Quality of Government matters more than size of government for human development, education and life expectancy

“...It’s not the size of the wave but the motion of the ocean…”

• Quality of government (QGOV) seems more important than size of government (SGOV) for a variety of domains

• QGOV is more important for peace, for human development, for health and for education 

• This exploratory work extends the work of Ed Dolan (Niskanen Centre) and comes with many caveats due to interactions.

• Outliers such as Singapore and Ireland may be worth closer examination for what is working well in smaller governments 

• QGOV may have increasing importance at higher levels of development 

• This may provide exploratory evidence that “state capacity” in certain domains eg innovation, health and education - might be important. This adds to the debate on “state capacity libertarianism” and in terms of current UK policy may inform on whether investing in an “ARPA organisation” or other areas of state capacity is a positive return on investment.

Background 

Economist Tyler Cowen posited a notion of State Capacity Libertarianism. Cowen subsequently linked to a blog referencing the work of Ed Dolan.

The work (2017) developed two scores - QGOV for quality of government and SGOV for size of government.  Dolan analysed two measures of freedom and prosperity the Legatum Prosperity Index and the Cato Human Freedom Index and concluded - with several caveats due to interactions and unknown causality- that QGOV was more important than SGOV. See his work for definitions of SGOV and QGOV.

Idea 

I was intrigued if this work extended to other areas that I am interested in both personally and professionally. (I help allocate $13bn in pension fund and other investments in global equities with an interest in healthcare). 

I chose to look at: 

• -Peace

• -Human Development 

• -Life Expectancy (as broad measure for health)

• -Education 

As measured by other organisations.

Methods 

I hand inputted data on:

• SGOV, QGOV, 

• Human Development Index (UN HDI)

• Education Index (EDI, as component of HDI)

• Life expectancy Index (as component of HDI)

• Peace index (as calculated by non-profit Vision of Humanity)

(Sources at end, errors possible)

I ran scatter plots and Pearson correlations. I tagged for World Bank classifications of income, and by geographic region.

Results 

QGOV vs Peace

Correlation = (-) 0.71 | R2 = 0.5

Higher quality of government had a 0.7 correlation with the Peace Index (where lower score = more peace)

An interactive version of this data, where you can also view by income level (use drop down box) and geography (click circle legend labels) is below. The trend holds for all levels of income.

SGOV vs Peace

Correlation =  0.32 | R2 = 0.1

Size of government had a weaker 0.3 correlation with the Peace Index (where lower score = more peace)

The overall correlation is weaker and also suggestive that large governments correlate slightly with the peace index.

An interactive version of this data, where you can also view by income level (use drop down box) and geography (click circle legend labels) is below. Different income levels change the trend line, upper middle level countries inverting - suggesting smaller govts here are better for peace but only weakly.

Geography also changes the trend, with Latin America countries suggesting smaller very weakly trending. It’s weak enough maybe to be considered almost no trend though.

My overall takeaway is that the trend is weak vs QGOV but it is intriguing that income levels change the pattern as do geography.

Peace comment 

As often there are intersections on what components might go into peace. Experts may disagree as to the validity of this index for peace however the methodology is clear and it has some support. 

I find it interesting as it is another lens to judge human “progress” on and therefore what types of government might best foster progress.

QGOV vs HDI, Human Development Index

Correlation =  0.75 | R2 = 0.57

Quality of government has a 0.75 correlation with the Human Develpment Index where larger HDI = more developed.  

It looks to me that the slope is stronger in more developed nations. Gently sloping until about 0.75 on HDI, and then steeper.

An interactive version of this data, where you can also view by income level (use drop down box) and geography (click circle legend labels) is below. You can observe this as the slope is stronger for the richer nations (and a measure of GNP is included within the HDI) but it is the same direcction for all incomes, slightly weak for middle.

SGOV and HDI

Correlation =  -0.53 | R2 = 0.28

Size of government has a -0.5 correlation with the Human Develpment Index (where larger HDI = more developed) suggesting larger governments are moderately better than small governments with some notable outliers such as Singapore, South Korea and to some extent Ireland, and Switerland.

An interactive version of this data, where you can also view by income level (use drop down box) and geography (click circle legend labels) is below.

The trends are weaker split by income level, with there almost no trend in high income and upper-middle income.

I now present the components for life expectancy and education (that go into the HDI seperately).

QGOV vs EDI

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Comments on EDI, Life expectancy; observations and arguments for state capacity.

Given the weighting in the HDI that life expectancy has, it is unsurprising that QGOV also correlates better than SGOV for life expectancy. 

While there are social and cultural determinants of health of which government would only be a component, I argue that it is still noteworthy that it is not size but quality of government here that seems to count.

Again given the weighting in the HDI for Education, it is again unsurprising that QGOV correlates better than SGOV.

Of note, Chile and Kazakhstan appear on education and to some extent life expectancy as higher perfomer small government countries to join Singapore and Ireland, Switerland.

I chose to examine education and health because in many countries there is on going debate as to the structure and capacity that governments should play in health and education markets. 

This line of argument would suggest where countries do wish their governments to be involved then quality of that government or perhaps “state capacity” could be an important factor. 

This is noteworthy in the UK where there is wide support for a National Health service across the political divide and also for state funded education providing the majority of the populations education. 

