Measuring Multidimensional Well-being and Sustainable Development
Martine Durand, OECD Chief Statistician and Director of Statistics Directorate, and Simon Scott, Counsellor in the OECD Statistics Directorate
The notion of sustainable development is profoundly multidimensional so assessing progress on sustainable development requires measures of multidimensional well-being. The number and diversity of the new Sustainable Development Goals and targets reflect the many dimensions of development (health, decent work, climate, etc.), and policy thinking must integrate these dimensions if progress is to be achieved across the board.
The OECD has long recognised the multidimensionality of people’s well-being and of the resources needed to sustain it over time. Realising that measures of total output are not adequate to assess progress in all its complexity, we have been actively researching relevant new measures of well-being and prosperity, and developing policies designed to improve people’s lives on a sustainable basis.
This effort has intensified and gained new traction in recent years as well-being has failed to improve in tandem with economic growth, leaving some people behind and exacerbating inequalities. The growing disconnect between the health of economies, as measured by GDP growth rates, and people’s experiences and perceptions of their lives has given rise to a new measurement and policy agenda to identify well-being indicators that can signal whether societies are evolving in desirable directions and at a sustainable pace.
The OECD has played a major role in this effort, in particular by developing a multidimensional well-being framework that can both gauge whether people’s lives are improving, and inform policy efforts toward this end. The framework also aims to indicate whether improvements are sustainable, and where governments and others need to invest to improve well-being now and tomorrow.
In 2011 the OECD launched its Better Life Initiative to measure progress on 11 dimensions of current well-being: health status; work and life balance; education and skills; social connections; civic engagement and governance; environmental quality; personal security; income and wealth; jobs and earnings; housing; and subjective well-being. The eleven dimensions are recognised as universal, i.e. relevant to societies across the world, irrespective of their level of socio-economic and human development. The framework focuses on people, takes distribution into account, includes both objective and subjective elements, and concentrates on outcomes as opposed to inputs and outputs.
The framework also considers resources for future well-being, thus bringing in a sustainability perspective. In particular, the OECD approach focuses on the broader natural, economic, human and social systems that embed and sustain individual well-being over time. The focus on stocks of “capital” or resources is in line with the recommendations of the Stiglitz, Sen and Fitoussi Report (2009) and other recent measurement initiatives that distinguish between well-being “here and now” and the stocks of resources that can affect the well-being of future generations “later”. Several approaches go beyond simply measuring levels of stocks to consider how these are managed, maintained or threatened. Recognising the global challenges and shared responsibilities to maintain well-being over time, they also highlight how actions taken in one country can affect the well-being of people in other countries (“elsewhere”).
The OECD well-being framework and the SDGs are highly consistent, not only in their general features – focusing on people, multidimensionality, today and tomorrow, here and elsewhere – but even in their specific dimensions.
Because of these close linkages, the OECD work on well-being can be particularly useful in helping countries deliver on the SDGs agenda:
- From a measurement perspective, the OECD framework and indicators can pinpoint specific data sets to monitor national and regional progress towards targets in OECD countries, especially where the official SDGs indicator set may be more relevant for emerging and developing economies and/or for global monitoring.
- From a policy perspective, the framework covers several areas relevant for the SDGs where the OECD has specific long-standing expertise and instruments to offer (health, education, environment, jobs, etc.).
- From a coherence perspective, the framework embodies a recognition that many dimensions are related and therefore must be studied together and not in isolation. This has already been central to establishing the OECD Inclusive Growth policy framework which aims to nail down the interdependencies at the policy level.
In order to make the concept of well-being more policy-actionable, work is under way to study the drivers of well-being, i.e. the policies and the individual and societal characteristics shaping each of the outcomes of interest. In addition, to help policy makers to better grasp policy trade-offs and find ways to improve both the level and distribution of well-being outcomes, the OECD has built new measures of “multidimensional living standards” that integrate the multidimensionality of the Better Life framework with a focus on the distribution of income and non-income dimensions of well-being.
The interest of such an approach lies in providing an explicit link to key structural policies and their effects on various income groups, making it possible to estimate the impact of policy packages with ambiguous net effects on the well-being of the various segments of the population. For example, both stricter climate mitigation policies and extending health insurance through higher tax may improve health outcomes but reduce household income, with the net well-being effects depending on the relative elasticities of income and health to these policy changes. Work has started in the OECD to quantify these impacts, so that net results can be seen through the multidimensional living standards metric. This approach is flexible and can be easily adapted to the SDGs framework. It provides opportunities to identify the best policy measures to reach several goals at the same time – a key challenge posed by the multidimensional character of the SDGs.
