The continuing crisis in the Euro zone, framed by a series of meetings that seem to never come to a conclusion, has many people asking whether government, or more broadly democracy, has failed (as Prof Ngaire Woods discussed in a recent radio interview). The narrative goes something like this - the markets need clear signals and strong action, government cannot provide them with these actions or they do not wish to do so as the actions that are needed are politically unpalatable. So this is now a failure of government, of the system of democracy, as we are seeing the limits of what can be done via the political process.
This for me is completely wrong headed - what we are seeing is a failure of our combined system of governance, including the public and the private sector. There is no public sector without a private sector, and no matter what some libertarians would have you believe, there is no private sector without the public sector. Markets are embedded in social structures and to try to claim that they are independent is foolish and in many cases disingenuous.
The past couple of weeks have been hairy for my television, as the risk of something hitting it at speed has been very high. A parade of commentators, valued and promoted on the basis of their expertise as economists whilst ignoring their interest in specific outcomes, claiming that the credit crisis was due to a lack of regulation are happily forgetting the drum beat of no regulation, no government that existed pre the crisis. At the same time many politicians are castigating the evil bankers while forgetting either their campaign contributions or their lack of action on existing regulation. No wonder I see the television shudder when I flick over to Paxman and his sneer.
This is a failure of the business-government relationship, specifically in the financial sector, on a global basis. The narratives of growth and the zealous belief in the end of boom and bust, the death of risk and the boon of every rising incomes, all were built on false foundations. Niall Ferguson's latest op-vid (a horrible term for someone making a speech to camera with some natty supporting animation) hits this nail on the head, turning Clinton's mantra of 'It's the economy stupid' into a more pointed 'It's the stupid economists' (however, his proposed actions are not ones I'd agree with).
There are some industrialists, some economists, some politicians who are trying to move forward, not letting ideology hold them down. But they are a little lost in the cacophony that surrounds the Greek situation, the probable Italian bailout and the continuing problem of stalled growth. Unless we can create the space for a new conversation to occur, for clear thinking and constructive debate to emerge, we won't be able to solve our problems. And that would be the worst failure of our liberal, democratic system.
F
Wednesday, 9 November 2011
Tuesday, 11 October 2011
Inevitable or not? The return of manufacturing to the US
The credit crisis and the recession have been good at one thing - forcing commentators, researchers and managers to challenge their implicit assumptions about the world. The end of boom and bust, the possibility of having a post-industrial society, and the continued growth of China all have been called into question since 2008.
One of the emerging discussions is on whether manufacturing will 'return' to developed or leading economies such as the United States. While this was not on policy makers' agendas five years ago, the need to find growth is forcing them to look anew at industrial structure and their role in supporting industrial growth.
As this discussion unfolds it is interesting to contrast the positions being taken by various of the writers and commentators. A new report from Boston Consulting Group claims that manufacturing cost advantages will erode between the US and China within five years leading to a rise in manufacturing in the US. Reading it made me think back to the 2009 piece from Pisano and Shi which lamented the loss of the industrial commons in the US and the need for the public and the private sector to engage in rebuilding the foundations of industrial strength in the US. Both can be true but maybe they should be taken together to get a better picture of what might need to be done to support industrial growth in the US.
Looking at the BCG report it does a good job of reminding us of the context for US manufacturing. According to the report, since 1972 manufacturing output has more than doubled in constant dollars and the US share of world manufacturing value added for 2010 is 19.4% compared to 19.8% for China. Without showing their explicit analysis the report claims that rising wages, increasing shipping costs, more expensive land and the strengthening renminbi will mean the cost advantages for China are about to disappear.
Which is what led me back to the Pisano and Shi piece in Harvard Business Review on restoring American competitiveness. The main argument here is that over the past 30 to 40 years as outsourcing of production has risen significantly the US has essentially weakened its industrial commons. Many products can no longer be made in the US as specific knowledge has left the country and has not been retained either in people or companies. The rebuilding of the commons, and possibly more importantly the building of a commons that is appropriate to the needs of the next generation of manufacturing, will be a difficult task that potentially will require much coordination and collaboration between industry and government.
So the mainly cost based analysis of BCG does not appear to admit to the kinds of issues that Pisano and Shi are worried about, the fabric of industry and its ability to adapt and do new things, the skills base of the country and its investment in retaining and improving production processes through strong R&D. This is why I'm wary of big claims like those made in the BCG report, especially when they could potentially lead policy makers to think of the return (increase really) of manufacturing as somehow inevitable. It is not and there are many complexities to be unearthed and overcome before we'll see a significant shift in the structure of the economy and strong growth based on industry in the US or in other developed economies.
Best
Finbarr
One of the emerging discussions is on whether manufacturing will 'return' to developed or leading economies such as the United States. While this was not on policy makers' agendas five years ago, the need to find growth is forcing them to look anew at industrial structure and their role in supporting industrial growth.
As this discussion unfolds it is interesting to contrast the positions being taken by various of the writers and commentators. A new report from Boston Consulting Group claims that manufacturing cost advantages will erode between the US and China within five years leading to a rise in manufacturing in the US. Reading it made me think back to the 2009 piece from Pisano and Shi which lamented the loss of the industrial commons in the US and the need for the public and the private sector to engage in rebuilding the foundations of industrial strength in the US. Both can be true but maybe they should be taken together to get a better picture of what might need to be done to support industrial growth in the US.
Looking at the BCG report it does a good job of reminding us of the context for US manufacturing. According to the report, since 1972 manufacturing output has more than doubled in constant dollars and the US share of world manufacturing value added for 2010 is 19.4% compared to 19.8% for China. Without showing their explicit analysis the report claims that rising wages, increasing shipping costs, more expensive land and the strengthening renminbi will mean the cost advantages for China are about to disappear.
"Our analysis concludes that, within five years, the total cost of production for many products will be only about 10 to 15 percent less in Chinese coastal cities than in some parts of the US where factories are likely to be built."This is a very strong statement and one that really needs to show the background analysis so that it can be critiqued properly. However, there are immediate reasons why this may be too rosy a picture for those hoping for increases in manufacturing in the US. The comparison between the cheapest parts of the US and the most expensive parts of China may mislead, as cheaper options will still exist in China. Also, is this really a total cost model? Have they included the potential actions of state and federal government in the US and in China? While the message may be right overall (arguments about the timescale aside) the model may just be too simple to back up the claims.
Which is what led me back to the Pisano and Shi piece in Harvard Business Review on restoring American competitiveness. The main argument here is that over the past 30 to 40 years as outsourcing of production has risen significantly the US has essentially weakened its industrial commons. Many products can no longer be made in the US as specific knowledge has left the country and has not been retained either in people or companies. The rebuilding of the commons, and possibly more importantly the building of a commons that is appropriate to the needs of the next generation of manufacturing, will be a difficult task that potentially will require much coordination and collaboration between industry and government.
So the mainly cost based analysis of BCG does not appear to admit to the kinds of issues that Pisano and Shi are worried about, the fabric of industry and its ability to adapt and do new things, the skills base of the country and its investment in retaining and improving production processes through strong R&D. This is why I'm wary of big claims like those made in the BCG report, especially when they could potentially lead policy makers to think of the return (increase really) of manufacturing as somehow inevitable. It is not and there are many complexities to be unearthed and overcome before we'll see a significant shift in the structure of the economy and strong growth based on industry in the US or in other developed economies.
Best
Finbarr
Tuesday, 4 October 2011
The problem of scale
I've been reading Ian Morris' Why the West Rules - For Now over the past couple of weeks (some of the blow by blow in the earlier centuries might have made way to get it down from its 600+ page length) and I've been struck by two things. First the assertion that there have at points in history been barriers or limits to development that have held until conditions or technology moved past a certain limit. And the second is that the problem of scale seems writ large even though it is not really brought out in the text.
The second for me is an integral part of the first and I'm not saying Morris doesn't recognise this or in some ways discuss it. However I thought it was worth making it really explicit. Simply put, big things are not small things made large.
Probably the best piece on this in management literature is the classic 1972 Harvard Business Review article by Larry Greiner Evolution and Revolution as Organizations Grow which discusses the differences between moments of smooth evolution and disruptive revolution based on the age and size of an organization. The idea that the small and the large don't work in the same way is fundamental in physics, in the difference between Newtonian mechanics and the strange world of quantum mechanics (for a musical version of this have a look at the Symphonies of Science the Quantum World).
And in Morris' text what I see lurking is that large countries are not big small countries, if I can mush all of that together. Or to put it another way, the scaling of companies into national economies and from national economies to the global economy involves scaling steps that are discontinuous.
