Monthly Archives: November 2017

Reclaim your attention

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I caught up with Timothy Wu’s The Attention Merchants: The Epic Struggle to Get Inside Our Heads on my recent travels. It’s a very interesting history of advertising, not surprisingly US-focused. There are some compelling characters in the earlier part of the story – some I knew about already like Bernays, others unknown such as the rather extraordinary Claude Hopkins. Advertising and media have always, I guess, attracted outsize characters. And some of the tales about the impact of ads are astonishing – early campaigns promoting smoking as a health-giving activity; the genius of the ‘Marlboro man’ campaign, taking Marlboro from a 1% market share to the 4th bestselling brand in the US in less than a year.

The book is excellent (as one might expect from the author of The Master Switch, a terrific book) on the interplay between technological and commercial or creative innovations. Wu writes: “Technology always embodies ideology, and the ideology in question [with the spread of cable TV] was one of difference, recognition and individuality.” The arrival of many upstart channels successfully contested the broad middle ground previously held by the main networks, and with it the cohesive, mass attention of network TV viewing.

The book moves on from old media to new media, and I also enjoyed the section on the early days of the internet and the stumbles and successes in getting all of us online. Email was an early killer app, which one forgets. “It may be hard for some to imaine a moment when receiving email was considered a big deal.” But there was indeed the movie You’ve got Mail featuring AOL in a comedy romance. Wu also reminded me that AOL got people online by sending them a physical disk in the post, or later free on the front of magazines – apparently they mailed several hundred thousand floppy disks in a 1993 mailshot – and got a 10% success rate. The company’s chief marketing officer said, “50% of the CDs produced worlwide had AOL’s logo on them,” by the late 1990s, the book reports.

As it gets towards today, the book is a bit less compelling, and I think this is because it’s so hard to get one’s mind what’s going on in the world of attention-grabbing. Of course, we know Google and Facebook are eating all the ad revenue (and attention) but there’s that fraudulent, algorithmic, complicated market, the imperative of SEO, and the fragility of offline advertising. Not to mention the blurring of news, native ads, fake news, and random dog and cat videos. It would be unfair to criticise Wu for not pinning down all this, and the addiction of social media, in a final chapter, and I’m not. The book really ends with that promising moment when ad blocking looked like a thing; but events have moved on.

There is an afterword about Trump, “the attention merchant turned President,” and then an epilogue calling for technologists to turn their focus to “the goal of reclaiming our time and attention” in these days of clickbait and the ludic loop of browsing and checking all social media without cease. The grim alternative? “The enslavement of the propoganda state as well as the narcosis of the consumer and celebrity culture.” But it isn’t just down to technologists – the battle for attention starts with oneself.

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‘Free’ markets

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I read recently The Illusion of Free Markets by Bernard Harcourt (date), on the recommendation of an esteemed colleague. The bulk of the book is about state discipline – Bentham’s Panopticon, Foucault, the American penitentiary state. The bit that really appealed to me was the opening section on French grain markets in the 18th century, compared with Chicago commodities markets in the late 20th century.

The book opens with great detail about how intensively regulated markets were in early 18th century France, with even trivial breaches of the rules in theory liable to punishment, imposed by the police des grains. Harcourt then draws the comparison with what we think of as a model of free market capitalism, the open outcry pit of the Chicago Board of Trade (I visited once  – an amazing experience). As he convincingly establishes, there os no sharp contrast, as the modern market rules are in fact just as detailed as the 18th century version.

Why then do we contrast ‘free markets’ as today’s ideal with the over-regulated past? The book attributes the turn to the Physiocrats, and “that contested moment in the 18th century when notions of natural order were beginning to take shape.” The argument is that they shaped a sharp dichotomy between “the economy as the realm of natural order” and everything else which was thereby in the sphere of being policed by the state. “In other words, the market is efficient, and within that space there is no need for government intervention. What is criminalized and punished is behaviour outside the sphere of the orderly market.” The government can legitimately penalize non-market behaviours.

But of course, the dichotomy is a false one. The state is present in all markets, and often in just as much detail as the C18th police des grains. The rhetoric of ‘free markets’ is misleading.

I certainly agree with this last point, as does anybody who (like me) has spent some time as an economic regulator (the UK Competition Commission in my case). Modern economies are highly regulated, and that goes for the Anglo-Saxons as much as anyone else. I don’t know nearly enough about the C18th or the literature on punishment to evaluate those parts of Harcourt’s book. But it certainly offers food for thought.

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Markets and planners

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I finished reading True Stories, a book of essays by the wonderful Francis Spufford. Mostly they are definitely not about economics but there is one essay about his terrific book Red Plenty. If you haven’t read Red Plenty, do so – borrow or buy it now! It’s a wonderful read. And for an economist there is the spine-tingling excitement of having the formal equivalence of a general competitive equilibrium and a perfectly centrally-planned economy embedded in brilliant work of fiction. If you don’t believe me, read Cosma Shalizi saying the same thing at some length, in In Soviet Union, Optimization Problem Solves You.

And by the way, True Stories and pretty much any other book by Francis Spufford are well worth reading too. Great writer.

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Getting a grip on intangibles

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One of the missing parts of the picture when it comes to measuring and understanding the economy consists of intangibles. This is a big gap, given that services make up four fifths of the UK economy, and that firms invest so much in intangibles, which account for the great majority of their stockmarket valuation. Yet it is so hard to get a grip of the implications of changes we find hard to visualize and do not measure.

A big contribution to starting to fill this gap comes from a new book by Jonathan Haskel and Stian Westlake, Capitalism Without Capital: The Rise of the Intangible Economy. It starts with a description of what the intangible economy is and how we do (currently) and could (in future) measure it. The characteristics of intangible investment are captured in four Ss: intangible assets are more likely than tangible ones to be scalable; they involve higher sunk costs; they are likely to involve spillover effects or externalities; and they exhibit synergies with each other.

Scalability comes about largely because of the non-rival character of intangible goods. Sunk costs are the result of the need for high upfront investment – with software or databases or movies for instance – and then very low marginal cost. Spillovers are present in knowledge-based goods, again due to non-rivalry – the famous Thomas Jefferson quotation, “He who receives an idea from me receives intstruction himself without lessening mine.” This is the fundamental point in endogenous growth theory. Finally, the synergies reflect the need for complementary investments (tangible ones too) to embody ideas in useful outputs.

Having set the scene, the book goes on to consider the implications of the intangible economy in a number of areas: the productivity puzzle; inequality; finance; business management; and public policy. These are explored through the lens of the four Ss. For example, does the public goods characteristic of non-rivalry imply that a greater proportion of the total investment will need to be publicly funded? Should governments encourage a switch from debt to equity financing of investment through changes to the tax system? (This chapter is set up as a series of essentially rhetorical questions – the answers are yes and yes!)

The key message is that the economy has changed and is changing its character fundamentally, yet businesses and governments have hardly begun to get to grips with the implications. After all, we are not even measuring intangibles properly. In both the winning Indigo Prize essays fixing this was one of the key recommendations – it is hardly surprising the essays included this as mine was co-authored with the head of Australia’s intellectual property agency and the other co-authored by Jonathan Haskel, but my point is that the distinguished panel of judges saw this as important.

There are some other books emphasising intangibles, such as Baruch Lev’s work on accounting, The End of Accounting being the most recent. For an introduction, though, it would be hard to do better than Capitalism without Capital, which is clear and lively and raises – without having all the answers – the relevant questions.

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