Tech self-governance

The question of how to govern and regulate new technologies has long interested me, including in the context of a Bennett Institute and Open Data Institute report on the (social welfare) value of data, which we’ll be publishing in a few days’ time. One of the pressing issues in order to crystallise the positive spillovers from data (and so much of the attention in public debate only focuses on the negative spillovers) is the development of trustworthy institutions to handle access rights. We’re going to be doing more work on the governance of technologies, taking a historical perspective – more on that another time.

Anyway, this interest made me delighted to learn – chatting to him at the annual TSE digital conference – that Stephen Maurer had recently published Self-governance in Science: Community-Based Strategies for Managing Dangerous Knowledge. It’s terrifically interesting & I recommend it to anyone interested in this area.

The book looks at two areas, commerce and academic research, in two ways: historical case study examples; and economic theory. There are examples of success and of failure in both commercial and academic worlds, and the economic models summarise the characteristics that explain whether or not self-governance can be sustained.

So for instance in the commercial world, food safety and sustainable fisheries standards have been adopted and largely maintained largely through private governance initiatives and mechanisms, synthetic biology much less so, having an alphabet soup of competing standards. Competitive markets are not well able to sustain private standards, Maurer suggests: “Competitive markets can only address problems where society has previously addressed some price tag to the issue.” Externalities do not carry these price tags. Hence supply chains with anchor firms are better able to bear the costs of compliance with standards – the big purchasing firm can require its suppliers to adhere.

Similarly, in the case of academic science the issue is whether there are viable mechanisms to force dissenting minorities to adhere to standards such as moratoria on certain kinds of research. The case studies suggest it is actually harder to bring about self-governance in scientific research as there are weaker sanctions than the financial ones at play in the commercial world. Success hinges on the community having a high level of mutual trust, and sometimes on the threat of formal government regulation. The book offers some useful strategies for scientific self-governance such as building coalitions of the willing over time (small p politics), and co-opting the editors of significant journals – as the race to publish first is so often the reason for the failure of research moratoria to last.

The one element I thought was largely missing from the analytical sections was the extent to which the character of the technologies or goods themselves affect the likelihood of successful self-governance. This is one aspect that has come up in our preparatory work – the cost and accessibility of different production technologies. The analysis here focuses on the costs of implementing standards, and on monitoring and enforcement.

This is a fascinating book, including the case studies, which range from atomic physics to fair trade coffee. It isn’t intended to be a practical guide (& the title is hardly the airport bookstore variety) but anybody interested in raising standards in supply chains or finding ways to manage the deployment of new technologies will find a lot of useful insights here.

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Calculating the economy

One of the books I’ve read on this trip to the AEA/ASSA meetings in San Diego is The People’s Republic of Walmart by Leigh Phillips and Michael Rosworski. This is a very entertaining projection of the socialist calculation debate onto modern capitalism.

41JGcj2r26L._SX329_BO1,204,203,200_The starting point is the Simon/Coase realisation that big firms are internally planned economies – if it works for Walmart, why wouldn’t it work at larger scale? The authors’ hypothesis is that economic planning might work better now that we have so much more powerful computers and better data.

I’d recommend the book as an introduction to the socialist calculation debate for those unfamiliar with it (ideal for students). It cites some of my favourite books including Francis Spufford’s Red Plenty and Eden Medina’s Cybernetic Revolutionaries. Some chilling lines – about Stalin’s purges, for instance: “Anyone with any expertise was placed under suspicion.” It’s a great read.

Am I persuaded? Not entirely. Technology clearly will change organisational configurations, but it has just as much been decentralisation of firms and extended supply chains as it has been giant Walmart-type firms. I’m also sceptical that the data available is actually the information needed to plan an economy, or that it’s easy to access and join up. Still, it’s the right question, and a reminder that the boundary between market, state and other forms of organistaion is not set in stone but needs constant negotiation – in fact, I know a great book about this about to be published: Markets, State and People.