This is very important when trying to understand commentary on the nature of the current recession and the actions that are being taken (or not) to try to reignite growth. How the narrative on how to address the problems is structured depends on what scale you're used to working at. Paul Krugman wrote about this in a direct way in his 1996 piece, again for Harvard Business Review, A Country is Not a Company, where he strongly argued for not following the instincts of CEOs of large companies in terms of economic policy.
It may also point to significant fault lines in economics, between those trying to work up from the microeconomics of companies to the macroeconomics of countries. Maybe, again in parallel to physics, there is no grand theory of everything.
Best
F
The second for me is an integral part of the first and I'm not saying Morris doesn't recognise this or in some ways discuss it. However I thought it was worth making it really explicit. Simply put, big things are not small things made large.
Probably the best piece on this in management literature is the classic 1972 Harvard Business Review article by Larry Greiner Evolution and Revolution as Organizations Grow which discusses the differences between moments of smooth evolution and disruptive revolution based on the age and size of an organization. The idea that the small and the large don't work in the same way is fundamental in physics, in the difference between Newtonian mechanics and the strange world of quantum mechanics (for a musical version of this have a look at the Symphonies of Science the Quantum World).
And in Morris' text what I see lurking is that large countries are not big small countries, if I can mush all of that together. Or to put it another way, the scaling of companies into national economies and from national economies to the global economy involves scaling steps that are discontinuous.
This is very important when trying to understand commentary on the nature of the current recession and the actions that are being taken (or not) to try to reignite growth. How the narrative on how to address the problems is structured depends on what scale you're used to working at. Paul Krugman wrote about this in a direct way in his 1996 piece, again for Harvard Business Review, A Country is Not a Company, where he strongly argued for not following the instincts of CEOs of large companies in terms of economic policy.
It may also point to significant fault lines in economics, between those trying to work up from the microeconomics of companies to the macroeconomics of countries. Maybe, again in parallel to physics, there is no grand theory of everything.
Best
F
Friday, 30 September 2011
Industrial policy back in the Economist
At the risk of being a cracked record, countries need to consider industrial policy anew. Interestingly even the Economist is looking at industrial policy arguments and is willing to engage in debate on the issues. A new column discusses recent papers by Rodrik and others being relatively open to the arguments made about positive versus negative paths of innovation.
However the slight bias for the Economist comes out towards the end ...
How can such policymakers be created? Well in the UK a step forward is to provide stronger training, as with the new Blavatnik School of Government opening at Oxford, and to have a more transparent policy process that engages a broad conversation rather than trying to keep everything under the covers. By taking us away from the images of Sir Humphrey and into a more professionalised policy process we can hope for better outcomes.
In the meantime let's be grown up and have a realistic conversation on industrial policy that is not trapped in the tropes of the 80s.
F
However the slight bias for the Economist comes out towards the end ...
In effect, Mr Rodrik and others are arguing that industrial policy requires disinterested, benevolent policymakers who can do it well. Unfortunately, they do not yet have a recipe for how such policymakers can be created. Policy is made by real people with political and personal motivations. What they come up with is unlikely to be as well designed as the ones in the models.Rodrik has argued elsewhere that industrial policy is an ongoing dialogue and depends on input from industry as much as from policymakers. But I am struck by the argument as it could be reflected into the economy generally. The market is embedded in society, designed and bounded by the laws of each country and a set of norms (those criticised by Ed Milliband in his recent Labour Party conference speech). If policymakers cannot be expected to be perfect designers of industrial policy, let's not assume that financial engineers and captains of industry are perfect decision makers either.
How can such policymakers be created? Well in the UK a step forward is to provide stronger training, as with the new Blavatnik School of Government opening at Oxford, and to have a more transparent policy process that engages a broad conversation rather than trying to keep everything under the covers. By taking us away from the images of Sir Humphrey and into a more professionalised policy process we can hope for better outcomes.
In the meantime let's be grown up and have a realistic conversation on industrial policy that is not trapped in the tropes of the 80s.
F
Wednesday, 28 September 2011
The strength of radical doubt
Following the news from CERN that they potentially have an experimental result that destroys a foundation of modern physics I joked that I might have to hand back my physics degree. Obviously the degree doesn't get invalidated just because some pesky particle broke the speed of light, but it did remind me that the radical doubt that physicists carry with them is a strength and not a weakness.
It is a great characteristic of the discipline that when faced with a result that clearly is outside existing models rather than circling the wagons there is a palpable sense of excitement and challenge. It may create a lot of problems and take much time to progress, but it would be one of the greatest times to be a physicist. The opportunity to renew and rewrite a discipline comes around very rarely.
So again I am frustrated by mainstream economics and in particular the use of economics within policy and media debates on the credit crisis and the recovery that has not happened. When the world keeps sending this discipline signals that all is not well, that models and methods do not stand the test of reality, the response is very different to that in physics. Rather than accepting the need to start anew, there is a denial that there is any need for change and renewal.
Until radical doubt and to be honest more humility enters the discipline there is little hope that we can move forward towards a productive version of economics. We live with flat earth economics in a time when we need to be moving faster than the speed of light.
F
It is a great characteristic of the discipline that when faced with a result that clearly is outside existing models rather than circling the wagons there is a palpable sense of excitement and challenge. It may create a lot of problems and take much time to progress, but it would be one of the greatest times to be a physicist. The opportunity to renew and rewrite a discipline comes around very rarely.
So again I am frustrated by mainstream economics and in particular the use of economics within policy and media debates on the credit crisis and the recovery that has not happened. When the world keeps sending this discipline signals that all is not well, that models and methods do not stand the test of reality, the response is very different to that in physics. Rather than accepting the need to start anew, there is a denial that there is any need for change and renewal.
Until radical doubt and to be honest more humility enters the discipline there is little hope that we can move forward towards a productive version of economics. We live with flat earth economics in a time when we need to be moving faster than the speed of light.
F
Wednesday, 14 September 2011
The tensions of innovation policy in Europe
The Centre for European Reform has released a very interesting collection of pieces on innovation in Europe which highlights all the difficulties in talking about and supporting innovation. It has contributions from John Kay, Maire Geoghegan-Quinn and Amar Bhide amongst others, so does not suffer from a single perspective on the issues.
As discussed here previously, there is continuing confusion over what we all mean by innovation (still!) which is acknowledged in the collection. However according to one of the editors, Philip Whyte, there is a tension between those who study innovation (academics or those in think tanks) and those who have to develop and implement policies in support of innovation (policy makers in general). He claims academics "... point out that Schumpeter's famous description of innovation as a process of 'creative destruction' has two components that are inextricably intertwined. One cannot embrace creation (that is, the emergence of innovative young firms) without accepting destruction (letting uncompetitive incumbents go to the wall). Yet policy-makers ... want innovation, but without the accompanying economic dislocation and social disruption."
I'm not sure that such a tension really exists. Most policy makers understand that firms fail at somewhere about 10% of firms per year in developed economies and that a constant supply of new firms, let alone innovative new firms, is required for growth. Perhaps the policy maker has two roles, to support innovation to occur and to soften some of the transitional pains that come with the changes innovation brings in markets and in society?
Perhaps the biggest problem is one of timescales and incentives - academics have years, policymakers tend to have days. As Sam says in the West Wing "... we play with live ammo around here ..."
As discussed here previously, there is continuing confusion over what we all mean by innovation (still!) which is acknowledged in the collection. However according to one of the editors, Philip Whyte, there is a tension between those who study innovation (academics or those in think tanks) and those who have to develop and implement policies in support of innovation (policy makers in general). He claims academics "... point out that Schumpeter's famous description of innovation as a process of 'creative destruction' has two components that are inextricably intertwined. One cannot embrace creation (that is, the emergence of innovative young firms) without accepting destruction (letting uncompetitive incumbents go to the wall). Yet policy-makers ... want innovation, but without the accompanying economic dislocation and social disruption."
I'm not sure that such a tension really exists. Most policy makers understand that firms fail at somewhere about 10% of firms per year in developed economies and that a constant supply of new firms, let alone innovative new firms, is required for growth. Perhaps the policy maker has two roles, to support innovation to occur and to soften some of the transitional pains that come with the changes innovation brings in markets and in society?
Perhaps the biggest problem is one of timescales and incentives - academics have years, policymakers tend to have days. As Sam says in the West Wing "... we play with live ammo around here ..."
Friday, 9 September 2011
A small follow up on the crisis in economics
In my last post I touched on whether there is or there needs to be a crisis within the profession and teaching of economics. As I may have mentioned there seems to be a rumbling noise that many wish to ignore, something in the woodshed that won't go away. This came up again this morning during a panel session at the YouGov-Cambridge Forum 2011, where Vicky Pryce and Lord Griffiths were in conversation with Paul Mason.
