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.

Blog: Are we picking the right top team?

by Lucy Higginson, David Hume Institute

8th October 2020

Have you ever looked around a meeting room and noticed lots of similar people?  The David Hume Institute’s latest research shows that the top leaders in Scotland do not reflect the diversity of the country. 

Diversity of thought and different life experiences can help problem solving and the ability of organisations to face shocks and build sustainably.

Lack of diversity in leaders is a threat which can lead to groupthink.  Investment companies like Baillie Gifford and Blackrock are increasingly analysing leadership diversity because of the links to increased profit and innovation. 

If I am honest, I thought the data would have shown more change in the five years since the Institute first undertook research with the Social Mobility Commission. 

We know work by organisations like the ICAS Foundation and the Law Society of Scotland is broadening entrants to their professions. Changing the Chemistry has been championing diversity of thought on boards since 2012 and the National Advisory Council on Women and Girls is now in its third year. Initiatives like Pass the Mic and Equate Scotland’s speaker lists are helping to broaden the voices heard in the media.

But this week the issue at the top of the legal profession was highlighted by Supreme Court Judge Lord Reed’s comments on the lack of diversity in our top courts. And, last month the experience of barrister Alexandra Wilson highlighted unconscious bias in the legal profession in England.  Law along with Business were the two sectors we found least diversity in the top leaders in Scotland.

Change is happening but it needs to happen faster at the top.

At the current rate, I will be retiring before the top leaders in Scotland are representative of the population.  

Why does this matter? 

We have big challenges on the road ahead.  The aftermath of Covid-19 and the immediacy of climate change means business as usual is not an option.  There is no time for fixed mindsets, leaders need to be open to being challenged.  Digital disruption means many new opportunities but there will also be risks. We need every leader to be on their a-game.

The challenges ahead mean Scotland needs all of our current top leaders to actively champion diversity and proactively provide the opportunities to ensure faster progress for everyone’s benefit.

It is time for deeds not words. 

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.

Blog: Prioritising priorities for economic recovery

Blog by Susan Murray, Director, David Hume Institute

20th April 2020

We are moving into a new phase of the Covid-19 public health crisis and thoughts are turning to the foundations for economic recovery.

The sudden and dramatic disruption of the shutdown, triggered an economic shock far bigger than anything we have in recent years. In a webinar, Adair Turner said the number one priority should be increasing consumption to help GDP return to pre-coronavirus levels. Many economists are emphasing the need to make this a V-shaped shock, a sharp decline followed by a quick sustained economic recovery.

But the shutdown has also provoked much reflection on how we are living our lives, both individually and collectively.

Post-pandemic we will still have a climate emergency.  The world’s resources are still finite.  Encouraging those that have money to spend unsustainably might not be the best way forward.

There is a chance to think about established norms.  For instance, will long complicated global supply chains still be desirable?  

Food security has fallen off the Government’s radar in recent years but an increasing number of people have taken action to grow their own food according to figures from the Royal Horticultural Society. Is this a sign of loss of trust in supply chains?

Acting locally doesn't have to be a substitute for thinking globally, it can be an ally. 

The Scottish Government was the first in the world to sign up to the Sustainable Development Goals.  Now more than ever before, these goals need to underlie decision making and ensure that it is not just the industry that shouts the loudest or has the best lobbying that secures public funding.

Scotland would not be alone in considering this as a chance to rethink the path ahead. A group of 180 political decision-makers, business leaders, trade unions, campaign groups and think tanks urged the EU to adopt green stimulus measures. Amsterdam has already shown leadership in announcing it is working with economist Kate Raworth, author of Doughnut Economics on delivering a “Doughnut City”.  

In Denmark bold leadership from the government means companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs.  Will other countries follow this lead?

Fears of the economic deficit must not be allowed to crowd out smart thinking. There are very strong reasons for not returning to business as usual so propositions aimed at taking us back to things as they were are particularly unlikely to constitute the best approach.

Constructing a positive way forward will involve embracing the complexity of our future choices.

