How to invent ideas

I found Zorina Khan’s Inventing Ideas: Patents, Prizes and the Knowledge Economy very interesting. It uses an impressive assembly of empirical evidence about inventors, patents, the administrators and recipients of innovation prizes and awards, and industrial exhibitions – largely in the US, UK and France – to support a specific analysis of what enabled the US to become the most innovative and richest industrial nation from the late 19th century on. As she points out, much of the literature asks why Britain was the first country to experience an industrial revolution, so the question itself is distinctive.

Her argument is that compared with Europe, there were “dramatic differences in the new approach to growth that were manifested in early US policies.” The key difference – supported by the mass of evidence – is a far greater emphasis in the US on patents (as a market-oriented innovation system) rather than prizes and awards (an administered system). A second and consequential difference is the preponderance of incremental and commercially successful innovations in the US. “Elites have always mistrusted markets: wealth and influence often lead to the convistion that the insights of the favored fiew can outperform spontaneous co-ordination,” Khan observes. The US was strongly anti-elitist (at least in that era), whereas “the most significant variable affecting whether or not a British inventor received a prize was elite education at Oxford or Cambridge,” neither university at the time focused on technical or scientific excellence.

Along the way to supporting its argument that the marketplace of ideas beats elite technocracy, the book demolishes quite persuasively the recent trend toward innovation prizes as an effective incentive mechanism. Less persuasive is the argument that patent trolling is no greater a problem than it ever was (although there clearly was a lot of litigation over patents in the 19th century).

It also makes the point that European and American patent systems operated differently. The specific institutional details mattered. So the conclusion one could draw is that the underlying elitism of European societies and egalitarianism of the US does more to account for latter’s emergence as technological leader. In which case, the longer term outlook for the US staying at the frontier may be less rosy. In any case, much food for thought in the book, and fascinating empirical and historical detail.

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Learning to grow

I recently re-read Joseph Stiglitz and Bruce Greenwald’s (2014) Creating a Learning Society: A New Approach to Growth, Development and Social Progress (slightly amazed at how many years ago it was published, as I remember hearing Joe Stiglitz give a talk about it in Toulouse when it was just out. Seems much more recent in memory.)

It’s a masterly reframing of how to think about economic development and importantly appropriate policies in terms of quite simple models that are completely compatible with mainstream economics. The policy mix runs counter to what one could describe as conventional (mainstream) wisdom. The book advocates strategic industrial policy – because the models all involve hysteresis, so history matters and policymakers need to think about the path from here to the future; less extreme (albeit enfroced) IP rights because creating the incentive to innovate from a given pool of knowledge has to be traded off against a smaller pool of knowledge; trade/infant industry protection because learning by doing and learning from experience make production important to grow the pool of knowledge. The message about market structure – competition/concentration and static vs dynamic efficiency – is that it’s complicated. There’s no simple relationship.

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Above all, when technology is endogenous there can be no presumption that market outcomes are efficient, and policies need to think about how firms and society learn, and not just about allocative efficiency. It’s a great book for students because it demonstrates how to use models to think about complex policy options, and also that it is not bad economics to challenge market first-ism. Although pitched at developing economies, I went back to it to think about the levelling up challenge within the UK economy. Knowledge sticks to people, who stick in places, and as it accumulates places can diverge a lot over time. Given that innovation also requires adequate scale and some means of mitigating the uninsurable risks associated with it, the need for significant policy interventions seems clear to me.

 

 

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Endogenising economists

I’m afraid I was underwhelmed by The Power of Creative Destruction by Philippe Aghion & his co-authores Céline Antonin and Simon Bunel. The book falls between the two stools of textbook for econ courses and overview for the general reader. It is based on course notes and has that tone (and charts/tables/referencing of the literature), but all the technical apparatus students would need has been removed. Professor Aghion is of course a terrific economist who has published lots of excellent papers on growth and innovation. However, that too is a downside here, as the book is the Aghion view of the world rather than a broader survey of the economics of innovation and growth.

The oddest aspect of this is his contrast between the Solow neoclassical growth model and the ‘new paradigm’ of Aghion-style Schumpeterian growth. Set aside this claim to novelty, which might cause many other Schumpeterian economists to raise an eyebrow; there is nothing here about the competing workhorse approach of endogenous growth models. Paul Romer makes it to the footnotes, Paul Krugman’s increasing returns models not that far, Ken Arrow too isn’t mentioned. Joseph Stiglitz fares best out of the prominent thinkers about markets, growth and development in the context of increasing returns. The book is more or less an account of Prof Aghion’s own research, and his own papers (excellent as they are) are the most-often cited. So while accepting the importance of creative destruction and new ideas, the absence of much about information and ideas is pretty glaring. There is a chapter about R&D but little about the economic models endogenizing it.

I could quibble about other features too, such as relying on patents to measure innovation, but it’s this missing aspect of the dynamics – the scope for endogenous, self-fulfilling or -averting phenomena – that seems a particularly big gap. The discussion of intellectual property lacks any nuance: it is simply asserted that patent protection is essential. Of course it is, but that isn’t the point of the present policy debate, which is exactly about whether the right balance between patent-protected monopoly and broad access to new ideas has been struck.

41eUnCMDnVL._SX329_BO1,204,203,200_On the other hand, I also read Carlo Rovelli’s Helgoland and warmly recommend it. It sets out his view about quantum phenomena as manifestations of the fact that reality is relational: nothing is experienced, perceived, measured, or understood except in relation to everything else. “Every vision is partial. There is no way of seeing reality that is not dependent on a perspective. …. The actor of this process is not a subject distinct from phenomenal reality, outside it, nor any transcendent point of view; it is a portion of that reality itself.. …. Relations make up our ‘I’, as our society, our cultural, spiritual and political life.”