In questions I brought up that economics may have failed to train policy analysts and policy makers effectively over the past 20 or 30 years, as macro went into abstract mathematics in an all encompassing way and structural or industrial economics basically was ignored. This didn't really get much traction with Vicky Pryce, but it did beg the question whether economics is now getting in the way of good policy making?
In questions I brought up that economics may have failed to train policy analysts and policy makers effectively over the past 20 or 30 years, as macro went into abstract mathematics in an all encompassing way and structural or industrial economics basically was ignored. This didn't really get much traction with Vicky Pryce, but it did beg the question whether economics is now getting in the way of good policy making?
The latest expression of concern about the discipline comes from none other than Paul Krugman and his recent Presidential address to the Eastern Economics Association. There he makes the case that there are three complaints that could be made - that economists did not see the crisis coming, that economists failed by not even considering that such a crisis could occur, and finally that they have failed to provide useful advice in the midst of the ongoing crisis.
He concludes that the first would be unfair, that the second is substantially true, but that the third is true and is the worst failure. He charges that "We’ve entered a Dark Age of macroeconomics, in which much of the profession has lost its former knowledge, just as barbarian Europe had lost the knowledge of the Greeks and Romans."
As we head towards a double dip and in some eyes potentially a second credit crisis this is not the time for joy in the pain of others. However it is a time when policy makers at the most senior level, whether they come from an economics background or not, to face up to the shortcomings in economic knowledge and practice and to be open to non-dogmatic solutions to the problems of most developed economies. The limits of evidence, knowledge and practice within specifically macroeconomics must be openly acknowledged so that other voices can get into the policy process. Not because we don't like economics, but because we need solutions that work and quick, not more of the same.
F
F
Friday, 2 September 2011
Renewing economics by going opensource
As I mentioned in previous post John Kay has taken on economics as not being a science. However, in his latest piece in Prospect he laments that we have wasted a good crisis. The window of opportunity to change the narrative, to remove some of the sacred cows of the policy debate seems to have closed, as I briefly mentioned. He does a good job of highlighting how the story changed from greedy bankers being reckless to blaming the government for not regulating them enough. This was the government that in every other way was supposed to be too big, too burdensome and too much in the way, right?
So that economics is a discipline in need of renovation if not revolution is getting lost in the return to the new normal. There is some hope though, some within and some without the field of economics who are prepared to point to the emperor's new clothes. For example, Joe Stiglitz has been very direct in saying that there needs to be a crisis in the discipline, that macroeconomics essentially failed when challenged by the credit crisis. These comments were part of his recent speech at the Lindau Conference, which brings together Nobel laureates with promising young researchers and has been running since 1951. Interestingly this meeting is only the fourth dedicated to economics, with a plan to have such a focus every three years, and as he says at the meeting in 2008 nobody was talking about the crisis. Other economists willing to challenge the status quo include Ha-Joon Chang and his influential 23 Things They Don't Tell You About Capitalism.
The problem is that too many policy positions are bunged up with people who may have the best intentions but don't have the time and space to reinvent the discipline on the fly. They are faced with real problems in real time. It may take a generation to get new thinking deep into multilateral and national government organisations. Hence the hope that new courses such as that at the Blavatnik School of Government at Oxford will produce policy folks with a broader set of perspectives.
In the meantime there is a real need for the discipline to potentially go back to the start, right back to the beginning and build itself anew. The challenge is immense, both intellectually and in terms of trying to get enough minds pointed in a common direction. This may be the moment when we need to opensource economics and start producing an economics fit for the real world.
As I mentioned there are some folks heading in this direction. A great example is Doyne Farmer at the Santa Fe Institute. He's trying to build an agent based model of the US housing market that works at the level of the individual (here's a video of him talking about it to INET who have funded some of his work). Horrendously complicated but a great attempt to start afresh. And the really interesting thing about Prof Farmer? He was a physicist before he got into all of this!
Here's to starting with a blank sheet of paper and seeing if we can build an economics that actually works.
Best
Finbarr
So that economics is a discipline in need of renovation if not revolution is getting lost in the return to the new normal. There is some hope though, some within and some without the field of economics who are prepared to point to the emperor's new clothes. For example, Joe Stiglitz has been very direct in saying that there needs to be a crisis in the discipline, that macroeconomics essentially failed when challenged by the credit crisis. These comments were part of his recent speech at the Lindau Conference, which brings together Nobel laureates with promising young researchers and has been running since 1951. Interestingly this meeting is only the fourth dedicated to economics, with a plan to have such a focus every three years, and as he says at the meeting in 2008 nobody was talking about the crisis. Other economists willing to challenge the status quo include Ha-Joon Chang and his influential 23 Things They Don't Tell You About Capitalism.
The problem is that too many policy positions are bunged up with people who may have the best intentions but don't have the time and space to reinvent the discipline on the fly. They are faced with real problems in real time. It may take a generation to get new thinking deep into multilateral and national government organisations. Hence the hope that new courses such as that at the Blavatnik School of Government at Oxford will produce policy folks with a broader set of perspectives.
In the meantime there is a real need for the discipline to potentially go back to the start, right back to the beginning and build itself anew. The challenge is immense, both intellectually and in terms of trying to get enough minds pointed in a common direction. This may be the moment when we need to opensource economics and start producing an economics fit for the real world.
As I mentioned there are some folks heading in this direction. A great example is Doyne Farmer at the Santa Fe Institute. He's trying to build an agent based model of the US housing market that works at the level of the individual (here's a video of him talking about it to INET who have funded some of his work). Horrendously complicated but a great attempt to start afresh. And the really interesting thing about Prof Farmer? He was a physicist before he got into all of this!
Here's to starting with a blank sheet of paper and seeing if we can build an economics that actually works.
Best
Finbarr
Friday, 19 August 2011
Broken narratives of innovation
A post or two ago I briefly grumped that innovation was everything and everywhere. What that post may have been clumsily trying to get at was that the narrative of innovation is broken, that is the stories or interpretative structures that we use to describe what we think innovation might be and what its impacts are do not work any more.
This is a problem for academics, policy makers and anyone trying to apply innovation to their company. It probably isn't a problem for the industry of business books about innovation, as the confusion and overreaching probably serves that particular group well. But if you're actually trying to improve the performance and outcomes of companies and countries this is a real issue.
The dominant narrative for innovation is that it is uniformly good. Innovation, simplified as the introduction of new products or services, is a move forward, the arrow of progress taking us forward. Now here is where the first wrinkle comes in - some 'definitions' of innovation wedge in the word 'successful' (for example the 2008 UK government Innovation Nation paper). So something isn't an innovation unless it is successful, and the definition of successful is left as an exercise for the reader.
Macro policy talks of policy in these terms of successful introduction but the measurement of innovation takes a completely different position. The questionnaire for the 6th Community Innovation Survey carried out in 2009 uses this definition of innovation -
So from the policy analyst or academic perspective (the results of the survey are used by academics to write many papers) innovation becomes something simpler or softer, as the criterion is new to either the business or the market. The approach here says nothing about whether the new product or service is successful, it just asks whether it is new. The questionnaire does go on to ask how the revenue of the company depends on new products, but this is not the same as the macro 'successful'.
Now don't get me wrong I'm as up for positive change, for improvements in technology and institutions, as the next policy wonk. I don't want to rip out the computers and to head back to the land without access to indoor plumbing or my treasured mobile phone.
I'm really concerned though that in painting innovation, in its broadest sense, as all change, always positive, that we're clouding the issues we really need to face. Specifically, how do we achieve growth that is sustainable and equitable? Because that slippery little 'successful' doesn't clarify who is benefiting. Is it just the company and its increased market share, or is it consumers getting a truly better product, or the national economy having increased GDP?
And here's the reason that this probably becomes too complex. When we talk about innovation it will have different meanings, processes and impacts depending on what country you're in, whether you're talking about technology companies or publicly provided healthcare. There cannot be one conversation or one narrative that encompasses productive changes in all of these contexts.
If you were very cynical you could say that the macro definition of innovation, the one that includes the successful rider, is self proving - by enforcing the criterion of successful you are by definition focusing on something that is positive.
So what may be a small step towards making innovation as a term have more bite again is to admit that some changes, some new products and services are negative for some stakeholders. I'm not asking for a measurement of that positive/negative balance, but at least to recognise that some of what we currently talk of as being innovation is marketing fluff at least or sometimes damaging would be an interesting change.
I'm sure some of you would agree that we could have done with a lot less financial innovation over the past decades.
Best
Finbarr
This is a problem for academics, policy makers and anyone trying to apply innovation to their company. It probably isn't a problem for the industry of business books about innovation, as the confusion and overreaching probably serves that particular group well. But if you're actually trying to improve the performance and outcomes of companies and countries this is a real issue.
