David Hume Institute gives evidence to Scottish Parliament committee

Susan Murray, Director of the David Hume Institute, gave evidence to the Scottish Parliament Finance and Public Administration committee following its response to the consultation on Public Finances in 2022-23.

The Institute is calling for Scottish Government to:

• Publish draft multi-year spending plans to help longer term planning for service improvement, investment and productivity, and increase transparency over forward planning.

• Publish how it has prioritised for a fair and equal recovery, and provide underlying evidence for those priorities, recognising trade offs between shorter and longer term choices.

• Link budget priorities to the National Performance Framework and the United Nations Sustainable Development Goals (UNSDGs), using them to analyse how the pandemic has affected some groups and communities worse than others.  Continued use of the UNSDGs assists collaboration with other organisations and governments around the world.

• Focus on climate action and a fair transition to net zero, faster delivery of digital infrastructure and measures to directly influence reductions in poverty and promote greater inclusivity.

• Work to improve Scotland’s places by devolving resources and putting more power in the hands of local communities.

• Ensure support for jobs where skills can be developed rather than skills development alone.

• Commit to a full review of the Fiscal Framework which considers external changes including the loss of European Funding and new direct spending in Scotland from Westminster as well as the interactions between both devolved and reserved taxes and social securities.

Blog: To field our best team we need a more diverse squad

Blog by Susan Murray, the David Hume Institute

6th September 2021

As the football transfer deadline day passed last week, many teams made key appointments to their squads. Player’s data and match statistics underpinned transfer decisions. It’s no different in business: data matters and should affect the choices being made. 

However, new data from the David Hume Institute shows that business leaders are limiting Scotland’s potential by not prioritising diversity in their top decision makers.  Diversity of thought increases resilience, productivity and innovation as well as improving risk management.  Scotland’s top team is missing out.

The research investigated investment and angel investment leaders in Scotland.  Scotland’s investment companies have less diversity at the top than companies elsewhere in the UK. Although angel investment leaders are more diverse than the bigger companies.

The data on who is, and isn’t securing business investment and who can access the resources to grow is shocking - and again, limiting potential.

The data shows those with resources and connections are more able to reach the top.  This limits the pool of top decision makers and risks group-think - a risk Scotland should be aware of after the last financial crisis.

Business and investment leaders lag behind other sectors, and are not responding to the data linking diversity of thought with successful outcomes.  

So why isn’t change happening faster? 

Studies from around the world show overt and covert bias is limiting the pool - so this is a great opportunity.  Awareness is the first step - just like players on a football pitch, knowing your own statistics helps improvement.  Leaders have the power to champion and deliver change in Scotland.

Three out of ten of the top 50 business leaders also hold positions on other boards, meaning they can influence change beyond their own companies.  Similarly, the power to decide who gets investment is in the hands of the investment leaders.

Why does this matter? Improving gender diversity alone could add up to £250 billion of new value to the UK economy, if women’s new businesses were invested in and scaled up at the same rate as men’s. If women’s participation rates matched men’s there would be the potential of c.35,000 more direct jobs in the Scottish economy.

The leaders have the power to bring change. The country has big challenges ahead and leaders need to rise to those challenges.  Scotland needs its top team on the pitch.

The IOD conference last week challenged Scotland’s Directors to think about the IPCC code red: “the costs of inaction on climate change are greater than the cost of action.  There needs to be a bias towards change rather than a bias against it.”  

The same is true of diversity of thought.  The benefits are widely known and there are costs to inaction.  It's time for Scotland’s top business and investment leaders to bring more breadth to their squad and champion change.

This piece was originally published in The Times on 6th September.

Blog: How broad are your shoulders?

Blog by Susan Murray, the David Hume Institute

20th May 2021

We have all had to think about risk a lot over the last 12 months. But how much do you know about the risk in other aspects of your life?  

Our lives have been dramatically affected to reduce the risk of spreading Covid. Decision-makers have had to weigh up risks against other potential harms caused by the consequences of restrictions and talked about this openly.

