Author Archives: Diane Coyle

Enlightened Economist Prize 2017 – longlist

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I’m late this year with drawing up my longlist. The rules are that the contenders are the books I happen to have read this past 12 months (they don’t have to have been published in 2017), and the choice of the ultimate winner is mine alone. Criteria include: interest and importance, enjoyability/readability/accessibility, and being related to economics (ruling out my history and pop science reading). Links are to reviews on this blog.

With that, and in no particular order, the 2017 longlist is:

The Undoing Project by Michael Lewis

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Hall of Mirrors by Barry Eichengreen

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The Financial Diaries by Jonathan Morduch and Rachel Schneider

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The Wisdom of Finance by Mihir Desai

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Beating the Odds by Justin Yifu Lin and Celestin Monga

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The Pricing of Progress by Eli Cook

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Adaptive Markets by Andrew Lo

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Economics for the Common Good by Jean Tirole

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Straight Talk on Trade by Dani Rodrik

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The Attention Merchants by Timothy Wu

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I’ll decide on the winner before Christmas. The Prize is the offer of a fine lunch or dinner should the prizewinner and I find ourselves in the same place. Oh, and the glory.

By the way, my nominations for the best non-econ books I read this year are:

Second Hand Time and The Unwomanly Face of War by Svetlana Alexievich

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The Deluge by Adam Tooze

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East West Street by Philippe Sands

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There is no alternative?

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Is Capitalism Obsolete by Giacomo Corneo is framed as an exploration of alternatives to capitalism by an economics professor father to his idealistic daughter. The Prologue is an email exchange between them, in which she writes: “Your economic system is wasteful, unjust and alienating. And wastefulness, injustive and alienation are not the result of some natural law. They are the result of particular social rules, the rules of capitalism. And keep in mind that the capitalist economic system is the product of a relatively short period in history. Just as it once emerged, it will one day decline and be replaced with a better set of rules.”

Set up in this way, the book explores some of the alternative models posited at various times, from Plato’s Republic and Thomas More’s Utopia through anarchism and socialist planning to modern variants including ‘shareholder socialism’ (state ownership of key industries) and the currently fashionable cure-all, Universal Basic Income. At the end of this journey, the economist concludes: “There is, at present, not really much else on offer.” However unfair, wasteful etc capitalism is, there is no convincingly superior alternative. Instead, the author proposes a range of reforms – cracking down on cross-border tax avoidance/evasion, investing in infrastructure & public services etc – concluding, “A pluralist market economy with an effective and generous welfare state represents the best economic system that is currently available to us.” An appendix contains a more detailed specific reform proposal, the idea that the state should invest in quoted companies to build up a socially responsible sovereign wealth fund paying a social dividend to citizens.

I have never found the abstraction ‘capitalism’ a helpful term when it encompasses societies as contrasting as Norway and the United States, and have always quite liked the slightly out-of-fashion ‘varieties of capitalism‘ approach. Even if you think the term useful, though, looking at the news this past week, Corneo is surely rather optimistic here in seeing any possibility for reform. Capitalism might be declining, as the daughter asserts, but it looks more likely to be replaced by something worse, call it plutocracy, than by something better.

This is a slighly odd book. I guess it’s meant to be pedagogical, taking students on a tour of historical thinking about economic systems, but this makes the framing material about the current day rather perfunctory, and then the actual reform proposal is stuck in an appendix. Although a mildly diverting read, I’m not sure it works well either as a history of thought book or as a current affairs one.

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No Ordinary Woman

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I’ve really enjoyed reading No Ordinary Woman, a biography of Edith Penrose by her daughter-in-law Angela Penrose. It is a life story kind of biography – only one chapter (by Edith’s grandson Jago) covers her economic thinking in The Theory of the Growth of the Firm – but what a life.

There’s no question in my mind that, had she been a man, Penrose would be far more esteemed within the economics profession. I haven’t read The Theory of the Growth of the Firm (shame on me – got it out of the library now), and it seems it has been far more influential in management and business schools than in economics. It seems, from the chapter here, that it explores the firm as an institution, and the dynamics of the way firms shape the economic environment.  One can see how this is more at home in the business literature, valid (in fact, essential) as this kind investigation is.

But whatever its stature, Penrose had an extraordinary career as an empirical economist helping shape the field of study of multinational firms, an academic leader (head of the economics deparment at SOAS as it built its reputation, and later at INSEAD), and a public servant (serving on many public bodies and commissions after she and her husband settled in the UK). At the time the OPEC crisis erupted, she was just about the only academic who had studied the oil industry and the Middle East economies. She travelled widely, learnt Arabic and did some consultancy work in her spare time – and all this while bringing up her family and being a housewife to her husband, much-loved but clearly a traditional man of his era.

Anyway, from this affectionate biography, Penrose sounds like she would have been terrific fun and stimulating to know. And it is inspiring to read about a woman who accomplished so much against great odds. Next week in Manchester we’re hosting an event for 14-15 year old school girls to encourage them to do economics in the 6th form. Edith Penrose has to join the pantheon of female economists we’ve been preparing.

