Productivity lessons from California and Constable’s England Top of the Charts 25 February 2022 Torsten Bell Afternoon all, The idea that 2022 was going to offer a world, emerging from the pandemic, relief from dark times has not aged well. This week has been unremittingly grim. The violence Ukrainians have had to live with for eight years has sharply grown in breadth and depth, while our words, tears and sanctions are of little use to those living in Kyiv as Russian forces approach. In time the conflict will also broaden and deepen the living standards squeeze here at home – with wars generally boosting inflation, and in this case certainly driving up the price of oil and gas. The chances of low- and middle-income households getting some respite from the growing squeeze on living standards later this year are receding rapidly. And if that’s the case it’s inconceivable, whatever they say now, that the government’s recent package on energy bills will be the final word. Best, Torsten Chief Executive Resolution Foundation Red Great Wall. Long before the Red Wall was dominating discussions of our economic geography, the Great Wall of China was getting built (during the Ming Dynasty, 1368 to 1644). This wall has long-lasting impacts on China’s economic, and demographic, geography, according to a recently updated paper. The almost 7,000km wall, originally built to keep out nomadic tribes from the north, has provided a lasting barrier despite being out of use, and the Chinese empire extending far beyond it for hundreds of years. Today 11 per cent more ethnic minorities live in towns near but north of it, compared to those to the south. Towns north of the wall are also less economically developed than towns south of the wall. We’re not the only people with a north-south divide. Productive privatisation. Time for some (domestic) rewriting of history. The effect of enclosure (privatisation) of common land by Parliament (from 1700) was a huge deal in Britain – praised as a sign of progress in the 19th century, or derided as an attack on the poor in folk music to this day. The dominant view from the 1970s onwards has been that contemporary analysts were idiots, and that enclosure didn’t raise agricultural productivity by much, instead just raising inequality. But an understated new paper blows that argument apart, finding that parishes enclosed by parliament saw agricultural yields rise 45 per cent, at the price of big increases in inequality/land concentration. So, something to keep Whig Historians and folk singers happy. Awaiting Augar. It’s been over two years since the Augar report on Post-18 education – with the government finally responding this week with big student loan/fee reforms. They reduce how much graduates have to earn before they repay their loans to £25,000 and ask them to pay for up to 40 years, rather than the current 30. The effect is to increase the amount that low- and middle-earning graduates, who wouldn’t have paid off their loan under the old system, pay significantly. The Government also reduced the interest rate charged on student debt, benefitting higher earners who will now pay off their loan more quickly. Michelle Donelan, the HE minister, sets out the case for reform clearly in this blog while the IFS provide a useful analysis of the package. The winners = the Treasury, higher earners, men, and universities fearing fees would be cut. The losers = women and other middle-earning graduates. We’re hosting an event with Philip Augar to discuss the future of HE on 9th March. Sign up here. Mais musings. The Chancellor delivered the Mais Lecture yesterday. It got little attention for obvious reasons, but deserves some for engaging with serious questions. And there’s no Peppa Pig. Sunakism is 19th century liberalism (there’s limits to what public sector can do) meets Silicon Valley (innovation!). The support for lower taxes/a smaller state is inevitable for a Tory leadership contender, and credit’s due for rubbishing the idea that you can cut taxes and raise revenue. But there’s not much sense of how a smaller state might happen (anyone think we’re cutting the military after this week?). He uses our own Economy 2030 Inquiry research to (rightly) argue that British firms’ reluctance to invest is the number one cause of our weak productivity, although underplays the roles of the macro environment (Brexit?) in that regard. The main policy out? Reforms to our corporate taxes to encourage investment in capital, training and R&D are coming. This is basically moving us towards the European model of higher headline Corporation Tax rates but more generous (complex) deductions. Nigel Lawson would not approve. Insecure incomes. The data sources most economists rely on provide snap shots of household incomes – allowing us to identify who is low income, for example. But this can lead us to give too little focus to changes over time, underplaying the importance of volatility of income. We’ve previously used bank account data to show that while such volatility probably isn’t rising in terms of people’s earnings, it’s very high. But how people cope with that volatility requires much richer engagement with the pattern of their lives and support networks, so it’s worth reading this short paper documenting the important roles of family and friends in helping those on low incomes cope with income shocks. The author focuses on a small number of real case studies, spelling out clearly that while such help can be a lifeline, it is also very far from universal. Lots of lessons for us, including that certainty of income, not just its level, is important when it comes to earnings and benefit payments. Chart of the Week Last week, we brought you news of the post-2004 asparagus growing boom. We’re continuing the food theme this week, focusing on what we put in our mouths rather than what grows in the ground. COTW is a sneak peak from next week’s Economy 2030 report (come to the launch) on the impact of net zero on household consumption. It shows staggering changes in meat consumption over recent decades – long before the current vegan drive set it. Sheep-lovers can rest easy: our consumption of unprocessed lamb and mutton has fallen by three-quarters since the mid-1970s. Unprocessed beef is also down big time (50 per cent) but everyone’s gone chicken mad (consumption is up by three-quarters) – which explains Nandos taking over the world. The net zero link here is that consumption of carbon/land-intensive foods (i.e. meat and dairy) needs to fall – leading some to call for a meat tax. But the good news, as the chart shows, is that consumption falls are happening already. Average meat consumption fell by 17 per cent over the decade up to 2018-19. Everyone’s a winner if the vegan revolution means we can save the planet, without relying on food price rises that are particularly difficult for lower-income families to cope with.