A pioneering new way to measure the economy and identify the 'democratic health’ of a country’s economy has been created, writes Claire Smith, Adam Smith Business School Communications Officer.

Using this new Index of Economic Democracy, researchers have found that countries with higher levels of public engagement and participation in their economies have fewer inequalities.

Nordic countries such as Sweden, Denmark and Iceland ranked top, while economies such as the US rank at the bottom, with the UK ranking 20th out of 32.

The project involved University of Glasgow Adam Smith Business School, and Nottingham Trent University in partnership with the New Economics Foundation and Oxfam.

Global index

The research team constructed a global index of 32 countries that determines how much control people have over the economy and how it works, to measure levels of economic democracy between and within countries.

The index is unique because it takes a broad perspective, incorporating individual economic rights, such as rights in the workplace, gender rights, levels of public participation and the wide-ranging nature of economic decision making. It enables researchers to explore the relationship between economic democracy and key public policy goals such as tackling inequality and poverty, as well as productivity.

The regulated Scandinavian countries rank highly due to their greater levels of individual employment security, decentralised economic decision making and democratic participation. As a result they see lower levels of poverty and inequality.

The opposite is true of the more deregulated economies.

Economic and Social Research Council

Contrary to many mainstream policy assumptions which advocate greater labour market flexibility and deregulation, researchers also found a clear link which shows that greater employment regulation and protection, can enhance economic performance.

Professor Andrew Cumbers, Professor in Regional Political Economy, said: “The two common features of strong performing countries are high levels of individual employment rights and strong social partnership and collective governance institutions. The UK’s relatively poor performance can be attributed to the erosion of individual employment rights, collective bargaining, the decline of mutualism and other forms of collective ownership, and the absence of devolved economic power. Countries which do well tend also to have a lot of co-operative ownership."

“Measures such as a higher living wage, guaranteed basic income and greater participation by employees in corporate governance, as well as more democratic ownership structures are likely to significantly contribute to these public policy goals.”

Professor Michael White, Professor of Real Estate Economics from Nottingham Trent University said: “Modelling the relationship between the Index of Economic Democracy and income inequality as well as labour productivity, showed that greater economic democracy reduced income inequality and increased labour productivity.

"This suggests that countries with higher levels of economic democracy as measured by the Index have more equality and also benefit from higher labour productivity that in turn supports higher income levels.”

The research was funded by the Economic and Social Research Council (ESRC).

First published: 23 January 2018

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