Policy Coherence from New Data, New Research, New Mindsets
Catherine L. Mann, OECD Chief Economist and Head of the Economics Department
Recent global economic performance – characterized by sluggish growth, widening inequality, environmental precariousness, and market volatility – is a sobering reminder of the myriad challenges facing policymakers. How can understanding and quantifying the interrelationships between and among policies help design policy packages to improve performance?
New analysis at the OECD, undertaken with new data, new methods, and new mindsets reveals the importance of policy coherence. The essence of policy coherence is to ask, How well do policies – directed toward demand management, structure of markets, environmental sustainability, and frontier innovation – work together to enhance the overall wellbeing of the citizens of a country and even broader through spillovers to the world? To what extent could a piece-meal approach, rather than an integrated policy assessment, lead us astray?
The mindset of policy coherence seems obvious. But it is in the nature of governments, academia, think tanks, and international organisations to analyse economic policies in silos – e.g. labour, environment, competition, finance, fiscal – because that simplifies the analysis and contains the domain for policy bargaining. The OECD is not immune to the silo tendency. However, the New Approaches to Economic Challenges (NAEC) ushered in a systematic mindset to see economic problems through a new lens to recognise that coherence in research across the silos is required to produce the evidence that yields “better policies for better lives”.
Productivity research is one example of how new data and mindsets promote policy coherence. The traditional approach to policy making (and its research underpinnings) focused on policies to grow the pie (via productivity-enhancing policies such as R&D spending) in isolation from policies to redistribute the pie (via taxes and transfers or through skills development). This is partly because the research datasets to investigate these topics were distinctly separate, as were the interests of the researchers. But also, policy analysis was separated because the policymakers that would implement the policies had separate mandates. In any case, detailed data on firms and workers were not available, which implied that policy design was founded on the relationships between average firms, average workers, and average economies, and average outcomes.
The NAEC approach to policy research on productivity evaluates policies for growing the pie and for its distribution at the same time. The research shows that it is the same type of policies (such as ease of business entry and exit, flexibility of labour markets, robustness of financial firms) that negatively affect productivity growth, negatively affect the matching of skills to firms, with attendant negative consequences for income distribution and is growth. This work reveals negative feedback loops that were not observed before, opening up new recommendations for policy packages. We are able to make this link now between productivity growth and income distribution because our datasets are granular enough and can be matched across objectives, the interests of the researchers came into alignment, and the importance of policy coherence is better appreciated by policymakers too.
Whereas the same type of policies affect productivity growth and income distribution, each country has its own unique combination of those policies, and therefore its own specific set of challenges. A key understanding under NAEC is to promote policy coherence across structural policies as well as demand management policies. The first generation of analysis of structural policies tended to address the implications for GDP growth of flexibility-enhancing labour market policies in isolation from policies to promote product market competition, and with little reference to overall demand conditions and demand management policies such as fiscal spending or monetary expansion. And, potential structural flaws in financial markets were not considered.
This piece-meal approach to policy assessment can lead to misunderstandings of how policies might impact economic performance. For example, increased flexibility in labour markets alongside product markets that lack competition or in which there is slack demand push the brunt of adjustment onto individuals, raising inequality. On the other hand, robust competition among firms but with rigid labour markets starves competitive firms of resources to grow, hampering productivity. Or, a third example, banking systems that evergreen loans (renew them continuously) to poorly performing firms dampens overall productivity growth and traps labour, thus raising inequality. A new mindset appreciates the complexity of the interactions between policies. Integrated policy assessments that take into account the unique characteristics of each country help quantify how policy reforms might work together to raise productivity growth and improve income distribution. This integrated policy assessment helps policymakers tailor their approach to improve economic performance and respond to shocks.
We have the tools to quantify structural policies and their impact on firms and individuals in a coherent way, including during business cycle upturns and downturns. We have an understanding of how best to deploy different types of fiscal instruments to achieve inclusive growth. Is our understanding of policy coherence complete? No, not in two key dimensions: macroeconomic spillovers and micro-behaviour and attitude toward change.
