The business of digital disruption

It has taken me a shamefully long time to read Will Page’s excellent book Tarzan Economics. Will was Spotify’s economist and before his move into the music business had worked for the Scottish Government. So he has the distinct advantage of being able to wear two pairs of spectacles to look at digital disruption, the policy lens and the lens of the disruptor. The term ‘Tarzan Economics’ refers to the leap businesses need to make from one vine in the business jungle as it descends, to another vine, in order not to crash to the ground. The book combines economic analysis of digitalisation with business advice, and carries off the combination. It isn’t in quite the same league as Shapiro and Varian’s now old classic (1998) Information Rules, but on the other hand is far more up to date and gives us a front row seat for what has happened in the music business.

It was always astonishing to me (see Sex, Drugs and Economics) that the music business reacted to the Napster et al threat by deciding it would be a good idea to prosecute their biggest fans (rather than responding to the demand for unbundling). As Will writes, “If piracy of a particular artist was increasing, the lawyers would be getting worried about intellectual property being stolen, whereas the promotion departments would recognise they had a hit on their hands.” The book identifies the real threat to any content business being the limited amount of time and attention we all have. There are nice examples of more sensible ways of responding (other thany trying to put your customers in prison). One is the Atlanta Falcons having made their stadium a pleasant environment with good, reasonably priced food and no rip-offs. Elasticity of demand is such that revenues per attendee have risen substantially, attending the game winning out for enough people over watching on TV from the La-Z-Boy recliner at home.

The book is structured around (as the subtitle has it) ‘eight principles for pivoting through disruption’. These include for instance tactics for working the dynamics of the long tail and how to price discriminate: voluntary donations can raise more than conventional pricing, for instance, the famous Radiohead experiment in voluntary payment for their album (followed later by release of a special boxed set) being one of the examples here. I found the chapter on the use of data, including Spotify examples, fascinating. There’s a lovely anecdote about Will visiting Richard Thaler, who came up with the answer after the company’s data scientists had failed to discover – despite intense data mining – exactly why Discover Weekly was such a success; I won’t spoil the story.

Will is one of the band of enlightened economists who can think more broadly than many. He gives the specific example here of the limitations of the cost-benefit analysis – for example in deciding whether to invest in a museum; the inspiration and education it provides need to be in the mix along with the visitor numbers and entry fees. Not surprisingly given his Spotify role, he argues that the music industry held on to its damaging old vine for a decade too long but things are looking rosy now – I’m not sure all of the music industry buys into this cheerful, new vine outlook. Nevertheless, it was one of the earliest industries to face profound digital disruption and the lessons are well worth pondering. As Will says, the aim of the eight principles and the examples in the book is not to proclaim answers but to help readers ask the right questions about their situation and pick the most appropriate strategies and tactics.

Whether you are involved in a disrupted business or just interested in digital economics, Tarzan Economics is a terrific read, very nicely written, and with the economic analysis sweetened with plenty of examples. Will will be appearing at the Bristol Festival of Economics talking about it in November.

41cVKl1KQCL._SX323_BO1,204,203,200_

Share

Productivity and the pandemic

This is a collection of essays that does what it says in the title, Productivity and the Pandemic. The book has a UK focus and, as an output of the Productivity Insights Network, a strong interest in the geographic impact of the pandemic shock to the economy. The chapters range from the future of cities to mental health, from housing markets to entrepreneurship. As always with an edited volume the contributions vary, and few people will want to read cover to cover rather than picking out the chapters of interest to them. Another issue of course is that the pandemic isn’t over so it is quite early to be trying to evaluate its impact.

Nevertheless, there are some interesting chapters. I enjoyed the chapters on global supply chains and on firm strategies under uncertainty, although neither of them offer definitive answers about pandemic impacts. But clearly the questions of resilience and uncertainty will figure in policy debates from now on. Such tightly coupled production and distribution networks might not be the thing in future. (I write as food distribution seems to be in question again in the UK because of ‘pinged’ workers needing to isolate, and a threatened haulage strike, and Brexit.)

