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

The Health, Wealth and Happiness of Nations Andrew G Haldane Centre for Policy Studies Lecture Bloomberg 24 February 2020

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)) 2

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)) 3

“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)) 4

Plan • Enlightenment then • Six Pillars of Success • Enlightenment Now? • The New Pillars of Success  “Community Capitalism” 5

Wealth Wealth Income Real GDP per capita UK wealth per capita £ (2013 prices) (2000 prices) 30,000 450,000 1776 1776 400,000 25,000 350,000 20,000 300,000 250,000 15,000 200,000 10,000 150,000 100,000 5,000 50,000 0 0 1270 1370 1470 1570 1670 1770 1870 1970 1760 1800 1840 1880 1920 1960 2000 Source: McLaughlin, E. et al. (2014) ‘Historical wealth accounts for Britain: Sources: Bank of England Millennium of Data progress and puzzles in measuring the sustainability of economic growth’ 6

Wealth Poverty rate People in poverty Share of population living in extreme Global population, billions 8 poverty, percent 100 7 Number of people 6 not in extreme 75 poverty 5 4 50 Number of people (globally) 3 living in extreme poverty (<$1.80/day) 2 25 1 0 0 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 Sources: Our World in Data, based on data from Bourguignon & Morrisson (1820-1992), and the World Bank (1981-2015) 7

Health UK life expectancy, years Children born per woman (UK) 6 90 1776 80 5 70 Died before 5 4 60 Hunter gatherers (2 million years) 50 3 40 30 2 20 The bronze age 1 Survived past age 5 (starchy diets) 10 (1,500 years) 0 0 1841 1866 1891 1916 1941 1966 1991 2016 1623 1798 1868 1903 1938 1973 2008 Sources: Our World in Data and Enlightenment Now Sources: Our World in Data calculations, based on G apminder data 8

Happiness Hours worked (per week, average) Social development points 80 1000 1776 1776 70 60 100 50 40 30 10 20 10 0 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 1 200 400 600 800 1000 1200 1400 1600 1800 2000 Year Year Source: Morris (2010, 2011). Sources: Bank of England Millennium of Data 9

The Consumption Basket 1776 2020 1900 Luxury Essential Sources: Bank calculations based on data from Feinstein (1998) for 1788, Feinstein (1991) for 1900, and ONS for 2020. 10

Political Economy Percentage of years in which the 'Great Powers' fought one another 100 90 80 70 60 50 40 30 20 10 0 1500 1600 1700 1800 1900 2000 Sources: Levy (1992) and Bank calculations. 11

Political Economy 1816 2015 No data Colony Full Full Autocracy Democracy Source: Our World In Data, Wimmer and Min (2006), Centre for Systemic Peace 12

What Happened? • Neo-classical story: private innovation inspires an (industrial) revolution Spinning Jenny Steam Engine Water Frame Hargreaves (1764) Arkwright (1769) Watt (1775) 13

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 14

Timeline of Innovation 12 th C 13 th C 14 th C 15 th C 18 th C 16 th C 17 th C

Long-Run Growth Decomposed Average 10-year growth (%) 1776 7 6 Growing 5 4 3 Shrinking 2 1 0 1275 1300 1350 1400 1450 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 2016 Sources: Broadberry and Wallis (2017) and Bank calculations 16

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 17

The Rise of the PLC Companies in the UK Corporate equity Limited companies per thousand people % of GDP 80 300 70 250 60 200 50 150 40 100 30 50 20 0 0.5 1759 1789 1819 1849 1879 1909 1939 1969 1999 10 0.3 Nominal paid up capital (Hannah (2014)) 0.1 Nominal paid up capital (Joint stock companies incl. railways prior to 1948) Market value (Revell(1967)) 0 Market value (PNFC and FC balance sheets) 1840 1865 1890 1915 1940 1965 1990 2015 Market value (Hannah (2015) for 1910) Sources: Company data from Companies House (1939-2018) and Levy (2014) for 1844-1865. Sources: Revell (1967), Solomou and Weale (1997), Hannah (2014, 2015), Thomas and Population data from Bank of England Millennium of Data. Dimsdale (2017), ONS and Bank calculations. 18

The Rise of Banking Broad money (% of GDP) Number of bank branches Per cent of nominal GDP 25,000 120 100 20,000 80 15,000 60 10,000 40 5,000 20 0 0 1700 1750 1800 1850 1900 1950 2000 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 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 19

Measurement Systems - The Rise of the Auditor Number of accountants 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 587 11 0 1800 1831 1862 1890 1921 1951 1982 2012 Sources: Haldane (2010), ICAEW (2012) and Financial Reporting Council (2019) 20

Measurement Systems - The Rise of GDP Number of countries with GDP/income estimates in UN statistical accounts Number of countries/areas with national income 250 estimates 200 150 100 50 0 1940 1950 1960 1970 1980 1990 2000 2010 2020 UN Statistical Yearbook Publication Sources: United Nations and Bank calculations. 21

The Rise of Public Education Participation Enrolment ratios for total population 100 90 80 70 60 50 40 30 20 10 0 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 Source: Barro and Lee (2016). 22

The Rise of Public Spending Government spending as a share of output (%) 100 90 80 70 60 50 40 30 20 10 0 1500 1600 1700 1800 1900 2000 Source: Clark (2009). 23

The Rise of Transport Roads Rail Miles Mileage Mileage 25,000 40,000 250,000 Roads 35,000 (RHS) 20,000 200,000 30,000 25,000 Turnpike Roadway (LHS) 150,000 15,000 20,000 100,000 10,000 15,000 10,000 50,000 5,000 5,000 0 0 0 1600 1650 1700 1750 1800 1850 1900 1950 2000 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 Source: Cambridge Group for the History of Population and Social Structure (LHS), and Source: Cambridge Group for the History of Population and Social Structure and Office of Department for Transport (RHS) Rail and Road. 24

The Rise of Charities Number of registered charities 200,000 Charity commission 180,000 Report of charity 160,000 commissioners (for E&W) 140,000 1980 120,000 1950 100,000 80,000 60,000 40,000 1837 20,000 0 1837 1867 1897 1927 1957 1987 2017 Sources: Nathan Report (1952) for 1837 and 1950, Report of charity commissioners for England & Wales (various) for 1980 to 1991, and Charity Commission (2019) 25

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 26

Wage Stagnation Real wages Index, 1965 = 100 350 300 250 200 150 100 50 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 UK US Sources: US Bureau of Economic Analysis, ONS and Bank calculations. 27

Wage Stagnation Median real weekly employee pay (CPIH-adjusted to 2018 prices), by age and cohort, 1975-2018 £600 £550 £500 £450 £400 1951-55 1966-70 £350 £300 1976-80 1981-85 £250 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 Age Source: Resolution Foundation (2018). 28

Falling Home Ownership Home ownership rates, by age and generation: UK: 1961-2017 80% 70% 60% 50% 40% 30% 20% Greatest gen (1911-1925) Silent gen (1926-1945) 10% Baby boomers (1946-1965) Millennials (1981-2000) 0% 20 25 30 35 40 45 50 55 60 65 70 75 Age of head of family Source: Resolution Foundation (2018). 29

(In-work) Poverty Rising? Source: Joseph Rowntree Foundation (2020). 30