The dominant narrative for innovation is that it is uniformly good. Innovation, simplified as the introduction of new products or services, is a move forward, the arrow of progress taking us forward. Now here is where the first wrinkle comes in - some 'definitions' of innovation wedge in the word 'successful' (for example the 2008 UK government Innovation Nation paper). So something isn't an innovation unless it is successful, and the definition of successful is left as an exercise for the reader.
Macro policy talks of policy in these terms of successful introduction but the measurement of innovation takes a completely different position. The questionnaire for the 6th Community Innovation Survey carried out in 2009 uses this definition of innovation -
Innovation, for the purpose of this survey, is defined as new or significantly improved goods or services and/or the processes used to produce or supply all goods or services, that the business has introduced, regardless of their origin. These may be new to the business or new to the market.
So from the policy analyst or academic perspective (the results of the survey are used by academics to write many papers) innovation becomes something simpler or softer, as the criterion is new to either the business or the market. The approach here says nothing about whether the new product or service is successful, it just asks whether it is new. The questionnaire does go on to ask how the revenue of the company depends on new products, but this is not the same as the macro 'successful'.
Now don't get me wrong I'm as up for positive change, for improvements in technology and institutions, as the next policy wonk. I don't want to rip out the computers and to head back to the land without access to indoor plumbing or my treasured mobile phone.
I'm really concerned though that in painting innovation, in its broadest sense, as all change, always positive, that we're clouding the issues we really need to face. Specifically, how do we achieve growth that is sustainable and equitable? Because that slippery little 'successful' doesn't clarify who is benefiting. Is it just the company and its increased market share, or is it consumers getting a truly better product, or the national economy having increased GDP?
And here's the reason that this probably becomes too complex. When we talk about innovation it will have different meanings, processes and impacts depending on what country you're in, whether you're talking about technology companies or publicly provided healthcare. There cannot be one conversation or one narrative that encompasses productive changes in all of these contexts.
If you were very cynical you could say that the macro definition of innovation, the one that includes the successful rider, is self proving - by enforcing the criterion of successful you are by definition focusing on something that is positive.
So what may be a small step towards making innovation as a term have more bite again is to admit that some changes, some new products and services are negative for some stakeholders. I'm not asking for a measurement of that positive/negative balance, but at least to recognise that some of what we currently talk of as being innovation is marketing fluff at least or sometimes damaging would be an interesting change.
I'm sure some of you would agree that we could have done with a lot less financial innovation over the past decades.
Best
Finbarr
Wednesday, 17 August 2011
The (f)laws of economics
There was a period just after the credit crisis and recession in 2008 when it looked like we were going to look at the roots of our thinking on economics and especially economic policy anew. Having seen the abject failure of macroeconomics to predict the crisis, many thought that it would be a new dawn. Would that it were so.
Over the past year it feels as if we're back in the pre-crisis era, where the markets get to tell the government what to do and many sage heads with impressive titles like Chief Economist to the Uber Bank appear on news programmes and pat us all on the head, telling us to leave it to them as it's just too complicated for us to understand.
But this all does not get us away from the main problem - economics is not a science. Many other commentators have waded into this territory before (for example John Kay) and there is some outstanding academic work on the historical roots of economics in physics (the most notable being Philip Mirowski and his book More Heat Than Light), so there is little point in me trying to replay most of the arguments.
However, as we are told that austerity is the way forward, that we will create new jobs in enterprise zones and there is no point in trying to raise the top rate of income tax (even though the sage of Omaha Warren Buffett has ridiculed this position beautifully) it seems that we cannot shake off the hands of living let alone dead economists.
So two things to ask your local friendly (?) economist, or politician if you prefer. What exactly is growth, as money has separated from the physical economy, and when you say something is an economic law what do you actually mean? Is it like a law of the natural world, let's take gravity for instance? Or is it something you want to be true to make your world view hold together?
Not that I'm taking sides or anything ....
One last note, for those interested in new thinking in economics it is worth taking a look at the Soros funded Institute for New Economic Thinking.
Best
Finbarr
Tuesday, 9 August 2011
Innovation is everything and everywhere
Quibbling over language can be incredibly frustrating when all we want to do is get on and solve problems, especially problems as large as the looming threat of a double dip recession. But sometimes you do have to stop the lights and have the discussion whether or not it is all semantics.
I have a long standing problem with innovation. Nothing against the 'I know it when I see it version', the concept defining product or technology that comes along oh so rarely. My frustration is with the innovation is everything that is good, innovation as essentially all change. And as such it becomes useless as either a term, an analytical frame or a rallying call.
A frustratingly good example of this came along this week with the Hamilton Project at Brookings releasing a self styled policy memo entitled A Dozen Economic Facts About Innovation. What is pitched as a policy memo is actually a series of quotes selected I am assuming to fit the narrative from a workshop that was held in DC in June of this year titled PhDs, Policies, and Patents: Innovation and America’s Future. So there's no bias already in here, no selection bias on the people attending, the pitch they might give or the messages they were expected to provide?
So much for that. But as you read the 12 'facts' you get the sense that the writers let it all get away from them. The first fact elides productivity and average wage increases with innovation. We may want this to be true but there is no link shown, nothing other than a sense that innovation is good, rising productivity is good, so let's say the first caused the second.
The second fact really starts to go to town claiming innovation is the cause of increases in life expectancy. OK, better medicines, more machines are helping, but surely doctors have something to do with this, lifestyle changes might have something to do with this? And it avoids the polarisation of health outcomes between those who are becoming morbidly obese and those who are taking care of themselves. But again, innovation is good, it is all change and all pervasive.
I won't bore you with going through all 12, but I would nudge you to look at number 6 and see what you think. Have economists completely lost the plot when total factor productivity, essentially all the things we cannot explain through things like capital and labour, is equated to innovation?
Or is this the best example that innovation is being used as a catch all, a bucket in which to throw everything that is changing and we believe to be positive?
Unfortunately this may be a battle lost, as there is now a disconnect between the use of the term innovation, the attempts to measure it (for example through the Community Innovation Survey), and what we really want to get at - sources of growth. Maybe if we can start tidying up this language and stop being so all encompassing we might get somewhere.
Best
F
I have a long standing problem with innovation. Nothing against the 'I know it when I see it version', the concept defining product or technology that comes along oh so rarely. My frustration is with the innovation is everything that is good, innovation as essentially all change. And as such it becomes useless as either a term, an analytical frame or a rallying call.
A frustratingly good example of this came along this week with the Hamilton Project at Brookings releasing a self styled policy memo entitled A Dozen Economic Facts About Innovation. What is pitched as a policy memo is actually a series of quotes selected I am assuming to fit the narrative from a workshop that was held in DC in June of this year titled PhDs, Policies, and Patents: Innovation and America’s Future. So there's no bias already in here, no selection bias on the people attending, the pitch they might give or the messages they were expected to provide?
So much for that. But as you read the 12 'facts' you get the sense that the writers let it all get away from them. The first fact elides productivity and average wage increases with innovation. We may want this to be true but there is no link shown, nothing other than a sense that innovation is good, rising productivity is good, so let's say the first caused the second.
The second fact really starts to go to town claiming innovation is the cause of increases in life expectancy. OK, better medicines, more machines are helping, but surely doctors have something to do with this, lifestyle changes might have something to do with this? And it avoids the polarisation of health outcomes between those who are becoming morbidly obese and those who are taking care of themselves. But again, innovation is good, it is all change and all pervasive.
I won't bore you with going through all 12, but I would nudge you to look at number 6 and see what you think. Have economists completely lost the plot when total factor productivity, essentially all the things we cannot explain through things like capital and labour, is equated to innovation?
Or is this the best example that innovation is being used as a catch all, a bucket in which to throw everything that is changing and we believe to be positive?
Unfortunately this may be a battle lost, as there is now a disconnect between the use of the term innovation, the attempts to measure it (for example through the Community Innovation Survey), and what we really want to get at - sources of growth. Maybe if we can start tidying up this language and stop being so all encompassing we might get somewhere.
Best
F
Monday, 1 August 2011
What kind of democracy do we think we have?
After the 2010 UK election, the AV referendum and even now with the debt ceiling negotiations in the US, I am struck that we are not clear what kind of democracy we either want or have. Essentially, are we confused on what we are doing when we vote? Do we agree whether we are electing representatives or delegates?
The nagging in my brain got to the point where I thought best to do something about it, so in partnership with YouGov@Cambridge put a survey out to look into this. This led to a piece in the Huffington Post, The Leaders We Deserve, which gives the headline numbers from the survey and some colour commentary.
