FreshMinds Research Blog

Getting hold of national debt figures is often difficult. Few countries publish them. But for the G7 countries, that do, an interesting picture emerges (see Figure 1).

Figure 1: National net debt as a % of Gross Domestic Product (GDP) 
Italy has had large national debt for decades and Japan’s has increased over the last ten years, almost reaching the scale of Italy’s. Every country, however, has registered an increase in national debt as a percentage of GDP since the credit crunch materialised in 2007. The rate at which these countries’ national debt as a percentage of GDP has grown (and for 2010 is projected to grow) varies considerably (see Figure 2).

Figure 2: Compounded Annual Growth Rate (CAGR) of national debt as a % of GDP (2010 est. using 2007 as a base)

This throws up a number of questions, most notably relating to the anticipated growth of debt. Why do countries have such problems with national debt, and what are the likely consequences for countries like the UK and US if it continues? At current rates, for example, the UK will have the highest percentage of national debt as a proportion of GDP out of the G7 countries by 2021.

To really understand, we need to look at the two countries with the highest debt problems: Italy and Japan.

Italy
Italy began to run into serious economic problems in the 1970s, particularly in 1974 and 1976, each of which required extreme policy measures and the creation of large deficits. The combination of these led to the creation of a sizeable national debt in the early ‘80s, which was then exacerbated by the rate at which the debt service costs increased.  In other words, the amount that the Italian government was paying on its debt (the ‘real interest rate’) was greater than the rate at which Italy was creating wealth (the ‘GDP growth rate’). Italy had to run faster just to stand still.

Italian national debt has persisted for so long partly due partly to political factors and partly to the fact that the average maturity of the debt was shortened to make it more attractive to the private sector. This had the result of increasing the real cost of debt service. This peaked in 1997 and has been falling ever since except for the sudden rise again over the past two years.

Japan
The story of Japan’s national debt is really the story of a system that failed. This was the system that existed post World War II, based on: (1) an export-driven economy reliant on a low dollar-to-yen exchange rate (2) a state-directed banking system that made loans on the basis of political favoritism rather than to the most efficient companies and (3) banking regulations that allowed banks to count equity holdings as part of their capital reserves, so the higher the prices, the more they could lend.

It was the collapse of this system, the resulting recession and the political turmoil surrounding the financial situation, which led to delays and failures to reform the financial system that dramatically sped up the accumulation of public budget deficits and ultimately government debt.  Total government debt grew twice as fast in the 1990s as it did in the 1980s and net as a % of GDP grew by 238% from 1993-2005 (source: FreshMinds analysis based on IMF data).

The fact that Japan’s national debt is so heavily geared has made it very vulnerable to the effects of the 2007-2009 global credit crunch and recession which, together with a variety of other factors, has increased its budget deficit further as it has launched stimulus packages .  In essence, its debt is both part of a general economic malaise that is a hangover from the ‘lost decade’ and a current millstone around policy-makers’ necks as they attempt to use the tools available to them to prevent a further downward spiral. At the very least, the interest and capital payments to service the debt divert much-needed funds from more directly beneficial activities such as cutting taxation, investing in research and development and investing in pensions for its increasingly elderly population. See RealClearWorld for further information.

Summary – do we need to worry?
But should high debt levels really concern us? Italian macroeconomic performance has not apparently suffered. In the 1980s, in fact, real growth on the whole slightly exceeded the European average. However, there are some real reasons why we should be concerned with an excessive level of debt.

1. It means the government is paying a large amount of its tax revenues simply to pay off the interest on its debt. This is money that could be more profitably spent on making direct investments in infrastructure or on giving tax cuts to stimulate enterprise. It’s like you or me having a bank overdraft and having to pay money to our bank that simply does not benefit us at all; ok once in a while, but unproductive as a long-term policy. The budget deficit cuts and tax rises that would need to happen to curtail a persistent debt might actually be bad for GDP growth.  Therefore, you’re stuck in such a deep hole that even the remedy is painful.
2. Persistent national debt increases risk. It increases the likelihood that the government will default on it obligations to the private sector and the country will lose its international reputation. This is what happened in the Latin American debt crisis in the 1980s where, notably, Brazil, Argentina and Mexico defaulted on their loans, leading to a mass outflow of foreign capital and reluctance of foreign investors to finance these governments’ projects in the future.  The required spread on government bonds increases to compensate for this risk. That means that you need to offer higher interest rates just to keep your current customers happy (what’s referred to as ‘the downward spiral’).
3. A rapidly rising national debt is an indicator that taxes are likely to rise in the future. This leads to large capital outflows as investors seek to evade future tax increases.

