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April 2013 newsletter – Features

#Secretary-General's 2013 Annual Report

#Costing climate change and its migration

#Changing Expectations: Implications of the new funding era for the teaching of economics

#Investing for Prosperity

#The power of political voice

#Gabon

Secretary-General's 2013 Annual Report

The Secretary General, John Beath, presented this report to the Society’s AGM at Royal Holloway, University of London, on 4th April.

I would like to start my report this year by paying tribute to Frank Hahn who died on January 29 at the age of 87. An economist of international stature, Frank was a former President of the Society. I think it is particularly appropriate that I am able to pay this tribute at our Annual Conference because, as President, Frank played the key role in bringing together the Royal Economic Society and the Association of University Teachers of Economics (AUTE). Before the ‘union’, the annual conference, then as now in the spring, was run by the AUTE while the Society followed its AGM, usually in June, with a lecture, typically by the President. It was through Frank’s efforts that we are now a unified learned society and professional body and of course we have the AGM and the President’s lecture as an integral part of the conference, and Frank’s memory is there in the annual Hahn Lecture. His obituary, by a previous president of the Society, appears on p. 15 below.

Our Society’s emblem is the honey bee. Now 2012 was a bad year for actual bees and were this to be a talk about beekeeping, the bee would have a sad face. However, a smiley face is appropriate in our case since I can report that the hive I identified as healthy in my 2012 report continues to be so in 2013. I will now explain why.

Membership

The trend in membership has been positive. At the end of 2012 this stood at 3179. While ordinary membership has gone up by 5 per cent, the notable figure is the 28 per cent jump in online membership, no doubt the result of extending its availability. At its meeting in June, the Executive Committee agreed to hold membership rates constant and also to extend the online option to all categories of membership. Because of the lower costs of delivery, this option is to the benefit of both members and the Society. For example, the three-year online rate for students is just £17.
Kathy Crocker, our membership secretary, has been working with Robin Naylor and with Wiley-Blackwell to engage new areas of membership, in particular the link between school and undergraduate students through our work with the Economics Network. I would like to thank Kathy for all she has done on this front.

Finance

As the Treasurer has reported, the Society's finances continue to be sound, although there is a potential threat on the horizon to our publishing income, in particular to our journal income posed by the new RCUK policy on open access. However, for 2012, we substantially increased our charitable expenditure on projects and grants from £240K to £370K. Significant elements in that were the increased funding for Junior Fellowships, support for a larger number of special projects, increased expenditure on the Young Economist competition and our commitment to provide a significant level of support to the Economics Network.

Governance

On governance, I will mention three things. Firstly, Sarah Smith and Paul Johnson have joined the Executive Committee this year. Members will recall that 2012 was the first year in which we operated under our revised Royal Charter with the Executive Committee comprising the set of trustees.

Secondly, I would like to express my thanks and also the Society's, to those members of Council whose terms of office come to an end at this meeting: Chris Giles, Paul Grout, Guy Laroque, Hélène Rey, David Webb and Peyton Young. They have all contributed in a variety of ways and I would like to use this occasion to thank them publicly. However I would like to make special mention of Paul Grout and David Webb. David and Paul have both put in some hard work as assessors in the Junior Fellowship scheme, and Paul has been a much valued member of the Executive Committee. 

The third thing is that, at its meeting in November, Council agreed to set up a working party under the chairmanship of the incoming President to consider the future strategic direction that the Society might take. The group has recently had its first meeting and intends to bring a report to the meeting of Council in November for discussion.

Communication and Engagement

I hope that members will be familiar now with our new website with a whole range of valuable features. When he became President, Richard Blundell set it as his aim to develop significantly the Society’s communication activities. This strategic development, which was initiated in 2011, has continued to develop strongly in 2012. Robin Naylor, the Second Secretary, has been instrumental in this development and working in tandem with colleagues in the Society and with the web development team at Wiley-Blackwell, has greatly enhanced the appearance and navigability of the RES website.

Here are just a few examples:

  • Because the Society now actively manages the content on the site, we are able to keep members up-to-date with the latest RES news and media briefings.
  • The new site identifies the specific types of educational and career support and engagement that are available by category of individual — from school students, through undergraduate and postgraduate students to academic and professional economist.
  • This year’s Annual Conference has been integrated into the RES website with online access to the Conference programme.
  • Easier access to membership information allowed the Society to run the 2012 Council elections online in 2012, with postal backup for the few members who do not have e-mail. This led to a doubling of the numbers of ballots cast. We will use this format for the forthcoming 2013 election.
  • As part of his future development strategy Robin has been working with Romesh Vaitilingam, our media consultant and the Editors of the EJ on two projects: The provision of enhanced journal section features and functionality and a test project using social media.

Review of the Society's Activities

Let me now turn to a review of the activities of the Society in pursuit of its charitable objectives. The Royal Charter of 1902 established the Society to promote and foster the study of economic science and its application. To help to achieve its charitable objectives, the Society has established a number of vehicles: publications, conferences, lectures, workshops, and a variety of grants and projects.

Annual Conference
Our 2012 Conference, held at Robinson College Cambridge at the end of March, was a great success with record numbers of attendees who enjoyed excellent weather. The programme was put together by a strong committee ably led by Francesco Caselli and Chryssi Giannitsarou and the local organisers were Pramila Krishnan and Solomos Solomou. I am grateful to all of them for the hard work that they put in.

This year has seen Neil Rickman take over as Conference Secretary from Gareth Myles. Gareth had to relinquish the post in the summer because of increased work commitments and the Society is particularly grateful to Neil for taking on the responsibility of overseeing the organisation of this year’s conference, while at the same time combining it until the end of December with his chairmanship of CHUDE. The local organisation of the 2013 Conference has been in the very capable hands of Philip Neary and his colleagues at Royal Holloway and the Programme Committee under Imran Rasul has put together a wide-ranging and intriguing agenda.

