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Nick Bloom on measuring global uncertainty and good management

Bloom provides insights into intractable mysteries in international economics as they relate to management practices and their impact on business innovation and productivity.

If the United States seems like a morass of unknowns when it comes to economic policymaking these days, consider this: This year kicked off with more uncertainty over the direction of economic policy worldwide than there has been in at least two decades.

This insight comes from the Global Economic Uncertainty Index, a monthly measure based on local news coverage of economic policymaking in 18 countries representing 95 percent of the world’s gross domestic product. It is the brainchild of Nicholas Bloom, a Stanford economics professor and SCID faculty affiliate, and researchers from Northwestern and the University of Chicago.

Nick Bloom
Nick Bloom

The January 2017 reading of the global index not only hit a peak, but also was running three times higher than its average dating to 1997, the first year tracked. Measuring uncertainty turns out to be challenging yet hugely important as a predictor of where businesses are headed. That’s because confusion about government actions tends to deter companies from investing in new ideas and jobs. Worker productivity also suffers.

The metrics have been widely embraced by Wall Street and have turned Bloom into a celebrity of sorts among financial reporters looking to make sense of the populist fervor reshaping global politics. “There’s a sense that government policy is really driving the economic agenda,” Bloom says.

He adds that the index isn’t perfect.

“But in the land of the blind, where the one-eyed man is king, our policy uncertainty measure rules,” he says.

Challenging conventional wisdom

Bloom’s mission is to provide insights into some of the most intractable mysteries in international economics, particularly as they relate to management practices and their impact on business innovation and worker productivity.

In 2002, for instance, Bloom was part of a team of economists that waded into the roiling debate over the popularity of management theories — and whether the latest guru-driven trends actually work — with their World Management Survey. The survey, in which more than 300 researchers have worked directly with more than 20,000 companies in 35 countries, benchmarks “good” management.

Bloom has shed light on other thorny questions in economics. He has used information from high school principals around the world to create an index linking top student test scores to the quality of school administrators. He has also shown that, while Chinese imports have largely been seen as harmful to the U.S. economy, they have boosted productivity and fostered innovation in Europe.

Bloom’s insights into what he calls “being nice to people practices” have caught the attention of businesses, journalists and the White House. In a study of a Chinese online travel service, for instance, Bloom has shown that allowing workers to do their jobs from home improves morale and company profits. Maternity leave benefits are also good for business, he says. In 2014, Bloom participated in the Obama administration’s Working Families Summit. He will speak about working from home at the Stanford TEDx conference in April.

Making a difference

Bloom understands the issues that are top of mind for businesses and policymakers because he used to walk in both worlds. A native of England, Bloom joined the British Treasury as a tax policy adviser shortly after earning his Phd in economics from University College London in 2001. He later worked as a management consultant for McKinsey & Company before joining Stanford in 2005, where he now serves as the William D. Eberle Professor of Economics and teaches at the Graduate School of Business. He also co-directs the National Bureau of Economic Research’s program on Productivity, Innovation, and Entrepreneurship.

Bloom says his move into academia has given him a degree of independence he didn’t have before. “I can take a step back, think deeply about topics and, hopefully, make a real impact,” he says.

Please note that prior to September 2017, the Stanford King Center on Global Development was known as the Stanford Center for International Development (SCID).