Is the financial sector worth what we pay it?

Plenty more where that came from

Today’s article is from John Hulls, of the Cambiant Project at the Dominican University of California that uses a fluid dynamics modeling concept he developed to simulate economic performance. John is also an affiliate at Lawrence Berkeley National Laboratory, working principally in the area of environmental applications of the LBL Phylochip microarray technology.

A basic capitalist tenet is that the market represents the most efficient way to allocate capital. How well is it working? 

We are rapidly evolving a fast-moving, increasingly cybernetically interlinked capital marketplace that, as Lord May observes in the Santa Fe Institute Journal, has become intertwined in ever-more complex interdependent patterns. He goes on to ask how much are we, societally, paying the financial sector to allocate capital? More importantly, is the sector allocating capital to further societal goals, or merely enriching itself and a narrow segment of the world’s population? Human nature is powerful. John Stuart Mills said, in Social Freedom: “Men do not merely desire to be rich, but richer than other men”. 

Benjamin Friedman holds, in The Moral Consequences of Economic Growth, that “greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy” derive directly from economic growth. He shows that even during stagnation–let alone recession and depression–those values can vanish easily. Brad Delong observes, in reviewing Friedman, that if the majority of the people do not see an improving future, these values are at risk even in countries where absolute material prosperity remains high. Given rising political intransigence and loss of common social purpose in the U.S., and the rise of nationalistic political sentiments in Europe, the effects of increasing stagnation and inequality are becoming more evident, despite the financial sector’s phenomenal growth.   

In a 2006 speech on the growing integration of the financial sector and the broader economy, Rodrigo deRato, Managing Director of the IMF, noted its supposed general stability and growth, and that from 1990-2005 the estimated sum of equity-market capitalization, outstanding total bond issues (sovereign and corporate) and global bank assets rose from 81% to 137% of GDP, while over-the-counter derivatives markets tripled in the latter five years to $285 trillion, six times global GDP, 50 times the U.S. public debt. So if the financial sector has worked, we should see proportional acceleration of growth plus improved consequences for all society.  

This is not happening, as Cornia and Court report in Inequality, Growth and Poverty in the Era of Liberalization and Globalization.Global poverty reduction has stalled for 30-40 years, despite an approach to growth based on “…a neo-liberal policy package, [including] stringent focus on macroeconomic stability, liberalization of domestic markets, privatization, market solutions to the provision of public goods, and rapid external trade and financial liberalization.” They reveal that inequality has grown faster during the same period in the majority of countries for which data is available. The paper also shows that increased inequality greatly encumbers the climb from poverty and that excessively low or high levels of inequality impede growth, provoking various ills, including crime, social conflict and uncertain property rights. In the US, bank employees were found to be signing thousands of foreclosure documents without checking the information in them in so-called robo-signings that rendered the documents illegal.

All the data seem to affirm Friedman’s assertion that all societal strata should participate to maximize the moral benefits of economic growth. Further support can be found in Court’s conjecture about an optimum range of equality. This is confirmed by modeling work at Dominican University, discussed in a previous OECD Insights post, which shows that there is indeed an optimum level of equality for a given economic structure useable for policy planning, to insure capital allocation to economic growth for public purposes. Returning us to Lord May’s point that we must know how much economies are ‘paying’ the financial sector to allocate capital, including payments to banks, sovereign funds, hedge funds, private equity, and the managers, often in major international banks, of the estimated $21-32 trillion of largely secret “offshore” financial assets.   

The financial crisis and subsequent Euro problems show that we are paying vast sums for a system that, as Joseph Stiglitz, former chief economist of the IMF, points out, doesn’t allocate capital where needed, causing capital flows that are pro-cyclic, exacerbating peaks and lows of business cycles.   What efficient capital distributive function is served by the approximately $1.5 trillion of daily flows sloshing about in the casino of OTC foreign exchange activities, and the nearly 70% of all U.S. market trades conducted algorithmically, without human intervention?

