The Health, Wealth and Happiness of Nations
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Centre for Policy Studies Lecture Bloomberg 24 February 2020 Andrew G Haldane The Health, Wealth and Happiness of Nations
Transcript of The Health, Wealth and Happiness of Nations
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))
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))
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Plan
• Enlightenment then
• Six Pillars of Success
• Enlightenment Now?
• The New Pillars of Success
5
“Community Capitalism”
Wealth
6
IncomeWealth
0
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
0
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
0
25
50
75
100
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
Share of population living in extreme
poverty, percent
0
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
0
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)
0
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
0
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
20201776 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
0
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
12
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 EngineWater 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 C18th C
Long-Run Growth Decomposed
16
0
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
0.10.3
0.5
0
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.
0
50
100
150
200
250
300
1759 1789 1819 1849 1879 1909 1939 1969 1999Nominal 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
0
5,000
10,000
15,000
20,000
25,000
1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000
0
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
0
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
0
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 PublicationSources: United Nations and Bank calculations.
The Rise of Public Education
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0
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
0
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
0
5,000
10,000
15,000
20,000
25,000
1830 1850 1870 1890 1910 1930 1950 1970 1990 2010
Miles
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0
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
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1837
1950
1980
Report of charity commissioners
(for E&W)
Charity commission
0
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
0
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?
30
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?
32
Prescriptions for anti-depressants
Peak Climate?
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How concerned, if at all, are you about climate change?
Peak Happiness? - Easterlin Paradox
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2
3
4
5
6
7
8
9
0 20000 40000 60000 80000 100000 120000
Life Ladder (2018 Gallup world poll)
GDP per capita, PPP (current international $)
Sources: Gallup and OECD
Rising Inequality?
35
Within Country Regional Inequality in UK
0
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?
37
-6
-4
-2
0
2
4
6
8
10
12
2003 05 07 09 11 13 15 17 19
Issuance
Buybacks
Net Issuance
£bns
0
500
1000
1500
2000
2500
3000
0
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 ExchangeNet 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 growthNumber of bank branches
0
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
0
10
20
30
40
50
60
70
80
1950 1970 1990 2010
Meters of road per car
0
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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0
10
20
30
40
50
60
70
80
Government Media Financialservices
NGOs Business Localcommunity
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)?
48
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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