̽��ֱ�� of Cambridge - Michael Kitson

Greater business-university collaboration will reap rewards, says new report

skbf2 — Mon, 28 Mar 2022 16:09:34 +0000

Valuable interactions between businesses and universities in the UK take many forms, but a lack of capacity by firms and information from universities is holding back even greater collaboration, says a new report.

̽��ֱ��report by the National Centre for Universities and Business (NCUB) and the Centre for Business Research (CBR) at Cambridge Judge Business School found that people-based interactions are the most common form of business-university interaction at 45%, followed by problem-solving interactions at 30%, commercialisation at 24%, and community-based interaction at 23%. Even within the commercialisation category, use of academic publications was most common at 19%, while spinouts and licensing were only 9% and 2%, respectively.

Report based on survey of nearly 4,000 companies

̽��ֱ��report based on an online survey of 3,823 companies in 2020-21 found that there is much untapped potential for the university sector to work further with business. Collaboration is curtailed by companies' lack of capacity to tap this important resource and by a lack of information from universities on how they can help businesses.

"A key finding of the report is that interactions take multiple forms that are far more frequent than spinoff and licensing transactions, and the vast majority of businesses interacting in these multiple forms find benefits that meet or exceed their expectations," said report co-author Alan Hughes of Imperial College Business School and the Centre for Business Research (CBR) at Cambridge Judge.

"But the survey results also make clear that it's lack of capacity on the part of companies, and a shortage of information provided by universities – rather than the costs of interaction – that is holding back greater collaboration with the UK's university sector, and this is costing the economy in terms of innovation and competitiveness. This issue could be addressed by businesses devoting more attention and staff to building their capacity for interactions with the university sector. This would be time and money well spent in terms of potential rewards and impact on company performance.

"Universities could also devote more attention to informing companies about the support that can be provided, and business schools have an important role to play in this."

Firms lack ability to seek knowledge from universities

Among the more detailed findings, the survey showed that companies of all types and sizes are "lacking in the ability to search for external knowledge from universities and invested only modest effort and time in integrating this knowledge into their companies". More than half of companies with at least one interaction with universities said that lack of resources was the biggest constraint on further interaction, followed by difficulty in identifying a university partner to help their businesses.

̽��ֱ��impact of COVID-19 has caused major disruptions to university-business links, with more than a third of firms reporting that it had impacted their interactions with universities. If the destructive impact of the pandemic on collaborations persists it will harm future economic growth and business performance.

̽��ֱ��115-page report – ̽��ֱ��Changing State of Business- ̽��ֱ�� Interactions in the UK 2005 to 2021 – is co-authored by Alan Hughes of Imperial College Business School and the CBR at Cambridge Judge; Michael Kitson, Assistant Director of the CBR; Ammon Salter of the ̽��ֱ�� of Bath; David Angenendt of Technical ̽��ֱ�� of Munich and the CBR; and Robert Hughes of the CBR.

Other findings of the report include:

UK businesses interact with universities on a global scale, not only locally or regionally. 'Knowledge exchange interactions operate over multiple regional, national and international geographies.'
Individual academics and individual professional staff at universities play a big role in starting and sustaining collaboration with businesses. 'Personal contacts are important mechanisms for university-company interactions.'
̽��ֱ��diversity of university types in the UK higher education sector is a 'strength of the system', because companies interact with large research-focused universities as well as smaller and more specialised institutions.
Companies that interact with universities rely on a diverse spectrum of academic disciplines.

Universities can help in full range of business functions

"Companies seek university interactions to solve the full range of business functions," says Alan Hughes. "These wider functions span strategy and business organisation, finance, logistics, human relations and marketing. As a result, interactions spread far beyond the STEM (science, tech, engineering and maths) disciplines to encompass, in particular, business and management studies and the social sciences, as well as arts and humanities. Non-STEM disciplines are particularly significant in knowledge-intensive services and other service industries, which are the dominant sectors in UK economic activity."

