The Economic Statistical Centre of Excellence (ESCoE) held its Economic Measurement 2023 Conference, in collaboration with the Office for National Statistics (ONS), at its host institution, King’s Business School, King’s College London. Around 300 attendees gathered at Bush House on Aldwych to engage with and contribute to tackling the challenges of measuring the modern economy. In this blog we select a few highlights, and give a sense of how the conference addressed some of the most important measurement topics for the UK economy.
The first day of the conference opened with an address from ESCoE Director, Rebecca Riley (King’s College London), followed by a keynote speech from David Miles (Imperial College and Office for Budget Responsibility). David’s talk focused on the impact of working from home, interest rates and shifting population demographics on changes to UK house prices over the next forty years. He argued that we may be seeing the end of dramatic price growth. One significant determinant of house price growth over the past forty years has been the falling real rate of interest, but over the next forty years this is not likely to fall and may even rise to some degree. As the population growth declines competition for property will decrease reducing price pressure; and as more people work from home, geographical demand for properties will even out across the country as people live further away from their place of employment. This work made ripples in the national press, with reports from Bloomberg, The Guardian and The Times covering his speech.
The panel session of the day featured reflections on the challenges of measuring non-market outputs – such as state provisions like defence, education and healthcare – in the National Accounts. Work from the ONS and the OECD in this panel highlighted that different countries measure the value of these outputs in different ways, so making international comparisons can be rife with difficulty. These differences in data are exacerbated by disagreements about concepts: where the System of National Accounts explicitly endorses quality adjustment for non-market services, the European System of Accounts explicitly rejects them. When combined with differences about the extent of market provision across countries, and differences in their responses to the Covid-19 pandemic, it is easy to see the potential for questions about international comparability.
Day two started with a special session interrogating lessons from the Management and Expectations Survey (MES) – a collaboration between ESCoE and the ONS, funded by the ESRC. Rebecca Riley summarised the findings from research using the MES, followed by Nick Bloom (Stanford), who took us through the origins and development of the World Management Survey. James Phipps (Innovation Growth Lab) and Dan Mawson (Department for Business and Trade) brought a policy perspective to management practices research, noting that government now recognises that management is an important influence on firm performance.
The second keynote of the conference was on ‘The cost of computing and the productivity puzzle’ by Diane Coyle (Cambridge). In her speech, Diane showed how the cost of computing had been on a downward trend for many years. She examined growth of digital activity, observed that it is hard to measure productivity in this area, and concluded that “three quarters of the economy is hard to measure”, which underlines the challenge for ESCoE. In an age of rapid digital innovations in machine learning and cloud computing, but at a time when Moore’s Law – the principle that computing power doubles every two years – is slowing down, Coyle examines the relationship between declining productivity, the cost of computing, and the challenges of measuring the value generated by digital innovation.
She showed that post-2008, productivity has risen among the activities of households as employers, but has dropped off significantly in agriculture, and interestingly, in the information and communication sector. Coyle argues that part of the reason we cannot clearly see the impact of computing on productivity is because it is being used to do different things. She suggested that to better appreciate the value of digital innovation, we need to look at productivity in the context of processes, rather than discrete products. Indeed, for many activities in the modern economy there is not a natural volume unit to measure. Rather, price and other differentiators between firms are driven by intangible factors, such as quality (rather than volume). Coyle suggests that we may need to review how we measure productivity; rather than seeing computation power as a binding constraint on productivity, we should recognise some of the fundamental changes to economic activity in the modern economy.
A panel discussion on how we measure progress towards an environmentally sustainable economy raised green economy issues. Matthew Agarwala (Cambridge) highlighted the importance of inclusive wealth, allowing for natural assets, versus income when going “beyond GDP”. Anne Owen (University of Leeds) made the salient point that “any measure of progress to a green economy needs to consider its impacts felt globally as well as locally”, while Laura Marsiliani (Durham Business School) investigated how we can measure the effects of climate mitigation policies in emerging economies.
The final day of the conference opened with Javier Miranda’s (IWH & Friedrich-Schiller University Jena) keynote speech on the decline of business dynamism across nineteen European countries, which he compared to data from the United States. Business dynamism measures the rate at which firms enter the market, grow, and leave the market, and this rate is indicative of economic growth and the creative destruction necessary for resource reallocation and thus, economic sustainability. Miranda presents evidence that entrepreneurial success is rare: most start-ups fail and only a minority become large firms. He shows that in the US, high growth firms (those with growth upwards of 25%) make lasting contributions to jobs and productivity: 12% of firms comprise 50% of the revenue generated. There is clear evidence of a decline, evidenced by widespread reduction in job reallocation rates, accompanied by a decline in the number and the share of activity of young firms across America. This decline concerns all economic sectors and appears to be driven mainly by within-sector dynamThics, rather than cross-sectoral reallocations. However, businesses are increasingly experiencing the innovation and demand shocks – especially during the COVID-19 pandemic – that should spur dynamism, but they are not responding to them as they once did. Javier’s research shows comparable outcomes across most European countries: high growth firms are experiencing sharp declines in dynamism, underpinned by a lack of responsiveness to market turbulence. He argues that this is due to the rise in large ‘superstar firms’ gaining market power and automating more of their processes.
Slides and recordings for the conference can be found here.