On understanding and quantifying spillovers, we still lack the trade and financial linkages and the empirical apparatus to fully understand and quantify how spillovers from one country to another may impinge on achieving policy objectives of greater productivity along with inclusive and sustainable growth. But, these data and tools are available and the OECD is in the process of incorporating these into our integrated policy assessment for economies.
On understanding micro-behaviour and attitude toward change, much more needs to be done, and this is essential for understanding the political economy of reform. The key challenge is that enhanced productivity growth comes only with firm and worker reallocation, but fear of this dynamic can constrain policymakers’ actions. A dynamic environment can strip economic rents from sheltered firms and exposes workers and households to job change and income volatility. As the pace of technological change increases, the imperative for a dynamic economy also increases. If people are not empowered to adjust, the backlash is reflected in policy stasis instead of reform, and worse outcomes, rather than better.
Research examining the behaviour of individuals is starting to give insights on which policies can best help them navigate change, but more needs to be done. Faster and more efficient resource reallocation helps economies to recover more quickly from adverse shocks, contributing thereby to reduced inequality, enhanced productivity growth, and higher living standards.
New Approaches to Economic Challenges (NAEC) Seminar Series January-February 2016
7th NAEC Group Meeting, 12 January 2016, “New Year, New Challenges, New Approaches”. Remarks by Angel Gurria, OECD Secretary General
NAEC Seminar: Fostering New Approaches to Sustainable Development, 13 January 2016 [Watch the webcast]
Bill White, Chair of the OECD Economic and Development Review Committee (EDRC)
The dominant school of economic thought, prior to the crisis, essentially modelled the national economy as a totally understandable and changeless machine (DSGE models). Moreover, the machine almost always operated at its optimal speed, churning out outputs in an almost totally predicable (linear) way, under the close control of its (policy) operators. While the sudden and unexpected onslaught of the current crisis, to say nothing of its unexpected depth and duration, might have been expected to have put paid to this false belief, in practice it has not. Nevertheless, the crisis has significantly increased interest in another viewpoint. Rather than being a machine, the economy should instead be viewed as a complex adaptive system, like a forest, with massive interdependencies among its parts and the potential for highly nonlinear outcomes. Such systems evolve in a path dependent way and there is no equilibrium to return to. There are in fact many such systems in both nature and society: traffic patterns, movements of crowds, the spread of crime and diseases, social networks, urban development and many more. Moreover, their properties have been well studied and a number of common features stand out. Economic policymakers could learn a great deal from these interdisciplinary studies. Four points are essential.
First, all complex systems fail regularly; that is, they fall into crisis. Moreover, the literature suggests that the distribution of outcomes is commonly determined by a Power Law. Big crises occur infrequently while smaller ones are more frequent. A look at economic history, which has become more fashionable after decades of neglect, indicates that the same patterns apply. For example, there were big crises in 1825, 1873 and 1929, as well as smaller ones more recently in the Nordic countries, Japan and South East Asia. The policy lesson to be drawn is that, if crises are indeed inevitable, then we must have ex ante mechanisms in place for managing them. Unfortunately, this was not the case when the global crisis erupted in 2007 and when the Eurozone crisis erupted in 2010.
Second, the trigger for a crisis is irrelevant. It could be anything, perhaps even of trivial importance in itself. It is the system that is unstable. For example, the current global crisis began in 2006 in the subprime sector of the US mortgage market. Governor Bernanke of the Federal Reserve originally estimated that the losses would not exceed 50 billion dollars and they would not extend beyond the subprime market. Today, eight years later and still counting, the crisis has cost many trillions and has gone global. It seems totally implausible that this was “contagion”. Similarly, how could difficulties in tiny Greece in 2010 have had such far reaching and lasting implications for the whole Eurozone? The global crisis was in fact an accident waiting to happen, as indeed was the crisis within the Eurozone. The lesson to be drawn is that policy makers must focus more on interdependencies and systemic risks. If the timing and triggers for crises are impossible to predict, it remains feasible to identify signs of potential instability building up and to react to them. In particular, economic and financial systems tend to instability as credit and debt levels build up, either to high levels or very quickly. Both are dangerous developments and commonly precede steep economic downturns.