The Scottish Government must hold strong to the UN Sustainable Development Goals and emissions reductions targets, and ensure any precious public money invested to reboot the economy, does maximum public good.

Blog: Can Scotland’s young people help bring home the harvest?

Blog by Susan Murray, Director, David Hume Institute

7th April 2020

The global economy is in sudden and severe recession.  Before Covid-19 everyone was talking about the labour market and migration.  Now, just a few weeks on, the debate is very different.  

Farmers are now desperately looking for people willing to harvest crops in Scotland. Recruitment websites have been set up to target redundant hospitality industry workers and farmers are trying Facebook posts to recruit workers.

Could young people who no longer have school work and exams come to the nation’s rescue to help bring home the harvest for everyone?

Until recently it was normal for people of all ages in Scotland to help with the harvest.  The legacy of this remains in the school holiday timings – an earlier summer holiday than England, a September weekend and in some parts of Scotland an extended October holiday. It was also normal for young people to have part-time jobs whilst still in education.  

Initially, any new recruits obviously won’t be as quick as the skilled migrants but thousands of young people will have been cooped up inside for weeks, surely there is a ready supply of labour?  Any new scheme would need to ensure it was in-line with government guidance on social distancing and correct health and safety but this would be a win-win.

There has been a steady decline in recent years of young people undertaking work while studying.  It used to be normal for young people to get Saturday and holiday jobs as soon as they were old enough.  Many had paper rounds from the age of 13 or worked in shops from 15 years old.  These jobs taught important life skills and encouraged independence, as well as ensuring a short distraction from the pressure of school work.

A recent report from UK Commission for Employment and Skills (UKCES) and London Economics “The Death of the Saturday Job” showed a stark decline in young people working while studying. Exam grades have become the sole focus for many young people, whilst employers bemoan the lack of transferable skills of new entrants. 

The stark decline of earning while learning in the UK has not been seen in other OECD countries like Germany, the Netherlands, Australia, Switzerland and Denmark. This lack of exposure to working environments means young people are not developing life and employability skills in the same way as their peers in other countries.  

Even for those young people already in work, an IFS report shows the under 25s and women will be most hit by the impact of Coronovirus shutdowns.

Encouraging available young people to help with the work that desperately needs doing could be the answer if we are to avoid losing a harvest and young workers to a post Coronvirus slump.  Having a daily purpose can help avoid depression and develop skills that lead to higher earnings in future.  

The evidence in both reports is compelling.  

Even without the immediate desperate need for farm workers in Scotland, youth employment – earning while learning - is important and should to be encouraged.  

Blog: The migration debate is moving on

Blog by Susan Murray, Director, David Hume Institute

20th February 2020

Confession:  I am a migrant.  Generations of my family have moved within the UK for work.  Like many migrants, I chose a place I wanted to live because of the quality of life and found a series of jobs that have enabled me to stay.

Many headlines yesterday on the latest UK migration policy announcement seem to forget migrants have choices.

I attended three events in the last three days related to different aspects of Scotland’s future labour market and migration.  The discussion in Scotland could not feel more different to the Westminster driven headlines. 

The panel at yesterday’s event included representatives from the farming and hospitality industries.  The audience included representatives from social care and other industries. All were completely dismayed by the latest proposals announced.  Frustration was voiced at the amount of time spent feeding data into the Migration Advisory Committee and to Home Office officials, as well as hosting UK Government Minister visits only to find the proposals show no sign of being listened to. 

Data and evidence seems to have been dismissed.  The numbers don’t add up.  And, the conversation, shut down.  

For instance, the figures for agricultural workers quoted at 10,000 is the number that is needed for Scotland alone.  NFU states the minimum number needed for the whole of the UK is 70,000.  

What has been proposed is not what was promised throughout the Brexit debate – an Australian points based system.  

Is that because the Australian system is a regional points based system with variations to target different needs across the country?  The Australian system has seen migration rise, not fall, as is the stated aim of the UK Government policy.

However, the hostile rhetoric means migrants that have choices and are already voting with their feet.  The fall in the pound means it is no longer so attractive for migrants to work in the UK as they can earn more other countries.

