The departure of Steve Jobs from day-to-day control at Apple has prompted a debate about whether the company can continue to create such beautiful, innovative products that reshape how we spend our lives. There are two possible answers to this question, pretty equally reflected in the debate. While I hope the answer is ‘yes’, I fear it is ‘no’.

The reason is to be found in a wonderful book by William Baumol, published in 2002. In [amazon_link id=”069111630X” target=”_blank” ]The Free Market Innovation Machine[/amazon_link], he documents the existence of two types of innovation, the incremental and the dramatic. Most innovation is the former type. It is carried out mainly by big corporations, which make successive improvements to their products. Radical innovation is rarer – it changes the world and is usually carried out by entrepreneurial, smaller firms.

The book describes the market dynamic this pattern sets in play – and it applies especially to high-tech firms, Baumol says. “For oligopoly firms in the high-tech sectors of the economy, it [innovation] is in fact a matter of survival. The firm that lets its rivals outperform it substantially in innovative products and processes is faced with the prospect of imminent demise. The firm must innovate or die.” But because it is hard for a big company to think in radically innovative ways – large corporations don’t employ or listen to mavericks very often –  many instead turn to trying to protect their market position by creating barriers to entry, to try to prevent the arrival of a new upstart whose radical innovation could topple them from their dominant position.

Apple was actually lucky in losing Steve Jobs for a while. His return gave it another turn at being the radical incomer. However, it is now the high-tech titan. Baumol’s account makes me think the industry dynamic he describes so convincingly will come into play here. Timothy Wu’s terrific book [amazon_link id=”B004DUMW4A” target=”_blank” ]The Master Switch[/amazon_link], which is about the ebb and flow of market power in communications industries, might point to the same conclusion.

[amazon_image id=”069111630X” link=”true” target=”_blank” size=”medium” ]The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism[/amazon_image]

A damp and dreary London morning (well, it is the height of summer) has been cheered by reading an advance copy of the [amazon_link id=”0809033615″ target=”_blank” ]second, macroeconomics, volume of The Cartoon Introduction to Economics [/amazon_link]by Grady Klein and Yoram Bauman. The book will be published in January in time for stand-up economist Bauman to take part in the now-traditional humour session at the annual meeting of the American Economic Association. Let it not be said that economists don’t know how to have a good time. In fact, there are several websites of jokes about economics (eg this and this), although it must be said that most of the jokes were around when I was a student a Very Long Time Ago. More recently, the Hayek-Keynes raps are incredibly witty and give a fantastically clear idea of the issues at debate, with the lightest of touches.

[amazon_link id=”0809094819″ target=”_blank” ]Volume 1[/amazon_link] of the Cartoon Introduction covered microeconomics. Both books similarly serve as a very good, deft introduction to the subject, suitable for pupils/students and also partners who from time to time wonder what it is you actually do as an economist. Besides, illustrator Grady Klein has a thing about bears and I love them.

[amazon_image id=”0809033615″ link=”true” target=”_blank” size=”medium” ]The Cartoon Intro to Economics: Vol 2: Volume Two: Macroeconomics[/amazon_image]

In 1930 Keynes wrote an essay titled ‘The Great Slump of 1930′ which set out an early account of the way an economy can be trapped in a vicious spiral of depression. It’s one of the collection in his [amazon_link id=”0230249574″ target=”_blank” ]Essays in Persuasion[/amazon_link]. It bears re-reading. Unlike The General Theory, or indeed a 1931 talk for the BBC, the emphasis here is on lending and investment rather than saving and consumption. The essay starts and ends by noting that, for all the dark clouds currently looming over the economy, “The resources of nature and men’s devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording everyone a high standard of life.”

The problem, he argues, is a mismatch in credit markets. Firms are cautious and therefore less willing to borrow in order to invest in capital goods. Banks require a risk premium so high as to charge interest rates the deter borrowing still more. This wedge, Keynes argues, has become wider than in a normal business cycle but can be closed by central bank intervention. He would have approved in principle of Quantitative Easing, but not with its actual effect which has been to subsidise bankers’ bonuses rather than the rates they charge to their borrowers.

But perhaps the key message of the essay is the underlying optimism. There are still amazing innovations just waiting for real capitalists – as opposed to financiers – to invest in them.

[amazon_image id=”0230249574″ link=”true” target=”_blank” size=”medium” ]Essays in Persuasion[/amazon_image]

A guest review of [amazon_link id=”1847921116″ target=”_blank” ]Fuel on the Fire: Oil and Politics in the Occupied Iraq[/amazon_link] by Gregg Muttitt

Ever since British and American missiles planes started bombing Iraq in March 2003, critics of the conflict have insisted that the West’s thirst for oil was one of the – if not the – key motivation.

But the case has never been proven. Other explanations such as the Bush family’s unfinished business from the first Gulf War, claims of a connection between Saddam Hussein and the 9/11 attacks, and most notoriously the allegations that Iraq had weapons of mass destruction, have all been aired. But as these and other rationales have been disproved or crumbled, the link between the war and Iraq’s vast oil reserves has seemed ever more convincing.