More than 80% of all companies surveyed said their university interactions met or exceeded their expectations, yet this was greater in more business-related areas of interaction such as human resource management, financial planning and business strategy. Interactions that did not meet expectations were concentrated in tech and process development, as well as logistics and procurement.

"This finding is a reminder that the UK higher education sector, including business schools, play a role far broader than only in the well-publicised technology sector," said co-author Michael Kitson, Associate Professor in International Macroeconomics and Director of the MBA Programme at Cambridge Judge.

"Developing new technologies are, of course important, but the survey shows that a focus only on technology risks businesses and universities alike missing out on organisational and other business-related activities that benefit companies across the UK."

Originally published on the Cambridge Judge Business School website.

Interactions between UK businesses and universities are broad-based and beneficial, but are being held back by firms' lack of capacity and information to tap this key resource, says a new report co-authored at Cambridge Judge Business School.

̽��ֱ��text in this work is licensed under a Creative Commons Attribution 4.0 International License. Images, including our videos, are Copyright © ̽��ֱ�� of Cambridge and licensors/contributors as identified. All rights reserved. We make our image and video content available in a number of ways – as here, on our main website under its Terms and conditions, and on a range of channels including social media that permit your use and sharing of our content under their respective Terms.

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Opinion: Autumn Statement 2016: experts respond

ljm67 — Thu, 24 Nov 2016 12:43:50 +0000

̽��ֱ��uncertainty created by the EU referendum left the chancellor with relatively little wiggle room. ̽��ֱ��Office for Budget Responsibility reduced its forecast of growth in the coming year from 2.3% to 1.4%, with adverse implications for tax revenues. Faced with this, the chancellor has produced a statement that is broadly responsible, prioritising measures that strengthen the resilience of the economy in a turbulent global context.

This entails a relaxation of fiscal constraints. Hammond has delayed both the return to fiscal balance and the time at which the debt:GDP ratio starts to fall. Some will perceive this as can-kicking, but it seems wise.

̽��ֱ��chancellor has also announced major new infrastructure investment – in R&D, transport, digital resources and housing. This is welcome and should bring a boost to the economy.

A particularly important provision concerns the reduction in the Universal Credit taper rate from 65% to 63%, increasing the amount of in-work benefits people can receive. This could be seen as a response to the view that the referendum result reflected a call for change by those most adversely affected by austerity. But the adjustment will most help the least needy of those who receive Universal Credit. It is a measure for the “just about managing” more than the “frankly not managing”.

Michael Kitson, ̽��ֱ�� Senior Lecturer in International Macroeconomics, Cambridge Judge Business School

A damp squib: economic policy needed a reboot and instead it got a light makeover. ̽��ֱ��economy is facing two big challenges: productivity growth is stagnant (“shocking” according to the chancellor) and the Brexit iceberg is looming.

First, Philip Hammond could have recast fiscal policy to allow significantly more public investment in the economy. Instead he merely acknowledged that the government will fail to achieve its fiscal targets. Monetary policy is running out of steam and an expansionary fiscal policy is one of the few effective options to deal with the challenges ahead. A preoccupation with “balancing the books” makes sense for a household, but not for an economy that is suffering from a severe lack of investment.

Second, there is the need for a coherent industrial policy to promote productivity growth. Instead we get a few piecemeal initiatives which are more symbolic than substantial. There is £23 billion over five years for a new investment fund. Yes, “every little helps”, but this is a paltry figure when you consider that the annual size of the British economy was £1,865 billion in 2015. ̽��ֱ��devil will be in the detail, but the investment fund is likely to only amount to around 0.2% of GDP. As a result, the UK will continue to lag behind the investment in innovation of most of its major industrialised peers.

̽��ֱ��Autumn Statement was a lost opportunity to implement a major transformation in the economy’s productive potential and capacity for innovation – which are the best ways of ensuring future prosperity for “hard-working families”.