This appeals strongly to my intuition and echoes the argument of my forthcoming book, Cogs and Monsters, one of whose key threads is the point that economists can not stand outside the society they seek to analyse. Even the economists are endogenous.

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Technology old and new

For the usual kind of slightly random reason, I re-read David Edgerton’s excellent book The Shock of the Old this past week (having read it when published in 2006 as he was an interviewee on an Analysis I was presenting [http://news.bbc.co.uk/nol/shared/spl/hi/programmes/analysis/transcripts/27_07_06.txt]). It’s generally aged very well, and is of course a necessary corrective to technology hype. The main argument is that the history of technology tends to be told as a a breathless account of inventors and shiny new inventions, rather than the more representative but complicated story of economic conditions and uneven diffusion and use. So at any moment in time, many overlapping technologies serving the same basic needs will be in use around the world.  What’s more, the same hype gets recycled. For example there’s a quotation from George Orwell in 1944 complaining that people were over-hyping the ‘death of distance’ due to the airplane and radio, when the same claims had been made before 1914!

It is undoubtedly true that different technologies overlap in use, and indeed there’s quite a large economics literature about diffusion and the need for complementary investments before inventions and innovations deliver productivity benefits.  To this extent, Edgerton is railing against an imaginary foe. He is also very sniffy about the concept of ‘weightlessness’, which he misinterprets as a claim about declining employment shares for primary and secondary sectors of the economy. It is not this, but rather a description of the distribution of value added in the economy, and one that has been borne out fully by trends in the past 2 or 3 decades.

The other point that he seems to me to under-play – oddly, given his emphasis on the importance of contest for the use of technologies – is that they are all social. There are countries unable to provide a reliable electricity supply not only because they are low or mid-income but because they do not have the institutions to support the complex supply arrangements: not just sub-Saharan Africa but also California. Or take the book’s example of the Pill, which it argues is an incremental change in contraceptive technologies. Yes and no. Each of the Pill’s characteristics – women in control, reliable, and not requiring a fitting by a doctor – might seem a small shift from condoms, douches, IUDs and diaphragms, but together they did deliver a compelling new method and a radical change in social relations.

Having said all this, The Shock of the Old is a bracing corrective to techno-hype, something certainly still needed.

41HeTZgQv0L._SX324_BO1,204,203,200_(This is the new edition – I have the old one so haven’t read the new intro.)

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Making the impossible happen

I have totally enjoyed One Giant Leap: The impossible mission that flew us to the moon, by Charles FIshman, out now as a paperback. It covers everything about the Apollo mission, from the Cold War context (the shock of Sputnik and Gagarin) and JFK’s political calculations and Congressional debates, to the practicalities of the science, design and manufacturing, to the lasting consequences for global society. The Soviet lead in space stimulated the US space effort, but Kennedy himself was lukewarm about America being first on the Moon. Fishman argues that the assassination of the President ensured the continuation of the mission because it became a memorial to him.

One key long-term consequence is that the mission to get humans on the moon brought about the digital revolution. Fishman makes a totally persuasive case that NASA was such a large-scale and demanding, perfectionist purchaser of integrated circuits that it ensured they became faster, more reliable and cheaper with every passing year. Transistors had only been around for 10 years but were too large and power hungry for the new performance demands of manned space flight. NASA bought most of the chips made in the US during the 1960s. The first ones cost $1000 each, in 1962 they were under $100 each, in 1963 $15 each and $7.68 by 1965.

The other long-term impact was to turn ‘technology’ from something scary and Dr Strangelove-like to do with nuclear weapons and mutually assured destruction into something benign and aspirational, the challenge of conquering space for all humanity, albeit planting US flags on the Moon. “The race to the Moon … invoked the wonders of science, with about as much drama as could be imagined.”

The sections about managing the huge engineering project across multiple suppliers, manufacturing to the essential high standards, obessing over details, making key design decisions are all totally fascinating. MIT’s Instrumentation Lab was writing all the software – itself a new word in the early 1960s – and this threatened to delay the launch beyond Kennedy’s ‘before the decade is out’ deadline, so complex and crucial was the task. “It was the first of a whole new kind of engineering projects,” Fishman writes. There was no prior know-how about how to run these. Indeed, big, complex software engineering projects all too often still go wrong. Humans got to the moon and safely back because of the attention to detail on the part of NASA engineers.

The Apollo project was made all the harder by the fact that the onboard computer had to fit within one cubic foot, and its memory contained just 589,824 0s or 1s. So its software was – literally – woven by hand. MIT and NASA HQ had tapes and punch cards. On the spacecraft itself, the programs required to get to the Moon, land the Lunar Module, take off again, dock in space with the Command Module, and return to Earth, there was no room for these bulky items. The punch cards were taken to an old textile factory in Waltham, Massachussetts, where women who had woven fabric, or manfactured watches, in previous jobs now wove software into ‘core rope memory’ at special looms. Their old skills made them the only kind of workers with the know-how to weave computer memory. When the women struck for a while in the mid-1960s, everything their supervisors and managers produced until the strike was over, had to be scrapped.

This is the kind of detail that made me love the book. But the wonder of the Apollo Mission is also part of the enjoyment. I have a vague memory of watching Neil Armstrong, sitting in my PJs along with my older siblings; our family had got our first TV for the occasion. I ended One Giant Leap feeling vaguely optimistic as we approach the end of a dreadful year. Human societies can do impossible, wonderful things, with a combination of political vision and support, and engineers.

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