The Rise and Fall of American Growth

Robert Gordon’s magnum opus, (out in mid-January), is going to be an essential read for anyone interested not only in US economic history but also American economic prospects. The book is a comprehensive overview of growth from 1870 on, with a close focus on innovation and productivity. It does not consider at all macroeconomic policy, and is not much interested in events such as the Great Depression or the creation and later collapse of Bretton Woods. This is the supply-side story. This is not a criticism; as it is, the book weighs in at 650 pages – 730 with notes etc.

[amazon_image id=”0691147728″ link=”true” target=”_blank” size=”medium” ]The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (The Princeton Economic History of the Western World)[/amazon_image]

There are three sections: the first covers 1870 to 1940; the second 1940-2015; the third is about the sources of growth and why it was fastest from the 1920s to 1950s (this is just about the US so this is earlier than European readers would recognise as the peak growth era) – and is slowing now. The final chapters are a kind of crescendo, for the whole book is organised to support Gordon’s well known thesis that the days of miracle and wonder, the rapid growth era of the early to mid-20th century, is long gone, and slower growth lies ahead of us. As he writes in the introduction: “Our central thesis is that some inventions are more important than others, and that the revolutionary century after the Civil War was made possible by a unique clustering, in the late 19th century, of what we will call the ‘Great Inventions’.” [his italics] By Great Inventions, he means electricity, water supply and sewage systems, the internal combustion engine, radio then TV, and innovations that reduced household drudgery such as refrigerators and washing machines. The core of his argument is that these so transformed health, life expectancy and connectivity that no future invention could possibly have such a dramatic impact on people’s living standards.

Who could argue with the idea that this era saw such dramatic change in human lives? For that matter, it is also hard to argue with the headwinds he notes about growth now: demographic change with ageing populations, and inequality, limiting the mass market for future innovations. The final chapters particularly emphasise the damaging effects on the economy of greatly increased income and wealth inequality. Hear, hear. What I find odd about Gordon’s argument is his insistence that there is a kind of competition between the good old days of ‘great innovations’ and today’s innovations – which are necessarily different.

One issue is the extent to which he ignores all but a limited range of digital innovation; low carbon energy, automated vehicles, new materials such as graphene, gene-based medicine etc. don’t feature. The book claims more recent innovations are occurring mainly in entertainment, communication and information technologies, and presents these as simply less important (while making great play of the importance of radio, telephone and TV earlier). (A minor European carp – he also claims that it is only Americans who invent things now, when it would be more accurate to say it is only Americans who commercialise them to massive scale, especially in digital.)

Sure, we won’t repeat the impact of connecting houses to the electricity grid; but if we can keep them connected while generating power at simlar cost with zero greenhouse gas emissions, well that would be a Great Invention with the potential to utterly transform humanity’s prospects. We won’t see the same gains in life expectancy as with the previous introduction of public health measures and antisepsis, but if we can increase the quality of health and life for the over-60s, that would be a very big deal.

A second issue is that throughout the first two parts of the book, Gordon repeatedly explains why it is not possible to evaluate the impact of inventions through the GDP and price statistics, and therefore through the total factor productivity figures based on them – and then uses the real GDP figures to downplay modern innovation. “This book … focuses on the aspects of improvements of human life that are missing from GDP altogether.” For example, he writes, just as important as the calorific intake, or price of a given quantity of meat, is the fact that Americans’ diets changed from the monotony of ‘hogs’n’hominy’ in the 1870s to a much more varied diet by the 1920s. I wholeheartedly agree with this approach. While the very long run of real GDP figures (the ‘hockey stick of history’) does portray the explosion of living standards under market capitalism, one needs a much richer picture of the qualitative change brought about by innovation and variety. This must include the social consequences too – and the book touches on these, from the rise of the suburbs to the transformation of the social lives of women.

Yet in the later chapters of the book, turning to modern growth, Gordon does an about turn, saying: “The impact of innovations and technological change [since 1970] was measured by their effect on total factor productivity.” If this is going to be the yardstick in the ‘race between the decades’, he should have addressed here the questions about the measurement of GDP and productivity in the modern US economy, based as it is on services and intangibles.

