Rebooting the economy
Published 06/07/2020
Rebooting the economy
Roger Bootle is Chairman of Capital Economics, author of ‘The AI Economy’ and winner of the Wolfson Economics Prize. As the government sets about relaunching the UK, he shares his thoughts on the world of work, the future of education and where technology can play its part.
If ever we needed a dose of optimism, it is now after a pandemic lock-in and economic shut-down of epic proportions, and those who have heard Roger Bootle speak, know that optimism comes in spades.
“Well, I'm much less pessimistic than I think the majority of people,” says Bootle, speaking to me on the telephone, a welcome relief after a day of on-line video meetings. “It is possible it’s just ‘horrors-ville’ forever, and we never recover. That is to say we don't get a vaccine, or we never recover from the psychological scars. But I don't think it’s likely.”
Bootle is one of Britain’s best known economists. Born in Bushey in Hertfordshire, he read Philosophy, Politics and Economics at Oxford and started his working life as an economist in the City, eventually founding the consultancy Capital Economics in 1999. It was here he and the company won the Wolfson Economics Prize, second only to the Nobel, in 2012.
“Of course my background is economics,” he says, “and so I want to talk about economics. I find people just too pessimistic about these matters, often not knowing anything about them.”
Bootle sees the economic lockdown as essentially a supply-side disaster, but with one major exception; there is no destruction of physical capital. For those hard-core techies amongst us, supply-side economics argues that production and the supply of goods and services set the pace of economic growth.
As Bootle points out, in other major events such as world wars, disproportionately young, able-bodied and economically productive people are lost to society. In this case, the productive capacity of the economy has been virtually unaltered and there is still enormous pent-up consumer demand. Hence his optimism.
Communications revolution & working practices
While at Oxford, Bootle was briefly supervised by the Nobel prize-winning British economist Sir John Hicks, whose interest in economic history led Bootle to look for historical patterns in modern day events.
“What I can see happening,” says Bootle, “and this is merely what's occurred on a number of occasions in the past for these sorts of mega events, is the virus catalysing changes, which should have happened and probably would have happened anyway.”
Over the last 20 years the world has undergone a phenomenal communications revolution with very little impact on the structure of work. People have worked more and have worked in other locations, but there has been little change on the actual design of the working week, the shape of cities, or the role of the office.
“And now comes something from the outside none of us would have chosen or would have wanted and what it's done is demonstrated how good the technology is. And I've been flabbergasted,” he says. “I’ve been absolutely flabbergasted.”
“I've done so many (online) events”, he muses, “both small conversations or board meetings. I've also done conferences with 150 and 200 people. And it's worked incredibly well. But what if you went completely virtual, with all of us operating from home? How would you maintain the connections to provide the glue that makes something like that really work?”
We can safely say that one of the great ‘working-from-home myths’ has been busted; there has been little if any reduction in productivity. In fact, there have been reported increases and if the world falls apart, it will not be because people are not commuting to the office.
Bootle believes this technology realisation will have some businesses deciding to become completely virtual; that is to say they will not have a central city office. However, this leads us to ask another question.
“Everything that is done in a company,” he explains, “you could imagine is happening as a result of a constant process of negotiation and contracting between individuals. So why is there a company? Why do we do things in companies?”
Here, Bootle is referring to another British economist, Ronald Coase, whose 1937 article, ‘The Nature of the Firm’, posed the question; ‘why do companies exist?’ Given the traditional theory of market efficiency being achieved by providing goods and services at the lowest cost, you might think that it would make sense that production is delivered through individual contracts with people, without the existence of an institutional structure. But constantly contracting and recontracting with individuals in a constant state of competition carries costs. At the most basic level, we can avoid those costs by creating firms.
When investors are looking at the next big startup idea, there is little debate as to what they consider the path to success; always team first, idea second. Moreover, psychologists would explain the need to form groups as people being quite simply ‘social animals’ who believe they function better together and identify by being part of ‘The Club’. But is this true anymore? Do people really function better together?
The reason companies are formed, Bootle believes, is that yes, we do function better together. There is something more efficient about an entity, which whilst the very antithesis of the market, functions together for the common interest, with people operating in response to a command and control system. However, it is the definition of ‘together’ that he questions.
“We’ve functioned remarkably well so far,” he admits. “Incredibly well. But you would need to organise other things in order to maintain the glue that binds a company together. I think you could organise fairly regular get togethers, in our case that might be seminars or discussion meetings, and they could be in a hotel for the sake of argument, after which people will go back to their various abodes. And the question is whether a combination of those two things, a sort of professional gathering and frequent social get togethers, would be enough to produce the binding to create a firm and sustain it. I think in many cases, the answer is yes, it could. In which case you could dispense with the Central City Office.”