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Straight talk from Dani Rodrik

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The legion fans of Dani Rodrik will love his new book, Straight Talk on Trade. I’m one of them, and massively respect him for warning all the rest of us economists about the political economy consequences of globalisation long before these became obvious. As he writes in the last chapter of this new book, looking at recent voting trends in many countries,  “It is dawning on economists and policymakers that they severely underestimated the political fragility of the current form of globalization…. This backlash was predictable.” He has the sombre pleasure of having predicted this for a couple of decades now.

Regular readers will find many of the thoughts in Straight Talk familiar from previous books such as The Globalization Paradox and Economics Rules, and from papers such as Rodrik’s work on ‘premature deindustrialization‘. The new book updates the issues for the present context of the political success of anti-globalizers, nationalists, statists. It argues that there is little evidence of a major retreat from economic integration, and that the rhetoric and headline measures are a useful safety valve. “What looked to contemporaries like damaging protectionism was in fact a way of letting off steam to prevent an excessive build up of political pressure. … [W]e need to place the requirements of liberal democracy ahead of those of international trade and investing.”

I’m in two minds about this line of argument. It is undeniably true that the dogma of globalization gave cover to a lot of toxic practices, from financialization and speculation to multinational tax avoidance. However, I fear the protectionist, nationalist rhetoric will create its own reality – I found the argument in The Weaponization of Trade by Jack and Rebecca Harding persausive on this. Nor am I as sure about the ‘continued resilience of the nation state’ – and see its potential fracture as a dangerous moment.

On the questions of domestic economic policy and industrial policy, though, I’m 100% with Rodrik’s argument. He points out that the policies labelled ‘structural reform’ (econ jargon for politically very difficult measures) “were only loosely correlated with turning points in economic performance.” There are no silver bullets. Rather, growth take-offs “were associated with a targeted removal ofkey obstacles to growth rather than broad liberalization and economy-wide reforms.” Measures need to be targeted, and political capital and administrative resource needs to be focused on areas where there will be an early return. “In economies that suffer from multiple distortions, small changes can make a big difference.” The best policy advice is to experiment, and try local institutional innovations.

Reflecting on the lessons of past growth take-offs and failures leads into a section on the role of economics and economists – some of this familiar from Economics Rules. Economists must pay more attention to politics if they are giving policy advice, he argues, and in particular to the scope for political innovations – ideas that can durably relax political constraints and enable measures that make people better off without threatening political upheaval. Or in other words, enable the capture of efficiency gains while more or less protecting the economic rents of existing elites. Rodrik draws an interesting parallel with technological innovations, and the role of policy entrepreneurship, learning by doing, learning by experimentation, copying, serendipity and not forgetting the role of crises. “Taking ideas seriously renders the notion of interests slippy and ephemeral. Interests are not as fixed as other economists, such as Daron Acemoglu, suggest. People may need a new idea to appreciate their interests in a different, more accurate, light. “Raising the profile of ideas would also help alleviate the tension that exists today between political economy on the one hand, and normative economics and policyy analysis on the other.”

Looking at the current political context, some new ideas are surely needed, especially when it comes to global trade and investment. Rodrik has written elsehere about the need for New Rules for the Global Economy, and argues again here that the conventional policy suggestions will fail.

Straight Talk ends on a potentially optimistic note, however: “If one lesson of history is the danger of globalization running amok, another is the malleability of capitalism.  … It was not tinkering and minor modification of existing policies that produced these achievements [the New Deal, Bretton Woods], but rather radical institutional engineering.” If big, bold ideas can be implemented, the liberal democratic order may be reinvigorated. Looking at the present crop of politicians, this is only a slightly comforting thought, but I for one will take that sliver of comfort.

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So much to read

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There are lots of books in my in-pile, and I’ve had a very busy autumn (not least writing a book). But the Spring 2018 catalogue from Princeton University Press arrived and there are tons of absolutely enticing new titles forthcoming. Given my interests, The Tyranny of Metrics by Jerry Muller is a must-read.

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Radical Markets by Eric Posner & Glen Weyl looks intriguing – the argument is that inequality can be diminished and growth enhanced by a radical extension of the scope of markets. Talk about contrarian, in the current climate.

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Daniel Cohen’s The Infinite Desire for Growth is out in English, looking at what growth has been about historically and what future progress will look like.

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I’m super-eager to read Michael Best’s How Growth Really Happens, as a huge fan of his The New Competitive Advantage. The blurb says it combines the experience of hundreds of factory visits, economic thought from Babbage to the modern day, and historical episodes of econmoic transformation.

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Paul Tucker, formerly of the Bank of England and now at the Harvard Kennedy School, has written Unelected Power, about the role of central bankers and other technocrats in modern economic government.

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This is just the first few pages! Further in is The Republic of Beliefs by Kaushik Basu. Love his papers on this territory.

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Dani Rodrik’s Straight Talk on Trade features too, published earlier this month – I’ve finished reading this and will write my review soon.

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