The responsibility of the public

It isn’t an economics book but it is about technology: I’ve just finished A Crack in Creation: The New Power to Control Evolution by Jennifer Doudna and Samuel Sternberg. It’s a terrific book, really well-written and compelling. Despite knowing nothing at all about biology or genetics, and finding some of the more technical bits quite hard going, I could follow the tale: every point is illustrated with illuminating metaphors and diagrams. And this – CRISPR and associated techniques – is such an important and far-reaching technology, I do think we should all be eager to understand it and think about the consequences. Indeed, we have a responsibility to do so.

By the time you get to the end of the book, it’s clear that this is Doudna’s aim (although co-authored, the book is written as if in her voice): she wants a public debate about CRISPR before it starts to be used to edit the human germline. She would like the debate to avoid the chasm between scientists and public opinion that afflicted GMOs, which became ‘Frankenfoods’ before the public understood that technology at all. But also to acknowledge the significance of CRISPR, with all its potential benefits to tackle diseases.

So I recommend this as a summer read. One final thought: if only Robert Gordon had appreciated that there is more to new technology than playing Angry Birds on smartphones (I exaggerate a little, but he does say the new tech frontier is all about digital entertainment), he might have seen some potential for social welfare in the future as well as in the past.

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Mobile contradictions

It’s surprising that there are not more books about mobile communications in general and smartphones in particular. Having been involved since 12 years ago on a strand of work on the economic and social impact of mobiles in low-income economies, when there was already evidence that the effects of the technology were going to be profound, you’d have thought researchers and authors would be all over the territory. Of course, the literature has grown substantially since, but is dwarfed by the work looking at digital in general, or net neutrality, for instance. It’s similar to the strange analytical gap concerning another very powerful technology with huge social effects, the spread of satellite TV in low-income countries from the mid-1990s. And while there is a burgeoning literature looking at social media, I hunger for a big picture synthesis of the social and economic impacts of the set of technologies it relies on, the smartphone and mobile broadband.

Anyway, Anindya Ghose’s Tap: Unlocking the Mobile Economy makes a welcome appearance in this somewhat sparse landscape. It’s a well-written introduction to the various ways US, European and Asian businesses are making use of mobile in developing their services. The book sets up a nice series of contradictions in consumer preferences:

  • people want spontaneity but are predictable and value certainty
  • people are annoyed by ads but don’t want to miss opportunities
  • people want choice but are also overwhelmed by it
  • people value their privacy, and also give away personal data for access to services

After an introductory descriptive section, the book turns to nine forces Ghose (a Professor at NYU’s Stern School of Business) argues are driving the mobile economy. This, the bulk of the book, is really aimed at business readers who want to think through the implications of pervasive smartphone use for their business model. There are lots of examples here of what others are already doing, and the book aregues that in many respects Asian businesses are ahead of US and European counterparts in the ways they have innovated.

The subtext throughout is essentially that too many businesses are sacrificing the long term creation of value – which would require navigating carefully through consumers’ contradictory attitudes – in favour of short-term profit or market share, for example by treating consumer data in a cavalier and exploitative manner. Businesses need to take data security far, far more seriously than they have to date, and also make sure that the service they deliver in return for data is truly of value to their customers.

In short, an accessible book with lots of colour, though definitely aimed at the business audience rather than economists.

 

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Prospects for the Swedish model

There’s an interesting new book, Digitalization, Immigration and the Welfare State, by Marten Blix of Sweden’s Research Institute of Industrial Economics. It brings together two deep trends, technology and immigration, in the context of the relatively rigid labour market structures of Sweden and some other European countries. Blix asks, what are the implications for the welfare state, the high tax, high spend social contract? He argues that the combined trends are increasing inequality, and the longstanding social support for redistribution and high taxation is eroding. Sweden has been at the forefront of both trends. It ranks high on measures of digitzation, and has taken in more refugees per capita than most other European countries. It has consequently had one of the biggest increases in income inequality in the OECD (the level of inequality is still relatively low – similar to Canada or Germany).

Ultimately, the book suggests a Swedish model of social democracy can potentially survive, thanks to the country’s high productivity and high initial levels of social capital. Sweden’s public finances are also in better shape than in many other countries. However, it certainly doesn’t look like an easy path. Absorbing the new immigrants will require a focus on enhancing their skills – and also those of the already-resident. One prescription is reducing the rigidities in the labour market and housing market. Another area where greater flexibility will be needed is in accommodating the increase in work – via digital platforms for instance – outside the traditional collective wage bargaining. Some Swedish unions are apparently working to establish employment standards on the digital platforms.

As the book concludes, however, the obstacles to the reinvention of the Swedish model – or any other social contract – are not problems of economic analysis but political obstacles. Economists often talk of the need for ‘structural reform’ when this is code for ‘politically bloody difficult.’ Immigration makes the politics harder, Blix argues: “Sweden is no longer the homogeneous country it used to be and the social contract holding people together is at risk of disintegrating.” All the more dangerous, then, he says to pretend everything is fine and nothing needs to change. The newcomers have to be brought into the fold or the future of the Swedish model looks to be in doubt.