Two other tentative observations. It is worth dwelling on where small governments seem to be doing well. I would note Singapore and South Korea and perhaps to an extent Ireland and Switerland. Those countries would be good examples of small, high quality goverments. 

My own theory here is also the importance of social and cultural determinants of health and education. 

For instance, it is unknown what the compliance rate for medications are in various countries. A higher drug medication compliance of cost effective genetic medications in Singapore (arguable driven by a social factor of listening to your doctor properly?!) or of the positive/negative health outcomes of effective elderly social care across countries are mostly unknown. 

A second observation is the seemingly stronger slope in the high HDI nations. There may be many explanations for this and all the caveats expressed by Dolan also apply but it might be an intriguing provocation that quality of government becomes even more important in extending the progress of already highly developed countries. 

Caveat

As Dolan notes there is considerable interation between SGOV and QGOV as larger governments have a tendency to be of better quality, but Dolan runs multiple regressions here:

“…simple correlations like this need to be interpreted with caution, as there are complex intercorrelations among multiple variables. In this case, we have a correlation of -0.42 between SGOV and QGov, that is, a tendency for larger governments to have a higher index of quality. We also have a correlation of 0.74 between QGOV and the log of GDP per capita (richer countries have higher-quality governments) and -0.48 between SGOV and the log of GDP per capita (richer countries have relatively larger governments).

Dolan can run multiple regressions which I do not have the capcity for, but Dolan concludes:

We can use multiple regression to untangle these interactions, using HFI* as the independent variable and using QGOV, SGOV, and the log of GDP per capita as the dependent variables. When we do so, we get a strongly statistically significant positive coefficient on QGOV and no statistically significant relationship at the 0.01 confidence level for the other two variables. The overall correlation is 0.79, essentially the same as for the two-variable relationship shown in the left-hand scatter plot above…”

I suspect multiple regressions would confirm similar and hope a profesional academic might look into this

Conclusion

I tentatively extend the work of Dolan on the size of government and quality of government to look at four further broad indices of 1) peace, 2)  human development, 3) education and 4) life expectancy. 

In all four cases, quality of government seems to be a more important factor than the size of government. This would be tentative evidence for theories that emphasise the importance of quality - perhaps state capacity - over the size of the state, where societies favour a state role in any given area. 

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Notes and Caveats 

Data sheet link available on request. It’s not very tidy but all in good faith. Image below. I may have made errors in the data, as it’s my late night pet -project.

Do read the Ed Dolan Caveats in his blog but repeated here.

“...As in any statistical study, we should be cautious about drawing conclusions about causation. There is nothing in these results to suggest that making a country’s government bigger will automatically make it better. At the same time, it is hard to deny that there is a strong tendency in the cross-country data for larger governments to be better governments, when by “better,” we mean better able to protect property rights, better able to offer impartial civil and criminal justice, and less open to corrupt influences.

Readers are also encouraged to think about the country-by-country data reported in the chart and table above. There is a lot of variety in the world. Too strong a focus either on statistical regularities or on selected outliers can draw us too strongly toward conclusions that, in reality, admit of many exceptions.

For example, the small-government city states of Singapore [is]  rightly admired for [its] prosperity and economic freedoms. However, it gives one pause to note how many small-government countries enjoy neither. Chad, Bangladesh, and the Democratic Republic of Congo  are just the outliers among a whole cluster of countries in that category.

Similarly, a look at individual countries shows that our statistical indicators of “big” and “small,” or of “good” and “bad,” do not always line up with what we mean by these terms in other contexts. For example, many people in the West would readily name Russia and China as countries with governments that are conspicuously both big and bad. Yet, although Russia and China do fall into the southwest quadrant of our chart, they do so only barely. Statistically speaking, neither country is an outlier on either variable…]

Ed Dolan’s two part blog on SGOV and QGOV. 

Peace Index can be found here: http://visionofhumanity.org/indexes/global-peace-index/

Human Development Index and components (both the education and life expectancy - I use 2018 data - ) can be seen here: http://hdr.undp.org/en/data

World Bank Classificatinos are from 2016 (as the 2018 xls wasnt’ working when I compiled the data). The Visuals are H/T Flourish Studios and Google Sheets.

Tyler Cowen on State Capacity Libertarianism 

The Table of data I used is below.

Science of progress, what is progress?

Progress Studies: the Progress of Progress

-Thoughts on progress with a view on healthcare and what is progress?

-Speculations at to the limits of growth and innovation

-A notion of “Progress Capitals”

Summary/Conclusion

We don’t have a robust framework for “what is progress” and our current framework may too narrowly emphasise GDP type financials over peace, social, human, natural, ideas, innovation type progress capitals. While GDP seems to correlate with other indices of these progress capitals eg peace, happiness I speculate it is still not capturing major elements of progress. I suggest some frameworks of other progress capitals may be helpful.

General ideas (general purpose inventions) can provide wide enablement, but it seems our innovations are increasingly narrow. In the long history of growth provided by Smil, this is unsurprising and there is evidence that innovation 2 generations ago was a greater step change. But, I contend that there remain some system wide innovations which are ripe for taking - such as obesity - which are potential market failures and others such as human capital and culture which could bring great progress still but are unclear on prescriptions. So a science of science or a science of progress seems important and intriguing to me and I hope some very smart people to decide to work on it.

Background on progress of progress

The background for this is (1) Tyler Cowen (TC) and Patrick Collinson’s Atlantic article (2) Follow up conversation with Mark Zuckerburg and (3) Cowen and Ben Southwood (BS) paper on Is the rate of scientific progress slowing down? (links at end). It will also be helpful if you have looked at worldindata.org or Gapminder or read Hans Rosling. ( I’m influenced by Westlake & Haskel’s Capitalism without Capital, and Vaclav Smil’s recent book Growth (curves on crop yields and almost everything else) is a good companion reference to some of the measures TC and BS refer to. 

TC and BS present a paper on the science of progress - the science of science- giving a long view look at where humanity has progressed over history with several different lens of data - absolute, total, per capita, narrow measures and wide measures. This is interesting in itself. 

If you add the data they pull out alongside some WorldInData and then what Smil shows, you do find a picture of where narrow or individual fields of applied innovation stop seeing gains, but possibly some system wide innovation continues. Let me look at some data points first - mostly referencing Smil.

TC/BS look at crop yields and healthcare - I will be coming back to healthcare. The crop yields pattern is fairly well known. But, we can observe it’s harder to make gains.

Growth, Smil (2019)

Possibly genetic engineering may cause another step up, but it’s like to flatten. Much like world fertiliser production seems to have already.

Growth, Smil (2019) - Logistic curve tracing the growth of cruising speed of commercial airliners 1919–2039 (inflection point in 1945, asymptotic cruising speed of 930.8 km/ h). Plotted from data on speeds of specific airplanes, starting with KLM’s de Havilland DH-16 in 1919 and ending with Boeing 787 in 2009.

I think Smil makes this point in air travel/travel clearly. We moved from horses to cars and from ships to planes. But even though we now have fast planes, we’ve reached a limit of applied travel speed - as seen below. This hasn’t changed in decades.  There is an outside chance that hyperloop technology might work (I wouldn’t rate it as a high chance, but it’s possible, but would only be certain point-to-point). But, overwhelmingly likely we’ve reached the practical limit on speed of plane travel. We tried to go faster with Concorde, but it didn’t work out. My reading is this a form of outcome on the progress of flight/travel innovation. Progress has slowed. Returns for future progress are diminished ni this aspect.

Smil makes this point on engines, turbines, energy conversion. There are some areas where we are mid way in the curve and must hope we continue - eg battery storage technology - but it seems likely it will diminish at some point. Most graphs in growth end up being “S” shaped and Smil points this out, but also cautions that knowing in advance where on the curve you are is tricky.

There are also areas where the innovation has been extraordinary, even where it is now diminishing. Eg in in our use of light.

From Smil; “ ..Gains in efficiency of electricity conversion and generation have combined to deliver a unit of light at a tiny fraction of its traditional costs. By the end of the 20th century the average cost of US lighting was just 0.0003% of its 1800 rate; inversely, this meant that for the same price consumers received about 3,300 times more illumination (Nordhaus 1998), definitely one of the highest overall performance gains for an energy converter. Fouquet (2008) ended up with a similar long-term fraction: his calculations show that in the year 2000 a lumen of British light cost just 0.01% of its value in 1500, a 10,000-fold gain in 500 years (with virtually all of it taking place during the last 150 years of the period), and 1% of its value in 1900, a 100-fold gain in a century….”

This is interesting when applied to certain other human measurements of progress. Take life expectancy, and look at Sweden. While there is still much debate (eg stem cells), it seems quite possible (and to me likely) we are reaching the practical limits of life expectancy - like running speed (or like commercial airplanes)  - due to intersectional bio-mechanical life expectancy challenges eg elastin. 

Smil takes examples upon examples - all fascinating and then part concludes: “... But historical perspectives demand skepticism. I stand by my conclusion that the two generations preceding WWI were the most exceptional innovative period in history and that its contributions have been far more consequential than the advances of the last two generations (Smil 2005). …”

Perhaps parts of innovation/progress has slowed

And thus has a whole book that broadly supports many of TS/BS ideas on innovation slowing down. Smil also has ( a depressing to me) conclusion of growth not decoupling from energy (carbon based) and materials and thus argues that (high) growth is not compatible with a low carbon world. I’m still re-reading this as I am not sure I agree with all this here (and neither does Bill Gates) - but both Gates and Smil are smarter and have read more here than me. I will come back to this - as it is one of the future challenges of where my show Thinking Bigly takes you.

I’m going to turn towards what is progress in the next section but leave the last word to Smil.

“...This might be perhaps the simplest single-paragraph summation of civilizational advances, a concise summary of growth that matters most. Our ability to provide a reliable, adequate food supply thanks to yields an order of magnitude higher than in early agricultures has been made possible by large energy subsidies and it has been accompanied by excessive waste. A near-tripling of average life expectancies has been achieved primarily by drastic reductions of infant mortality and by effective control of bacterial infections. Our fastest mass-travel speeds are now 50–150 times higher than walking. Per capita economic product in affluent countries is roughly 100 times larger than in antiquity, and useful energy deployed per capita is up to 200–250 times higher. Gains in destructive power have seen multiples of many (5–11) orders of magnitude. And, for an average human, there has been essentially an infinitely large multiple in access to stored information, while the store of information civilization-wide will soon be a trillion times larger than it was two millennia ago. And this is the most worrisome obverse of these advances: they have been accompanied by a multitude of assaults on the biosphere. Foremost among them has been the scale of the human claim on plants, including a significant reduction of the peak post-glacial area of natural forests (on the order of 20%), mostly due to deforestation in temperate and tropical regions; a concurrent expansion of cropland to cover about 11% of continental surfaces; and an annual harvest of close to 20% of the biosphere’s primary productivity (Smil 2013a).”