Journals
A key point of note this year is that the current contract with Wiley-Blackwell to publish our journals ends in December 2013. A clause in the contract requires us to give 12-months' notice if we intend to terminate, otherwise the contract rolls over for a further five-year period. The Executive Committee decided that it wished to put the journal publishing contract out to tender and so due notice was given to Wiley-Blackwell in December 2011. Three publishers, including Wiley-Blackwell, were invited to tender and a sub-committee was formed to evaluate these tenders when they were submitted in June. This review identified two publishers who were then invited to make formal presentations to and answer questions from the sub-committee in September. On the basis of these the Executive Committee accepted the sub-committee’s recommendation that Wiley-Blackwell be offered the contract. Since then we have been busy, with the help of our lawyer, drawing up a new contract to start in January 2014. Progress on that has been good and I hope to be able by the end of this month to sign on behalf of the Society. While there are a number of changes in the new contract, a key element is recognition of the increased importance that we attach to the RES website.

The journals themselves continue to be acknowledged as leading international journals in economics and this was reflected in the interest received from quite a number of publishers when it was learned that we were to go out to tender. Indeed, we know from the data provided in the annual Publisher’s Report that they are among the most accessed journals they publish. While the editorial office of The Econometrics Journal remains in Cambridge, the EJ editorial office has moved from the London Business School to The Institute for Fiscal Studies and Stephanie Seavers has taken over from Heather Daly as the Publishing Editor. I would like to thank Heather for her many years of excellent service and for her assistance in what has been a pretty seamless transfer of the office from Regent’s Park to Bloomsbury.

Both of our journals award prizes for the best papers published each year. The EJ has two: the RES Prize and the Austin Robinson Prize. The RES Prize is awarded to the best paper published in the EJ in a year. In 2012 this went to Michael A Clemens, Steven Radelet, Rikhil R Bharvani and Samuel Bazzi for their paper, ‘Counting Chickens when they Hatch: Timing and the Effects of Aid on Growth’. The Austin Robinson Prize is awarded to the best non-solicited paper by an author or team of authors within five years of receiving their PhD. The winner this year was Wen-Tai Hsu (NUS) for his paper, ‘Central Place Theory and City Size Distribution’. In addition, 10 prizes of £500 each are awarded to those whom the Editors consider to have made an outstanding contribution in this field. Details of the winners are provided on the website.

The Econometrics Journal has instituted the Dennis Sargan prize of £1000 for the best (unsolicited) article published in the journal in the previous year by anyone who is within five years of being awarded their doctorate. The 2012 winner will be announced shortly.

Publications
The Society has always had a commitment to publishing scholarly editions of classic works in Economics: Ricardo, Malthus, Marshall and Keynes. In my last report I announced that a contract to publish a digital edition of the 30-volume Keynes writings had been signed with CUP. That was formally launched at an event in King’s College and is available at special discount rates to members. As an added benefit, the Society has agreed with CUP that Society members can have free online access to the digital edition.

Events

Public Lectures
This year’s lecture was again a great success with a buoyant demand for tickets. As always, it was held in two venues and this year these were in London (at The Royal Institution) and In York (at the university). The 2012 speaker was Chris Pissarides, the 2010 Nobel Prize Winner, whose topic was ‘Unemployment and Recession’. I am delighted that the 2013 lecture will be given by Tim Harford in late November. Again there will be two locations: London and Sheffield. The public policy lecture series, started last year, has continued, with Nick Crafts speaking on ‘Returning to Growth: Lessons from History.’

Young Economist Essay Competition
This annual competition has seen a rise in the number of applications every year. This year the number was 750. It was won by Calum You whose essay titled ‘Lamentations of a Chancellor: Is there a better way out of the debt crisis than austerity?’ was considered by the judges to be a brilliantly crafted essay that paid close attention to recent debates over austerity and growth. He received an engraved trophy and a winner’s cheque (for £1000) at the annual public lecture. The three runners-up received £1000 between them.

The 2013 competition is already under way. Competitors have been asked to submit their essay on one of six topics by the end of June. As ever, the Society wishes to acknowledge the help of Tutor2U in the organisation of this competition and, in particular, the assistance they provide in drawing up the shortlist from which the judging panel chaired by the President will choose a winner.

Postgraduate Conference
Started in 2006, the postgraduate conference has been held annually in January at a London university. In 2012 and 2013 Queen Mary hosted this and the Society is grateful to them for doing so. In 2012, 257 participants attended and 195 made presentations, either formally or as posters. A review of the conference is currently being undertaken by Sarah Smith in order to ensure that we are doing all we can to engage with this vital group.

Funding

RES Training Schools
The RES Training Schools at Birmingham are one of our most valuable investments over the last two decades and in mounting these we have benefited from the partnership of the Government Economic Service, the Bank of England and the ESRC (through its Researcher Development Initiative). Two schools were held in 2012. In Spring there was one on ‘New Developments in International Trade and Macroeconomics’ led by Francesco Caselli and Peter Neary. The Autumn School was on ‘The Economics and Econometrics of Forecasting’ and was led by Mike Clements, Jennifer Castle and Jim Stock. Feedback from participants on both was highly favourable and indicates how well organised these are. So, once again, thanks are due to the organising team at Birmingham: Peter Sinclair, Nick Horsewood and Lisa Docker — and to all the course leaders. The next School will be held in April. The topic for this is ‘DSGE Modelling and Financial Frictions’ and there are four course leaders: Mike Wickens, Paul Levine, Cristiano Cantore and Joe Pearlman.