Investment and productivity

David Bailey, Professor of Industry, Aston ̽��ֱ��

̽��ֱ��marked deterioration in growth forecasts and the public finances announced in the Autumn Statement meant that the government didn’t have many options in terms of fiscal giveaways to develop a wide ranging industrial strategy. But, as Hammond quite rightly stressed, UK productivity lags behind that of other countries.

To tackle this, he announced a “new national productivity investment fund” worth £23 billion which will focus on innovation and infrastructure. Investment in R&D will also rise by £2 billion a year by 2020. But this is small scale stuff.

There were some other, good small scale steps like boosting support for exports, more funding for venture capital for growing firms, and £390m for low carbon vehicles and connected cars. But whether Hammond’s pretty modest package stacks up as being able to transform UK productivity is surely questionable.

Rather than big transformational projects (which Hammond doesn’t anyway have the cash for), he favoured small-scale shovel-ready ones – like an extra £1.1 billion for English transport networks – which can deliver some small but quick economic wins.

Stephen Roper, Professor of Enterprise and Director of the Enterprise Research Centre, Warwick Business School

Addressing the UK’s productivity gap moved centre stage today as the chancellor announced a range of investments to make UK businesses more “resilient” and “match fit”.

̽��ֱ��productivity challenge is significant and borrowing to address it is a gamble. As the chancellor indicated, it currently takes an average UK worker five days to generate the same productivity as German employees generate in four. It remains to be seen how effective the chancellor’s package of measures will be in addressing the productivity challenge. Public investment alone is unlikely to close the gap, however. UK firms too will need to significantly increase their investment which is perhaps unlikely given the uncertainties of Brexit.

Other aspects of the Autumn Statement will be welcomed by business. Confirmation of planned corporation tax reductions to 17%, business rate reductions and rural rate relief are all positive steps. Less welcome in some quarters will be the increase in insurance taxes.

Reflecting Theresa May’s comments in June on the steps of 10 Downing Street, Hammond also signalled his aim to “build an economy which works for everyone”. Cash for regional transport, city deals that inject cash into regions and £1.8 billion from the Local Growth Fund to boost infrastructure in English regions will help perhaps. But there was little here to directly address issues of inclusivity or boosting growth in the UK’s poorest communities.

Personal Finances

Jonquil Lowe, Lecturer in Personal Finance, ̽��ֱ��Open ̽��ֱ��

Just-about-managing households will welcome the further freeze on fuel duty, worth £130 a year to an average car driver. ̽��ֱ��duty accounts for just under 58p per litre or nearly half of the current pump price. Less welcome is the rise in Insurance Premium Tax (IPT) from the current rate of 10% to 12% from June 2017. IPT is a bit of a stealth tax. Because we buy most insurance only once a year and providers invariably hike up premiums for existing customers at renewal, we tend not to notice this embedded tax. But it’s a great money spinner for the government with each 1 percentage point rise bringing in an extra £400 million a year.

Given current paltry returns, not-managing-at-all savers will welcome the announcement of a new National Savings & Investments savings bond next year, with an expected return of 2.2% a year (before tax) for a three-year term. However, they must wait until the March 2017 Budget for details. By then, inflation will be on the rise and interest rates may also be picking up – so we wait to see how attractive this bond will really be.

Welfare

Peter Taylor-Gooby, Professor of Social Policy, ̽��ֱ�� of Kent

̽��ֱ��chancellor has announced a “cap” on welfare spending. This is an overall limit set for spending on all welfare benefits apart from pensions and those, like Jobseekers’ Allowance, where outside factors such as the state of the jobs market affects demand.

Comparing the rate of increase allowed for the cap with expectations of economic growth shows how the poor – in work and not in work – will lose out by some 2% a year, with some slackening in the run-up to the next election. This throws into relief the chancellor’s failure to do much to address the continuing impact of the legacy of Osborne’s cuts.

Expected GDP and Welfare Cap Growth, 2016-2021. Peter Taylor-Gooby

̽��ֱ��4% increase in the national minimum/living wage is helpful to low-wage workers. So too is the 2% slackening of the taper on the Universal Credit work allowance (which means that the low-paid keep 2p more of any extra pound that they earn). Together, this may halve the likely cumulative cut of about 4% in living standards for this group over the life of the parliament.