What is progress?

There are broadly three categories here I’d like to touch upon raised by TC/BS.

A general invention that enables many more inventions, but it itself might not seem that valuable. Perhaps, you would put paper into this category or - as I will come to healthcare later - the idea of random controlled trials, which has enabled us to judge if healthcare interventions (eg surgery) actually work or not.

Social progress or not directly economic progress, matters such as equality, minority rights; peace - perhaps eudomonia - long-term happiness. Matters that might be captured under ideas of “human assets/capital/progress” - literacy rates, education and the like.

Biodiversity and natural capital and related assets/liabilities - maybe light pollution, noise pollution would fall here.

There are many economists/commentators outlining the deficits in GDP (see blog on Smil on this again) and many of these factors (not always natural capital) are outside of GDP - although seemingly correlate with GDP.

I  have 3 speculations - sadly I don’t really have primary data to back them up, so I leave it in the sphere for others to take away:

-Inclusion of social progress factors, such as literacy, life expectancy, equality, maybe peace would indicate that progress is still doing well in some aspects (see WorldIInData for some of this)

-Inclusion of biodiversity and natural capital would suggest we are doing much worse - as we’ve turned eg trees into economic or social capital - food, houses, life expectancy.

-But, possible focus on certain system wide innovations may still grant us another jump up in certain aspects of progress eg healthcare.

There are indices looking at  human development (eg human development index, worldindata) or peace (peace index)

I don’t exactly know how to put literacy rates and access to the internet into the progress bucket, but putting them together gives people who  have these two items/skills access to a great deal of the sum of human knowledge and fairly good access to a good amount of human culture within music and visual arts.

I think you would have to put that into the positive ledger of progress even though exactly what it means is harder to measure.

I would say the same for peace and for equal rights to women and minorities. There is an economic dividend but there is a sizeable social/human progress gain as well - in my reading. 

We still have a way to go and there are diminishing gains as around 9/10 of the world is now literate and 6/10 have access to the internet - which might argue for this progress slow down. Still, it’s significant.

I’m unsure how you add it all together but a wide business framework has suggested (using capital as a metaphor):

• financial capital, 

• manufactured capital, 

• intellectual capital,

• human capital, 

• social and relationship capital, 

• and natural capital. 

According to the IIRC - “Together they represent stores of value that are the basis of an organization's value creation.”

I think that framework could be applied to many aspects of progress in its wider sense. I would note New Zealand has some thinking along these lines at a country level.

There are trade-offs here. Social cohesion may increase elements of social capital, but it may lower some other progress capitals eg diversity and number of new ideas - intellectual capital - as there is less creative conflict (only theoretical speculation here).

The biggest trade-off is with natural capital. Turning trees into buildings, clearing forest to plant palm oil these typical increase financial and other human capital but there are many long term consequences which may be felt here. Perhaps these could be put together and considered “Progress Capitals” and so when we think about studying progress we could think about studying these Progress Capitals.

One way to look at natural capitals would be to attempt to discount the costs of the IPCC scenarios of a 3 deg scenario or the biodiversity loss scenario - translating it back to GDP costs suggest progress might not be doing so well and will also hamper other parts of what I’m suggesting as progress capitals as a metaphor.

As an aside, here it’s interesting to note ideas of how much to discount future generations cf. TC’s Stubborn Attachments or other “common sense” utilitarian morality concepts.  

This leads me to my third speculation on certain system innovations particularly looking at healthcare.

Thinking about narrow inventions/progress vs systems progress in Healthcare

There are these class of inventions or ideas  which by themselves don’t immediately lead to progress or profit but which enable a whole other set of ideas and inventions.

In modern healthcare, I think  the idea controlled trials have been one of those enabling ideas.  (Short of History of it here https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3149409/ by Arun Bhutt (2010)  While we have some fleeting ideas of this in ancient history (eg King Nebuchadnezzar of Babylon) it was James Lind in 1747 testing lemons and oranges if they impacted scurvy for sailors who probably founded the idea of controlled trials. These random controlled trials (RCT) have been a driving idea behind some of Duflo and Banerjeee work in economics (recent Nobel winners) - so the innovation has spread wider than healthcare.

This started much future pharmaceutical drug development. These modern drugs we can now value both in terms of lives saved (eg antibiotics) and thus their direct progress effects - which last for decades/centuries after invention, and their economic sales.

In some areas we may undervalue this value. Modern aspirin was invented around 1897. Morphine was marketed from even earlier. What’s the value of less pain in the last 200 years? All those headaches and the productivity potentially associated with it? And while opiods have created their own crisis, the flip side is that we can die painless (look at morphine).  We can’t really ask, but I suspect there is a lot of value in being able to be pain free in your last week of life. Although from I tell the survey data around pain is mixed, we do know happiness (at least in the moment, and maybe for others memories) is impacted by the ending. To know ones you love didn’t die in pain and that you may not die in pain. Is that progress? I think so. Hard to measure. (Aside, would giving animals a good life and a pain free death also be a large mark of progress in a fully considered world, I think so.)

