Productivity Insights NetworkRSAI-BIS Special Sessions,17th July 2019, Cambridge

@ProductivityNW #rsaibis2019

Data, measurement, and new approaches

Session 3

#rsaibis2019@ProductivityNW

Chair: Richard Lewney

The Wealth EconomyD i m i t r i Z e n g h e l i s

Productivity Network

17 July| Cambridge

The Wealth Economy | Social and Natural Capital

• Aim: to improve the quality of policy advice

• A more comprehensive understanding of modern economies

• Refine definitions of social capital to inform its economic measurement

• Contribute to the on-going process of constructing national natural capital accounts

• Prioritise research questions, match them to data and methods, and identify wider stakeholders

Why the Wealth Economy?

• It is increasingly clear that 21st century progress cannot be measured with 20th century statistics

• Excessive fixation on GDP makes for poor policy

• Our quality of life depends on more than annual income.No individuals would gauge their prosperity on the basis of one month’s earnings

• The Wealth Economy project seeks to ultimately augment GDP with a small dashboard recording access to key assets

• Growth where wealth is monitored and managed is the only growth story available - all the others will fail

Why the Wealth Economy?

• Our measurement of prosperity and economic success needs to include measures of diverse critical assets

• The broader our definition of wealth, the harder it is to measure and value

• Measuring wealth forces us to recognise opportunities and constraints on substitution

• We have started with a focus on natural and social capital, although ultimately the aim is to develop a comprehensive framework.

Sustainability – why wealth embodies the future

• Measuring assets means assessing future value

• Yet the forward-looking element is precisely what makes wealth a better indicator of sustainability and the health of a nation than annual output or GDP. The future is ‘priced in’

• Not only can new assets be stranded or created, but our understanding of the endogenous development of the economy can itself radically alter our ability to cope with and manage change.

• The pace of change can be staggering, as we are witnessing in the dramatic declines in costs of renewable energy, battery storage and electric vehicles. Fossil fuel based infrastructure can rapidly shift from high value to redundant and the wealth economy must be equipped to measure such changes.

• Statistics are the lens through which we observe the economy: policymakers, businesses and individuals change their behaviour in response to the picture they see through that lens

Indicative fossil fuel range

Natural capital

• Conceptually, natural capital is similar to other types of capital produced by humans

• Stocks of natural capital assets generate flows of environmental goods and services over time

• Unlike human, physical and knowledge capital, natural capital—which provides the building blocks of all other forms of capital—is generally in decline

• Risks to future wellbeing growth derived from depleting natural capital, which includes water, air, soil, minerals

• Renewable capital such as forests or marine ecosystems which are prone to system collapse, deprives future generations of wellbeing

• It is impossible to look at climate change or loss of biodiversity without worrying that human society is living on borrowed time

Social capital

• World Bank estimates intangible capital (human, social and institutional capital) makes up 60% - 80% of total wealth

• Social capital is often referred to as the glue that holds societies together

• It encompasses personal relationships, civic engagements and social networks. Without it, there can be little or no economic growth or human wellbeing.

• This notion has strong intuitive appeal, but social capital has proven slippery to nail down, not least because it consists of many interrelated elements.

Latent variables analysis

• We perform statistical analyses on UK and European social surveys to construct a small number of principal components that explain our latent concept, social capital

• Found 2 principle components explaining 50% and 15% of total variation in trust responses, respectively

• Both components are highest for people in Scandinavian and lowest for those in Mediterranean and Eastern countries

• 1st component, general trust, is highest among the very young and decreases with age on average,

• 2nd component, trust in people against trust in institutions, lowest among the very young and increases with age

• 1st component increases with income while 2nd does not vary much along this dimension

• 1st component higher among UK Remainers than Leavers, 2nd vice versa.

Social capital

• Generalised trust relates to shared rules, and the social norms and values that shape the ways we behave in everyday relationships and transactions

• Data has long shown that trust, civic engagement and effective institutions go hand-in-hand with economic wellbeing and economic growth

• Studies find that the quality of governance and institutions explains a significant part of the variation in rates of growth and investment across countries by supporting social capital

• We found every 10 percent increase in the interpersonal trust indicator, the total factor productivity (TFP) increases by 0.1 percent (OECD)

• Generalised trust and the quality of governance are both the result and cause of productivity growth and higher reported wellbeing

Summary and goals

Enhance our understanding of modern economies

Improve the quality of policy advice, invigorate public debate

• Steer research

• Engage with media

• Working with OECD, ONS, UN SD, UN SEEA, UNEP, HM Treasury and others

Establish guidelines for standardised comparative measures of wealth

Design a safe, secure and sustainable future, where policymakers mange change in the interests of the many

Allow investors and innovators to profit from designing the future,

• managing a sustainable transition

• protecting the planet

• forgoing investment in stranded assets

Thank you!Matthew Agarwala – Research LeaderBarbara Bennett – AdministratorDiane Coyle – Bennett Professor of Public PolicyMarco Felici – Research AssistantSaite Lu – Research AssistantCrenguta Mihaila – AdministratorLucy Theobald – Communications DirectorJulia Wdowin – Research AssistantDimitri Zenghelis – Project Leader

ESS - Opinion about trust

• Most people can be trusted or you can't be too careful

• Most people try to take advantage of you, or try to be fair

• Most of the time people helpful or mostly looking out for themselves

• Trust in country's parliament

• Trust in the legal system

• Trust in the police

• Trust in politicians

• Trust in political parties

• Trust in the European Parliament

• Trust in the United Nations

• .

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��e.magrini@centreforcities.org020 7803 4304� � @MagriniElenaSlide Number 81Slide Number 82Nesta Slides.pdfSlide Number 1Slide Number 2Slide Number 3Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Slide Number 20Slide Number 21Slide Number 22Slide Number 23Slide Number 24Slide Number 25Slide Number 26

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