Third, complex systems can result in very large economic losses much more frequently than a Normal distribution would suggest. Moreover, large economic crisis often lead to social and political instability. The lesson to be drawn is that policymakers should focus more on avoiding really bad outcomes than on optimizing good ones. We simply do not have the knowledge to do policy optimisation, as Hayek emphasized in his Nobel Prize lecture entitled “The pretence of knowledge”. In contrast, policymakers have pulled out all the stops to resist little downturns over the course of the last few decades. In this way, they helped create the problem of debt overhang that we still face today. Indeed, the global ratio of (non-financial) debt to GDP was substantially higher in 2014 than it was in 2007.
Fourth, looking at economic and financial crises throughout history, they exhibit many similarities but also many differences. As Mark Twain suggested, history never repeats itself but it does seem to rhyme. In part this is due to adaptive human behaviour, both in markets and on the part of regulators, in response to previous crises. While excessive credit growth might be common to most crises, both the source of the credit (banks vs non-banks) and the character of the borrowers (governments, corporations and households) might well be different. Note too that such crises have occurred under a variety of regulatory and exchange rate regimes. Moreover, prized stability in one area today (say payment systems) does not rule out that area being the trigger for instability tomorrow. Changes in economic structure or behaviour can all too easily transform todays “truth” into tomorrow’s “false belief”. The lesson to be drawn is that policymakers need eternal vigilance and, indeed, institutional structures that are capable of responding to changed circumstances. Do not fight the last war.
It is ironic that the intellectual embrace of complexity by economic policymakers should lead to such simple policy lessons. Had they been put into practice before the current crisis, a lot of economic, social and political damage might have been avoided. As Keynes rightly said “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood”. Nor is the hour too late to embrace these ideas now. The recognition that the pursuit of ultra-easy monetary policies could well have undesirable and unexpected consequences, in our complex and adaptive economy, might lead to a greater focus on alternative policies to manage and resolve the crisis. Absent such policies, the current crisis could easily deepen in magnitude rather than dissipate smoothly over time. This is an outcome very much to be avoided, but it will take a paradigm shift for this to happen.
Complexity of the economy: research and policy implications Workshop organised on 26-27 October 2015 by the OECD New Approaches to Economic Challenges project with GloComNet
Answering the Queen’s question: New approaches to economic challenges
Lord Robert Skidelsky, Emeritus Professor of Political Economy, University of Warwick, based on remarks made at the launch of the OECD Initiative on New Approaches to Economic Challenges (NAEC) on September 18th
“Why did no one see it coming?” asked Queen Elizabeth II of Great Britain, shortly after the world economy collapsed in 2008. In addressing the question to a group of economists, the Queen was spot on. As OECD Chief of Staff Gabriela Ramos said, “The crisis struck at the core of tightly held economic ideas, modules and policy”. I would go further. Crisis struck because of tightly held economic ideas, models and policies. The policy models used pre-2008 were wrong or seriously flawed; this contributed to the collapse, chiefly by omission. The OECD’s New Approaches to Economic Challenges (NAEC) report recognises this, arguing that the challenge is for economists to develop a better sense of how economies work; and for economic policy to develop policies which reflect this understanding.
To put the matter concretely, we have to determine under what combination of policies and institutions the macro economy will exhibit good performance, defined as cyclical stability, high employment, decent growth rates, stable prices, and human and planetary well-being. I would like to discuss questions which have occurred to me since 2008 along with some observations from the latest NAEC report, which gives much food for thought..
First, money and banking. Monetary policy is not mentioned by NAEC. Orthodox macro policy before the slump consisted of “one target, one instrument”. The target was the inflation rate; the instrument was interest rates. This was clearly inadequate. But we haven’t yet sorted out what should be the proper aims of monetary policy, what is properly monetary and what is properly fiscal, what is macro and what is micro. For example, bank regulation is micro, but it increasingly counts as part of macro policy. Perhaps we should call macro any micro event or institution which has macro effects.
The NAEC report calls for “Better integration of financial sector”. What does this mean? Does it mean “better able to serve the needs of the real economy”? If so, what reforms are needed? I’m disappointed that NAEC didn’t challenge the orthodox view that financial innovation is good. What it does is to make the economy more financial – that is, enable more and more people to earn their living making money out of money. We have to ask further questions on money, starting with whether the central bank can control the credit system to avoid boom and bust. And if not, what is the alternative? What has been the impact of quantitative easing (QE)? The Eurozone is gaily embarking on a massive monetary expansion, when most of the evidence suggests very limited effect for reasons Keynes would readily have recognised.