For instance, he says: “Nothing in the history of price index bias compares with the omission of automobile prices from the official price indexes over the entire period from 1900 to 1935.” His data in chapter 5 show a decline in quality-adjusted prices between 1906 and 1940, from $650 to $266, which does not seem to support the broad claim. Even the decline in the per capita ratio of quality adjusted price to nominal disposable income (from 2.47 to 0.46) presented there looks smaller than some other innovation-related price declines, similarly omitted from or understated in, official price indexes. The book does not explain, but it would need to go into the figures in more detail if the argument is to turn on the GDP and TFP statistics. Anyway, there are two points about current and future growth. One is about the extent to which innovation is slower, or its effects less important – case unproven, in my eyes. The other is the issue of headwinds slowing down whatever innovation-driven growth there might otherwise be – a stronger case, well expressed in the final chapters.

The obsession with things having been much better, innovation- and growth-wise, in the old days is an irritation, and does make the reader wonder how much the narrative has been bashed into shape to fit the conclusion. Having said that, the wealth of detail in the book far outweighs this annoyance. It is stuffed with wonderful evocations of the effects of economic growth, with institutional details, with tables and charts of useful historical data. The history is brought alive by such things as recounting the living conditions of different kinds of families – midwestern farms with their space and light, compared with New York tenements – or discussing the effect of food quality standards – dairy products stopped being watered down, but butter lost the distinctive taste and smell of its ‘terroir’. Some parts of the story will be familiar to some readers; if you have read a lot already about the history of the computer industry, or Ford’s creation of the assembly line and the mass market, the capsule versions here will not add much. But the book as a whole is a tremendous achievement. If not for the holiday, I wouldn’t have been able to read it from page 1 to page 650; I’m very glad I was able to do so.


Bringing ideas to the world

Last week I attended the European Advisory Board meeting of Princeton University Press, the theme of the discussion being the role of university presses in the globalized 21st century. A while ago Sam Leith had an interesting article in the Guardian praising university presses for their stewardship of non-fiction publishing at a time when many commercial publishers have become fearful ‘me-too’ merchants. It could seem paradoxical: the university presses’ freedom from short term commercial pressure has created the conditions for longer term success, at least for some. Happily, Princeton University Press is one of those that’s thriving. There is a huge appetite for ideas, and the scholarly presses publishing books that address a wider audience than only academics and their libraries have been there to meet it. The appetite is also global, and again a small group of university presses have addressed the global market (much of PUP’s recent growth has been outside its home market in the US).

The other question is what will the ‘university’ part of ‘global university press’ look like in a decade or two? Higher education is ripe for disruption. It seems clear now this will not take the form of MOOCs, although they will have their market. Yet who knows what shape exactly it will take. One of my advisory board colleagues suggested publishing could be able to provide the true interdisciplinarity modern global issues require, whereas traditional university departmental silos discourage it. My hunch is that keeping a clear focus on the ‘product’ being the provision of ideas and scholarship to readers of all kinds around the world, and being agnostic about the exact means of delivering those ideas, will be the way to ride out disruptive technologies. A ‘freemium’ approach looks a good bet too: for example, the open access Digital Einstein website alongside the Quotable Einstein along with many other of his books for sale. (I note by the way there’s a holiday discount at the moment on purchases via the PUP website!)

My latest three books have been published by Princeton, and I’m delighted to be associated with such a distinguished purveyor of ideas to the world. During the holidays I’ll do my look ahead to forthcoming books in 2016 (publishers – do send me catalogues if you haven’t already) but here’s a trailer for just a few PUP titles for 2016: by William Goetzmann; by Robert Frank; and – just arrived at Enlightenment Towers, due for publicaiton on 27 January, Robert Gordon’s . I’m really looking forward to reading this over the holiday, & spoiling for a fight with Prof Gordon – but who knows, maybe he’ll win me over to his ‘innovation is so over’ thesis.

