DHI: The Movie

Thank you for being part of the Institute's journey in 2021.

This year we published research that brought people together from across Scotland to consider the actions required to move faster towards a more prosperous, sustainable, inclusive and fair country. Over 5,000 people from across Scotland told us their actions to help Scotland build forward better. You can read about these actions - and tell us yours - here.

From how to build A Scotland of Better Places, to delivering multi-year spending plans, and levelling up on Scotland's broadband, these conversations showed the appetite for change and transformation.

Throughout 2021 we have also been expanding our analysis of Team Scotland: diversity of thought is essential to improving productivity and resilience to risk - things that have proven to be essential in the 2020s. This year we turned our attention to actions for business and investment leaders, and Scottish Parliament.

This year DHI have brought you 11 insightful events on the economy, productivity and more. These are all available to watch now on catch up. We particularly recommend our most recent events on political philosophy and the pandemic, and our partnership event with Black Professionals Scotland and the Institute of Directors on how to unlock greater potential in Scotland's economy.

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: Time travelling to Scotland 2070

Blog by Lucy Higginson, David Hume Institute

April 2021

Imagining Scotland in 2070 may feel like another universe, particularly as we are still living in the 2020s time warp where every month can feel like 10. 

For the authors of Scotland 2070 setting out their vision for our children and grandchildren’s generation was crucial in order to get beyond short-term thinking of election-cycle tunnel vision and constitutional questions.

The book sets out 6 ideas for Scotland and discusses the mindset needed to take advantage of new opportunities.

One opportunity opening up because of climate change is a new arctic trade shipping route.  It has the potential to save thousands of days at sea with a new shorter route than through the Suez Canal. Taking advantage of our geographic position on this new global trading passage could bring big opportunities.

Supporting nature and addressing climate change were top priorities emerging from The Action Project, and in Scotland 2070 the stewardship of our land and resources for future generations are key actions.  The authors investigate reforestation and the protection of Scotland’s biodiversity to boost Scotland’s economy, bring crucial rural jobs, and cultivate our global reputation as a leader in climate change. 

For the David Hume Institute the book provided food for thought and a chance to open discussion on a longer time frame.  It was good to hear from Scottish Youth Parliament member, Emily Nix MSYP who will be the same age in 2070 that the authors are now.

Emily highlighted young people want to see better stewardship of Scotland’s natural resources and long-term policy.  But something that needs urgent action is faster progress on access to high speed broadband, especially in rural areas. This is not something that can wait - lack of connectivity is holding some areas of Scotland back, and should be urgently addressed.

These issues came up time and again in research conversations as part of the David Hume Institute’s Action Project, but whilst there was frustration at the speed of progress there has been a huge change in people’s mindsets as we emerge from the crisis. People are no longer willing to return to normal, and have seen through the pandemic the impact they can have on their community and society. 

Everyone has a part to play in building a new vision for 2070 - share yours at WhatsYourAction.scot

Challenge for Change - diversity and economics

Challenging misconceptions about economics is essential to attract more diverse people into the profession. It’s time to bin the assumption that economics is just maths and a bit of money, and recognise the role it plays in changing our society. 

Dr Arun Advani and Mairi Spowage discussed at a recent David Hume Institute event the current lack of diversity in economics - both in economists and the subjects of economics research.  

Dr Advani’s research investigates diversity of academic economists and the topics of research papers compared to other social science subjects. For instance, economic papers related to race by volume of publications are at the same level political science was 30 years ago and where sociology was 40 years ago. The research also highlights how economists overestimated how much research was undertaken related to race. 

Arun and Mairi discussed how lack of different life experiences can lead researchers to make assumptions and not thoroughly interrogate data.  Increasing diversity of thought in the profession will help ensure rigorous research questioning and help to reduce the risk of bias.

Arun and Mairi also discussed the need to change the perception of economics as an area of study. Too often economics is painted as a field of maths or a subject solely focussed on money, rather than a social science open to interpretation. Economics can be about all areas of social policy and human behaviour - and is virtually limitless in the topics it can analyse.

The challenge is to shake off the old image and encourage more people into the profession both from school and career changers.  Mairi herself followed an unusual route into the profession with her early career being in statistics.

Watch the full event again here:

Find out more about David Hume Institute’s work on diversity of leaders in Scotland. 

Talking tax: Burden, duty or responsibility?

By Susan Murray, David Hume Institute

4th March 2021

Anyone who listened to the budget yesterday will have been listening through the lens of their personal experience, and that includes journalists.  The negative framing of tax limits understanding and discussion.  

The headline on this BBC News webpage changed throughout the course of today from “Budget 2021: UK's tax burden to 'reach highest levels since 1960s' to “Budget 2021: Rishi Sunak insists Covid-recovery tax rises fair”. The words tax burden jump out in the first first version. It is a term we see again and again and is perhaps overlooked. But the word burden is loaded, and is one whose meaning has changed over time. 

The historical meaning of the word burden was about duty and responsibility and it was in this sense that it was used in relation to tax.  Now the common meaning implies a weight dragging you down, rather than a moral responsibility to help others benefit from pooling risk and improving society collectively.