But these changes are incapable of addressing the serious problems of rising inequality and poverty resulting from the benefit freeze, tightening of eligibility for child benefit, removal of the family element and all the other cuts.

Housing

Michael White, Director, Real Estate Economics and Investment Research Group, Nottingham Trent ̽��ֱ��

̽��ֱ��chancellor has announced a £2.3 billion housing infrastructure fund to build up to 100,000 new homes in high demand areas. London is to receive funding for 90,000 affordable homes and 40,000 new affordable homes are planned in England. These measures have to be welcomed along with the banning of letting agents’ fees.

But the chancellor’s plans to pilot a right-to-buy scheme for housing association tenants are worrying. This would reduce the supply of more affordable homes.

It is particularly at the lower end of the market that housing problems are most acute. Hence developing more affordable housing is essential if housing need and housing affordability are to be addressed.

̽��ֱ��chancellor’s announcements are far from enough. Even if the new proposed units are delivered it will not be enough to meet demand for housing, regardless of tenure type. Experts suggest 240,000 new homes are needed to meet demand annually. This total has never been achieved in the past 30 years, leaving a significant shortfall. Nothing has really managed to replace house building on the scale achieved by councils in the 1960s and 1970s.

Health

Karen Bloor, Professor of Health Economics and Policy, ̽��ֱ�� of York

This time last year I expressed concern that the promised spending increases for the NHS could well be inadequate. Much has changed in UK politics in 2016, but the financial landscape for health and social care remains extremely rocky. ̽��ֱ��Autumn Statement did little to alleviate this – in fact there was barely any mention of NHS finances.

In the past year, NHS finances have worsened, with Trust deficits over £2.5 billion in 2015-16. This is affecting access to and quality of care: waiting time targets and four-hour A&E standards are increasingly missed.

Next year, NHS spending will increase in real terms, but in later years it will flat-line. Access to the government’s new “Sustainability and Transformation Fund” for hospitals depends on meeting finance and performance targets, and locally drafted plans to reorganise services are likely to meet with considerable resistance. Restructuring services is extremely challenging, even with increased spending – and it may be impossible without it.

Outside NHS England, finances are even worse. Public health spending continues to fall, limiting capacity to prevent illness. And strains on social care continue to worsen: older people accessing publicly funded social care have fallen by over a quarter since 2010 as a result of local authority funding constraints. We are failing to care for our frail elderly people outside hospital, and increasing pressures on the NHS as a consequence.

Roads

David Metz, Honorary Professor of Transport Studies, ̽��ֱ�� College London

̽��ֱ��chancellor has announced additional spending on road infrastructure of £1.3 billion, intended to cut congestion, tackle pinch-points on major roads and upgrade local roads. ̽��ֱ��aim is to make journeys quicker and easier for millions of commuters.

Transport infrastructure investment is the current fashion among all the political parties, who hope it will stimulate a sluggish economy and boost long-term economic growth in the regions. But there is too much wishful thinking about the scope for congestion reduction and the benefits of improving connectivity between cities. We know from experience that we can’t build our way out of congestion – any increase in road capacity in populated parts of the country attracts additional commuting traffic.

̽��ֱ��chancellor has backed a recommendation of the National Infrastructure Commission to fund the next stage of development of an Oxford-Cambridge Expressway, worth £27m. But the commission’s main concern was the need to stimulate housing development if the potential economic benefits along the Oxford-Milton Keynes-Cambridge corridor are to be achieved. To this end, his plans to boost house building in areas of high demand are welcome.

Science and research

James Wilsdon, Professor of Research Policy, ̽��ֱ�� of Sheffield

̽��ֱ��confirmation of the £2bn of extra funding for R&D in today’s Autumn Statement is hugely welcome. Experience teaches us that it’s sensible to treat headline numbers like this with caution until there’s opportunity to read the fine print but it seems that this is genuinely new money, which is fantastic news. And it’s a real credit to John Kingman, chairman of UK Research and Innovation, and Jo Johnson, as science minister, that they have secured such a substantial boost from HM Treasury.

