Author Archives: Diane Coyle

High-frequency bookselling

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The Financial Times has a lot for Amazon-watchers today. Part 1 of a series on its business, and a separate story about ‘robo-pricing’ by retailers on the Amazon platform. Increasingly, retailers are using algorithms similar to those used by high-frequency traders in the financial markets to adjust their prices dynamically – say, to stay $1 below a close competitor, or to wage a high-speed price war. According to the report:

“Last year, out-of-control algorithms inflated the price of [amazon_link id=”0632030488″ target=”_blank” ]The Making of a Fly[/amazon_link], a genetics book, to more than $23m, according to Michael Eisen, a biologist who blogged about it.”

[amazon_image id=”0632030488″ link=”true” target=”_blank” size=”medium” ]The Making of a Fly: The Genetics of Animal Design[/amazon_image]

There are evidently firms specialising in the development of online pricing algorithms – the story name-checks Feedvisor but no doubt there are others. (Imagine explaining to your mum what your job is if you work for a company which is “the leading fully automated repricing solution for e-commerce marketplaces.”)

Eisen’s blog post is interesting. He watched the pricing arms race over a number of days, and inferred that one of the sellers did not in fact have a copy of a book. This means that in effect, it was an options trader, and pricing accordingly. Not so much a bookseller as a book arbitrageur.

High-frequency trading in financial markets has some alarming results (I talked about these in my Tanner Lectures), creating a fundamental indeterminacy in prices and turning the markets from markets into something more like an online game. What are the implications of high-frequency bookselling? Maybe Yanis Varoufakis at Valve will have an answer. Meanwhile, although none of us can touch anything tangible in the financial markets any more, we can still pop out to a favourite bookstore and breathe in the scent of paper and ink, and coffee.

Daunts in Marylebone High Street

 

More Inferno than Paradiso

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Bill Emmott’s new book [amazon_link id=”B008F86HBK” target=”_blank” ]Good Italy, Bad Italy: Why Italy Must Conquer Its Demons to Face the Future[/amazon_link] is a depressing read, and I’m not Italian. But I do appreciate better now why there are so many terrific Italian economists and other professionals working in London. One of my Italian friends, now well into what he intends to be a lifetime career in the UK, last night confirmed to me one of the claims in the book: appointment to jobs in Italy depends wholly on personal connections. Merit counts for nothing. While there are some good universities, most are poor quality because there is no return to having a good degree. Mediocrity and opportunism abound, not only in the south. Not only is the illegal economy worth 20-25% of GDP, there is widespread acceptance of “what needs to be paid, to whom and for what, almost as if a catalogue or guidebook had been drawn up.” (p47)

[amazon_image id=”B008F86HBK” link=”true” target=”_blank” size=”medium” ]Good Italy, Bad Italy[/amazon_image]

Emmott cites some terrifying figures. At a Fiat plant near Naples – one with reformed working practices despite the opposition of the national unions – 5,200 employees produced 36,000 cars in 2009, whereas 6,100 employees in Poland produce 600,000 cars a year, and 9,400 workers in Fiat’s Brazilian plant produce 730,000 cars a year. Not surprisingly, hearing about productivity under-performance on that operatic scale, Italy ranked 167th out of 179 countries in its average annual change in GDP per capita from 2001-2010, declining by almost half a percent a year. There was a worse performance only from countries like Haiti and Zimbabwe.

There’s a bit of a puzzle in this – anybody who travels to Italy will appreciate the quality of life and the affluence of at least the parts a tourist or business visitor sees. Last month I was in Trento, right in the north, where local government clearly functions well, civic life is vibrant, the people are affluent and the food is outstanding. The answer to the puzzle seems to lie partly in the high level of savings of older Italians, which they are now being forced to spend supporting the younger generation.

The book looks for specifically Italian reasons for slow growth and dismal productivity. Emmott argues that adverse demographic change and the financial crisis have been affecting many countries. Although true, this underplays Italy’s unusually rapid population ageing and shrinking – the central UN (‘medium fertility) estimate has the population 25% smaller than in 2000 by 2050. But there are plenty of special factors. Among them, as well as the clientilism described above, labour laws that discourage any business from hiring more than a handful of employees, a catastrophically slow judicial system, and the pervasive presence of organised crime.

I would have called this book, Bad Italy, Bad Italy. It is a business version of [amazon_link id=”057123593X” target=”_blank” ]The Dark Heart of Italy[/amazon_link] by Tobias Jones. Emmott tries valiantly to be positive, describing the achievements of the municipality of Turin in encouraging business, the Slow Food movement, and the brave Addiopizzo movement to resist extortion by the criminal enterprises that have carved up the country. But each anecdote – say, about a plucky little manufacturing firm managing to lead the world in some niche product even though the owner has had to have a carabiniere escort for refusing to pay protection money – only highlights the wider economic and cultural catastrophe. When NATO forces invaded Afghanistan, I heard a commentator on the radio say: “You’ve heard of state-sponsored terrorism, but this is a terrorist-sponsored state.” To read the courageous Roberto Saviano’s first book [amazon_link id=”0330450999″ target=”_blank” ]Gomorrah[/amazon_link] or his new book of essays, [amazon_link id=”0857050109″ target=”_blank” ]Beauty and the Inferno[/amazon_link], is to understand the the description could be applied to Italy without much exaggeration.

