There is no alternative?

Is Capitalism Obsolete by Giacomo Corneo is framed as an exploration of alternatives to capitalism by an economics professor father to his idealistic daughter. The Prologue is an email exchange between them, in which she writes: “Your economic system is wasteful, unjust and alienating. And wastefulness, injustive and alienation are not the result of some natural law. They are the result of particular social rules, the rules of capitalism. And keep in mind that the capitalist economic system is the product of a relatively short period in history. Just as it once emerged, it will one day decline and be replaced with a better set of rules.”

Set up in this way, the book explores some of the alternative models posited at various times, from Plato’s Republic and Thomas More’s Utopia through anarchism and socialist planning to modern variants including ‘shareholder socialism’ (state ownership of key industries) and the currently fashionable cure-all, Universal Basic Income. At the end of this journey, the economist concludes: “There is, at present, not really much else on offer.” However unfair, wasteful etc capitalism is, there is no convincingly superior alternative. Instead, the author proposes a range of reforms – cracking down on cross-border tax avoidance/evasion, investing in infrastructure & public services etc – concluding, “A pluralist market economy with an effective and generous welfare state represents the best economic system that is currently available to us.” An appendix contains a more detailed specific reform proposal, the idea that the state should invest in quoted companies to build up a socially responsible sovereign wealth fund paying a social dividend to citizens.

I have never found the abstraction ‘capitalism’ a helpful term when it encompasses societies as contrasting as Norway and the United States, and have always quite liked the slightly out-of-fashion ‘varieties of capitalism‘ approach. Even if you think the term useful, though, looking at the news this past week, Corneo is surely rather optimistic here in seeing any possibility for reform. Capitalism might be declining, as the daughter asserts, but it looks more likely to be replaced by something worse, call it plutocracy, than by something better.

This is a slighly odd book. I guess it’s meant to be pedagogical, taking students on a tour of historical thinking about economic systems, but this makes the framing material about the current day rather perfunctory, and then the actual reform proposal is stuck in an appendix. Although a mildly diverting read, I’m not sure it works well either as a history of thought book or as a current affairs one.

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No Ordinary Woman

I’ve really enjoyed reading No Ordinary Woman, a biography of Edith Penrose by her daughter-in-law Angela Penrose. It is a life story kind of biography – only one chapter (by Edith’s grandson Jago) covers her economic thinking in The Theory of the Growth of the Firm – but what a life.

There’s no question in my mind that, had she been a man, Penrose would be far more esteemed within the economics profession. I haven’t read The Theory of the Growth of the Firm (shame on me – got it out of the library now), and it seems it has been far more influential in management and business schools than in economics. It seems, from the chapter here, that it explores the firm as an institution, and the dynamics of the way firms shape the economic environment.  One can see how this is more at home in the business literature, valid (in fact, essential) as this kind investigation is.

But whatever its stature, Penrose had an extraordinary career as an empirical economist helping shape the field of study of multinational firms, an academic leader (head of the economics deparment at SOAS as it built its reputation, and later at INSEAD), and a public servant (serving on many public bodies and commissions after she and her husband settled in the UK). At the time the OPEC crisis erupted, she was just about the only academic who had studied the oil industry and the Middle East economies. She travelled widely, learnt Arabic and did some consultancy work in her spare time – and all this while bringing up her family and being a housewife to her husband, much-loved but clearly a traditional man of his era.

Anyway, from this affectionate biography, Penrose sounds like she would have been terrific fun and stimulating to know. And it is inspiring to read about a woman who accomplished so much against great odds. Next week in Manchester we’re hosting an event for 14-15 year old school girls to encourage them to do economics in the 6th form. Edith Penrose has to join the pantheon of female economists we’ve been preparing.

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Straight talk from Dani Rodrik

The legion fans of Dani Rodrik will love his new book, Straight Talk on Trade. I’m one of them, and massively respect him for warning all the rest of us economists about the political economy consequences of globalisation long before these became obvious. As he writes in the last chapter of this new book, looking at recent voting trends in many countries,  “It is dawning on economists and policymakers that they severely underestimated the political fragility of the current form of globalization…. This backlash was predictable.” He has the sombre pleasure of having predicted this for a couple of decades now.

