSA projects reflect our world view. Our work on public services seeks to enhance what we call ‘social productivity’, that is the degree to which public services enhance the capacity of individuals and communities to contribute to meeting their own needs. Our work on learning is based on the value of creative capacities as something to instill in learners and as a characteristic of successful educational systems and institutions.
In the economy strand, our Great Recovery project uses design perspectives to explore the scope for less wasteful, more circular, forms of production. We work with makers’ spaces to exploit the potential of technology to enable new forms of craft and small scale manufacturing. Our business research has challenged negative views of growing self-employment, showing how people prize the greater autonomy of being their own boss.
We intend to expand our economic work but as we do so we need to develop an account of what a good economy – a Power to Create economy – would comprise. This, my eighth annual lecture, is a contribution to that task.
In this speech I suggest a framework for a resilient human welfare economy based on the following five design principles: Such an economy would have clarity of mission and purpose. It would be efficient and sustainable in its use of assets. It would be effective and strategic in the application of key policy instruments. It would empower individual citizens as economic actors. And it would be participative and democratic in its economic institutions. On the basis of these principles I also identify a set of policies, many of which the RSA is intending to advocate in coming months.
A wider economic debate?
Tomorrow George Osborne will tell us how well our national economy is doing. We are all relieved not to be in the terrible plight of Greece. Indeed on conventional measures we are doing better than most of Europe. But have we as a country agreed, indeed have we even properly debated, what a successful economy means?
Last week, with the support of Prince Charles, Cambridge University’s Institute for Sustainable Leadership published a list of tasks to be undertaken by Government and business in pursuit of sustainability, ranging from taxing environmental harms to creating new financial structures. There has indeed been much important work on alternative economic models and indicators. Yet, on the whole, this work has only rarely broken through either into mainstream policy debate or public consciousness. Why not?
Over the last twenty years economic policy has been largely framed by two contrasting narratives. Between the mid-nineties and 2008 the story was that economic growth, portrayed as permanent, would enable us in time to solve all problems. Towards the end of the period there was greater questioning of this orthodoxy. The Sarkozy Commission on alternatives to GDP was one example, as was David Cameron’s enthusiasm for wellbeing. Added to this was a more established environmentalist critique of growth. But just as the ‘growth solves all problems’ discourse was starting to be seriously questioned we had the credit crunch.
The economy of 1995 to 2008 was portrayed as bountiful, the economy of 2008 onwards as vengeful and fickle; we didn’t need to question the first, we couldn’t afford to question the second.
The narrowness of debate has been reinforced by the way we the public tend to think about economics as a technical discipline with which only those with specialist knowledge can engage. In an earlier version of this speech I apologised for not being an economist. Have you ever heard anyone with opinions about society apologise for not being a sociologist?
Portraying economics as a science, even in the face of its many failures of prediction, disguises the importance of history, culture, and values in economic ideas. Whether it is ‘international competitiveness’, ‘shareholder value’ or ‘GDP’ itself (as Diane showed in her recent book) mainstream economic discourse is full of complex, sometimes ideologically-freighted, ideas masquerading as purely technical descriptions of reality.
But do we today have an opportunity to think and act differently?
The most interesting branches of modern economics – behavioral, environmental, institutional - are far from the trite neo-liberal nostrums relied upon by some commentators and politicians.
In the wake of the credit crunch, free market ideology has fewer adherents and many more critics. These include not just radicals and idealists but corporate leaders and central bankers.
And, while our national economy is doing well in conventional or comparative terms, it has deep seated characteristics which are far from benign; the millions of people struggling to get by, the scale of inequality, the disjunction between economic rewards and public value, the sluggishness of productivity and the unsustainability of our patterns of consumption.
This gap between top line success and underlying problems highlights two aspects of misalignment; on the one hand, between economic progress and human welfare, on the other between short term growth and long term economic resilience.
This evening I will outline a distinctive RSA method for opening up a wider, more progressive - but also policy rich - debate about how to create a resilient economy which enhances human welfare over the long term.
In this task I have drawn on the insights of economists and even some philosophers, but I have also been influenced by the RSA’s commitment to design thinking.
Steve Jobs once said ‘Some people think design means how it looks. But of course, if you dig deeper, it's really how it works’. In relation to economic policy, acting like a designer means combining a set of values with broad but adaptable assumptions – what I am calling design principles - about how effective systems work.
We live in tempestuous times. Individual policies can quickly fail in the face of complexity and volatility. Design principles provide us with a longer term framework, demanding greater consistency, enabling greater accountability helping to ensure that the means to economic reform remain grounded in the ultimate ends of that reform.
Principle one: clarity of mission and purpose.
The first design principle I suggest for a resilient human welfare economy is clarity of mission and purpose. Nietzsche described lack of purpose as the most common form of human stupidity. But, if growth is a means to an end and not the end in itself, what are the human goals we want economic management to help achieve?
