The thirst for understanding

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The yearbook from the Publishers Association is always an interesting snapshot of the UK book market. The news this year was that a big (19.2%) increase in the value of digital sales to £509m in 2013 didn’t quite offset the small-ish (-5.2%) decline to £2,880m in physical book sales. The total was down 2.2% overall to just under £3.4bn in sales. The detail is always interesting too. Prices of physical books were up 2.3% in the year, with the biggest increases in non-fiction and academic/reference books – sales in the schools market were down after a couple of years of stonking rises. Intriguingly, the report doesn’t give e-book price changes – I wonder why? By far the fastest growth in e-book sales has been ‘consumer’ e-books ie. not academic, professional or school.

Last weekend there was an article in The Guardian about the revival of Penguin’s Pelican imprint of accessible non-fiction works. This weekend Lorien Kite in the Financial Times has reflected on the news about the Pelican series flapping back into existence. They were the product, he writes, of a more optimistic time when the spirit of self-improvement was strong. The first 10 sixpenny Penguins published in 1935 sold a million copies in four months.

Actually, I think the 1930s were not that optimistic,but rather similar to the 2010s in the degree of uncertainty people feel about the future. There is a great thirst for understanding. But what about books now, when they face such stiff competition from other, trivial, attractions like Candy Crush Saga and Instagramming one’s meals? Kite concludes – and I agree – “Yes, publishers of non-fiction feel embattled but there is plenty to reassure them, not just in the success of titles such as the million-selling [amazon_link id=”0141033576″ target=”_blank” ]Thinking, Fast and Slow[/amazon_link] by Daniel Kahneman, the psychologist – or, for that matter, Piketty’s [amazon_link id=”067443000X” target=”_blank” ]Capital in the Twenty-First Century[/amazon_link]. The popularity of online lectures such as TED talks, the continuing boom in literary festivals, even the internet voluntarism epitomised by Wikipedia, all suggest that the self-improving impulse is alive and well.” In the UK industry figures, the number of units of physical books sold declined 7.3% in 2013, but in that mix was a 22.7% decline in fiction sales compared with a 3.3% drop in non-fiction sales. Penguin looks sensible to be pushing on non-fiction at present.

What’s more, the publishing industry is showing signs of navigating its digital transition rather better than other business sectors. I’d *really* like to know what’s going on with e-book pricing.

Incidentally, I came across somewhere yesterday – I can’t remember where so tell me if it was your tweet! – this from Kahneman: “We don’t think as much as we think we think.” Great line.

[amazon_image id=”0141033576″ link=”true” target=”_blank” size=”medium” ]Thinking, Fast and Slow[/amazon_image]

Economists and experts

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There was another favourable review of Bill Easterly’s [amazon_link id=”0465031250″ target=”_blank” ]The Tyranny of Experts [/amazon_link]in The Observer yesterday – it doesn’t seem to be online, but here is the FT’s from a few weeks ago.

[amazon_image id=”0465031250″ link=”true” target=”_blank” size=”medium” ]The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor[/amazon_image]

I will read it soon. Meanwhile, it reminded me of a passage in Jeremy Adelman’s fabulous biography of Albert Hirschman, [amazon_link id=”0691163499″ target=”_blank” ]Worldly Philosopher[/amazon_link]. Hirschman was working in Colombia in the early 1950s on a World Bank project, one of its first big country ‘surveys’, led by Lauchlin Currie.  Currie was allowed to turn a survey into a general development ‘master plan’, “Laying the tracks for a problem regarding the place of local knowledge in the business of economic missionizing.” Adelman writes that the plan was, “Coded in the scientific rhetoric of economic missionaries.” Hirschman clashed with Currie in terms of both personalities and ideas. The hallmark of Hirschman’s approach to economic development was exactly the importance of the specifics and local knowledge.

[amazon_image id=”0691163499″ link=”true” target=”_blank” size=”medium” ]Worldly Philosopher: The Odyssey of Albert O. Hirschman[/amazon_image]

I don’t know whether Easterly’s book cites Hirschman, or [amazon_link id=”0691117829″ target=”_blank” ]Peter Bauer[/amazon_link], who had somewhat similar views and insisted on the importance of historical specificities, but it sounds like their approaches are in sympathy.