Regular readers will find many of the thoughts in Straight Talk familiar from previous books such as The Globalization Paradox and Economics Rules, and from papers such as Rodrik’s work on ‘premature deindustrialization‘. The new book updates the issues for the present context of the political success of anti-globalizers, nationalists, statists. It argues that there is little evidence of a major retreat from economic integration, and that the rhetoric and headline measures are a useful safety valve. “What looked to contemporaries like damaging protectionism was in fact a way of letting off steam to prevent an excessive build up of political pressure. … [W]e need to place the requirements of liberal democracy ahead of those of international trade and investing.”

I’m in two minds about this line of argument. It is undeniably true that the dogma of globalization gave cover to a lot of toxic practices, from financialization and speculation to multinational tax avoidance. However, I fear the protectionist, nationalist rhetoric will create its own reality – I found the argument in The Weaponization of Trade by Jack and Rebecca Harding persausive on this. Nor am I as sure about the ‘continued resilience of the nation state’ – and see its potential fracture as a dangerous moment.

On the questions of domestic economic policy and industrial policy, though, I’m 100% with Rodrik’s argument. He points out that the policies labelled ‘structural reform’ (econ jargon for politically very difficult measures) “were only loosely correlated with turning points in economic performance.” There are no silver bullets. Rather, growth take-offs “were associated with a targeted removal ofkey obstacles to growth rather than broad liberalization and economy-wide reforms.” Measures need to be targeted, and political capital and administrative resource needs to be focused on areas where there will be an early return. “In economies that suffer from multiple distortions, small changes can make a big difference.” The best policy advice is to experiment, and try local institutional innovations.

Reflecting on the lessons of past growth take-offs and failures leads into a section on the role of economics and economists – some of this familiar from Economics Rules. Economists must pay more attention to politics if they are giving policy advice, he argues, and in particular to the scope for political innovations – ideas that can durably relax political constraints and enable measures that make people better off without threatening political upheaval. Or in other words, enable the capture of efficiency gains while more or less protecting the economic rents of existing elites. Rodrik draws an interesting parallel with technological innovations, and the role of policy entrepreneurship, learning by doing, learning by experimentation, copying, serendipity and not forgetting the role of crises. “Taking ideas seriously renders the notion of interests slippy and ephemeral. Interests are not as fixed as other economists, such as Daron Acemoglu, suggest. People may need a new idea to appreciate their interests in a different, more accurate, light. “Raising the profile of ideas would also help alleviate the tension that exists today between political economy on the one hand, and normative economics and policyy analysis on the other.”

Looking at the current political context, some new ideas are surely needed, especially when it comes to global trade and investment. Rodrik has written elsehere about the need for New Rules for the Global Economy, and argues again here that the conventional policy suggestions will fail.

Straight Talk ends on a potentially optimistic note, however: “If one lesson of history is the danger of globalization running amok, another is the malleability of capitalism.  … It was not tinkering and minor modification of existing policies that produced these achievements [the New Deal, Bretton Woods], but rather radical institutional engineering.” If big, bold ideas can be implemented, the liberal democratic order may be reinvigorated. Looking at the present crop of politicians, this is only a slightly comforting thought, but I for one will take that sliver of comfort.

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Greetings from the multiverse

It has been a week of mad travel so although I haven’t posted much, at least I’ve had plenty of time to read. One of the books was, well, extraordinary. In a really good way, although I have no idea what to make of it in terms of substance. It’s The Beginning of Infinity: Explanations that Transform the World by David Deutsch. He’s a computational physicist so it is very much not an economics book, but Deutsch is bravely going far beyond the boundaries of his own discipline, something to be applauded given the height of the silo walls in the academic world.

His argument is that there is such a thing as progress, which began with the Enlightenment (the British rather than the romantic Continental variant), and that humans are rather special. The engine of progress is not empiricism, nor accurate prediction, but rather the ability to conjecture and see whether conjectures are consistent with what else we’ve learnt about reality, rejecting them if not. The scientific method consists not in careful observation followed by theorising, but the creative development of theories or hypotheses which then have to be confronted with observations, with robust mechanisms of rejection. So all this is somewhat contrarian, even I know, but it also seems pretty persuasive. Even the parts about how unlikely and therefore central to progress humans are in the universe.

