When "nudge" is just another word for "advert"

Martha Gill's Irrational Animals column.

Most people will have heard of the “nudge unit” – a crack team of behavioural economists installed in Downing Street which has the power to wire policy directly into our frontal cortices, using only cutting edge neuroscience and door-to-door leafleting.

For those that haven’t, “nudging” is an evidence-based strategy that aims to influence people’s behaviour towards certain of David Cameron’s more benign policies, such as cutting energy use and reducing obesity. It’s a canny way of motivating people without offering financial reward. To get people eating healthily, for instance, it helps to put apples, rather than crisps, on eye-level shelves in shops.

At base, however, “nudging” is just a scienced-up and buzzworded-down way of saying “advertising”. The trouble for Cameron is that, for every penny spent marketing his policies through nudge, thousands more are spent by the advertising industry to encourage us to go in what is often precisely the opposite direction. So, it’s not surprising that the effects of nudging have as yet been lukewarm.

Part of the problem is that the nudgers aren’t yet fully realised advertising men. Advertisers know the importance of targeting an audience, but nudging is very one-size-fits-all. What is perhaps more troubling for Cameron is that his core audience and his core voters are not often the same people.

A US study by Dora Costa and Matthew E Kahn of the University of California, Los Angeles showed that conservatives are far less susceptible to nudges in the direction of energy conservation than liberals. Researchers designed leaflets that let households know how much energy they were using compared to their peers (with a smiley face if they were using less and a frowny face if they were using more), and handed them out to a mix of conservative and liberal households. While this nudge usually lowered carbon consumption in liberal households, it actually had the opposite effect in conservative homes.

The researchers thought that the “boomerang” effect had been much stronger among conservative voters. If they saw they had used less energy than others (smiley face), they were likely to increase their energy consumption to catch up. This was because they had not been on board with the basic energy saving  ideology from the start; the leaflet merely nudged them towards the norm.

Cam can’t

A nudge unit is, all in all, an odd choice for Cameron. Not only are conservative voters less likely to be on board with the policies, which generally are more tailored to appeal to the community-minded, they are also more likely to act in defiance against any such “nannying” moves.

So, if they want to extend their influence, nudgers need to take more lessons from the advertising industry. This is inconvenient for them, as they like to brand themselves as a breed apart. Nudging itself, you see, is an industry – and markets itself sagely, knowing our weakness for all things science. It’s not science, though: it’s leafleting, and right now it’s leafleting all the wrong doors.

An image taken at Bristol Science Centre. Photograph: Getty Images

Martha Gill writes the weekly Irrational Animals column. You can follow her on Twitter here: @Martha_Gill.

This article first appeared in the 17 September 2012 issue of the New Statesman, Who comes next?

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation