Global value chains

I’m very excited, as perhaps only an economist could be, by a new (and free) VoxEU e-book, The Age of Global Value Chains: Maps and Policy Issues. As the first sentence in the foreword states: “The study of global value chains is the only way to fully understand the nature of today’s geographically dispersed production and trade.” This understanding is being extended by new sources and uses of data, the World Input-Output Database in particular – the e-book has an appendix describing this.

GCVs front cover

The book divides into a descriptive first part (including a look at network structures) and a second part looking at the impacts of the increased specialisation in production across national borders. These impacts in turn are divided between the macro level (including productivity, wages and jobs) and the effects at the level of firm organisation. If I have one complaint (without having read the book yet) it is that there is no essay looking at global value chains from the perspective of urban economics, and the sub-national clustering of specialised supply chains.

Still, it’s a mild complaint about a book to say there should be more of it. I’ll be reading this one eagerly, all the more so as there are troubling signs that world trade growth is slowing. And, as I argued in my post on the FT’s The Exchange, that could be related to the global productivity puzzle.

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Imagined communities

People in other disciplines will mock me, but I just read Benedict Anderson’s Imagined Communities for the first time. Even more frivolous, I bought it on impulse in the brilliant bookshop at the Royal Institute of British Architects, because I loved the cover. Besides, the phrase ‘imagined communities’ as a description of a nation grabbed me.

For I’ve been pondering national identity for a while. Most accounts of it in political debate refer to historical events or traditional activities or symbols – John Major’s version of George Orwell‘s “Old maids bicycling to Holy Communion through the morning mist,” or the country house and aristocrats version of English identity that speaks not at all to chippy working class Northerners (say) or Scots or the Cornish, or for that matter the romanticism of miners’ galas and the Peterloo Massacre.

Yet it seems obvious to me that identity (including national identity) is a process in the present, and looking to the future. It is a matter of shared cultural experiences and imaginative or empathetic identification with others with whom one has some kind of communication links – books, music, TV, the web. So I love the phrase Imagined Communities. And Anderson’s link between nationalism and the combination of print technologies and vernacular languages makes complete sense.

Be happy! (Or else…)

It has been a busy and dyspeptic week. The Happiness Industry: How the Government and Big Business Sold Us Well-Being by William Davies has been the perfect accompanying reading material. The enthusiasm of many of my fellow economists for behavioural economics has made me increasingly uneasy. This is, after all, a profession strongly  inclined towards social engineering, and I’ve written here before about the likelihood that nudges are seen as an exciting new tool for this job. After all, they seem to work, and as even the status quo is a nudge, why wouldn’t you design better nudges to deliver better outcomes?

The Happiness Industry eloquently reinforces my suspicions. It locates the fashion for “well-being” in the long tradition of making the internal world measurable and reducing questions of morality and political choices to scientific decisions. Economics, rooted in Bentham’s utilitarian calculus, plays a leading role in the story, as do the successive waves of management science from Taylorism on. Indeed, in management, the growing surveillance of employees’ ‘well-being’ by wearable devices is the latest version.

Davies points out there is an inconsistency at the heart of this: “Workplaces put a growing emphasis on community and psychological commitment, but against longer term trends towards atomization and insecurity. We have an economic model which mitigates against precisely the psychological attributes it depends upon.” Yet the emphasis on resilience or mindfulness puts all the onus on the individual to adjust: “one progressive route would involve changing [the] context. But another equivalent would be to focus on changing the way it is experienced.”

He is also critical of the economists’ use of the idea of revealed preference: that you can infer somebody’s inner preferences or desires from their choices, usually their choices about what to spend their money on. Shopping speaks louder than words. Perhaps wearables that can measure heart rate or sweat will replace money as the best revealed preference metric, but meanwhile what someone spends is a readily-measurable indicator, easier to count and compare than what people say about their emotions. “This granted money an exceptional psychological status, as it allowed others to peep into people’s private desires.”

Disliking money as a metric, Davies is therefore also critical, as many people have been, of using the technique of contingent valuation to put monetary values on, say, the impact of an environmental disaster. “What we witness in this sort of example is economics becoming used as a basis for broad public agreement well beyond the limits of the market place,” Davies writes. He’s in good company. Michael Sandel and George Monbiot are among those who dislike the use of money as a measure of non-monetary values, such as nature, or relationhips, or civic virtue.

However, this seems to me distinct from the reductionism of the behavioural economists and psychologists. It is one answer to the question of how you resolve conflicts when there is no market: if you have to make interpersonal comparisons, how should you go about it? Or, in the words of a well known survey article, is some number better than no number? If you want to calculate compensation after an oil spill, how else could you go about it? So I am far more comfortable with these valuation techniques than I am with the happiness tendency.

On the latter, my instincts are with Davies: ” Behaviourism stretches Bentham’s dream of a scientific politics to its limit, imagining that beneath the illusion of individual freedom lie the cold mechanics of cause and effect, observable only to the expert eye.” When I teach my students behavioural economics – and they’re very interested in it – I ask them to look at this Adam Curtis blog, From Pigeon to Superman and Back Again. While not dismissing the policy sense of some nudges, beware economists who know how to make you happy and beware even more bosses demanding it of you.

Talking proper

Oliver Kamm’s book Accidence Will Happen: The non-pedantic guide to English usage is a treat. I’ve always tried to write clearly about economics, a field strewn with jargon used in proper (as shorthand) and improper (as obfuscation) ways. I believe clear writing is a pretty reliable guide to clear thinking on the part of the author, and always liked George Orwell’s famous essay Politics and the English Language.

 

Accidence Will Happen is a heartfelt plea to respect the vitality of English as a living language whose usage changes. It scorns the “shibboleths” of grammar pedants and usage sticklers. (Orwell too argued against the tyranny of ‘standard English’, although his rules for writing are over-rigid in their turn.)

I largely agree with Oliver Kamm, even though I have a fondness for using ‘whom’ in the ‘right’ places and considering ‘data’ to be a plural. And this observation in the book strikes me as true and to the point: “Shibboleths are not rules of grammar, let alone marks of civilisation: they are a means of keeping divisions sharp. …. The sticklers’ clause is not about culture but about class.”

As an observer of teens who attended the local school, this class distinction is evident in the way the kids from middle-class families readily switch between standard English at home and the local London street dialect with their friends. And growing up myself in a working-class household in north west England, it was all too clear that losing one’s regional accent was a requirement for upward mobility.

The moral is: pause before you sneer at the greengrocer’s stray apostrophes.

Enlightenment values

I’ve been slowly reading The Shape of the New: Four Big Ideas and How They Made the Modern World by Scott Montgomery and Daniel Chirot. Slowly because it’s too big to carry in my bag on the tube. It’s an intriguing history of the modern world as shaped by – yes – Big Ideas. The authors’ argument is that: “Ideas have been among the primary forces behind modern history during the past three centuries.”

This isn’t a new argument in itself. In the context of economic history, Joel Mokyr’s The Gifts of Athena and his The Enlightened Economy give pride of place to ideas, then embodied in innovations.

 

And as Keynes famously said at the close of The General Theory:

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.” (The quotation is usually shortened but it’s better in full.)

The Shape of The New does though have a distinctive version of the ideas that created our world. The first four chapters cover Adam Smith (morality and self-interest in political economy), Karl Marx (the desire for revolutionary redemption), Charles Darwin (embedding humanity in nature, the scientific method turned on ourselves) and the Jefferson-Hamilton debates (the nature and meaning of democracy). I knew the least about the last of these, so found it particularly interesting. The second half turns to the backlashes: the counter-Enlightenment all the way through to Fascism; and Christian and Muslim counter-reactions to modernity.

As the book concludes, the debates are still live, although of course taking new forms constantly. Those of us who hold Enlightenment values dear have to fight for them.

However, it ends with a bit of a damp squib, the conclusion being that the humanities are essential in higher education, and one of the most important aspects of study should be the history of ideas. I do happen to agree (even in economics), but it’s a rather low key ending to an ambitious and interesting book.