I also particularly liked a later chapter on ‘The Paradox of Efficiency’ by Ekkehard Ernst, about hedging risk in uncertain times. This is clearly a related issue but goes beyond supply chain issues to mention ‘over-provision’ of robust public services rather than running them hot. This is a conclusion I drew with some colleagues, looking at NHS hospital productivity in 2020. Ernst writes: “The countries that provided relatively abundant public services managed to fare significantly better in containing and managing the pandemic.”

This is an assertion – there is no evidence provided here to support it – but one well worth testing. More broadly, we need to start thinking about risk-adjusted productivity measures: what’s the climate risk impact on agricultural productivity for example?

514yCNkwx7L._SX324_BO1,204,203,200_

 

Share

Mending a broken society

James Plunkett’s End State: 9 Ways Society is Broken and How We Fix It is a very readable addition to the increasingly compelling literature on the broken social contract. Other recent offerings in this mini-genre that I’ve read are Minouche Shafik’s What We Owe Each Other, Mark Carney’s Value(s), Martin Sandbu’s The Economics of Belonging, Raghuram Rajan’s The Third Pillar. There are no doubt others I’ve forgotten and certainly others I’ve not read. End State is a welcome addition, taking a somewhat different perspective.

For example, the first chapter focuses on over-concentrated markets and the adverse consequences in terms of power and inequality. The second goes on to consider the many ways in which concentrated markets act against the interests of customers, for example by penalising inertia or personalising prices or using dark patterns. Plunkett writes that regulators have been too slow to understand that their intellectual framework needed to adapt to these phenomena, too often assuming that with better information consumers could make better choices. “The deep intellectual underpinnings of public policy,” he argues, “have become unfit for purpose.” They have assumed for too long that the textbook model of markets, with limited market failures, reflected reality. The book advocates for policymakers using market design to shape specific markets so they serve people better – hard to argue with this, though hard to implement too.

The middle chunk of the book covers work: is there enough, why is job quality so low, skills, the precariat, and so on. I really like some of the suggestions – for example, a modern equivalent of the GI Bill to give many people a large-scale opportunity for upskilling, disrupting the pattern of assuming education is for academically-talented people between 18 and 25, and making way for other types of skill and definitely ‘non-traditional’ types of people. I’m less enamoured of the book’s advocacy of UBI, which seems to me the ultimate neoliberal, individualist policy for a neoliberal problem; better to tax progressively, simplify the benefits system (and make it more generous), and provide good public services. I can never understand why progressive people like this Peter Thiel policy so much. The book also argues for more leisure, a 35 hour or 4 day week. Fine for many people, although it overlooks the increasing utility many others get from their work. There’s an interesting chapter on the quality of life in old age, somewhat out of sync with the rest of the book.

The final section concerns modernising government. It clearly needs to be done, especially in the UK with an imperial centre trying to level up from the top down by making places compete with each other. I suspect, though, that the government we have at present is not going to be the one reviving democracy and firing the bureaucratic machine with new enthusiasm. This only points to a common issue with this literature: it’s terrific to have lots of brilliant authors identifying problems and suggesting fixes, but where is the political leadership and vision to implement a new social contract? The advantage of End State‘s focus on ‘fixes’ is that some of them might get done. We won’t see education and training reform at massive scale, but tougher competition policy – very possibly.

419P9YbHnBL._SX332_BO1,204,203,200_

 

 

Share

Divisions

I devoured Amartya Sen’s wonderful memoir, Home in the World. It covers his early years growing up in what is now Bangladesh, his schooling in Santiniketan (attending the school established by Rabindranath Tagore, to whom his family was close), college in Calcutta and then at Trinity College, Cambridge. The book ends at the early part of his academic career, in Cambridge and visiting posts in California and Massachussetts.

It’s a beautifully-written book and illuminates Sen’s intellectual formation. Clearly his family and Tagore played an enormously influential role, and so too the intellectual ferment in Calcutta in the early 1950s. Tagore’s school sounds remarkable in the freedoms it gave students and its emphasis on the role of reason, in unreasonable times. The political upheavals of the British withdrawal and partition play a relatively low key role in this story; but it has a lot to say criticising the religious and caste divisions in the sub-continent then and now, with many excursions into its history. Needless to say, the British don’t come out of this well.