The numbers from the survey frankly depress me (summary data here)- two thirds of people seem to believe that they live in some form of direct democracy, which is not true, but worse only a third agree it is their responsibility to find out about the issues.
A part of the survey that we have not put into an article yet is a set of questions on what should be decided by referendum and whether referenda should be legally binding (which they are not). However, 68% of respondents agree or strongly agree that they should be legally binding.
Throughout the numbers the impression for me is that there is a terrible conjunction of people wanting control but not wanting the responsibility that goes with it. While I was putting the piece together a good friend pointed me at one of Peter Cook's early and least remembered movies, The Rise and Rise of Michael Rimmer. The story follows Rimmer as he blags his way into a failing advertising firm, then into politics, and finally as Prime Minister where he asks the general public to vote on every decision in government. Here's an excerpt .... Maybe this is where we are heading?
F
The nagging in my brain got to the point where I thought best to do something about it, so in partnership with YouGov@Cambridge put a survey out to look into this. This led to a piece in the Huffington Post, The Leaders We Deserve, which gives the headline numbers from the survey and some colour commentary.
The numbers from the survey frankly depress me (summary data here)- two thirds of people seem to believe that they live in some form of direct democracy, which is not true, but worse only a third agree it is their responsibility to find out about the issues.
A part of the survey that we have not put into an article yet is a set of questions on what should be decided by referendum and whether referenda should be legally binding (which they are not). However, 68% of respondents agree or strongly agree that they should be legally binding.
Throughout the numbers the impression for me is that there is a terrible conjunction of people wanting control but not wanting the responsibility that goes with it. While I was putting the piece together a good friend pointed me at one of Peter Cook's early and least remembered movies, The Rise and Rise of Michael Rimmer. The story follows Rimmer as he blags his way into a failing advertising firm, then into politics, and finally as Prime Minister where he asks the general public to vote on every decision in government. Here's an excerpt .... Maybe this is where we are heading?
F
Wednesday, 27 July 2011
Time for a rebranding of industrial policy?
If you'd like to get an immediate read on someone's politics, their age and where they are from just wander up to them and say 'industrial policy' or even use it in a sentence, like "There is a need for industrial policy in leading economies, just as much in developing economies". The reaction, usually extreme whether it is eye rolling, banging a shoe on the table or the sigh of the worn down, should tell you a lot.
This is a real problem. Right at the moment when we should be having a grown up debate on the role of the state in industrial development, how industry can play a role in national growth for G7 economies, and whether we've been misleading one another about the nature of competitiveness, the words act like a landmine. Step on them and boom there goes all rationality in the discussion you were having.
A great example of how the label of 'industrial policy' is misused and is divisive is contained within the recent PCAST report to the President on how to maintain the USA's claimed leadership in advanced manufacturing (full text of the report here). As Clyde Prestowitz has discussed in his Foreign Policy blog, the argument is well made that the US (akin to countries like the UK) had a lead in this area but that lead has been eroded. But then we get on to what to do about it.
According to the PCAST report -
Overall the PCAST report is a depressing example of how old labels get in the way and that we have not advanced at all in our discussions on economic growth and renewal since the credit crisis in 2008. We are failing to shed ideas which do not apply in the current context and failing to adapt to the realities in front of us. Somehow we have to find a way to stop having old debates and move on.
F
This is a real problem. Right at the moment when we should be having a grown up debate on the role of the state in industrial development, how industry can play a role in national growth for G7 economies, and whether we've been misleading one another about the nature of competitiveness, the words act like a landmine. Step on them and boom there goes all rationality in the discussion you were having.
A great example of how the label of 'industrial policy' is misused and is divisive is contained within the recent PCAST report to the President on how to maintain the USA's claimed leadership in advanced manufacturing (full text of the report here). As Clyde Prestowitz has discussed in his Foreign Policy blog, the argument is well made that the US (akin to countries like the UK) had a lead in this area but that lead has been eroded. But then we get on to what to do about it.
According to the PCAST report -
"We do not believe that the solution is industrial policy, in which government invests in particularThis to me is a misinterpretation of what industrial policy can be, as well as a desire to live in the narrative of the 1990s. As long as we have a strong innovation base (for many oversimplified to high R&D spending) all will be well. This ignores how the value chain operates, that research is not the preserve of the West, that R&D spending is an incredibly blunt measure of innovation, and that innovation without control will lead to nothing.
companies or sectors. However, we strongly believe that the Nation requires a coherent innovation policy to ensure U.S. leadership support new technologies and approaches, and provide the basis for high-quality jobs for Americans in the manufacturing sector."
Overall the PCAST report is a depressing example of how old labels get in the way and that we have not advanced at all in our discussions on economic growth and renewal since the credit crisis in 2008. We are failing to shed ideas which do not apply in the current context and failing to adapt to the realities in front of us. Somehow we have to find a way to stop having old debates and move on.
F
Monday, 11 July 2011
What is a balanced economy?
The phrase ‘balanced economy’ has been thrown about a lot in the past year. It trips off the tongue easily and insinuates itself into the discourse on growth for countries like the UK. According the BBC it has become a mantra across Whitehall and in economic think tanks. David Cameron used it as the focus for his first major economic speech after the election. In the speech he fairly tied himself in knots -
Today our economy is heavily reliant on just a few industries and a few regions – particularly London and the South East. This really matters. An economy with such a narrow foundation for growth is fundamentally unstable and wasteful – because we are not making use of the talent out there in all parts of our United Kingdom.
We are determined that should change. That doesn’t mean picking winners but it does mean supporting growing industries – aerospace, pharmaceuticals, high-value manufacturing, hi-tech engineering, low carbon technology. And all the knowledge-based businesses including the creative industries.
But what does a balanced economy mean? Are we looking for a 50/50 split between services and manufacturing? Do we want to have exports and imports in perfect balance?
No one really knows.
Answering this question means answering some much harder questions on what growth really is, where it comes from and how nation states and companies large and small interact in the highly globalised world.
The economic consensus that prevailed before the credit crisis has not been replaced by a new narrative. There is no clear model for how the economy is supposed to sustainably grow and that is the greatest weakness for policymakers at the moment. In some ways an overconcentration of belief in a watered down version of economics (free the market, get small government, the market will adjust etc etc) still remains.
Unfortunately taking on these questions requires significant time, leadership and patience. None of these commodities is in great supply at the moment, so rebalancing looks like a phrase that will continue to be abused as it slips into Economist articles and speeches.
Until we're willing to have open and engaged debates on how we think about growth, the relationship between countries and companies, and the adjustment to the emergence of new economic powers we'll not be able to move this discussion forward. Here's hoping that there are some enlightened voices in Treasury and No 10 able to see the forest for the trees.
F
Monday, 4 July 2011
Writing while watching Made in Britain part 3
Just for fun I'm tapping away as Evan Davis warbles away on BBC2 in the third part of Made in Britain, talking about the service sector, so called. Apologies if this post is therefore a little staccato, but I'll type as I react rather than trying to put a smoother piece together after the fact.
So first things first, Evan has started by referring to the UK as a 'unique experiment' - total rubbish if you look at the service content of most developed economies. For the numbers see Dirk Pilat's paper on structural change in the OECD economies from 2007 (I think, will check later).
Very interested in the overall trade balance debate, 100 billion pounds trade deficit on goods ... what did we export in services last year? Come on Evan, show us the numbers ...
Evan's example of a service is a classic- Inmarsat satellite communications. This is not intangible, it is a service completely dependent on manufactured goods, massively complex and high quality goods, with an engineering team keeping the satellites ticking over correctly. The interconnection between manufacturing and services is clear ... ah there is Evan saying that all services need manufactured goods, and he sneakily says that manufacturers use services as well. Correct but not a parallel.
The point is not services versus manufacturing! Again and again people make this error - it is about the interplay of the two and how companies can use a mixture of both to attain a strong position in a value chain, capturing as much value as they can that is created across the value chain from end to end.
The real discussion is about labour intensity, wages, automation, linkage between elements of the value chain, in all a much more complicated discussion than manufacturing versus services.
Deep breath.
OK so here's a real bug bear for me, the structure of the statistics is misleading. The standard industrial classification codes come from the 1930s in the US, and the 1940s in the UK. They hard wire a split between making and services which we inherit and continue to stumble over. There are significant parts of reported services which are done by manufacturing so called companies. There really needs to be a reconsideration of the structure of the statistics, beyond the missed opportunity of the Allsop review of a number of years ago.
Ah the exporting of services question ... but again lets note while Evan has given us the hard number for goods trade deficit, he has not given us anything contextual for services. Quoting a number of 2 billion in exports to Dubai is smoke and mirrors.
Is a service based economy sustainable?
Again Evan what are the numbers for what we have exported in services?
