Monthly Archives: February 2013

A modest proposal (involving digital market dynamics)

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One of the best books about the effect of digital technology on business dates from 1999. [amazon_link id=”087584863X” target=”_blank” ]It’s Information Rules: A Strategic Guide to the Network Economy[/amazon_link] by Carl Shapiro and Hal Varian (now chief economist at Google). Until recently, I’ve thought it didn’t need updating, for although the examples are obviously dated, the principles are not.

[amazon_image id=”087584863X” link=”true” target=”_blank” size=”medium” ]Information Rules: A Strategic Guide to the Network Economy[/amazon_image]

However, a couple of excellent recent books on the telecommunications and media sector have made me start to wish for an update of Information Rules. They are Timothy Wu’s [amazon_link id=”1848879865″ target=”_blank” ]The Master Switch: The Rise and Fall of Information Empires[/amazon_link] and Susan Crawford’s new book, [amazon_link id=”0300153139″ target=”_blank” ]Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.[/amazon_link] Telecoms is obviously a network industry, with the characteristic kind of increasing returns to scale you get with networks.

[amazon_image id=”1848879865″ link=”true” target=”_blank” size=”medium” ]The Master Switch: The Rise and Fall of Information Empires[/amazon_image]

[amazon_image id=”0300153139″ link=”true” target=”_blank” size=”medium” ]Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age[/amazon_image]

Both these newer books are excellent on the sector. What I’d like is an update – beyond the one chapter in the 1999 edition of Shapiro and Varian – on business strategy and market dynamics (including two-sided aspects) in network markets. For digital connectivity is making the network aspect more prominent in other sectors. Finance is obviously one, but there are more sectors where digital technologies are enabling new forms of intermediation as well as disintermediating old forms, where there are information asymmetries or experience goods, and where access to new platforms is becoming vital. Consider publishing, or indeed even retailing – say a new fashion designer facing a declining physical high street.

So here’s a modest proposal: please will somebody write about these new market dynamics (and the competition and distributional implications) where we need two-sided market models, increasing returns and non-linearities, and the experience good/public good characteristics taken into account?!

Digital jobs – or not?

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As always, John Naughton’s weekend column was very interesting – this week’s theme was Digital capitalism produces few winners. It contrasts the profit of the digital titans – Apple, Amazon, Google – with the relatively few jobs and poor working conditions they offer. Amazon in the UK (where the digital companies are already in the public stocks over their tax practices) was the subject of an eye-opening FT feature recently, Amazon unpacked.

John Naughton’s column starts: “Need a crash course in digital capitalism? Easy: you just need to understand four concepts – margins, volume, inequality and employment. And if you need more detail, just add the following adjectives: thin, vast, huge and poor.” This is in the same vein as Brynjolfsson and McAfee’s [amazon_link id=”0984725113″ target=”_blank” ]Race Against the Machine[/amazon_link] which argues that the new technologies are economising on human labour, and Paul Krugman’s recent Rise of the robots column, noting that manufacturers are investing in capital-intensive facilities, so productivity is high and the need for labour low.

[amazon_image id=”0984725113″ link=”true” target=”_blank” size=”medium” ]Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy[/amazon_image]

I would sound some notes of caution about this ‘the robots are eating all the jobs’ trope. One, this is the stage of the business cycle when jobs gloom is at its most intense – remember the New York Times special book, [amazon_link id=”0812928504″ target=”_blank” ]The Downsizing of America[/amazon_link], published in 1992 just ahead of the long upturn and employment boom? Two, the only way to assess the impact of new technologies is to look at aggregate data, not just a few firms – the distribution of income data suggest there is indeed something in the story about capital intensity and productivity, but the US employment ratio has been rising gently, albeit well below pre-crisis levels still. Three, there is a question about how informative existing data are – Mike Mandel’s work on the data-driven economy is suggestive of significant gaps in our knowledge.

[amazon_image id=”0812928504″ link=”true” target=”_blank” size=”medium” ]The Downsizing of America[/amazon_image]

Finally, the most productive sectors of the economy are always making jobs disappear, and there is a period of uncomfortable adjustment, including in the wage distribution, until jobs reappear in less productive sectors of the economy. Nobody has yet convinced me there’s anything different about the digital economy in this regard, although Krugman’s second ‘robots’ column on oligopoly power, Robots and Robber Barons, certainly flags up a serious issue. For me, the best book on the impact of digital on jobs remains Levy and Murnane’s [amazon_link id=”0691124027″ target=”_blank” ]The New Division of Labour: How Computers Are Creating the Next Job Market[/amazon_link], although it’s a few years old now.