To infinity, and beyond

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Brad Stone’s [amazon_link id=”059307047X” target=”_blank” ]The everything store: Jeff Bezos and the age of Amazon[/amazon_link] is a rattling good read, and it should be on everybody’s reading list. The raw material is a gift to a storyteller of course. Jeff Bezos is clearly an extraordinary character, Amazon an extraordinary company, and the period since the dawn of the internet an extraordinary era. Stone has covered the company for many years and the account here is authoritative.

[amazon_image id=”059307047X” link=”true” target=”_blank” size=”medium” ]The Everything Store: Jeff Bezos and the Age of Amazon[/amazon_image]

The book is particularly good on the distinctive dynamics of online businesses, and the consequences for the various strategic calls Amazon has had to make. For example, when a solitary analyst at Lehmans, Ravi Suria, started to write negative reports in 2000 about Amazon’s then-low or negative margins, it risked becoming a self-fulfilling prophecy because financial viability depended on suppliers not demanding faster payment, and on customers having the confidence to continue flocking to the website. I hadn’t really appreciated before Amazon’s negative working capital requirement as customers pay for goods faster than suppliers need to be paid for them.

There are descriptions of moves straight out of the playbook of [amazon_link id=”087584863X” target=”_blank” ]Information Rules[/amazon_link] by Carl Shapiro and Hal Varian (although this book, one of my all-time favourites, isn’t referenced), such as super saver delivery – free for people who don’t mind waiting longer – and also Clay Christensen’s [amazon_link id=”0062060244″ target=”_blank” ]The Innovator’s Dilemma.[/amazon_link] Amazon has set up some new areas of business as skunkworks, but in other cases Jeff Bezos simply drove through new activities that would cannibalize existing sales. One example is the introduction of Marketplace, putting other retailers on the same page as Amazon itself.

[amazon_image id=”087584863X” link=”true” target=”_blank” size=”medium” ]Information Rules: A Strategic Guide to the Network Economy[/amazon_image]

The corporate culture sounds awful; I’d never work there. Amazon has become a nasty competitor as it has grown – and the book has an interesting section on its entanglements with competition authorities over e-books. It raises some questions too about the company’s business methods in dealing with both suppliers and smaller competitors – undercutting pricing in nappies, apparently to induce an online diaper supplier to sell out to Amazon; the use of grey markets in high quality goods to get a better price, thereby undermining the viability of the supplier. All, though, in the interests of delivering Amazon customers “everyday low pricing”, a desirable aim but one that simply conflicts with some other desirable aims such as sustaining craft production. This is an unfinished story, as the long term will one day catch up with the short term.

The other big question, not explicitly raised but obvious, is what a post-Jeff Bezos Amazon will be like. That’s no doubt many years away but his driven personality and vision have shaped the company. Succession in these digital giants is clearly a big issue.

All in all, a terrific book for thinking through some of the dilemmas the online world presents, and for thinking about the digital challenge to existing business models. The Jeff Bezos story is amazing too, and by the way he wants to colonise space. That’s not a joke.

Highly recommended book, whether for pleasure or for business students.

Robots for all!

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Yesterday I took part in a fascinating Resolution Foundation discussion, Equity in the Age of the Robot. It was an apt day to be debating the impact of automation on jobs and equity, as the Tube strike probably left half the audience wishing those jobs were already being done by robots and the other half pleased the union is still holding out for the humans.

My contribution was to point out that although we can be concerned about the speed at which automation is going to be able to replace a lot of middling-skill, middling-income jobs, with all the transitional problems that brings, the UK economy needs more robots. That’s the message of the low labour productivity problem. Real wages can’t rise over the long term unless investment in capital and productivity improve. Having said that, we need to worry about

(a) the distribution of the productivity gains, and ensuring these aren’t all extracted by over-paid executives – perhaps thinking about robot ownership; and

(b) equipping people with skills that could be useful and managing the transition in the labour market better than in the past. As Conrad Wolfram pointed out in a recent article, we’re teaching children to be not very good and expensive versions of Siri when it comes to the maths curriculum; they need to understand how to solve quadratic equations but they key skill they need is not memorising and replicating that. Like Professor Alan Manning, I think we should not be resisting the robots but focusing on the institutional and political arrangements that ensure fair outcomes.