Now we are back to the City, our financial services strength ... Oh and tourism! A host nation. Hmmm, some taxes from the foreign nationals of high powered companies who are very good at structuring their tax exposure! And there goes another throw away of "running into billions of pounds". Love the fact that the estate agent is wearing his shoes while Evan has the silly blue shoes on ... Oh sorry looks like he's in socks!
The butler to the world's elite! Not sure we would all agree to that characterisation.
Potential landmine here, the selling of our universities. And he's just described them as businesses. Not sure my tv will survive the whole episode. Sorry but ignoring the role of universities in the innovation system, producing knowledge and graduates for UK companies, is mad. If we make universities factories for foreign graduates what happens to our research base?
Back to the City ... Here comes the collapse ... Interesting example of ICAP, but for Evan to say no risk is slightly misleading. Critique of the City? Burden on the economy ... Paul Wolley saying that it is too easy for the bankers to appropriate the profits, through complexity in financial instruments that is unnecessary and costly. Second charge, that the banks live on subsidies. Because of the public guarantee leading to lower costs of borrowing for the banks. Interesting part of the programme, and for once Davis is doing well at being even handed.
And finally the numbers on service exports 160 billion, well below our need for trade balance overall.
Into a call centre we go on a bland industrial estate in Sunderland. The issue here is relative wages to other jobs, not whether the task itself is different. And lots of the issues on services are coming out - high staff turn over, stress rather than physicality, and inequality in earnings (as shown by regional inequality).
So the wrapping up begins, and the important point of reinvention and evolution of the economy is well made. But the overall tone of manufacturing and services as being in competition with one another, that niche manufacturing is sustainable, that our knowledge will keep is ahead, all of these things soft soap the stresses in the economy and the significant challenges coming from emerging nations.
All in all great to have a programme discussing these big issues, but it is a programme that is out of date with industrial reality and overly optimistic that we will continue to invent and innovate our way to growth.
Apologies again if that was too staccato, will put a link into the iPlayer for the episode so you can read along.
Best
Finbarr
So first things first, Evan has started by referring to the UK as a 'unique experiment' - total rubbish if you look at the service content of most developed economies. For the numbers see Dirk Pilat's paper on structural change in the OECD economies from 2007 (I think, will check later).
Very interested in the overall trade balance debate, 100 billion pounds trade deficit on goods ... what did we export in services last year? Come on Evan, show us the numbers ...
Evan's example of a service is a classic- Inmarsat satellite communications. This is not intangible, it is a service completely dependent on manufactured goods, massively complex and high quality goods, with an engineering team keeping the satellites ticking over correctly. The interconnection between manufacturing and services is clear ... ah there is Evan saying that all services need manufactured goods, and he sneakily says that manufacturers use services as well. Correct but not a parallel.
The point is not services versus manufacturing! Again and again people make this error - it is about the interplay of the two and how companies can use a mixture of both to attain a strong position in a value chain, capturing as much value as they can that is created across the value chain from end to end.
The real discussion is about labour intensity, wages, automation, linkage between elements of the value chain, in all a much more complicated discussion than manufacturing versus services.
Deep breath.
OK so here's a real bug bear for me, the structure of the statistics is misleading. The standard industrial classification codes come from the 1930s in the US, and the 1940s in the UK. They hard wire a split between making and services which we inherit and continue to stumble over. There are significant parts of reported services which are done by manufacturing so called companies. There really needs to be a reconsideration of the structure of the statistics, beyond the missed opportunity of the Allsop review of a number of years ago.
Ah the exporting of services question ... but again lets note while Evan has given us the hard number for goods trade deficit, he has not given us anything contextual for services. Quoting a number of 2 billion in exports to Dubai is smoke and mirrors.
Is a service based economy sustainable?
Again Evan what are the numbers for what we have exported in services?
Now we are back to the City, our financial services strength ... Oh and tourism! A host nation. Hmmm, some taxes from the foreign nationals of high powered companies who are very good at structuring their tax exposure! And there goes another throw away of "running into billions of pounds". Love the fact that the estate agent is wearing his shoes while Evan has the silly blue shoes on ... Oh sorry looks like he's in socks!
The butler to the world's elite! Not sure we would all agree to that characterisation.
Potential landmine here, the selling of our universities. And he's just described them as businesses. Not sure my tv will survive the whole episode. Sorry but ignoring the role of universities in the innovation system, producing knowledge and graduates for UK companies, is mad. If we make universities factories for foreign graduates what happens to our research base?
Back to the City ... Here comes the collapse ... Interesting example of ICAP, but for Evan to say no risk is slightly misleading. Critique of the City? Burden on the economy ... Paul Wolley saying that it is too easy for the bankers to appropriate the profits, through complexity in financial instruments that is unnecessary and costly. Second charge, that the banks live on subsidies. Because of the public guarantee leading to lower costs of borrowing for the banks. Interesting part of the programme, and for once Davis is doing well at being even handed.
And finally the numbers on service exports 160 billion, well below our need for trade balance overall.
Into a call centre we go on a bland industrial estate in Sunderland. The issue here is relative wages to other jobs, not whether the task itself is different. And lots of the issues on services are coming out - high staff turn over, stress rather than physicality, and inequality in earnings (as shown by regional inequality).
So the wrapping up begins, and the important point of reinvention and evolution of the economy is well made. But the overall tone of manufacturing and services as being in competition with one another, that niche manufacturing is sustainable, that our knowledge will keep is ahead, all of these things soft soap the stresses in the economy and the significant challenges coming from emerging nations.
All in all great to have a programme discussing these big issues, but it is a programme that is out of date with industrial reality and overly optimistic that we will continue to invent and innovate our way to growth.
Apologies again if that was too staccato, will put a link into the iPlayer for the episode so you can read along.
Best
Finbarr
The trouble with the future
Working on issues of policy and strategy at the national level you have to at some stage get involved in futures exercises. Delphi, scenarios, projections, the whole kit and kaboodle that people use to try to frame and structure how they think about the future. Lots of post-its and paper covering the walls of workshops around the world, attempting to build compelling and consistent narratives about possible futures.
Part of this world is the grand vision book, the accessible reader that will let you in on the mega trends for the coming 40 or 50 years and paint you a picture of the world as it unfolds. I'm in the middle of one such book, Outrageous Fortunes by Daniel Altman. Subtitles tell you a lot and his is "The twelve surprising trends that will reshape the global economy" which lets you know early on that he's swinging for the fences. So far, so usual in this world. However the book has been a real disappointment for me. Maybe because he was a writer for the Economist and the New York Times I'm expecting too much, but as well as being fragmented the prose is lacklustre and the book never really shines. It feels like this is a book that had some great ideas behind it, access to data and people, but was rushed either to be part of the post crisis discussion or just because there was too much else on.
Which is a pity, as what we need more than anything else are new narratives of the possible in the global economy. It might be that I'm being naive, but more pieces from within economics, or from a decidedly traditional economics foundation, is not going to help us right now. We need to look outside of economics, cut across boundaries and be willing to challenge all of the assumptions of the discipline to make progress and to be able to do what Daniel Altman tried to do, but for me came up short in the execution.
Best
Finbarr
Part of this world is the grand vision book, the accessible reader that will let you in on the mega trends for the coming 40 or 50 years and paint you a picture of the world as it unfolds. I'm in the middle of one such book, Outrageous Fortunes by Daniel Altman. Subtitles tell you a lot and his is "The twelve surprising trends that will reshape the global economy" which lets you know early on that he's swinging for the fences. So far, so usual in this world. However the book has been a real disappointment for me. Maybe because he was a writer for the Economist and the New York Times I'm expecting too much, but as well as being fragmented the prose is lacklustre and the book never really shines. It feels like this is a book that had some great ideas behind it, access to data and people, but was rushed either to be part of the post crisis discussion or just because there was too much else on.
Which is a pity, as what we need more than anything else are new narratives of the possible in the global economy. It might be that I'm being naive, but more pieces from within economics, or from a decidedly traditional economics foundation, is not going to help us right now. We need to look outside of economics, cut across boundaries and be willing to challenge all of the assumptions of the discipline to make progress and to be able to do what Daniel Altman tried to do, but for me came up short in the execution.
Best
Finbarr
Tuesday, 28 June 2011
Made in Britain part deux
Following on from last week's moment for manufacturing, Evan Davis returned to a more usual narrative around the knowledge economy and the movement of the UK towards science based industries in the second part of his series Made In Britain (see the episode on iPlayer here).
Again, kudos to Davis and the BBC for attempting to get people interested in the economy and how it works. There are so many stories to be told about UK companies, foreign investment, the challenges of adaptation, there is almost too much material to use.
