CentrePieceISSN 1362-3761 The Magazine of The Centre for Economic Performance Volume 16 Issue 3 Winter 2011/12 Lobbying Letters by economists Export success School inspections Policy uncertainty High-speed rail What makes people happy? CentrePiece CentrePiece is the magazine of the CEP director, John Van Reenen Centre for Economic Performance at the CEP research director, Stephen Machin London School of Economics. Articles in this issue reflect the opinions of the authors, not Editor, Romesh Vaitilingam of the Centre. Requests for permission to Design, DesignRaphael Ltd reproduce the articles should be sent to the Print, Hastings Printing Co. Ltd Editor at the address below. © Centre for Economic Performance 2012 Editorial and Subscriptions Office Volume 16 Issue 3 Centre for Economic Performance (ISSN 1362-3761) All rights reserved. London School of Economics Houghton Street London WC2A 2AE Annual subscriptions for one year (3 issues): Individuals £13.00 Students £8.00 Organisations (UK and Europe) £30.00 Rest of world £39.00 Visa and Mastercard accepted Cheques payable to London School of Economics Editorial What makes people happy? Nearly between crime in a local area and And Nicholas Bloom argues that weak 20 years ago, the Centre for Economic the mental health of both victims and economic growth in Europe and the Performance (CEP) organised its first non-victims. United States is in part due to conference on this question under the There is much more about wellbeing heightened uncertainty about economic title ‘Happiness at LSE’. Since then, on our website, including recordings of a policy-making. understanding wellbeing – and what public debate between Lord Layard and CEP researchers are also deeply practical actions might be taken to his fellow peer Robert Skidelsky on involved in a new initiative launched in promote it – have been a central part of whether happiness is the right measure January: the LSE Growth Commission. the Centre’s research agenda. At the of social progress, and of the two latest Co-chairs Tim Besley and CEP’s director same time, promoting happiness has events to celebrate the Centre’s 21st John Van Reenen outline its aims thus: increasingly been seen in some birthday. Former CEP researcher Andrew ‘Even in times of slow growth and government circles as a legitimate Oswald gave a fascinating lecture on protracted economic turbulence, it is ambition of public policy alongside the herd behaviour and the phenomenon essential to stay focused on the key more traditional goals of supporting of ‘keeping up with the Joneses’; and drivers of prosperity over the long term. economic growth and employment. Nobel laureate Daniel Kahneman The LSE Growth Commission will use In this issue of CentrePiece, CEP’s discussed his acclaimed new book, frontier research to provide a framework founder director Richard Layard outlines Thinking Fast and Slow. for policy-making in the UK to support the development of happiness research Elsewhere in this magazine are sustainable growth.’ How the growth at LSE and its interactions with policy: several topical pieces. Henry Overman agenda fits with the happiness agenda ‘the main aim of social science should be questions the UK government’s decision will be an interesting challenge for to throw light on the conditions to go ahead with HS2, the new high- researchers and policy-makers. conducive to happiness’, he concludes. speed rail line. Iftikhar Hussain Two further articles look at the summarises his evidence that the Ofsted relationships between people’s working inspection system has proved effective in Romesh Vaitilingam, Editor environments and their wellbeing, and raising educational standards in England. [email protected] CentrePiece Winter 2011/12 page 8 Crime and mental wellbeing page 18 HS2: assessing the costs and benefits in brief... page 8 Crime and mental wellbeing Contents Francesca Cornaglia and Andrew Leigh measure the impact of crime – and media reporting of crime – on the mental page 2 wellbeing of both victims and non-victims Big ideas: wellbeing and public policy Richard Layard outlines the development of CEP research on page 14 what makes people happy and how society might best be Pupils’ progress: how organised to promote happiness children’s perceptions influence their efforts page 6 Amine Ouazad and Lionel Page have Wellbeing in the workplace: the impact conducted an experiment in which of modern management children used pocket money to place small Alex Bryson and colleagues explore the links between bets on their exam performance employees’ wellbeing and their working environment, notably the practices of ‘high involvement management’ page 16 The returns to lobbying page 10 Research by Mirko Draca and colleagues School inspections: on Washington’s ‘revolving door’ lobbyists can we trust Ofsted reports? gives an indication of the value of political Iftikhar Hussain assesses the validity of Ofsted’s school ratings, connections in the UK the impact of a ‘fail’ on pupil performance and the extent to which teachers can ‘game’ the system page 24 The letters page page 18 Alan Manning questions the value of HS2: assessing the costs and benefits researchers conducting debates about Henry Overman considers the arguments for and against economic policy through the pages of building a new high-speed rail line from London to Birmingham newspapers page 21 Policy uncertainty: a new indicator Nicholas Bloom and colleagues have developed a measure of uncertainty about economic policy-making page 14 page 26 Pupils’ progress: how Sequential exporting: how firms break children’s perceptions into foreign markets influence their efforts Emanuel Ornelas and colleagues find evidence of ‘sequential exporting’ – firms experimenting in nearby foreign markets before seeking to become big exporters 1 CentrePiece Winter 2011/12 In the latest of CEP’s ‘big ideas’ series, Richard Layard outlines the development of the Centre’s research on what makes people happy and how society might best be organised to promote happiness. Big ideas Wellbeing and public policy 2 CentrePiece Winter 2011/12 ow can we maximise major figures in the field. He also Mental illness also has massive economic people’s happiness and organised CEP’s first conference on costs, putting over one million people which institutions, policies happiness in November 1993, where the onto incapacity benefits. Hand norms will best achieve participants included Daniel Kahneman, a According to another survey, the this goal? It was to answer this question psychologist who a decade later received national Psychiatric Morbidity Survey, one that the subject of economics was the Nobel prize for economics, and two in six adults would be diagnosed as developed – and it was why I became other psychologists, Peter Warr and Kamal suffering from clinical depression or an economist. Birdi from the University of Sheffield. At crippling anxiety disorders, but only 25% Economics has done a great deal to that time, it was rare for economists and of these are in treatment, compared with improve the human lot. But unfortunately psychologists to work together. nearly 100% for most physical illnesses. it has had too narrow a view of the In 2005, I wrote a book on happiness, This is shocking – not only because of the sources of happiness and misery – too now in its second edition, in which I tried avoidable human misery but also because, focused on the standard of living. This to juxtapose the philosophical arguments as one of our studies shows, if cognitive became obvious nearly 40 years ago when in favour of wellbeing with the evidence behavioural therapy (CBT) were made Richard Easterlin pointed to the survey on its causes – and thus derive some generally available, it would pay for itself evidence that despite massive rises in important policy implications (Layard, through savings on incapacity benefits and living standards, happiness was not 2011). The book has sold over 150,000 lost taxes (Layard et al, 2007). increasing (Easterlin, 1974). He attributed copies in 20 languages. From it has That 2007 paper was written with this to the fact that people compare their followed the Centre’s research programme LSE’s Martin Knapp, the UK’s leading income with other people’s incomes and on wellbeing, designed to push forward expert on the economics of mental health, with their own recent experience. our understanding but also to produce and David Clark of the Institute of In 1980, I wrote an article about the practical action. We can begin with the Psychiatry at King’s College, who is one of policy implications if that were true practical action. the world’s leading experts on CBT. To (Layard, 1980). At that time, there was The first area here has been mental improve things, we formed the LSE Mental virtually no evidence about the health. By analysing data on a typical Health Policy Group, which in 2006 determinants of happiness. Over the last group of adults (participants in the 1970 produced The Depression Report. This 30 years, all that has changed and there is British Cohort Survey, when they were 34 included the proposal to train up to now a vigorous infant science of years old in 2004), it is possible to explain 10,000 therapists in the UK to deliver happiness. At the same time, we have had their reported levels of happiness and effective therapy services in the NHS the continuing experience of ever rising misery. The results show that mental (CEP, 2006). incomes associated with no increase in health eight years earlier explains four The government essentially accepted happiness in the UK and several other times as much of the misery in our society our proposals and they are now being countries, including Germany and the as does the level of current family income. rolled out nationally as the Improving United States. Access to Psychological Therapy From these two influences – the Programme (IAPT) over a six-year period science and the popular experience – has (2008-14).