Pro bono economics?

Sir Gus O’Donnell, Britain’s most senior bureaucrat – and the man charged with running the civil service and cabinet office – sits at a cheap, green-topped table in a community centre in Birmingham surrounded by youth workers and teenagers.

The two dozen young people used to be homeless and are about to gain their first experience of work, mostly placements in construction or offices. They face these jobs with a heavy handicap: most are from backgrounds marred by family breakdown, violence, alcoholism or simply long-term deprivation and poverty. If a politician were present, he might be tempted to describe this as the front line in the War on Broken Britain.

The mood in the room is upbeat. As the teenagers, some wearing hoodies and jeans, gather round O’Donnell, they are eager to talk about their jobs. On the table in front of them is a snack lunch of samosas, sandwiches and custard creams. The faces are as mixed as the food, hinting at family origins in the Caribbean, Kenya or Pakistan. But if O’Donnell feels out of place, a white middle-aged man in a neat, bland suit and blue tie, it doesn’t show; he listens quietly to their tales and then explains that he has come to Birmingham to analyse whether this project to help the homeless is meeting its aims.

“One of the things that we are trying to do is to evaluate projects, to show what is a success and what is not – we want to help get people’s lives back on track, and get them into jobs, but we need to know what is working or not,” O’Donnell says.

“But,” points out one of the young men, “they are cutting all the funding now, aren’t they?”

“Well, in the next few years there is going to be less money about and so the question for us is how to manage that situation,” O’Donnell replies. He has an oddly classless aura; his accent, with a trace of south London, is not posh. Nor does he wear his power on his sleeve. Instead, like the consummate civil servant, he has a knack of deflecting attention away from himself, chameleon-like; he blends in, insofar as it is ever possible for a man in a suit and tie to blend into a multi-ethnic group of Birmingham teenagers. “So what is the best way to use that money if you have only got a limited amount of money? If we cut here, will that create more costs later? Or if we spend a bit, will that create savings?”

09.00 In transit. Team O’Donnell travels second-class

The youth workers listen respectfully: most have only a vague idea what their visitor does. But while his interlocutors might not know it, O’Donnell has arrived in Birmingham with two distinct missions. As he says, he is trying to analyse the success of this scheme, known as St Basils project and run as a charity. But that investigation is part of a bigger question about the whole discipline of economics. A few months ago, a group of prominent City and government economists – of which O’Donnell is one – launched a project called Pro Bono Economics. Its mission is to persuade economists to donate time to helping charities. Although there is a long tradition in the legal world of lawyers donating their time to philanthropic causes, and even of businessmen and women lending “real world” know-how to the third sector, this sort of thing has not been done in economics before – in the UK or elsewhere.

But the people backing the Pro Bono project think that they have found a potential “win-win” – or what economists might call a “non-zero-sum game” event. After all, in coming years, many British charities could face a financial squeeze, as recession hits private donors and the government is forced to slash spending to cope with record levels of debt. That means the charities will need to fight to win funding – and thus will need to show donors, more than they have in the past, that their projects are effective, and delivering value for money. O’Donnell, who trained as an economist at Oxford and later ran the Treasury, explains: “The people who tend to get involved with [the third sector] do that because they have a mission or a passion to help – that is their motivation, which is great. But they are not always so good at evaluating things.

“We are people who are turned on by things like working out the counterfactual, by evaluating data – and that is what people in the third sector do not always enjoy doing.”

09.30 A short wait for the minibus

Martin Brookes, a former Goldman Sachs economist and now co-leader of Pro Bono, acknowledges that “many people might think that if economists are the answer, you are probably asking the wrong question”. But, he says, “economists have a lot to offer charities … around issues of measurement, data and analysis.”

Moreover, in keeping with economists’ attraction to transactions in which all players act according to self-interest, Pro Bono argues that getting involved in charity helps economics, too. In the past few years, the profession has suffered severe censure for its apparent failure to foresee the credit crisis. Harsher critics still have accused economists of creating the financial woes by promoting an extreme version of free-market ideals. That has left many practitioners demoralised and defensive – and many non-economists wondering what the point of the whole field really is.