City structure
Investment in London's office space market dropped by almost a third in the first quarter of 2020, from the long-term average of £3.4bn to £2.3bn[1]. I venture to suggest this may open up more residential space as companies move out of city spaces or downsize.
“Well it's interesting,” agrees Bootle, “that if that happens, it will be undermining the demand for the office but it’s just at the time that online shopping is undermining the demand for retail space. And so, there's a double whammy really as far as commercial property is concerned.”
One important point to remember, and a potentially critical influence in the re-designation of city spaces, is that land base for residential purposes is worth much more than the space allotted to commercial purposes. Moreover, the relentless increase in demand for living space as people get richer continues. These two factors combined and we get the shift from professional or commercial occupation to residential. There is however another very important factor to take into account: in a completely free market, usage would simply shift from one purpose to another, but where governments become involved, property rights and usage via taxation and incentives have an impact on what happens next.
“If you walk around any major city,” he continues, “you’ll see lots of prime property, which not that long ago was residential, and now is commercial. An area I know very well, is St. James’s; you walk around there, all these wonderful residential houses occupied by the Gentry a hundred or so years ago and now they are travel agents, or some other sort of commercial enterprise. But they were built, originally, as splendid residential houses. So yes, I think we're going to see a reversal.”
Education
The world of work is not the only social construct open to change. Education also has the opportunity to move away from its industrial revolution roots and embrace new ways of learning.
Having spent much of his time in academia, commencing that phase of his career as a lecturer in Economics at St Anne’s College, Oxford, Bootle has much to say on the subject. Despite his bookish background he thinks there is quite simply too much academic education. In a slightly less optimistic tone, he is not convinced that this remote study experience is going to bring about that same level of reform the working world is facing.
Asking the question ‘what is education for?’ he goes on to say: “I'm a great admirer of education but I don't think it's right for the vast majority of people. It teaches you certain things but also squashes certain other things. I think in modern society, we've got to a point where lots of people think the answer is more and more academic qualifications and I just don't don't accept that or believe it. It doesn't leave people with a body of knowledge or skills that's useful for life or useful for society.”
Education imparts knowledge and skills to predominantly young people on the one hand and on the other constructs a series of arbitrary tests to sort out the ‘wheat from the chaff’. During a recent Education Summit hosted by Tortoise Media, nearly 54% on a live poll said exams do more harm than good. Society, Bootle believes, has created a hierarchy of academic qualifications over the years that create a profound tendency for people to lust after stamps of approval with universities and business schools often criticised for being far removed from the sort of life we lead, and the sort of life we create in business.
“Now the question is, with regard to learning skills and specifically life skills, are these things best learned academically, or are they best learnt in a form of employment?” he muses.
Bootle is convinced the best form of life education is essentially a form of apprenticeship. Throughout his career, his business Capital Economics, has hired young people, educating them not in the academic sense but in that which the firm does as a business; essentially a form of apprenticeship. They are assigned to what he describes as a ‘master’ and they are given certain basic tasks, taking on more and more difficult tasks as they progress, all the while being integrated into the production process.
Production in education turns out truly skilled individuals and so we return full circle to the world of work. While the change in working practices has not had as big an impact on those in manufacturing or construction, for a huge number of office workers this period of accelerated change has been a complete revelation.
“I think it was going to happen anyway because of technology,” concludes Bootle. “It's just as so often, new social habits sometimes need a jolt, else you get stuck just repeating how we've always done things. In the end, nobody knows what is going to happen, but one thing is certain; the model as we know it is now up for major, major questioning.”
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Roger Bootle is one of the City of London’s best-known economists. He is Chairman of Capital Economics, which he founded in 1999, and an Honorary Fellow of the Institute of Actuaries. From 1998 to 2017 Roger was a Specialist Adviser to the House of Commons Treasury Committee. He was formerly Group Chief Economist of HSBC and, under the previous Conservative government, he was appointed one of the Chancellor’s panel of Independent Economic Advisers, the so-called ‘Wise Men’. In 2012, Roger and a team from Capital Economics won the Wolfson Prize, the second biggest prize in Economics after the Nobel. His latest book ‘The AI Economy: Work, Wealth and Welfare in the Robot Age’ can be found here and here.
By Marie-Clare Fenech
Marie-Clare heads up the NextTechGirls partnership programme. She spent 23 years in Technology Recruitment and Executive Search as a Board Director and Operations & Business Development Head, and is heavily invested in the future of female talent. She was educated in Italy and graduated with a Bachelor's Honours degree in Psychology in the UK.
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