There is a cluster of issues around fiscal policy. The NAEC report talks of “promoting fiscal soundness and fostering the counter-cyclicality of macroeconomic policies”. What is meant by “fiscal soundness”? Does it mean balancing the budget? What is meant by balancing the budget? Which budget? All governments are embarked on deficit reduction. We are rarely told which deficit they are planning to reduce. Are there safe upper limits to public deficits and debts? What are the best ways of financing public borrowing -bonds, QE, Treasury bills-and under what circumstances?
Can the public accounts be differently presented to bring out the capital/current account distinction? Should governments have off-budget accounts, for instance a National Investment Bank?
Forecasts of inflation, output gaps, multipliers have been fairly consistently wrong ever since the crisis struck. The whole question of forecasting needs a serious look. Forecasts are highly model dependent. If the model is wrong the forecast will be wrong – or wronger than normal.
Jobs. What is Europe’s natural rate of unemployment? How is it estimated? If, as in Europe today we have zero inflation and unemployment at 10%, is this Europe’s natural rate? Or has the term lost any useful meaning?
Where are the jobs in the future to come from? The NAEC report doesn’t mention the impact of automation on jobs. It talks about need to enhance human skills and capital, which is simply conventional wisdom. Are humans destined to “race with machines” or “race against machines” to quote the question raised by Brynjolffson and McAfee.
Economic growth. NAEC wants both “economic growth and well-being” and “economic growth and environmental sustainability”, in other words all the good things in life simultaneously. And so say all of us. But we can’t have them. Continuation of the kind of growth we have had in the past will certainly be inimical to the well-being of humans, and of course of the planet. Growthmanship, and its associated consumerist culture, needs to be challenged much more vigorously.
Distribution and inequality. NAEC writes of “Increasing evidence that large income inequality undermines growth and well-being, by reducing investment in skills by low-income households”. It says that taxation systems need to be reformed to ensure they are “progressive enough”. But what is progressive enough? And what changes in politics will be needed to bring about more progressivity to offset the rise in inequality? Where is the political support to come from?
The woeful state of economics. NAEC says disappointingly little about this. It says economics should draw insight from sociology, psychology, geography, and history. I completely agree, except that philosophy is omitted and history put last. A reading of Aristotle would be a sound corrective to all those who place their faith in financial innovation and consumerism. A knowledge of history would correct the bias of economics to a priori theorising beautifully expressed by the 19th century French economist Jean-Baptiste Say: “What useful purpose can be served by the study of absurd opinions and doctrines that have long ago been exploded, and deserved to be? It is mere useless pedantry to attempt to revive them. The most perfect a science becomes the shorter becomes it history…” We are still waiting for the perfection which will abolish the need for history.
The webcast of the NAEC launch is available here
How much is enough? Money and the good life Edward Skidelsky and Robert Skidelsky
Keynes: The return of the master Robert Skidelsky
The OECD Initiative on New Approaches to Economic Challenges (NAEC)
Mathilde Mesnard, Coordinator of the OECD Initiative on New Approaches to Economic Challenges (NAEC)
New economic and policy thinking is required today more than ever. On September 18th, the OECD Secretary-General launched a discussion on the New Approaches to Economic Challenges (NAEC) Synthesis report with OECD Chief Economist Catherine Mann, Lord Robert Skidelsky and Jean Pisani-Ferry. The launch event was in the best tradition of NAEC seminars with hard questions being asked about the report and the OECD’s policy approaches.
OECD Chief of Staff and G20 Sherpa Gabriela Ramos put several questions to the panellists about the current state of economic policy and the progress made since the economic crisis. We very much welcomed the perspectives of all the speakers. Jean Pisani-Ferry talked about the difficulties of incorporating risk into policy-making. He also suggested that policymakers base what they do on particular theories shorn of nuances and assumptions which are accepted by the research community. This often means that policy is based on over-simplification.
Catherine Mann questioned how far the agenda on complexity could be taken forward at the OECD. To help answer this, a NAEC workshop is being held at the OECD on Complexity of the Economy: Research and Policy Implications on 26-27 October. It will explore complexity research in finance, sustainability and macroeconomics as well as complex systems methods and data analysis.
