Spreading the thriving

Jan Eeckhout’s The Profit Paradox: how thriving firms threaten the future of work is a very good read. It’s a game of two halves (yes, someone in my household is permanently watching the football at the moment).

The first half (in fact parts 1 and 2) is a nice synopsis of the reasons the economy (mainly the US but others are covered) tend towards a) concentration across many markets and hence b) diverging fortunes of companies and their employees, and the places where people live. This covers the features of digital technology, superstar phenomena, agglomeration economies – these are familiar to anyone who has been keeping up with the literature, but I applaud how well the book is written. Hooray for an economist who can write so engagingly. This section documents the evidence on concentration and mark-ups, the growing divergence between companies in terms of productivity and profits, and the corresponding decline in the labour share as outsourcing of routine occupations (call centres, cleaners, admin) has progressed. Eeckhout argues that there is assortative matching such that pay and conditions are polarising between people with high value jobs in frontier firms and people with low value added jobs in their contractors.

The book’s focus is on the implications of market power for people as workers, rather than as consumers – although it also notes the excess pricing power too. In sum, it reduces wages, both directly through monopsony power in individual labour markets and also because of the the macroeconomic consequences: with so many people in contingent work with low pay, aggregate demand is inadequate. (Some) firms are doing well but the economy isn’t. And this is the heart of Eeckhout’s argument: “The effect of the tide of market power is lowering wages across the economy.” I find this link persuasive. While there are many economists looking at the elements of this story, the way they are combined here is enlightening.

The second half turns to the much harder question of what to do, starting with an affirmation that for all the disruption the new technologies are a good thing (this chunk reminded me a bit of my own Paradoxes of Prosperity, which first came out in September 2001 and not surprisingly was hardly noticed).

The recommendations boil down to: enforce labour standards; mandate more data openness; and beef up anti-trust policies. In particular (under the last heading) stop big tech making more acquisitions, regulate them rather than break them up (so as not to lose beneficial network economies), and assess market impacts in the round rather than firm by firm. (Tricky to implement but I do remember that in my days on the Competition Commission, as it then was, we often had to include a section of the report on ‘Features of the market’ – problems in concentrated markets do often spread beyond an individual transaction).

I’d agree with all these suggestions in the book but they add up to a meta-suggestion: find the political will to change the institutional architecture so that it delivers fairer outcomes. The technological tides won’t retreat but the effects depend on what institutions confront them. Is Lina Khan’s appointment in the US a sign of lasting change?

 

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Why is there no government chief anthropologist?

Almost a decade ago I gave a lecture which opened with this question. I was probing the influence of economists in government, for good or ill. (This discussion is picked up in my forthcoming book, Cogs and Monsters.) Perhaps I’d been influenced more than I realised by having been on the economics reporting beat with Gillian Tett in the 1990s, she for the FT and me for The Independent. We were all very impressed by her PhD in anthropology, as fieldwork in Tajikistan seemed very exciting and adventurous.

Gillian’s new book, Anthro Vision: How Anthropology Can Explain Business and Life, starts with that fieldwork, including the less thrilling part about being trapped in a hotel room as civil war raged outside. It’s a rattling good read, as one would expect from a top journalist. The book is divided into what she describes as the core principles of anthropology: the need to make the strange familiar, to make the familiar strange and to listen to what is not said. These add up to an effort to develop some objectivity about the group or society under investigation – I was struck for example, by the parallel with the outsiders who foresaw the financial crisis in Michael Lewis’s The Big Short. Gillian’s reputation was totally confirmed by her early warnings about impending crisis.

At the same time, the methods of anthropology, especially ethnography or participant observation, bring the researcher close to the objects of study. The book is adamant that use of data and computers alone fails to deliver important insights. I couldn’t agree more, both in terms of determining economic policy and in terms of research. I love applied economics but one of the joys of my work now is working in interdisciplinary teams using different methods.

The book has loads of interesting vignettes about the use of anthropology, particularly in business, where there seems to be more of it than I had realised. Some that particularly struck me: teenagers seem addicted to their mobile phones because that is the only space left where they are free to roam and hang out, now that their lives are so constrained in the physical world. As Gillian points out, when we were young we wandered around by ourselves, met friends, drifted around the shops. For various reasons, all of these spaces have closed to today’s adolescents.

Another is the account of the engineers of the Internet Engineering Task Force, which oversees technical management of the internet, voting on changes to rules and protocols by – humming. Votes are taken by which group hums the loudest. Lockdown has made decision-making most unsatisfactory.

So to return to my starting point, it seems to me that a Government Chief Anthropologist would be a good innovation. And they should sit in an office with the Government Chief Economist.