The General Teaching Council for Scotland has already seen significant drop in applications from European Countries. The numbers have “fallen off a cliff”.  

Only time will tell if the welcoming “Scotland is Open” message being promoted by the Scottish Government will cut through internationally over the hostile message from the UK Government.  If it doesn’t, Scotland with already low unemployment, will face stark challenges in many industries.

The work of the British Council in Scotland published this week on Soft Power shows this will become increasingly important.  

Valuing our values was at the heart of the discussion on Soft Power.  Scotland is respected across the world for its values, which are critical for building relationships and our international reputation.

Scotland is now campaign poster on the London tube, February 14 2020.

We know from our recent work on Scotland’s labour market, Who Will Do the Jobs? that attracting migrants to work in Scotland will be essential to sustain public services. This is a discussion of hearts as well as minds.

 Understanding soft power and its ability to influence migration will be critical for this.

Thinking closer to home, Scotland already has net inward migration from the rest of the UK.  

People are moving here because of the better quality of life and progressive policies.  The latest Scotland is Now campaign aims to increase this further.

Having lived in Scotland for over 25 years, I love that our values are different from the south of England where I grew up – the daughter of a Scottish migrant.  I still appreciate the differences including small everyday demonstrations of community and kindness showing distinct values.

The climate emergency has focussed minds across the world on the importance of natural and social capital.

Scotland’s values, its natural and social capital will be increasingly important for the future of our economy and our prosperity.

Blog: Population projections and policy - think local, think global!

Blog: Sarah Wotton, David Hume Institute

6th February 2020

Scotland’s population is at its highest level ever and it is projected to grow by 3% in the next 25 years. What does this mean for Scotland?

The audience at our Firestarter event, in partnership with National Records of Scotland (NRS), heard yesterday future projections are estimates informed by past patterns continuing.

Dr Esther Roughsedge, Professor Michael Anderson and Rannvá Danielsen discussed past trends and how they have led to significant regional differences in population which policy makers need to consider.

Scotland has one of the lowest fertility rates in Western Europe. For many years the number of births in Scotland has roughly equalled the number of deaths, though there are now more deaths than births each year. In recent years, migration has been the only source of Scotland’s population growth. 

In November, we heard from Professor Graeme Roy that the working age population is critical to our ability to fund public services.  Migration provides a higher proportion of our working age population than in the rest of the UK (rUK). 

Professor Anderson explained that in fact Scotland currently has a larger ‘working age’ share of the population than it did in 1981.  It is the ageing profile of our population which makes continued working age migration critical to Scotland unless alternative methods can be found to fund public services or the public services provided change.

The discussion focussed on the regional variations within Scotland and comparison to rUK.  For example, over the next 20 years the population in Midlothian is projected to grow by around 25%, whereas the population of Na h-Eileanan Siar is projected to fall by around 11%.  The audience were interested in whether there is depopulation of some areas, for example Edinburgh City Centre, due to short-term lets and how this might affect future service provision such as public transport.

The West Coast and Island groups, which represent one third of all Scottish council areas, are projected to have declining populations until 2041.  However, within this, the Isle of Mull is an outlier.  With a third of the population now born in England or Wales (a high proportion of whom are older migrants), Professor Anderson reflected on the transport connections to Oban having significant influence on relocation, especially in early retirement. This pattern is resulting in Mull’s population evolving rather differently to nearby islands of Tiree and Islay which have had declining populations. 

Scotland is projected to have a 23% increase in people of pensionable age by 2043.  As the population ages, more of us are living alone which means that household numbers are increasing even faster than the rise in population alone.

The East of Scotland and areas surrounding Scotland’s cities are projected to have very rapidly growing populations due to inward migration trends.

About one third of migration to Scotland is from the rest of UK. There are now far more English people migrating to Scotland than vice versa.   

Polish is the most common non-British nationality in Scotland and Edinburgh has the highest proportion of Poles anywhere in the UK due to historical links with the city. However, net migration from other countries can fluctuate rapidly, and recent patterns could change as a result of Brexit.