Some important details are still to emerge: how much of the new money will go to the research councils, and how much to the new Industrial Strategy Challenge Fund? How will the new challenges and priorities be defined, and with what mix of government, academic, disciplinary and user input? And will this extra investment be enough to offset the damaging uncertainties being created for the research community by Brexit?

But overall, this is an unexpected and exciting statement of intent. When the Prime Minister said this money was coming in a speech on November 21, I put some champagne on ice. Tonight, after the Autumn Statement, I’ll be cracking open the bottle.

Education

**Anna Vignoles, Professor of Education, Jesus College, ̽��ֱ�� of Cambridge

̽��ֱ��Autumn Statement confirmed capital funding for new grammar schools, despite the fact that the government is still consulting on this issue. Given the difficult financial situation faced by the education sector, this resource could be used to shield existing schools from existing cuts.

So far the proposals for the expansion of grammar school places have been met with strong opposition from both the education sector and the wider public. ̽��ֱ��evidence is quite clear about the potential negative impact the expansion of selective schooling would have on social mobility. Of course, if the consultation does not result in a large number of new grammar schools, this capital funding may still remain available.

̽��ֱ��announcement of funds for research and development – which Theresa May outlined earlier this week, is to be welcomed of course. But given Brexit – and the implications of that for EU funded research grants – higher education still faces considerable uncertainty about research funding going forward. All in all, difficult times ahead for education, as for so many public services.

Geraint Johnes, Professor of Economics, Lancaster ̽��ֱ��; Anna Vignoles, Professor of Education, Jesus College, ̽��ֱ�� of Cambridge; David Bailey, Professor of Industry, Aston ̽��ֱ��; David Metz, Honorary Professor of Transport Studies, UCL; James Wilsdon, Professor of Research Policy, ̽��ֱ�� of Sheffield; Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, ̽��ֱ��Open ̽��ֱ��; Karen Bloor, Professor of Health Economics and Policy, ̽��ֱ�� of York; Michael Kitson, ̽��ֱ�� Senior Lecturer in International Macroeconomics, Cambridge Judge Business School; Michael White, Director, Real Estate Economics and Investment Research Group, Nottingham Trent ̽��ֱ��; Peter Taylor-Gooby, Professor of Social Policy, ̽��ֱ�� of Kent, and Stephen Roper, Professor of Enterprise and Director of the Enterprise Research Centre, Warwick Business School, ̽��ֱ�� of Warwick

This article was originally published on ̽��ֱ��Conversation. Read the original article.

̽��ֱ��Chancellor's Autumn Statement has met with a mixed response from expert academics at some of the country's leading universities - including Cambridge.

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Opinion: Forget Super Thursday, the Bank of England can only offer Mildly Useful Thursday

Anonymous — Wed, 03 Aug 2016 11:18:06 +0000

̽��ֱ��Bank of England is expected to announce on Thursday measures to stimulate the UK economy following signs that there will be a significant economic downturn following the vote for Brexit. ̽��ֱ��Bank may cut interest rates, inject another dose of quantitative easing or conjure up something new to give the economy a monetary boost.

Although some have dubbed this “Super Thursday”, it cannot hope to be anything of the sort. ̽��ֱ��Bank only has tools to help ameliorate the immediate damaging impact of the Brexit vote. It can do little to address the underlying structural problems of the UK economy; structural problems that are likely to deepen unless the government makes a U-turn and uses fiscal policy as a means to stimulate long-term economic growth.

̽��ֱ��impact of the Brexit vote will be revealed over many years. ̽��ֱ��immediate evidence is patchy but the initial signs are that the economy is slowing down. ̽��ֱ��Purchasing Managers’ Index, which is a lead indicator of GDP, shows that the UK economy suffered a significant deterioration following the Brexit vote.