Keynes may have lost the 1944 Bretton Woods battle for a solution that transcended national financial self-interest but his plans for an international clearing agency are prophetic, especially considering how the combined financial sector dominates national and international policy for its own ends “ As Keynes said, “… no country can . . . safely allow the flight of funds for political reasons or to evade domestic taxation or in anticipation of the owner turning refugee. Equally, there is no country that can safely receive fugitive funds, which constitute an unwanted import of capital, yet cannot safely be used for fixed investment.” Right again, Lord Maynard.

Useful links

OECD work on financial markets

Water stewardship: Does the OECD practice what it preaches?

Today, to mark World Water Week, we’re publishing the second in a series of three articles by Liisa-Maija Harju, Environmental Coordinator in the OECD Operations Service on the OECD’s environmental performance.

This week, when world’s water experts are gathering in Stockholm, Sweden, to attend the annual World Water Week, more than one in six people worldwide 894 million don’t have access to improved water sources. To put this into perspective, imagine if nobody in Europe (plus another 100 million world citizens!) had no access to safe drinking water.

Global water demand is projected to increase by 55% by 2050, due to growing needs for manufacturing, energy generation and domestic use. Almost four billion people will live in water-stressed river basins by 2050 if better policies are not introduced. The OECD recognises freshwater as one of the four most pressing environmental challenges today (the others being climate change, biodiversity, and health impacts of pollution). The issues of water security, water and green growth, as well as climate change adaptation, are an important focus of our work.

Australia, for example, has undertaken a long period of water policy reform, and Mexico recently initiated a Water Reform Agenda. In Meeting the water reform challenge, the OECD outlines three fundamental areas that need to be addressed whatever reform agendas are pursued by governments:

  • Sustainable financing lies at the heart of many of the solutions to improved water management.
  • The governance and institutional arrangements that are in place
  • And coherence between water policies and policies in place in other sectors of the economy (such as agricultural support subsidies).

The private sector appears to be taking water stewardship seriously, too. For instance, Coca-Cola, whose products are based on water, has engaged in more than 386 Community Water Partnership projects in 94 countries since 2005. Unilever’s assessment shows that their laundry, skin and hair products account for over three-quarters of the company’s overall water footprint. They will halve the water associated with the consumer use of their products by 2020. Levi Strauss has pioneered the clothing sector’s studies related to the water use throughout the life-cycle of products. Together with Procter & Gamble, Levi Strauss raises awareness about the environmental and economic advantages of washing in cold water because, for example, 45 % of the water used in the lifecycle of a pair of 501 jeans occurs during  customers’ wash-and-dry home care.

How about us here at the OECD itself? Water use is one of the key environmental policy areas we work with. We reduced the amount of water used to run the our facilities by 6% over 2010-2011.

So far we’ve installed aerators, small metal balls, in the bathroom and kitchen faucets. These reduce water consumption by 20 %. We’ve put in place eco toilet flush systems that reduce toilets’ water usage by 50%. We studied whether rainwater could be collected and used to supply water to our garden’s irrigation system but this turned out not to be both technically feasible and cost effective.

We also have 54 drinking water fountains in our office buildings because according to the French Environment and Energy Management Agency (ADEME), filtered Parisian tap water is safe and 1000 times more environmentally friendly than bottled water. Tap water is also 1000 times less expensive than bottled water. We do however purchase bottled water. In 2010, for example, we purchased 232,000 0.5L-bottles of water that were used by that year’s 50,000 visitors and 2300 employees, but we are currently also studying their replacement by drinking water fountains.

Global water use has been growing at more than twice the rate of population increase in the last century. This trend has to be reversed, and we need to be part of this change by finding new ways to minimise water use in our buildings and by reducing the consumption of bottled water. Hopefully, we will soon be able to calculate the real water footprint of our operations in order to perform as well as we can.

