Why Economies and Banks need to be Purposeful



Across the United Kingdom, businesses form the backbone of our economy. From manufacturers and exporters to technology innovators, local retailers, professional services, and family enterprises, businesses create jobs, drive innovation, and sustain communities in every part of the country.


Two meetings, on consecutive days, brought into sharp focus a critical blind spot at the heart of British economic policy: the systematic omission of human motivation and engagement from our models of growth. The consequences are neither abstract nor modest - they are costing the UK economy an estimated £257 billion a year.



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Two recent meetings converged on the same uncomfortable conclusion. The first, at a London university, convened an international gathering of economists examining the relationship between economics, values, and the common good. The second brought together Bank of England representatives and citizens to discuss monetary policy, economic challenges, and institutional purpose. Both meetings were intellectually stimulating. Both, ultimately, revealed the same structural gap - one that may go some way to explaining why the United Kingdom continues to lag its peers on productivity, wellbeing, and long-term economic resilience.


The gap is this: mainstream economics has, for decades, treated human motivation and engagement as exogenous - as background noise rather than primary variables. This is not merely a theoretical oversight. It has measurable, material consequences for output, innovation, and the quality of life of millions of people. A Purposeful Economy starts to address this omission and reorients economics around human and planetary flourishing.


I. The Purpose of Economics


The opening session of the London conference made a case that economists already embed values in their work, and that no serious economist conflates GDP with human flourishing. The argument was well-received in the room. It was also, on closer examination, insufficient.


A question posed to the international speaker crystallised the issue: in commercial enterprise, the operative concept is not efficiency but effectiveness. Efficiency asks how well resources are used relative to outputs. Effectiveness asks whether those outputs actually achieve a stated purpose. And you cannot measure effectiveness without first defining what you are trying to achieve.


The speaker's response - that the purpose of economics is to improve human wellbeing - a noble purpose if true and one that could be further extended to improving planetary wellbeing too. But a stated purpose and a revealed, systemic purpose can be entirely different things. If improving human welfare is genuinely the purpose of mainstream economics, there should be visible, improving effectiveness measures that demonstrate this. There are not.


International wellbeing indices exist in abundance - the OECD Better Life Index, the UN Human Development Index, the Gallup World Poll, the Annual Mental State of the World (MHQ) Report, the World Happiness Report. But they remain peripheral to the models used by governments and central banks. Human and planetary wellbeing continue to be treated as externalities: outcomes that might be noted in supplementary reports but are not formally integrated into the objective functions that drive policy decisions. GDP, despite decades of sustained critique from within the economics profession itself, persists as the default proxy for societal progress.


The Mental Health Quotient (MHQ) - a large-scale international measure of population wellbeing across six sub-categories including mood and outlook, drive and motivation, cognition, and social self - illustrates the proxy problem starkly. The UK ranks fifth globally by nominal GDP, yet sits second from bottom in overall MHQ  wellbeing scores, and is a negative outlier at the very bottom of international rankings for drive and motivation. This is not a rounding error or a data artefact. It structurally signals that any attempt to use UK GDP as a proxy measure for societal progress in terms of wellbeing is deeply flawed.


The standard growth accounting framework - capital investment, human capital (labour quantity and skill), and total factor productivity driven by technology - remains the dominant analytical lens in both academic and policy economics. This is not without merit. But it is incomplete in a specific and consequential way: it treats labour as an input characterised by headcount and skill level, while leaving the motivational and engagement state of that labour unmeasured and unmodelled. A skilled but disengaged workforce does not perform like a skilled and engaged one. The difference is substantial and, crucially, it is measurable.


II. The Engagement Variable - Evidence and Causality


The claim that workforce engagement is a primary economic variable, rather than an HR externality, rests on a growing body of evidence - though one that deserves careful handling. According to Gallup's State of the Global Workplace report, just 10% of UK employees are engaged at work, placing the UK below both the European average of 13% and the global average of 23%. Gallup estimates the cost of this disengagement to the UK economy at over £257 billion annually - a figure comparable to the entire NHS budget. In best-practice organisations, Gallup's data shows engagement levels among non-managerial employees reaching 70%, with associated productivity gains of 23%, turnover reductions of 51%, and improvements in employee wellbeing of 68%.