We were encouraged by Lord Robert Skidelsky’s remark that the latest NAEC report gives much food for thought. We also welcome his positive remarks on our inequality work and attempts to inform our policy advice by looking to insights from other disciplines, in particular history. Indeed we have made a special effort to learn lessons from the OECD’s own history to inform NAEC. Lord Skidelsky observed several omissions in the NAEC report. Yet the NAEC Synthesis report was a continuation of two reports submitted to the Ministerial Conference Meeting in 2014 – the first Synthesis and NAEC: The Financial Stream.
Skidelsky mentions that NAEC does not examine monetary policy. This issue was addressed at length in the 2014 Synthesis. The report argued that monetary policy contributed to excessive policy accommodation in the lead-up to the crisis. It called for further investigation into the effects of unconventional monetary policy noting that while successful, the long–run effects as well as the short-term effects of an eventual tapering of these measures needed to be closely monitored. A major lesson of the crisis is that both fiscal and monetary policies alone are not sufficient instruments, even more so when interest rates are close to the zero lower bound.
He stated that NAEC did not challenge the wisdom of financial innovation. Yet numerous OECD Secretariat papers in the NAEC process identified poor micro-prudential regulation, excessive leverage and too-big-to-fail business models as prime reasons for the financial crisis. The crisis emphasised the limits to regulatory capacities in the financial sector, and how fragmented regulatory frameworks generated information and implementation gaps. We have questioned not only the merits of financial deregulation but also financial innovation arguing that the rents were extracted to a very large extent for the financial sector itself.
More recently with NAEC work on finance and inclusive growth, we have argued that if the financial sector grows too large, it can undermine growth and increase inequality. We have pointed to the need to ensure that the financial sector contributes to strong and equitable growth by avoiding credit overexpansion and by improving the structure of finance. Yet the launch event clearly indicated that the financial crisis exposed weak understanding of the inner workings of banks and financial institutions in the OECD. Analysis of financial markets and capital flows could also be strengthened.
Skidelsky asks another fundamental question, where are the jobs in the future going to come from? Dirk Pilat, Deputy Director of the OECD Science, Technology and Innovation Directorate responded during the debate that this issue is very much an issue on the table at the OECD, and at the heart of current discussions on productivity and inclusive growth. In fact a Labour Ministerial Meeting will take place early next year on this very subject. New production technologies and automation have always been disruptive with new jobs being created while others are lost all the time. The question remains if there is something new in terms of the amount of disruption caused by the next production revolution.
All speakers debated the merits and demerits of siloed approaches to research and policy-making. Gillian Tett from the Financial Times will address the OECD community in a NAEC seminar on October 12th outlining her new book The Silo Effect. Tett examines how silos can prevent us from seeing risks because we are so consumed with our own area of expertise that we are unaware of information from allied silos and thus fail to see the big picture. She also outlines how the effect of silos could be mitigated by keeping boundaries of teams fluid, rethinking how incentives can stifle collaboration beyond a team, and ensuring the broadest information flows. NAEC can help counter the Silo Effect – we should strive to create more joint teams; promote and support horizontal projects and further cross-committee discussion among the various OECD Committees.
The discussion of the report underlined the importance of creating a space for debate and fresh-thinking at the OECD on the fundamental issues facing economists and policy-makers. It also spurred continued efforts in searching for for new approaches to economic challenges.
Gillian Tett, Financial Times US Managing Editor and 2014 British Press Awards Columnist of the Year
The Silo Effect first sprung to life during the Great Financial Crisis of 2008. But it is not a book about finance. Far from it. Instead, it asks a basic question: Why do humans working in modern institutions collectively act in ways that sometimes seem stupid? Why do normally clever people fail to see risks and opportunities that are subsequently blindingly obvious? Why, as Daniel Kahneman, the psychologist, put it, are we sometimes so “blind to our own blindness”?
It was a question I often asked myself in 2007 and 2008. Back then, I was working as a journalist in London, running the markets team of the Financial Times. When the financial crisis erupted, we threw ourselves into trying to understand why the disaster had come about. There were lots of potential reasons. Before 2008 bankers had taken some crazy risks with mortgages and other financial assets, creating a gigantic bubble. Regulators had failed to spot the dangers, because they misunderstood how the modern financial system worked. Central bankers and other policymakers had given the wrong economic incentives to financiers. Consumers had been dangerously complacent, running up huge credit card debts and mortgage loans without asking whether they could be repaid. Ratings agencies misread risks. And so on.