Useful links

OECD work on water

OECD: Meeting the water reform challenge

OECD Environmental Outlook to 2050: The Consequences of Inaction

OECD fights alien invaders

Call the Men in Black!

In 1845, Belgian farmers discovered, too late, that a load of seed potatoes they had bought from America was contaminated with Phytophthora infestans, a Mexican fungus that had recently started infecting fields in the US. The blight caused by P. infestans rapidly spread all over the continent, triggering the European potato famine. Belgium and Prussia suffered over 40,000 hunger-related deaths each, and 10,000 died in France. But the worst impact was in Ireland, where a third of the population was entirely dependent on the potato for food. One million people out of a population of 8 million died of starvation and its side-effects between 1845 and 1850, and another million emigrated.

Like every famine since then, this wasn’t a “natural” catastrophe. Ireland continued to export food throughout the period, even echoing today’s biofuels debate on whether crops should be diverted to non-food uses by sending over 1.3 million gallons of cereal-derived alcohol to England in 1847, the worst year of the famine.

That said, the famine wouldn’t have happened without the spread of the Mexican fungus, an example of what we now call “invasive alien species” (IAS).  The UN Convention on Biological Diversity (CBD) describes these as “… animals, plants, fungi and microorganisms entered and established in the environment from outside of their natural habitat. They reproduce rapidly, out-compete native species for food, water and space, and are one of the main causes of global biodiversity loss.”

Species are often introduced deliberately, through for example, fish farming, the pet trade, or horticulture; or unintentionally, through transportation, travel, and scientific research. According to the CBD, invasive alien species have contributed to nearly 40% of all animal extinctions for which the cause is known since the 17th century. Annual environmental losses caused by introduced pests in the US, UK, Australia, South Africa, India and Brazil have been calculated at over US$ 100 billion.

Economic costs are high too. The zebra mussel was unknown in North America until it was brought to the Great Lakes in a ship’s ballast water in the late 1980s. Since then, it has become a major macrofouler within North American freshwater conduits. Among other things, the mussels block the pipes that deliver water to cities and factories and cooling water to power plants. In the US, congressional researchers estimated the mussel cost the power industry alone $3.1 billion in 1993-1999, with its impact on industries, businesses, and communities estimated at over $5 billion. In Canada, Ontario Hydro reported zebra mussel impacts of $376,000 annually per generating station.

At the Rio+20 conference on sustainable development, the International Union for the Conservation of Nature argued that “IAS are one of the leading and most rapidly growing threats to food security, human and animal health, and biodiversity and, together with climate change, one of the most difficult to reverse.” An article in Science lists a number of threats, for example in sub-Saharan Africa, witchweed (Striga hermonthica) infects 20 million to 40 million hectares of corn, sorghum, sugarcane, millet, and native grasses, reducing yields by 20% to 100%. Losses total about $1 billion per year and affect 100 million people.

However, as another article in Science points out, although the invasion of alien species has started to change the whole food chain in the Mediterranean, there is a lack of knowledge on which to base relevant risk assessments. The IUCN stresses the importance of collecting relevant information and informing everybody concerned in time for effective prevention, early warning and rapid response.

Last month, an OECD-sponsored conference of the International Pest Risk Mapping Workgroup in Tromsø, Norway, presented new ideas about how to incorporate climate change, economics, and uncertainty into pest risk models and maps for invasive alien species, and how to communicate these improved results to biosecurity policymakers. Beyond the intrinsic importance of the issue, I was struck by how the conference illustrates the complexity of many problems facing decision makers. The way a threat evolves will be determined by factors ranging from the biology of microbes to the psychology of policymakers, and there are probably lessons for specialists in other domains from this approach that integrates uncertainties into both the analyses and the advice.

The full proceedings of the meeting will appear in an upcoming issue of the journal NeoBiota, but you can read a summary here.