Which is why the moments where the traditional interpretation of the economy came back, using very traditional categories and a massive oversimplification of the value chain, were very frustrating. The characterisation of research leading to production and then to marketing doesn't really help people to understand why different activities in different industries will be carried out in different locations. Also talking about the UK as being an ideas economy and having gotten out of production misses the evolutionary path of industries, where early in their gestation the production is as hard as research and offshoring and outsourcing is not a realistic option.
One of the most telling scenes though was Davis realising that Chinese companies are advancing to the point where they can research and develop their own products for the much hyped domestic Chinese market. His face when chatting to the lead designer for the sneaker company was a picture. The strategy of letting our production go so that we can essentially live off selling or licencing intellectual property to foreign companies (a la ARM) may not be the best move to make.
Overall for folks not involved in these issues day to day it was probably a decent introduction. But the narrative and the impression it leaves is out of date and if that is the level of understanding in journalism and policy we're in trouble.
Oh and less of the faux Spooks pieces please Evan, if you'd like to get on the grid give Harry Pierce a call.
Best
Finbarr
Again, kudos to Davis and the BBC for attempting to get people interested in the economy and how it works. There are so many stories to be told about UK companies, foreign investment, the challenges of adaptation, there is almost too much material to use.
Which is why the moments where the traditional interpretation of the economy came back, using very traditional categories and a massive oversimplification of the value chain, were very frustrating. The characterisation of research leading to production and then to marketing doesn't really help people to understand why different activities in different industries will be carried out in different locations. Also talking about the UK as being an ideas economy and having gotten out of production misses the evolutionary path of industries, where early in their gestation the production is as hard as research and offshoring and outsourcing is not a realistic option.
One of the most telling scenes though was Davis realising that Chinese companies are advancing to the point where they can research and develop their own products for the much hyped domestic Chinese market. His face when chatting to the lead designer for the sneaker company was a picture. The strategy of letting our production go so that we can essentially live off selling or licencing intellectual property to foreign companies (a la ARM) may not be the best move to make.
Overall for folks not involved in these issues day to day it was probably a decent introduction. But the narrative and the impression it leaves is out of date and if that is the level of understanding in journalism and policy we're in trouble.
Oh and less of the faux Spooks pieces please Evan, if you'd like to get on the grid give Harry Pierce a call.
Best
Finbarr
Tuesday, 21 June 2011
Should the US government give a repatriation tax break?
As part of their aptly named series Nobody Pays That, the New York Times has a piece on how US companies are pushing for a tax break to repatriate profits to the US (see the article here). According to the piece
As part of the piece there is a great video entitled Inside the Accountant's Playbook which gives a quick overview on how global companies can greatly reduce their tax liability in the US. All legal just for some very frustrating.
It's unclear whether a small return to the public purse and the hope of investment in R&D and jobs is enough to tilt the argument towards giving the tax break. However, given the state of public finances something may be better than nothing.
F
Apple has $12 billion waiting offshore, Google has $17 billion and Microsoft, $29 billion.If a one off tax break were given, taking the effective tax rate on such repatriation from 35% to just over 5%, the US government would hope to see a large pay day. However the NBER studied the last time such a break happened and companies used the repatriated profits to pay dividends and used other routes greatly reducing the return to the government.
As part of the piece there is a great video entitled Inside the Accountant's Playbook which gives a quick overview on how global companies can greatly reduce their tax liability in the US. All legal just for some very frustrating.
It's unclear whether a small return to the public purse and the hope of investment in R&D and jobs is enough to tilt the argument towards giving the tax break. However, given the state of public finances something may be better than nothing.
F
Realising what is made in Britain
When an economist or journalist, and even better a journalist who was an economist, starts to talk seriously about manufacturing in the UK I should be a happy man. For much of the past 10 years trying to have a decent conversation on this has been almost impossible. So imagine the surprise when Evan Davis, host of the Today programme and previous economics editor for the BBC, publishes a book with a natty TV series attached called Made in Britain.
The first episode aired last night (for UK readers here is the iPlayer link which should be good for seven days or more) with Davis oohing and ahing over bits of military kit that BAE Systems part make, mostly integrate. Sidenote - when you're trying to impress a journalist it's usually a good idea to offer them a ride in a fighter jet. Commenting from the back seat of said jet was slightly comical and it encapsulated my frustrations with the show.
The issues raised are real and desperately important for the UK. To soft soap the economics and not be willing to be more forward looking on how the changing global context will put even more pressure on us was a failure. For the majority of people who don't think we make anything any more the programme may show them the error of their ways, but in terms of moving the debate on I fear it did little.
Let's see what he makes of science and innovation next week.
Best
Finbarr
The first episode aired last night (for UK readers here is the iPlayer link which should be good for seven days or more) with Davis oohing and ahing over bits of military kit that BAE Systems part make, mostly integrate. Sidenote - when you're trying to impress a journalist it's usually a good idea to offer them a ride in a fighter jet. Commenting from the back seat of said jet was slightly comical and it encapsulated my frustrations with the show.
The issues raised are real and desperately important for the UK. To soft soap the economics and not be willing to be more forward looking on how the changing global context will put even more pressure on us was a failure. For the majority of people who don't think we make anything any more the programme may show them the error of their ways, but in terms of moving the debate on I fear it did little.
Let's see what he makes of science and innovation next week.
Best
Finbarr
Friday, 10 June 2011
Preparing future leaders
I was wandering through the blogosphere and I bumped into Steven Schwartz (vice chancellor of Macquarie University) and his blog where he riffs on an article I did for the Times Higher Education a little while ago. The article is a discussion of the emergence of Masters in Public Policy in the UK, specifically at Oxford and Cambridge, asking how they need to prepare public leaders.
In Steven's blog post he appears to not believe that such vocational training is useful, saying
1. We want people with diverse backgrounds in public leadership, no one said an MPP or anything like it was a silver bullet or for everyone.
2. This is about more than politicians, many other folks from civil servants, to academics, business managers and on to trade union representatives all are part of public leadership and public change.
3. Anything that helps future leaders prepare for complexity, speed and massively competing interests helps and if that is time spent in industry or doing an MPP that's fine by me.
Just out of interest what does Steven's comment say about the many vocationally oriented courses offered at Macquarie?
Best
Finbarr
In Steven's blog post he appears to not believe that such vocational training is useful, saying
As with the study of medicine and most other professional degrees, it's highly likely that these new vocational political skills will be obsolete shortly after graduation. And then where will we be?Obviously I'm biased - I have an MPP. But here are a few points that I think should be taken on board before we all go mad over this kind of thing.
1. We want people with diverse backgrounds in public leadership, no one said an MPP or anything like it was a silver bullet or for everyone.
2. This is about more than politicians, many other folks from civil servants, to academics, business managers and on to trade union representatives all are part of public leadership and public change.
3. Anything that helps future leaders prepare for complexity, speed and massively competing interests helps and if that is time spent in industry or doing an MPP that's fine by me.
Just out of interest what does Steven's comment say about the many vocationally oriented courses offered at Macquarie?
Best
Finbarr
Monday, 6 June 2011
Reinventing industrial policy in developed economies
The calls for rebalancing in the UK economy following the credit crisis and the recession opened a window of opportunity to have a realistic conversation about industrial policy again in developed economies. In some senses it is a proxy conversation for the role of the state and whether when the benefits of globalisation go to other countries our rhetoric around openess changes, but that's a longer post.
As a first brick in the wall, I recently had a piece in the Journal of Industry, Competition and Trade which looks at rationales for industrial policy based on industry maturity (click here for the article). The main argument is that industrial policy work has been contained within development economics for the past thirty years which has led to the assumption that industrial policy is all about catch up. However, if you consider an industry to have a lifecycle at the global level and within a country, when you compare the two you can see that a country could be leading or lagging in an industry. And crucially there may be strong reasons to intervene either to preference a transition or to hold on to a lead.
Here's hoping that a realistic conversation on industrial development can continue!
F
As a first brick in the wall, I recently had a piece in the Journal of Industry, Competition and Trade which looks at rationales for industrial policy based on industry maturity (click here for the article). The main argument is that industrial policy work has been contained within development economics for the past thirty years which has led to the assumption that industrial policy is all about catch up. However, if you consider an industry to have a lifecycle at the global level and within a country, when you compare the two you can see that a country could be leading or lagging in an industry. And crucially there may be strong reasons to intervene either to preference a transition or to hold on to a lead.
Here's hoping that a realistic conversation on industrial development can continue!
F
Sunday, 5 June 2011
The return of making or local will win
I've been threatening to do a piece (hopefully blog and in a bona fide magazine) about how in the long run production cannot remain global. There's a lot of small points and large trends that all add up to that conclusion but I've not had the time to put it all together yet. Damn the world for being busy ...