Sterling totters. J D Mack/Flickr, CC BY-ND

Sterling has weakened and this was expected to stimulate manufacturing exports. But the immediate evidence suggests that even manufacturing activity is slowing down. ̽��ֱ��Bank is also expected to revise downwards its growth forecast for the UK economy – not simply because of its macroeconomic model but also, as the Financial Times has reported, because some of its economists have been talking to businesses and finding out the story from the horse’s mouth.

Stimulating

̽��ֱ��Bank, assuming the mantle of the “muscular” interventionist, is expected to introduce further monetary stimulus to help business confidence and encourage spending. This should help to reduce the depth of the emerging downturn and it will assuage markets that at least there has been some response to deal with the impact of the Brexit vote.

But there is little evidence that monetary stimulus alone will address the long-term weaknesses of the UK economy. There are two major limitations of excessive reliance on monetary policy to manage the economy.

First, it does little to expand the capacity of the economy by stimulating new investment. Second, it increases the inequality of wealth: the big gainers are those who own assets which are propped up by the monetary stimulus such as housing, bonds and shares. Very low interest rates have increased demand, but this demand has served to increase the prices of existing assets – such as the cost of housing. It has had little impact on the creation of new assets, such as house building and corporate investment and expansion.

̽��ֱ��Big Problem

One of the major long-term problems facing the UK economy is stagnant productivity, the prime determinant of future prosperity and income growth. There are a number of drivers of productivity including investment in capacity, investment in education and the creation of new ideas. Monetary stimulus can do little to stimulate these.

Low interest rates may stimulate private sector investment in normal times, but such investment is discouraged by economic and financial uncertainty. An active fiscal policy is required to address the productivity problem, including state investment in infrastructure, housing and education.

And the productivity problem is likely to get worse in the long-term as the UK wrestles with its post-Brexit legacy. First, the UK will find it more difficult to trade with both Europe and the rest of the world. This will lead to a widening of the UK’s trade deficit or a permanently lower exchange rate – or possibly a combination of both. Second, the level of foreign direct investment into the UK economy is likely to fall as foreign firms remain in, or move into countries within the EU single market.

Third, there will be serious disruptions to the UK’s innovation system. Universities are one of the strong aspects of the UK system, but their ability to attract funding and world-class researchers will be hindered when (or if) the UK leaves the single market. Furthermore, much business research and development in the UK is carried out by overseas firms, which may fall if such firms move or expand abroad.

A New Industrial Policy?

̽��ֱ��Brexit vote has led to a new government and a new opportunity to recast economic policy. ̽��ֱ��new Prime Minister has indicated her support for industrial policy and she has established a new Department for Business, Energy and Industrial Strategy. But we have been here before and the rhetoric and rebranding has often not been followed by action.

̽��ֱ��decisions of the Bank of England that will be announced on Thursday may be mildly useful, but they can’t hope to be much more than that. They can do little to alter the long-term direction of the economy. ̽��ֱ��key issue is whether the new government acknowledges the important role for the state in driving long-term growth and re-orientates fiscal policy towards increasing public investment in infrastructure, education and innovation.

Michael Kitson, ̽��ֱ�� Senior Lecturer in International Macroeconomics at Cambridge Judge Business School, ̽��ֱ�� of Cambridge

This article was originally published on ̽��ֱ��Conversation. Read the original article.

̽��ֱ��opinions expressed in this article are those of the individual author(s) and do not represent the views of the ̽��ֱ�� of Cambridge.

Michael Kitson (Cambridge Judge Business School) discusses how the Bank of England may try to give the economy a boost.

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̽��ֱ��Bank of England & ̽��ֱ��Duke of Wellington.

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Does economics need less maths or more?

sc604 — Fri, 11 Apr 2014 07:00:00 +0000

Mathematics is an indispensable tool for economists – but has it become too dominant in economics? Michael Kitson, Senior Lecturer in International Macroeconomics at Cambridge Judge Business School, suggests that an over-reliance on mathematics may have been an important contributory factor in the failure of most economists – in business, in government and in academia – to predict the international financial crisis.

