Are you ready for the digital future?

Like so many people who enjoyed their previous book, The Second Machine Age by Andrew McAfee and Erik Brynjolfsson, I was excited by the prospect of their latest, Machine, Platform, Crowd: Harnessing Our Digital Future. It’s an interesting and enjoyable book too, but not aimed at readers like me who have long followed their work and the wider literature. Rather, Machine, Platform, Crowd is aimed at the general business audience, and each chapter ends both with a bullet-point chapter summary and with a section of questions for people to think about in the context of their own business and organisations. For example, “What is your machine learning strategy? How far along are you in bringing machine learninginto your ogranization?” or “How and how much are you using the crowd?” or “Are there new ways to use technology for decentralization in your industry that don’t necessarily involve markets?”

The framework of the book is a ‘triple revolution’: ‘machine’ refers to the AI and ML revolution; ‘platform’ is self-explanatory; ‘crowd’ is the growing role of open source, crowdsourcing etc. The argument is that each is in a changing relationship with a counterpart – respectively, the human mind, products, and the ‘core’ or internal expertise and capabilities of organisations. The three sections of the book explore each relationship, mind-machine, product-platform, core-crowd, in turn.

There are lots of nice examples and anecdotes. I loved the literal ‘paperwork mine’, and underground repository of paper records on US Federal Government retirees in a former limestone mine. Completing the paperwork takes the same length of time now as in 1977 (61 days), while the state of Texas, which has digitized its processes, takes 2 days. I think the book will do very well, and is head and shoulders above the typical run of business ‘how to’ books. So I still think Shapiro and Varian’s (1998) Information Rules remains the best single book on the implications of digital technology for business, but ‘MPC’ is a worthy update for the next stage of the digital technologies .

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My life in books?

In case anyone is interested in my wider reading habits, I did an interview with the website The Reading Lists. It isn’t all economics (although mostly….)

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Responsibility

The Grenfell Tower disaster has shaken Britain. It has exposed as damaging pretence the idea that housing can be left to the ‘free market’, and put the spotlight on one of the many dimensions of social and economic inequalities that are stretched beyond the tolerable.

I’ve been in several conversations about who to blame and how to hold them responsible. No doubt there will be many lawsuits and perhaps criminal charges. I know little about the law, but the discussions sent me back to a wonderful book, Louis Menand’s (2001) The Metaphysical Club. It features the four founding fathers of Pragmatism, Charles Peirce, William James, John Dewey and Oliver Wendell Holmes. There is a section on the concept of tort liability and how US liability law evolved alongside the rapidly industrialising American economy. It’s a very thought-provoking read on the issues and the interaction of the law, social trends, and ethics.

The book is anyway a brilliant intellectual history, and beautifully written.

As for the disaster, justice is vital, but so is action. Britain’s housing policies from building regulations to taxation, and planning rules to housebuilding, must change. National and local politicians are the people responsible for making sure it happens.

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Performing (economic) miracles

The metaphor ‘economic miracles’ as applied to the few once-poor countries that have achieved a trajectory of catch-up growth is revealing: these growth dynamics are spectacular, but happen very rarely. In their terrific new book, Beating the Odds: Jump-Starting Developing Countries, Justin Yifu Lin and Célestin Monga give the best overview account I’ve read of how countries might begin to achieve the lift-off from poverty trajectory, and an outline of how in practical terms governments might go about it. And although directed at poor countries, their analysis is more general.

The book points out that mainstream thinking is both impractical and factually wrong. Impractical because, given the emphasis on institutions now, the advice is often: “Be more like Denmark.” Sure, that would be marvellous. Incorrect, because the examples we have of countries reaching escape velocity for the most part did not have the fine, transparent and effective institutions or high-quality infrastructure now usually recommended as preconditions.

One of the platitudes they attack is that corruption or at least bad governance is the main barrier holding back poor countries. Rich countries have corruption scandals too, they point out. Are these less severe than in poor countries? They ask whether the role of money in US elections or corporate lobbying in the west is really ‘less corrupt’. Is the expected 20% tip everywhere in the US different from the expectation in say India that one will make payments to all kinds of people – in both cases, people not earning very much can’t afford not to expect the tip.

