Economic development in 150 pages

It sounds an impossible challenge, but Ian Goldin does an impressive job combining clarity and conciseness in his Development: A Very Short Introduction, one of the well-known OUP series. The book seems to be a version of his longer book from a couple of years ago, The Pursuit of Development. Its six chapters cover: what it is, how it happens, why some countries are poor and others rich, aid, sustainable development, and globalization. The book manages to give a reasonable capsule description of the debates among economists and some sense of how development economics has changed over time. It studiously avoids reacinh strong conclusions on the efficacy of aid, this being a rather factual chapter.

There’s a useful list of further reading at the end. I think someone knowing more or less nothing about the subject would come away with a rounded overview and the capacity – and interest, probably – to read more. I like the pay-off too: “Development is not simply or mainly about the lives of others. It is about ourselves and what we care about. Development is about who we are and our collective future.

My quibble would be that the charts aren’t all that illuminating and only partly because they’re in black & white. Maybe all charts from now on should be left to Max Roser and his team at Our World in Data.


Economies in space and time

There’s a section of Economic Geography: A Critical Introduction by Trevor Barnes and Brett Christophers about the richness of border zones – not physical ones as these tend to be quite the opposite when it comes to economic activity, but intellectual. Interdisciplinarity has been a buzzword for a long time, and immensely hard to achieve within conventional academic structures. But perhaps its moment has come. At any rate, the number of in-principle interdisciplinary research centres is increasing (including the new Institute for Public Policy at Cambridge, which I join tomorrow). Perhaps more important, more and more people appreciate that solving pressing challenges – ageing, the consequences of climate change, trade wars, technological change – requires multiple social science, humanities and scientific perspectives.

Besides, I’ve always found the borders of economics interesting, including economic geography. The gap between economists who do geography and geographers who think about the economy has perhaps been narrowing in recent times. The book – a textbook but one accessible outside the framework of a university course – makes surprisingly little of what I think must be one of the main reasons for this. Which is that the technology-driven changes in the structure of production and consumption have made face-to-face interaction more valuable. The digital economy is an economy of clusters and dense cities, as well as one of globalisation. The classic Marshallian spillovers are bigger, the more important tacit knowledge (which, it turns out, is often complementary to codified knowledge, rather than a substitute for it). The evident importance of city regions is boosting urban economics and what is typically described as the ‘new economic geography’.

The geographer authors are understandably wary of the way economics is expanding into this territory. We economists do have a habit of presenting as marvellous new insights things other disciplines have known for ages, albeit wrapped in some nice econometrics. However – and inevitably there are some frictions in this process of inter-disciplinary engagement – it’s bemusing-to-painful to see how economics is perceived. The book describes (mainstream) economics as being only about constrained optimisation, which is the kind of reductionist statement an economist might make (and anyway, constrained optimisation under conditions of asymmetric information is everywhere in nature). It also defines the economy and economics as being essentially about ‘materiality’, material resources. Surely this can’t be literally intended? But in that case I’m not sure what this means.

Finally, the book notes – rightly – that economists insist on the importance of models, but conflates this with the use of mathematics. A lot of economists cheered Paul Romer’s assault on ‘mathiness’, but we like non-mathy maths because it is a concise way of trying to ensure models have a certain logical internal consistency and clarity. One could write many of them out in words instead – just as historians do when they model the causes of the first world war or literary critics when they theorize about the imperial perspective in late 19th century English novels. All scholars use models whether good or bad ones, and whether they know – or like – it or not.

These gripes aside, I enjoyed the book a lot. It’s a clear and comprehensive survey of the territory (sorry) of economic geography and at the same time manages the difficult feat of stepping outside the substance to deliver the critique promised in the subtitle. The first half of the book discusses the definition, history, boundaries and theorising/methodology in economic geography. The second half covers topics such as globalization, cities, finance, the environment and technological change. These topics chapters would make useful stand-alone readings for economics courses on the relevant subjects, giving students a healthy alternative perspective. In any discipline, we quickly socialise our students into our usual ways of thinking. Extending their frame of reference must be a useful contribution to their education.

It’s interesting that economic history is clearly enjoying something of a revival in economics, albeit from a base sadly diminished since before my PhD days, when most doctoral programmes had an economic history requirement (mine, at Harvard, still did but I think many others had already dropped it by the early 80s). There is much talk (and some action) now about ensuring economic history is in the standard economics curriculum, and the CORE course for one weaves some throughout the whole text. Economic geography doesn’t have that traction, but I’d be happy to see options at least for economic geography and economic sociology. I for one am also happy to try to explain to other social scientists #whateconomistsdo as long as they will be as patient with me.

PS I also applaud the sensible pricing of this book by the publisher (WILEY Blackwell), in contrast to many textbooks.


