Author Archives: Diane Coyle

The joy of (economic) geography

Posted on by

I once met the late Doreen Massey, before knowing who she was. It was after the publication of my first book, The Weightless World (intangibles avant la lettre), which she had read and had interesting questions about. It was therefore long before I had anything to do with the academic world. I was a nobody, in other words, and she a highly respected economic geographer. She was open minded enough, and kind enough, nevertheless to have read my book and been willing to talk to me about it.

She died in 2016 and two recent books honour her work. One is the Doreen Massey Reader (editors Brett Christophers, Rebecca Lave, Jamie Peck and Marion Werner) and Doreen Massey: Critical Dialogues (same editors, different priority ordering). I’ve read most of the former and  dipped into the latter. The first thing to note about them is that they reflect the energy in economic geography these days, indeed often far more energy about major economic issues than you find in some economics departments. Massey is one of the people who has made a major contribution to the intellectual strength and curiosity in the discipline.

Now, as I’m not a geographer but an economist, most of the cited literature is unfamiliar, and the language can be a bit of a struggle. So it’s with diffidence that I comment on these books at all. Most interesting to me is the section in the Reader on regional economies, a subject far too much overlooked in mainstream economics, given the regional inequalities in all major western economies including London-centric UK.

For example, in a 1973 essay on industrial location theory Massey pointed out the inadequacy of an economics discipline that was then – certainly pre-Krugman and the revival in economics of economic geography – both (comparative) static and a-spatial. As she noted, it’s hard to understand industrial concentration in space if (a) you ignore location and (b) you’re not interested in dynamic forces. Agglomeration economics – which now dominates this area of research in econ – is, she argues, a narrow lens on the question. If the focus is on the firm’s decision to locate in a place where there are agglomeration externalities, it is all too easy to miss the system effects and the input-output system of the regional or local economy as a whole. The externalities are everything. This too is starting to percolate through business economics at least, in the shape of ‘ecosystems’. Massey got there a generation ago.

There is a lot to interest economists in these books, albeit most will find – as I did – that they are far more overtly political than is the norm in our discipline. No doubt the geographers would argue that economics is covertly political. Anyway, these books contain critiques of capitalism in general, whereas we make our critiques of capitalism specific. It certainly seems odd to criticize economics for being too abstract when critical disciplines such as this are equally so, only in words rather than algebra; there are abstract nouns galore in these two books.  Nevertheless, we economists should be concerned that some of the liveliest work on key economic issues is going on in geography departments. And maybe ‘agglomeration’ isn’t the only approach to issues of economic location?

All the more reason, perhaps, to be as open minded as this important, interdisciplinary scholar was herself.

A PS One of the editors, Brett Christophers, has a new book out soon about the privatisation of public land in Britain, The New Enclosure: The apprpriation of public land in neoliberal Britain. Despite the ‘neoliberal’ in the subtitle, it looks a must-read. His 2013 Banking Across Boundaries was a terrific analysis of the globalisation of finance and lifted the veil on the FISIM issue in the construction of GDP, since cited by me, and recently by Mariana Mazzucato.

[amazon_link asins=’1911116835′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’30975968-ca36-11e8-b466-0907355d8ffe’] [amazon_link asins=’191111686X’ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’355ea63f-ca36-11e8-a346-bd71f3c6c1dc’]

Making economic miracles

Posted on by

I’ve always really liked Michael Best’s 2001 book The New Competitive Advantage, and his latest, How Growth Really Happens: The Making of economic miracles through production, governance, and skills is a worthy successor. Best, who has vast experience of visiting businesses and learning in detail how they produce their goods and services, centres his account on the idea of a ‘capability triad’. Growth requires success in three linked domains: skills, a production system and a business model. Note how largely intangible these capabilities are – this is not a matter of investing in capital equipment or even inventing molecules or gadgets. Policies should aim at ensuring businesses can access or develop these capabilities, broadly understood, rather than taxes and subsidies.

The book has a number of examples, historical and more recent, illustrating the concepts, ranging from the wartime transformation of the US economy to modern Greater Boston’s reinvention to the present loss of production capabilities and skills in the US; from the UK’s postwar relative decline to Japan and China’s more recent experience.

There is also a chapter looking at the tradition of thinking about production systems and capabilities in the history of economic thought. Smith is there but also some names too often overlooked in modern economics: Charles Babbage; work on increasing returns models by Thomas Schelling and Paul Krugman, following in the footsteps of Alfred Marshall and Allyn Young (author of a 1928 article ‘Increasing Returns and Economic Progress’; and above all Edith Penrose. I knew too little about her work until a fine biography by Angela Penrose, No Ordinary Woman, sent me to it earlier this year. Given the obvious prevalence of increasing returns in modern economies, it’s high time to revisit this tradition.