The combination of these three factors means a high national debt relative to GDP should definitely be a concern.

Even today, parts of the Education world regard branding with great suspicion, a symbol of commercialism, a waste of resources, and an encouragement of competition, something which has no place alongside research, teaching and training.

Years ago, when I used to run a youth club, I knew I wasn’t running a business – the outcomes sought were human, not financial, for a start.  Nonetheless, I used to make a critical distinction between a business and behaving in a businesslike manner – I never saw any virtue in having no members, or no money!  The analogy is not really far fetched – educational institutions need to behave in the same businesslike manner. 

A brand is a means of identifying and differentiating a company, a product, a service, an educational institution….Prospective students do have options (certainly to that extent there is a competitive environment) and if you can describe – identify if you like – your institution in precise terms, terms which also serve to differentiate it from its competitors, then you are providing a service to them by giving them a more informed choice.

If you go further, think through what is being offered and develop a brand which accurately embodies your vision, values and strengths, then a practical and emotional relationship with the institution’s stakeholders is created, and you will be providing that information and enabling that choice in a succinct and cost effective manner.

Incidentally, a strong well defined brand is equally important in relationship to internal stakeholders.  Shared values make for a more effective team, and communicate themselves powerfully to potential employees.

It’s actually a win-win situation.

This is the Education team’s first guest blog. It was kindly added by Martin Bojam, managing partner of 360 Education.

The recent snow has, apparently, hit the UK economy to the tune of £1.35bn. That’s a lot of money and makes you wonder quite how much grit we could buy with it. 

Recently I spent six hours travelling to Oxford for a meeting that was abandoned because of snow at the last minute. In theory that’s six hours of lost time during which I could have been working. Luckily for me (and for FreshMinds) this is no longer wasted time. Now I have my iPhone. This meant that I could field emails, read the news, anticipate the length of delay of my train, call clients and generally make the best of a bad situation. I estimate that I spend about 10% of my working week travelling to meetings and back, and for at least half of that I can now take the opportunity to clear my inbox. So if of that 10% I reclaim, say, half to productive work, what impact does that make? Which makes more difference: Apple or snow?

At FreshMinds we’re often asked my clients to size markets and normally start with a back-of-an-envelope estimate to make sure we’re not miles out. I spent a bit of my train journey thinking about what impact 5% extra productive time would make on the UK economy.

UK GDP is around £23,500 per capita. If we’re working in big round numbers, let’s say that half of the population work (the actual figure is slightly less than that). But fielding emails is generally the obsession of the office worker, running around to and from meetings. Office workers make up around a third of the UK working population – there are about 10 million of them. So that’s 10 million people with the incredible potential to find an extra 5% of productivity.

iPhone sales in the UK topped 1m in February 2009 so, while UK numbers aren’t available, with the recent emergence of Vodaphone and Orange this is likely to be in the region of 2m as we move into 2010. The iPhone only has about a third of the Smart phone market though, so let’s, conservatively, assume that 6m people in the UK own a multi-functional mobile device. That’s 10% of the population. I think that office workers are earlier adopters than the general UK populous, so let’s say the penetration is 20% in this category. That’s 2m office workers with a device allowing them to each increase their productivity by 5%.

If 2m people in the UK can all find an extra 5% of time, each of these people can shift their GDP contribution to £24,675 instead. That’s £2.3bn extra per year, almost double the impact of the snow!

