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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Muddle, muddle, toil & trouble

It’s back to routine tomorrow, with too many (>0) Zooms in the schedule. Still, I’ve been making the most of the extra reading time since New Year, and have now polished off Duncan Weldon’s Two Hundred Years of Muddling Through. This is an aptly-titled economic history of Britain since the dawn of the Industrial Revolution, a story of accidental successes and forseeable failures, told with verve.

War features prominently in the story, as it would any industrialised nation’s economic history. Raising taxes to fight wars paved the way for the expansion of the franchise and growth of the state. And the legacy of war, either financial or physical, shaped much of the 20th century’s economic history. The distinctively British parts of the experience are the long shadow of the landowning aristocracy and our dysfunctional politics, giving us a uniquely warped political economy with a ruling class running the entire country as if it were a colony (See Tom McTague’s marvellous recent article in The Atlantic on this.)

I’ve grown interested in the role of the Treasury in this, having sort of read (only sort of because reading online) a fascinating Kings College London PhD thesis by Tom Kelsey, Picking Losers: Concorde, nuclear power, and their opponents in Britain, 1954-1995. His research established the effective internal Treasury opposition to these postwar efforts to stay on the frontier of technologies the US did not clearly dominate: what we got was a shadow of what ministers had planned. (Although of course the great counterfactual is what would Britain’s role in the computer industry have been were it not for the UK gestablishment insisting on secrecy postwar as the Americans did not, and were it not for their persecuting Alan Turing.) Anyway, I’d have liked a bit more about where the consensus around economic ideas in UK policy came from, as these shifted over time. (And is there a long-view history of the Treasury looking at how it has preserved a largely consistent culture and worldview over centuries? Today’s fiscal hair shirtism inside that building is wholly consistent with the decision to go back on the Gold Standard, for example.)

This is a terrific book to recommend to 6th formers and students who know little economic history. When I was a student there was a gap for just such a book – Sked & Cook’s Postwar Britain: A Political History came out during my undergraduate years. I had a 1958 book, British Economic Policy Since the War by Andrew Shonfeld. (Both hard to find now, but still on my shelves.) Robert Skidelsky’s magisterial biography of Keynes wasn’t published yet though I read the Roy Harrod one. We are now blessed with many histories particularly of the 20th century – David Edgerton, Correlli Barnett for instance – albeit with a more detailed focus. Two Hundred Years of Muddling Through is a lively, clear and balanced overview of British economic history, & I wouldn’t hesitate to recommend it.

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Letting the Red Wall speak

This is a meetings-free week, taking advantage of the fact that people are largely willing to take no for an answer until mid-Jan, and I’ve also still got (I hope) quite a fierce email autoreply telling people to go away. It’s amazing how much more work this makes possible, even leaving time to catch up on reading. The latest book, which I started when it came out but has since been parked on the side table, is Sebastian Payne’s Broken Heartlands: A Journey Through Labour’s Lost England.

I really enjoyed this. It’s classic, careful yet evocative reportage from ‘Red Wall’ seats across the northern part of England. It starts in Gateshead, the author’s home territory, and, via a number of these once solidly Labour and now – extraordinarily – Conservative constituencies, ends up in Burnley, close to mine. It’s a very fair book: Payne lets people talk, reports what they said at decent length, and limits his own opinions to comments on prospects for the various parties in elections that lie ahead. (There’s a bit more discussion of electoral arithmetic than I wanted but that’s a quibble.)

One key message I took is not to over-generalise. There is indeed a lot of poverty in the Red Wall seats but also a lot of affluence, in the places where old heavy industry has been successfully replaced, so part of the story is the growth in numbers of ‘natural’ Conservative voters around the country. The truer generalisation is the substantial decline of public amenities around the English regions – transport, libraries, pleasant high streets. Another message – and in fact one on which the book quotes me (and many others) – is the crying need for devolution of powers within England.

A few other things struck me. One – a parenthesis in the Sedgefield chapter – was this: “nearly all the Red Wall seats had a train station closed in the infamous [Beeching] programme.” Reminded me of this marvellous paper on the Beeching cuts by Steve Gibbons. What economic, social and cultural vandalism Dr Beeching unleashed with the massive scope of his cuts: a great lesson in the imperative of taking into account network effects and spillovers in a cost-benefit framework, and the fact that some subsidies are worth every penny.

Another section was a discussion with Neil Kinnock, in which the former Labour leader observed that what has been lost is not so much collective sentiment in former industrial areas as the security that came with the social fabric of the post-war era. Kinnock said that modern individualism “is a source of choice but it’s also a source of weakness and insecurity. You’re on your own. In previous decades the one thing you weren’t, in richness and then poverty, was on your own.” I read this as Keir Starmer made security the theme of his New Year speech so presumably this will be part of Labour’s pitch for 2024.

Above all, though, Broken Heartlands is a terrific read and gives a real flavour of its territory. I’m just glad it wasn’t me out on the road in the North in the cold, wet winter of a pandemic.