People see the risk of Covid differently. This led to stark contrasts in attitudes and behaviours. From rising OCD and anxiety disorders for some, to taking to the streets in anti-mask protests for others – these contrasting approaches can also be seen in attitudes to risk in other areas of our lives.

New research from the Institute and Faculty of Actuaries examines what they call the Great Risk Transfer. Over the last few decades, there has been a largely politically driven transfer of risk from organisations to individuals in many aspects of our lives – but with very little public awareness or education.

Until the 1980s, there had been an implicit contract between citizens and governments: in return for their generalised contribution to the nation, the government would provide economic security in times of need.

Over time, this approach gradually shifted, resulting in a modern social system that expects individuals to take on the responsibility for managing risks. The relationship between contributions and benefits has become much more transactional. One result of this is that there are much greater demands on individuals to devote time and effort into understanding and navigating financial markets and risks.

Expanding individual choice can be seen as positive and some parts of society stand to benefit from the enhanced freedom and flexibility this represents.

But making these choices can often be extremely complex. Managing the risks involved often requires an advanced level of knowledge and understanding, and numeracy skills beyond the general population level.

This is one of the big ironies of the Great Risk Transfer: institutions that are well-equipped with systems and processes to manage risk are passing risk over to individuals, who in most cases are not. We should consider the link between our ability to control or mitigate the risks in our lives and our mental health.

The 2015 pension reforms meant many people withdrew lump-sums from pension pots and some spent their cash on holidays or home improvements rather than investing for their future.

But with rising life expectancy and many expected to live well into their 80s, your pension might have to last 35 years and some individuals are now lamenting earlier choices that are affecting their day-to-day quality of life. Despite the free, impartial advice available from Pensions Wise, only a small proportion of people are using the service.

Thinking about saving for a pension is a luxury for many in Scotland today. The nature of many people’s employment is precarious. The rise of zero-hour contracts and the push to self-employment mean often individuals are shouldering more risk than ever before.

In the David Hume Institute’s research, people especially in rural areas, often working in microbusinesses, told us of the need to have multiple income sources to try to make ends meet.

Lack of sick pay or predictable monthly income means reduced financial resilience. The stark rise in food-bank use shows how many people in Scotland are struggling to put food on the table – so they are unlikely to be worrying about pensions, insurance or social care costs in later life.

The Great Risk Transfer has been a gradual but concerted social change, heaping risk onto individuals, which has largely gone under the radar for the general population.

The last year has seen Covid exacerbate already stark inequalities. We have seen those with resources in a position to consolidate and those without, often in insecure employment with little, if any, personal reserves, see increased costs and increased risks.

The changes to pension auto-enrolment have meant many more people are starting to save for retirement. However, many mistakenly assume the minimum auto-enrolment contributions will cover a comfortable lifestyle in retirement. Unless information becomes more accessible, people may only realise at the doorstep of retirement that they have not saved enough.

But it’s hard to think about retirement for young people who might be worrying about getting or keeping a job, or repaying student debt. The data shows, with little exception that, now only young people with parental assets are able to think about buying a home.

For people in this lucky position, few are considering that in many new estates, roads and other services (like street lighting and play parks) have no plans to be adopted by local councils. This means maintenance – and quarterly health and safety inspections for play parks – become costs, and potential risks, shared between a smaller number of people through the annual factoring bills, no longer the responsibility of the local council.

If residents were to fall on hard times, there is no support available to help with factoring costs, unlike with council tax. This is worth thinking about as many opt for new-build dwellings, believing it will lead to reduced property maintenance costs but, like with some of those affected by the cladding scandal, property owners could find out they are shouldering the risks and are personally liable.

Going forward we need to re-examine and reinvent the way risk is shared. Flood Re, a joint initiative between government and insurers, has done this successfully for property in flood zones. But with a quarter of homes across Scotland having no insurance, many are choosing or defaulting to shoulder this risk because money is so tight.

The Great Risk Transfer is arguably one of the biggest factors changing society, and as we consider how we rebuild the economy post-Covid, we have a unique opportunity to re-examine, and perhaps re-invent, the way risk is shared.

This article was originally published in The Scotsman.

Blog: Do we need to find our inner child?

