Does Social Cooperation Affect Macroeconomic Performance?

The first seminar will be held twice: please choose whichever is most convenient.

October 10th, 9.30 am start followed by lunch at 12.30 – National Institute for Economic and Social Research, 2 Dean Trench Street, Smith Square, London, SW1P 3HE October 11th, 9.30 am start followed by lunch at 12.30 – Blavatnik School of Government, Walton St, Oxford, OX2 6GG

Discussion Theme: Social Trust and the British Productivity Puzzle

Examples of how declining social trust might have reduced productivity:

  • Excessive focus on intra-temporal labour allocation to minimize unemployment has undermined the trust relationships between employer and employee necessary for investment in skill and hence inter-temporal resource allocation.

Britain has increased the flexibility of its labour market. Relationships between firms and workers have shortened; the weakening of unions encouraged the dismantling of apprenticeships; and a new migration policy encouraged an influx of pre-skilled immigrant workers. Cumulatively, these changes may have reduced the efficiency of inter-temporal resource allocation in the labour market, as firms and workers rein back their investments in skill. This has been compounded by the excessive prestige in Britain for degree courses relative to non-cognitive training.

  • Reciprocal Obligations versus Monitoring and Incentives

The performance of the economy depends upon the performance of large organizations, commercial and public. All such organisations face the ‘compliance problem’: how best to motivate employees and other parties to transactions, to perform actions that they would prefer not to do. Economists and lawyers have each come up with solutions to this problem.

Economists have developed Principal-Agent Theory. This has encouraged organizations (both commercial and public) to address the compliance problem by intensifying performance monitoring and linking it to high-powered incentives. Yet this can backfire as employees divert effort to what is monitored, and other systems of motivation are inadvertently undermined.

Meanwhile, under mounting pressure from litigation and the fear of loss of reputation, large British organizations (both commercial and public) have switched from trust to hiring lawyers to write more complete contracts. This is infeasible but imposes a large new burden that is the equivalent of technical regress and demeans and demotivates staff subject to it.

Cooperation Research Hub

15 July 2018

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