Category Archives: Main Page

Big books on the big question

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I’ve nearly finished reading Deirdre McCloskey’s [amazon_link id=”022633399X” target=”_blank” ]Bourgeois Equality: How ideas, not capital or institutions, enriched the world[/amazon_link] – it’s out next month and I will be reviewing it elsewhere. This is of course the latest in her grand project, The Bourgeois Era, the first two being [amazon_link id=”0226556646″ target=”_blank” ]The Bourgeois Virtues[/amazon_link] and [amazon_link id=”0226556743″ target=”_blank” ]Bourgeois Dignity[/amazon_link]. (I reviewed the latter in The New Statesman at the time.) McCloskey originally planned six volumes, but it seems three might now be the total. As each is over 600 pages long, this is already quite a lot.

[amazon_image id=”022633399X” link=”true” target=”_blank” size=”medium” ]Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World[/amazon_image] [amazon_image id=”0226556743″ link=”true” target=”_blank” size=”medium” ]Bourgeois Dignity: Why Economics Can’t Explain the Modern World[/amazon_image] [amazon_image id=”0226556646″ link=”true” target=”_blank” size=”medium” ]The Bourgeois Virtues: Ethics for an Age of Commerce[/amazon_image]

Anyway, this isn’t a spoiler – I’ll save up my thoughts on [amazon_link id=”022633399X” target=”_blank” ]Bourgeois Equality.[/amazon_link] But reading it set me thinking about what other books one ought to have read to evaluate properly this series about the history and dynamics of capitalism (although McCloskey doesn’t like the word). These are the ones that came to mind first – and clearly this is a question that inspires BIG books.

David Landes, [amazon_link id=”0349111669″ target=”_blank” ]The Wealth and Poverty of Nations[/amazon_link].

Kenneth Pomeranz, [amazon_link id=”0691090106″ target=”_blank” ]The Great Divergence[/amazon_link] [amazon_image id=”0691090106″ link=”true” target=”_blank” size=”medium” ]The Great Divergence: China, Europe, and the Making of the Modern World Economy (The Princeton Economic History of the Western World)[/amazon_image]

Joel Mokyr, [amazon_link id=”0195074777″ target=”_blank” ]The Lever of Riches[/amazon_link]; [amazon_link id=”0691120137″ target=”_blank” ]The Gifts of Athena[/amazon_link]; [amazon_link id=”0140278176″ target=”_blank” ]The Enlightened Economy[/amazon_link]

[amazon_image id=”0140278176″ link=”true” target=”_blank” size=”medium” ]The Enlightened Economy: Britain and the Industrial Revolution, 1700-1850[/amazon_image] [amazon_image id=”0195074777″ link=”true” target=”_blank” size=”medium” ]The Lever of Riches: Technological Creativity and Economic Progress[/amazon_image] [amazon_image id=”0691120137″ link=”true” target=”_blank” size=”medium” ]The Gifts of Athena: Historical Origins of the Knowledge Economy[/amazon_image]

Robert Allen, [amazon_link id=”0521687853″ target=”_blank” ]The British Industrial Revolution in Global Perspective[/amazon_link]

Jared Diamond, [amazon_link id=”0099302780″ target=”_blank” ]Guns, Germs and Steel[/amazon_link]

Ian Morris, [amazon_link id=”1846682088″ target=”_blank” ]Why the West Rules – For Now[/amazon_link]

Acemoglu and Robinson, [amazon_link id=”1846684307″ target=”_blank” ]Why Nations Fail[/amazon_link]

Douglass North, [amazon_link id=”0521290996″ target=”_blank” ]The Rise of the Western World[/amazon_link]  [amazon_image id=”B00HQ18ICI” link=”true” target=”_blank” size=”medium” ]The Rise of the Western World: A New Economic History by North, Douglass C. Published by Cambridge University Press (1976) Paperback[/amazon_image]

Joseph Tainter, [amazon_link id=”052138673X” target=”_blank” ]The Collapse of Complex Societies[/amazon_link]

I’m sure there are tons more – McCloskey’s bibliography alone is 50 pages long. But anything essential left off this list?