Ah yes, the universe. One of the most gripping sections of the book is its explanation of quantum mechanics. I’ve never pretended to understand at all what this implies about the nature of reality. I still don’t, but Deutsch does nevertheless give one of the clearest explanations I’ve come across. To which the only reaction is awe at the sheer weirdness of the multiverse and therefore everyday life. I don’t think being on an overnight flight had much to do with my reaction. This is seriously weird.

It is all very enjoyable, including wonderful factoids and expressive comparisons along the way. That Oxfordshire is really a bleak deathtrap without so many human innovations to sustain life. That it is easy to confuse mathematical abstractions with physical facts (eg that the angles of a triange add to 180 degrees – only in maths, not on the ground). (By the way, economics is riddled with this kind of error; I give you ‘capital’ or ‘goods’.) That an American born today has more chance of being killed by an asteroid than of dying in a plane crash.

The one section I didn’t much appreciate tries to explain social choice theory. Even given that I know a lot more about this than about quantum physics, and other readers will know more about other subjects covered here, from evolutionary biology to astrophysics to philosophy, this is not a criticism – this is the inevitable downside of inter-disciplinarity. But we need more of this.

After I read the book (first published in 2011), I looked at some reviews. Most reviewers enjoyed it too, even though, as the New York Times review pointed out, “The chutzpah of this guy is beyond belief.” But concludes, “He is exactly who he is, and he is well worth getting to know, and we are very lucky indeed to have him.” So I wasn’t deranged by aircraft fumes; this is a book worth reading.

 

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Reclaim your attention

I caught up with Timothy Wu’s The Attention Merchants: The Epic Struggle to Get Inside Our Heads on my recent travels. It’s a very interesting history of advertising, not surprisingly US-focused. There are some compelling characters in the earlier part of the story – some I knew about already like Bernays, others unknown such as the rather extraordinary Claude Hopkins. Advertising and media have always, I guess, attracted outsize characters. And some of the tales about the impact of ads are astonishing – early campaigns promoting smoking as a health-giving activity; the genius of the ‘Marlboro man’ campaign, taking Marlboro from a 1% market share to the 4th bestselling brand in the US in less than a year.

The book is excellent (as one might expect from the author of The Master Switch, a terrific book) on the interplay between technological and commercial or creative innovations. Wu writes: “Technology always embodies ideology, and the ideology in question [with the spread of cable TV] was one of difference, recognition and individuality.” The arrival of many upstart channels successfully contested the broad middle ground previously held by the main networks, and with it the cohesive, mass attention of network TV viewing.

The book moves on from old media to new media, and I also enjoyed the section on the early days of the internet and the stumbles and successes in getting all of us online. Email was an early killer app, which one forgets. “It may be hard for some to imaine a moment when receiving email was considered a big deal.” But there was indeed the movie You’ve got Mail featuring AOL in a comedy romance. Wu also reminded me that AOL got people online by sending them a physical disk in the post, or later free on the front of magazines – apparently they mailed several hundred thousand floppy disks in a 1993 mailshot – and got a 10% success rate. The company’s chief marketing officer said, “50% of the CDs produced worlwide had AOL’s logo on them,” by the late 1990s, the book reports.

As it gets towards today, the book is a bit less compelling, and I think this is because it’s so hard to get one’s mind what’s going on in the world of attention-grabbing. Of course, we know Google and Facebook are eating all the ad revenue (and attention) but there’s that fraudulent, algorithmic, complicated market, the imperative of SEO, and the fragility of offline advertising. Not to mention the blurring of news, native ads, fake news, and random dog and cat videos. It would be unfair to criticise Wu for not pinning down all this, and the addiction of social media, in a final chapter, and I’m not. The book really ends with that promising moment when ad blocking looked like a thing; but events have moved on.

There is an afterword about Trump, “the attention merchant turned President,” and then an epilogue calling for technologists to turn their focus to “the goal of reclaiming our time and attention” in these days of clickbait and the ludic loop of browsing and checking all social media without cease. The grim alternative? “The enslavement of the propoganda state as well as the narcosis of the consumer and celebrity culture.” But it isn’t just down to technologists – the battle for attention starts with oneself.

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