Junior Fellowship Scheme
This continues to attract a significant number of applicants and I am particularly grateful to those members of Council who act as assessors. In 2012 the assessors were Keith Blackburn, Hashem Pesaran and Catherine Waddams. In a strong and highly competitive field, Fellowships were awarded to the following ten candidates: E Ciani (Essex), F Costa (LSE), A Iaria (Warwick), T Koutmeridis (Warwick), C Krestel (UCL), O Latham (Cambridge), D Rogger (UCL), C Steinwender (LSE), B Tarbush (Oxford) and A Walter (Cambridge).

Other Schemes
We continue to run a number of other schemes. A number of grants and awards were made under the two that are administered from the Office: the Special Projects Grants Scheme (ten) and the Visiting Lecturer Scheme (one).

In addition through our Conference Grant Fund we support members who are presenting a paper, or acting as a principal discussant at a conference (up to £500). The Society is also able to offer financial support to members who require assistance for unexpected Small Academic Expenditure (up to £600). These two schemes, amongst our longest running, are administered by Professor Muscatelli (University of Glasgow) and I would like to pay him credit for the effective and efficient running of both.

Finally, I should mention the support provided by the Society to the Economics Network . In view of the importance of the Network as a national resource for the study and teaching of economics, the Executive Committee agreed to continue to support the Network, which is based at the University of Bristol, for a further two academic years (i.e. until July 2014). To ensure good governance, the Society has two members on the Network’s management committee: the Secretary-General and the Chair of CHUDE. I consider that RES support has been an important factor in enabling the Network to leverage additional funding.

Other Activities
For many members, one of the highlights of the year is receiving the quarterly Newsletter. This provides members with all the news about the Society and its activities, more general information about economic issues and events, and of course the ever-readable "Letter from .." feature. Peter Howells continues to edit that with great skill and the Society is grateful for all the work that he puts into it.

I have already mentioned some of the work that our media consultant Romesh Vaitilingam has done. Effective dissemination of economic ideas and research results is a central concern of the Society. In Romesh we are lucky to have someone who is so well-networked to the media and who ensures wide coverage for the material that appears in our journals as well as the papers that are presented at the Annual Conference.

RES Committees

CHUDE continues to play a key role in the link between the Society and UK Departments of Economics and in interaction between the discipline and the ESRC and the Funding Councils. Neil Rickman and Tim Worrall have provided great leadership of the committee and I would like them to know how much the Society appreciates the work that they and their colleagues on the Steering Committee have done during their time in office. However, Neil and Tim have now handed over the CHUDE reins to Eric Pentecost (Loughborough) and Daniel Zizzo (East Anglia). I would like to welcome both on board and to say how much I look forward to working with them.

I would also like to record the Society's thanks to Karen Mumford and her colleagues on the Women's Committee. The role of the Committee is to promote the role of women in the UK economics profession, to understand the position of women in economics and to establish networks, with an especial concern for career entrants. In addition to their biennial survey on gender balance in academic economics in the UK, particular mention should be made of the work that they do on mentoring. This project was launched at an inaugural event in York in July 2012 and involves thirteen female Economics professors from across the UK working with twenty junior academics who are within five years of having completed their PhD.

Acknowledgments
I would not like this report to end without saying a special thank you to those with whom I have worked closely on Society business. On the Executive Committee, Mark Robson has been a first-class counsellor on a range of issues, not least over the matter of our publishing contracts. I would like to pay a very special tribute to Richard Blundell whose Presidency ends with our AGM this year. When Richard took over the Presidency from John Vickers, he made communication a central plank of his term of office. As I have indicated throughout this report, this initiative has already borne fruit and it will be a permanent legacy of his Presidency.

There is of course one person whose support to me and the Society over the year has been quite crucial: Amanda Wilman, the Society’s Administrative Officer.

Costing climate change and its migration

From the early 1990s onward, economists have engaged with the issue of climate change, in order to brief governments on some of the likely costs of prevention and increasingly of mitigation of the worst effects. In this article, Aart and Wiebina Heesterman distinguish three distinct phases of engagement.

To begin with, the emphasis was on the cost of using less energy. The scientific reality that the continuing use of fossil fuels cannot fail to worsen the greenhouse count of the atmosphere with the concomitant alteration of the planet’s climate had not yet entered public consciousness. The main implication was the fact that deep carbon cuts would become increasingly costly. Avoiding the next tonne would always be more expensive than the previous (Boero et al. 1991). At this juncture the question of whether a sustainable level of emissions is possible and what that might be is not asked.

Subsequently the attention shifted toward the redirection of marketable resources from the manufacture of consumer goods to the creation of renewable energy systems. The early 2000s saw the publication of the landmark The Economics of Climate Change (Stern 2006) as well as Nordhaus’s A Question of Balance (2008). Both assume that the cost could conceivably be met by a modest level of carbon pricing. It would stimulate more commercially cost-effective renewable energy technologies. The moot point is to whom or to what should the proceeds be disbursed? There is no known body responsible for the atmosphere.

