On Alternative Indicators of National Success, and the Value of Data
Gross Domestic Product (GDP) was the first attempt to measure everything that is going on in an economy, but of course it’s an incomplete measure — we’ve known that for a long time. GDP is a measure of flow and not of stock: if you run down your natural resources, your income grows but your total wealth diminishes and that is not captured in GDP. After an earthquake, GDP may go up during reconstruction, yet it would be absurd to suggest that people are better off because of the disaster.
But people like simplicity, so looking at one number that is comparable across countries seems like a good idea and that number has been GDP. In the absence of anything better, it’s what people revert to. The challenge is to come up with better measures. I am not suggesting that anyone stops measuring GDP. It is more a question of supplementing income indicators with other sensible ones. We should think more about measuring people’s wellbeing in ways that comprise a broader view, allowing for things such as health and sustainability, environment, people’s capabilities, whether they’re flourishing or not, and so on.
We know that wellbeing rises quite rapidly with income, and then flattens out — this suggests that you could increase your overall national wellbeing by helping the lower end of the economy and reducing unemployment. In Singapore, with full employment, the bigger benefit might come not from creating jobs at the lower end, but perhaps by improving the quality of the commuting experience, for instance.
I think it is quite important for every country to be looking at its own performance relative to what it ought to be, given its public policies, investments, quality of services and employment rates. The concentration of thinking on wellbeing and what we value will help people realise that the pursuit of income alone is not going to achieve the goals we think it will. In the meantime, we should err on the side of collecting more data now, so that we will learn over time what is really valuable to society, and what perhaps we can do without.
I’m generally in favour of openness and transparency in terms of data. It allows people to understand what’s really happening; informed debates are always better than uninformed ones. Also, the private sector will quite often come along and use available data to create useful services that have not been possible or thought of before.
Of course you need to think about the benefits that you get from greater openness and do your own cost-benefit analysis. It is not a case of “publish everything and be damned”. In the UK, we expanded the publication of public service wages from the top down to the middle level, hoping to put downward pressure on wages. But this created a lot of resentment, when people started looking around and comparing their salaries to others in their grade or those in the private sector.
The concentration of thinking on wellbeing and what we value will help people realise that the pursuit of income alone is not going to achieve the goals we think it will.
On Capabilities that the Public Sector Will Need in the Coming Decade
It is very important to be measuring capabilities. One of the things I did when I was in the UK was launch a programme called Capability Review, where we look at various skills such as strategic capability or service delivery. We found that in an environment where we are trying to explore alternative ways of delivering services, one of our weaknesses was commissioning. So instead of doing everything ourselves, we set up contracts and commission services from someone. But how do we specify that contract? It is a skill that we will need more of in future.
Many aspects of the public service will need to be professionalised: human resources, IT, process re-engineering and so on. We will also need people to design better online solutions, which have enormous untapped potential for service delivery. The next generation of online services needs to be more intelligent: for example, systems that “cross-sell” services. When people apply for one benefit, we can make them aware of other benefits for people in their position and so on, based on the data available.
We should be aware that we tend to come up with the kinds of solutions for the world we’ve been in.
When it comes to delivering public service to a vast number of people, one of the benefits of online systems is that they enhance fairness. A computer is not going to treat you differently because of how you look, or discriminate based on stereotypes or bias. This fairness and predictability are good for citizens.
However, we should go on to determine those things that can only be done face-to-face for various reasons, and concentrate resources there. There may be disadvantaged groups who cannot use online systems or who have multiple problems that do not fit standard guidelines. These call for bespoke solutions, and we need people with the right skills to help them.
So one of the things we will need is public servants who are better at interpersonal relations and who can understand the kinds of problems experienced by the people they are dealing with. We therefore need to draw our public servants from much more diverse backgrounds, with more varied sets of experiences.
On Meritocracy, Diversity, and Behavioural Insights
One of the great things about civil service is that it should be the ultimate meritocracy. We should be the ones that show no fear or favour, who are not biased one way or the other. We should have people of diverse backgrounds. Our civil servants should simply be the best at what they do.
The question of course is how we define “the best”: I think these should be people who have a range of skills, rather than those with the highest IQ scores. However, what may have happened is that we’ve defined “the best” narrowly, and having defined it in that way, we continue to hire people like ourselves — not surprisingly, because we’ve defined ourselves as the best.