The Seafood processing and catching sectors in Scotland are heavily reliant on migrant workers, especially for unskilled to semi-skilled work.  These sectors have more EU and non-EEA workers than the UK average and are reliant on this workforce, especially the processing sector. 

On surveying the processing industry, the biggest influence on the need for overseas recruitment was the unwillingness of local people to work in fish factories which were seen to be ‘wet and cold’. 

Policies focussing on attracting and sustaining migrants will be critical for industries like food processing.  

From the discussion it was clear, Scotland’s populations are changing quickly.  Increased awareness of the regional differences within Scotland and comparisons to the rUK will help anyone thinking about future public policy approaches in Scotland.  

The David Hume Institute would like to thank our speakers, NRS and Seafish for their support with this event.   Slides from the speakers are available here.

Blog: Migration discussion needs open hearts and minds

Blog by Susan Murray, Director, David Hume Institute

27th January 2020

At the launch of the Scottish Government’s policy paper “Migration, helping Scotland Prosper” today, it is clear we need open hearts and minds for Scotland to flourish.

The policy paper clearly lays out Scotland’s distinct demographic challenges.  The David Hume Institute research report Who will do the jobs? (September 2019) is quoted and our Autumn events with Jonathan Portes, Michael Anderson and Graeme Roy discussed this complex issue in depth.

All the evidence shows migrants are critical to the Scottish economy.  They are an important part of our working age population which funds our public services. Many of Scotland’s rural communities are dependent on migrant workers.

However, too often in conversations we have seen recently elsewhere in the UK, evidence and reasoned arguments don’t matter.  Food can rot in the fields because migrant labour no longer feels welcome, as long as the individual’s idea of a prosperous post Brexit future prevails. The pigs in blankets shortage may have been considered amusing by some but it was another sign of labour supply issues.

The message today from the First Minister was clear – Scotland is open.  But do all our communities feel that way?  Some of the views from the recent citizen assembly show they do not. 

The Scottish Government policy paper clearly makes the case for a different approach to migration in Scotland. However, when it is published on the same day the Scottish Government launches a Hate Crime fund for places of worship, it’s an indication much more needs to be done to appeal to people’s hearts to create a welcoming and tolerant Scotland for everyone to prosper together.

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

New Report: Who will do the jobs in Scotland?

Current employment rates in Scotland are at a near-record high. However, Scotland’s population is ageing fast and there is a low birth rate.

By 2041, the pension-age population is projected to increase by 265,000, while the working-age population is only projected to rise by 38,000.

This report discusses the challenges facing Scotland with changes to migration patterns and a shortage of workers. What can we do to meet the labour supply challenges in Scotland. Who will do the jobs?

2019 Summer Reading List

Each year, the David Hume Institute publishes a Summer Reading List. It is intended as a fresh way to stimulate debate about the state of the nation and brings together some of the best writing from Scotland and beyond. While the Institute does not endorse every view expressed in the books, they have been chosen because they are good reads, based on sound evidence.

The publication explains the reasons behind the list and why we chose the specific books on this year’s list. We hope they provide some enjoyable, thought-provoking reading for your summer.

New Report: Scotland's Productivity Challenge

Scottish productivity has all but stalled in the last fifteen years and a turnaround is required if future living standards are to improve. This report makes recommendations for government, policymakers, business and trade unions, based on the conclusions of new research and case studies. It details five evidence-based stories of what has worked in comparable places and draws lessons from their experiences. In each case a ruthless focus on evidence, building consensus across the political divide, and developing strong and credible institutions were all necessary to turn things around.

2018 Summer Reading List

The David Hume Institute is delighted to present its inaugural First Minister’s Summer Reading List. Bringing together some of the best recent writing from Scotland and beyond, the list is intended as a fresh way to stimulate debate about the state of the nation and the world. While the Institute does not endorse every view expressed in the books, they are all good reads, based on evidence and with something of significance to say. We hope the First Minister – or indeed any Scot – will find them thought-provoking and an enjoyable addition to their summer break.