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Celebrating 10 years of research and impact at CAGE

On Thursday 27th June the Centre for Competitive Advantage in the Global Economy (CAGE) welcomed international researchers and policy specialists to the University of Warwick to celebrate 10 years of CAGE research funded by the ESRC. The day highlighted how CAGE research has influenced policy over the past 10 years and considered how its research might shape policymaking the future.

The CAGE Director, Nick Crafts, introduced the research of the Centre, celebrating its interdisciplinarity, international scope and unique approach using economic history to answer modern policy challenges. CAGE academics showcased the key findings of the Centre’s four research themes, and policy experts provided a response on how these findings have shaped, and continue to shape, UK policy.

Session One: What are the Implications of Globalisation and Global Crises for Policymaking and for Economic and Political Outcomes in Western Democracies?

This CAGE research theme investigates the implications of globalisation on societies, particularly how it changes individual preferences and how policy makers respond to such preferences. Vera Troeger (CAGE and Warwick) presented some highlights from the theme including a study of how cash and in-kind social policies affect preferences on immigration; research (currently in development) on how the use of household analogies to describe government borrowing affects individual attitudes towards governments; and findings that more generous maternity leave positively effects the productivity, career speed and income of mothers.

David Rueda (CAGE and Oxford) presented his work on ethnic diversity and the welfare state. His research considers how the ethnic make-up of an area might alter preferences for wealth redistribution, and how this might affect voting preferences. Looking at Europe and the US, Rueda found that contrary to popular belief, affluent people living in heterogeneous areas were less supportive of redistribution than those living in homogenous areas. The difference in redistribution preferences between less affluent individuals in heterogeneous and homogenous areas was minimal.

Gemma Tetlow (Institute for Government) provided the policy response to the research theme, commending the foresight of CAGE to research an area that has become so relevant to modern politics. For example, Brexit and recent trade wars are politically driven agendas played out on the global stage which have had a significant effect on the economy, policy and the preferences of voters. She highlighted that CAGE’s work not only sets out how policies affect voter preferences but also how politicians make use of voter knowledge and preferences to drive their agendas. She suggested that future research could consider preferences about increased labour taxation and the methods policymakers might use to coordinate capital tax internationally.

Session two: How can the measurement of wellbeing be improved and what are the implications for policy?

Traditional methods of measuring wellbeing using GDP have been shown to be unsatisfactory, as GDP might rise in times of war or crisis. Daniel Sgroi (CAGE and Warwick) described how CAGE research has successfully explored new measures of wellbeing, enabling the study and measurement of individual happiness. Significantly, CAGE researchers have been able to analyse how happiness affects economic behaviour (see also this video), not just how economic behaviour impacts upon wellbeing, therefore providing a more comprehensive view of this developing area of behavioural economics.

Andrew Oswald (CAGE and Warwick) presented his latest research on the lifecycle of happiness. It has long been considered that there is a dip in happiness at the mid-life point. But this consideration has not relied on reported feelings as a measure. Oswald’s research shows that the notion of mid-life ‘crisis’ is correct: sleep hours reduce during this period of life, the likelihood of committing suicide increases as do suicidal thoughts, alcohol dependence becomes more common and individuals are more likely to complain of lack of concentration. While Oswald’s research has concluded that having children is not a causal factor, there is as yet no explanation for this mid-life reduction in wellbeing. These instances of reduced happiness are especially interesting as they come at a time in life when earnings are at their highest. CAGE researchers are continuing to study this paradox to shed light on this complex issue.

Lord Gus O’Donnell (Frontier Economics) commended the significant advances CAGE has made in the development of behavioural economics and the study of wellbeing. He argued that wellbeing should be prioritised in the policy arena as something in the public interest, and said that the publication of ONS data on wellbeing was a huge step towards understanding happiness in the UK. He also indicated that behavioural economics can be applied in a number of key policy areas where it is not currently being used. For example, wellbeing measures in schools could be used alongside grades to monitor educational standards, as the wellbeing of children has a significant impact upon their future earnings and success.

Keynote speech: Policy and Uncertainty

Nick Bloom (Stanford) presented the keynote speech on policy and uncertainty. His work uses stock market volatility, newspapers and surveys to measure uncertainty in the US and the UK. For example, used word searches in newspaper texts to collect data on uncertainty. This technique is significant because it can be replicated on a regular basis, giving real-time data on measures of uncertainty. The method has also enabled him to look back across history to understand uncertainty through the ages. In the UK, Bloom has undertaken a survey of small and medium businesses to measure their perceptions of uncertainty. He and his colleagues have found that Brexit is one of the 3 biggest uncertainties faced by UK businesses at the moment. This research is significant because uncertainty is known to have a negative effect on growth in investment and as a consequence, productivity. A better understanding of uncertainty measures could give businesses and policy makers the potential to mitigate the risk of uncertainty and protect investment growth.