0FBA95F6-E1DB-4017-A90A-89A2D3C43EB7As seen at ASSA2020 in San Diego

 

 

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Inventing the property market

Desmond Fitz-Gibbon’s Marketable Values: Inventing the Property Market in Modern Britain is an interesting history of exactly what the subtitle says: the institutions and practices that created the forerunner of today’s anonymous, professionalised property market out of the thickets of traditional social relations that still characterised property ownership at the end of the 18th century. It’s a very nice study of the development of an economic institution: the creation of physical marketplaces, the standardisation and publication of information flows, the development of relevant professions such as auctioneer, estate agent, surveyor, even the invention of suitable filing systems and procedures for enabling viewings of properties. This had to bring together the building of suitable premises for auction rooms or the purchase of estate agency offices, legal and governance practices, social norms, the creation of professional development pathways, and much more.

This all sounds a bit niche, perhaps, but I’m a sucker for the detail of markets as economic and social institutions (& never tire of recommending John McMillan’s Reinventing the Bazaar). This is a very nice study, and, importantly, ends with a chapter on the ‘Limits of Marketability’, looking at the battles to preserve open land and the struggle that led to the formation of the National Trust in 1970. The nascent property industry painted property markets as democratizing: “At present the land is held by the few but the day is coming when it will belong to the many,” said the Estates Chronicle in 1898. But land held by all is important too. To be read alongside Brett Christophers’ The New Enclosure (reviewed here).

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My damp Scandinavian view of the world

It’s the last full day of our holiday in Sweden and the weather has turned a bit wet, so in between the detective novels (the latest – Jill Paton Walsh’s Dorothy Sayers update, Thrones, Dominations) I read Robert Peston’s WTF. It’s as well-informed and full of insight about the present state of the world as you’d expect from such a distinguished journalist (although written in a slightly matey style which didn’t appeal to me). The book is mainly about Brexity UK – with a brilliant chapter on our last general election and the respective characters of Mrs May and Mr Corbyn – though it touches on parallel trends in Trumpland. I agree with his diagnosis that the issues contributing to the anti-establishment anger date back well before the financial crisis, to the deindustrialisation of the 80s and 90s, and the chasm between London/SE and the rest of the country. The book’s fundamental point is that the economy stopped working for an ever-growing number of voters, vast numbers of whom have seen no significant rise in living standards for well over a decade, and even longer for too many.

Interestingly, in the light of the current fashion for saying the big economic problem is all about concentration and the exploitation of market power, Peston instead pins the blame for a dclining labour share of national income on the Reagan-Thatcher-led attack on union power from the mid-70s on. The press reports of the Jackson Hole discussions this year noted that debate there focused on the issue of concentration. When I expressed some doubt on Twitter that this was anything other than a US phenomenon (as the UK labour share looked from eyeballing an ONS chart to have been fairly stable), a couple of replies insisted I was wrong (one arguing I was looking at the wrong data, and the other claiming the IMF said it was a global phenomenon). Well, after my years on the Competition Commission, I’m a big fan of tough competition policy, and agree it has been lax in the US for some time. The US also has an issue with creeping occupation licensing as the Obama CEA pointed out. But, reading up on the IMF’s recent work on trends in the labour share makes plain the great diversity of national experiences – and indeed, they say the UK labour share has increased.

Well, whenever a phenomenon is so varied across countries, it tells you institutions are playing a big part. Combined with the fact that across countries the big decline in the labour share occurred from the mid-1970s to around 2000, surely labour market institutions played a key part – for all that it’s right to be concerned about concentration in some countries/sectors now. (And the IMF data goes only to 2014, so perhaps there has been a dramatic decline in the latest 3 years of data…)

Anyway, looking out at the rain, on now to proofs of the forthcoming book by Alan Greenspan and Adrian Wooldridge, which I’m going to be reviewing in due course – a history of capitalism in America, which is going to be fascinating, as I’m anticipating a defence. There has also on Twitter been some discussion about what books to put on the syllabus for a history of capitalism course (really, a history of thought course), in which I didn’t participate (& can’t find now), but noted with interest that all the books were critiques, from The Great Transformation on. Maybe the Greenspan/Wooldridge book could balance it out.

