Monthly Archives: March 2013

Needed: a Marshall Plan for the Med

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“If the General Election of December 1918 had been fought on lines of prudent generosity rather than imbecile greed, how much better the financial prospect of Europe might now be,” wrote Keynes in the ‘Reparations’ chapter of [amazon_link id=”1602390851″ target=”_blank” ]The Economic Consequences of the Peace[/amazon_link].

I’m certainly not suggesting there is a real parallel between now and then. But listening to the news about Cyprus (where the banks are closed for two more days – to ensure the banking system functions “smoothly”) does make one yearn for a bit of ‘prudent generosity’ among German politicians and voters ahead of September’s federal elections. German banks have the second largest non-Russian exposure to Cyprus, after the Greek banks, and the German banks are the most heavily exposed to the Greek banks and government too. German taxpayers are supporting German banks which lent tens of billions of Euros to Greece and Cyprus; this is a statement about accounting identities. Meanwhile the solution to a bankrupt financial system is – more debt?

Michael Pettis’s recent book [amazon_link id=”0691158681″ target=”_blank” ]The Great Rebalancing[/amazon_link], (reviewed here), looks at the domestic policies in Germany whose result is a permanent current account surplus with the inevitable consequence of capital outflows from Germany. Reading it convinced me that what Europe needs is a sort of German equivalent of the Marshall Plan for the Mediterranean economies, an investment in growth. Obviously a stupidly naive hope.

Back to the microeconomics…..

[amazon_image id=”1451008155″ link=”true” target=”_blank” size=”medium” ]The Economic Consequences of the Peace (Classic Reprint)[/amazon_image]

Unknowns in the immigration debate

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From 2007 until last November I was a member of the Migration Advisory Committee, a group of independent economists advising the UK government on specific questions about the economic effects of immigration policy. There has been some debate on the radio and online today about the latest political statements on immigration. Unfortunately, the area of what we don’t know about the effects – is immigration a net benefit or a net cost to the host country? – far exceeds what we do know. The areas of uncertainty are described in the MAC summary of a series of research projects on the impacts of migration, commissioned and published a year ago.

In a nutshell, the biggest potential benefit we don’t understand is the long-run dynamic effect on potential growth (in an ageing society) from an increase in the working-age labour force, the increase consisting of people who are by definition more than normally enterprising and have different experiences and ideas to contribute. I have a particular interest as well in what businesses will do, in a globalised age, if they can’t employ as many immigrants as they have become used to – to what extent will outsourcing or imports replace inward migration? The biggest potential costs yet to be carefully assessed are the ‘congestion’ effects of immigration on housing, or access to services, for example. While some supposed costs are myths – the idea of higher crime rates for instance – others have not been well measured.

There are plenty of interesting books on immigration. I liked quite a recent one, [amazon_link id=”069115631X” target=”_blank” ]Exceptional People: How Migration Shaped Our World and Will Define Our Future by Goldin, Cameron and Balarajan[/amazon_link], and an older (2000) one, Jeremy Harding’s [amazon_link id=”1861972113″ target=”_blank” ]The Uninvited: Refugees at the Rich Man’s Gate[/amazon_link].

The former is an argument for liberalising migration policy, which runs counter to the popular mood in many countries at present; but even if you do not share that perspective, its contribution is placing the debate in the context of globalisation and demographic change. National policies will be more effective if they acknowledge the underlying global trends.

[amazon_image id=”069115631X” link=”true” target=”_blank” size=”medium” ]Exceptional People: How Migration Shaped Our World and Will Define Our Future[/amazon_image]

The latter is an evocative short piece of reportage that reminds us that migrants are real people, with extraordinary stories. It too raises the question of globalisation, but in its cultural dimension – particularly the awareness everybody in the world now has of other lives, through satellite TV. “The father of a desperate family in Burkina Faso who decides, after three bad harvests in a row, to ride into town and negotiate a loan can watch a slimming commercial on CNN while he waits in the living room of a prestigious uncle.”

[amazon_image id=”1861972113″ link=”true” target=”_blank” size=”medium” ]The Uninvited: Refugees at the Rich Man’s Gate[/amazon_image]

Satellite TV spread rapidly around the world in the second half of the 1990s, and again in the 2000s in Asia. Its enormous cultural impact has hardly been studied.

 

Why predictions about technology are always wrong

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I’m greatly enjoying [amazon_link id=”B00BIOFLWE” target=”_blank” ]America’s Assembly Line[/amazon_link] by David E Nye. The early chapters are about the Ford Motor Company, and the way a number of incremental innovations in different processes added up to the huge social innovation of mass production. Professor Nye makes forcefully the point so many techno-enthusiasts overlook, which is that technologies have to be used as well as invented. As he points out, the Chinese invented gunpowder and used it for fireworks, the Aztecs invented the wheel – for children’s toys, and the ancient Greeks invented a steam engine but regarded it as a curiosity. I couldn’t agree more strongly with this theme of the importance of the social and cultural context for technology, and its productivity benefits.