Useful links

OECD research programme on biological resources in agriculture

Man’s worst friend

You’re still not as dangerous as a frickin’ chicken, baby

If you live in the USA, you’re 40 times more likely to end up in hospital due to a Christmas tree decoration than a shark attack, but (rough guess) 40 billion times less likely to end up on the news. Sharks have a bad press, and rightly so judging by some of the stories in Juliet Eilperin’s Demon Fish. For instance, did you know that baby tiger sharks eat each other in the womb? I didn’t, but I was sure that other animals were far more dangerous to human life than the Great White. There were 216 million cases of malaria in 2010 according to the WHO with 537 000 to 907 000 deaths, and mosquitoes also transmit the dengue fever that infects 50 to 100 million people each year and kills 12,500 to 25,000.

The worst killers though are chickens, cows and other livestock. Mapping of poverty and likely zoonoses hotspots, a report for the UK’s Department for International Development, estimates that each year 2.5 billion people fall ill and 2.7 million die from zoonoses, diseases transmitted by animals, with 1.5 million victims killed by gastrointestinal diseases alone, after eating infected meat, eggs or dairy products.

Some of the findings are what you might expect, for example the strong association of poverty, hunger, livestock keeping and zoonoses. Nineteen developing countries account for 75% of the global burden of disease due to zoonoses. Among the surprises (for me anyway) was the high figure for the urban poor depending on livestock: 10% (versus 70% in rural areas), although thinking about it, a lot of this may be poultry and not need much space or investment.

Emerging zoonotic diseases are a big worry. HIV/AIDS is the most dramatic example of a condition that appeared first in animals before crossing the species barrier, and there are fears that more recent diseases such as avian influenza may evolve to become transmittable by humans to other humans. There are more such emerging diseases than you may think. The report reviews 43 new or newly reported events since 2004. Most are viral and originate in wild animals and occur on every continent. But here’s another surprise: there appear to be clusters in the northeast US, Europe, South America and South East Asia.

That may simply reflect better surveillance in these areas. The chances of a new disease being spotted are slim when, as the authors point out, 99.9% of livestock losses in sub-Saharan Africa do not appear in official reports and at least half of these losses are probably due to notifiable diseases. Even so, some countries do have successful disease monitoring and control systems. Botswana is one of the case studies in a forthcoming OECD report  Livestock Diseases: Prevention, Control and Compensation Schemes. The country exports beef to the EU and other high-value markets and has put in place an efficient system for controlling foot and mouth disease (FMD).

The UK report was co-written by researchers from the Hanoi School of Public Health, and Vietnam is another of the case studies. Nearly 50 million birds were culled in Vietnam because of avian influenza over 2003-2010, but the report says the compensation scheme hasn’t changed livestock owners’ behaviour much because it’s too little, too late and too complicated. Or top put it another way “if the appropriate agents do not consider it in their own best interests to adopt practices of animal husbandry for disease prevention, and reporting and reacting to disease outbreaks, no policy framework can be expected to work well.”

And in case you’re wondering what compensation you can expect for a shark attack, the Egyptian government paid $50,000 dollars to a Russian tourist whose hand was bitten off. Appropriately enough, the web site where I read this story has an ad for “5 foods never to eat”.

Useful links

OECD work on agricultural policies and support

Taxpaying made easier

How do you spell it?

Prawo Jazdy was the most reckless driver Ireland had ever known, travelling at unlawfully high speed around the country, pausing only to park illegally. And yet despite getting caught innumerable times, he avoided prosecution simply by changing address. Then one day a particularly gifted member of the Garda began to wonder if it all might not be a hideous mistake and looked up the Polish bandit’s name, not in the Interpol database, but a dictionary. Imagine his surprise when, as the Irish Times relates, he learned that Prawo Jazdy means “driving license”. Case solved.