Sceptics are right to probe the causal direction here. Does low engagement cause low productivity - or does low-quality, low-productivity work cause disengagement? The honest answer is: both, but not equally. A landmark meta-analysis by Krekel, Ward, and De Neve at the LSE's Centre for Economic Performance (CEP Discussion Paper No. 1605), drawing on339 independent research studies covering 1.88 million employees across 49 industries, found a significant positive relationship between employee wellbeing and firm performance. Critically, using Granger-causality analysis - which tests the temporal direction of influence - the study found that engagement at time t is a stronger predictor of profitability at time t+1 than the reverse. The causal arrow runs, more strongly, from engagement to performance than from performance to engagement.


This is further supported by natural experiment evidence. Research by De Neve, Bellet, and Ward, conducted in collaboration with British Telecom using detailed administrative data on call centre workers, found that a one-point improvement in wellbeing on a ten-point scale corresponded to a 13% increase in weekly sales - the first field-level causal evidence of the wellbeing-productivity link. The CIPD acknowledges that "some research does show a causal relationship, with work engagement predicting both task performance and contextual performance," while rightly noting that much of the wider literature remains correlational and that effect sizes vary by context and methodology.


The important point for economic modelling is not that causality is fully settled - in macroeconomics, it rarely is - but that a variable with this scale of impact, this degree of empirical support, and this degree of policy tractability does not appear in standard growth models. It disappears into Total Factor Productivity as an unexplained residual. This is precisely where Purposeful Economics proposes an intervention: not abandoning the existing framework, but expanding it to include motivation and engagement as modellable, measurable inputs - alongside capital, labour supply, and technology.


This, arguably, is the root cause of the UK's long-standing productivity paradox. The Productivity Institute's analysis confirms the puzzle is real and deep: UK output per hour worked has grown by just 0.5% annually over the past decade, less than half the rate needed to sustain historical improvements in living standards. Conventional explanations - underinvestment in capital, skills gaps, policy uncertainty, Brexit drag - account for part of this. But they do not fully explain why the UK, despite relatively strong employment and significant technology adoption, consistently underperforms comparable economies at the frontier of productivity. The missing variable is not solely capital. Engagement is a strong candidate for a significant part of the residual.


III. The Purpose of Banking


The Bank of England's stated mission is "to promote the good of the people of the United Kingdom by maintaining monetary and financial stability." In the language of organisational strategy, this presents a definitional challenge. A well-formed mission statement specifies a clear, measurable outcome and a time-bound target - a 'what'/'when' - with the Apollo programme's mandate to land on the moon before the end of the decade being the canonical example. By that standard, the Bank's mission statement is under-specified on what success looks like and entirely silent on when it should be achieved. It is arguably closer to a purpose statement.


World class institutions start with purpose (the 'why'). Language matters when it comes to institutional motivation, public accountability, and the direction of policy decisions at the margin. "Monetary and financial stability" describes a mechanism. However it does not sufficiently describe a meaningful/motivational north star that can purposefully be aimed for (a 'why'), or create a meaningful measure on which progress can be assessed. The terms "people," "good," and "promote" are sufficiently ambiguous that almost any monetary policy decision could be defended under them - which means in practice they constrain nothing and measure nothing.


Bank representatives, in discussion, correctly observed that without trust, and monetary and financial stability, the foundations for a prosperous future collapse. This is undeniably true. However, foundations are not the same as direction. A foundation enables; a clear purpose inspires and provides a direction of travel in terms of what is to be built. The Bank's current framing provides the former without clearly articulating the latter.


A clearer statement of purpose along the following lines could address this:


"Our purpose is to ensure monetary and financial stability, and improve the financial wellbeing of all people in the United Kingdom - including future generations."