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Meta-policy

It turns out that being involved in a start-up – the Bennett Institute for Public Policy at the University of Cambridge – is pretty busy. So although I’ve been reading, it’s a couple of weeks since I had chance to post a review. However, the passage of time means I can now write about Kaushik Basu’s The Republic of Beliefs, which is one of the most interesting and exhilarating books I’ve read for ages.

The book concerns the application of game theory to law and economics, which sounds dry but is profoundly important. Basu addresses a meta-question: why are some laws obeyed and some not? His answer voyages through the traditional law and economics literature but also social norms, history and institutions. He write: “For the law to develop roots and the rule of law to prevail requires ordinary people to believe in the law; and to believe that others believe in the law. Such beliefs and meta beliefs can take a very long time to get entrenched in society.” And, of course, it doesn’t happen in all societies.

To tackle the question, Basu looks at how to model (game theoretically) the actions of the functionaries of the state, the law enforcers. As he points out, the difference between social norms and laws is usually taken to be self-enforcement versus enforcement by the police or judiciary. So it’s necessary to think about when either kind of enforcement occurs. For how could law – “jottings on paper” – work other than by altering the payoffs of the game? There’s a logical mistake to assume that law enforcers will automatically enforce the law, as is normally done in the literature, without making an rational calculation about what’s in their best interest when everybody else is assumed to be a calculating rational maximiser.

But if the law enforcers are brought into the game rather than being assume deus ex machina, how does the law change behaviour and outcomes at all? The answer must be that it changes people’s beliefs about what other people might do. The law can try to create new focal points in the game of life: “The might of the law, even though it might be backed by handcuffs, jail and guns, is in its elemental form rooted in nothing but a configuration of beliefs carried in the heads of people in society. … It is in this sense that we are citizens of the republic of beliefs.”

This conclusion has a striking consequence: “any outcome that is made possible by creating a law could have happened without the law,” Basu argues. Outcomes can come about either through formal legislation or through informal social sanctions, although the law might help bring about the self-sustaining edifice of beliefs more readily. But laws that do not direct the economy to one of many possible equilibrium points will not be observed. Hence in societies where there is a good deal of corruption, the law is trying to enforce behaviour among law enforcers that is not in their interests, and so will fail.

Basu discusses the long shadow of history in the light of this. As he points out, there has been a good deal of attention paid (much of it outside of the field of law and economics) into how to create new focal points. Less has been paid to how to erase focal points – which is something the western democracies might well want to do after this era of madness is over, for example in terms of acceptable behaviour online or violence to individuals from ethnic minorities: “Memory, in these kinds of problems, tends to leave a residue that is hard to erase.” Law abiding behaviour founded on the belief that laws are followed is sticky, but so is its opposite.

The book speculates that in the game of life the deep ambiguity about the future – what will the set of games be? – also makes ‘focal players’ important. Some people may be able to set the meta-framework: “In war and conflict, where one has to encounter sudden and unexpected scenarios, it is important to have a well-specified leader.”

In general, we need to understand better the role of the process of the creation of laws and social norms, including how they can erode, tipping society from a ‘good’ to a ‘bad’ equilibrium. I find thinking about these regime shifts – which are clearly under way in many societies now – in these terms of self-enforcement incredibly powerful. The online world makes this doubly the case – as Basu writes: “Thanks to the march of technology, market structures are changing in ways that need smart collective interventions to make sure we do not sink the boat by each trying to enhance our own self-interest, … We may need to think of different kinds of legal and governmental interventions so enable the economy to function effectively.”

I hope nobody is put off by the appearance of game theory. This is a beautifully written book, very profound, and the small number of payoff matrices clearly explained. The Republic of Beliefs offers a distinctive and revealing perspective on public policy, and couldn’t be more timely.

 

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