Greg Muttitt’s book, which is a thorough examination of the politics leading up to the 2003 Iraqi conflict and its deadly aftermath, is the closest anyone has got to nailing the truth. At the heart of the book lie hundreds of previously unreleased British and American documents that throw a harsh light on the dealings between government and Big Oil in the months leading up to the war.

In particular there are memos obtained under the Freedom of Information Act – after a five-year battle – of meetings between executives from BP and Shell trade minister Baroness Symons and senior Foreign Office officials. The depth of the research – the footnotes and index take up 80 pages– means that the book will be vital source material for historians over the coming decades. The memos, which were revealed in a front page story in The Independent earlier this year, showed the British government was working to ensure UK oil companies got a “fair slice of the action” in a post-Saddam Iraq as early as October 2002.

The sheer volume of evidence – from Pentagon emails, government memos, draft oil company press releases, interviews with key protagonists and selection of press articles and books from around the world – builds a wholly convincing picture of the role oil played in the war.

Defenders of the project may say, as the British Government has done, that the material shows only that the parties were simply considering the commercial implications of geopolitical events, rather than allowing them to determine policy. Where that argument is most effectively undermined is in the excellent description of the collusion between oilmen, politicians and bureaucrats in occupied Iraq. The book shows in detail how the Coalition Provisional Authority drove an agenda of privatisation and awards of 20-year contracts for 60 billion barrels of oil production to foreign multinationals in the face of Iraqi opposition.

Worse than that, however, was the insistence by the CPA of enforcing sectarian divisions that the book shows were not a dominant feature of Iraqi life until after the invasion. This first-hand exchange is typical. UN official: “What’s your religion?” Iraqi: “Muslim.” “Are you Shi’a or Sunni? “Just Muslim.” “Look, I have to write something on this form: shall I put Shi’a?” While not going as far as to stating that this was a strategy, Muttitt asks reasonably whether a united populist government would have forced an end to the occupation, noting that was never likely while Shi’a, Sunni and Kurd were at each others’ throats.

Muttitt describes the history of the region and of British and American petrochemical companies’ dealings, which predate not only Saddam Hussein, but the founding of Iraq itself. He shows how the Allied powers and their national companies divided up the oil rights in post-WWI Mesopotamia. Muttitt notes wryly: “The sequence of events will be familiar to those who have followed events since the 2003 war.”

But what makes this book such a compelling case for the oil theory behind the war is that Muttitt understands that what was – and still is – at stake is not just extracting a barrel or two of extra oil out of the ground. The value lies in the long-term right to extract from an oil field. “The real prize is not a shipload but a piece of paper,” Muttitt writes. “Yes, oil was one of the main reasons for the war,” the former head of the Iraqi oil ministry tells him. “But it’s not as simple as that…it’s much more complex.”

Yet despite the unremitting gloom and doom of the first 430 pages, Muttitt signs off on a note of optimism for a country and a people that he has clearly grown fond of. He believes that what he describes as “the Iraqi soul” will ensure that the people do not allow themselves to be trampled underfoot once the Americans finally leave. His hope is that oil can be a source of unifying strength for the Iraqi people as it has hitherto been a divisive one for politicians.

[amazon_image id=”1847921116″ link=”true” target=”_blank” size=”medium” ]Fuel on the Fire: Oil and Politics in Occupied Iraq[/amazon_image]

The reviewer was Economics Correspondent for The Independent between 1999 and 2007

Through one of those chains of thoughts that sometimes send one from book to book, I ended up browsing through Tony Judt’s magnificent [amazon_link id=”009954203X” target=”_blank” ]Postwar: A History of Europe Since 1945[/amazon_link] over my second cup of coffee this morning. Looking for his take on post-war austerity, I ended up instead in the 1970s and its crisis of capitalism. And here (p462 in my 2007 UK paperback) is this passage:

“The greatest beneficiaries of the modern welfare state… were the middle classes. When the post-war system started to unravel in the 1970s it was those same middle classes who felt not so much threatened as cheated: by inflation, by tax-financed subsidies to failing industries and by the reduction or elimination of public services to meet budgetary and monetary constraints. As in the past, the redistributive impact of inflation, made worse by the endemic high taxation of the modern service state, was most severely felt by citizens of the middling sort. It was the middle classes, too, who were most disturbed by the issue of ‘ungovernability’….”

And, he continues, politicians appeared to have lost all capacity to do anything, as the world financial system unravelled.

An reminder of the extraordinary similarities between the last major crisis of capitalism and the present one – the main difference being that the failing industry now soaking up those tax-financed subsidies is banking, rather than steel and coal. On a little reflection, though, every crisis squeezes the middling sort, those with something to lose but not so much that they needn’t really worry. The same was true in the 1930s. Marx of course claimed that: [amazon_link id=”0140447571″ target=”_blank” ]”The history of all hitherto existing society is the history of class struggles.”[/amazon_link] But he wrote that at exactly the point when history was becoming the history of middle-class struggle.

[amazon_image id=”009954203X” link=”true” target=”_blank” size=”medium” ]Postwar: A History of Europe Since 1945[/amazon_image]