Author Archives: Diane Coyle

Free innovation

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I polished off Eric von Hippel’s Free Innovation on my Washington trip. It’s an interesting, short book looking at the viability and character of innovation by individuals – alone or co-operating in communities. It is free in two senses: the work involved is not paid; and the innovations – or at least their design – is not charged for, although it may subsequently be commercialised by the inventors or by other businesses. The viability of free innovation has been greatly extended by digital technology and the internet: there is more accessible useful information, it is easier and cheaper to co-ordinate among a group. The diffusion of innovations is also easier, although rarely as extensive as when a commercial business takes them up and markets them. In fact, von Hippel argues that there are some strong complementarities between free innovation and commercial vendors, as the latter can bring the scale economies of production and marketing, while the former can enhance the use case, the complementary know-how, that increase the value of whatever it is.

The book has a little theorising, some survey evidence on the wide scope of free innovation, and plenty of nice examples. It ends with a couple of chapters on how to safeguard the legal rights of free innovation and how the pehnomenon might be encouraged. The scope is what interests me particularly. I had already been thinking about phenomena such as open source software as a voluntary public good, which competes with marketed goods – compare Apache with Microsoft’s server software (as Shane Greenstein and Frank Nagle do here). There is clearly a growing amount of substitution across the production boundary going on.

The surveys reported in this book seem to indicate that millions of people are innovating (5-6% of respondents in the UK and US, Finland and Canada) – but equally, some of the innovations are minor contributors to economic welfare and one cannot imagine them ever having a wide market or competing with marketed equivalents. The question is how to get a handle on the scope and scale of all the open source, public good, innovation.

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Accountancy, innovation and cyberattacks: slightly random reading

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I’ve been attending the NBER’s Conference on Research in Income and Wealth in Washington and one of the lunchtime speakers was Baruch Lev, talking about his recent book, The End of Accounting. Having heard the talk, I’ll have to read it. The argument is essentially that companies’ financial reporting is decreasingly useful as a guide to company performance, and any potentially useful information is deeply hidden in the required figures, which – Lev argues – bear little relation to reality, are heavily manipulated, and involve many dubious assumptions. It’s safe to say he isn;t a fan of the accountancy standards bodies – nor they, presumably, of his work.

Just before leaving London I finished Thomas Rid’s Rise of the Machines, a history of cybernetics from the perspective of an expert on defence and security. Much of the story he recounts is familiar to anyone who has read lots on computer and internet history, but the perspective is distinctive. Of course the tale starts with the information needs of the military in World War 2, but it also ends with security. There is a fascinating chapter on a mid-1990s Russian cyber-attack on the US, code named Moonlight Maze – apparently the first time so many of the details of this attack have been pieced together. This chapter was particularly interesting in the light of recent Russian activities in the US and elsewhere. Here is quite a detailed description referring to Rid’s book.

I also polished off a short book, World on the Move: Consumption patterns in a More Equal Global Economy by Tomas Hellebrandt and Paulo Mauro. It looks at demographic and income distribution data and projections to make predictions about future demand growth – especially for transportation and infrastructure. It’s more of a reference work than a good read but I’m sure useful for some readers.

One of the conference speakers was Eric von Hippel, who kindly signed a copy of his book Free Innovation for me, so that’s next on the agenda. And this being Washington, I’ll almost certainly drop into Kramer Books and leave with a few purchases.

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Should economic policy be joined-up and strategic – or not?

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Yesterday was the formal launch of the new, independent Industrial Strategy Commission – of which I’m a member. Its chair Kate Barker explained in an article in the FT today why an industrial strategy is important: “Economic theory has always stressed the role government must play in correcting “market failures”. These include the absence of markets for new goods, social benefits in excess of private benefits where there are externalities, the public good of basic research, and uncertainties that will limit private investment due to information asymmetries in financial markets. Clear economic and social challenges lie ahead for the UK that are not going to be solved unless this government and its successors set a strategic direction and stick to it.”

Next to hers was an article by Janan Ganesh, dismissing (very stylishly) the whole thing as a bad idea: “The dread is that clamour for a New Economy — a more scientific, less London-centric Eden to justify the two-year slog of EU exit — will cause these interventions to grow from the fiddly to the invasive without gaining a jot in usefulness.” 

There are many reasons she’s right and he’s wrong, and some of them were set out at the launch by speakers including Carolyn Fairbairn, director general of the CBI, and Juergen Maier, UK CEO of Siemens. They include the obvious fact that governments do all kinds of things that affect the economy – education, training, standards, infrastructure, research funding – and they might as well be joined-up and strategic as not. There are lessons to learn from past mistakes, and there will be new mistakes. There will also be massive lobbying and – as Ganesh says – it’s important to make sure post-Brexit Britain has a tough competition policy to enable new entry into markets. But it’s lazy thinking to conclude “markets” should be left to get on with it. After all, that’s the approach since 1980 that has left us with productivity a quarter lower than France or the Netherlands.