At recent David Hume Institute events we heard from Professor Benjamin Friedman on how Adam Smith’s Invisible Hand and the word wealth has changed meaning over time. Adam Smith’s use of the word wealth was much more akin to the word wellbeing today.  Professor Linda Scott spoke of the myth of “rational economic man”, a stalwart of economic education for years.

For tax, the word burden now seems loaded in negativity. It is less about responsibility and obligation and more about a heavy load being carried.  The word burden seems to come with the presumption that the load should be reduced.

I was struck recently watching the brilliant Ruth Jones on Who do you think you are? She investigated her grandfather’s role in creating Medical Aid Societies in South Wales, a forerunner of the NHS.  It was all about pooling risk and this seems to have been long forgotten when we are talking about paying tax or national insurance. 

Will Covid make a difference to views about collective solutions for managing risks?  How would we have faced Covid if the NHS hadn’t existed? 

Throughout our recent inter-generational research we heard contrasting views about tax which we will talk about more in the coming weeks. More accessible information about tax could improve understanding and empower the general population to hold government to account. 

Ten years after the publication of the Mirrlees Review, the level of quality debate around tax remains limited.  Yesterday’s budget announcements showed little impact of the Office for Tax Simplification, so what will bring change?

Last summer ICAS published The Future of Taxation in the UK which called for an open discussion about tax as a common good.  We need this now more than ever and we all have a part to play. It’s time to talk about tax without a language barrier.

Join the David Hume Institute in conversation with economists Dr Arun Advani and Mairi Spowage on 22 March to discuss Dr Advani’s latest research on diversity in economics. Register here.

Is rational economic man dead?

Blog by Susan Murray, David Hume Institute

25th February 2021

Put simply, yes. 

For the much more detailed answer, read Professor Linda Scott’s The Double X Economy. The book is a whistle stop tour of anthropology, history, science and economics. It firmly positions economics as a social science and shows how interpretation can vary depending on your personal experience.  Professor Scott’s much longer answer is that rational economic man never existed other than as a concept in textbooks.

The Double X Economy does for economics what Caroline Criado Perez’s book Invisible Women did for data. It brings together research from many sources and systematically debunks myth after myth relating to economics.

It is no wonder that the book is being shortlisted for business and science writing prizes, and in 2021 is being translated into 40 languages.

The Double X Economy discusses the historic origins of the myth about women’s inability to manage money.  And how this is connected to the lack of women’s voices being heard in economic debates or taken seriously as academic economists. For too long only a limited number of voices have been heard when it comes  to our economy.

I’ve heard many of the myths mentioned in relation to business in Scotland. For instance to explain away the stark differences in who receives venture capital funding “Women just don’t start the kind of businesses that scale.”

Linda examines this self-perpetuating funding cycle, that male-led businesses receive more funding and so they are more able to grow, so are deemed to be more successful, and the cycle goes on. Although there have been some in-roads in terms of new angel investors targeting women-led businesses, the majority of VC funding is still received by a narrow group of people.

The data clearly shows the volume of missed opportunity from an unequal economy - not just in terms of starting and growing businesses, but also in terms of managing and governing them.  By not valuing diversity of thought in business we are failing to allow organisations to benefit from a wide range of experience that can make organisations stronger - as well as risking group-think. As the David Hume Institute found in our 2020 analysis of Scotland’s top leaders, almost every sector in Scotland suffers because it lacks diversity, but business suffers the most. Just 5% of Scotland’s top business leaders are women. 

If we want a thriving economy it is time to stop wasting talent.  We must value diversity in all its forms and all work harder to achieve it. 

If you missed the event with Professor Linda Scott and Rachel Statham or would like to watch again, the recording is available here. Subtitles are available through YouTube.

If you are interested in diversity of thought in economics, join the David Hume Institute in conversation with Dr Arun Advani and Mairi Spowage on 23rd March to discuss Arun’s latest research on diversity in economics. Register here.

DHI Bites: Talking tax

With Dr Arun Advani, Dr Andrew Summers and Charlotte Barbour

The authors of recently published research discussed their findings with Charlotte Barbour, Director of Tax for ICAS and Susan Murray, Director of the David Hume Institute to reflect on the implications for Scotland.

The researchers from LSE and Warwick presented new findings from analysing anonymised HMRC data of the taxes paid by the UK's top 1% and explored the relationship of headline tax rates with capital gains, total income and tax reliefs. They suggested putting a floor on the lowest tax rates with an Alternative Minimum Tax.

ICAS has called for more "honest public debate about who should pay tax and how much they should pay". Often in Scotland discussion on tax focuses only on the powers at Holyrood. However this research shows when considering total income, there is a complex relationship of different tax rates for people that are able to restructure their earnings.

As the post Covid-19 economy emerges, focus will undoubtedly turn to tax and paying for public services. Should a post-pandemic UK consider an Alternative Minimum Tax threshold?

While we can't bring you the Institute's usual thought-provoking events during Covid-19, we are working on bite-sized online sessions - like this one - to discuss new research. To hear about these events sign up to our newsletter or follow us online.

Click here to download the presentation slides.

In conversation: Jonathan Taylor and Fran van Dijk

EICC Live and the David Hume Institute presents Jonathan Taylor in conversation with Fran van Dijk.