Please feel free to find the flaws in the methodology, the most obvious being the ability of an individual to so directly influence their per capita quota of the GDP, but maybe it’ll stop us panicking about the economy disintegrating because of a cold snap (and, in fact, Douglas McWilliams, chief executive of the Centre for Economics and Business Research, reassures us that we make up any lost productivity later in the week or month anyway). Plus I haven’t even started to add on the impact on my brainpower of constantly playing the Scrabble app.

I can’t imagine life without Facebook. I use it to stay in touch with friends, organise my events, keep track of endless invites to birthdays, parties, launches etc. It helps, right? Well, not necessarily. Recently, I’ve been trying to keep track of how much time I spend on Facebook and the stats were quite sobering! It turns out, some days I spend as much as one whole hour of my evening using social media. This is time I could be spending taking a walk or having coffee with a friend offline. (I still find it weird this is an actual word. I always thought that you either meet up with someone or meet online. Now it turns out we have to be more specific!)

Anyway, for those of you feeling particularly adventurous, I recommend the Web 2.0 Suicide Machine. In the words of its creators: “This machine lets you delete all your energy sucking social-networking profiles, kill your fake virtual friends, and completely do away with your Web2.0 alter ego.”

Apart from telling you that erasing your online friends will not kill them in real life, the website provides some stats:
• Based on the figures they provide, I have calculated that the Web 2.0 Suicide Machine will save you approximately 90% of the time spent effecting a more manual, err . . . death
• Online suiciders reported that their lives have improved by an approximate average of 25%

The latter point is shocking. Is that really the case? Would I really be approximately 25% happier if I erased my profiles? This, in turn, would mean that the modern human lives, on average, 20% below their possible happiness level!

Does that sound right? Are we all missing out on some ‘Zen’?

We have had a debate in the office recently about the role of research agencies in the ‘behaviour change’ agenda, considering why traditional research companies seem to have been hesitant to embrace this zeitgeist.

There can be a degree of confusion over what topics and ideas are covered by this behaviour change concept. For some, it covers only the field of behavioural economics, popularised by books like ‘Nudge’, and ‘Predictably Irrational’, which identifies ways to understand and transform behaviour through reference to the quirks, rules-of-thumb and limitations of our cognitive processes.

But ‘behaviour change’ is actually wider than this.

Last week, I wrote about an event  I attended at the RSA, talking about organ donation and the concept of altruism . The debate considered the concept of having a ‘presumed consent’ or ‘opt-out’ system for organ donation in the UK to bridge the tragic shortfall between registered organ donors and the need for transplants.

This proposal is a typical ‘behavioural economics’ solution, and while it might dramatically increase the number of donors, there are many reasons why it might not be a magic bullet, not least because it is, on face value, controversial.

But if not the ‘Nudge’-solution, what then?

Chris Rudge , National Clinical Director for Transplantation at the Department of Health, commented during the lecture that one of the key things that needs to be understood is why people do not register, or do not consent to have their relative’s organs donated. What motivates them and what holds them back? How can the conflict between attitude and behaviour be resolved?

To me it seems likely that a panoply of psychological factors are at work – some that are ‘Nudge’-able and some that require a more sophisticated engagement.  From reflecting on my own failure to register for something so obviously worthy, I concluded that I held an almost subconscious aversion to even thinking about my death.

Addressing such issues goes beyond choice architecture . It requires an understanding of how attitudes and emotions influence behaviour and the impact social norms and networks can have.

It is this wider remit that ‘behaviour change’, somewhat ambitiously, seeks to encompass.

To my mind, it is in tackling these broad questions about the drivers of human behaviour that research consultancies can play a part in the behaviour change conversation. Deriving such insight is what we do on a day-to-day basis.

Combined with a careful understanding of the models and theories that the behaviour change movement encapsulates, this insight can be translated into a holistic social marketing-style approach that genuinely changes behaviour.

Read more here

• There’s a little Homer Simpson in all of us
• The Nudge blog
• NHS Blood and Transplant

About the author

Jamie Halliday is a Research Manager working with a number of consumer, public sector and corporate clients. His interests include evolutionary psychology, rugby and the music of Tom Waits, though rarely all at the same time.