I highly commend the work of Michael Osborne, who was presenting new data for the UK showing which jobs are vulnerable to automation by 2020 – mainly in sectors like retailing, logistics, transport. (Here’s the paper he wrote with Carl Benedikt Frey, The Future of Employment: How Susceptible are Jobs to Computerisation?) The whole panel discussion is worth a viewing.

The books cited in the discussion were – of course – Bynjolfsson and McAfee 1 and 2, [amazon_link id=”0984725113″ target=”_blank” ]Race against the machine[/amazon_link], and [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link].

[amazon_image id=”0393239357″ link=”true” target=”_blank” size=”medium” ]The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies[/amazon_image]

The eclipse of capitalism – or maybe not

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Jeremy Rifkin’s new book, [amazon_link id=”1137278463″ target=”_blank” ]The Zero Marginal Cost Society[/amazon_link], covers lots of interesting territory but isn’t my cup of tea. One reason for that is apparent in the subtitle: “The internet of things, the collaborative commons and the collapse of capitalism” – wide-ranging is good, but ranging wide over such a disparate set of topics is a bit of a stretch.

[amazon_image id=”1137278463″ link=”true” target=”_blank” size=”medium” ]The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism[/amazon_image]

Another reason is that near the start of the book there is an anti-economics rant, economics being characterised by “unquestioning acceptance, and refusal to envision alternative explanations, lead[ing] to a festering of inconsistencies that pile up.” While I certainly agree that economics too often sets environmental constraints to one side – which is what Rifkin’s rant builds up to – I always check the references and bibliography at this point to see how much modern economics the ranter has read. And as is always the case with such critics, Rifkin cites next to no work done in the past 25 years.

The main argument of this book is that near-zero marginal cost activities make up a growing proportion of economic activity, and this signals the inevitable decline of capitalism. Capitalist markets are not an efficient way to organize a society in which most things are free, because the socially efficient price is zero when marginal costs are zero. Rifkin draws on his last book [amazon_link id=”0230341977″ target=”_blank” ]The Third Industrial Revolution[/amazon_link] and adds in the effects of the Internet of Things and smart grids in optimising energy use to apply this argument to energy prices. He cites also MOOCs and 3D printing. It is not a new observation to point out that many activities involve high fixed costs and low marginal costs. Digital or digitally-enabled activities are adding to the roster of industries with this structure, shaking up business models in music, publishing, newspapers and – soon – education; but other industries from aerospace to pharma to broadcasting have long experienced increasing returns. These too challenge the model of small, perfectly competitive firms delivering efficient outcomes through the magic of the price mechanism and the market.

Rifkin does not, for my taste, adequately address the question of how the high fixed costs are to be covered in his post-capitalist world. “Within 10 years every building in America and Europe, as well as other countries around the world, will be equipped with smart meters,” he writes. He predicts huge cost as well as energy savings, citing a Cisco forecast that the Internet of Everything will generate $14.4 trillion in cost savings and revenues. So that’s selling smart meters plus the cost savings from using less energy once they are installed, I guess – and wouldn’t Cisco, purveyor of smart devices, say that anyway? The smart meter installation programme in the UK alone is estimated to have a: “positive net present benefit of £6.7 billion over the period to 2030, by delivering total benefits of around £18.8 billion and costs of around £12.1 billion.” (House of Commons Energy Select Committee estimates.) These order of magnitude smaller estimates for a longer period predate the actual existence of technical standards and operational meters, needing to be installed in every home and business in the country. I’m sure it’s worthwhile, but I’m sceptical about this happening within 10 years, all around the world.

The most interesting chapters in the book cover collaborative efforts and the switch “from ownership to access.” There have been interesting articles and stirrings around just this past week on the sharing economy – from The Economist, from Public CEO, this New York petition, John Kay in the FT. (HT to @johnfingleton1 for the links.) Parts 3 and 4 of Rifkin’s book provide an overview of this territory. By this stage, I had gone into irreversibly sceptical mode, and concluded that it is too early to say that none of the new digital businesses will find a viable business model.

This book would be a good airport read. Rifkin is a clever and widely-read writer. I don’t like the way he opts for polemic over analysis, but that’s me. Others might enjoy this high-level canter over a wide territory – but I’d caution you to take the claims with more than a pinch of salt.