In any case, continuing with the drug development example - we are now developing for ever more narrow diseases. Rare, genetic diseases and the like. These help thousands of people rather than billions. There might be spillover inventions from gene therapy and gene editing, and there’s going to be progress. But if you think about broad based human health (via life expectancy) as the sign of progress it’s going to be more limited - these cures for rare diseases won’t impact broad life expectancy, compared to working for instance on obesity or indeed, on working on drug/protocol compliance for blood pressure.

This appears to me to a potential market failure. The economic and social progress returns to solving for obesity would seem to me to be high but actual capital (of all forms) directed at obesity seems sub-optimal. (I’ve made a similar argument for the amount of innovation directed at climate change challenges although that’s arguably more complex due to externalities and conflicting trade-offs). 

Take a thought experiment. 36% of the US are obese (CDC estimates), these have direct (medical) and indirect (productivity) costs as well as impact life expectancy. Range of costs super wide but eg this review (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5409636/) cites EUR60bn (approx 50/50 split direct/indirect) to Germany. 

Now take a relatively low cost speculative intervention such as intermittent fasting [IF] (before even going into ideas of meditarean diets or other social / life style changes).  There are relatively few studies on IF even though there is initial evidence that it may help obesity, pre-diabetes/diabetes and via metabolic effects I’ve spoken to researchers who believe it may impact dementia and alzheimer’s and several reviews available (eg for lay person here: https://www.nature.com/articles/d41586-018-05724-7)  so one intervention that could impact at low cost some of the highest burden problems of America (dementia, obesity, diabetes etc.) is only having moderate capital and effort put behind it. (As an aside, the current CEO of Novartis, Vas, is an IF practitioner and he is a doctor, ex-Mckinsey type.)

There’s no easy money to make for private companies in IF. The concept of only eating between 12 and 8pm, say, is not easily monetisable even if it would produce potentially quite an increase in progress. 

I have no solution for this although perhaps that’s one area government-private led eg DARPA / ARPA-E type organisations could excel. And overall systems solutions often have both social determinants, as well as structural and financial determinants (eg US healthcare vs Singapore healthcare systems).

Still - going back to the question of progress - I’d speculate that one reason for some slowdown might be due to our collective inability to examine and innovate successfully on some of these systems problems eg obesity, climate - and the human culture/capital type challenges.

Summary

(repeat) Putting this back together - we don’t have a robust framework for “what is progress” and our current framework may too narrowly emphasise GDP type financials over peace, social, human, natural, ideas, innovation type progress capitals. While GDP seems to correlate with other indices of these progress capitals eg peace, happiness I speculate it is still not capturing major elements of progress. I suggest some frameworks of other progress capitals may be helpful.

General ideas (general purpose inventions) can provide wide enablement, but it seems our innovations are increasingly narrow. In the long history of growth provided by Smil, this is unsurprising and there is evidence that innovation 2 generations ago was a greater step change. But, I contend that there remain some system wide innovations which are ripe for taking - such as obesity - which are potential market failures and others such as human capital and culture which could bring great progress still but are unclear on prescriptions. So a science of science or a science of progress seems important and intriguing to me and I hope some very smart people to decide to work on it.

Links:

Cowen / Southwood paper.

Collinson / Cowen in the Atlantic - 

Collinson / Cowen talking to Mark Zuckerberg

The Vaclav Smil book on Growth

My £10K microgrants programme.

Life expectancy Race, child mortality and GDP

Looking at how life expectancy has risen globally and in a few countries over time.

A large driver of this has been the fall in childhood mortality.

This paints a picture that we’ve achieved much but we still have many challenges to go.

GDP is up. Ideas are up. But other aspects like natural capital are down. And deep poverty while down is still in the hundreds of millions.

Life expectancy from 1800 to 2018

This is my visualisation of the top 50 countries of the world and life expectancy over the last 218 years.

I’ve used the gapminder data source, but OECD, Worldbank an dothers have similar.

Ray Dalio on reforming capitalism

This Ray Dalio piece on the problems and solutions for modern capitalism is an important piece of insight. It builds on his work on inequality and populism.

It is important as (1) he is a billionaire with considerable weight and clout

(2) it highlights the problems of both growing the (economic) pie and splitting the pie fairly

(Me: He omits natural/environmental capital in his primary analysis as a weakness)

(3) he observes social democratic/socialism ideas are better at (or at least focused on) pie splitting but free market type ideas have been better at (or at least focused on) pie growing

He pulls this together with a few other observations (amongst others) that

• the left and right have never been further apart since the 1930s - they are entrenched and polarised

• Technology (and other forces of capitalism) is continuing to disproportionately benefit the “haves”/rich ie owners of capital, automation will continue to displace workers

• The US and China are at loggerheads with unknown outcomes

He has strong focus on the education inequality in the US amongst other insightful data (particularly on the bottom 60% and other data on the poor) and some insightful data on food poverty

(The childhood poverty rate in the US is now 17.5% and has not meaningfully improved for decades. In the US in 2017, around 17% of children lived in food-insecure homes where at least one family member was unable to acquire adequate food due to insufficient money or other resources.Unicef reports that the US is worse than average in the percent of children living in a food-insecure household (with the US faring worse than Poland, Greece, and Chile).