[amazon_image id=”B00BIOFLWE” link=”true” target=”_blank” size=”medium” ]America’s Assembly Line[/amazon_image]

The chapter on the early stages of the Ford story set out in some detail the explanation Paul David gave in his well-known 1989 essay (pdf) The Dynamo and the Computer: An Historical Perspective for the length of time it takes for a technology – the electric dynamo, enabling factories to use electricity effectively – to be adopted. A key reason is the different kind of building needed for distributed power, rather than machines clustered around a central drive-shaft.

I often use Prof David’s point about “technological presbyopia” – this being the term for middle-aged eyesight, when short-sighted people like me become simultaneously long-sighted when it comes to small print. With any new technology, people have a tendency to over-hype the short-term effects massively (so we get tech bubbles) and under-estimate the huge long-term effects (for example, that railways made urbanisation possible). The error of hype is because new technologies often have such great wow factors. The error of not noticing profound change is precisely because many people find it hard to see the cumulative effect of all the many contextual changes needed for a technology to be widely used.

The Ford factory moved twice in relatively quick succession, from a 1904 plant in Piquette Avenue where the Model T was designed (3 stories high, a block long, 39 feet wide), to Highland Park (buildings dating from 1909 and 1914), where the first assembly line was created, to the River Rouge plant, operational from the 1920s, where the whole of the vertically integrated process from steel smelting to final product was co-located. The Highland Park’s buildings were built of steel-reinforced concrete and could carry heavy machinery on the upper floors. There was room to lay out an assembly line. The buildings were lighter, so workers could see better. The increase in productivity was stupendous – the price of a Model T car in 1910 dollars fell from $950 to $214 in 1921. And of course, Henry Ford famously paid his workers twice the going rate so they could afford to buy the product they were making.

The public fascination with the factories was intense. By 1916 Ford had 25 full-time tour guides. Even branch assembly plants had 20,000 visitors a year. River Rouge had 166,000 visitors in the year as late as 1940. It’s hard to imagine now. (You can still visit it.) There are industrial museums, of course, and some historic sites such as Cadbury World in Bournville (main purpose of visit seems to be buying chocolate, though) and attract tourists but not factories still in operation. It’s a shame. I’ve been lucky enough to make lots of visits to factories in various jobs, and always find it fascinating.

River Rouge complex from above

Valuing books

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There’s a fascinating, provocative article, What is the business of literature, by Richard Nash trailing the next issue of the Virginia Quarterly Review. In it he poses the question troubling man in the publishing world: what’s the business model for books’ enduring contribution to culture? His argument is essentially against “book fetishism”, the product-centric obsession of publishing: “[T]he business of literature is the business of making culture, not just the business of manufacturing bound books.” Book publishers and retailers need to move towards the provision of “cultural hubs”, arrays of services and products, he argues – much, I suppose, as the music industry is having to shift from an LP or CD-centric model to one combining online sales with merchandise and live tours and films.

The essay starts by noting that books are themselves a technology, and have been at the forefront of consumer capitalism. He cites Rachel Bowlby’s demonstration (in [amazon_link id=”0571193072″ target=”_blank” ]Carried Away: The Invention of Modern Shopping[/amazon_link]) that early department stores were modelled on bookshops. “[B]ooks aren’t sitting grumpily in economy class on the airplane to the future. They’re in the cockpit.” I’ve posted here a couple of times about the impressive degree of innovation in publishing (and also here, a post featuring dwarsliggers), rather a contrast to the music businesses’s early response to the digital disruption. But Nash continues: “For the most part, however, the technical and business-model innovations in literature were one-sided, far better at supplying the means to read a book than to write one.”

[amazon_image id=”0571193072″ link=”true” target=”_blank” size=”medium” ]Carried Away: The Invention of Modern Shopping[/amazon_image]

The innovation in writing books is now under way. The rapid increase in the number of titles is one sign. The article dates this to: “July 1985, when a company called Aldus, naming itself after the great Venetian printer Aldus Manutius, releases PageMaker. You put PageMaker on a Mac, put the Mac in a new chain of photocopy shops called Kinkos, you rent them for six bucks an hour, and you’ve got Publishing 2.0. Exhibit A: Soft Skull Press, a publisher founded in a Kinkos in 1993, and which I ran from 2001 to 2009. Further exhibits: the hundreds of thousands of zines, chapbooks, and books produced since, many of which begat small media businesses, magazines, and book publishers. The number of U.S. titles created by traditional print publishers, whether of the indie variety like Soft Skull or the large corporate publishers, increased from about 80,000 per year in the 1980s to 328,259 in 2010.”

