Ways of seeing?

James Poskett’s Horizons: A Global History of Science is concerned with the role played in scientific discovery by non-white, non-European people (mainly men….). The book starts with Aztec and Inca knowledge particularly about natural history, medicine and astronomy. The European voyages of the early modern period made it so clear that Aristotle and Plato in fact hadn’t known everything that they helped overturn scholasticism. The book proceeds through the subsequent centuries but also, centrally, across space. People outside NW Europe (and later N America) knew stuff.

I was particularly interested in the section on non-Linnaean classifications in Africa and Asia (being a classification nerd); and also those about the impact of Einstein’s theories on confidence in measurement (being a measurement nerd too). And one other thought – not particularly made by the author, whose concern is acknowedging previously overlooked contributions by people around the world – that it left me with is the role of people who knit together bodies of disparate knowledge in a new world view. After all, Newton acknowledged the shoulders he stood on; but a different metaphor might be that he shook the kaleidoscope and created a new pattern of seeing.

I enjoyed this book, learning a lot. I must say it was slightly marred for me by the continual repetition of the point about needing to acknowledge non-European contributions – the material makes the case so effectively itself that additional polemic isn’t needed. But it is of course an important point, and the book is a nice introduction to some of the sources of knowledge from other parts of the world.

image

 

Share

Goliaths everywhere

James Bessen’s The New Goliaths is one of my books of the year so far (with a fashionably chatty subtitle). Indeed, I’d been looking forward to it because I liked his previous one, Learning By Doing, so much. Based on his impressive research on technology over a number of years, and on his prior experience as the founder of a successful early digital startup, the core of the argument is that a small number of (generally) large companies have built IT systems that can manage immense complexity in their operations. Sophisticated software and massive flows of data enable them to co-ordinate in previously unimaginable ways, delegating decisions to where the information can go. The complexity – say of a new model of software-laden car or a major retailer’s logistics system – increases the cost of entry for potential competitors. The Goliaths are to be found not just in ‘Big Tech’, but in many sectors of the economy.

What’s more, “The investment in software is only part of the total investment in these systems. The entire technology investment that firms make in these proprietary systems goes well beyond software code to include data, workforce skills and investments in alternative organizational structures.” An example used throughout the book is Walmart – which McKinsey found accounted for a substantial proportion of the US 1990s productivity boost. Somewhat counter-intuitively, at least for those who see Big Tech as the main competition problem, Bessen sees Walmart as the unassailable incumbent in US retail, whereas Amazon is the one example of successful entry, and one offering a platform to other retailers.

This dynamic, of superstar firms in many industries from retail to autos to finance with a widening productivity advantage, has consequences for income inequality: the workers in those firms are paid more because they gain invaluable experience simple by working in the superstar companies, so wages are dispersing within sectors. The skills are scarce because you have to work for a big, sophisticated complex firm to get the skills, which are thus in short supply. It has led to less dynamism – fewer entries and exits in many markets. Small firms simply can’t match the spending on R&D of the big ones: one example given is voice recognition software, where pioneer Nuance was a massive commercial success, but still couldn’t match the spending of big firms: Amazon (again) has more than 10,000 engineers working on Alexa products, more than ten times the number Nuance had at its peak. “Proprietary information technology is exacerbating economic and social devisions. It is widening the gaps between the pay of workers at different firms. It is leading to greater segregation of skill groups across firms and cities.”

The complexity dynamic has implications too for competion policy – which becomes challenging, because after all the superstars generally offer great services – and regulation more broadly – because the information asymmetry between company and regulator grows ever wider.

So what to do? The book advocates for mandating open standards, morecompulsory licensing, and for reforming IP law to tilt the incentives for big companies to do more voluntary unbundling of their services, clamping down on worker non-compete agreements to spread skills. All excellent, and ultimately inevitable policies, as the inequalities are socially and politically unsustainable. But there’s much devil in the detail, and there will be massive lobbying against change. So this is a political struggle rather than a technocratic one.

But that’s to wander off into the future. I highly recommend The New Goliaths. It synthesizes a growing body of research into how firms use technology, how that interacts with organisational structures and markets,  and what the consequences are. It’s also really well-written, with lots of examples and a grounded understanding of the realities and limits of technology policy.