But in the meantime small things that may be large things keep cropping up. Like this piece in the NY Times recently called the Kitchen Table Industrialists. There is a growing trend for people wanting to make things themselves, captured for example in Matthew Crawford's Shop Class as Soulcraft.The step to thinking of individual makers as industry is a really interesting one though. To see co-operatives coming together to share 3D printers is awesome.
And it makes me a little jealous and wistful for my time in Boston. It would be great to be close to that kind of energy as it doesn't seem to exist in the UK. If there is anyone out there that can prove me wrong do let me know, but my sense is the kinds of groups discussed in Anand just don't thrive in this country.
More than anything else though I need to get the larger article done!
F
But in the meantime small things that may be large things keep cropping up. Like this piece in the NY Times recently called the Kitchen Table Industrialists. There is a growing trend for people wanting to make things themselves, captured for example in Matthew Crawford's Shop Class as Soulcraft.The step to thinking of individual makers as industry is a really interesting one though. To see co-operatives coming together to share 3D printers is awesome.
And it makes me a little jealous and wistful for my time in Boston. It would be great to be close to that kind of energy as it doesn't seem to exist in the UK. If there is anyone out there that can prove me wrong do let me know, but my sense is the kinds of groups discussed in Anand just don't thrive in this country.
More than anything else though I need to get the larger article done!
F
Friday, 20 May 2011
Feels like the old days?
Yesterday LinkedIn floated on the NYSE and in the first day of trading their shares screamed upwards, doubling in value. According to the BBC
This is a real failure of vision, we have not replaced old models of growth either at the company or the country level with anything meaningful. Without that the old models will hold and we'll be open to repeating our mistakes that led to the credit crisis and the recession again.
Not that anyone in LinkedIn should be worried. They've pulled off a great flotation. Here's hoping that there is a real, long term business under the hood.
Finbarr
"LinkedIn sold 7.84 million shares at $45 each. At $100 a share the company is worth about $10bn."It's one company, one float, but it does feel a little like the old days when internet companies took off at a million miles an hour. The Financial Times has already started reporting that there are fears of a return to the bubble saying
"...it also drew warnings that a new internet bubble might be in the making, with investors rushing to pay prices far higher than a level that was considered extravagant only days before."If there is significant demand for new internet floats there may be something in this. But I'm left feeling that we're about to go round the merry go round again having learnt nothing from the last ten years.
This is a real failure of vision, we have not replaced old models of growth either at the company or the country level with anything meaningful. Without that the old models will hold and we'll be open to repeating our mistakes that led to the credit crisis and the recession again.
Not that anyone in LinkedIn should be worried. They've pulled off a great flotation. Here's hoping that there is a real, long term business under the hood.
Finbarr
Monday, 16 May 2011
I don't want choice
So the reforms proposed for the NHS rumble on with a listening exercise and much debate on whether this is the end or the saving of the NHS.
One small point that has bothered me for some time now is the chimera of choice. Much has been made of patient control and choice, that patients want choice and that choice will drive improvements in the system. My knee jerk reaction to this is that patients don't want choice, they want good healthcare. They want to be well. They don't want to be spending valuable time trying to figure out which provider might be slightly better for them.
This may be simplistic but real choice is not possible. Can I choose any provider at any time for any treatment? No and that's ok. I want to have faith in my doctors and ensure that they are the best trained, best resourced and given the support they need to focus on my care and nothing else. Not budgets, not distribution or anything else. Just care.
There is an interesting piece by Angela Coulter from the BMJ last November which tries to pull apart choice. As I read Coulter's piece there is a world of difference between choosing a provider and choosing or helping to choose a treatment plan. Here's the key quote -
So in the debate on reform at least on the issue of choice let's use our language properly and support patient engagement with their care, but let's not mislead people into thinking that they have full choice.
F
One small point that has bothered me for some time now is the chimera of choice. Much has been made of patient control and choice, that patients want choice and that choice will drive improvements in the system. My knee jerk reaction to this is that patients don't want choice, they want good healthcare. They want to be well. They don't want to be spending valuable time trying to figure out which provider might be slightly better for them.
This may be simplistic but real choice is not possible. Can I choose any provider at any time for any treatment? No and that's ok. I want to have faith in my doctors and ensure that they are the best trained, best resourced and given the support they need to focus on my care and nothing else. Not budgets, not distribution or anything else. Just care.
There is an interesting piece by Angela Coulter from the BMJ last November which tries to pull apart choice. As I read Coulter's piece there is a world of difference between choosing a provider and choosing or helping to choose a treatment plan. Here's the key quote -
Although only a small minority of people want to switch providers, patient surveys show a
large unmet demand for greater involvement in treatment decisions
So in the debate on reform at least on the issue of choice let's use our language properly and support patient engagement with their care, but let's not mislead people into thinking that they have full choice.
F
Friday, 6 May 2011
Process stories, process stories
As the results of the local elections across the UK start to come in the next wave of frustrating reporting has started. It is true that the Lib Dems are getting beaten up quite badly currently down 336 councilors in England alone according to the BBC. However, the process stories of what went wrong and the continuing characterisation as this being highly personal to Nick Clegg are frustrating.
Without access to internal polling or YouGov numbers, what appears to be happening? The Conservative vote is the same. They should not be so smug, they have a solid voting group but that's not increasing. The Lid Dem vote has shattered, with those who came to them from Labour in the last election going back, those who feel betrayed by the coalition move going to other parties such as the Greens, some Lib Dem voters who are almost Tory going over the line and a core group of Lib Dem's staying with them.
Would this carry over to a Parliamentary election? Given the mood of the country probably. Are the Lib Dems now a spent force in national politics? It is difficult to see how they might come back. Unless ...
One scenario for the Lib Dems to stop the bleeding might be a leadership challenge from Chris Huhne followed by a no confidence vote in the Commons and return to the polls. Would there be enough votes to bring down the coalition? Assuming all Tories vote to remain in power (305) and all others beyond the Lib Dems vote for a new parliament, the Tories would need 21 of 57 Lib Dems to stay the course. How likely is that right now?
Although having said that are Labour too comfortable in opposition? Would they want to take over right now? Probably not.
It seems we might be stuck here for a while ...
Best
Finbarr
Without access to internal polling or YouGov numbers, what appears to be happening? The Conservative vote is the same. They should not be so smug, they have a solid voting group but that's not increasing. The Lid Dem vote has shattered, with those who came to them from Labour in the last election going back, those who feel betrayed by the coalition move going to other parties such as the Greens, some Lib Dem voters who are almost Tory going over the line and a core group of Lib Dem's staying with them.
Would this carry over to a Parliamentary election? Given the mood of the country probably. Are the Lib Dems now a spent force in national politics? It is difficult to see how they might come back. Unless ...
One scenario for the Lib Dems to stop the bleeding might be a leadership challenge from Chris Huhne followed by a no confidence vote in the Commons and return to the polls. Would there be enough votes to bring down the coalition? Assuming all Tories vote to remain in power (305) and all others beyond the Lib Dems vote for a new parliament, the Tories would need 21 of 57 Lib Dems to stay the course. How likely is that right now?
Although having said that are Labour too comfortable in opposition? Would they want to take over right now? Probably not.
It seems we might be stuck here for a while ...
Best
Finbarr
Thursday, 5 May 2011
Voting rubbish
Over the past couple of months there has more rubbish written on the UK voting referendum than I thought possible. Both sides have been at it and in the end it has become personalised, around Nick Clegg.
This is a really sad statement on the level of debate in this country. No chance of a grown up, engaged debate.
For what it is worth this is the wrong referendum. AV is a tweak. And is not some massively complex thing that simple people cannot get their heads around. It feels like the public have willingly been treated as idiots.
Apparently David Cameron has said a no vote would be a 'disaster'according to the Telegraph. The Lib Dem's have been posturing with clashes in Cabinet, reported by the BBC.
This is all rubbish. AV is a small change and will lead to very little difference in the outcome of elections. Unfortunately it has obscured any debate on the need for real constitutional reform.
This is a really sad statement on the level of debate in this country. No chance of a grown up, engaged debate.
For what it is worth this is the wrong referendum. AV is a tweak. And is not some massively complex thing that simple people cannot get their heads around. It feels like the public have willingly been treated as idiots.
Apparently David Cameron has said a no vote would be a 'disaster'according to the Telegraph. The Lib Dem's have been posturing with clashes in Cabinet, reported by the BBC.
This is all rubbish. AV is a small change and will lead to very little difference in the outcome of elections. Unfortunately it has obscured any debate on the need for real constitutional reform.
Subscribe to:
Posts (Atom)