But as I dug into the story of the Great Financial Crisis as a journalist (and later wrote a book about it, Fool’s Gold) I became convinced that there was another reason for the disaster: the modern financial system was surprisingly fragmented, in terms of how people organized themselves, interacted with each other, and imagined the world. In theory, pundits often like to say that globalization and the Internet are creating a seamless, interlinked world, where markets, economies, and people are connected more closely than ever before. In some senses, integration is under way. But as I dug into the 2008 crisis I also saw a world where different teams of financial traders at the big banks did not know what each other was doing, even inside the same (supposedly integrated) institution. I heard how government officials were hamstrung by the fact that the big regulatory agencies and central banks were crazily fragmented, not just in terms of their bureaucratic structures, but also their worldview. Politicians were no better. Nor were the credit rating agencies, or parts of the media. Indeed, almost everywhere I looked in the financial crisis it seemed that tunnel vision and tribalism had contributed to the disaster. People were trapped inside their little specialist departments, social groups, teams, or pockets of knowledge. Or, it might be said, inside their silos.
That was striking. But as the 2008 crisis slowly ebbed from view, I realized that this silo effect—as I came to call it—was not just a problem at banks. On the contrary, it crops up in almost every corner of modern life. In 2010 I moved from London to New York, to run the American operations of the Financial Times, and when I looked at the corporate and government world from that perch, I saw a fragmented pattern there too. The silo syndrome cropped up at gigantic companies such as BP, Microsoft, and (later on) at General Motors. It plagued the White House and Washington agencies, not to mention large multilateral groups such as the World Bank and International Monetary Fund – and, I daresay, the Organisation for Economic Cooperation and Development too.
Large universities were often beset with tribalism. So were many media groups. The paradox of the modern age, I realized, is that we live in a world that is closely integrated in some ways; but fragmented in others. Shocks are increasingly contagious. But we continue to behave and think in tiny silos.
So this book sets out to answer two questions: Why do silos arise? And is there anything we can do to master our silos, before these silos master us? I tackle this partly from the perspective of someone who has spent two decades working as a financial journalist, observing global business, economics, and politics. That career has trained me to use stories to illustrate my ideas. So in this book you will hear eight different tales about the silo effect, ranging from Michael Bloomberg’s City Hall in New York to the Bank of England in London, Cleveland Clinic hospital in Ohio, UBS bank in Switzerland, Facebook in California, Sony in Tokyo, BlueMountain hedge fund in New York, and the Chicago police. Some of these narratives illustrate how foolishly people can behave when they are mastered by silos. Others, however, show how institutions and individuals can master their silos. Some of these are stories of failure. But there are also tales of success.
But there is a second strand to this book. Before I became a journalist (in 1993), I did a PhD in the field of cultural anthropology, or the study of human culture, at Cambridge University. As part of this academic work, I conducted fieldwork, first in Tibet, and then down on the southern rim of the former Soviet Union, in Soviet Tajikistan, where I partly lived between 1989 and 1991 in a small village. My research was focused on marriage practices, which I studied as a tool to understand how the Tajik had retained their Islamic identity in a (supposedly atheist) communist state.
When I first became a financial journalist, I was often wary about revealing my peculiar past. The type of academic qualifications that usually command respect on Wall Street, or the City of London, are MBAs or advanced degrees in economics, finance, astrophysics, or another quantitative science. Knowing about the wedding customs of the Tajiks does not seem an obvious training to write about the global economy or banking system. But if there is one thing that the Great Financial Crisis showed it is that finance and economics are not just about numbers. Culture matters too. The way that people organize institutions, define social networks, and classify the world has a crucial impact on how the government, business, and economy function (or sometimes do not function, as in 2008). Studying these cultural aspects is thus important. And this is where anthropology can help. What anthropologists have to say is not just relevant for far-flung non-Western cultures, but can shed light on Western cultures. The methods I used to analyze Tajik weddings, in other words, can be helpful in making sense of Wall Street bankers or government bureaucrats. The lens of anthropology is also useful if you want to make sense of silos. After all, silos are cultural phenomena, which arise out of the systems we use to classify and organize the world. Telling stories about the silo effect as an anthropologist- cum-journalist can thus shed light on the problem. These tales may even offer some answers about how to deal with silos, not just for bankers, but government bureaucrats, business leaders, politicians, philanthropists, academics, journalists – and perhaps OECD officials too. Or that, at least, is my hope.