In the wake of that crisis, many economists have questioned the principles of economics as practised today, particularly ideas around rational behaviour, or the idea that the economy will naturally return to equilibrium. “But often their solution seems to be that the mathematics used wasn’t good enough, that you just need to change the assumptions upon which the models were based,” says Kitson. “Better maths will help, but what will help more would be to allow economics to become an eclectic subject again. You need talented mathematicians, but they need to be talking to people in the real world.”

Kitson quotes a letter sent by Professor Tim Besley and Professor Peter Hennessy to HM the Queen in July 2009, responding to a question the Queen posed during a visit to the London School of Economics in November 2008: why had economists failed to spot the impending crisis? In the letter, Besley and Hennessy conclude that the failure of the “best mathematical minds in our country and abroad” to foresee “the timing, extent and severity of the crisis and to head it off … was principally a failure of the collective imagination … to understand the risks to the system as a whole.”

This lack of imagination will remain, says Kitson, “as long as economics remains tethered within the confines of mathematics”. He firmly believes that if economists placed less emphasis on maths and more on intelligence and insights gleaned from a wider range of evidence, including studies of history, anthropology, sociology and other social sciences, they might stand a better chance of avoiding the next crisis.

But distinguished scholar Dr William H. Janeway, also a managing director at private equity investment firm Warburg Pincus and a senior research associate at Cambridge Judge’s Centre for Financial Analysis & Policy (CFAP), thinks economists failed to predict the crash because the mathematics they were using was too simplistic. Dr Janeway accepts that mathematics used by economists, policy makers and others failed to predict the crisis, but he does not believe this was the result of over-dependence upon mathematics. He says economists need to use more sophisticated mathematics, not less mathematics.

" ̽��ֱ��assumptions used were reduced to a ludicrously simplistic level,” he says. “ ̽��ֱ��more realistic the assumptions about human behaviour, social context – about the dynamics between people interacting with each other – the more challenging the maths has to become."

Dr Janeway is more positive about use of computer simulations to examine more complex systems. “One sign that confirms the opening of the economic mind is the growing acceptance of simulations as legitimate instruments for exploring the behaviour of complex systems.”

His view is that there has been a growing trend towards the use of more realistic assumptions in microeconomics and finance since the bursting of the dotcom bubble and that this work is now having an influence in macroeconomics.

He agrees with Kitson that simulations or analytical models should be informed by reading of history and of other social sciences, but says that sophisticated mathematics should then be used to determine the practical worth of those models and simulations. Without that mathematical rigour an economist is doing no more than “telling stories … which is what ideologues do when they want to justify policy”.

Dr Janeway notes with approval the work of economists such as Professor Hyun Song Shin at Princeton, where the “rational representative agent” concept has been supplanted by an approach considering the behaviour of “heterogeneous agents who are challenged to make decisions with uncertain outcomes … who … lack complete information and know that everyone else does as well.”

He points, in particular, to Hyun Song Shin’s book Risk and Liquidity, which examines the sometimes destructive interaction of investors and intermediaries in the capital markets. “There you see the outline of the mathematical models needed to understand the complicated interaction between the financial system and flows of cash through the production economy and the consumption economy.”

Yet Kitson, while recognising the insights that such models can provide, is still concerned by the extent to which maths continues to dominate economics:

"I am not convinced that the failure of mathematical economics can be repaired by doing more maths,” he says. “Economics needs to stop clinging to the notion that the complexities of human behaviour can be explained by algorithms or mathematical proofs."

Has mathematics become too complex and too dominant a force in modern economics? Yes, says Cambridge Judge Business School’s Michael Kitson; no, says economist Dr William H. Janeway. Here both experts set out their views on what’s needed to help avoid a repeat of the recent financial crisis.

Economics needs to stop clinging to the notion that the complexities of human behaviour can be explained by algorithms or mathematical proofs

Michael Kitson

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A student solves a mathematics equation at the Mfantsipim Boys School in Cape Coast

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