Category Archives: Main Page

No Ordinary Woman

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I’ve really enjoyed reading No Ordinary Woman, a biography of Edith Penrose by her daughter-in-law Angela Penrose. It is a life story kind of biography – only one chapter (by Edith’s grandson Jago) covers her economic thinking in The Theory of the Growth of the Firm – but what a life.

There’s no question in my mind that, had she been a man, Penrose would be far more esteemed within the economics profession. I haven’t read The Theory of the Growth of the Firm (shame on me – got it out of the library now), and it seems it has been far more influential in management and business schools than in economics. It seems, from the chapter here, that it explores the firm as an institution, and the dynamics of the way firms shape the economic environment.  One can see how this is more at home in the business literature, valid (in fact, essential) as this kind investigation is.

But whatever its stature, Penrose had an extraordinary career as an empirical economist helping shape the field of study of multinational firms, an academic leader (head of the economics deparment at SOAS as it built its reputation, and later at INSEAD), and a public servant (serving on many public bodies and commissions after she and her husband settled in the UK). At the time the OPEC crisis erupted, she was just about the only academic who had studied the oil industry and the Middle East economies. She travelled widely, learnt Arabic and did some consultancy work in her spare time – and all this while bringing up her family and being a housewife to her husband, much-loved but clearly a traditional man of his era.

Anyway, from this affectionate biography, Penrose sounds like she would have been terrific fun and stimulating to know. And it is inspiring to read about a woman who accomplished so much against great odds. Next week in Manchester we’re hosting an event for 14-15 year old school girls to encourage them to do economics in the 6th form. Edith Penrose has to join the pantheon of female economists we’ve been preparing.

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Straight talk from Dani Rodrik

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The legion fans of Dani Rodrik will love his new book, Straight Talk on Trade. I’m one of them, and massively respect him for warning all the rest of us economists about the political economy consequences of globalisation long before these became obvious. As he writes in the last chapter of this new book, looking at recent voting trends in many countries,  “It is dawning on economists and policymakers that they severely underestimated the political fragility of the current form of globalization…. This backlash was predictable.” He has the sombre pleasure of having predicted this for a couple of decades now.

Regular readers will find many of the thoughts in Straight Talk familiar from previous books such as The Globalization Paradox and Economics Rules, and from papers such as Rodrik’s work on ‘premature deindustrialization‘. The new book updates the issues for the present context of the political success of anti-globalizers, nationalists, statists. It argues that there is little evidence of a major retreat from economic integration, and that the rhetoric and headline measures are a useful safety valve. “What looked to contemporaries like damaging protectionism was in fact a way of letting off steam to prevent an excessive build up of political pressure. … [W]e need to place the requirements of liberal democracy ahead of those of international trade and investing.”

I’m in two minds about this line of argument. It is undeniably true that the dogma of globalization gave cover to a lot of toxic practices, from financialization and speculation to multinational tax avoidance. However, I fear the protectionist, nationalist rhetoric will create its own reality – I found the argument in The Weaponization of Trade by Jack and Rebecca Harding persausive on this. Nor am I as sure about the ‘continued resilience of the nation state’ – and see its potential fracture as a dangerous moment.

On the questions of domestic economic policy and industrial policy, though, I’m 100% with Rodrik’s argument. He points out that the policies labelled ‘structural reform’ (econ jargon for politically very difficult measures) “were only loosely correlated with turning points in economic performance.” There are no silver bullets. Rather, growth take-offs “were associated with a targeted removal ofkey obstacles to growth rather than broad liberalization and economy-wide reforms.” Measures need to be targeted, and political capital and administrative resource needs to be focused on areas where there will be an early return. “In economies that suffer from multiple distortions, small changes can make a big difference.” The best policy advice is to experiment, and try local institutional innovations.

Reflecting on the lessons of past growth take-offs and failures leads into a section on the role of economics and economists – some of this familiar from Economics Rules. Economists must pay more attention to politics if they are giving policy advice, he argues, and in particular to the scope for political innovations – ideas that can durably relax political constraints and enable measures that make people better off without threatening political upheaval. Or in other words, enable the capture of efficiency gains while more or less protecting the economic rents of existing elites. Rodrik draws an interesting parallel with technological innovations, and the role of policy entrepreneurship, learning by doing, learning by experimentation, copying, serendipity and not forgetting the role of crises. “Taking ideas seriously renders the notion of interests slippy and ephemeral. Interests are not as fixed as other economists, such as Daron Acemoglu, suggest. People may need a new idea to appreciate their interests in a different, more accurate, light. “Raising the profile of ideas would also help alleviate the tension that exists today between political economy on the one hand, and normative economics and policyy analysis on the other.”

Looking at the current political context, some new ideas are surely needed, especially when it comes to global trade and investment. Rodrik has written elsehere about the need for New Rules for the Global Economy, and argues again here that the conventional policy suggestions will fail.