71vCx-hln8L._AC_UY436_QL65_

Share

Exporting US capitalism

When I was in the early days of my previous journalism career, writing for the Investors Chronicle, and also pregnant with child number 1, I was taken by a stockbroker (I think it was Smith New Court, bought by Merrill Lynch in 1995) on an investors’ tour of Budapest and its environs. It was early 1990, and the ‘shock therapy’ privatisation of companies in the formerly communist countries was under way. One visit vivid in my memory was the day trip to Ganz Electric on the outskirts of Budapest, where it seemed like iron ore went in at one end and everything from tractors and trains to light bulbs emerged at the other. But the toilet paper for the office suite was locked up in a cupboard to which only the Director’s formidable secretary had a key.

Ethan Kapstein’s Exporting Capitalism: Private Enterprise and US Foreign Policy brought this all back to me because one of the chapters covers that post-perestroika era. (Indeed, my previous job had involved interpreting perestroika for western European clients of an economic forecasting company and I, like many others, was coming to realise that the figures for material output of the Soviet bloc had led us to greatly over-state the prior economic growth of those countries.) Kapstein, now a Prof at Arizona State and a Director of a conflict studies center at Princeton, had previously been a banker and worked for the US Government and the OECD. He therefore had a seat on various front lines in variously troubled economies. This experience illuminates the book’s analysis. I found it a very interesting read.

The book is a history of the ups and downs of the US’s consistent focus on relying on private investment, particularly FDI, as a vector for economic development and a handmaiden to US foreign policy goals – above all, limiting the spread of Communism to developing countries. Starting with postwar Taiwan, the US has insisted on the central role of private enterprise. One explanation is ideological, the deep-seated US reverence for business and the market. Another is simple pragmatism: official aid will never be sufficient to meet the scale of the investment need in low or middle income countries. A third is an implicit theory of change: that multinational FDI builds local supply chains and has multiplier effects, setting down long-term roots for sustained development, and inoculating local people against socialist ideas and undesirable (from the American perspective) other overseas influence.

Of course, the record has been mixed, to say the least, even among the post-Communist countries. The multinationals required to do the investing have their own aims, which are not obviously aligned with long-term national development needs. Some – such as ITT in overthrowing Allende in Chile – played deeply troubling roles. With hindsight, shock therapy was too much shock and not enough therapy – the idea being to create quickly enough people with enough of a stake in the market to prevent a reversal to communism. But heterogeneous local institutional and political conditions turned out to make a big difference to outcomes.

The historical chapters in this book are fascinating. I was stopped short in one of the final chapters by the reflection that times are changing (indeed) and the US is now converging on China’s state capitalism. This seems a bizarre over-interpretation of the shift – more complex than often painted – away from globalisation. And anyway, as this chapter observes, official aid is still absolutely dwarfed by investment need. The private sector will fill the gap, or the investment won’t happen. It would be good to get away from the old chestnut that state and market are opposites, when they succeed or fail together, and for the same reasons. The history of FDI underlines the need for contextual nuance. Still, a very interesting and enjoyable read, gaining much from the author’s personal practical experience.

41twhkIKT7L._AC_UY436_QL65_

Share

Too complicated for tragedy

George Demartino kicks off The Tragic Science: How economists cause harm (even as they aspire to do good) with the strong accusation that, “The economics profession is culpable in the contemporary backlash against democratic governance, civic obligation, and racial and other forms of equality. It is equally culpable in inducing the social conditions that promote the widespread rejection of expertise in policy-making.” He describes economists as ‘harm accountants’ while asserting that the profession ignores many of the harms caused by its advice. What to make of this set of charges?