When everything is a platform

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Sometimes it seems like nobody wants to set up a business these days; it has to be a platform. These come in different flavours of course, from sharing economy start-ups to existing online social or other networks. Whatever, the platform concept has become ubiquitous. Like many ubiquitous concepts, its definition is a bit fuzzy and its exact characteristics variable, but the basics are well-understood: an entity enabling value-creating interactions between different groups of people; with the value coming from network effects (across the sides of the platform) and often also the improved matching of transacting parties enabled reduced information/transaction costs. Thus Ebay provides sellers with lots of buyers and vice versa, and enables people to sell or buy niche items.

It’s intriguing that for many people everything looks like a platform now. The economics of multi-sided platforms (or two-sided markets) dates back to the early 2000s. The well-known Rochet and Tirole paper was published in 2004 and had been circulating for a while before then, while Geoffrey Parker and Marshall Van Alstyne were publishing related work in 2000. In their new book [amazon_link id=”0393249131″ target=”_blank” ]Platform Revolution: How networked markets are transforming the economy and how to make them work for you[/amazon_link] Parker and Van Alstyne, joined by co-author Sangeet Paul Choudary argue that once platforms became possible, they became inevitable: “Platforms virtually always win… Pipelines [ie traditional businesses] rely on inefficienct gatekeepers. … The platform can grow to scale more rapidly and efficiently because traditional gatekeepers are replaced by market signals provided automatically by the entire community.” What’s more, platforms do not need the same investment in physical capital as a pipeline business and have no idle capacity – think Airbnb versus hotel chains. They do not need inventory. The community can even provide the quality control and certification.

[amazon_image id=”0393249131″ link=”true” target=”_blank” size=”medium” ]Platform Revolution: How Networked Markets are Transforming the Economy–and How to Make Them Work for You[/amazon_image]

The book is a very accessible introduction to the economics of multi-sided platforms, very much from the perspective of a business audience, people who might want to set one up. Introductory chapters describing platforms and the basic economic principles are followed by chapters on how to design a successful platform – how to provide value and set prices to balance both sides appropriately; how to acquire and use data; successful launch and growth strategies; monetization; growth; competition issues; and regulatory issues. There are helpful examples throughout – eight different cases of launch strategies that worked, for instance.

If you don’t know the economics literature, this book is a clear and practical guide to platforms. If you do know it – and I’ve now read a fair amount – the analysis will be familiar, albeit with lots of interesting and useful examples that still make it worthwhile.  I found the chapter on strategy the most interesting. It notes the challenges of getting to successful scale, although I think in fact underestimates them. It also discusses the complexity of competition (or as it’s sometimes called ‘convergence’ – everybody competing with everbody) and the advantages that go to those able to take a very long term view. The book’s main downside is apparent in this chapter too: it’s a Pollyanna view of platforms. I’d have liked a more challenging discussion of competition among the titans and the regulatory and even political questions this raises. (I set out my thoughts on this on the FT’s The Exchange blog.)

All in all, though, this book is a welcome addition to the still quite small non-technical literature on platforms, which is much needed given how complicated the academic literature on this subject has become.

A radical GDP rethink needed

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This is possibly stretching the definition of ‘book’, but at 259 pages, the Bean Review of Economic Statistics certainly has the heft to be classed as one. Either way, it’s worth a post here. This is not only because it covers one of my favourite subjects, [amazon_link id=”0691169853″ target=”_blank” ]GDP[/amazon_link], but also because it signals a milestone in economic thinking.

Professor Charles Bean launching his report

Professor Charles Bean launching his report

Since the 2009 report of the Sen-Stiglitz-Fitoussi Commission (summed up in the book [amazon_link id=”B00E32LW1C” target=”_blank” ]Mismeasuring Our Lives: Why GDP Doesn’t Add Up[/amazon_link]) there has been some policy traction for the ‘Beyond GDP’ agenda, not least because it builds on a long-standing set of critiques from environmentalists and researchers on well-being. Indeed, this week’s Economist argues for including unpaid ‘home production’ in GDP, something debated in the 1940s and campaigned for by feminist economists ever since.