Straight Talk ends on a potentially optimistic note, however: “If one lesson of history is the danger of globalization running amok, another is the malleability of capitalism.  … It was not tinkering and minor modification of existing policies that produced these achievements [the New Deal, Bretton Woods], but rather radical institutional engineering.” If big, bold ideas can be implemented, the liberal democratic order may be reinvigorated. Looking at the present crop of politicians, this is only a slightly comforting thought, but I for one will take that sliver of comfort.

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So much to read

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There are lots of books in my in-pile, and I’ve had a very busy autumn (not least writing a book). But the Spring 2018 catalogue from Princeton University Press arrived and there are tons of absolutely enticing new titles forthcoming. Given my interests, The Tyranny of Metrics by Jerry Muller is a must-read.

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Radical Markets by Eric Posner & Glen Weyl looks intriguing – the argument is that inequality can be diminished and growth enhanced by a radical extension of the scope of markets. Talk about contrarian, in the current climate.

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Daniel Cohen’s The Infinite Desire for Growth is out in English, looking at what growth has been about historically and what future progress will look like.

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I’m super-eager to read Michael Best’s How Growth Really Happens, as a huge fan of his The New Competitive Advantage. The blurb says it combines the experience of hundreds of factory visits, economic thought from Babbage to the modern day, and historical episodes of econmoic transformation.

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Paul Tucker, formerly of the Bank of England and now at the Harvard Kennedy School, has written Unelected Power, about the role of central bankers and other technocrats in modern economic government.

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This is just the first few pages! Further in is The Republic of Beliefs by Kaushik Basu. Love his papers on this territory.

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Dani Rodrik’s Straight Talk on Trade features too, published earlier this month – I’ve finished reading this and will write my review soon.

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Reading the Festival of Economics

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Last week was the 6th Festival of Economics, which I curate and the outstanding Festival of Ideas team, Andrew, Zoe and Amy organize. There’s a Storify of some of the sessions by the Economics Network. As ever, we had some terrific authors speaking either at the Festival or in the preceding few days, so here is a list of their recent books.

Eric Beinhocker The Origin of Wealth

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Robert Peston WTF

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Michael Lewis The Undoing Project

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Gordon Brown My Life, Our Times

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Dave Birch Before Babylon, Beyond Bitcoin

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Gloria Origgi Reputation: What it Is and Why It Matters

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Jean Tirole Economics for the Common Good

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Jonathan Haskel Capitalism Without Capital: The Rise of the Intangible Economy

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Martin Sandbu Europe’s Orphan

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& my own GDP: A Brief But Affectionate History

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Greetings from the multiverse

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It has been a week of mad travel so although I haven’t posted much, at least I’ve had plenty of time to read. One of the books was, well, extraordinary. In a really good way, although I have no idea what to make of it in terms of substance. It’s The Beginning of Infinity: Explanations that Transform the World by David Deutsch. He’s a computational physicist so it is very much not an economics book, but Deutsch is bravely going far beyond the boundaries of his own discipline, something to be applauded given the height of the silo walls in the academic world.

His argument is that there is such a thing as progress, which began with the Enlightenment (the British rather than the romantic Continental variant), and that humans are rather special. The engine of progress is not empiricism, nor accurate prediction, but rather the ability to conjecture and see whether conjectures are consistent with what else we’ve learnt about reality, rejecting them if not. The scientific method consists not in careful observation followed by theorising, but the creative development of theories or hypotheses which then have to be confronted with observations, with robust mechanisms of rejection. So all this is somewhat contrarian, even I know, but it also seems pretty persuasive. Even the parts about how unlikely and therefore central to progress humans are in the universe.

Ah yes, the universe. One of the most gripping sections of the book is its explanation of quantum mechanics. I’ve never pretended to understand at all what this implies about the nature of reality. I still don’t, but Deutsch does nevertheless give one of the clearest explanations I’ve come across. To which the only reaction is awe at the sheer weirdness of the multiverse and therefore everyday life. I don’t think being on an overnight flight had much to do with my reaction. This is seriously weird.

It is all very enjoyable, including wonderful factoids and expressive comparisons along the way. That Oxfordshire is really a bleak deathtrap without so many human innovations to sustain life. That it is easy to confuse mathematical abstractions with physical facts (eg that the angles of a triange add to 180 degrees – only in maths, not on the ground). (By the way, economics is riddled with this kind of error; I give you ‘capital’ or ‘goods’.) That an American born today has more chance of being killed by an asteroid than of dying in a plane crash.

The one section I didn’t much appreciate tries to explain social choice theory. Even given that I know a lot more about this than about quantum physics, and other readers will know more about other subjects covered here, from evolutionary biology to astrophysics to philosophy, this is not a criticism – this is the inevitable downside of inter-disciplinarity. But we need more of this.

After I read the book (first published in 2011), I looked at some reviews. Most reviewers enjoyed it too, even though, as the New York Times review pointed out, “The chutzpah of this guy is beyond belief.” But concludes, “He is exactly who he is, and he is well worth getting to know, and we are very lucky indeed to have him.” So I wasn’t deranged by aircraft fumes; this is a book worth reading.

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