Incentivising an Ethical Economics (IEE) is a case-study in the use of history to inform public policy. IPPR asked for a radical plan for transforming the quality, as well as the quantity of UK economic growth, which has been stuck in a low-productivity trap for a decade.
While some may suppose that turning to history and what happened in the past is hardly likely to produce radical plans for the future, this could not be more mistaken. All professional historians will attest to society’s capacity to forget entirely or misleadingly misremember the past. After all, it is digging up these forgotten truths, by turns fascinating and discomforting, heart-warming and heart-rending, which keeps historians in a job.
IEE begins by radically re-calibrating the relevant timescale for assessing the problem, locating the contemporary ailments of the British economy within a 400-year timeframe. Secondly, it foregrounds the salience of a distinctive feature of Britain’s early modern history, largely unknown to social, economic and policy scientists today.
The first universal, national social security system is not a twentieth-century invention. It was established, following six decades of experimentation, by Elizabeth I in 1601. In other words, England’s precocious economic success was accompanied from the start by a system of universal entitlements to social security and healthcare.
The Poor Law Act of 1601 protected all subjects of the Crown from the vulnerabilities of food shortage, illness, disability, orphanhood, old age and involuntary unemployment. It did so through a progressive tax on the value of land levied in every parish (Slack, 1990). Uniquely, the English were consequently freed from famine mortality over 150 years earlier than elsewhere in Europe. Furthermore, the young were liberated to flock to towns and cities for the better-paying artisanal and manufacturing jobs, safe in the knowledge that the rural elder generation was provided for. This labour mobility was a crucial facilitator of England’s exceptional, sustained economic growth, which was powered by a 350% urbanisation rate c.1600-1800, compared to just 10-25% elsewhere in Europe (Wrigley, 2004).
Thus, the causal relationship between the origins of modern economic growth and universal welfare systems is exactly the opposite to that often assumed. In the 1940s William Beveridge did not invent, he reinvented such a system for Britain. The conventional wisdom has been that economic growth came first and then, when societies became relatively prosperous democracies, their citizens voted for the comforts of universal welfare states, as a kind of ‘luxury’. However, history shows us that in England, where modern economic growth had its originating epicentre, the population enjoyed a universal provision of social security and healthcare which was unique in the world at that time, endowing its economy with labour mobility advantages like no other.
This has been so thoroughly forgotten because it was succeeded in 1834 by the Victorian Poor Law of the workhouse, which seared into popular memory a much different, deliberately harsh and deterrent regime. This followed the new ‘individualist’ teachings of Adam Smith, Malthus and Ricardo and the utilitarians’ pleasure-pain view that workers must not be indulged into idleness but goaded and incentivised to work for whatever wages the market offered. Turning its back on nurturing its own working class, by the 1870s Britain’s productivity growth turned down for the first time in a century, overtaken by German workers enjoying national health insurance from 1883 and Americans enjoying a drive towards universal secondary education by 1910.
Britain’s dismal productivity did not recover until the first-ever majority Labour administration of 1945 re-implemented the universal welfare provision that had powered the long gestation of the industrial revolution in the first place. Paid for out of progressive taxation, universal free health care was accompanied by a doubling of spending on education from 2.7% of GDP in 1939 to 6.4% by 1975. Productivity growth fired up once again: three times higher, at 2.4% per annum from 1950 to 1973, than during the entire period of 1870 to 1937.
But this successful growth policy was once again overturned during the 1980s when (neo-) liberalism was re-installed, taxation on the rich reduced and corporate leaders encouraged to value their own private gains over making contributions to society or building long-term successful businesses (Piketty, 2014: 509-10). The immediate cost was an extraordinary doubling in child poverty rates from 1979 to 1990 to over 30%, while spending on state education was cut by 33%. The current decade of austerity has brought further cuts in health, education and a paring-back of benefits, with two thousand foodbanks plugging the gap in our welfare state.
The UK has a severe productivity puzzle today in large part because so much of its workforce has been systematically neglected for decades. History tells us that this will only be tackled when we re-engage with the urgent need to re-invest in the security, health and skills of all the population.
Although it is a truism that history rarely repeats itself in any exact sense, IEE is one example of the policy lessons available by looking back in time (Tosh, 2008, Woolcock et al, 2011). Additional diverse examples can be seen among the 200 short, accessible policy papers authored by professional historians on the History&Policy website (founded in 2002).
In our case, in proposing a contemporary policy solution IEE draws on a further piece of Elizabethan statecraft – the masterly 1601 Charitable Uses Act. With the wealthy mandated to support the poor through poor relief, this Act incentivised them to choose to do so instead by gaining kudos for their good works: a flow of charitable almshouses, schools, apprenticeships and even hospitals ensued. The wealthy could clearly see that such initiatives, if effective, could reduce their future liabilities to support the destitute.
IEE argues that we should seek to recreate this Elizabethan insight that altruistic behaviour can be incentivised by the right policy architecture. It proposes two new progressively-funded social contracts for once more investing in the population’s welfare and human capital with the twist that businesses will be given a guarantee of future tax reductions if ambitious national targets for growth, skills, decarbonisation and inequality reduction are met.
- Simon Szreter, Hilary Cooper and Ben Szreter, Incentivising an Ethical Economics. Joint winner of the inaugural IPPR Economics Prize (July 2019)
- Paul Slack (1990), The English Poor Law 1531–1782 (Basingstoke: Macmillan)
- E.A. Wrigley (2004) ‘British population during the “long” eighteenth century, 1680-1840’, in Floud R and Johnson P (eds), The Cambridge Economic History of Modern Britain Volume I 1700-1860 (Cambridge University Press), 57–95
- Thomas Piketty, Capital in the Twenty-first Century (2014)
- John Tosh, ‘Why History Matters’ (2008)
- Michael Woolcock, Simon Szreter and Vijayendra Rao, ‘How and why does history matter for development policy’, Journal of Development Studies 47,1 (2011), 70-96.
- The History&Policy website: www.historyandpolicy.org
About the author
Ben Szreter works for the Behavioural Insights Team, an organisation deploying insights from behavioural psychology in public policy. He was formerly chief executive of Cambridge United Community Trust, a community-based charity. He has an MSc with distinction in economic and social history, and won Oxford University’s Feinstein Prize for best master’s thesis in 2016. Photo: Graham CopeKoga
About the author
Hilary Cooper is an economic consultant, researcher and writer. A former UK government economist and senior policy maker in the civil service, she has extensive experience of policy development and delivery both nationally and regionally. Her areas of expertise include labour markets, gender and inter-generational inequalities and the economic and social impacts of increased longevity. Photo: Graham CopeKoga
About the author
Simon Szreter is Professor of History and Public Policy at Cambridge University, a Fellow of St John’s College, Cambridge and the co-founder and editor of www.historyandpolicy.org. His many publications and media contributions span modern and early modern British economic, social and public health history, drawing from history to offer insights for contemporary policy. He has also authored numerous articles in historical journals and edited special issues of Social History of Medicine and the Journal of Interdisciplinary History. He has published on policy issues in World Development, Journal of Development Studies, Population and Development Review, International Journal of Epidemiology, America Journal of Public Health and The Lancet. He was co-founder of History&Policy in 2002 and continues to be its managing editor, with over 200 Policy Papers now published on www.historyandpolicy.org. Simon was awarded the Arthur Viseltear Prize in 2009 by the American Public Health Association in recognition of his distinguished body of scholarship in the history of public health. Photo: Graham CopeKoga