Here we’re talking about minor traffic offences committed by people who were actually cooperating with the police and not trying to avoid paying, and yet the basic information wasn’t getting across. A few studies published recently deal with the far more complicated and expensive business of international tax paying, or tax dodging, depending on how you look at it.

The Tax Justice Network estimates that individuals hold about $21 trillion of unreported wealth offshore, the equivalent of the combined GDP of the US and Japan. They think the figure may be even higher ($32 trillion) but even a previous, far lower estimate of $11 trillion still represents around $250 billion dollars in lost tax revenue each year – five times what the World Bank calculated was needed to address the UN Millennium Development Goal of halving world poverty by 2015. The usual term for these places offering low or zero taxes is tax haven, but TJN thinks that “secrecy jurisdiction” is a better description, since they provide facilities to get around the rules of other jurisdictions using secrecy as their prime tool.

The core of the problem is that taxes are a national affair while finance is international. The OECD has been working for years to help tax administrations cooperate across borders and the OECD Model Tax Convention serves as the basis for the negotiation, application, and interpretation of over 3000 bilateral tax treaties in force around the world, and its Commentaries have been cited by courts in virtually every OECD member country, as well as in many non-OECD countries. The Convention has just been updated to allow tax authorities to ask for information on a group of taxpayers without having to name them individually, as long as the request is not a “fishing expedition” launched in the hope of netting a few tax dodgers in a batch of honest citizens.

These are so-called targeted requests, but the OECD is also looking at how to make automatic exchange of information more efficient (some countries call this “routine” rather than “automatic” exchange). This is the systematic and periodic transmission of “bulk” taxpayer information collected by the source country to the country of residence concerning income from dividends, interest, royalties, salaries, pensions, and so on.  Denmark has the most relationships of this kind, sending information to 70 other countries.

According to a survey carried out for the OECD’s Centre for Tax Policy reported in Automatic Exchange of Information: What It Is, How It Works, Benefits, What Remains To Be Done the sums represented range from a few million to over 200 billion euros. Automatic exchange seems to work both to detect tax evasion and as a deterrent. EU experience with the Savings Directive suggests that without automatic exchange, over three-quarters of taxpayers may not have complied with their tax obligations in their country of residence. Denmark helped 440 of its absent-minded citizens to remember foreign income after the tax administration carried out 1000 audits and sent out 1100 letters announcing that it received automatic information from abroad.

Automatic Exchange contains plenty of practical advice on implementing agreements. For instance, as Prawo Jadzy shows, it’s essential to get the basics right by using a standard format to make sure each side of the exchange understands what it’s looking at in different languages, when multiple first names and family names may be involved or addresses may include both flat number and street number.

Information on taxes is sensitive, and Keeping it safe: the OECD guide on the protection of confidentiality of information exchanged for tax purposes sets out best practices related to confidentiality and provides practical guidance, including recommendations and a checklist, on how to meet an adequate level of protection.

I to by było na tyle. Jedź ostrożnie!

Useful links

OECD work on exchange of information for tax purposes

OECD Centre for Tax Policy and Administration

BRICS: Emerging, not dominating

Shifting the balance

Last month we published an article from the Bertlesmann Foundation arguing that the rise of the BRICS could mean the end of Western domination of global financial and political institutions. Today, Helmut Reisen, Head of Research at OECD Development Centre and author of the Shifting Wealth blog, replies.                              

Wishes and reality often diverge. Najim Azahaf claims that “the BRICS are about to change the power structure in the world economic system”,  one of the major motivations behind the BRICS’ cooperation  being their shared desire to limit the power of the developed economies in the global financial system.

Sure, the sustained growth that large emerging countries has experienced over the last decade and more has conferred on them a considerable growth delta over the OECD average. Combined with very large populations, these growth differences are translating into a new world economy.  For the first time in history, the countries with the largest economic mass are not also the richest countries. 