The answer for the RSA lies in our worldview; ‘The Power to Create’.
The Power to Create prizes greater autonomy for all. Autonomy - as enlightenment philosophers understood and as advances in behavioral science have underlined – is approached through a capacity for self-awareness, self-expression and personal development. As one of the most privately indebted countries in the world, and one suffering rising levels of obesity and mental illness, we can surely agree that we are not free if we merely follow our first impulses.
The RSA perspective view differs from the main accounts on offer at the last general election by the Conservatives and Labour. It goes beyond an emphasis on economic growth and individual market freedom by posing more substantive questions about long term human flourishing in a good society. It also differs from the traditional paternalistic social democratic approach by believing justice is best served by creating the conditions in which people can take responsibility themselves for deciding what matters and what they value.
This perspective also goes beyond the concept and measurement of wellbeing, seen by many as the best way to balance GDP growth with a more human measure of progress. Wellbeing data is interesting but what does it tell us about the foundations of the good society? Knowing how people feel about their lives today doesn’t tell us how they might feel if different opportunities were within their grasp. Moreover, as the political scientist Will Davies and others have suggested, the wellbeing discourse has a tendency to site the basis for human flourishing in the individual rather than the nature of our economy and society.
A Power to Create economy would be one that enabled people, all people, to live what philosopher and political economist Roberto Unger has called ‘the larger life….a life of greater depth, scope and intensity’. This we believe should be the ultimate goal of economic policy.
Principle two – efficient and sustainable use of assets.
Power to Create is the RSA’s way of defining what economic progress should comprise but what are the economic tools available in pursuit of this goal? The second design principle is that the use of economic assets should be efficient and sustainable.
Do we even have a clear account of what our assets comprise? The reason some things are included and others not often feels arbitrary.
Think of human capital. There is a big debate over whether immigration should be seen as something that enhances or diminishes our national resource base (the RSA has consistently taken the former view). But while we debate numbers we may lose sight of how immigration policy is negatively impacting a less tangible key asset – the global image of our university system.
Education and skills are an important and contested dimension of human capital. Many commentators – including here at the RSA – believe the curriculum we are forcing school children to pursue is based on an outdated economic model, failing to teach students the skills and capabilities they really need to contribute fully to economic and social progress.
It has been argued that the decline in Japan’s economy over the last two decades is almost entirely explicable in terms of population ageing. Recent UK Governments, mindful of voting patterns, have shoveled money at older people. But how can we think of an ageing population as an asset not just a drain? For example, if we were to abolish the whole idea of age-related retirement and see pensions simply as a form of flexible lifetime savings could we encourage more people to stay in work or combine paid employment with voluntary activity?
More widely the emphasis on tackling the fiscal deficit – important though that goal is - tends to portray public service expenditure purely as a cost to the economy. But wise Government spending can enhance our asset base, and not just through infrastructure investment. It is noteworthy that President Obama’s health reforms in are having a benign effect on the US wider economy by enabling people to have greater flexibility in the job they take and reducing the risks of setting up their own business.
What about assets that which tend to be overlooked in economic debate? Global surveys find that the UK is seen as attractive in large part because of its heritage and cultural assets, a finding confirmed by the recent Warwick Commission led by RSA Chair Vikki Heywood, but this fact rarely gets taken seriously by economic policy makers. International comparisons also show that trust in people and institutions is correlated with economic dynamism. We don’t see high levels of political cynicism or low and falling levels of trust in strangers as economic factors; perhaps we should think again.
And, of course, there is the issue of natural assets and the environment. Here the balance of short and long term perspectives is critical. It is good news that 2014 was the first year ever when economic growth was not accompanied by an increase in global emissions but this is only the first step in a long hard road. The debate over fossil fuel disinvestment is all about what we should count as an asset.
I doubt we could all agree what to include in a national register of economic assets, but without some sense of our starting point it is hard to assess either the overall success of our economic strategy or, crucially, the degree to which our actions are depleting or enhancing our asset base.
Principle three: effective and strategic use of key policy instruments
Armed with an account of the human purposes of economic progress and attending to the question of what assets might be at our disposal, a third design principle for resilient human welfare economy might be that its chief economic instruments are effective in aiming towards the mission and purpose we have set.
We might start with a particularly knotty issue for economic policy – tax.
A characteristic of our current tax regime, reflecting path dependency, electoral calculation and fear of major reform, is that as well as being very complicated it isn’t grounded in either an account of our ultimate goals or a set of consistent principles. For example, as the Resolution Foundation point out today, the total value of our complex and largely regressive system of tax reliefs in the UK now costs £100 billion a year more than the whole system of working age welfare benefits.