The account intertwines the history of Bengal with Sen’s personal history and his intellectual development – particularly why he became interested in social choice theory at a time when few other economists were working on it, and his Cambridge colleagues warned him against pursuing it. There are interesting sections on Buddhism, and on Marx – in effect what each contributed to Sen’s reaction to the Arrow Impossibility Theorem (the possibility of agreement in restricted domains even if not about fundamental metaphysical views of the universe in the former case, and “a pioneering contribution to the understanding of the epistemic implications of observations” in the latter.)

Among all this, a personal history, with the most gripping episode being early treatment with radiation therapy for oral cancer as a new student in Calcutta. Thank goodness he survived. Anyway, highly recommended.

I also read this week The Northern Question: A History of a Divided Country by Tom Hazeldine. The divided country in this case is England, and the book traces modern divisions pretty much back to the Dark Ages (it is nevertheless quite short!). It essentially portrays the northern (and south western) regions as colonised by the capital, and repeatedly sacrificed for the sake of the financial sector. The book argues that it is not surprising the Conservatives should always favour southern financial interests: “The Conservatives are first and foremost creatures of the South,” (although they have won more Northern English seats more of the time than I had realised). Hazledine’s quarrel is with Labour Governments that tilted the same way, from Macdonald and Snowden, to Wilson, to Callaghan and Healey, to Blair and Brown. This is the main point of the book. It concludes, “[Labour] has routinely swallowed a definition of the national interest that puts sterling and the City ahead of manufacturing and the North.” Looking at the trajectory of sterling over time it is hard to believe many of our governments have really wanted a strong currency, but I’m easily persuaded that City interests have generally dominated. Or at least a Southern governing class perspective that sees all the rest of the country as uncouth provinces. Brexit may prove the exception – we will see. Not that damage to the City in this case will do anything to influence the North-South divide.

Then this weekend in the garden Kazuo Ishiguro’s very fine novel Klara and the Sun. More than any other novelist I can think of, he presents the world comprehensively through the perspective of one character – in this case, a humanoid AI. Very thought-provoking, and a page turner, finished it in a day.

41eXIWQcz-L._SX321_BO1,204,203,200_919sMXJOIdL._AC_UY436_QL65_

 

Share

A batch of books

A clutch of books to report on. Why Trust Matters: An economist’s guide to the ties that bind us by Benjamin Ho is a nice synoptic view of the economics of trust/social capital. One point that particularly struck me was the link between trust and patience: “co-operative behavior is easier to maintain when people value the future more – which is just another way of saying that they are more patient.” Perhaps it should be obvious but I hadn’t made the link. I also like the idea of a sort of Goldilocks level of the strength of contracts: not too weak or it becomes to risky to engage in the economic relationship; but also not too strong because trust can’t grow if there’s no opportunity to demonstrate trustworthiness. After all, trust is only needed because there is risk. This would be a nice book to introduce students to a wide literature on trust, social capital, game theory and contracting under uncertainty and asymmetric information. It braids bits of the literature together with a light touch.

Causal Inference: The Mixtape by Scott Cunningham is an excellent text book. It joins both the Angrist and Pischke duo of books (Mostly Harmless Econometrics and Mastering Metrics) and Judea Pearl’s Book of Why in the recent mini-wave of excellent introductions to causal inference. ‘Mixtape’ has as much statistical theory as you need and also includes both Stata and R code for student exercises.

And an utterly brilliant non-econ book I just read is Karl Deisseroth’s Connections: A Story of Human Feeling. He is both a neuroscientist running a lab at Stanford, famous for inventing optogenetics (no, me neither) and a practising psychiatrist. The book moves between the scientific insights and the human stories, showing how they illuminate each other. It’s also beautifully written. One of my books of 2021 so far.

 

41NxoceI4yL._SX322_BO1,204,203,200_41ymCncYeoS._SX323_BO1,204,203,200_41-Nm5pAyFL._SX322_BO1,204,203,200_

Share