[amazon_image id=”B017MVYMSA” link=”true” target=”_blank” size=”medium” ]Money Changes Everything: How Finance Made Civilization Possible[/amazon_image]  [amazon_image id=”0691167400″ link=”true” target=”_blank” size=”medium” ]Success and Luck: Good Fortune and the Myth of Meritocracy[/amazon_image]  [amazon_image id=”B0131KW67U” link=”true” target=”_blank” size=”medium” ]The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (The Princeton Economic History of the Western World)[/amazon_image]



Understanding innovation and growth

I’ve been dipping into the truly fascinating World Intellectual Property Report from WIPO, published last week. The overview chapter has a beautifully clear overview of economic growth, and the role of innovation and IP rights. The rest of the report falls into two sections: case studies of historical breakthrough innovations (airplanes, antibiotics, semiconductors); and case studies of newer innovations with breakthrough potential (3D printing, nanotechnology and robotics).

The lessons drawn should not be surprising but seem hard for people looking at future growth prospects to absorb. For example, big innovations can affect growth through several routes (for example with antibiotics by the impact on human capital); their economic transformations are far-reaching, unpredictable and can take a long time; all breakthough innovations require continuous follow-on innovations, both technical and organizational; the specifics of the innovation ecosystem matter greatly, and have a geographical dimension; the structure of the ecosystem will change as the technology matures, steadily involving more professional and formal structures. Interestingly, the historical examples suggest that the IP system made far less difference to the wide dissemination of the technologies than the absorptive capacity of each country.

The report is free to download and – unusually for such official reports – a very good read. Its case study approach is illuminating and I learned a lot about the technologies I’m less familiar with.

200 years of innovation

200 years of innovation


Standards, interoperability and innnovation in infrastructure

A request via Michelle Brook on Twitter: what has been written about the relationship – in the context of large scale infrastructure – between standards/interoperability and innovation? A quick search via Google Scholar revealed a few papers, mainly about communications networks. Other than that, all I could think of was Pierre-Richard Agenor’s . Oh, and also business history case studies such as Bernard Carlson’s terrific biography, Jon Gernter’s , or maybe by Geroski and Markides. But if others have other suggestions, please do add them – or let Michelle, @MLBrook, know.

[amazon_image id=”0691155801″ link=”true” target=”_blank” size=”medium” ]Public Capital, Growth and Welfare: Analytical Foundations for Public Policy[/amazon_image]  [amazon_image id=”0691165610″ link=”true” target=”_blank” size=”medium” ]Tesla: Inventor of the Electrical Age[/amazon_image] [amazon_image id=”1594203288″ link=”true” target=”_blank” size=”medium” ]The Idea Factory: Bell Labs and the Great Age of American Innovation[/amazon_image]  [amazon_image id=”0787971545″ link=”true” target=”_blank” size=”medium” ]Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets (J-B US non-Franchise Leadership)[/amazon_image]


Which way to the future?

I’ve enjoyed reading Bernard Carlson’s (although, as I confessed, skipping over the physics). How exhilarating to read about the exceitement as thousands of people crammed into lecture halls to hear Tesla speak about his discoveries. “The demand for seats was so great that tickets were being scalped outside the hall for three to five dollars,” Carlson writes of an 1893 lecture in St Louis (that’s $80-130 in today’s dollars).

[amazon_image id=”0691165610″ link=”true” target=”_blank” size=”medium” ]Tesla: Inventor of the Electrical Age[/amazon_image]

The book is particularly interesting on the lack of form and direction in the early stages of commercial development of a new technology. Standards had not been agreed. Different technical approaches seemed equally viable. Companies were forming – and going into receivership – and the investment risk was substantial. Rich investors (hello J.P.Morgan) were trying to corner new markets. Patent litigation was common.Tough choices had to be made between promoting ideas and licensing the patents versus holding patents and going into manufacturing.

In this confusion, sober analysis was insufficient to make technical and financial choices. What Carlson calls ‘illusion’, the building of sufficient belief in a single path to the future, was critical: “We need to understand and appreciate how inventors and entrepreneurs forge relationships that foster a balance between imagination and analysis.” The inventor has to inspire his (or her) backer, the businessman has to keep the creative genius grounded (no pun intended). One could see it as creating the focal point in a game with many possible outcomes, and hence sometimes the phenomenon of to what might be not the best technical outcome.

So, a fascinating read on the early development of an important new technology, as well as an extraordinary character. As the book observes, there was always a kind of minority interest in Tesla, a real maverick; but he deserves this fine biography.