This design principle that economic policy instruments are directed to strategic goals would demand that an economy oriented to long term human flourishing would tax things likely to detract from that goal (profiteering, intergenerational inequality or unsustainable consumption) while incentivising behavior likely to contribute (employment, socially useful innovation and enterprise).
Here are some examples of policies that might fit this design requirement better than our current arrangements.
Land value tax is often portrayed as a cranky idea. Its implementation would be controversial and complex. However, even though it has been around for centuries the core idea is, if anything, more attractive today than ever before.
In a world where inequality of wealth is even more concentrated and even harder to justify than inequality in income, such a tax not only tackles injustice, it helps stop in Thomas Picketty’s powerful phrase the ‘the past devouring the future’. While taxes on consumption tend to reduce activity and taxes on work to reduce employment, a tax on land can’t reduce the amount of land, indeed the reverse, it incentives the owners of land to put it to productive use – something that could help address our deepening housing supply crisis.
Globalisation and e-commerce make it harder to levy taxes on profits and sales, land tax is almost impossible to avoid – you can’t after all relocate your surplus land to Luxembourg or the Caymans.
These and other qualities explain why a comprehensive land tax has been give support by economists from Milton Friedman to James Tobin and why it is also recommended by those distinctly unflaky organisations the OECD and the Institute of Fiscal Studies.
Land tax is by definition spatial so it could be used to increase the proportion of public finance raised locally. Another characteristic of a resilient 21st century economy might be (as the RSA has argued) that it would be industrially and geographically pluralistic, for example devolving power to cities. So we might favour radical fiscal devolution perhaps through a local income tax.
Just as many cities have come to see their success is more dependent on co-operating with other places than competing with them, national interest also lies in helping build better design features into the global economy.
Can anyone doubt that in the long term we need a world where global corporations pay fair taxes and where countries compete on a level playing field? And given the absolute centrality of tackling climate change to long term human survival, tax can surely play a more important and effective role in strengthening action to reduce carbon emissions in the rich world while helping poorer countries combine fast economic growth with slow emissions growth.
Principle four: empowering individuals as economic actors
You don’t have to subscribe to neo-liberal economic theory to recognise the brilliant way markets combine billions of individual choices into dynamic systems. But, still, the scope for everyone in our affluent society to be an independent economic actor is limited, especially for those with the fewest advantages. The fourth design principle for a Power to Create economy is that it empowers individuals as economic actors.
The importance of this principle is reinforced by key 21st century trends: The rise of the knowledge economy, the economic importance of innovation, the state’s need for more creative, responsible citizens, the growing appetite of citizens for what the largest survey of world values calls ‘self-expression’.
Of course, enhancing freedom is the primary virtue of capitalism, particular consumer capitalism. From meeting basic wants to providing the cornucopia of the modern market place today’s citizens in the developed and fast developing world have access to goods and services and to choices that would have amazed their grandparents. Economic growth has also allowed the expansion of the state and its collective comforts.
Yet, even where the criteria for conventional economic success are at their most compelling – in relation to consumer choice – there are ways in which our policy is failing to empower consumer and producers.
Concentrations of economic power can curtail individual enterprise and collective choice. So there is a strong case for a more robust competition regime, one that targets excessive market dominance and oligopoly in areas like energy, banking and mobile communication.
And a new challenge – not unrelated to the power of dominant global on-line platforms – concerns our freedom to decide how the ever growing store of on-line data about our choices and characteristics is used and who benefits. The RSA is developing a project on the fast growing and dynamic sharing economy advocating an approach which acknowledges the empowering, pro-social, features of some – but by no means all – platforms.
But beyond consumption, it is in the sphere of wider human development and particular in relation to people with lower incomes and fewer assets that the failure to meet the design specification of enhancing economic agency is more glaring.
We might for example favour a citizens’ basic income, an idea which the RSA intends to explore in more detail in the autumn.
There are many variants of the core idea, which is, in essence, that all citizens (with the exception of the wealthy) get a modest minimum living allowance. Grounded in a commitment to autonomy and dignity, the principle is that in a relatively affluent society we should collectively provide the basic means for all citizens to make life choices.
But there are other more pragmatic virtues to the policy. Although it might at first glance seem to damage work incentives, practical experiments have shown the reverse. By reducing both means testing and incentives to cheat the system, a citizen income could rein back the ever more oppressive apparatus of state surveillance and punishment associated with welfare provision.
Many commentators recognise that problems of low pay and low productivity in the UK economy are related to imbalances of power between employers and employees. By enabling people greater freedom to make choices over their lives, to prioritise learning or caring over unrewarding work, citizen income might contribute to addressing this imbalance.