We should be aware that we tend to come up with the kinds of solutions for the world we’ve been in. So if you ask an economist for a solution, he’ll probably suggest a tax or a subsidy. If you ask politicians who sit every day in a legislative body, they’ll probably come up with a legalistic answer. Whereas if you ask someone who has lived that problem — say you ask ex-prisoners about how we can help prisoners to stop re-offending — you’ll probably get some really interesting answers.
We need to start working with and thinking about a world inhabited by humans — humans who make mistakes, who can be inconsistent, dishonest, short-sighted, who do things they later regret. All of these shortcomings give rise, one way or another, to public policy issues. Building up public policy interventions around the basis of understanding how real people make choices, I think, has fundamentally got to be right.
Certain quarters think of this as an attack on economics. Now, my first job was as an academic economist and I still think of myself as an economist foremost. What I’m trying to do is to create a much richer field of economics, which has a lot more to say about public policy. The point about behavioural economics is to look at real evidence, about the way actual people make decisions. There is a very good piece by Ronald Coase in the latest Harvard Business Review where he argues that we need to start developing economics that treats man as man is and companies as companies are.1
On Foresight, Long-Term Planning and National Resilience
It is important to keep an eye on both current and long-term trends. Some issues that citizens complain about will quite often disappear from the public eye if something is done about it. But there are other issues where early policy action can prevent what could have been a terrible problem later. For instance, look at what Singapore has done with water — it is no longer a significant issue for the people of Singapore today, but only because of the government’s long-term thinking and investment in the past.
In that sense, Singapore has done incredibly well in thinking ahead, and it is important that you do it well. I come from an environment with a great degree of political change, so an element of change is built in for us. We live in an unstable world. But you have a very stable political system and you might be tempted to wish that stability will continue. When you are in such an open and vulnerable situation, I think what you need to be doing is to build resilience: resilient individuals and institutions that can manage shocks.
We need to start working with and thinking about a world inhabited by humans — building up interventions around the basis of understanding how real people make choices.
A resilient society can withstand big shocks and bounce back. During World War Two and the recent terrorist attack on the Tube, there was public determination in Britain borne out of a feeling of a just war, and of not letting the terrorists win. The politicians and the public were aligned, and the attacks were not allowed to completely disrupt life. We proved resilient.
But our banks failed the test of the recent financial crisis. Almost all of them were bankrupted and had to be helped out by the government. We could afford the small risks but we didn’t think about the big shocks. We now know that we should have been thinking about a much broader range of possible future outcomes and different institutions will need to be tested. It may be in areas where nothing much has happened that the capacity to respond to really big shocks diminishes.
At the same time, I think what we do in public service as well as the way we set things up supports national resilience. For example, the financial crisis put many individuals in shock: through redundancy and becoming unemployed, with personal finances being depleted when people get sick and so on. So by helping people to get back to work, supporting them in the period when they haven’t got any income and providing healthcare help when there’s been a sudden accident, we are helping to build resilience in our society.
ABOUT THE AUTHOR
Lord Augustine O’Donnell served Prime Ministers Tony Blair, Gordon Brown and David Cameron as Cabinet Secretary and Head of Civil Service from 2005 to 2011. He stood down from this position at the end of 2011 and was appointed to the House of Lords in January 2012. Prior to his role as Cabinet Secretary, he served as Permanent Secretary of the UK Treasury from 2002 to 2005 and as press secretary to Prime Minister John Major from 1990 to 1994. In 1999, he was appointed Managing Director of Macroeconomic Policy and International Finance and was responsible for fiscal policy, international development, and European Union Economic and Monetary Union.
Lord Gus studied economics at Warwick University and then Nuffield College, Oxford, before lecturing in political economy at the University of Glasgow. He has honorary doctorates from Warwick and Glasgow universities.
In his first visit to Singapore as CSC Senior Visiting Fellow in November 2012, Lord Gus spoke on "Innovations in Governance and Leadership", and headed a Roundtable on "Income Inequality, Social Mobiilty, Well Being and Behavioural Economics". He shared these views in conversation with ETHOS Editor-in-Chief Alvin Pang.