Much of this debate is of course familiar to those of us more familiar with the UK and US economies, as is the kind of political lunge to the populist right or left that accompanies these tech and migration trends. It’s interesting to read about the challenges in the context of a country that has so long been an admired model for the centre left (and even some of the centre right). I accept that it’s essential to try the kind of policy response the book suggests, hard as that is, given the do-nothing alternative. But it’s quite hard to feel optimistic these days. Even Sweden!

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It’s what happens after innovation that matters for productivity

Having been guiltily reading a thriller or two, as well as David Olusoga’s Black and British, this is a brief post about an economics paper I’ve read, Paul David on Zvi Griliches and the Economics of Technology Diffusion. (Zvi was one of my econometrics teachers at Harvard, a very nice man who was still so obviously brilliant that he was a bit scary. He would ask a question which might be completely straightforward but one would have to scrutinise it carefully before answering, just in case.) Anyway, the Paul David paper is a terrific synopsis of three areas of work which are implicitly linked: how technologies diffuse in use; lags in investment, as new technologies are embodied in capital equipment or production processes; and multifactor productivity growth.

As David writes here: “The political economy of growth policy has promoted excessive attention to innovation as a determinant of technological change and productivity growth, to the neglect of attention to the role of conditions affecting access to knowledge of innovations and their actual introduction into use. The theoretical framework of aggregate production function analysis, whether in its early formulation or in the more recent genre of endogenous growth models, has simply reinforced that tendency.” He of course has been digging away at the introduction into use of technologies since before his brilliant 1989  ‘The Dynamo and the Computer‘. Another important point he makes here is that there has been little attention paid to collecting the microdata that would permit deeper study of diffusion processes, not least because the incentives in academic economics do not reward the careful assembly of datasets.

By coincidence, the paper concludes with a description of a virtuous circle in innovation whereby positive feedback to revenues and profits from a successful innovation lead to both learning about what customers value and further investment in R&D. Here is the diagram from the paper.

diagThis was exactly the argument made yesterday at a Bank of England seminar I attended by Hal Varian (now chief economist at Google, known to all economics students as author of Microeconomic Analysis and Intermediate Microeconomics, and also with Carl Shapiro of Information Rules, still one of the best texts on digital economics). Varian argued there are three sources of positive feedback: demand side economies of scale (network effects), classic supply side economies of scale arising often from high fixed costs, and learning-by-doing. He wanted to make the case that there are no competition issues for Google, and so suggested that (a) search engines are not characterised by indirect network effects because search users don’t care how many advertisers are present; (b) fixed costs have vanished – even for Google-sized companies – because the cloud; (c) experience is a good thing, not a competitive barrier, and anyway becomes irrelevant when a technological jump causes an upset, as in Facebook toppling MySpace. I don’t think his audience shed its polite scepticism. Still, the learning-by-doing as a positive feedback mechanism argument is interesting.

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The social life of electricity, continued

I devoured Then There Was Light: Stories Powered by the Rural Electrification Scheme in Ireland on my train journey back from the Bristol Festival of Economics yesterday. It’s a delightful collection of reminiscences about this scheme taking electrification to the countryside (ie most of Ireland) during the 1940s and into the 1950s. In fact, coverage only reached 100% of all the remote islands in 2000, and some hamlets were eventually depopulated as electricity never got to them.

The book is a reminder of what a poor and agrarian country Ireland was until, well EU accession really. The essays by men who worked digging post holes and driving trucks often start with the relief they felt on getting, not only a job, but one for a government body paying decent wages. Being hired for the work changed their lives. Most are written by people who spent at least part of their childhood in darkness lit only by candles and paraffin lamps, with mothers doing all the laundy by hand. One writer calls the scheme one of the most transformative events in Ireland’s 20th century history as a nation, and by the end of the book, this doesn’t seem like hyperbole.

It’s fasinating to read about the hesitations some people had: about the cost not only of getting hooked up to start with but also the vulnerability to having to make ongoing payments for power. For many new customers, this was the first regular bill payment they experienced; about the dangers – would it harm the cattle or burn down the house? And about whether it would change the character of life for the worse. Parish priests were often key advocates for electrification, and so were women, who quickly saw the potential benefits of electrical domestic appliances. The company also had a PR and sales team – the book has illustrations showing some of the demos and delightful adverts: “Electricity saves money in the farmyard!”

Above all, the book is a reminder that all technology is social. Not only do new technologies need complementary investments  – households paying for their internal wiring and switches, or street lights, for example – people have to be able to see the benefits as well as the costs (faster milking, no more washing by hand), and these often need demonstrating in practice before they are believed. Electricity in particular is also a social technology, involving collective decisions to create and sustain the incentives to make it function. The investments are long-term, they change places dramatically; and although the technology is now old, it is both essential and dangerous.

So it is that many countries still cannot provide a consistent universal electricity supply and even advanced economies experience power cuts and underinvestment. If western political systems lose their ability to create consensus and collective, long-term action there will be many bad consequences but one of them might well be disrupted electricity supplies. This is not alarmist: I spent chunks of my teenage years doing homework by candlelight too. We had the power stations and the wires, but not the social and political infrastructure in the years of unrest and strikes in the 1970s.

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