This restatement does several things. It narrows scope from the diffuse "good of the people" to the more precisely measurable - and bank-appropriate - domain of financial wellbeing. It acknowledges the Bank's proper mandate while clearly delineating what lies within the government's remit: broader human and planetary wellbeing, fiscal policy, and broader outcomes created through taxation and public spending.


It also introduces an intergenerational dimension - a horizon that matters considerably when assessing monetary policy's structural effects on asset prices, housing affordability, and long-run fiscal sustainability. And it creates the conditions for genuine effectiveness measurement: financial wellbeing, defined in terms of household financial resilience, access to productive credit, real income growth across the distribution, and the affordability of essential goods and services, is quantifiable in ways that "the good of the people" is not.


It is worth being clear about the limits of this framing. The Bank cannot, and should not, be expected to act as an industrial policy authority or a social welfare agency. The proposed restatement does not ask this. It asks that the Bank's existing levers - interest rates, macro-prudential regulation, financial stability oversight, communication - be assessed not only against price stability and financial system resilience, but against their distributional consequences for the financial wellbeing of households across the income spectrum.


Several of the risks outlined below fall within this legitimately expanded remit.


IV. Structural Risks the Bank's Purpose Should Confront


A purpose-driven framework focused on the financial wellbeing of all people would bring a number of underweighted systemic risks into the Bank's field of vision. Seven are particularly pressing.


1: The Capital Allocation Distortion


The structural shift of UK bank lending away from productive enterprise and toward real estate and financial assets  is well-documented. Recent Bank of England Financial Stability analysis confirms that the removal of credit controls and the deregulation of the 1980s enabled a sustained shift in bank portfolios toward mortgage finance, with SME loans falling from 12% of GDP in 2011 to 6.5% in 2026 - a halving in fifteen years. Real estate SMEs now account for 51% of all small business loans, up from 39% a decade ago, according to Bank of England figures reported in 2026. Research from Positive Money and Allica Bank converges on the same conclusion: the FIRE sectors (Finance, Insurance, Real Estate) receive more credit than all productive industries combined, creating what amounts to a structural bias in the UK's credit allocation system against the productive investment that drives long-run growth and job creation. The Bank's macro-prudential toolkit - capital weightings, sectoral risk assessments, regulatory guidance - provides genuine levers here that do not require straying into fiscal or industrial policy.


2: Extractive vs. Productive Economic Models


The UK economy has developed a significant rent-seeking dimension: returns derived from ownership and control of scarce assets rather than value creation. The privatisation of natural monopolies - water, energy - created entities with structural pricing power that has generated sustained above-inflation extraction from household and business budgets, with direct consequences for household financial wellbeing and business cost structures. The Resolution Foundation has documented the UK's unusually high proportion of income flowing to rents and its regressive distributional consequences. An economic purpose centred on the financial wellbeing of all requires that the Bank's financial stability assessments explicitly evaluate the systemic risks posed by rent-extraction dynamics - including in property, utilities, and financial services - not only the risks posed by borrower default and liquidity.


3: Failure-Demand Economies and Long-Run Fiscal Risk


A substantial portion of UK service-sector activity constitutes what public service reformers call failure demand - activity generated by failing to address root causes of problems rather than by solving them. Mental health services treating workplace-induced stress, rather than the governance conditions that cause it, is one example. Social care demand driven by preventable deterioration is another. Economies structured around processing failure rather than preventing it generate apparent GDP growth while accumulating long-run fiscal and social liabilities. The OBR's own analysis suggests that a half-percentage-point improvement in productivity growth would reduce annual government borrowing by around £40 billion - illustrating the fiscal stakes of getting this right. Purposeful economic modelling requires valuing prevention against cure, a shift with significant implications for both spending prioritisation and long-run public finance sustainability.


4: Purposeful Governance, Engagement, and the Productivity Frontier


The Health and Safety Executive's growing scrutiny of psychosocial workplace risk - stress, burnout, poor management governance - signals a regulatory shift with material economic consequences. Gallup's data shows that managers account for 70% of the variance in team engagement levels, pointing to governance and management quality as the single most powerful lever available for shifting UK engagement from its current 10% baseline. Management cultures characterised by low trust and high control are documented to drive disengagement, absenteeism, presenteeism, and high turnover - all of which suppress productivity and impose costs on firms, the NHS, and the broader public health budget. This is not a soft people management issue; it is a macroeconomic variable with measurable GDP consequences. The Bank should begin including governance quality indicators in its analysis of firm-level and sectoral productivity, not merely as a risk management consideration but as a growth variable.