Bill Emmott’s book is a compelling read, a tour of Italy’s economic and business landscape by a thoroughly knowledgeable Virgil. He concludes that under Mario Monti’s technocratic government, trying to implement reforms, Italy’s future lies in the balance, in Purgatorio if you like. At the risk of offending Italian readers, by the time I got to the end, I thought that was far too optimistic a conclusion.

More Inferno than Paradiso

Information rules, ok!

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I had occasion to look up something in [amazon_link id=”087584863X” target=”_blank” ]Information Rules: A Strategic Guide to the Network Economy[/amazon_link], the 1999 book by Carl Shapiro and Hal Varian. It was the first, and is still the best, book about how the internet changes the economic basis of business models. It ranges from price-setting to rights management to standards to positive feedback effects. Anyone involved in business strategy, in any business, should read it.

Of course, there are areas that loom larger now than they did then. Online copying is one of them. People in the music or movie industries will consider the authors complacent about the capacity of legal authorities to clamp down on ‘bitlegging’ (great word). However, the book has wise advice:

“It’s easy to see the threats inherent in the new media; it’s hard to see the promise. The key issue is how to exploit the economies of scale. …. We think the natural tendency is for producers to worry too much about protecting their intellectual property. The important thing is to maximise the value of your intellectual property, not to protect it for the sake of protection.” (p97)

Some loss should be regarded as a cost of business, like depreciation, they argue. I’m sure the producers would reply that the scale of copying is way beyond reasonable. But they should still read this and ponder.

[amazon_image id=”087584863X” link=”true” target=”_blank” size=”medium” ]Information Rules: A Strategic Guide to the Network Economy[/amazon_image]

Seen on the Tube

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Who said physical books are on their way out? This was the scene on the Hammersmith and City line on Wednesday.

I was reading Bill Emmott’s [amazon_link id=”0300186304″ target=”_blank” ]Good Italy, Bad Italy[/amazon_link]. My neighbour was reading [amazon_link id=”1903436338″ target=”_blank” ]King Richard II[/amazon_link], no doubt having just seen the superlative version shown in The Hollow Crown on BBC2 last week. Across the way, inevitably, a young man had a [amazon_link id=”B004GJXQ20″ target=”_blank” ]George Martin[/amazon_link] doorstop (although, as someone pointed out on Twitter, Shakespeare’s history plays are the original Game of Thrones). There was someone with a beaten up old copy of Nick Hornby’s [amazon_link id=”0140293469″ target=”_blank” ]High Fidelity[/amazon_link], and a serious looking chap with the paperback of [amazon_link id=”0141033576″ target=”_blank” ]Thinking, Fast and Slow[/amazon_link] by Daniel Kahneman.

[amazon_image id=”0300186304″ link=”true” target=”_blank” size=”medium” ]Good Italy, Bad Italy: Why Italy Must Conquer Its Demons to Face the Future[/amazon_image]

There were, of course, a few Kindles to be seen. I now always assume that their owners are reading Fifty Shades of Grey.

Was Alan Greenspan a founding member of ‘Occupy’?

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This morning, through one of those chains of mental connections that would take too long to explain, I picked up Alan Greenspan’s 2007 book [amazon_link id=”0713999829″ target=”_blank” ]The Age of Turbulence[/amazon_link]. I was expecting to mock his triumphalism and complacency, not having read it since it was published. It was a surprise to find, along with a confidence about the lasting effects of new technologies on productivity growth, a real sense of the fragility of the globalized, financialised economy of which he had been an important architect:

“The impact that fixing our school system would have on our future level of economic activity may not be easy to measure, but unless we do so and begin to reverse a quarter century of increases in income inequality, the cultural ties that bond our society could become undone. Disaffection, breakdowns of authority, even large-scale violence could ensue.” (Extraordinary, this one – Alan Greenspan as a founder member of the Occupy movement!)

“The dysfunctional state of American Politics does not give me great confidence.”

“History has not dealt kindly with the aftermath of protracted periods of low-risk premiums….. Value is what people perceive it to be. Hence liquidity can come and go with the appearance of a new idea or fear.” … A financial crisis was “brewing”, he wrote.

“Markets have become too huge, complex and fast-moving to be subject to 20th century supervision and regulation…. For over 18 years my Board colleagues and I presided over much of this process at the Fed. Only belatedly did I … come to realize that the power to regulate administratively was fading.”

His conclusion remained, in mid-2007, that markets would therefore best be left to regulate themselves. The overall tone of the book is very firmly that of the Alan Greenspan we all have in mind – pro-market and anti-intervention, optimistic about globalisation and technology, far more concerned about inflation than deflation. But reading the introduction and conclusions again with the benefit of hindsight, those notes of caution are intriguing.

[amazon_image id=”0713999829″ link=”true” target=”_blank” size=”medium” ]The Age of Turbulence: Adventures in a New World[/amazon_image]