Policy Panel on Productivity, competitive advantage and policy in the UK

Dame Frances Cairncross chaired the panel of Tera Allas (Mckinsey Center for Government), Nick Bloom (Stanford University), Nick Crafts (CAGE Director) and Rebecca Riley (NIESR/ESCOE). Panel members discussed the drivers of productivity and the particular experience of the UK since 2007. They also discussed potential policy measures that could improve productivity or enhance understanding of productivity drivers. Nick Crafts emphasised the impact of technological change on economies and suggested that the UK is currently in a paradox in which the impact of ICT on productivity is waning but the potential of new technologies such as artificial intelligence have not yet been fully realised.[link to Nick’s paper] Rebecca Riley noted the shift in production factors from tangible to intangible capital (such as Research and Development, software and databases) and the need to find better ways of measuring these assets and understanding their effect on productivity. She noted that the most successful companies are investing in intangible capital and hiring highly skilled workers who innovate in their jobs. Tera Allas considered that fundamental drivers of productivity hadn’t really changed over time. Infrastructure and skills and innovation are still essential for productivity growth. She noted that while much investment has been made in the UK to increase the number of Higher Education graduates, these graduates are still deemed to be less skilled than their counterparts in the rest of Europe. She also suggested that improvements in in-work training could boost productivity. Nick Bloom noted that the decline in productivity is longstanding and that the recent slow-down is not in fact off trend. He highlighted management [link to CAGE management stuff – Chris Woodruff or Rocco Macchiavello] as a driver of productivity and indicated that the public sector could particularly benefit from improvement in this area. The panel agreed that technology could have a significant part to play in improving efficiency and productivity in the future, and that the enhancement of adult training and skills is also of the utmost importance.

Session 3: What explains the comparative long-run growth performance?

Steve Broadberry (CAGE and Oxford) introduced CAGE’s work developing a significant new body of data tracking GDP per capita in Europe and Asia 1000-1870. This research has built on past research in this area and provided new estimates which give a different view of economic activity through history. The project looks at geography, human capital and institutions as a means of explaining long run growth trends.

Sascha Becker (CAGE and Warwick) provided an overview of the significant impact CAGE’s economic history research has made on policy and academia. He highlighted five studies over the last five years which have made particularly important contributions: Steve Broadberry’s work on British Economic Growth 1270-1870 which has produced significant datasets now available at the Bank of England website; Morgan Kelly and Cormac Ó Gráda’s research on watch prices after the industrial revolution which used hard evidence to prove a theory made by Adam Smith; Luigi Pascali’s analysis of how the steam boat revolutionised trade routes and fundamentally changed certain national economies and their participation in world trade; Mark Harrison’s work on a 45 year long project on the Industrialisation of Soviet Russia 1929-39 which has just been completed; Sascha Becker and Luigi Pascali’s study of the relationship between anti-Semitism and the rise of Protestantism in Germany. Sascha highlighted that CAGE’s historical research has been used to understand modern policy challenges. For example, Nick Crafts has advised policymakers on the future of manufacturing, CAGE research has explored the connections between financial crises and austerity, and CAGE researchers have undertaken important work analysing the circumstances that led to the vote for Brexit [Link to Liberini, Oswald Proto Redoano paper].

Michael Keoghan (Department for Business, Energy and Industrial Strategy, BEIS) reiterated the importance of economic history for the development of policy. He explained how BEIS have looked at the last 30 years of productivity, seeking to identify characteristics in areas such as education or in-work training that predict or drive performance. He showed how access to new data is providing exciting opportunities for understanding productivity. For example, access to online job application data has enabled civil servants to better understand prospective earnings after leaving university in the UK.

Session 4: How do culture and institutions help to explain development and divergence in a globalising world?

Why does a reform that succeeds in one context fail in another? Sharun Mukand (CAGE and Warwick) introduced this research theme which seeks to understand how culture affects the success of policy implementation. This work challenges the argument that culture cannot be changed and therefore policy reform is likely to be ineffective in certain contexts. Instead it proves that culture can be changed in the short-term and culturally mediated policy interventions can be more successful. [link to Blouin Mukand JPE 2019]

Amrita Dhillon (CAGE and Kings College London) described her research on how culture can affect productivity and what measures can be taken to counteract this in business [LINK]. She looked at the clothing manufacturing industry in Bangladesh where group identities were found to affect productivity. Worker productivity was found to differ not just across firms, but across departments and assembly lines. This correlated with caste proportions across days. Coordination amongst workers was improved when members of the assembly line were from the same caste. A controlled trial demonstrated that trust between workers increased group effort by 15% and lowered wasted effort by 30%. These findings suggest that businesses should look at opportunities to encourage integration between workers in order to increase trust across castes and thus enhance productivity.

Rachel Glennerster (Department for International Development, DiFD) spoke about the need for development economics to strike a balance between looking at local and culturally-specific issues and drawing conclusions that can answer more general policy questions. Policy makers need solutions that can be applied to different scenarios. She emphasised that there is still much more research to be done to support policymakers in the area of international development, for example on firms, climate governance and political economy. [can link to CAGE stuff on firms and PE, don’t think we have anything on climate but worth checking]

Closing remarks

The conference was brought to a close by Paul Nightingale (Director of Strategy and Operations, ESRC) and Simon Swain (Pro-vice Chancellor, Warwick) who highlighted the interdisciplinarity, innovation and impact of CAGE and its importance for the future of economic research.