He then draws the important insight that it is systems problem:

“Contrary to what populists of the left and populists of the right are saying, these unacceptable outcomes aren’t due to either a) evil rich people doing bad things to poor people or b) lazy poor people and bureaucratic inefficiencies, as much as they are due to how the capitalist system is now working.”

He sketches out some solutions to work on including:

-i  Leadership from the top

-ii  Bipartisan working groups (ie left and right together)

-iii Co-ordination of fiscal and monetary policy together

-iv Clear metrics for success and accountability

-v  Redistribution of resources that will improve both the well-beings and the productivities of the vast majority of people.

And within that a focus on good “double bottom line outcomes”

Ie outcomes that have good economic return and good social return

(for instance education fits that well)

(Again he misses out environment unfortunately, although many double bottom line ideas could be triple bottom line as well)

He proposes:

Create private-public partnerships (including governments, philanthropists, and companies) that would jointly vet and invest in double bottom line projects that would be judged on the basis of their social and economic performance results relative to clear metrics. That would both increase the funding for and the quality of projects because people who have to put their own money on the line would be responsible for them.

Raise money in ways that both improve conditions and improve the economy’s productivity by taking into consideration the all-in costs for the society (e.g., I’d tax pollution and various causes of bad health that have sizable economic costs for the society).

Raise more from the top via taxes that would be engineered to not have disruptive effects on productivity and that would be earmarked to help those in the middle and the bottom primarily in ways that also improve the economy’s overall level of productivity, so that the spending on these programs is largely paid for by the cost savings and income improvements that they create. Having said that, I also believe that the society has to establish minimum standards of healthcare and education that are provided to those who are unable to take care of themselves.

While you can argue about the diagnosis and cause of the problem, the data is insightful, and the solutions are food for thought.

Unfortunately, I am fairly pessimistic about most of those solutions given what I can see about the politics of the UK and US (and others) although some countries may fare better (eg New Zealand which I feel is working on i and iv)

But there are elements of v. I can see working although this may only come through if our leaders can take a longer view and whole-view lens (for instance, increasing educational and social resources in areas of poverty brings long term returns but is short term costly and painful; carbon taxes are hard to fall progressively on society)).

And in theory there’s no reason why i - iv couldn’t happen but it would take a moment or time of social cohesion and cultural change to get there. We don’t have that. But it could happen as I talk about in my performance-lecture Thinking Bigly.

Full Essay by Dalio here:

https://www.economicprinciples.org/Why-and-How-Capitalism-Needs-To-Be-Reformed/

A blog on his populism work:

https://www.thendobetter.com/investing/2019/1/5/ray-dalio-on-cycles-populism-trade-wars

https://www.thendobetter.com/investing/2017/8/21/divides

UK life expectancy and healthcare spend vs OECD. NHS success story?

UK life expectancy expanded - in line with the OECD average (more or less, there was a little catch up) until recently where (like in a few countries) it seems to be flattening. This is a blunt but well understood measure of a population’s health.

A similar type of trend can be seen in childhood mortality. Although experts can gripe with the data, the overall trend is likely robust. There is also some catch up from OECD average from a poorer start.

This is a good achievement by the UK given what the UK has spent on healthcare since the 1970s.

My general observation here is that the UK has underspend / invested less in healthcare but has managed to obtain an average to above average results.

The under spend as % GDP has been 2 to 4 percent points lower than OECD peers on average. This has been going on since the 1970s. (The World bank data is from 2000, sourced from WHO)

There are many factors that combine to impact life expectnacy and health. Correlation is not causation.

However, I think there is enough data and evidence to suggest that given the amount the UK has invested in health (and social care and education) that if the UK wants to continue the positive trends in health, it will likely have to spend more or at current levels of spend the health out comes will - in my view - likely to continue to tail off.

In this sense, the UK’s NHS has been a unique system that has enabled outsized gains in health outcomes for the amount of spend over the last 50 years.

OECD data.

I can’t make a nice graph widget, but I can show how this % spend on GDP goes back to the 1970s. so this is arguably about 50 years of under spend, at even the lower end of 2% of GDP that’s somewhere in the region of £500bn to £1,000 bn (yes 1 £trillion) in culmulative under spend compared to what would have been spent on the OECD average %.

(Now whether it would have been well spent or what else the UK spent the money on is another debate - maybe the OECD over spent given its outcomes… but given the UK is uniquely low (though Italy is close in some years and has slightly worse outcomes broadly) .

You can see how Germany is approx matching the UK since 1970 on life expectancy and trend (OK it did slowly gain beofre mathcing), but was spending much more of GDP to achieve that.

Significant Major cross-discipline EAT-Lancet Commission paper on Sustainable Food

Major cross-discipline EAT-Lancet Commission on Sustainable Food has published its findings (Jan 2019). I give a summary review. With a fairly broad scientific consensus, the report establishes 3 significant items.

The major items the paper establishes are

• A healthy reference diet

This diet is considered to sustainably feed likely world populations from 2050 and beyond, and give a broadly correct amount of nutrition. The paper evidences that there would like be

• Health benefits from this diet

In rich nations, this would be from better nutrition helping obesity and cardiovascular disease and the second order benefits of this. And in poorer nations, this would be from decreasing malnutrition.