The Bean Review is to my mind more radical because it questions the ‘GDP’ part. It contains considerable detail (and kindly citing some of my work) on the multiple ways conventional national income accounting is more and more a mismatch for the structure of the economy – looking at intangibles, the gap between market output and consumer surplus, the production boundary, the consequences of digitisation and lack of business model invariance of the statistics, and more.

[amazon_image id=”B00E32LW1C” link=”true” target=”_blank” size=”medium” ]Mismeasuring Our Lives: Why GDP Doesn’t Add Up by Stiglitz, Joseph E., Sen, Amartya, Fitoussi, Jean-Paul published by New Press, The (2010)[/amazon_image]

There is a great deal of interest in the question of economic measurement now. The additional challenge to the existing statistics from the digital sector has helped with policy traction – although it does mean the GDP question is seen largely through the prism of whether mismeasurement ‘explains’ the productivity slowdown – as in this new paper by Byrne, Fernald and Reinsdorf, Does the US have a productivity slowdown or a measurement problem? These are not mutually exclusive in the way the title suggests. There’s an embarrassment of possible causes of the productivity slowdown, ranging from demographic trends to under-investment related to the crisis, and it isn’t sensible to consider that measurement issues predominate.

More interesting than how much of current measured productivity growth is due to mismeasurement is the deeper question of whether the national accounts definitions remain the best way to conceptualise a largely service-based, increasingly intangible, increasingly customized and globalized economy, while failing to measure systematically non-market activities when the production boundary is blurring, and ignoring entirely the depletion of capital in the form of infrastructure or natural capital. (That’s a rhetorical question.) The Bean Review essentially poses the same question and indicates firmly that the UK and the ONS should take the lead in the debate. I’m a stats geek of sorts, but to me that seems very exciting. As Mario Pisani of the Review team tweeted:

Mario_Pisani
UK was pioneer of national accounting – we need to take stats ‘back to the future’ or miss parts of modern economy https://t.co/Ln4u5xqhN5
11/03/2016 08:53

I was a teenage existentialist

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I just finished a book I so badly wanted to read that I almost bought two copies by mistake. It’s Sarah Bakewell’s  [amazon_link id=”0701186585″ target=”_blank” ]At The Existentialist Cafe: Freedom, Being and Apricot Cocktails[/amazon_link].

[amazon_image id=”B017IGPTDQ” link=”true” target=”_blank” size=”medium” ]At The Existentialist Café: Freedom, Being, and Apricot Cocktails[/amazon_image]

It fully lived up to my hopes. Not only had I really enjoyed her book on Montaigne, [amazon_link id=”009948515X” target=”_blank” ]How to Live[/amazon_link], but I – like Bakewell, it turns out – was a teenage existentialist. Living in a small Lancashire mill town, my plan was to be a philosopher in Paris when I grew up, hence applying to do PPE at university (and getting distracted by the E). Knowing nothing about philosophy, I turned to the library, which had a little book on existentialism, the novels of [amazon_link id=”0141198060″ target=”_blank” ]Albert Camus[/amazon_link] and Simone de Beauvour’s [amazon_link id=”009974421X” target=”_blank” ]The Second Sex[/amazon_link]. We also read [amazon_link id=”2070384411″ target=”_blank” ]Les Mains Sales[/amazon_link] in my French class at school. [amazon_link id=”009974421X” target=”_blank” ]The Second Sex in particular changed my life. [/amazon_link]

[amazon_image id=”0141198060″ link=”true” target=”_blank” size=”medium” ]The Outsider (Penguin Modern Classics)[/amazon_image]  [amazon_image id=”009974421X” link=”true” target=”_blank” size=”medium” ]The Second Sex (Vintage Classics)[/amazon_image]

But enough about me. [amazon_link id=”0701186585″ target=”_blank” ]At The Existentialist Cafe[/amazon_link] is as clear a book about philosophy as you could ever hope to read, despite including chunky sections on Husserl and Heidegger. It is a jolly read about the lives of the existentialists too. (Did *you* know that Sartre had written the lyrics to one of Juliet Greco’s most successful songs? Or a film script – not used because of its length – for John Huston.) And Bakewell is a marvellous writer. For example, discussing why intentionality is hard, “The mind races round like a foraging squirrel in a park.” Her command over fresh similes and metaphors makes this book a joyous read.

