FEATURE FIFTY YEARS OF THE ESRC
A question of economics T
HE SSRC REALISED from an early stage that economics, and related areas such as business and innovation, were going to need substantial investment. The subject
has been the focus of major investment over the past five decades – the box at the end of the article shows some of the many programmes and centres in which this work is concentrated. Sir Christopher Pissarides is Chair of the
ESRC Centre for Macroeconomics and Associate of the ESRC Centre for Economic Performance (CEP), both at the London School of Economics, and in 2010 won the Nobel Memorial Prize for Economic Sciences, making him arguably the UK’s top economist. He says that the biggest advance in economics of the past 50 years is our growing knowledge of the way incentives influence people and markets. This awareness has influenced thinking in areas such as monetary policy and contract theory, as well as his own work on employment. Sir Christopher says: “We now know how to design systems, for example of company taxation and of unemployment insurance, that encourage employers to create jobs and which create an incentive for unemployed people to accept them.”
“ There is far deeper insight
into economic issues than was possible 50 years ago
This approach, he says, has involved economists going beyond traditional concerns such as the maximisation of reward, and addressing factors such as peer group influence that also affect economic choices. Perhaps unexpectedly, Sir Christopher adds that the reputation damage that economics suffered from the global financial crisis of 2008 was undeserved. He says: “We know that people will cheat if they can get away with it. The economist’s approach to this problem is first to stop them, and then to create incentives not to cheat. In 2008 the banks were selling junk securities as if they were a solid investment, and full information on what was happening only became available once the banks went under. Economics tells you this will happen. It’s the fault of regulators, not of economists.” He is also in no doubt that the link between economics and politics is going to remain important. He says that all parliamentary debates, and all actions by prime ministers and presidents, are
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Sir Christopher Pissarides says that economics is what wins or loses elections.
10 SOCIETY NOW SUMMER 2015
Economics is one of the most high-profile social sciences, with connections to the worlds of politics and business. It has been a central concern for the ESRC and its predecessor, the Social Science Research Council (SSRC), since establishment in 1965
influenced by one economist or another. As he sees it: “Economics is what wins or loses the election. In addition, it is the area of policy where politicians can do the most harm or good with their actions most quickly. Economic decisions, say on a tax rate that makes a firm decide to locate here rather than in Ireland, have a far more immediate effect than decisions in areas such as technology policy.” The national importance of issues such as
tax rates is one reason for the ESRC’s continuing support of the Institute for Fiscal Studies (IFS). The IFS has been a key player in the UK economic debate since 1969, known for its Green Budget and other publications intended to provide independent analysis of the public finances. IFS director Paul Johnson says: “It’s extraordinarily hard to assess the impact of our work, but I think it is large. We both hold politicians to account and inform the public. Over time, our ability to do this has improved as tools, data and methods have got better. But there is still a long way to go and there is still important data that the government refuses to release.” At the same time, he adds, the number of economists in the UK has grown dramatically, “for better or worse,” and with it the nation’s capacity to produce econometric analyses. So there is far deeper insight into economic issues than was possible 50 years ago. The IFS has grown into a major provider of analysis for the UK media and political system, and in academic circles. Johnson adds that relations with business are less deep, but there is certainly business interest in areas such as pensions and tax. Johnson points out that IFS has long had a
strong interest in green issues. This is an area in which the UK is influential, notably with Lord
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