The Pro Bono backers believe that if economists could only be persuaded to use their skills for the benefit of wider society, their image might change – and that individual economists themselves might feel newly inspired by experiencing life on the front line of battles like the one St Basils is fighting. “There’s been quite a few sheds painted and river beds cleared by economists over the past few years – mostly badly, I’d imagine – in an attempt to demonstrate our social usefulness,” says Andy Haldane, an influential intellect at the Bank of England and co-founder of Pro Bono. “But as economists, we should know that [having us painting sheds] is a fairly rubbish allocation of resources. We’d be much better off lending a hand with a spreadsheet than a paintbrush.”

O’Donnell says: “There is a need for economics and economists to rehabilitate themselves. The profession has taken a blow from our failure to predict the financial meltdown.” As far as he is concerned, what is at stake in Birmingham is not simply work for at-risk teenagers, but the question of whether economists “can really help – to give something back”.

. . .

09.40 Milner Court offers emergency accommodation for young people

In many ways, O’Donnell is the perfect mascot for the Pro Bono scheme. Quite apart from being one of the most powerful economists at work in Britain today – he runs an organisation that employs around half a million people – he has also spent much of his life grappling with the contradictions of money, power and number-crunching.

He was born 57 years ago in Wimbledon, London, the fifth child in a middle-class Catholic family. “We had a psychologist come and give us some psychometric tests once,” he recalls with a smile. “And he talked about the family order issue, but he said he didn’t know how to analyse me – there simply wasn’t enough data on fifth children around to have much of a sample size.” As a child, O’Donnell first wanted to be a professional footballer. Later, “my two older brothers did pure maths, applied maths, physics and chemistry and I wanted to be a bit different, a bit of a rebel. So I did pure maths, applied maths, physics and economics.”

After studying economics at the University of Warwick and Nuffield College, Oxford, he spent four years in the late 1970s as a lecturer in the discipline at the University of Glasgow. It was a time of political ferment in the UK that paved the way for the rise of Thatcher and her free-market views. But O’Donnell appears to have spent his formative academic years exposed to centre-left economists, and he became intensely interested in the role of government in the economy. “I did a lot of political philosophy. I have always been interested in the social side of economics – what attracted me to Adam Smith was the stuff about moral sensibility, not wealth of nations.

“It always struck me that what economists assumed about economic behaviour was sometimes pretty strange. There was this big drive to get results from models and that gave us a very narrow view of economic behaviour.”

But the maths whiz in O’Donnell loved econometric modelling, too. Thirty years on, when he discusses statistical techniques, his eyes still light up with an almost guilty glee, like a grown man who harbours a passion for making Airfix kits. “[Modelling is] something I am not really supposed to be doing that much of, these days,” O’Donnell admits. “[But] it’s a real passion, a hobby. You can get this mass of data, all this stuff that looks untidy, and make sense of it. Of course, you have to be careful not to overplay the models. But it is creative.”

. . .

Sir Gus at the Ice House in Birmingham, meeting members of the St Basils young people’s charity

In 1979, O’Donnell left academia to join the Treasury, where he used his economic training to analyse issues such as the maturity of government debt. He soon, however, spiralled up the ranks to a place where success depended on people skills, not number-crunching – and in that he proved extraordinarily deft. By 1989, he was press secretary to the chancellor of the exchequer; in 1990, he became press secretary to the prime minister. Then he did stints as the UK’s executive director to the International Monetary Fund and World Bank, ran the Government Economics Service and subsequently became Permanent Secretary of the Treasury. In July 2005, he was appointed cabinet secretary and head of the Home Civil Service – the highest rank within the British bureaucracy and a post that won him a knighthood.

That makes “Sir Gus” the 21st-century equivalent of “Sir Humphrey”, the rather manipulative bureaucrat from the television comedy series Yes Minister. Like Sir Humphrey, O’Donnell is not just smooth, charming, highly intelligent and utterly discreet – he’s also supremely skilled at pulling strings to get his own way. The week before his trip to Birmingham, the Gordon Brown bullying scandal erupted, and some reports suggested that Sir Gus had forcefully, but tactfully, censured Brown for his temper. O’Donnell denies this, but what’s clear in Birmingham is that the idea of bullying – or any loss of emotional control – is anathema to him; power is best exercised far more discreetly.