The RSA hosted a curious event this week, looking at the subject of altruism by way of a discussion about organ donation, and vice versa.

Billed as part of the RSA’s Social Brain project, the debate meandered between a philosophical debate about the definition of altruism, sober exploration of the issues faced by those needing organs and their families, taking in moving testimonies from audience members affected by organ transplantation and, in the midst of it all, some quietly heart-rending statistics.

Three people die every single day in the UK for want of an organ donor. And we learned from Chris Rudge, National Clinical director for Transplantation at the Department of Health, that an estimated 1,000 people per year who might be suitable donors do not have their organs harvested after death.

Seen from a purely “Nudge” perspective, the solution should be very simple. Change the organ donation system from opt-in, to opt-out. In a swoop we would overcome people’s inherent aversion to signing up to the NHS Organ Donor Register, by taking advantage of our inner ape’s status quo bias. Or would we?

The main problem with this solution is, ‘what if people won’t accept it?’ There are many reasons why such a policy might play badly in the press or popular consciousness, for example. Just because presumed consent has worked in France doesn’t mean that it won’t be portrayed as a particularly callous tendril of the nanny state over here.

Furthermore, Thaler and Sunstein quote a study which indicates that the effect of switching from explicit consent to presumed consent only increases the donation rate by 16% - good, but not good enough.

During the course of the lecture, I found myself reflecting on why I am not registered as an organ donor. I completely agree with Professor AC Grayling’s point that the argument for registering is done and dusted. I will have no need of my organs after my death, and if I, or anyone I loved, was in the position of needing an organ transplant then I would desperately hope that a suitable donor had not been so remiss.

Yet, there I was, accepting of all the arguments, but having failed to act on them throughout my adult life.

The innate laziness of a young man can explain only so much. I have found plenty of time to do much less worthy things, like sign up for DVD rental schemes, fantasy rugby websites and even gyms. Why not this?

A brief bit of introspection suggests that inertia is only a scapegoat. Instead, some unspoken mental block that ties organ donation to my own mortality is far more relevant – as though by registering I would somehow move myself closer toward death. I am uncomfortable even thinking about it.

And, I feel a generalised unease about some vague quality I associate with donor cards. It is the same thing, I think, that makes some people say they dislike hospitals without being able to explain why. They connect them with sadness, frailty, death and a discordant sense of the routine.

Perhaps even in reading this blog you feel the same sense of discomfort.

These are not rational explanations. They are not reasons at all, but associations. But how many other people do not register because they do not want to acknowledge death, or are squeamish about the idea of organ removal? And what other factors are important?

I’ll follow up on this later, with some thoughts on how these questions relate to the research industry and the behaviour change agenda, but in the meantime I’d encourage you to register as an organ donor. I just did it, and it took less than 3 minutes. Then tell your friends and family.

About the author

Jamie Halliday is a Research Manager working with a number of consumer, public sector and corporate clients. His interests include evolutionary psychology, rugby and the music of Tom Waits, though rarely all at the same time.

There has been widespread discussion of the future of the NHS. A number of different models are debated - should there be more private sector involvement , a return to a centrally managed system, or even widespread privatisation. Although it regularly comes under fire, I believe that the NHS is here to stay. I for one am happy about that, and for once I think my opinion is shared by the majority of my countrymen (a rare occurrence for a Franco-Scottish Yorkshireman. Although it isn’t perfect, our nationalised health system is a unique asset to both our economy and our society. It avoids the spiralling costs of the US model without requiring the co-payments common across Scandinavia. It remains true to its’ founding principles of universal access and being free at the point of need.

 The NHS has changed a lot in the last ten years, too much for many of its staff who are its driving force and represent its greatest source of sustainability. The Labour Party invested heavily, transforming a system that was close to meltdown. These days the UK health sector repeatedly impresses and surprises me. We work with a range of organisations in healthcare and I’m always struck by the calibre of the talent and the creativity of the ideas, two things which often attract criticism. Although it’s common knowledge that we’re heading for times of public spending austerity, it’s unlikely that healthcare will see actual cuts, although even some belt squeezing will be difficult for the NHS to manage after over a decade of relative government largess.