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Albert Hirschman

I’ve enjoyed a new book about this subtle, inter-disciplinary and creative economist, Albert O Hirschman: An Intellectual Biography by Michele A Alacevich. As the subtitle indicates, this is not an attempt to compete with Jeremy Adelman’s wonderful recent biography, Worldy Philosopher. (In that you get the full, astonishing, early life story of the man.) Rather, it is intended as a complement, focusing on Hirschman’s contribution to economics – mainly development economics – in the context of contemporary debates.

Like many economists trained in the mainstream and never having done development economics, I’ve caught up to Hirschman relatively late. I suspect this is a good thing, as I might have found myself less in sympathy with his views when I was a youngster who had internalised the standard econ of the 1970s and 80s. Now that I’m … not a youngster, his perspective is intuiitively appealing: the emphasis on the importance of political economy, the role of specifics of context (time, place, political happenstance), the dangers of technocratic approaches to policy backfiring.

From this book, I took away Hirschman’s early emphasis on the role of decision-making abilities – and their absence – in development. Not the role of specific factors (the typical list of ingredients for growth), but “the deficiency in the combining process itself.” Moreover, the ‘ability to make decisions cannot be economized’. Thinking about knowledge capital in the context of the UK’s leveling up debate (as part of my research for The Productivity Institute) this seems so relevant to the national/sub-national governance issues.

Another aspect that seems important and also intuitive is the need for significant social capital to operate the more social technologies – network industries such as electricity and rail. Again, this seems relevant to developed economies, thinking about the inability of Texas to maintain power supplies or the mess the UK has made of its rail network.

A third section I *really* liked (yes, this is weird) was about the 1970s debate on the use of cost benefit analysis, and Hirschman’s objection to the idea that this could be a technical, almost mechanical exercise. I’m mid-way through drafting a paper about appraisal of big projects so found this super-interesting.

All in all, I highly recommend this book, along with the Adelman volume (which is the one to start with if you haven’t read it – surprisingly expensive new but there are 2nd hand ones around). I not only learned more about Hirschman’s work and how his ideas evolved but also got some new insights into the history of thought in development economics.

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Measuring innovation

I’ve written a review for another outlet of a weighty new book, but still want to flag it up here. It’s Measuring and Accounting for Innovation in the Twenty-First Century, edited by Carol Corrado, Jonathan Haskel, Javier Miranda, and Dan Sichel. The book is a conference volume, the papers presented at a 2017 NBER conference of the same title that I was lucky enough to attend.It was one of those rare and wonderful conferences where one sits bolt upright througout taking copious notes.

As ever, you don’t read an edited conference volume cover to cover like a normal book, and indeed a number of the papers are (as always in econ) out in the wild in working paper versions. Having said that, for those of us interested in the need to measure better – which means understanding better – the increasingly intangible economy, this is a really interesting book. It covers the waterfront from conceptual frameworks down to nitty gritty measurement questions. It’s much too costly to buy but there is a much much more affordable e-version (and may be worth recommending to the library too).

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Averting catastrophes

I want to plug a book I’ve edited published (via the Perspectives series with London Publishing Partnership), Gill Kernick’s Catastrophe and Systemic Change.

This is a really important book. Gill is a safety consultant with many years experience advising large, complex businesses about how to avoid disasters. As a former resident of Grenfell Tower, who watched that disaster unfold from her new home nearby, she turned her attention to public sector decision-making. Grenfell was not the first fire of that type. Why had ‘lessons ;earned’ from previous fires in fact not been learned?

We workshopped the questions at a Bennett Institute event in 2019, bringing together practitioners from different fields – fire safety, healthcare, regulatory bodies, the law – and academics from several disciplines. Gill has turned the insights from the workshop and her own experience and research into Catastrophe. There is also a podcast series and we are holding a Bennett Institute public event on June 15th where I’ll discuss the book with her and also with Jill Rutter from the Institute for Government.

The key questions is how to ensure lessons are learned – could there be any excuse for a repeat horror at some time in future? I’m not sure the book fills me with great hope. After a first couple of chapters specifically about how Grenfell happened, it diagnoses the multiple reasons why systems end up being unsafe, from complex and overlapping regulations and responsibilities, to fear of being blamed in political contexts, to the frequent failures to listen to people on the ground thereby losing valuable information about the risks. Having said that, one has to believe that systemic change is possible. Gill’s career has shown many businesses how to embed safety culture. I hope as many decision-makers as possible read the book so the lessons do spread through the public sector. These are often far more complex environments than the private sector, but on the other hand, the responsibilities of those in charge are correspondingly greater.

Do join us on June 15th, and do please read the book.41jIrnIATIS._SX300_BO1,204,203,200_

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