5: AI, Sovereign Capability, and Structural Dependencies


The rapid integration of AI into economic activity creates two distinct risks for UK financial stability. First, the concentration of AI infrastructure in US-domiciled platforms creates a strategic dependency risk - one that the proposed resistance to digital services taxation frameworks under current US trade policy makes explicit as a fiscal and geopolitical concern, not merely a commercial one. Canada's announced commitment to building sovereign AI capability, and the arguments made by DeepMind's own leadership about the risks of total dependency on foreign AI infrastructure, suggest this deserves serious policy attention in the UK. Second, AI adoption is generating novel insurance and liability voids: major liability insurers have quietly begun excluding AI-related decision-making from standard commercial coverage, creating unpriced risk concentrations across enterprise balance sheets. These concentrations represent a financial stability risk that is not yet adequately reflected in the Bank's assessments - and one that will compound as AI decision-making becomes embedded in credit, employment, and operational systems.


6: Labour Market Structural Change and Youth Financial Wellbeing


The displacement effects of AI on graduate and entry-level employment are emerging faster than labour market adjustment mechanisms can accommodate. Where previous automation waves disproportionately affected routine manual occupations, current AI capabilities increasingly affect routine cognitive tasks - graduate-entry roles in legal services, financial analysis, content production, and software development among them. The consequences for the financial wellbeing of younger cohorts are already visible in application-to-response ratios, graduate under-employment, and the compression of starting salaries. These are structural shifts, not cyclical fluctuations, and they require active consideration both in how enterprise investment is directed through credit policy and how the financial system supports individuals through labour market transitions - an area where the Bank's financial stability mandate has a direct stake.


7: Inflation Measurement and Distributional Accuracy


The CPI is a weighted average - and averages, by definition, obscure distributional reality. For households in the lower income quintiles, effective inflation rates have materially exceeded headline CPI in recent years, driven by the disproportionate share of essential expenditure - energy, food, water, rent - in their consumption baskets, and by above-average price increases in precisely those categories. A purpose focused on financial wellbeing for all requires that inflation measures and monetary policy responses be assessed against distributional impact, not aggregate averages alone. There is a legitimate question about whether current index construction adequately reflects the cost-of-living pressures facing the majority of households - as distinct from the consumption patterns of those for whom essential costs represent a small fraction of income. The Bank already has the analytical capacity to produce distributional inflation analysis; a repurposed mandate would make this a core output, not an optional supplementary exercise.


V. The Deeper Argument - Engagement as Input, Not Outcome


It is worth addressing directly the strongest counter-argument from mainstream economics, because it is not without force. Economists would say that wellbeing, motivation, and engagement are already reflected in economic models - they show up in labour supply decisions, wage-setting, consumption patterns, and Total Factor Productivity. Workers who are more productive earn higher wages; higher wages reflect higher output; the model captures this. On this view, Purposeful Economics is not identifying a missing variable - it is redescribing one that already exists.


The rebuttal is not that economists ignore these phenomena. It is that conventional models treat motivation and engagement as outcomes of economic conditions - wages, employment levels, income security - rather than as inputs that can be independently shifted through governance, management quality, and organisational purpose. This is a consequential distinction for policy design. If engagement is only an outcome, the policy lever is straightforward: raise wages and improve job security, and engagement will follow. If engagement is also a primary input - something that can be shifted substantially through governance and culture, independently of pay - then there exists an additional, largely untapped policy lever. The evidence, from the LSE's CEP work to the natural experiment evidence from British Telecom, supports the latter interpretation. Engagement is not simply a reflection of economic conditions; it is also a cause of economic performance, and one that operates through channels - trust, autonomy, purpose, management quality - that are not captured by wage rates or employment statistics.