Gillian Tett will be visiting the OECD on October 12 as part of the New Approaches to Economic Challenges seminar series
Two themes that resonate strongly across the OECD are the need to achieve sustainable development and the growing significance of population ageing. It is rare, however, that these two agendas are brought together to consider the importance of ageing for developing countries.
It is all the more surprising given that population ageing is a global phenomenon acutely affecting developing countries. The numbers speak for themselves: in 2014, there were 868 million people over the age of 60 in the world – 12 per cent of the total population. By 2030, this will increase to 1.2 billion or 16 per cent of the population; and looking ahead to 2050, current estimates suggest there will be 2.03 billion older people worldwide – 21 per cent of the population. By 2047, there will be more adults over the age of 60 than children 16 and under for the first time in human history.
This is a reality for developing countries today. 62 per cent of people aged 60 and over live in developing countries and this is expected to increase to 80 per cent by 2050. What is more important is the pace of the change taking place in lower and middle-income countries. The demographic landscape is changing radically in many parts of Asia and Latin America, offering little time for governments in these countries to adapt. Even in sub-Saharan Africa, given the trends of increased longevity and economic development, it should be fully expected that the ‘youth bulge’ will become an ‘older person bulge’ within a few short generations.
So what does this mean for efforts to tackle poverty, inequality and climate change? At its simplest, we need to be asking ourselves the question: does our understanding of development include older people? Not taking older people into account means excluding up to 20 per cent of the world’s population. In this regard, the post-2015 sustainable development goal (SDG) agenda marks a turning point in recognising ageing and older people as part of the development process. The SDG negotiations have already made it clear that addressing the rights and needs of older people is integral to the ambition of “leave no one behind”.
At a deeper level, it forces us to reconsider basic assumptions of what it means to be productive in society and what the role of older people is. All too often policy makers, planners and development practitioners assume that life takes place in three stages: childhood (dependency); adulthood (productivity); later life (dependency). This simplistic understanding could not be further from the truth and masks a huge diversity of economic activity and social interactions at all stages of life.
Hidden from view is the contribution grandparents who have pensions make to improving children’s education and nutrition. There is no calculation that captures the economic value of an older nurse that provides healthcare services on a voluntary basis in her community, having already been identified as ‘retired’ and ‘non-productive’. There are no figures that adequately value care and support by and for people of all ages in lower and middle-income countries.
In the context of achieving the soon to be agreed SDG framework, the promise of a ‘data revolution’ and the commitments to disaggregating data by age offer some hope that this situation can change. But any analysis must capture data at all stages of a person’s life. Without a better understanding of ageing and development, we risk investing in development and building programmes that do not know where poverty and inequality lie. Disaggregating data by age, gender and disability is not an expensive add-on to the SDG framework, but is the very bedrock upon which effective decisions can be made and must be invested in.
Another critical lesson that the ‘leave no-one behind’ agenda provides is that the essential building blocks for building sustainable, peaceful and equitable societies are the very individuals within those communities. Without a better understanding of ageing and development, we fail to capture adequately the potential of individuals of all ages and abilities within society. Living in better health longer allows older people to contribute more to building resilience in disaster-prone areas. Having access to finance can mean better income and nutrition for older farmers and their families. Getting appropriate healthcare for grandparents can mean children spending more time in education.
Ageing is a development fact. There should be no value judgement attached to this statement or to a person’s chronological age, whether they are young or old. Older people are carers, teachers, farmers, athletes, market traders, labourers, professionals, and Nobel laureates. Older people can also be frail and living with chronic illness, dementia or disability. The important thing is that we do not keep ageing hidden from view. We also need to have the courage to challenge our preconceptions of what getting older means to enable policies to emerge that are fit for purpose for our rapidly ageing societies.
This article is based on a collection of essays called Facing the facts: the truth about ageing and development produced by Age International.
The Disaster Risk and Age Index from HelpAge ranks 190 countries based on the disaster risk faced by older people.