Importantly, too, O’Donnell – unlike Sir Humphrey – does not appear to be trapped in the British class system. He wears suits that might have come off the peg at Marks and Spencer. (“I wear a suit because people expect it – it’s a sign of respect to them,” he says. “I mean, I would wear a suit to the cabinet office so why not to Birmingham?”) He has an easy manner and likes to present himself as someone who remains in touch with the grassroots, who likes to get his hands dirty, in a practical way.

O’Donnell was first tapped to help promote Pro Bono when Haldane and Brookes were starting to look for potential patrons and funders. Because the two men are extremely well-connected, and because the world of British economics is extremely clubby, they quickly produced a list of patrons that reads like a Who’s Who: those backing the concept include Gavyn Davies, former head of the BBC; Sir Howard Davies, director of the London School of Economics; Rachel Lomax, formerly on the Bank of England monetary policy committee; FSA head Adair Turner; and Jim O’Neill, chief economist at Goldman Sachs.

On paper, O’Donnell is just another patron. But he is also important for recruitment, urging his own employees to enlist in the cause. Thanks to that sort of cheerleading, some pilot schemes have already begun. A Bank of England economist is analysing a Barnado’s project to combat the sex trade; a Department of Work and Pensions economist is looking at a programme run by Chance UK, a London youth scheme; Postcomm and Ofcom employers are analysing the work of the Marie Curie Cancer Trust; and similar pilot schemes with Pro Bono are bubbling at the Brandon Centre in north London and the St Giles Trust in south London.

Perhaps more important still, O’Donnell has insisted on getting his own hands dirty by volunteering, donating time to analysing the cost-effectiveness of work done by St Basils. “The third sector is going to face a big challenge in the coming years getting support from private sector individuals and the government,” he explains. “So it is going to be really important for them to prove that you have made a difference, that a project is working. Being able to demonstrate results will be just crucial for funding.”

. . .

09.50 O’Donnell listens to Jean Templeton, head of St Basils

O’Donnell’s volunteer day starts on a grey, damp Friday in February, on the 8.03 train from Euston to Birmingham. It is not a glamorous start. The train whisks through Rugby, then Coventry, visible through rain-streaked windows. Inside, it is cramped in the second-class carriage. (“We don’t do first class with Gus,” an aide says pointedly; a few days earlier a brouhaha had erupted when politicians insisted they needed to travel first class to do their jobs.)

Despite the lack of space, the early hour, the weather, O’Donnell is cheerful, positive and smooth as ever. As he hunches into his seat, he explains that he spent the previous day visiting a prison where the inmates were learning to run a high-end restaurant inside the walls. With his government hat on, O’Donnell knows only too well that this type of project could face funding cuts in the coming years; but he also knows it’s just the sort of thing that can have long-term positive effects on its participants, including training them for life outside prison. “In the next four to five years, we are going to have to make some very hard choices [as a country],” he says as we rumble past brown industrial parks and red-brick suburban terraces. “It is not just about looking at the quantity of services, but the quality – how do you deliver value for money?”

Though he is talking in general, rhetorical terms, it is a point that applies as well to homelessness charities in Birmingham as prison programmes in London. “If you cut something now, will you create more costs later? Or if you invest early, say to get people into a job, will that save money later by keeping people off the state budget? There is a real trade-off sometimes between the short and long run.”

The train pulls into Birmingham amid another shower of chilly rain and O’Donnell and his staff – a few aides and a press minder – are whisked on to a minibus and across the suburbs to a hostel for homeless youths, one of 23 sites run by St Basils. The programme has a £6m-odd budget, and works with about 4,000 people aged 16 to 25 a year – “customers”, as the workers now call them, in deference to the jargon of 21st-century British government.