Citizen income has had many champions ranging from John Stewart Mill and Bertrand Russell to Frederick Hayek, Milton Freidman and Paul Krugman. And while it sounds like it flies in the face of modern attitudes towards welfare, versions of basic income have been tried out largely successfully in many places, one is now policy in Norway and another is subject to a forthcoming referendum in Switzerland.
Alongside a minimum income there are other ways we could give greater autonomy and economic opportunity directly to individuals.
Take the poor level of adult skills in the UK. The reason for this failure is arguably that instead of policy being based on a commitment to human development as an inherent design feature of a strong human welfare economy, it has been narrowly instrumental and market oriented, comprising constant tinkering to try to overcome the glaring mismatch between national economic goals, individual learners' motivations and employers’ willingness to invest.
Most experts, including recent skills ministers, agree that the answer lies in giving power to the people through some form of individual learning account. Yet, because this idea failed for very specific reasons, it has been sidelined. The RSA will soon be proposing a new model of learning accounts.
And, in the face of rising wealth inequality and the evidence of the impact on behaviour and aspiration of access to even small assets, it is surely time to look again at an idea like the Children’s Trust Fund, which guaranteed all children a small inheritance on reaching adulthood and provided incentives for poorer families to save.
Principle five: economic institutions should be democratic and participative
A final design principle for The Power to Create economy turns from individuals to wider society and calls for existing and newly created economic institutions to have a democratic, participative, dimension.
The Power to Create economy is not one of servants and consumers but of citizens.
Again, this principle of public engagement is borrowed from good design practice. Authentic public participation can mobilise collective intelligence, foster responsibility and trust, crucially it can give policy makers the space to act for the long term.
In designing in economic participation, we could start with the firm. The combination of short term shareholder maximsiation, the often empty vessel of PLC stewardship and the erosion of trade union power means ther British are amongst the most powerless and voiceless workers in the developed world. The consequences of powerlessness can be seen in a low productivity and in the high numbers of workers who report little or no scope for autonomy or self-development at work. There are many ways to give employees a greater say. These range from the radically decentralised models described here at the RSA by the organisational theorist Frederick Laloux, to the more formal models of worker representation found in Germany and other countries.
And at a national level one doesn’t have to be favour of 1970s style corporatism to wonder why the UK is so unusual in the complete absence of effective Government-backed economic bodies bringing together the voice of employers, employees and wider civil society.
Among other issues, such bodies might advise on the need for new financial institutions, on ways to channel investment to enterprise and innovation, to make it easier to use our collective savings to invest in social and environmental goods.
One of the key questions facing all economies is how they adapt to the massive impact of the next generation of technological change. As economist Mariana Mazzucato has shown, public investment in higher education, R and D and procurement plays a huge role in industrial innovation, so shouldn’t we have greater public deliberation about where and to what purpose we most want to see such innovation directed?
Indeed, as my colleague Anthony Painter has argued, the capacity to develop new more participative institutions is an important but generally underplayed aspect of economic innovation. We can learn here from new economic models being developed in cities from Copenhagen to Cleveland, from Boulder to Bristol.
A citizens’ economic council
There is little prospect of many if any of the ideas I have floated in this speech featuring in mainstream political debate. One reason, I suspect is that many of them simply seem too difficult. As EU President Jean Claude Juncker has said of his fellow politicians
’we all know what to do, we just don’t know how to get re-elected after we do it’
In this sense, one of the greatest problem standing in the way of building an economy that serves society may be us the people – our conservativism, our impatience, our cynicism.
Being focused on impact at the RSA we tend to think a policy idea is only as good as the model of public engagement which accompanies it.
Which is why my final proposal – one which I would like the RSA itself to take forward– is to create a Citizens Economic Council. This would be a body of around thirty representative but independent people. Its members would be drawn from businesses large, medium small and social, from civil society and the third sector; from employee and professional organisations and from local and central government.
Working in the open so anyone could watch its deliberations and input to its debates, the task of the council over a two year period would be to explore the deeper strengths and weaknesses of our economy, to develop core design principles for a resilient human welfare economy and to asses a set of ideas which might help to create that economy by 2030.
The Council’s conclusions would be published sufficiently far in advance of the next general election to influence the debate or maybe even the policies being placed before the electorate.
Tomorrow George Osborne will unveil a set of new economic policies. Some of these policies are to be welcomed – particularly the next steps towards greater city devolution. The Chancellor’s political job is to keep his Party, the voters and the City happy and by that measure he is doing a pretty good job.
The task of the RSA today, as it has always been, is to ask bigger questions, to engage our Fellows and the wider world in exploring new possibilities and experimenting with new approaches.
I am sure my list of design principles is neither perfect nor exhaustive. My aim has been to provide a framework for our research not to predetermine its outcome.
Nevertheless, principles such as these can enable us to take a broader, more ambitious view of economic debate and maybe too make it easier for non-economists (like me) to join in that debate.