Where are the people in policy?

Today’s guest blog is written by Abi Adams, a doctoral student in Economics at Oxford University. She is an economics lecturer at Oriel College, Oxford and has worked on the Public Finance team at the Institute for Fiscal Studies. Her blog on the economics behind current UK economic policy debates can be found at abiadams.wordpress.com.

Images of London burning and hooded UK youths looting stores, mugging injured passersby and clashing with police have been transmitted across the world over the last few weeks. Now that the violence has died down, shop floors largely restored, and courts overrun with the accused, commentary is moving ever further from questions concerning what happened to those concerning the hows and the whys.

It is easy to conjure up superficial policy responses in the aftermath of the riots. “Lock ’em up,” we hear. “Hard discipline, that’s what’s needed.” “Stricter school uniform policy. That’ll bring some respect for authority.” However, such a strategy, although easy and likely to appease elements of public anger, will ultimately be unsuccessful as it fails to engage with the complex web of root causes that brought this situation about. If there were a recipe for social tranquility, it would have been followed for many generations before ours. Rather than cook up superficial policy responses, we need to take this opportunity to step back and take a deep look at modern society.

A toxic combination of social problems ignited by opportunism, greed and mob psychology bought about the riots. Hand on heart, most knew about these problems long ago, far before their mouths dropped open in disbelief at the chaos played out across their flat-screen TVs. The UK has been in the throes of a painful social recession for far longer than its economic counterpart. The riots simply slapped us round the face with this fact.

Youth violence rising in London, including a 9.6% increase in knife crime. Poverty among adults without children at its highest level since records began. 20% of children living in poverty. Rising inequality. The richest 10% of Londoners earning 273 times as much as the poorest. An ever widening gap between the educational attainment of private and state school pupils. The lowest social mobility in the OECD. One can go on and supplement the list with stories from many other countries. All these facts have been floating in our consciousness for some time. It’s just that the neighbourhoods in which such ills are concentrated tend to be those that mainstream society turns its back on. Such dangerous, depressing tales are not usually inscribed across the streets of suburban Clapham.

Although we cannot point to a specific policy cocktail which will certainly soothe these troubles, one can redefine how we judge and measure the success of economic policy to ensure that these problems do not go ignored for so long in the future. While many were patting themselves on the back during the ‘boom’ years, a significant portion of society was falling increasingly behind, marginalised from the benefits and prosperity that go worshipped in current times.

Serious debate is required on what society should place value on. It is then these values that policy design and judgements of success should revolve around. This may sound obvious but looking at developed societies today, the obvious is not evident. The success of macroeconomic policy is too often judged according to metrics that have no value in themselves. For example, the UK and US governments presently appear more concerned with bond yields than unemployment. The UK’s chancellor, George Osborne, recently described our economic recovery as “on track” by reference to the interest rate on government debt. These abstract, financial measures are not of value in themselves. Rather, they are important because of the impact they have on the things we do value. The failure of policy to be grounded by assessments of human welfare is not only associated with the current economic crisis. Joseph Stiglitz, a Nobel prize winning economist, noted similar themes in the East Asian Crisis of the late 1990s. This all seems particularly ironic when one notes that the term “economics” is derived from the Greek οἰκονομία meaning ‘rules of the household’. One could be excused from missing this fact at a time when the disconnect between economic theory and policy and real households is so wide.

The importance of people and a reaffirmation of the essential commonality of all citizens needs to play a much greater role in policy formulation and dialogue moving forward. To do this, policy design, metrics of success, and the language of communication between political elites and citizens must be transformed.

One way of re-framing the new agenda could involve Amartya Sen’s terminology of capability, which has already inspired the Human Development Index. We should aim to equalise the capabilities, or opportunity space, of all. This involves going beyond a narrow with income and requires us to look at education, health and environmental policy. All aspects of modern society interact to determine individual opportunity and thus all must be subjected to scrutiny. Although what counts as a capability and how it is best measured requires further debate and research, these indicators will revolve around objective measures of wellbeing. Tracking tangible metrics will prove more policy directing and more amenable to incorporating distributional concerns than a strong focus on subjective happiness indicators. Saying that one must go beyond GDP does not necessitate falling back on “wooly” or airy-fairy figures.

Taking this approach, or another which has people and their essential equality at its heart, will lead us both to reassess the pre-crisis ‘boom’ and to think differently about how to move forward. Despite the oft cited low inflation and stable growth leading up to the 2007 financial turmoil, the lives and capabilities of many were not improved in this time. Reinstating the importance of people in economic policy will shift our thinking on how best to tackle the crisis and the aftermath of recent social disorder. It will help end the preoccupation with finance and abstract statistics, automatically rebalancing policy by keeping attention focused on the metrics that really matter.

Much more thinking on how to operationalise these ideas is required. Is the capabilities approach best? What metrics do tap into the goals and values we think are fundamental? How best to reach them? Some work on this has already been done (for example, see the “Beyond GDP” debate), which politicians should tap into. However, in my mind one thing is clear: economics needs to fundamentally reengage with the lives and wellbeing of people. All of them. This seems a hugely important first step with wide-reaching consequences.