We are used to a deep-seated assumption of a natural tendency for growth. Therefore our descendants will be more affluent and hence can more readily afford additional burdens. However, Stern questioned the morality of bequeathing the next generations with a degraded earth, arguing that the cost of building the necessary capacity of renewable energy installations to prevent climate change would be relatively modest. According to his estimate one percent of annual GDP growth for a transitional period of perhaps half a century would be sufficient, provided it was done promptly. Now in an interview with correspondents of the Observer in Davos (2013), Stern calls for increased investment in greening the economy, saying: ‘It’s a very exciting growth story’ In our view this had best be implemented opting for greater pan-European cooperation. Nordhaus considered Stern’s figure unnecessarily costly. His model did not apply the traditional version of cost benefit analysis, which generally discounts the value of the future at a set rate. He conceded that environmental degradation could invalidate the assumption of economic growth continuing at a known rate and that a more affluent future generation could therefore afford more. However, his optimistic perception of the impact of climate change on human society reduces the relevance of this caveat. His DICE (Dynamic Integrated model of Climate and Economics) model took the 2007 IPCC predictions as the last word. This did not leave any room to take account of as yet little discussed climate feedback mechanisms. We mention two examples. The first is the diminishing capacity of tropical rainforests to sequester carbon, because of logging and wild fires. The second is the melting of Arctic summer ice. During the summer the widening expanse of dark open water constantly absorbs the sun’s heat instead of reflecting it back into space as did the former white ice cover. If Nordhaus’s version of CBA had taken account of the possibility that adverse climate events might make the world poorer by 1.5 percent or more, it might have resulted in an upcount instead of the usual discount.

Then there is the issue that the consequences of climate change will have to be borne by the whole of society, undoubtedly with income distribution implications (Jackson, 2011). For instance, should tropical forests capable of soaking up carbon be left standing without compensation for those who live near them? Also the importation of goods from low labour countries conceals the way emissions are counted away from the user economies towards the manufacturing countries, creating ‘virtual emission’'. Which nation should be responsible? The definition of a framework for a fairer world would imply a strong case to pay to take these concerns into account. According to a German energy specialist (Czicsh, 2011) renewable energy is becoming cheaper than the use of fossil fuel, but necessitates increased international cooperation. As yet few governments apart from Germany seriously embrace a policy of renewable energy stimulation.

More recent economic thinking turns increasingly to the adaptation and mitigation of the already noticeable consequences of climate change. Edenhofer et al. conclude that, for reasons of social and political inertia, the target of less than 2 degrees warming cannot be met (2012). Adaptation to a world of four degrees may be the only option. In the States, Wagner and Weitzman (2011) discuss ‘the high cost of doing nothing’, wondering whether climate engineering might be the only way out, despite its risks. Even before the bill for Hurricane Sandy, they estimated the cost of each tonne of CO2 at $20 worth of damage, rising to $50 by 2050.

Even before the bill for Hurricane Sandy, they estimated the cost of each tonne of CO2 at $20 worth of damage, rising to $50 by 2050. Undoubtedly a politically agreed form of carbon pricing leading to a rapid build-up of renewable energy capacity would result in a payment to those regarded entitled to this by energy users.

Notes:

1. Aart Heesterman was a senior lecturer at the University of Birmingham, UK, where he supervised Ph.D. theses and managed the degree programme in economic planning. He has a degree in political and social sciences from the University of Amsterdam and has also taught and published in the areas of econometrics and mathematics. Previously, he was a research officer at the Central Planning Bureau of the Netherlands’ Ministry of Economic Affairs. He is the author of numerous books and articles. Wiebina Heesterman has degrees in information science and information technology and a PhD in Law from the University of Warwick in the UK and has assisted in the creation of human rights databases in Tanzania and Zimbabwe. Fully conversant with the latest climate and environmental research, the authors have travelled extensively in developing countries witnessing how poverty is aggravated by erratic weather patterns.

Their latest book is Rediscovering Sustainability: Economics of the Finite Earth, published by Gower. More details and samples: 
http://www.gowerpublishing.com/isbn/9781409444565

References:

Boero G, Clarke R and Winters A L 1991. The Macroeconomic Consequences of Controlling Greenhouse Gases: A Survey. London: HMSO, Department of the Environment.

Czisch G 2011, Scenarios for a Future Electricity Supply: Cost-optimised variations on supplying Europe and its neighbours with electricity from renewable energies. The Institution of Engineering Technology. (German original: Thesis, University of Kassel, 2005).

Edenhofer O, Wallacher J, Lotze-Campen H, Reder M, Knopf and B Müller (eds.). 2012. Climate Change Justice and Sustainability Linking Climate and Development Policy, Springer.

Jackson T 2011. Prosperity without Growth: Economics for a Finite Planet, London: Earthscan.

Nordhaus W D 2008. A Question of Balance. Weighing the Options on Global Warming Policies. New Haven/London: Yale U P.

Stern N 2006. The Economics of Climate Change; A Report to the UK Prime Minister and Chancellor of the Exchequer,
http://www.hm-treasury.gov.uk/independent_reviews/stern_
review_economics_climate_change/stern_review_report.cfm.

Stewart H and Elliott L 2013. ‘Nicholas Stern: “I got it wrong on climate change – it is far, far worse”’, The Observer, 26 January 2013.

Wagner G and Weitzman M L 2012. ‘Playing God. Foreign Policy’, http://www.foreignpolicy.com/articles/2012/10/22/playing_god?page=0,2&wp_login_redirect=0.

Changing Expectations: Implications of the new funding era for the teaching of economics

On Friday 1st March, the Economics Network held its Spring Symposium at HM Treasury, London. The event was attended by around 50 delegates, which included university lecturers, recent graduates and practitioners. This report was prepared by Ashley Lait of the Economics Network.

This event was closely tied to a research project, which the Network has launched to explore how recent changes in higher education — such as the increase in tuition fees — and the impacts of the financial crisis may be affecting student expectations and behaviour. Around 20 UK HE economics departments will contribute to this project. Within this overarching theme, the symposium’s main aim was to promote discussion and offer practical steps on how universities and economics departments in particular can manage these expectations.