If you only read one book about higher education…

A University Education by David Willetts is, as I expected, a brilliant book, and one anyone interested in higher education should read even if they blame its author for being one of the architects of the current English funding system. The book covers this, but also ranges widely over the issues facing the university system: the distorting effect of the Research Excellence Framework; the monoculture that’s partly the result of this (all HE institutions wanting to climb the research-based league tables); the early selectiveness and narrowness of education in this country; the standing of our universities in the world; the failure of research excellence to translate into commercial and economic benefits for the UK; and more.

Funding first. Tony Blair’s government first introduced fees in 2006, £3000 covered by an income-contingent loan. In 2009 Peter Mandelson set up the Browne Review (I was a member) to report after the 2010 election on the future financing structure. It was pretty clear to us that post-crisis cuts in public spending were going to hit HE and the fees would need to be increased to preserve adequate levels of funding per student. We were very preoccupied with designing an equitable structure, looking at the balance of public and private funding of HE (so many taxpayers not benefiting from a degree and the wage premium that goes with it), and at how to structure a system that would not discourage low income and non-traditional students. The IFS was helpful in looking at the distributional consequences of the proposals.

The way the system has been implemented is, needless to say, different from our design. One key – and fateful – difference was the coalition government’s decision to set a fee cap of £9,000. The book says that the widespread assumption across Whitehall was that most universities would not charge the maximum. Well, we on the Review had told them as clearly as we could that every university would go straight to the maximum. It’s pretty simple economics – in this context price signals quality, and would any university signal it was less than top quality? We had recommended no cap, and a taper above £6,000 that taxed universities on the additional amount in order to fund bursaries. The controls on student numbers should have been lifted faster than they were – the Treasury was too cautious. Another subsequent change for the worse has been the interest rate on the loans.

With hindsight, we should have been more concerned about the effect on part-time courses. Peter Horrocks of the Open University has a letter on this in the FT today and he is right to say this needs fixing. We should also have chosen different language and called it a time-limited graduate tax. Anyway, other things about the system need fixing now too – and I would still change the name because of the psychology of young people feeling their loan as a personal burden when it isn’t, and there is so much designed cross-subsidy. But although I wouldn’t be quite as gung ho as Willetts about defending it, I still think it’s better than realistic alternatives, and any cut in fees would hammer university finances and quality. They are, after all, one of our important export sectors.

One of the interesting arguments the book makes is that there is too much of a monoculture in higher education. He argues that this is the consequence of too much autonomy – “There is a trade-off between autonomy and diversity.” His view seems to be that competition occurs only over one dimension, research ranking, and this discourages the excellent teaching-focused, vocational type of institution and also the old-fashioned civic universities geared toward serving the needs of local employers. I think there’s a lot to this, and find it hard to think of any positive consequences of the REF. (Nor does there seem to me to be a lot of prospect of either the Impact element or the TEF (or KEF) improving matters.) So paradoxically, more central planning – the government deeming certain institutions to be of a different type, be it teaching-centred institutions or specialist (but non-university) research institutes like the Frauenhofers  – would create more genuine diversity than the over-regulated, target-entangled universities we have. Willetts writes that science funding through Whitehall departments was meant to ensure there were non-university, applied research labs, but these budgets were the first to fall victim to budget squeezes.

There is much else besides in the book. Some very powerful points about the damaging early narrowing of study in the English school system, about the influence of selection by A level results and its consequences for the social bias in universities, about the rigidity of a system almost wholly based on entry at 18 and depending on a handful of exam scores, about the balance of pure and practical knowledge and the relationship between our universities and our disappointing innovation performance. This book is enough to make you wish David Willetts were still the universities minister because – and surely even people who disagree with him recognise this – he loves and cherishes them, and wants more of our young people from all backgrounds to be able to get the higher education they want and that will serve them well. These are dangerous times for universities politically. For many voters, universities signify elite, remote experts, rather than dynamos of the local (and national) economy creating jobs and a rich cultural life.  There’s some truth in the charges – it’s why I, for one, believe so passionately in civic engagement, ‘impact’ and public debate about academic research. As the book adds, there are other challenges too – globalization, new technology. We could all think of things that need reforming about the system, but I fear there is some danger of doing real damage.

Price: £15.80
Was: £25.00

Politics and numbers

I’m thoroughly enjoying William Deringer’s Calculated Values: Finance, Politics and the Quantitative Age – almost finished. The book asks, why from the early 18th century did argument about numbers, statistics, come to have a special weight in political debate? Often, the growing role of statistics (as in numbers relevant to the state) is seen as part of the general Enlightenment spread of scientific discourse and rationality. Deringer argues that in fact the deployment of numerical calculation about the state of the nation was one of the weapons of choice in the bitter political division between Whigs and Tories. The sphere of public debate was, as he puts it, “uncivil, impolite, sometimes irrational”.

The book presents plentiful evidence of this use of numbers. For instance, pamphlets proliferated about hot issues such as the payment to be made to Scotland for its Union with England, or the balance of trade – and were packed with errors. Printers, and presumably readers, “did not seem to care about getting the numbers right.” They were only there to slug against somebody else’s numbers. Deringer writes (in the context of the fierce debate about the ‘Equivalent’ England should pay Scotland on their Union], “Critics of quantification in the modern era argue that efforts to address political questions through quantitative means often have the effect of foreclosing political controversy by translating substantive political questions into ‘technical’ ones. This was not the case in 1706; if anything, the opposite was true. The Equivalent calculation brought new (technical) questions into public view and revealed their political stakes.”