So if not western-style institutions or education or infrastructure, what does lead to growth? The book answers: “Sustained growth takes place because of continuous technological upgrading, institutional innovation and structural change.” At the heart of the process is an evolving set of factor endowments. Poor countries must start from the reality of labour intensive resources, and must focus on using what they have; it’s all about (latent) comparative advantage. The factor endowments will change over time, and hence the need for changing institutions and adopting additional technologies. All countries are different: there is no standard, abstract model. High-profile failed ‘big push’ efforts typically ignored the reality of factor endowments – this includes examples such as Zaire’s (DRC) attempt to start up an auto industry in the 1970s, or Indonesia’s bid to enter the shipbuilding market, when neither had the capital or the skills to produce these goods, nor high enough incomes for a domestic market to grow.  Successful ‘miracles’ start with what they have, continuously diversify, and identify and encourage agglomeration economies.

The authors are firm advocates of strategic industrial policies, in the sense of continual upgrading of hard and soft (legal, financial, educational) infrastructures to suit the changing needs of the private sector, the goods and services it produces and the markets it serves. “Clearly, individual firms cannot internalise all these changes cost effectively, and spontaneous co-ordination among firms to meet these new challenges is often impossible. … For this reason, it falls to the government either to introduce such changes or to co-ordinate them proactively. This essential piece of the growth and development puzzle has been missing in the standard model and the traditional development policy framework.” The government also needs to provide information (about say technologies, management techniques and markets) and provide initial human capital (training): “The social value to the economy as a whole of the first movers’ investments is usually much larger than their value to specific firms.” Finally, governments may need to attract FDI or incubate new activities, “to overcome deficits in social capital and other intangible constraints.”

These roles for active government policy are surely valid – and as much for the UK as for a low income economy. The authors are deeply sceptical about the value of (much) foreign aid and especially the multiple conditionalities attached.

In short, “Modern economic growth is a process of continuous structural changes in industry and technology and in political and socioeconomic institutions.” This is as true now as it has been everywhere since the late 18th century. As the book points out, this is not a radical new idea – it quotes Simon Kuznets saying so in 1966, and indeed economists from Marx and Schumpeter to Robert Solow and Joseph Stiglitz have made essentially the same point. Somehow, though, by the time the official aid organisations get involved, the policy advice has been bowdlerised into a standard set of impossible conditions, not recognising how counter-productive these can be in a second-best world.

Elsewhere, the authors have developed a more practical toolkit (the GIFF, growth identification and facilitation framework) for governments to identify their economies’ specific endowments and niches. The downside of recognising the importance of context is that one cannot sum up an economic development programme in ten universal bullet points. In general terms, the book supports export zones and infrastructure investment, and mitigating rent-seeking through exposure to the sunlight of foreign competition as well as political leadership.

The book ends with The Conference of the Birds: thousands of birds embark on a long and perilous journey but only 30 make it the whole way. When they reach their destination, they find the mythical king they were looking for is a reflection of themselves. Achieving successful development cannot start with a list of mythical missing ingredients as preconditions. Development economists and donors have been wrong to insist on an ideal model, Lin and Monga argue – and they are no keener on the latest development economics fashion for experiments and RCTs, as these ask micro questions and get micro answers; they cannot address the need for structural transformation. The bottom line is pragmatism, and the willingness to embark on the long and perilous journey, like the brave handful of birds in the 12th century Persian story.

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Gloom and doom

There was a letter in the Financial Times this week that caught my mood on the day. It cited an excellent book, Joseph Tainter’s The Collapse of Complex Societies, summarizing its argument about populist situations like this: “This was characterised by dislike of the elites and their institutions and indifference to the fate of society if it came under attack (as with the Roman empire). Another feature was the inability of national treasuries to fund essential infrastructural maintenance and improvement or to raise significant additional revenue without taxing the less well off more heavily or reducing their benefits such as subsidised food.” The letter was of course drawing parallels with Trumpism and Brexitism.

Tainter’s book often comes to mind – as in this 2014 post, The Unsustainable is Never Sustained. To the extent we have any agency, the choice is about how things turn out to be not sustained. I do find myself tending to gloom these days. Every time I peep from behind the sofa at the news, there is fresh horror, like Trump’s gangsterism against the Morning Joe journalists this week, or the thousands of people rescued from the Med (and who knows how many not rescued).

The FT letter emphasizes the economic strains that lead to collapse. Jared Diamond’s work Guns, Germs and Steel, and especially Collapse emphasize environmental pressures. Check, we have that too. Charts of polar ice melt are even scarier than the news bulletins.

To cap it all, I read Cixin Liu’s excellent SF novel The Three Body Problem this week. The collapse of civilisation is only a matter of time…..

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