In the first session, Alison Wride (Greenwich Management School), Margaret Bray (LSE) and Chris Thomas (GES) focused on some of the key questions around expectations and undoubtedly triggered much of the discussion that continued throughout the day. Some of the questions raised included: have students’ expectations actually changed? Are things really very different now from when fees have increased in the past? Do students really know what they want or what is good for them, or does this come with hindsight? The panel and many of the audience members agreed that continuous and clear dialogue with the students throughout their university career was essential. This would allow the students to give feedback to the university/department, strengthen the relationship between the student body and the department and allow teaching staff to inform the students of what is expected of them. This last point is seen as essential: the learning process and its success depends on students putting in effort beyond just turning up to lectures.

At the beginning of the second panel, Guglielmo Volpe from Queen Mary University of London presented some practical steps that lecturers or graduate teaching assistants can take to bring skills development into the classroom by introducing some of the problem-based learning tasks he has used with his students. This teaching method allows students to deal with ‘real world’ issues and data, apply what they have learnt practically and to think independently. While some teaching staff are concerned that this method uses time that could be dedicated to covering more theory, Guglielmo and the other panelists — John Sloman (Economics Network), Jon Guest (Coventry University) and Andrew Gurney (GES) — felt that its effective integration into the curriculum would help graduates to be more prepared for the workplace.

The final panel, entitled ‘Doing more for less: implementation and efficiency’, was led by Carlos Cortinhas and Juliette Stephenson from the University of Exeter Business School. Carlos and Juliette have run a number of workshops for the Economics Network in the past, and along with Martin Poulter (Economics Network) and Caroline Elliott (Lancaster University), they discussed how effective use of technology can not only save lecturers time but can also help to engage and motivate students. The speakers gave demonstrations of how technologies such as clickers and digital notepads can be integrated into lectures and seminars. The panel also focused on free online resources and courses, which rather than being competition for university degrees, can actually be useful additional resources.

Overall, the EN Spring Symposium promoted interesting discussion on the topic, but more importantly, gave attendees clear and practical steps on how to manage student expectations and ensure that their learning experience is positive. Full notes from the panels will be made available on the Economics Network website shortly.

Investing for Prosperity

Skills, Infrastructure and Innovation

The London School of Economics (LSE) Growth Commission published its final report at the end of January. The report is based on evidence taken in a series of public sessions from leading researchers, business people, policy-makers and UK citizens.1

The Commission notes that the UK has major strengths, which, from 1980 onwards, helped to reverse a century-long relative decline. Amongst these advantages, they cite: the strong rule of law, generally competitive product markets, flexible labour markets, a world-class university system and strengths in many key sectors, with cutting edge firms in both manufacturing and services. These were sufficient, for thirty years after 1980, to support faster growth per capita than in the UK’s main comparator countries — France, Germany and the US.

The report argues that the UK should build on these strengths and, at the same time, address the inadequate institutional structures that have deterred long-term investment to support the country’s future prosperity. The Commissioners (see box below) propose an integrated set of solutions.

Education for growth
Both economic theory and empirical evidence show that in the long run, human capital is a critical input for growth. The growth dividend from upgrading human capital is potentially enormous and improving the quality of compulsory education is the key to achieving these gains.

The quality of compulsory schooling in the UK is a fundamental growth issue. Evidence suggests that increasing UK school standards even moderately — say to the level of Australia or Germany — could put the country on a growth path that would more than double long-run average incomes compared with current trends.

Furthermore, there are other benefits (what the Commission calls a ‘double-dividend’) from improving human capital since many of the gains from growth would accrue to the less well-off, thereby reducing inequality. Increasing the quality and quantity of skills of disadvantaged children will make growth more inclusive by reducing the high levels of wage inequality in the UK In addition to the benefits from lower inequality, reducing the fraction of poorly educated should reduce the welfare rolls and the numbers caught up in the criminal justice system.

The question, of course, is how is this to be achieved? Better buildings, smaller class sizes, higher wages for teachers and greater provision of information technology will all help. But their effects are modest compared with the large potential benefits from increasing the quality of teachers.

Unfortunately, predicting who will be an effective teacher before they start working is very hard and is not well-captured by the formal teaching qualifications held nor by number of years in the profession. But once teachers have been in front of a class, measuring their performance is not especially difficult. Most parents, pupils and especially head-teachers have a good idea of who are the really excellent teachers. In addition, there is now much more data on pupil progression. Thus, a system for improving the quality of teachers has to use information acquired from observing teachers at work and using it to make improvements.

Broadly speaking, The UK is mid-table overall in most international rankings of schools. But one major failing in the UK education system is the ‘long tail’ of poorly performing schools and pupils compared with other countries, particularly at the secondary level. A significant part of the explanation for this is the stubborn link between pupils’ socio-economic background and their educational attainment. Part of the problem is that while current funding arrangements give more resources to local authorities in areas with more disadvantaged children, the evidence suggests that these resources fail to reach them effectively. The recently introduced ‘pupil premium’ is an attempt to attach additional funds directly to disadvantaged children but survey evidence suggests that schools generally still do not use these funds specifically to help disadvantaged pupils.

A further problem lies with the inspection regime and the criteria it employs. A school’s satisfactory performance is generally judged by the proportion of students achieving a specified level in examinations. This leads to a focus upon students at the margin who might just be converted into a ‘pass’. There is no benefit to a school in focusing on most pupils in the long tail.

Recommendations
The report contains a number of very specific recommendations which we can summarise only briefly here. It is interesting, however, to read that ‘our proposals go with the grain of the academies movement. But the system needs to deal more squarely with the UK’s failure to develop the talents of disadvantaged pupils’. Many of the proposals are focused on this issue.