The book therefore argues that the emergence of partisan politics after the 1688 Revolution was a major reason for the emergence of the political life of numbers. Starting with a more or less blank slate, a good part of the contest was epistemological: what were the right categories and classifications to even begin to measure? What was the right methodology? For example, one innovation was the introduction of discounting future values, something many contemporaries found both hard to understand and unsettling: “It placed almotst no value on anything that happened beyond one human lifetime. This peculaira claim clashed violently with many Britons’ intuition about what the future was worth to them.” It probably still clashes with intuition, to the extent the typical Briton thinks about it.

Of course, one can’t read this history and not think about the notoriously misleading £350m claim on the Brexit bus, or the claim and counter-claim about the likely Brexit effect on UK trade. It isn’t that both sides are equally true or false – far from it – but the political clash is putting statistics centre stage. David Hume was sceptical about the usefulness of the quantitative debate for exactly this reason: “Every man who has ever reasoned on this subject, has always proved his theory, whatever it was, by facts and calculations.” I’m with Deringer in concluding that nevertheless the conversation about numbers is essential.

As Calculated Values concludes, “modern quantitative culture is fundamentally two-sided.” People think numerical evidence has a special, trustworthy status; and at the same time that it’s especially easy to lie with statistics. These are two sides of the same coin. The adversarial debate reveals how useful the numbers and calculations can be to interrogate and test the opposing claims.

Attitudes have shifted over time. In the 19th century, the partisan contest abated. Dickens for one saw numbers as a dry, soulless window on society when he portrayed Mr Gradgrind in Hard Times. The bureacratisation of statistics, and development of official agencies, made statistics seem just a tiny bit dull. Needless to say, they are centre stage again now for reasons of both political conflict and epistemological uncertainty. Once again, some politicians wield numbers without any great concern about their accuracy or meaningfulness; the victory in debate is all that matters. Once again, given the profound changes in the structure of the economy, we can’t be sure what categories and methods will give us the understanding we would like. This is a terrific book for reflecting on contested and uncertain statistical terrain.


Morals and economics

Every time I read something about Karl Polanyi’s The Great Transformation – and it’s in vogue now – I go back to my copy and confirm how much it annoys me. It’s the over-statement or pomposity that does it, rather than the broad outlines: markets mean inevitable cataclysm. “Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness.” He goes on to argue that the social crises and conflicts of the early 20th century were caused by the disruption to the market and economy caused by the reactions to the market forces leading to social annihilation.

Similar arguments have been made by many others, from Daniel Bell (The Cultural Contradictions of Capitalism) to any number of left-leaning authors. The Moral Economists by Tim Rogan puts Polanyi in the context of a succession of critics of capitalism, preceded by R.H.Tawney and succeeded by E.P.Thompson, whose common territory was a rejection of utilitarianism: “The moral economists argued that the solidarities they found in Lancashire, Red Vienna and Yorkshire harbored unique promise: here social interaction was more meaningful than utilitarian analyses allowed, without becoming regimented in the way of so many contemporary social experiments.” They shared a more rounded sense of human personality than homo economicus in the utilitarian analyses, as well as a conviction about the role of social interaction and solidarity in economic outcomes. Tawney, for instance, opposed Fabian socialism because of its dry utilitarianism.

Rogan gives Polanyi a sympathetic reading, noting that he regarded Adam Smith as a moral economist, with the decline into ‘economism’ coming later – this is a reading of Smith, and emphasis on The Moral Sentiments, that has become more prominent in the past decade or so. The Moral Economists argues that the Tawney/Polanyi intellectual agenda was stymied, however, by the postwar turn away from religion in particular and traditional moralism in general. For this reason, it argues, E.P.Thompson was unable to reinvigorate the moral critique of capitalism. However, Rogan asks, surely the critics of contemporary capitalism need to restore a role for morality or virtue in a secular world?

The book ends with a section on the inadequacy of modern welfare economics based on the Pareto optimality idea, and is sympathetic to Sen’s approach. I agree about this. Rogan ends: “Politics pervades commercial societies, frustrating technocratic visionaries of the 21st century [Bell would agree about this too] just as it confounded the goat-and-greyhound utilitarians of the 19th century. … In an age of extremes, the moral economists discovered in their midst the elements of humane, solidaristic, low-key and non-authoritarian politics of reform.” Can we do the same in today’s context of extremes and the all-too-apparent flaws of the current version of capitalism?

It’s an interesting book, and I agreed with much of the argument about putting virtue back into economics, although I find ‘capitalism’ (without further explanation) an unhelpful abstraction looking across such a long and eventful timespan.

(But I’m still not going to change my mind about Polanyi.)