The shorthand for this complex event is what we call “Shifting Wealth – the recalibration of the world economy toward the East and the South – , well documented in the two first issues of the OECD Perspectives on Global Development. The next report, forthcoming in 2013, will argue that Shifting Wealth is here to stay, notwithstanding severe structural challenges to the process of cross-country income convergence.

An important noncyclical concern is that China’s growth will come down as it is caught in the middle income trap, and with it other emerging middle-income countries whose growth has been increasingly China-dependent in the last decade. A look at the data, however, would seem to suggest that escaping the middle income trap has not been a rare event recently. Cross-country income convergence and emerging-country middle class consumption are probably the strongest pillars for Shifting Wealth for the future decades. These fundamental growth drivers for low and middle income countries remain under emphasised in the media.

Does the change in the world economic system imply a change in the power structure, as Mr. Azahaf writes? The geopolitical dimensions of Shifting Wealth have moved very much into the forefront, as shown by the OECD Development Centre’s Perspectives on Global Development 2010: Shifting Wealth. The re-invigoration of the G20 (which had been created in the aftermath of the 1990s Asian financial crisis) as the premier global economic policy forum, the modernisation of countries’ inclusion, representation and voice in international organisations such as the Bretton Woods institutions and higher political ‘power’ in particular of the large emerging countries are noted features of their shifting geopolitical stance on a global scale.

For international monetary governance, the prospect of the renminbi and perhaps other emerging-country currencies entering reserve-currency functions beside key OECD currencies has gained momentum.  In global trade policy, Shifting Wealth translates into higher retaliation and bargaining power.

Finally, the growing importance of non-OECD countries may translate into acceptance of a different intellectual paradigm underlying cross-border collective arrangements and lower effective compliance of standards and best practices defined and scripted by the advanced economies, not least in the global aid architecture.

However, the majority of smaller emerging countries still submit to the Pax Americana, as is for example visible in the 70+ countries that engage with the OECD in one way or another. And within the BRICS group, there are considerable economic and geopolitical divergences, with China for the time being the only true superpower.

So economic and geopolitical reality still diverge.

Useful links

On the rise of emerging countries and the implications for investment, poverty reduction and development, see Helmut Reisen’s Shifting Wealth blog

See Thomas Fues, “Multilateral politics: At a crossroads”, D+C, on who signed DAC agreements and who didn’t  at the November 2011 Busan conference on aid effectiveness.

Destroying the Antichrist and other ways science can help policymakers

Let’s cut the science budget again

In 1264 Pope Clement IV wrote to Roger Bacon asking for his help on an issue so grave he had to refer to it in the vaguest of terms in secret letters “concerning the things you recently indicated”. His circumspection was understandable: the problem was the Antichrist and how to deal with him. Unfortunately, as Robert Bartlett explains in The Natural and the Supernatural in the Middle Ages, Bacon hadn’t actually written the book describing the new remote-controlled weapons of mass destruction Clement was pinning his hopes on after hearing the savant boasting about it a few years earlier.

The Magic Monk, however, rose magnificently to the occasion, producing within a year the Opus Maius, the Opus minus (a guide and supplement to the quarter of a million words of the Opus Maius) and the Opus tertium, a 300-page summary of the other two. He set out a theory of the universe in which every point emits radiation and is bombarded by it (his weapons would have used optics among other things). In this, he anticipates theories of modern electromagnetic radiation, but he was also using an idea developed by the 9th century Muslim scientist al-Kindi. Al-Kindi also helped Bacon calculate the precise date for the coming of the Antichrist (1294, which turned out to be the year of Bacon’s death) based on the common assumption that this would happen when Islam ceased to exist. It seems astonishing to us today, but al-Kindi and another great Arab thinker Abulmazar had actually calculated when their religion would end, using a combination of astronomical data and astrology. Anyway, Clement was pleased to get the books, and presumably even more pleased not to get the Antichrist.