Increased autonomy. School autonomy combined with a strong accountability framework centred on quality provides the best hope for improving school performance. There is evidence that more autonomous schools respond better to local parental choice, so increasing parental choice will not lead to higher standards without greater decentralisation to empower head teachers. Accountability is also fostered through better governance and leadership. To improve school governance, leadership and management, it must become easier for outstanding sponsored academies to grow. By the same token, it should be made easier for underperforming schools to shrink and, if they do not improve, to be taken over or, in extreme cases, closed down.

Shortening the ‘long tail’. Information on school performance needs to be changed to also reflect the performance of disadvantaged children within the school. Such changes should apply to league tables and targets and they should be more closely reflected in Ofsted’s inspection regime. Improving the performance of disadvantaged children should be given a central role when Ofsted awards an ‘outstanding’ grade to a school.

Teacher quality. This needs to be improved through better conditions for both entry and exit. Teacher recruitment and training could be improved by expanding the ‘Teach First’ programme. Mainstream recruitment should be focused on the best universities and schools. The probation period should be extended to four years. Less attention should be paid to candidates’ grades and formal qualifications in order to encourage a wider range of applications and a greater emphasis on teaching skill. The sharing of best practice should be encouraged. The system of pay and promotions requires attention— ending automatic increments; basing pay on performance and local market conditions; and offering extra rewards for teachers of core subjects in tough schools. The report also recommends piloting the release of teacher-level information on performance (in similar vein to NHS data available on surgeons).

Other issues. The criteria for receiving the pupil premium should be broadened, the premiun increased and part of the premium should be paid to the pupil’s family, conditional on improved performance.

Serious attention needs to be given to intermediate skills which are very poorly developed in the UK. Apprenticeships need to be of much higher quality and more readily available.

It is well-known that the UK’s higher education system ‘punches above its weight’ in a number of respects. The sector benefits the UK economy as a source of skills, of innovations that raise productivity and of valuable exports earnings in the form of foreign students who choose to study here (an enormous industry of global growth). There are potential advantages to the UK from having the world’s leaders in economy, society and government educated here. For these benefits to be sustained the Commission argues that the current policies on student visas and work visas for non-UK citizens are damaging because of their direct impact on the ability to recruit. We recommend that if the net immigration target itself is not dropped, then students should be removed from the target. Furthermore, universities enjoy a high degree of operational autonomy. (Indeed, there may be lessons here for the rest of the educational system). The flexible ecology of higher education allows freedom to build bridges with industry, either in the form of sponsored research or through collaborations in student degree programmes. There is further scope to strengthen and enhance these linkages in undergraduate programmes.

Infrastructure for growth
The UK’s infrastructure of transport, energy, telecoms and housing are essential facilities for growth. Substantial investment is needed in all these areas as well as determined efforts to address the problems that have constrained growth in the past. The effect of those problems was illustrated in the 2012 World Economic Forum report on global competitiveness where the UK was ranked only 24th for ‘quality of overall infrastructure’. The long-running issue of airport capacity in the south-east of the UK is a potent symbol of what is wrong.

Among the key problems in relation to all areas of infrastructure are:

  • Vulnerability to policy instability – a lack of clarity about strategy, frequent reversals and prevarication over key decisions. Electricity supply is a good example.
  • Difficulty in basing decisions on sound advice and assessment of policy alternatives built on unbiased appraisals (as opposed to lobbyists).
  • The limitations of a planning system that does not properly share the benefits of development from implementing strategy and tackling problems. This has created the incentives for small groups of influential citizens and politicians to obstruct projects with wide economic benefits.
  • A series of public sector accounting distortions that have made it difficult to weigh up benefits and costs in a coherent way. In particular, targets for fiscal policy often draw on measures of public debt while failing to account for the value (and depreciation) of public assets.

These problems apply to all major areas of UK infrastructure, but the report focuses on housing, transport, energy and telecoms.

When it comes to recommendations the Report argues for a new institutional architecture to provide better delivery and funding of major infrastructure projects. This requires 
three core institutions:

  • An Infrastructure Strategy Board (ISB) to provide the strategic vision in all areas: its key function would be to provide independent expert advice on infrastructure issues. It would lay the foundation for a well-informed, cross-party consensus to underpin stable long-term policy.
  • An Infrastructure Planning Commission (IPC), which would be charged with delivering on the ISB’s strategic priorities.The IPC is designed to give predictability and effectiveness to (mostly private) investment that drives implementation of strategy. It must not be misunderstood as a ‘central planner’.
  • An Infrastructure Bank (IB) to facilitate the provision of stable, long-term, predictable, mostly private sector finance for infrastructure. It can help to reduce policy risk and, through partnerships, to structure finance in a way that mitigates and shares risk efficiently. This will require a whole range of financial instruments including equity and structured guarantees. There are good practical examples that show the advantages of a bank with this sort of mandate, such as Brazil’s BNDES, Germany’s KfW, the European Bank for Reconstruction and Development and to some extent the European Investment Bank.

Furthermore, the UK needs to take a lead from other countries and institute generous compensation schemes to extend the benefits of infrastructure projects to those who might otherwise stand to lose, either due to disruption caused by the construction phase or by the long-term impact on land and/or property values. The principle is to share the broad value that the implementation of the national strategy will bring. Such compensation schemes should be enshrined in law and built into the thinking of the ISB and the operations of the IPC.

Finally, serious attention should be given to the accounting methods used in the evaluation of public investment projects. At present, these give undue attention to the debt incurred and fail to offset this by recognising the value of the assets created. Inevitably, all public sector investment looks unduly expensive. The use of the newly developed Whole of Government Accounts would avoid this.