I still ended up liking Beauvoir and Camus best, despite Bakewell’s appreciation for Sartre. The former for her feminism, the latter because he made the calls I agree with on political matters and – I learned here – was influenced by David Hume.

Maybe existentialism is newly relevant these days. The whole ‘behavioural’ agenda is making it important to understand the rolw perception plays in knowledge. And as for the need for a guide to how to act in a world that’s forcing difficult choices on us – well, just look at the news.

Stewardship for the future

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This week brings my first meeting of the Natural Capital Committee, to which I was recently appointed. This is the Committee’s second phase (set for five years), its first running from 2012-2015. As part of my homework, this weekend I re-read chair Dieter Helm’s book [amazon_link id=”0300210981″ target=”_blank” ]Natural Capital: Valuing the Planet[/amazon_link].

51MeUzEvTLL._SX333_BO1,204,203,200_It’s a very accessible and clear explanation of why it’s important to value natural capital and how to go about it. As Dieter explains, there’s no doubt that economic growth has for some time been unsustainable. To be clear, that means that future generations (which could include our older selves) will have lower living standards because we have depleted by so much the capital stock providing economic services. (I would add infrastructure too, as part of the sustainability challenge, and there are similar issues as looking at renewable natural capital.)

The book presents the case for re-investing in natural capital in order to enable sustainable growth – it argues against the ‘no growth’ environmentalists. The mechanism it proposes is an aggregate natural capital rule: “The aggregate level of natural capital should not decline.” If there is damage done in one place, it has to be made good by compensating gains elsewhere. The rule can be applied to renewables, and can be extended to non-renewables by requiring a natural capital fund to compensate for extraction (much as the Norwegians do for their oil and gas extraction).

This is a radical change when you start to look at the amount of money that might be involved. The book suggests it is of the order of at least 4% of current GDP. And of course the details are extremely complicated. To state just two hurdles: we do not have good statistics on natural capital, although the Office for National Statistics does have a programme of work on this; and it is hard to value non-marketed assets and transactions, especially when there are substantial externalities, non-linearities and system interdependencies. Cost-benefit analysis – the only tool economics has to offer – applies to marginal (linear) changes and in practice does not try to value external benefits.

One of the book’s examples about habitats and how to think about the trade-offs compares great crested newts and nightingales. Both are protected species, but nightingales’ habitats are much harder to recreate elsewhere, arguing for a higher barrier to developing the kinds of woodland where they live. I can’t resist recounting an anecdote about newts. If you visit construction sites, as I sometimes have, there will often be a fence half a meter high around the work – to keep out the newts, which have to be carefully relocated from inside the site to outside. In my BBC Trust days, I was quizzing the great Sir David Attenborough about the fate of the poor great crested newts. He said (and who knows, maybe he was joking) that the newts had only got into the legislation by accident and the little creatures are not at all rare. Indeed, he had some in his suburban garden. If you were a newt, isn’t that the best garden you could pick as your home?

Male Great Crested Newt (Triturus cristatus) with breeding colours, underwater, captive UK

Male Great Crested Newt (Triturus cristatus) with breeding colours, underwater, captive UK

Anyway, I’m delighted to have been appointed to the Committee. It speaks to my own pre-occupations with sustainability ([amazon_link id=”0691156298″ target=”_blank” ]The Economics of Enough[/amazon_link]) and measuring the economy ([amazon_link id=”0691169853″ target=”_blank” ]GDP: A Brief but Affectionate History[/amazon_link]). This is exciting territory in terms of the economics, and profoundly important in terms of all our futures.

[amazon_image id=”0691156298″ link=”true” target=”_blank” size=”medium” ]The Economics of Enough: How to Run the Economy as If the Future Matters[/amazon_image]  [amazon_image id=”0691169853″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]