It’s to Clement’s credit that faced with the end of his world, he looked for a practical solution first, whereas most of us tend to shift from science to superstition as the situation grows more desperate. Of course there was a long history of scientific advice to rulers on risk, stretching back thousands of years to the hydrologists who advised the Pharaohs on the likely severity of the Nile’s floods and the outlook for future crop yields based on the alluvia in upstream waters. It would be nice to think that as scientific knowledge has grown, our rulers have come to appreciate and apply it to the business of government. They haven’t. That’s not to say that science is ignored – many governments have a science ministry or sub-ministry as well as scientific advisors and committees to consult on specific issues.

But widespread understanding of what science is, how it works, and what it can and cannot do is far more rare in government circles than is knowledge of other professions. Writing in Prospect magazine, Mark Henderson pointed out that only one of the 650 Members of the UK parliament for instance is a professional research scientist, while there are 158 business people and 86 lawyers. Henderson argues that politicians’ indifference to science “means that not only is their stewardship of science poor, but so is their use of it in policy making”.

That’s not the case in Britain alone, and the OECD’s Global Science Forum (GSF) is trying to change things. A recent symposium to mark the GSF’s 20th anniversary looked at “New Science-Based Tools for Anticipating and Responding to Global Crises”. The biggest science headlines recently have been inspired by the infinitely small – the confirmation of the Higgs boson (that we discussed here) but as the symposium summary says, researchers have been making significant progress at the other end of the scale, tackling large systems of interest to all of us, such as ecosystems, pandemics, financial markets, energy generation and distribution, and what influences weather and climate, as well as societal phenomena such as urbanisation and migration.

Such systems are open (they exchange energy and information with their surroundings); dynamic (they contain numerous internal couplings and feedback loops – often nonlinear ones, operating on multiple spatial and temporal scales); and they are far from equilibrium (they continually transition between states that, individually, are inherently unstable). A pile of sand is a simple example of the type of phenomenon in question. It’s a “self-organising critical system”, keeping its basic cone shape even as more sand is added, provoking little landslides and other local instabilities. If you only look at the big picture, the sand pile may seem stable, whereas if you look at a particular area closely, you’ll see grains tumbling down the slope in avalanches of sand: lots of small ones, fewer intermediate-size ones and, much less frequently, major events where a significant fraction of the whole cone collapses.  One of the great advances of science in recent years was to discover that the probabilities of occurrence of avalanches of various sizes is not random, but is in fact governed by a strict mathematical “power law”.

Ever-cheaper, more powerful computing allows us to look at different scales and levels of interaction and study problems that more traditional approaches can’t cope with. In economics, this enables us to go beyond models depending on equilibrium and a certain definition of rationality to examine complex systems in a constant state of flux such as financial markets, and even devise ways to predict and prevent crashes in markets where the nanosecond is a useful division of time.

It’s a long way away from worries about the Antichrist, but the medieval scholars were in many respects more sophisticated than us, thinking holistically in terms of a cosmology in which agents and actions at different levels and scales interacted with and influenced each other. And we could probably still learn from their insights about another crucial aspect of the emerging sciences discussed at the OECD symposium: you and me. As the summary notes, the utility of many results “is only as good as the validity of the representations of human behaviour that are incorporated into the models”, going on to recall drily that “This behaviour is, of course, only partially understood by scientists who, moreover, are known to disagree on many essential points”.

So we’ve still got a lot to learn before we find scientific explanations for many of the great questions facing us, but as St Augustine said almost a thousand years before Bacon’s time, “Miracles are not contrary to nature. They are contrary to what we know about nature”. Let’s keep looking.

Useful links

When relations with the Muslim world are so crucial, it’s a disgrace that so few diplomats are trained in Arabic, according to Roger Bacon. Robert Bartlett also tells us that Bacon was critical of Western education’s neglect of science and mathematics, as well as of foreign languages. Nothing much seems to have changed over the centuries, and the OECD is still trying to encourage student interest in science and convince us of the benefits of learning languages in a globalised world.