The projects considered and promoted within this framework would be those of greatest national priority, such as ones in roads, aviation and energy. But it would also accommodate large-scale regional project infrastructure proposals from local enterprise partnerships.

Investment in equipment and new ideas are crucial engines of growth. UK investment as a share of GDP has historically been lower than in France and Germany. This largely accounts for the country's lower GDP per hour worked. Moreover, the make-up of UK investment is heavily skewed towards property and buildings, rather than equipment, innovation and new technologies.

UK investment performance has been weakened by a number of factors, including those (above) that have inhibited the development of human capital and infrastructure. In addition to these however, there is a poor record of turning research and invention into practical innovations and also a poor level of management quality, when compared with the UK’s obvious comparators.

But there is a further issue holding back investment and innovation according to the Report. Investment performance has been weakened by a series of problems in the functioning of capital markets. These include an inadequate supply of finance to young firms and small and medium enterprises (SMEs); ‘short-termism’ by fund managers and investors; insufficient competition in the banking system; a bias towards debt rather than equity in company finance; and the lack of a long-term industrial strategy.

When it comes to recommendations, the Report begins with two that have already developed a degree of momentum for other reasons. The first is to increase the competitiveness of the banking system by lowering barriers to entry, making charges more transparent and facilitating the transfer of accounts.

The second is the development of a ‘Business Bank’. At present, the remit of the bank is to deliver the existing programmes of the Department for Business, Innovation and Skills (BIS). But this could be widened and the ability of the bank to The Business Bank’s lower cost of capital and a wider remit to consider social returns would allow it to make loans that would typically be avoided by commercial banks. In particular, it would be able to take
a wider economic view of the benefits of investing in certain sectors, including cases where there are potential long-term social returns from developing new technologies. This would mean a particular focus on lending for innovation investments to new and growing firms, which experience the most acute financial market failures and where the externalities will be greatest.

The Business Bank does carry risks. To be effective, its governance has to be removed from immediate political pressures and it needs to operate on the basis of clearly defined economic objectives. The Report recommends that it is run by an appointed independent board to over- see operational decisions independently from BIS. The proposal for a Business Bank also has to be a long-term commitment supported by cross-party consensus to avoid the perennial process of abolition, reinvention and rebranding that has characterised much government policy in the past.

Other recommendations include measures to discourage ‘short-termist’ investment strategies and modifications to the tax regime on lines suggested in the Mirrlees Review.
Ignoring taxation, equity finance is more suitable for young firms because of the uncertainty of cash flows. However, the corporate tax regimes encourages the use of debt by allowing interest payments to be tax-deductible. Mirrlees proposes an ‘allowance for corporate equity’ (ACE) which would level the playing field between debt and equity. By lowering the cost of capital. Mirrlees estimates an ACE could boost investment by around 6.1 per cent and boost GDP by around 1.4 per cent.

How to get to where we want to go
Professor Tim Besley, one of the two co-chairs of the LSE Growth Commission, comments:

‘Despite the current gloom, the UK has many important assets that can be harnessed to create growth, including competitive product markets, flexible labour markets, openness to foreign investors and migrants, independent regulators and a world-class university system.

‘But making the best of them and building institutional structures to support vital investments requires a bold and decisive strategy with an approach driven from the heart of government.’

Professor John Van Reenen, the other co-chair, adds:

‘Economic problems that have built up over many decades will not be resolved in the space of a few years. So it is vital to develop policies that look beyond the next budget cycle, the next spending review and the next parliament. 

‘This is a manifesto for growth. We challenge the main political parties to form a consensus for long-run investment to achieve prosperity for our nation.’

Notes:

1. The full report, documents submitted in evidence and more details of the Commission’s work can be obtained from its website: http://lse.ac.uk/researchAndExpertise/units/
growthCommission/home.aspx

The power of political voice

Anandi Mani reports on her research into the effect of women’s political representation on crime outcomes in India.1

The assurance of personal safety and fair treatment under the law are two of the most fundamental aspects of civil society. However, protecting these rights of disadvantaged groups, such as population minorities and politically underrepresented citizens, has remained a challenge in many countries. A recent case in point that has generated widespread outrage at the national and international level, is the violence against women in India.There has been much discussion of how governments can intervene to avoid such outcomes. While a range of policies — from affirmative action quotas in education and jobs, to legal protection and better law enforcement — have been considered in the past, our research finds that there is another novel approach that can be effective: greater political representation (PR) for women.

We studied this link between political representation and crimes against women in the context of a law enacted in India in 1993. Under this law, the central government introduced a mandate that women hold one third of all positions in its system of local government, called Panchayati Raj.3 This meant that both one-third of all seats in these councils, as well as one-third of all chairperson positions across councils, were reserved for women. This amounted to a dramatic increase in the number and fraction of women in political office, given their pre-existing political participation in India then.4

No doubt, a disadvantaged group individual's election may reflect the changing preferences of the electorate, or the changing social status of such groups. These factors could directly influence crimes committed against such groups, rather than the fact of PR for such groups. But to measure the impact of women’s PR on crime, we exploited two features of the 1993 reform: (i) that it was mandated and (ii) that different states in India implemented it in different years, for reasons largely unrelated to crimes against women.5

Using data from the National Crime Records Bureau, we compared crimes against women in each state before and after the introduction of mandated PR for women. We found, to our initial surprise, a large increase of 26 per cent in the documented crimes against women after the increased political representation of women. This included an 11 per cent increase in the number of reported rapes, and a 12 per cent increase in the kidnappings of women. The two figures below show sharp differences in the incidence of kidnapping rates of women and men, before and after the implementation of the reform. Data on other gender-neutral crimes show no pattern pre vs. post reform either, confirming that the observed increase in crimes against women is not part of a generalized crime wave, resulting from the election of relatively inexperienced women.