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The deep structure of the knowledge economy – or, 25 years of weightlessness

I read The Knowledge Economy by Roberto Mangabeira Unger because James Plunkett (who reviewed my Cogs and Monsters for Prospect) tweeted how struck he was by the similarities between Unger’s book and mine. I can see what he means as we are after all writing about the same phenomenon of the increasing intangibility of value in advanced economies. Indeed it’s 25 years this year since my first book The Weightless World was published, so I’ve been writing about it for a quarter century, which is pretty startling.

However, one of the strange things for me reading Unger is the way we approach the same phenomenon using different languages, so I found some of his observations hard to understand. One of those is a key term, vanguardism, which can either be insular (what we have no – bad – only the few benefit from the knowledge economy) or inclusive (good, what we want). If you read left of centre philosophy perhaps this doesn’t need explaining, but it mystified me.

In the end, the way I translated this was as referring to a system of production (to use the terminology of, say, Michael Best, particularly his older book The New Competitive Advantage but also How Growth Really Happens) – from Fordism to post-Fordism to whatever is emerging now (a prize for whoever comes up with the best ‘-ism’ term?). And there are some very interesting observations in The Knowledge Economy. For instance, Unger reckons the progressive left is too focused on demand side questions (MMT and all that, redistributive tax) and not enough on the supply side – the issue not even being ‘pre-distribution’ but something more deeply structural. 51E08vPVsIL._SY291_BO1,204,203,200_QL40_ML2_

Unger criticises the dominance of economics by marginalism, which I’m on board with, as indeed with his observation about the importance of ideas in shaping the realities of economic life. We’re in the mioddle of a period of contestation of world views for the first time since the late 1970s, although the free market Thatcher/Reganism or neoliberalism (or your preferred term) is putting up a stiff fight. But then he oddly asserts that economists are not interested in production. This would be news to all the many I/O economists and institutional economists out there. All in all, I found this an interesting read but in the end a bit abstract. If only I understood what inclusive vanguardism meant. Still, this is the joy of stepping outside your own discipline to look at it from the perspective of others.

 

 

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Essential white elephants?

I recently finished re-reading Brett Frischmann’s (2012) Infrastructure: The Social Value of Shared Resources. It’s very interesting although I don’t entirely agree with his conceptualisation. The reason for going back to it is a convergence of two issues I’ve been thinking about.

One is the idea of social infrastructure. This was centre stage in Eric Klinenberg’s book Palaces for the People, on which we had an excellent Bennett Institute event. A report on The Value of Social Infrastructure by my colleagues Michael Kenny and Tom Kelsey aroused a lot of impact across the UK government and beyond. I’ve been writing about the health system as social infrastructure – am currently writing a handbook chapter as a follow-up to this paper (revised version forthcoming in NIER). So the questions concern definition and measurement: what is social infrastructure, can it be intangible as well as tangible, how does it relate to the older concept of social capital? etc.

The second is the puzzle about infrastructure in general: what to invest in and what are its (spatial) economic impacts? Bent Flyjberg has amassed a great deal of evidence that major projects generally fail – they are over-budget, late and have disappointing impact. (See eg this paper on how far projects fail their cost benefit analysis assumptions.) And the examples of white elephant projects are legion. Yet the economy must have infrastructure to function at all. How to reconcile the paradox? And why has construction (which includes infrastructure) itself been so low productivity?

Frischmann’s book is helpful in thinking through the questions. One key point is that demand for infrastructure is derived: people want it to be able to carry out activities that feed into final demand. And infrastructure is a social good that will change context and social relations. It’s generic – can be used for many purposes. Spillovers are inherent, and large – and difficult to measure. Infrastructure also creates private and social option value.

He defines infrastructure as being identified by the following characteristics:

–Non-rival over certain portion of demand (although congestion possible)

–Provides stream of services over time

–Demand is derived, for infrastructure capital services as productive inputs into other activities

I think this omits universal service need/obligation as a key aspect. I find his classification of types of infrastructure (commercial, public, social) a bit odd too. That said, the book is very useful in thinking about the ‘essential white elephant’ paradox.

Resolution of the paradox will require finding a way for policymakers or investors to judge whether a project is a white elephant worth having. I was discussing this with David Cleevely, a successful Cambridge investor, in the context of a forthcoming paper of mine in an issue of the Oxford Review of Economic Policy on major projects. Why, I asked David, did the Victorians manage to build so much infrastructure that we in the UK are still using after 150 years? He made the powerful point that the advantage the Victorians had (compared to economists today deploying cost benefit analysis) was that they could imagine a future in which the infrastructure they were going to build would have transformative effects. Applying this thinking now, for example, we know the future will be renewable energy-based, so projects need to be evaluated in the light of this transformed world.

I don’t know how much infrastructure investment we need altogether in the UK, but definitely more, and social infrastructure definitely counts too. To be continued….

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