Well, the blame game for contemporary ills is not a straightforward one. I’d share it around – with politicians, with financiers, with crooks – while agreeing that economics has significantly helped create the intellectual weather enabling others’ actions. I also agree with two key building blocks in Demartino’s argument. One is that economists are entirely wrong to insist that the positive and normative elements of their analysis are separable (see Cogs and Monsters): the concept of economic ‘efficiency’ is absolutely value-laden, and in an undesirable way. The other is that welfare economics needs rebooting (we will hopefully have a symposium out on this soon), and in particular to highlight the central dilemma of irreconcilably multiple dimensions (incomes and jobs but also community and culture) in evaluating policy choices at the same time that decisions are unidimensional (does the government sign the trade treaty or not?) Elizabeth Anderson is my go-to reference on this.

Having said that, I thought the book over-does the anti-econ rhetoric. Cost benefit analysis (CBA) is indeed highly flawed, and does indeed aim to come up with a single number weighing all costs and benefits against the same kind of metric, and with moral assumptions shovelled into its discount rate. But “morally reckless”? The limitations of CBA are well-rehearsed, especially by economists (including me but also titans like Nick Stern and Partha Dasgupta). The alternative to using CBA is – not using it. And then what? What decision making procedure is better? I was surprised the book didn’t make more of the arguments for participatory processes, for procedural justice, in trying to ease the many dimensions versus one dimension dilemma. Sen in particular emphasises this, and it’s a feature of public value approaches, which extend CBA to incorporate non-monetary dimensions of the choice, in a reasoned and evidenced framework.

I wasn’t particularly wowed either by the book’s alternative calculus of harms, a page-long list setting out a taxonomy in which economic harms form a minority group. The list seems to be top-down, and it isn’t clear what the principles of categorisation are. Nor does it help address fundamental questions. For instance, many of the examples of the harms done by economists consist of trade liberalisation treaties. There’s no doubt these harm certain groups of producers and workers, to which the standard economics response is compensation schemes – which never happen adequately. Many economists have rowed back from the view that trade liberalisation is always and everywhere a good thing. And yet increasing trade has – equally without doubt – underpinned post-war rises in living standards in many countries, and the Asian export-based miracle economies. Saying, ‘but the China shock in the Midwest, but Brazil,’ doesn’t imply trade liberalisation is always bad, which seems to be the assertion here.

(Personal gripe – the book also ignores Scitovszky’s 1941 refutation of the Hicks-Kaldor compensation argument. Which in my view restates the existence of fundamental dilemmas in policy choices…. the welfare evaluation all depends whose perspective you look at it from.)

So, is economics too reductionist? Yes. Are economists over-confident in their ability to solve problems? Often, yes. Is economics too paternalistic, assuming a god’s-eye view it cannot possibly have? Indeed. Was the shock therapy approach to post-1989 Russia a disaster? Yes! I agree with all of this. And yet I think it’s much more complicated than this book claims. 71vagYXe2KL._AC_UY436_QL65_

Share

The slouch of history

Like many people, I’ve been eagerly anticipating Brad Delong’s Slouching Towards Utopia: An Economic History of the 20th Century, and it doesn’t disappoint. Brad was a couple of years behind me in the Harvard graduate economics programme, was an early adopter of blogging, and has been a prominent online presence ever since. So his argument in one sense is no surprise, but it comes together as an unmissable book, even for a devoted reader of his tweets.

The book starts by framing the central point: the economy, and people’s lives, have been utterly transformed by the long 20th century of 1870ish to around 2010 in a continuous tide of change both ‘marvelous and terrible’. During that long 140 year century, the average economic growth rate (we are US/west focused here) was just over 2% a year, before and since, below 0.5% a year. Income levels doubled every 33 years during that period: “A revolutionized economy every generation cannot but revolutionize society and politics, and a government trying to cope with such repeated revolutions cannot but be stressed in its attempts to manage and provide for its people in the storms.” We’re now back down to doubling about every 150 years, which actually seems just as stressful for governments given the expectations of the previous four or five generations.

The structure of the book is then (unsurprisingly) chronological. It begins with the first era of globalization, between 1870 and 1914, when the key global flow was people: a hundred million people migrated across national borders. Governments embraced openness of all kinds, though, and there were revolutionary declines in transport costs. The 1870 launch of RMS Oceanic, an iron-hulled steam-powered passenger ship, cut travel time across the atlantic from a month to nine days and 3rd class fares opened the journey to all but the very poorest Europeans. The vast waves of migration helped make the US the dominant economic power of the 20th century.