The diet mainly due to a extremely large pivot away from red meat also establishes

• a sustainable agriculture supports this diet

Where the environmental impacts of such a proposed diet are kept within likely carbon budgets and other planetary considerations.

While the report mentions several cultures that eat within the reference diet, in my view, a major weakness is little acknowledgment of the scale of socio-cultural change this diet suggests. To me, a cross-disciplinary socio-anthropologist or cultural philosopher would have made a great addition as a major component of why we eat what we eat is conditioned by social and cultural value.

-The reference diet is high in vegetables and low in red meat, sugar, potatoes and processed foods.

This healthy reference diet largely  consists of:

• vegetables,   fruits, whole   grains, legumes,  nuts, and unsaturated  oils,

• includes  a low to  moderate amount of seafood and poultry,

• includes no or a low quantity of red meat, processed meat, added sugar, refined grains, and starchy vegetables.

Summary values are in table above.

If you look at the carbon impacts of various foods, you can see below that the move to vegetables over red meat is very positive for the environment. This is also because of the second order effects of growing grain to feed beef or other animals, which is environmentally intense both in land use and energy use. (See Fig. 4 below)

Source: Eat-Lancet (2019)

The “Business as usual” modelling shows the huge impact from animals on greenhouse gases.

There are strong second order health effects deriving from this as well - many fewer deaths - although I suspect keeping within the energy intake limit and cutting out added sugar and processed foods would achieved a fair amount of this benefit.  Cutting out processed foods and added sugar and eating about the correct amount of calories is almost universally favoured in all diets (even low carb, high fat diets as fat is high satiety) Still the economic benefits of lower health costs, and a more productive workforce.

In terms of where we need to get to…There is a long way to go (See below). Rich nations eat too much red meat and potatoes. Parts of Africa are too reliant on low nutritional-value cassava (starchy vegetables).

The overall paper is a fascinating read as it takes in the intersectional nature of food and the environment and health and proposes concrete guidance that enables a growing population. As I mentioned earlier, its weakness is in not weighting the cultural change factors in a strong enough way. For instance, many Americans and Europeans know they eat too much to be healthy but there is a learnt cultural attitude and difficulty in enabling change. Still, at least a good road map has been laid out. In terms of behaviours everyone can play a part in, food waste is important no matter what diet or scenario is chosen (grpah below).

I end on the important summary messages below from the paper:

Unhealthy and unsustainably produced food poses a global risk to people and the planet. More than 820 million people have insufficient food and many more consume an unhealthy diet that contributes to premature death and morbidity. Moreover, global food production is the largest pressure caused by humans on Earth, threatening local ecosystems and the stability of the Earth system.

Current dietary trends, combined with projected population growth to about 10 billion by 2050, will exacerbate risks to people and planet. The global burden of non-communicable diseases is predicted to worsen and the effects of food production on greenhouse-gas emissions, nitrogen and phosphorus pollution, biodiversity loss, and water and land use will reduce the stability of the Earth system.

Transformation to healthy diets from sustainable food systems is necessary to achieve the UN Sustainable Development Goals and the Paris Agreement, and scientific targets for healthy diets and sustainable food production are needed to guide a Great Food Transformation.

Healthy diets have an appropriate caloric intake and consist of a diversity of plant-based foods, low amounts of animal source foods, unsaturated rather than saturated fats, and small amounts of refined grains, highly processed foods, and added sugars.

Transformation to healthy diets by 2050 will require substantial dietary shifts, including a greater than 50% reduction in global consumption of unhealthy foods, such as red meat and sugar, and a greater than 100% increase in consumption of healthy foods, such as nuts, fruits, vegetables, and legumes. However, the changes needed differ greatly by region.

Dietary changes from current diets to healthy diets are likely to substantially benefit human health, averting about 10·8–11·6 million deaths per year, a reduction of 19·0–23·6%.

With food production causing major global environmental risks, sustainable food production needs to operate within the safe operating space for food systems at all scales on Earth. Therefore, sustainable food production for about 10 billion people should use no additional land, safeguard existing biodiversity, reduce consumptive water use and manage water responsibly, substantially reduce nitrogen and phosphorus pollution, produce zero carbon dioxide emissions, and cause no further increase in methane and nitrous oxide emissions.

Transformation to sustainable food production by 2050 will require at least a 75% reduction of yield gaps, global redistribution of nitrogen and phosphorus fertiliser use, recycling of phosphorus, radical improvements in efficiency of fertiliser and water use, rapid implementation of agricultural mitigation options to reduce greenhouse-gas emissions, adoption of land management practices that shift agriculture from a carbon source to sink, and a fundamental shift in production priorities.

The scientific targets for healthy diets from sustainable food systems are intertwined with all UN Sustainable Development Goals. For example, achieving these targets will depend on providing high-quality primary health care that integrates family planning and education on healthy diets. These targets and the Sustainable Development Goals on freshwater, climate, land, oceans, and biodiversity will be achieved through strong commitment to global partnerships and actions.