Many of the more positive reasons are set out in a book I’ve been reading, Efficiency, Finance, and Varieties of Industrial Policy edited by Akbar Norman and Joseph Stiglitz. The opening chapter by Mario Cimoli and Giovanni Dosi makes very effectively the case that ‘industrial’ policy is more important in a knowledge economy than in an ‘industrial’ economy: the non-rival character of knowledge increases both the potential benefits of complementarities and network effects, and the extent of co-ordination problems. One of the interesting features of the book is that it covers policy in developing as well as developed economies, so introducing a wide range of discussion of institutions – one of the absolutely key issues in making a strategy to address co-ordination problems a success.

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Cities are the future!

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It’s been one of my obsessions for some years that the UK economy is damagingly, dangerously, London-centric. Well, the polity as well as the economy; I argue here in a new VoxEU e-book with my colleague Prof Rob Ford that the ‘anti-Brussels’ Brexit vote can be considered an anti-Whitehall and anti-Westminster vote. Anyway, for years I’ve been working with people in Greater Manchester to chip in my small contribution to the city devolution agenda. This has started to bear fruit in the city devolution agenda, given real momentum by George Osborne in his time as Chancellor, and continuing with the forthcoming election of a Greater Manchester mayor.

One of the people at the heart of Manchester’s long campaign for the devolution of economic power, and political accountability, is Mike Emmerich. Now running his own company (Metrodynamics), Mike spent 20 years in public service, latterly in Manchester, where he played a pivotal role in bringing about the devolution revolution. He has written a terrific book about this important moment in the life of the country’s cities – and the nation: Britain’s Cities, Britain’s Future. The book is the latest in my ‘Perspectives‘ series, so clearly I loved it enough to publish it, with my partners at LPP. Setting that aside, though, the next few years are going to be a challenging time for the UK as the government sets about getting the worst possible Brexit deal (or so it often seems).

Even without this impending upheaval – the UK’s economic record has been pretty dismal, our level of productivity stubbornly much, much lower than in the other big OECD economies, the regional disparities among the widest in Europe and a substantial ‘left behind’ population in terms of both income and geography. Whatever we’ve been doing in terms of economic policy hasn’t been a terrific success. Mike’s book makes a persuasive case for taking advantage of recent signs of urban renewal in the big cities outside London and ensuring that the momentum continues. He blogged about it here if you want a foretaste of the book.51cT3hSZocL._SX326_BO1,204,203,200_

 

Statistics vs truthiness

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I thoroughly enjoyed reading Howard Wainer’s Truth or Truthiness: Distinguishing Fact From Fiction By Learning to Think Like a Data Scientist. I even laughed out loud occasionally, as there’s a lot of wit on display here, and one gets a strong sense of Wainer’s personality. This is not usual in a book about statistics (although having said that, Angrist and Pischke also do quite well on the clarity and fun front, especially for econometricians.)

Truth or Truthiness a collection of essays in effect, published as a response to this brave new world of truthiness (ie. lies that people believe because they want to) in politics and public debate. Wainer writes very clearly about statistics in general, and his main theme here, causal inference. This is of course dear to the heart of economists, and gratifyingly Wainer recognises that the profession is more scrupulous than most disciplines about causation. The book starts by underlining the importance of having a clear counterfactual in mind and thinking – thinking! – about how it might be possible to estimate the size of any causal effect. As Wainer puts it, “The real world is hopelessly multivariate,” so untangling the causality is never going to happen without careful thought.

I also discovered that one aspect of something that’s bugged me since my thesis days – when I started disaggregating macro data – namely the pitfalls of aggregation, has a name elsewhere in the scholarly forest: “The ecological fallacy, in which apparent structure exists in grouped (eg average) data that disappaears or even reverses on the individual level.” It seems it’s a commonplace in statistics – here’s one clear explanation I found. Actually, I think the aggregation issues are more extensive in economics; for example I once heard Dave Giles do a brilliant lecture on how time aggregation can lead to spurious autocorrelation results.

Having said how much I enjoyed reading Truth or Truthiness, I’m not sure who it’s aimed at who isn’t already really interested in statistics. For newcomers to Wainer, I’d recommend his wonderful earlier books, Picturing the Uncertain World, and Graphical Discovery. They’re up there with Edward Tufte’s books on intelligent visualisation (rather than the decorative visualisation that’s become unfortunately common).

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