The book moves on to the economy of empires in the first part of the 20th century. The mechanization of industry in the imperial North turned the colonized South into an economic periphery, exporting raw commodities and importing manufactures. These were, “Unable to build communities of engineering practice that might provide a path to greater, industrial, riches.” Their labour force was not literate in sufficient numbers, there wasn’t enough financial capital to invest in factories.

World War I and the Depression follow, and the narrative traces two currents of thought shaping post-1918 outcomes. During this period there was no hegemon – only the US could have been, given the weakness of post-war Britain, and it rejected that role as provider of global public goods such as financial stability for all. So the ideas of a return to an 1870-1914 liberal market order competed with ideas focused on social rights and relationships. Economists broadly fell into camps – this was the era of the socialist calculation debate – but policy elites in the West doubled down on austerity.

On we go to Russia and socialism in practice, and the brutality of Leninist and Stalinist economics: “Of the 1800 delegates to the 17th Congress in 1934, fewer than one in 10 went on to be delegates to the 18th Congress in 1939.” The rest were dead or in Siberia, while forced collectivization spread famine and death. Fascism and Nazism deformed much of the rest of Europe in the 1930s, and then came the catclysm of the second world war and Holocaust. As the chapter points out, not everyone shed their opposition to the bundle of policies that could be characterized as fascist. Some Hayekians in the 1980s, such as supporters of Pinochet, found their contrast with socialism appealing. (Mrs Thatcher gets a favourable passing mention as a firm opponent of the methods, even as she approved of the libertarian economics.)

World War II gives way to the Cold War in this sobering march of 20th century history, while the spillovers from Cold War led to many false developmental starts in the Global South – alongside the amazing successes of development in some East Asian countries. The book sees the contrast as one between the aim of self-sufficiency in Latin America and countries in the Soviet orbit versus the assumption of the need to survive in export markets in East Asia – the latter had no great powers pouring in resources, or interfering and advising.

The only bright spot in this long century appears to be les trentes glorieuses, the three post-war decades of social democracy. What was their magic? A high rate of investment. Full employment but no upward wage pressure as there remained (in most of Europe) and under-employed agricultural labour force to pull in. Steady growth in industries that reached their technological maturity in that era, enabling the location of industrial production to spread to more places.

But it didn’t last. The redistribution of social democracies came into increasing tension with the conditions for innovation and growth. The logic of how governments operate differs from the logic of efficient production, so nationalized industries became wasteful and ineffective. Sometimes only moderate efficiency is fine, or indeed welcome, but there are limits. In 1979 we saw the neoliberal turn. Why so? “In my view the greatest cause was the extraordinary pace of rising prosperity during the Thiry Glorious Years, which raised the bar that a political-economic order had to surpass in order to generate broad acceptance.” people had come to expect rapidly rising incomes and broad equality of outcome, and high employment and low inflation. If this stability stumbled, the order had to change.

So the book ends with the political success of the neoliberal order – winning the Cold War – and its economic failure. And here we are. We haven’t reached utopia but living standards are massively higher than in 1870. It hasn’t been a smooth course – far from it – a slouch rather than a march. But people are so much better off than the mass of humanity before the long 20th century.

The strength of the book – as well as its immense scope and depth (more than 500 pages) is that it’s a work of political economy, braiding the different strands of ideas, Hayek, Polanyi and Keynes. Although what it ignores (and fair enough) is the series of technologica revolutions. In addition, there are plenty of pleasing asides and details. Humans love narratives, so, “The secret weapon of the economist is the ability to count.” Or, “Contests and gift exchanges have more psychological resonance. It is more satisfying to receive (or give) a present or to win a prize than to buy the exact same thing…. By ignoring and trying to suppress these dimensions – to require that everything pass through a cash nexus – the market society dehumanizes much of life.” I like that it doesn’t claim there are easy lessons from the history, but insists that there are indeed subtler lessons. Definitely one to read – or pre-order: out on 15 September.

51k+Qr6GTyL._SX498_BO1,204,203,200_

Share