The beauty of infrastructure

How Infrastructure Works by Deb Chachra is a good complement to Brett Frischmann’s now-classic Infrastructure, which has more of a focus on the economic analysis. Chachra is an engineer, which leads to her focusing more on the physical aspects and affordances of the technologies involved. Having said that, there were two aspects of the book I really appreciated. One is that she links access to infrastructure to Sen’s capabilities approach, and the fact that it gives people agency to lead their lives as they see best. It is also progressive – those with fewer private assets get more value out of public assets.

The other is the emphasis on the collective character of infrastructure assets – which is one reason my colleagues and I recently called for a Universal Basic Infrastructure (rather than income, or even services, both of which involve an individual perspective). The ability of a society or community to invest in and indeed maintain infrastructure – now very complicated and multi-layered – is a thermometer of its political and social health. Something Chris Arnade recently pointed out with regard to the US: decaying transport system, declining polity.

As Chachra points out, the lens of economic efficiency is inadequate. It leads to under-investment in systems that need redundancy, to create resilience at all, and all the more necessary now to enable the needed energy transition.

She’s optimistic about the possibility of shifting to green energy – more so than Brett Christophers in his excellent forthcoming book The Price is Wrong – perhaps because Chachra assumes the state will undertake a lot of the needed investment. Although she adds, “Stability of all sorts, including political and economic stability, is what makes it feasible to front-load large investments of resources with the expectation of continuing benefits over a long period.”

“The true value of these [infrastructure] systems is literally incalculable … because they enable systems and behaviours that wouldn’t be possible without them,” she writes. Above all, what I like about the book is its recognition that “the political and the engineering questions are inextricably linked.” I’ve been slightly obsessed with the dysfunction of applying cost-benefit analysis to major infrastructure, and the need to maintain and upgrade it to at least mitigate deep spatial inequalities. Bennett Institute colleagues have worked on social infrastructure and we have a new British Academy project on a measurement framework for social and cultural infrastructure. The term has recently been more widely used, and perhaps the definition needs revisiting. But the focus on the collective rather than the individual, on the future not just the immediate present, and on the inadequacy of the static efficiency lens when we need an “ethics of care rather than utilitarianism”, is surely correct.

The Guardian had a taster essay extracted from the book, but it is well worth a read as a whole. It’s thoughtful, informative and also very well written.

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Institutions, finance – and war

Perhaps it was because I read the book in several stages, but I found it hard to take away a single line of argument from Geoffrey Hodgson’s The Wealth of a Nation: Institutional Foundations of English Capitalism. There is plenty of interest in the book but the chapters seem unconnected. One of the comments on the back, from my former colleague Sheilagh Ogilvie, makes a virtue of this, praising it for steering clear of monocausal explanations, which is true. But the book is also making an argument about the mode of economic analysis as well as about causes of the Industrial Revolution.

Anyway, here is what I took from my read:

  1. Other accounts of the origins of the Industrial Revolution and capitalism in England get something wrong: Marx, McCloskey, Mokyr, Allen, Weber, Uncle Tom Cobbley and all.
  2. This is because they do not employ the framework of evolutionary economics.
  3. Economics goes wrong big time in mixing up capital as in physical capital goods and capital as financial capital, starting with Adam Smith.
  4. Economic development is a process of the creation and changing of both technical and institutional rules.
  5. The distinctiveness of capitalism lies in the development of financial instruments and markets, especially mortgages lent against collateral: “Developed financial institutions make capitalism historically specific.”
  6. The Industrial Revolution was due to institutional evolution – mostly gradual but with some big moments of dramatic change such as the deal that brought about the 1688 accession of William and Mary.
  7. But the impact of external shocks – especially war – in bringing about economic development is under-appreciated.

I liked this observation about institutions: “They function as information registries of what is produced and owned, and of rules governing their use and allocation.” Hodgson cites Shannon and Weaver’s definition of information – something whose receipt can cause an action. This metaphor of units of information underlies the evolutionary approach, as I understood this chapter. Hodgson here and elsewhere has strongly argued the case for a paradigm shift in economics away from its still-extant physical production function framework to the evolutionary framework. (I do see the crumbling of the old paradigm in some respects but we’re far from a new one taking its place.)

The book ends, to my surprise, with a chapter about Japan’s economic development. I think the point here is that: “Major institutional changes in the fundamental areas that matter for economic development typically depend on exogenous shocks.” For Japan these were the Meiji restoration, then loss and occupation in 1945/6.

All in all, an interesting read, but it made me think I’d get more from reading one of Prof Hodgson’s earlier books on evolutionary economics.

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Private government?

I’d previously read about Elizabeth Anderson’s Private Government, but hadn’t actually read it until this weekend. The book consists of her two 2014 Tanner Lectures and the four responses, so is quite old. The lectures draw an analogy between public government – “the people free under the state” – and the private government workers experience when their bosses boss them in unaccountable ways. In other words, the state’s exercise of power in a democracy is justified whereas employer’s exercise of power is not. Along the way, the lectures trace the evolution of the idea of a free market as a means of exercising freedom (in the 17th century with the Levellers and the 18th with Adam Smith) to the 21st century ideology of ‘free markets’ as essentially a means of exercising corporate power.

As respondent Niko Kolodny asks, though, what’s wrong with being governed, even at work? And Tyler Cowen argues that the costs of exiting a job are relatively low – Anderson compares leaving a job as a path to freedom is like saying Italians under Mussolini were free because they could leave the country (until they couldn’t, of course). This is surely hyperbole. There are without question abusive employers of marginalised workers and it behoves those of us with good jobs to appreciate this. But an argument about employer abuses is an argument about the need for the state (public government) to do a better job with legal protections and their enforcement. For instance, governments (and the legal profession) are finally bearing down on the extensive use of NDAs; good. It is harder than it was even 10 years ago to fire an employee over their sexual preferences. People can be fired for expressing some views on social media – when these are illegal or just vile and damaging to their employer’s reputation, also good.

Anderson – whose Value in Ethics and Economics is a terrific book* – doesn’t bring in to the argument two issues that seem relevant. One is the Hirschman triptych of exit, voice and loyalty, which is a useful way of thinking about power in economic relationships and could have shed light on this context. The other is Elinor Ostrom,** whose private governance model by definition takes a form that is not arbitrary and abusive but consensual – it would have been interesting to see her design principles discussed in the context of the worker-employer relationship. The master key to governance design seems to be information asymmetries and the possibility of monitoring – I think this is why in the context of modern digital technologies we see on the one hand increased surveillance of workers in some jobs and firms, and on the other hand increased autonomy in decision-making for workers in different jobs and firms. The latter are high-trust and more productive organisations.

So I have every sympathy with Anderson’s criticism of bad workplace relationships, and the value of worker autonomy. But the lectures aren’t all that persuasive.

*I have an old copy – not sure why it’s so expensive even 2nd hand now.

**Also weirdly priced at £226.84 for the paperback on Amazon today – maybe the algorithm doesn’t like the heat?

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The Treasury View?

Former prime minister (briefly) Liz Truss might not have been the biggest economic brain, but was she right to argue that there is such as thing as ‘the Treasury View’ and further that it hasn’t served the country well? Many people across the political spectrum would agree. I briefly worked in the Treasury many years ago and was certainly quickly socialized into certain rule-of-thumb beliefs – free trade is good, hypothecating taxes is bad, etc. I have some thoughts about how to test the Treasury View hypothesis, particularly the claim about the short-termism it imposes on economic policy. Meanwhile I’ve been reading a few books. One was Sam Beer’s old overview of how the Treasury operated in the 1950s. Another is a new book, Bankruptcy, Bubbles and Bailouts: the inside history of the Treasury since 1976, by Aeron Davis.

It was both an interesting and an incredibly frustrating read. The book draws on a series of over 50 interviews which included some absolutely key insiders – ministers and officials – and a few experienced external commentators. It would be hard to draw up a better list. However, the author has his own strong views and does not distinguish clearly between his commentary and his interviewees’ perspectives. Indeed, some of his commentary on interviewees I know strikes me as just wrong, failing to distinguish between their actions as principled civil servants serving the government of the day and their personal views about privatization or deregulation. I found myself wishing I could just read the interview transcripts instead.

It isn’t that there are no good authorial observations; on the contrary, he points out the inconsistency of globalising and deregulating the financial markets at the same time as trying to control the growth of the money supply (that was happening in my era); or that the hit to manufacturing from exchange rate appreciation in the early 80s coincided with deliberate policy actions that harmed industry and helped finance. Indeed, the main theme of the book is the financialization of the economy – although it seems to me this had as much to do with political choices as Treasury dogma. There is a particularly interesting chapter about the financial crisis and the reorganisation of financial supervision.

However, former Perm Sec Nick Macpherson is one believer in the idea of a Treasury view, setting out its key elements in a speech he gave in 2014, all centred around the asserted limits to what government can accomplish in economic policy. I think there’s still something to pursue in documenting not so much what it is as why it is, and how it lasts despite the huge changes in the economy and rapid turnover in personnel, and what the implications are for better economic management. The book is well worth reading but it is a view through a particular lens.

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UK policy co-ordination: saying no and having lunch

I’ve been reading up about His Majesty’s Treasury, with a view to a piece of research, and this week finished Samuel Beer’s short 1956 book, Treasury Control. There’s much in it for those who believe in the existence of an age-old ‘Treasury View’. Gladstone is quoted as saying ‘the saving of candle ends’ was “very much the measure of a good Secretary of the Treasury.” Winston Churchill’s view in 1929 was that the State can as a general rule never creat additional employment was a ‘steadfast’ “orthodox Treasury view.” Beer argues the Treasury’s role is not to co-ordinate across departments, but simply to say No, and comments, “Is it not a little odd that so Gladstonian an institution as the Treasury should become the agency for guiding and controlling state intervention in the economy?” Economic policy co-ordination at that time, he reckoned, came about through Oxbridge networks and “lunch tables of the clubs of Pall Mall.”

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