He argues, too, that copyright law as it stands is a law for the analogue world: “Until recently, it was more expensive to make a copy of a book than it was to simply buy the book. So when society agreed to grant authors and publishers the monopoly, it was a good bargain. Now …. the public has proceeded to make copies anyway, regardless of the previous bargain… As with any law that loses the consent of the governed because it no longer reflects the logic of society, the law is not overturned, just ignored. It recedes into the past, like laws forbidding pigs to enter saloons or alcohol sold on Sundays or adultery or interracial marriage.”

The existing value chain (agent-publisher-wholesaler-retailer) will be disrupted, he concludes. It will not be saved by gimmicks like video embedded in e-books: “The lack of video, the lack of audio, the lack of ways to change the forking outcomes of plot (what is rather crudely referred to as “interactivity”) is a feature of literature, not a bug. And, as it turns out, books are interactive. They’re recipes for the imagination. Conversely, video is restrictive—it tells you what things look like, what they sound like.” Rather, the innovation will be in the value chain – he cites Kickstarter, a subscription model (like the one prevailing in the 18th century), tie-ins with fashion designers, links between book retailers and galleries, and so on.

On the whole I agree with the argument – although I’m a serious “book fetishist” myself, in love with the physical artefact (favourite website to relax by: Bookshelf Porn). Nash underestimates the value of innovations to the object, I think. However, I entirely agree that the disintegration of incumbents’ business models does not mean books have no value. The digitally-driven innovation is rather exhilarating, as long as you’re not one of those anxious incumbents.

I’ve skated over the surface of the article – well worth a read.

 

It’s not a young woman’s world

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Do economics and fiction mix? It’s hard to think of many successful novels of economics – I’ve posted here before about economics/business and culture and here about economists as fictional heroes.

This week I read a novel applying economic principles to a young woman’s analysis of her life. [amazon_link id=”B00B1UUGCK” target=”_blank” ]It’s Saying Goodbye to Verena: What is Your Life Worth?[/amazon_link] by Ivy Turow.

[amazon_image id=”B00B1UUGCK” link=”true” target=”_blank” size=”medium” ]Saying Goodbye to Verena: What is Your Life Worth[/amazon_image]

The pseudonymous author’s website indicates that it’s quasi-autobiographical. The heroine is a seemingly accomplished young woman who has discovered that she’s a misfit in the world of work and concludes, using the economic analysis she’s learned at university, that she isn’t economically viable. Her rational solution is that she should end her life. The website pins the blame on corporate capitalism. “I simply don’t have sharp enough teeth to flourish in today’s corporate society. The thing is, I don’t think I’m alone in this predicament. This book is for all of those who find themselves in the same boat,” says Ivy Turow. “It shouldn’t matter who I am and what I look like. Sadly, women’s achievements are often considered less important than their appearance.”

The novel is a book of two halves. The first few chapters describe the heroine’s experiences of work, and her dawning realisation that it’s a man’s world, that diligent application to the job isn’t rewarded, and power games matter in corporate life. The author’s writing style is clunky but lively, and this part is a good read. The passion of real experience shines through. I have every sympathy with her, too. It is a man’s world, and the status and potential of women in the workplace have definitely gone backward since I started work in the 1980s – not that it was great then. What’s more, the UK is low down the international league table for women’s achievement in key positions of power such as politics and the boardroom. The more this is shouted about, the better. While the book emphasises the main character’s struggles because she’s female (at least as I read it), the website emphasises the problems affecting her generation, with a system stacked against them by the voracious baby-boomers. This issue is equally valid.

The second half of the book is less successful. It turns into a kind of Socratic dialogue in which the heroine explains ideas ranging from game theory to Foucault’s analysis of power to her patient friend over lunch. I think the claim is that the economic non-viability of women in modern capitalism can be proven analytically, but the first part of the book trying to demonstrate the point through the emotional power of a good story and sympathetic character actually does a better job of making the point. And actually, I disagree with her claim to be setting out a “proof” because this half of the book omits the sociology of patriarchal power that’s described so effectively in the first half. She could also have made a more interesting point about social norms – having shown that most people are weak and allow an unscrupulous minority to set the standards of behaviour, the interesting debate about why those norms change and whether they can be improved is missing. I would argue that they can change substantially, as attitudes to top pay shifted between the 1970s and 1980s.

Still, the book is quite a digestible way of encountering these ideas. It’s interesting – not great fiction but a passionate and welcome contribution to a debate we should be having on why career structures in particular and society more generally have become once again so heavily stacked against young women.