Measuring Economic Democracy: Index, Implications, and the Brexit Challenge

This podcast episode introduces the Economic Democracy Index (EDI), a tool developed by Professor Robert McMaster and colleagues at the University of Glasgow Adam Smith Business School. The EDI aims to broaden the understanding of economic democracy beyond the workplace, serving as an indicator of economic and social well-being. It investigates potential relationships between economic democracy and key macroeconomic variables such as productivity, poverty, income inequality, and growth. The methodology adheres to guidance from the OECD and European Commission for composite index construction, primarily utilizing reliable datasets from OECD member states, though some exclusions were necessary due to data issues.

The EDI has revealed significant differences across economies, with Scandinavian countries consistently ranking high, mainland European economies performing well, Eastern European nations more modestly, and Anglo-American economies (UK, US) ranking relatively low (the US was 32nd out of 32 in the latest iteration). The index incorporates various components, including 'associational democracy,' which considers collective organizations like financial cooperatives and trade union density. The UK, for instance, does not perform well across the range of EDI indicators. The research also notes a mixed picture of economic performance before and after the financial crisis, with some economies improving and others, like Greece, deteriorating, highlighting the need for further qualitative investigation through interviews with stakeholders.

A robust causal relationship has been established between higher economic democracy and lower levels of income inequality, as well as positive correlations with labor productivity and reduced poverty levels (as assessed by the Gini coefficient). These findings suggest significant policy implications, as economies performing well in the EDI also tend to excel in other indices like the Human Development Index. The core insight is that democratizing institutions and giving people a voice in decision-making processes can lead to beneficial outcomes, prompting interest from organizations like the Scottish Government, Oxfam, and the New Economics Foundation in exploring these policy implications, such as greater employee voice within firms and increased financial diversity.

The episode also touches upon the profound uncertainty surrounding Brexit, noting that conventional economic tools were inadequate for predicting its full impact. While some initial apocalyptic forecasts did not materialize, Brexit is slowing growth, causing incomes to fall, and has the potential to exacerbate existing income inequalities and poverty levels in the UK. It is characterized as sending a negative, inward-looking signal to the rest of the world. The discussion briefly extends to climate change, expressing concern about the lack of global action despite local initiatives, underscoring broader challenges beyond economic measurement.

those who voted leave for issues associated with for example the European Union's perhaps Auto liberalism or neoliberalism and its potential impact on labor markets for example may well be those who suffer most as a consequence of this

we're developing an economic democracy index what we endeavor to do is just to contribute to the debate on the use of indices as indicators of economic social well-being

broaden the notion of economic democracy beyond the workplace and interrogating and investigating potential relationships between economic democracy and for example productivity poverty income inequality growth and so forth

economic democracy index has revealed quite a marked and pronounced differences between Scandinavian economies and mainland European economies who rank fairly fairly highly relatively speaking

what we find is with income inequality there's quite a pronounced correlation so the higher the economic democracy index the lower the levels of income inequality

we find that there is a robust causal relationship and again we're trying to develop our analysis isn't this in terms of factor productivity we also find a positive correlation between economic democracy and labor productivity

the array of institutions and endeavouring to democratize them implies that people react fairly well to having a voice and being able to participate in decision-making processes

predicting the impact of breaks economic tools aren't really adequate because they're dealing with a profound uncertainty and something is potentially transformational of the the UK economy

I think breaks it has the potential to transform the UK economy in ways that could exacerbate income inequalities and existing poverty levels it sends a very very bad signal to the rest of the world it's not xenophobic but it certainly inward-looking