Incorporating this into economic models is not a call for soft sociology to displace hard econometrics. It is a call for the models to catch up with the evidence - in the same way that behavioural economics expanded the rational-actor framework, or environmental economics expanded the welfare framework to include externalities. The framework that brought GDP to the centre of economic policy was itself an innovation, developed in the 1930s and 1940s. It is long overdue for updating.


VI. Conclusion — A Call for Purposeful Economics


The questions raised across these two meetings are not peripheral. They sit at the centre of a structural debate about what economic institutions - including central banks - are fundamentally for, and how they should measure their own success.


Purposeful Economics does not argue for the abandonment of rigour, or for replacing price stability with aspiration. It argues for an expansion of the analytical framework: one that first treats engagement and motivation as measurable economic variables, distinguishes productive investment from rent extraction, assesses effectiveness against clearly defined wellbeing outcomes, and designs institutional purpose statements capable of providing genuine accountability and direction.


The productivity paradox, the mental health crisis, the capital allocation distortion, the hollowing out of meaningful employment for young people, and the growing gap between headline economic indicators and lived economic experience are not separate problems. They are interconnected symptoms of a model that has not kept pace with the evidence. The data is there. The causal research is accumulating. The institutional frameworks are ready to be updated.


The question now is whether the appetite exists to do so - before the costs of inaction become harder to ignore than they already are. Additional steps are needed, in terms of human wellbeing and planetary wellbeing, however this provides a crucial, practical and pragmatic, first step.



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Key Takeaways


  • GDP is an inadequate proxy for human wellbeing; the UK's 5th-place GDP ranking against its 2nd-from-bottom MHQ world wellbeing ranking illustrates this starkly, and the relationship appears to run in the opposite direction to the assumed one.
  • Gallup's State of the Global Workplace data places UK workforce engagement at 10% - below European and global averages - at an estimated annual cost of £257 billion to the UK economy.
  • LSE Centre for Economic Performance research (Krekel, Ward, De Neve, CEP DP 1605) provides Granger-causal evidence that engagement drives performance, not only the reverse - making it a primary economic input, not merely an outcome.
  • The Bank of England's purpose statement would be strengthened by reorienting explicitly around the financial wellbeing of all people and future generations, with measurable effectiveness criteria; this does not expand the Bank's mandate beyond its proper scope, but sharpens accountability within it.
  • SME lending has fallen from 12% to 6.5% of GDP in fifteen years; real estate now accounts for 51% of all small business loans - a credit allocation distortion with direct consequences for productive investment and long-run growth.
  • AI concentration risk, unpriced insurance liability voids, and structural youth labour market displacement are emerging financial stability risks not yet adequately integrated into the Bank's assessment frameworks.
  • Distributional inflation analysis - already within the Bank's analytical capacity - should become a core output under a repurposed mandate, not a supplementary one.
  • As a pragmatic first step, Purposeful Economics adds motivation and engagement alongside capital, labour, and technology as formal variables in growth models - not replacing existing frameworks, but enhancing them.



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References and further reading: Gallup, State of the Global Workplace 2024 and 2026; Sapien Labs, Annual Mental State of the World Report, 2024; Krekel, Ward & De Neve, 'Employee Wellbeing, Productivity and Firm Performance,' CEP Discussion Paper No. 1605, LSE, 2019; De Neve, Bellet & Ward, BT natural experiment on wellbeing and productivity,LSE CEP; Bank of England Financial Stability Report, December 2025; Bank of England figures on SME lending reported in Mortgage Introducer, May 2026; Allica Bank / BM Magazine, 'SME lending gap,' April 2025; Positive Money, 'How is bank lending shaping the UK economy?,' December 2024; The Productivity Institute, 'What explains the UK's productivity problem?,' 2024; OBR, Fiscal sustainability analysis; CIPD, Employee Engagement Factsheet and Scientific Summary 2021.



David Clift


Purposeful Ambassador®

Founder, Good Turns Foundation

Co-founder of Purposeful Britain and Purposeful World

 


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