Blog by Susan Murray, David Hume Institute

April 2021

Many of us will know or have children who ask ‘why’ a lot - sometimes so often that no matter how much you want to encourage curiosity and learning, you lose patience and resort to phrases like “because I say so”.  

On the whole though I am delighted to be asked questions. Two recent favourites from my children have been: if two wrongs don’t make a right, why do two negatives make a positive?  And, why do people buy pencils with rubbers on the end, as the rubber always runs out before the pencil and then the metal bit is just waste? A good question for Zero Waste Scotland.

I had never thought about either of these things before and as an adult, I wonder if too often people forget to ask questions.  

The daily coverage of the economy is a good example. For years the economic narrative has been dominated by a narrow range of voices. What has become clear through Covid is every choice can have benefits and consequences. Choices about the economy are no different. And, with choices, there are trade-offs to consider.

Many people that previously felt on a treadmill are stepping off as the pandemic has given them a chance to re-evaluate what matters in their lives. My first visit to the hairdresser post pandemic was a good example. My hairdresser sold her house last autumn. She has moved out of the city and has gone mortgage free by combining resources with her sister and parents on a single property. This solves several problems the family had been worrying about for years; about intergenerational caring responsibilities; mortgage payments and pension worries. Put simply it “takes the pressure off so we can all enjoy life more now and are not worrying about money so much”. 

As many commentators speak of the economy returning to normal, they fail to notice that my hairdresser is not the only one whose life has changed dramatically over the last year. So many people have experienced bereavement, loneliness and loss of income, but even for those that have remained relatively unscathed their lives have changed in other ways. 

My family, like so many, have got a dog. After years of thinking about it and using the website Borrow My Doggy we took the plunge. Lockdown was a great chance for puppy training and our new addition has had a huge positive impact on my children, but this means even when everything is opened up again we are likely to be living very similarly to this moment.  Long family walks and holidays in Scotland. The massive rise in dog ownership means many people’s future economic choices are likely to be different. 

Recent research from the David Hume Institute showed how many people intend to continue their 2020 behaviours in future. Covid brought communities together and many people have experienced the power of being connected through helping others. So what if – my favourite question opener – the economy doesn’t return to “normal”?

Pre-Covid our economy encouraged people to increase their consumption and buy more stuff, but the data shows this wasn’t making people any happier. More and more people are living alone, and we have been accepting this trend by building more single person dwellings, but the data clearly shows people living alone are more likely to be lonely and be financially insecure.

What if we can return to something better than the old normal?

I was listening to Professor Ben Friedman talk recently about Adam Smith and what he really meant by wealth. It showed how much of economic thinking in recent years has been dominated by a narrow mindset and assumptions. Many use the term 'wealth' to simply mean money but in economics, wealth refers to those goods which satisfy human wants, but all goods which satisfy human wants are not wealth.

My hairdresser certainly feels more wealthy now than previously when she owned more stuff. Over the course of the David Hume Institute’s research I have heard so many stories of people making changes to their lives which on the face of it could have a negative effect on GDP - for instance as consumption could go down by combining houses. 

But surely those who argue for a return to normal would not want individuals to continue struggling in their old lives when there is an option to be happier and wealthier in the true meaning of the word?

Money, relationships and mindset change

By Susan Murray, David Hume Institute

31st March 2021

One of the core aims of the David Hume Institute is to increase diversity of thought.  This includes bringing international insights from around the world to Scotland. In the past we have often done this through academic links but last year we worked with WEvolution, the Glasgow based self reliant organisation, on a speaker series of changemakers from the Global South.

A full report has been written up by WEvolution on the insights from these changemakers that featured in this series.  There was one overriding reflection: lasting change happens through individual relationships, and especially when change is supported in an individual’s relationship with money.

The examples from Catherine Wanjohi described how local self reliant groups transformed women’s relationships with money and education. Salomon Raydan explained how becoming shareholders rather than savers changed mindsets for some of the poorest people in Venezuela. Reflections were similar to those from Professor Linda Scott on the transformative difference that Avon entrepreneurs made in Africa despite judgements made by aid workers on this business approach.

Economic freedom has the power to bring great change.  

The partnership with WEvolution bought speakers and insights we might not have heard on our own and prompted us to think more about people’s relationship with money as a critical factor in economic and social change around the world.

Closer to home, why are many people more comfortable with giving “stuff” for example through foodbanks than supporting the poorest in Scotland into a financial situation where they have freedom of choice through systemic change.  At the moment choice in Scotland is closely linked to financial resources. This was an issue Darren McGarvey explored in his recent documentary: from the concentration of bookmakers in our poorest communities to availability of shops to buy healthy food, the resources you have - or don’t have - can define the resources you get.

For the speakers in the series, working alongside individual’s to support them to change their relationship with money has been a way to unlock potential but as the final event in the series with Aloysuis Fernadez discussed, it is not enough.  The former World Bank economist discussed the old proverb, if you give a man a fish, you feed him for a day, if you teach him to fish you feed him for life.  However structural inequality means that is not enough, “even when you can teach people to fish, they still can’t reach the river, or if they get to the river and all the fish are gone. Teaching is not enough.”  

More has to be done to level the playing field and this means working alongside people, listening and redesigning systems with them to remove barriers.  

Self reliant groups are a way of people supporting and championing each other. There is a removal of the traditional power and control dynamics of finance or philanthropy as people in the group are equal.

The event series echoed findings from our latest research as part of The Action Project. As we emerge from the pandemic, people in Scotland are making more conscious choices with money and are ready to engage with the economy differently than pre-Covid.  In the words of Nobel prize winning economist Esther Duflo, “Economics is too important to be left to economists” - and as we heard from Dr Arun Advani, the narrow backgrounds of economists risks group think, so it's in all our interests to play a more active role in the economy.

Read the full report on the #GlobalSouthSeries here. 

In the Action Project conversations, we heard from people taking action to build a Scotland that is more prosperous, sustainable, inclusive and fair. Share your action for change at WhatsYourAction.scot. 

Blog: Back to the Future, a DeLorean and David Hume

Blog by Susan Murray, Director, David Hume Institute

January 2020

In an Edinburgh living room, more than thirty-five years ago, some friends gathered in front of a fire. They talked late into the night about philosophy, economics and public policy.  

This happened again and again. More friends joined them each time. Agreement emerged on an idea.  There was a great need for more enlightened thinking.  Public policy needed research and analysis that was not led or framed by London-based organisations.

“Truth springs from arguments amongst friends.”  David Hume

From this dusty living room, the eminent Sir Alan Peacock, the businessman Sir Gerald Elliot and a few friends started the David Hume Institute. The name was chosen out of a deep respect for David Hume and his thinking. 

From the start, the Institute was non-partisan and independent, founded firmly in the philosophy of David Hume – examining the evidence and creating informed debate.

"A wise man proportions his beliefs to the evidence." David Hume

So, while the rest of us were watching the film Back to the Future with a time travelling DeLorean, Sir Alan Peacock and his friends were discussing a new enlightenment. 

If we had a DeLorean we could go back thirty-five years and be a fly on the wall for these initial conversations.  Professor Chris Carter of Edinburgh Business School interviewed Sir Alan about this time, and these recordings are probably as close as I will come to understanding the origins of the institute. What’s changed in those thirty-five years?  What would Sir Alan think of our library of research and analysis? 

If we were lucky enough to have a DeLorean, we could go even further back in time.  We could time travel back to David Hume himself.  What would be David Hume’s favourite paper? And what would he think about the uncertain times we live in?

Since I started with the Institute in mid November, I’ve had lots of conversations about the organisation.  There are many people with close connections and fond memories of events or a favourite piece of research.

One of my most memorable David Hume Institute events was in 2013 listening to economist Danny Gabay discuss the state of the economy, quantitative easing and the pitfalls of house price led recovery.  When I googled him to see if it might be possible to invite him back to Scotland in 2020, I discovered he passed away at the age of just 47. 

Sadly, time is often too short. However, as the turn of the year is often a time of reflection, if you are willing to share your reflections on the institute’s work, we would love to hear from you.  Please get in touch to let us know your favourite piece of research or most memorable event by emailing: director@davidhumeinstitute.com