Achieving healthy diets from sustainable food systems for everyone will require substantial shifts towards healthy dietary patterns, large reductions in food losses and waste, and major improvements in food production practices. This universal goal for all humans is within reach but will require adoption of scientific targets by all sectors to stimulate a range of actions from individuals and organisations working in all sectors and at all scales.

And important strategies identified:

Three lessons can be learned from other examples of societal responses to global changes. First, no single actor or breakthrough is likely to catalyse systems change. Second, science and evidence-gathering are essential for change. Third, a full range of policy levers, from soft to hard, will be needed. ...we outline five specific and implementable strategies, which are supported by a strong evidence base….These strategies are:

(1) Seek international and national commitment to shift towards healthy diets. The scientific targets set by this Commission provide guidance for the necessary shift, which consists of increasing consumption of plant-based foods and substantially reducing consumption of animal source foods. Research has shown that this shift will reduce environmental effects and improve health outcomes. This concerted commitment can be achieved by investment in public health information and sustainability education, and improved coordination between departments of health and environment.

(2) Re-orient agricultural priorities from producing high quantities of food to producing healthy food. Production should focus on a diverse range of nutritious foods from biodiversity-enhancing food production systems rather than increased volume of a few crops, most of which are used for animal production.

(3) Sustainably intensify food production to increase high-quality output. The current global food system is unsustainable and requires an agricultural revolution that is based on sustainable intensification and driven by sustainability and system innovation. This change would entail reducing yield gaps on cropland, radical improvements in the efficiency of fertiliser and water use, recycling phosphorus, redistributing global use of nitrogen and phosphorus, implementing climate mitigation options, including changes in crop and feed management, and enhancing biodiversity within agricultural systems.

(4) Strong and coordinated governance of land and oceans. Such governance includes implementing a zero-expansion policy of new agricultural land into natural ecosystems and species-rich forests, management policies aimed at restoring and re-foresting degraded land, establishing mechanisms of international land-use governance, and adopting a Half Earth strategy for biodiversity conservation to safeguard resilience and productivity in food production. The world's oceans need to be effectively managed to ensure that fisheries do not negatively affect ecosystems, fish stocks are used responsibly, and global aquaculture production is expanded sustainably given its effect on and linkage to both land and ocean ecosystems.

(5) At least halve food losses and waste, in line with global sustainable development goals. Substantially reducing the amount of food lost and wasted across the food supply chain, from production to consumption, is essential for the global food system to stay within its safe operating space. Technological solutions will need to be applied along the food supply chain and public policies implemented to achieve a 50% reduction in food loss and waste.

Link to paper here in Lancet

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(18)31788-4/fulltext

And a summary on the EAT site.

https://eatforum.org/eat-lancet-commission/

Blog on living longer through diet:  https://www.thendobetter.com/blog/2018/1/6/how-to-live-longer

Impact Investing papers on return, healthcare over 200 years

Two short papers for ESG/IMpact and one for healthcare specialists

 Impact funds earn 4.7% lower IRRs compared to traditional VC funds (Barber et al, 2015, update 2018)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2705556

“We document that investors derive nonpecuniary utility from investing in dual-objective venture/growth equity funds, thus sacrificing financial returns. In reduced form, impact funds earn 4.7% lower IRRs compared to traditional VC funds. Likewise, random utility/willingness-to-pay (WTP) models of investment choice indicate investors accept 3.4% lower IRRs for impact funds. We rule out alternative interpretations of risk, liquidity, and naiveté. Development organizations, banks, public pensions, Europeans, and UNPRI signatories have high WTP; endowments and private pensions have none. ..”

But also see -  https://hbr.org/2019/01/calculating-the-value-of-impact-investing

“…Over the past two years the organizations we work for—the Rise Fund, a $2 billion impact-investing fund managed by TPG Growth, and the Bridgespan Group, a global socialimpact advisory firm—have attempted to bring the rigor of financial performance measurement to the assessment of social and environmental impact. Through trial and error, and in collaboration with experts who have been working for years in the field, the partnership between Rise and Bridgespan has produced a methodology to estimate—before any money is committed—the financial value of the social and environmental good that is likely to result from each dollar invested. Thus social-impact investors, whether corporations or institutions, can evaluate the projected return on an opportunity. We call our new metric the impact multiple of money (IMM)….” Note, TPG are actively promoting their fund - serious investors, but expect them to be arguing this case.

One confounding problem on IRR, returns is that the idea of the risk taken to achieve those returns is difficult to assess - one could argue practially impossible - and thus risk-adjusted comparisons which would better will never be known and thus this question not ever fully answered.

*

Two Hundred Years of Health and Medical Care: The Importance of Medical Care for Life Expectancy Gains (Catillon, 2018)

https://www.nber.org/papers/w25330

H/T Tyler Cowen, is a long reaching look at how medical care has impacted life expectancy (or not) over 200 years of data in the state of Mass, US.

“Using two hundred years of national and Massachusetts data on medical care and health, we examine how central medical care is to life expectancy gains. While common theories about medical care cost growth stress growing demand, our analysis highlights the importance of supply side factors, including the major public investments in research, workforce training and hospital construction that fueled a surge in spending over the 1955-1975 span. There is a stronger case that personal medicine affected health in the second half of the twentieth century than in the preceding 150 years. Finally, we consider whether medical care productivity decreases over time, and find that spending increased faster than life expectancy, although the ratio stabilized in the past two decades. “