 The real challenge for the next government, whatever the colour of their flag, is to manage further change in the NHS, and attracting talent to the organisation is central to this. The challenges it faces (notably an ageing population and increased public health costs) mean that it must become even more responsive to patient needs, even more efficient with resources, and even more appealing as a career. These are similar to the big issues facing most large organisations, and I hope they can be tackled with vigour, intelligence and perhaps most importantly with sensitivity.

 Read more here

• NHS central to Tories plans
• Quality, customer care and Mr Burnham’s mistake
•  High Quality Care for All

 About the author

Louis Coiffait is a Lead Research Consultant with a track record of delivering insightful and organisation changing research to our clients in the public sector, healthcare industry with a growing client list in the third sector.

Christmas is fast approaching and the shops are becoming more unbearable as we scramble around to buy things we think other people want. It is an exciting time for commerce as retailers compete for a piece of the Christmas pudding.

However, some predict that Christmas 2009 will not be the windfall it has been in the past. Before the recession shops were used to making hefty sums this time of year, but according to Market Research world, 1 in 5 Britons plan to spend less on presents this Christmas and even more people are planning to cut back generally on spending over the holidays.[1]

But what does this mean for the third sector which aims to generate both awareness and income during this season of ubiquitous good cheer? During rough times, these organizations may have a unique space in the economy. After all, with charity gifts such as Oxfam’s ‘give a goat’,  you essentially get to give twice; firstly by giving to a good cause and secondly by ticking another present off your friends and family ‘to buy’ list. As Oxfam says, “you change the world one gift at a time.” Amidst the recession, could ethical giving be the way forward for our post-Copenhagen world?

It’s hard to say - some of these holiday slogans may make the more pessimistic members of society feel slightly ‘toyed’ with, putting the consumer in a moral (rather than financial) dilemma. World Vision’s holiday push is the epitome of this: “would you prefer to change a life this Christmas rather than get more stuff to clutter up your life?”

Not to paint all charities with the same stroke, as they are both diverse and complex entities, but statements like this are intentionally polarising. They are based on the premise that most people who look at World Vision’s site, when given that ultimatum, will choose the “changing-a-life” camp rather than the “clutter” camp.

Such powerful and sensationalised messages are partially the result of charities having to operate in an increasingly competitive market, just like everyone else. As much as we associate charities with altruism, kindness, and the proverbial Samaritan, they are businesses that have their own niche in the market. According to Seb Elsworth, Director of Strategy for the Association of Chief Executives of Voluntary Organisations (ACEVO, of which FreshMinds is a member) voluntary organisations are a “social force as well as a powerful economic force.”[2][1] As agents in ‘the market’, this means that they compete with one another and with private sector organisations, they use aggressive advertising to sell themselves, they invest in PR and so the list goes on.

But is this a bad thing?

Maybe, as we all know, the people in the ‘clutter camp’ may not like being made to feel guilty for consuming non-Fair Trade products just so that a charity can appeal to the masses. Additionally, when organisations spend money on anything that is not directly on “the cause” it may give people yet another excuse to be apathetic. As donations dwindle, charities may become even more cutthroat as they scrape the bottom of the donation barrel. Moreover, given the often lack of transparency in charities, who then is accountable?

There is an upside to all this for third sector organisations, parallel to investing in tertiary services to sell their ‘product;’ gains in efficiency, commercial acumen and accountability are all part of being accepted by investors and the market alike. A good point made by Colin Nee from Charities Evaluation Services (CES) emphasises the importance of measures typically associated with private sector organisations. He states that “if you can’t define what success looks like and find practical ways to track progress…there is no plausible way to learn from or demonstrate achievement and you are unlikely to do well in an increasingly competitive funding environment where measurement is expected.”[3] Monitoring and measurement are central to the success of all ‘charities’ from small to large. The new push toward Social Return on Investment (SROI) as a form of monitoring is a perfect example of this and something we’re looking into offering.