The book ends with some reflections about the links between the productivity slowdown of the past 10 years and diminishing capabilities in the affected economies it mainly looks at the US here. Like a growing number of others (see for instance this article by Gregory Tassey), Best argues that the worst long-term consequence of offshoring has been the loss of know-how embedded in production systems and skills. The way to address this? A policy framework aimed at strategic economic development, something that has been lost from the vocabulary of policy for a generation, although tacitly recognised perhaps in the UK’s debates about an industrial strategy.

There’s a mass of interesting detail in the book – perhaps too much compared to the more reflective sections, but then the ideas do pick up on Best’s earlier work where there is much more on the conceptual framework. How Growth Really Happens is well worth a read, along with the earlier book – so much so it’s on the Enlightened Economist Prize 2018 longlist.

[amazon_link asins=’0691179255′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’0e553587-c6dc-11e8-ab99-f981b7e88680′]

Once upon a time in the British Economy

Posted on by

Managing the Economy, Managing the People: Narratives of Economic Life in Britain from Beveridge to Brexit by Jim Tomlinson is an interesting economic history of modern Britain. It appealed to me from the first page, where Tomlinson talks about the absence of a fixed meaning for the term ‘the economy’. The book therefore focuses: “[O]n the ways in which successive governments, in seeking to manage the economy, have sought simultaneously to manage popular understanding of economic issues.” In other words, to manage the economy is to tell a persuasive story about it – to have a narrative in other words.

[amazon_link asins=’0198786093′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’11d3f19d-c6db-11e8-9056-d1f811c67156′]

This is not, as many economists’ first instinct will tell them, woolly nonsense. It is because there are many possible self-fulfilling (or self-averting) outcomes, given the role of both expectations about the future and interactions between individuals. In different ways many fine economists are starting to incorporate such insights, from Roger Farmer in macroeconomics to Robert Shiller, George Akerlof and Dennis Snower, Kaushik Basu, and George Akerlof and Rachel Kranton.

Anyway, as Tomlinson points out, talking about the electorate misunderstanding economic reality is therefore missing the point that economic outcomes are to some degree always constructed (and besides, it backfires – people don’t like to be told they’re stupid and should listen to clever folk). The body of the book therefore traces the ebb and flow of these political and policy acts of construction, and the interplay of ideas, ideologies, and events. The first part considers some of the key narratives, broadly chronologically – “You’ve never had it so good,” “rolling back the state,” etc. The second part looks at the period through the lens of key macroeconomic indicators, and why some are more salient at specific times due to the way they feature in public debate.

An interesting conclusion considers two broader narratives’: the rise of neoliberalism; and deindustrialisation. Tomlinson argues that while academics (outside economics) focus on the former, the latter – having had a briefl flurry of scholarly interest in the late 1970s – is more significant in understanding the trajectory of people’s lives in postwar Britain. The book comes to a rather sudden halt, and it is by no means a vanilla economic history of Britain, but it’s a stimulating read.

 

Enlightened Economist 2018 Prize – longlist

Posted on by

It’s the time of year when I look back over the past 12 months of my reading and draw up a list of the 10 or so best from which to select the ultimate winner of the 2018 Enlightened Economist Prize. The rules are: any non-technical or accessible econ/business/tech book I read is eligible (it doesn’t have to have been published during the 12 months); my decision is final. The prize is the offer of an excellent celebratory lunch, for a living author, should the winner and I find ourselves in the same place.

This year’s longlist is long – I’ve read some wonderful books. In no particular order:

Exact Thinking in Demented Times – Karl Sigmund (my review here)

[amazon_link asins=’0465096956′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’fa609da4-c4c4-11e8-a704-cd4b47a07e9e’]

The Attention Merchants – Tim Wu (my review here)

[amazon_link asins=’1782394850′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’020feeb1-c4c5-11e8-a55f-2d2a84e6017d’]

No Ordinary Woman – Angela Penrose (my review here)

[amazon_link asins=’0198753942′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’0a2d6a65-c4c5-11e8-a701-e97a65a61ae8′]

Twitter and Tear Gas – Zeynep Tufekci (my review here)

[amazon_link asins=’B06XR259MG’ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’1285cc6b-c4c5-11e8-9db0-c76ddb6ea1db’]

A University Education – David Willetts (my review here)

[amazon_link asins=’0198767269′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’19b4a33b-c4c5-11e8-a88d-4de694b464be’]

Black Edge – Sheila Kolkhatar (my review here)

[amazon_link asins=’075355223X’ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’287cf844-c4c5-11e8-ba23-5daf65f54f01′]one)

How Growth Really Happens – Michael Best (this is sitting on my desk waiting for me to write it up)

[amazon_link asins=’0691179255′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’4e0483a8-c4c5-11e8-9fcb-078089595863′]

The Marshall Plan – Benn Steil (my review here)

[amazon_link asins=’1501102370′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’56194d02-c4c5-11e8-9018-a33ba01d1d2b’]

Republic of Beliefs – Kaushik Basu (my review here)