However, a more detailed analysis showed that these increases in crime numbers against women are actually good news. They are driven not by a surge in the actual crimes committed against women, but by increased reporting of such crimes. Several pieces of evidence support this conclusion. Most of them point to an increase in the responsiveness of the police under women political representatives — which encourages women victims to voice their concerns as well.

Kidnapping of women and girls per 1000

Kidnapping of men and boys per 1000

A lack of police responsiveness has been previously identified to be a major problem in India.6 A study in the state of Rajasthan found that only 50 per cent of sexual harassment cases and 53 per cent of domestic violence cases were registered by the police-and that too when a male relative tried to report it on behalf of a female victim.7 However, survey data from the same study that we analyzed shows that in villages with women-headed local government councils, women are significantly more likely to say that they will lodge complaints with the police, should they become victims of a crime.8 There is also no difference in crime rates against women between villages with and without women leaders. This suggests that the observed increase in crime rates nationwide following mandated PR for women, is not driven by greater actual incidence of crime. 
Another nationwide survey assessed actual interactions of women and men with the police.9Women in villages with female council heads reported greater satisfaction in their interactions with the police and a lower likelihood of being asked to pay bribes. Again, there was no difference in the experience of men, as a function of the gender identity of the village council head.

There is also a strong perception that police behavior is affected by the presence of local women leaders. In the State of the Nation Survey, nearly half of respondents identified their village council member as the locally influential person they would turn to in cases of difficulty.10 They strongly believe that the police are more likely to listen to them sympathetically and take action if they are approached with such a locally influential person by their side.

National crime data on police action indeed confirms the above perceptions of women under female political representatives: Arrests for crimes against women increased by 31 per cent in a state, after the implementation of PR for women. Taken together, the three pieces of evidence cited above suggests that female victims are met with greater responsiveness and action from the police, when more women participate in local governance.

As mentioned earlier, the 1993 reform increased the participation of women in local government at three levels of administration, at the district, sub-district and village level. We tried to understand at what level women's participation in politics makes the biggest difference. For this, we exploit the fact that, during any election cycle, only a third of district council head positions within any state are randomly assigned to women (whereas a third of the members across all these councils are women). This allows us to assess the marginal impact of a female district council head, over and above the impact of women political representatives at lower levels. We find that women political representative have the most effect on giving voice to women victims not so much in the highest position at the district level, but at lower levels. In other words, greater proximity of female political representatives to potential victims is an important factor in giving effective voice to women, to bring their grievances to light. This is consistent with related research which shows that women are more likely to attend village meetings and speak up during them, if the village council leader is a woman (Beaman et al (2009)11).

Our findings are particularly remarkable, given that the 1993 reform did not assign any formal authority over the police to local government councils. Law and Order, including decisions on police budgets and staffing, remain matters decided by State governments. Thus, the observed effects of political voice for women are driven largely by the gender identity of those holding political office, rather than their formal authority. These findings thus negate the skepticism expressed in some quarters about the effectiveness of female leaders in ensuring better outcomes for women.12However, they highlight that what matters is the presence of women not just at the top, but in the broad base of political institutions.

Finally in light of recent media attention to crimes against women in India, our work shows that crime statistics need to be interpreted with care. Not all documented increases in crime are necessarily bad news: reporting biases are an important factor to be accounted for in crime data, especially against disadvantaged groups.

Notes:

1. This is based on joint work with Lakshmi Iyer, Prachi Mishra and Petia Topalova titled ‘The Power of Political Voice: Women's Political Representation and Crime Outcomes in India’ published in the American Economic Journal: Applied Economics, October 2012 issue. Author contact: A.Mani@warwick.ac.uk

2. See, for instance, New York Times, December 22, 2012 (‘Clashes Break Out in India at a Protest Over a Rape Case’) and The Guardian, January 4, 2013 (‘Rape protests spread beyond India’)

3. Panchayati Raj includes elected councils at the village, intermediate and district levels.

4. By comparison, in a setting in which there are no quotas for women, only 5.4% of members of the State Legislature over the past three decades have been women.

5. States had varying pre-existing cycles of local government elections, which was one major reason for differences in the dates of implementation of the reform. In many of these cases, the state government waited for the term of office of incumbent local officials to expire before conducting fresh elections in compliance with the 1993 reform. Another reason for delay in implementation were law suits challenging specific aspects of the reform. For instance, Bihar conducted its first Panchayati Raj election only in 2001, since a lawsuit had been filed regarding the representation of Other Backward Castes (OBCs) in Panchayati Raj institutions (PRIs).

6. See New York Times, January 22, 2013 ‘For Rape Victims in India, Police Are Often Part of the Problem’.

7. Banerjee, Abhijit, Esther Duflo, Daniel Keniston, and Nina Singh. 2011. ‘Making Police Reform Real: The Rajasthan Experiment.’. Data source: J-PAL Indian Crime Survey data on willingness to report crimes and individual level crime victimization survey.

8. There are no differences in men’s willingness to report crimes across councils with female versus male leaders.

9. Source: Millennial Survey, which covers 36,542 households in 2,304 randomly selected villages in India.

10. The State of the Nation survey includes 14,404 respondents from 17 major states of India.

11. Beaman, Lori, Raghabendra Chattopadhyay, Esther Duflo, Rohini Pande, and Petia Topalova. 2009. ‘Powerful Women: Does Exposure Reduce Bias?’ Quarterly Journal of Economics, 124 (4): 1497- 1540.

12. See for instance, a piece by the New York Times columnist Nicholas Kristof on March 8, 2011 titled ‘Do Women Leaders Matter?’
 

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