If we accept that charities must function within the market like any other industry, then we must allow and foster the space for them to operate as such – treating them not as morally distinct bodies, but organisations that have a target market, target income, and a business strategy. Thus instead of giving or not giving this Christmas based on how you feel, do your charity research and become an informed buyer of giving -  eventually you will be raising the standard of all charities and your pounds will go even further.   

Courtesy of photobucket.com

When defending Twitter, I usually use Evgeny Morozov as an example of how it can save rather than waste time. “Yes, much of Twitter involves people describing their thoughts on dog outfits, Jedward and their own navels”, I say, “But why follow them? Instead, follow people who are interested in the same things as you. For example, if I want to find articles on social media and politics, I just click on @evgenymorozov.”

Mr Morozov has now written an excellent, assumption-busting article for Prospect on why social media are useful not only for me, but for dictators too (it’s subscription only but you can watch his TED talk on the same topic). In slightly more than 140 characters, here is a summary:

Consensus suggests that social media are fostering protest against repression because:

1. The web can provide advanced activists with secure and cheap tools for communication, avoiding paper trails and using Skype, which is harder to wiretap.
2. Crackdowns are riskier because of the prevalence of camera phones and the speed at which images can be distributed.
3. Social media aid “information cascades” of the kind that brought about revolution in East Germany: everyone sees the scale of protest, accompanied by either no repression (which emboldens them) or excessive repression (which enrages them).

However:

1. The state uses more effective tools as well, making monitoring easier. This applies particularly to large-scale online activity, which must necessarily have low barriers to access. So the masses (who are needed for revolution) are easier to trace, and there are more potential links between them and the ringleaders.
2. Crackdowns continue unabated. After the celebrated flashmobs in Belarus caught the headlines, few in the West went on to report that the authorities monitored the later protests, took their own pictures and cracked down hard.
3. Information cascades are increasing in all directions. So along with pro-democracy campaigners you find bloggers in the pay of regimes, as well as radicals who may be even nastier than the guys in charge. Furthermore, “the distracting noise of the internet—the gossip, pornography, and conspiracy theories—can act as a de-politicising factor.”

What I think Morozov’s article highlights is the distorting effect of the uncritical “glory of the internet” meme. But where does it come from? As a researcher, you should always try to bear in mind the biases inherent in your sample, and those producing media content in the West are themselves a sample - one prone to exaggerating the importance of the social media, and to having an interest in documenting its political impact. They are also more likely to follow those who are fighting admirably to bring information to the public, and less likely to read government-funded blogs, or to watch state broadcasting. Furthermore, the clandestine tracking of individuals is often as invisible as the activists’ videos are visible: who knows how many of the arrests in Iran used this data?

Evgeny Morozov (courtesy of ted.com)

In saying that the technologies are not all-powerful, I don’t mean to imply that they are “just a tool”, changing nothing but the shape that oppression can take. Clearly, the medium does change the message, as well as the social, cultural and psychological effects that follow. But how?

In broad terms, what the internet allows is not necessarily better communication or better social engagement, but more, vastly more: good, bad and everything in between. This is a huge change, and its effects will take years to be fully understood. But in the meantime, let’s resist the temptation to make sweeping judgments based on a clearly biased sample of this new communication. As Morozov explains, those elements of this communication that we actively seek out (because they make us feel less ashamed of wasting hours on Twitter, say, or because they confirm our belief in an innate human desire for democracy) are patently not telling the whole story. So how about making the next Twitterer you follow (or magazine you read) one that you violently disagree with, rather than yet another voice sharing many of the same assumptions?

Not interested? Me neither. Ah well…

Read more here

• Twitter and Iran: first get the data, then talk
• Rebooting Britain: ditch Twitter to save democracy
• Protest in an information society: a review of literature on social movements and new ICTs

About the author

Dave Bevan is an Interim Analyst working mainly in the Education Team at FreshMinds Research. He is also studying for an MSc in Politics and Communication at the LSE. Before that he worked for the G77 (group of developing countries) at the Rome Chapter of the United Nations, and before that was a dessert chef, a translator and a tour guide on London’s open-top buses. Dave’s interests include this, this and this.