[amazon_link asins=’0691177686′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’5d1ddecf-c4c5-11e8-80ae-c9e4713d76b1′]

Behemoth – Joshua Freeman (my review here)

[amazon_link asins=’0393246310′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’647dfdb3-c4c5-11e8-ae05-9ba90bde06f4′]

Factfulness – Hans Rosling (my review here)

[amazon_link asins=’B0769XK7D6′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’6cf35d52-c4c5-11e8-8c12-09b324e8bcd9′]

Unelected Power – Paul Tucker (my review here)

[amazon_link asins=’0691176736′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’79a025ab-c4c5-11e8-97be-e562eb57e598′]

The National Debt – Martin Slater (my review here)

[amazon_link asins=’1849049416′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’815d5977-c4c5-11e8-aa6e-37584b8094f9′]

Deep Thinking – Gary Kasparov (my review here)

[amazon_link asins=’1473653517′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’88eb3ff7-c4c5-11e8-aee2-871c0a33d621′]

Scale – Geoffrey West (I didn’t write on – it’s excellent pop science with a final chapter on cities)

[amazon_link asins=’1780225598′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’91494746-c4c5-11e8-a9dc-99b939e7a311′]

Cognitive Gadgets – Cecelia Heyes (my review here)

[amazon_link asins=’0674980158′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’97d9455d-c4c5-11e8-a91d-57d0b4426f0b’]

Ingenious Pursuits – Lisa Jardine (I didn’t review this either – innovation in history, Mokyr-ish)

[amazon_link asins=’B00V9G2TJ4′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’a41ceaa8-c4c5-11e8-970d-bd74aa4c179d’]

The Book of Why – Judea Pearl (I haven’t yet written about it, am mulling it over as he’s very down on causal inference methods used in economics)

[amazon_link asins=’0241242630′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’ac0e267f-c4c5-11e8-8b6e-b3dfa547bc92′]

The Rise and Fall of the British Nation – David Edgerton (my review here)

[amazon_link asins=’1846147751′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’c1a99d5e-c4c5-11e8-b42d-a7ed5de5f0bd’]

The Community of Advantage – Robert Sugden (my review here)

[amazon_link asins=’0198825145′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’cd76db02-c4c5-11e8-96b0-6ff4f105733e’]

Accounting for Slavery – Caitlin Rosenthal (my review here)

[amazon_link asins=’0674972090′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’d5036179-c4c5-11e8-ba5a-75187fded5a3′]

 

Cost benefit analysis – don’t get over-excited

Posted on by

Cass Sunstein’s new book, The Cost Benefit Revolution, almost managed to achieve the opposite of its aim, which is to persuade me of the merits of ubiquitous use of this tool for assessing social welfare so beloved by economists. I’m an economist so I think CBA is pretty useful but the book’s just so Panglossian about its ability to apply objective reason to regulatory decision making. “In a nutshell, quantitative cost benefit analysis is the best available method for assessing the effects of regulation on social welfare,” he writes (his italics). Except it doesn’t. He isn’t alone in thinking this. I once said to a Very Distinguished British economist that economics needed to take social welfare far more seriously. “Oh but it already does,” he replied. “We use CBA all the time.”

But the point is – as Sunstein does sort of concede in accepting that there are what he calls Hard Cases – it ignores (and the Pareto criterion ignores too) one of the key points about social welfare, namely distribution. Whose costs and whose benefits? It also – as has always been known in the literature, reiterated recently, and always ignored in practice – is a linear approximation suitable for use to assess the net effects of small changes. It furthermore has no validity in assessing any intervention that might change the path of growth or productivity or have any non-marginal effect.

Economists do think of CBA as one of the practical contributions of the field to policy, and I’m in favour of doing the CBA exercise as a source of information about decisions. In practice, for big decisions, that’s exactly what happens. Politics takes over, not least for the distributional reasons. After all, if CBA had been in use in the 19th century, Bazalgette would never have built London 150 years worth of sewerage capacity, and we would lack the magnificent town halls of cities like Manchester and Leeds.

Elsewhere in the book, in the excellent historical sections describing the (non-partisan) spread of CBA in US government, Sunstein gives some persuasive examples of how to use CBA well. (One of the poignant sections describes how an analysis changed Ronald Reagan’s mind – a Republican president open to reason.) There are nice, classroom friendly, examples of using CBA in different domains of policy and is actually more nuanced than the general enthusiasm would suggest about how to use CBA in the context of environmental science, especially when risk attitudes and discount rates differ greatly between groups of voters. All in all, it’s worth the read for anyone interested in the role of reason in policy making. Just don’t drink the same Kool Aid.

[amazon_link asins=’0262038145′ template=’ProductAd’ store=’enlighteconom-21′ marketplace=’UK’ link_id=’523730e9-baac-11e8-b2f1-a30fca2b301b’]

PS Tim Harford reviewed the book today and is a bit more enthusiastic.