[amazon_image id=”0691124027″ link=”true” target=”_blank” size=”medium” ]The New Division of Labor: How Computers Are Creating the Next Job Market[/amazon_image]

Economists as heroes, continued…

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I’m very much enjoying reading Jim Lacy’s [amazon_link id=”1591144914″ target=”_blank” ]Keep From All Thoughtful Men: How US Economists Won World War II[/amazon_link]. Although it’s a book written by an obsessive, it appeals to my magpie-like delight in trivia. The first chapter starts with a moan about military historians’ lack of interest in logistics and statistics rather than blood and machines. “After all,” the author writes, “Who really wants to read about how many trains it took to move ammunition to the front in 1916, or about the hay consumption rate of one of Murat’s cavalry divisions?” Me! I do! That’s exactly the kind of thing I want to know!

[amazon_image id=”1591144914″ link=”true” target=”_blank” size=”medium” ]Keep From All Thoughtful Men[/amazon_image]

It’s also possible to divine the plot of a stylish drama set in the Washington and London of 1941 as the Americans debated their strategy toward the European conflict and the potential Pacific threat. There is American statistician Stacy May travelling from London via Dublin back across the Atlantic with a huge 35lb volume containing a comprehensive set of accounts of the US and UK productive capacity at the time: “It was a German spy’s ultimate fantasy: a plump, fortyish, dignified, preoccupied American statistician, all alone and carrying what everyone who knew of its existence considered the most important document in the world.”

There is the debonair Frenchman Jean Monnet, later celebrated (or otherwise, according to taste) as the founding architect of the European Community, arriving in Washington in late 1940, urging the American administration to throw US resources into the war effort. While there he mingled with Washington society, including Phil and Katherine Graham of the Washington Post. He had an affair with Katherine Graham, or so she heavily hints in her superb memoir [amazon_link id=”1842126202″ target=”_blank” ]Personal History[/amazon_link]. She writes of Monnet: “The thrill for me of being with him never disappeared as long as he lived. He was energetic and interesting, and I can testify to his virility.”

[amazon_image id=”0375701044″ link=”true” target=”_blank” size=”medium” ]Personal History: Katharine Graham[/amazon_image]

Surely there’s the equivalent of an Alan Furst novel in these scenes, not [amazon_link id=”0753828987″ target=”_blank” ]Mission to Paris [/amazon_link]but Mission to Washington? All this, and I haven’t yet got to the section about Simon Kuznets and the national accounts. Fabulous.

[amazon_image id=”0753828987″ link=”true” target=”_blank” size=”medium” ]Mission to Paris[/amazon_image]

Did economics win the war?

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World War II literature isn’t my cup of tea normally, but there are some outstanding books. I loved Richard Overy’s [amazon_link id=”0140284540″ target=”_blank” ]Interrogations: Inside the Mind of the Nazi Elite[/amazon_link], about the period before the Nuremberg Trials when victors and prisoners had their first encounters about the cataclysm that had just ended. Overy’s powerful point is that people can switch between different moral universes astonishingly – scarily – quickly and thoroughly. Some of the prisoners had made that switch since their arrest. Another one of my favourite books is [amazon_link id=”0141042826″ target=”_blank” ]Most Secret War: British Scientific Intelligence 1939-45[/amazon_link] by R.V.Jones, about the huge espionage and intelligence effort, including the decoding of German communications by Bletchley Park – it covers the Whitehall and military hinterland as well, and the organisation of the enormous and wholly secret effort to deploy work at the frontiers of science and technology.

[amazon_image id=”0141042826″ link=”true” target=”_blank” size=”medium” ]Most Secret War (Penguin World War II Collection)[/amazon_image]

[amazon_image id=”0140284540″ link=”true” target=”_blank” size=”medium” ]Interrogations: Inside the Minds of the Nazi Elite[/amazon_image]

I’ve just started [amazon_link id=”1591144914″ target=”_blank” ]Keep From All Thoughtful Men: How US Economists Won World War II [/amazon_link]by Jim Lacey, and it already promises to join this distinguished company. Of course, it’s gratifying to see economists as heroes for once. Still, what I like about all these books is the reminder they bring that events are never, ever simple. Things turn out the way they do because of a lot of different contributory factors, few of them high profile. Or, as I like to put it in economist-speak, history is over-determined.

[amazon_image id=”1591144914″ link=”true” target=”_blank” size=”medium” ]Keep From All Thoughtful Men[/amazon_image]

The current pile

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It’s time to choose my next book to read, and the pile is quite high at the moment (albeit including my incoming fiction as well as serious books).

The current pile

I think I’m going to go for the one at the top, [amazon_link id=”1591144914″ target=”_blank” ]Keep From All Thoughtful Men: How US Economists Won World War II[/amazon_link] by Jim Lacey, as it might be relevant for my new book, sitting with my publisher in draft at the moment.

[amazon_image id=”1591144914″ link=”true” target=”_blank” size=”medium” ]Keep From All Thoughtful Men[/amazon_image]