There's an interesting interview with James Gleick (by John Naughton, @jjn1) in today's Observer. It's about Gleick's new book, The Information: A History, A Theory, A Flood. (John has also added a blog post following up the article.) He describes Gleick's book like this: “It's a learned, discursive, sometimes wayward exploration of a very
complicated subject.”

I can hardly wait to read it. Information has fascinated me since I started to write about the economics of information and communications technologies, back in the mid-1990s. There are surprisingly few accessible books on the subject, however, and as I'm no information scientist I need the pop approach. Besides, Gleick is the author of one of my favourite pop science books of all time, Chaos: Making A New Science (1987). This is from the intro:

“[I]n the 1970s a few scientists in the United States and Europe
began to find a way through disorder. They were mathematicians,
physicists,
biologists, chemists, all seeking connections between different
kinds of
irregularity. Physiologists found a surprising order in the chaos
that develops
in the human heart, the prime cause of sudden, unexplained death.
Ecologists
explored the rise and fall of gypsy moth populations. Economists
dug out
old stock price data and tried a new kind of analysis. The
insights that
emerged led directly into the natural world—the shapes of
clouds, the paths
of lightning, the microscopic intertwining of blood vessels, the
galactic
clustering of stars.

“Now that science is looking, chaos seems to be everywhere.”

In fact, I should have added it to yesterday's post on complexity and chaos in economics. That John Naughton should have reminded me of it this morning is one of those lovely bits of life's serendipity.

The marvellous thing about picking an old book off the shelf is that when you track it down, its neighbour says, 'Me too!' So it was that today I started leafing through Paul Krugman's 1996 book The Self-Organizing Economy. I'd forgotten what a superb introduction it is to the application of the non-linear dynamics of emergent order. The book applies the concept of self-organizing systems to urban economies and to business cycles, delivered with his usual clarity.

Having read this when it was published, and Thomas Schelling's Micromotives and Macrobehavior, and Paul Ormerod's 1998 Butterfly Economics, and  Barabasi's (2002) Linked on network theory, the more recent and fashionable literature borrowing from similar models in evolutionary biology and physics have all seemed pretty familiar.

Most economists I know are intrigued and excited about these related non-linear models, but remain unsure about their practical utility, so what's actually needed now are some more applications to actual economic phenomena. Here, though, is one online demonstration of Schelling's segregation model, which is as real life as can be.

I'm looking forward to being able to post a guest review soon of Timothy Wu's acclaimed new book about prospects for a free internet, The Master Switch. His argument is that with previous generations of new communications technologies, big business sews up the market after a period of tremendous competition and innovation. (There was a very informative review in The Guardian last weekend by John Naughton.) I'm also looking forward to reading it myself, market structure being one of my favourite subjects.

Meanwhile, I pulled off the shelf a past (2003) classic on this subject, The Evolution of New Markets by the late Paul Geroski. Paul was chairman of the Competition Commission when I was a member of it, and was one of the most brilliant applied economists it has ever been my privilege to work with. (His friend and colleague Saul Estrin wrote this obituary in The Independent.)

The Evolution of New Markets covers in 200 pages all of the basic economics of dynamic new technology markets with large economies of scale, network effects, disruptive innovations, lock-in etc etc. His conclusions don't conflict with what I understand Wu to be arguing – big corporations always do what big corporations do – but Geroski is an optimist about the scope for disruptive new technologies to overturn incumbents time and time again.

The other classic is Varian and Shapiro's Information Rules, well over a decade old (1998) and still highly relevant.

Competition economics still has a long way to go in understanding the dynamics of technology markets – what does effective competition mean in two-sided markets with network effects? If disruptive entry is so important, what are the important barriers to entry, including regulatory barriers? How should consumer welfare be assessed in a dynamic way, and what's the relevant time horizon? Fascinating stuff. It's what I would be studying if I had my student days over again.