The statistics behind many of those lives are grim: most customers lack formal education or basic living skills. Yet the mood inside the hostels is positive: to a casual eye, they look rather like student dormitories, with rows of bedsits, lino floors and communal kitchens. The only clue that this is a charity comes from the ranks of formidable workers and matrons who are mostly black, female, middle-aged – and all passionate about their jobs. In a neutral tone, O’Donnell grills the workers about their challenges: how do the young people cope with living in the shelter? What happens to them afterwards? Does the project get the money it needs?

The women talk with energy. One project leader produces a slide to explain their funding; it is a dazzlingly complex chart showing that almost a dozen different government agencies are monitoring (and quasi-regulating) the operation – agencies that all need to be placated with paperwork. To an outsider, this world of government acronyms, labels, titles and tribal affiliations looks baffling – almost as baffling, I think to myself, as, say, the workings of complex finance or abstract economics to a neophyte. But the women are clearly deft at gathering resources from across the system, and O’Donnell is in a comfort zone: he engages them in intense debate about the details of different government training schemes before moving on.

. . .

10.45 Time to press on

O’Donnell visits three hostels and two centres in the course of the day. At one, he helps customers surf the internet, hunting for photographs of collapsed buildings that they need in order to design a T-shirt for a hostel fashion show. (“Designing stuff helps a lot with esteem,” one of the workers quietly explains.) At another, he inspects a hostel crèche, discusses the issue of family breakdown and meets the members of the youth council that is linked to St Basils, to represent the views of the homeless themselves. For six long hours, his smile never falters, his manner is never anything other than impeccably charming – and discreet. And, ever the economist, he is sucking up information.

Yet at the end of the day, crammed once again into second-class seating, he sounds like anyone else might after a visit to a well-run charity. He has been “just blown away” by the quality of the youth workers and their commitment to the project. (“I would hire all of them if I could,” he quips.) And he realises the importance of good workers: the effectiveness of this sort of project relies heavily on the enthusiasm of a few talented individuals. He also knows his economist’s mind can’t really answer the questions that spring from this fact: what happens when charismatic, hardworking individuals are not driving the work forward? Can this project be replicated as effectively elsewhere? Does local culture matter?

But he has also noticed something most visitors might not – the sort of thing that thrills economists the world over: a huge data set waiting to be tapped. When the young people start dealing with St Basils, youth workers fill in forms about their past – forms that are updated regularly; at one hostel he has spotted youth workers tapping data into a computer. But no one has ever tried to use economic skills to analyse this data systematically. “In the case of St Basils, they have all these forms about people, 600 forms or so, that people have been filling in, that provide some great data. We could analyse that and start getting some evaluation,” O’Donnell says. Better still, he adds, the format of the forms could be changed to enable them to be more readily processed by a computer – thus enhancing the number-crunching process and bringing it into line with other areas of the civil service. “Doing the number-crunching, the econometrics, is the bit I am looking forward to – I am going to do it at the weekends,” he says, with that glint in his eye.

12.40 Arriving for lunchtime meetings at the Ice House and Toll House

In fact – ironically – St Basils is not necessarily in most dire need of the type of services that Pro Bono can provide. Precisely because the youth workers at St Basils are so well-organised and charismatic, they are already pretty good at presenting themselves to would-be funders – and arguably much better at winning resources than many other charities in the UK. In the give and take of Pro Bono’s theory, St Basil’s might offer as much to the economists as the economists offer St Basils – at least in terms of producing a model that can have powerful demonstration effect to other charities, and economists.

Certainly, O’Donnell seems enlivened. Maybe it is the day away from the business of government and the coming general election; maybe it’s simply the return to his roots, the search for data sets to scrutinise. In any case, it’s a feeling more economists could experience soon, depending on Pro Bono’s own number crunching. The group hopes to unveil the results of O’Donnell’s work in three months, as part of its promotion campaign. If these are persuasive, more links between charities and Pro Bono could follow. Birmingham, the third sector and chastened economists across the land will undoubtedly be watching.

Gillian Tett is the FT’s capital markets editor. Her last piece for FT Weekend magazine was about the Brics. Read it at www.ft.com/jimoneill