Recently I reviewed for The Independent David Erdal's book about employee ownership, Beyond the Corporation: Humanity Working. It was a positive review, welcoming the suggestion that more businesses should be run as employee-owned. However, I made two criticisms. One was that Erdal attacks economics in an ill-informed way, which just gets tiresome. The other was that the book doesn't address the reason for the absence of more employee-owned businesses even now – its examples are the same as in every book and article on the subject, John Lewis and the Mondragon co-operative.

These mild criticisms have annoyed an email correspondent, Hugh Donnelly of the Co-operative Educational Trust Scotland. He wrote:

[W]hilst I can live with your response that much of the problem is with self interested, corrupt postulations of perfect competition rather than the economic model per se (although I would still contend that it does not approximate the real world too often) I would have to take issue with the hoary old chestnut of why there aren’t more EO companies.  If we don’t educate people, if we don’t explain there are alternatives and don’t offer choices then why would there be.  Furthermore, the whole legal and financial system developed around the joint stock model makes it much more difficult to create and sustain a collective model of enterprise.
 
Part of what we are trying to do at CETS is to try to ensure that anyone spending 20 years in our education system (primary to MBA) is offered these options.  They might not all go for it but at least they should have the information necessary to make rational choices.  Something our business schools do not currently offer.

I don't accept that lack of education can be the main problem. John Lewis is a large and well-known company. Social enterprises have developed as a widespread phenomenon in recent years despite not being promoted in special courses. I don't know the legal position on employee ownership currently but there have been times when governments (Mrs Thatcher's was one) went out of their way to legislate in order to encourage it. Similarly, the law permits mutuals and credit unions, but they are few in number. So I continue to believe advocates of employee ownership need to offer an explanation.

Back to you, Hugh?

There has been a spate of very good books about economic development recently, and here is another. It's a sign of the subject's increasing maturity, founded on better data, experimental methods, and also the intellectual space for debate created by the end of the Cold War – whose chill grip had previously made discussions about development inescapably ideological. There are certainly still strong disagreements between economists, and they probably even correspond to a left-right political divide, but hypotheses are now tested rather than only asserted.

More Than Good Intentions: How a new economics is helping to solve global poverty by Dean Karlan and Jacob Appel is a tremendous addition to this burgeoning literature. The book draws from its authors' experiences in implementing a variety of schemes in developing countries, many of them in microfinance. Out of the school of experimental methods and behavioural economics centred on MIT's Jameel Poverty Action Lab, they have applied randomized control trials – analogous to the gold standard method for testing new medicines – to see which structures of loans or savings accounts or other potentially poverty-reducing intervention achieve their aims. (The recent forum in the Boston Review on experimental and behavioural economics in the field of development, with a lead essay by Rachel Glennester and Michael Kremer, makes for fascinating reading about the methodological approach.)

They also make the powerful point that it isn't enough for economists or aid workers to think up an effective scheme. The people the scheme is supposed to be helping have to take part – all too often, participation is low. This is where the behavioural 'nudges' (or marketing techniques, as we used to call them) come in.

I knew I was going to like this book when it referenced one of my favourites, Portfolios of the Poor, which describes actual financial needs through diaries kept by people in Bangladesh and South Africa. Karlan and Appel are equally clear-eyed about real rather than supposed needs – they note that borrowers can be satisfied with high APRs on loans because they need a small amount of money for a small time. The local moneylender might look usurious but is serving their need better than a microcredit organisation with rules about group meetings and loans much larger than actually needed.

Similarly, just as few people in poor countries as in rich ones are natural entrepreneurs, and many micro-entrepreneurs would prefer a job to their informal self-employment; so the focus of microcredit on entrepreneurship is largely romanticism – people might actually want loans for the equally valid purpose of buying a household implement. They conclude firmly that microfinance needs a rethink. Their willingness to challenge conventional wisdom is a welcome sign of the progress made in development economics.

I wasn't crazy about the style of the book – although admirably clear, it overdoes the chattiness for my taste. Still, it's an absolutely essential read for development economists and aid practitioners. It joins a growing list of very high calibre titles and would be worth reading alongside Charles Kenny's deliberately upbeat Getting Better to get a good flavour of the exciting potential for real contributions to improving the quality of life of people in poor countries.