After a Grand Day Out at MediaCity in Salford, being introduced to the Queen as she arrived to open BBC North officially, I travelled home reading Steven Johnson’s [amazon_link id=”0141033401″ target=”_blank” ]Where Good Ideas Come From[/amazon_link]. I mean no disrespect to a terrific science writer when I say it’s the perfect book for a train or plane journey. The comment is about the felicity of his writing style, the interesting but not overly-demanding material, and the ideal length.

The Queen has a Grand Day Out

The book organises a history of the origin of some important ideas according to the way they came about, with an underlying thesis that there is a false myth of an individual having a Eureka! moment; in fact most important innovations have come about through the work of a group or network of people bringing together different ideas, and for the sake of the ideas not because of the pressures of the market. Johnson argues that the ‘fourth quadrant’ of networked and non-market discovery has always been the source of most good ideas, and increasingly so over time.

I would agree with much of his argument along the way – the importance of an open mind and a maverick nature, the fruitfulness of work across disciplinary boundaries, the importance of a diversity of experience and unexpected collisions of ideas. Johnson sees markets as the driving force for patent and copyright protection, inhibiting the spread of innovation. However, the economics of patenting emphasise a balance between modest time-limited monopolies and the diffusion of innovations, while today’s reality of excessively long protections that last many years after originators’ deaths and create patent thickets are the result of monopoly power in those industries. I think that because of this misinterpretation he greatly underestimates the role of competition in markets alongside collective, and publicly-funded scientific discovery. Competition is the process through which new ideas are implemented. Many fall by the wayside if there is no commercial incentive or opportunity (because of monopoly power) to put them into practice.

That caveat aside, I enjoyed the tales of innovation well told, and also the practical advice about how to cultivate slow hunches and new ideas – write things down, use software (Johnson is a huge fan of DevonThink). Oh yes, keep an open mind and explore the boundaries of what you know.

[amazon_image id=”0141033401″ link=”true” target=”_blank” size=”medium” ]Where Good Ideas Come From: The Seven Patterns of Innovation[/amazon_image]

As a busy week draws towards its close, I’m on a train from London to Manchester, which prompted me to remember a friend’s recent recommendation of the Portico Library and Gallery. I’ve never been but it is obviously a jewel. There is a history of the library for those interested: [amazon_link id=”185936070X” target=”_blank” ]The Portico Library: A History[/amazon_link]

And it’s another reminder that – as I highlighted in my recent JRF Foundation/University of York Lecture – the later 19th century was an incredible era of institution-building. We’re still living off that legacy rather than investing in our own.

[amazon_image id=”185936070X” link=”true” target=”_blank” size=”medium” ]The Portico Library: A History[/amazon_image]

I mean big in the sense of what geographic scope does an economy cover. This question is prompted by Acemoglu and Robinson’s [amazon_link id=”1846684293″ target=”_blank” ]Why Nations Fail[/amazon_link]. Their thesis in a nutshell (as far as I’ve got with the book) is that economies that develop successfully need to have inclusive economic institutions combined with a centralized polity in order to enforce the law. Presumably economies of scale and scope apply as well. But I haven’t yet found their answer to the question, centralized over what territory? Italian and German unification were presumably helpful to the industrial development of those economies from the late 19th century. But turning to Paul Seabright’s [amazon_link id=”0691146462″ target=”_blank” ]The Company of Strangers[/amazon_link], he argues that the viable size of the state/economy has risen over time. Jane Jacobs argued in [amazon_link id=”0394729110″ target=”_blank” ]Cities and the Wealth of Nations[/amazon_link] that the large city in its hinterland is the natural economic unit. My instinct is that the UK economy is too centralized around London, certainly more so than comparable countries – see William Nordhaus’s economic geography globe. But the analysis of the optimal size for the economy – I’ve not found that yet.

[amazon_image id=”0691146462″ link=”true” target=”_blank” size=”medium” ]The Company of Strangers: A Natural History of Economic Life (Revised Edition)[/amazon_image]

“You can’t do with the state, but you can’t do without it.”

So Douglass North sums up his conclusion from a Nobel-winning career researching the role of institutions in economic growth – in [amazon_link id=”0262025620″ target=”_blank” ]Lives of the Laureates [/amazon_link](4th edition, 2004) edited by William Breit and Barry Hirsch. He rejects the pure public choice approach, which sees the state as “a leviathan to be contained, … little more than a giant theft machine.” Equally, North’s own work revealed many historical examples of states, and state ideologies, which were productively inefficient (and worse) over long periods of time.

As North ruefully points out, the question is at least as old as [amazon_link id=”0192805924″ target=”_blank” ]The Federalist Papers[/amazon_link]. He ends his essay here by saying the institutional approach he pursued over his career needs to be joined with new discoveries from cognitive science about why people form the beliefs they hold. I’m sure that will prove fruitful – we are in one of those periods when economics will do a lot of useful absorbing of knowledge from the biological sciences, from ecological modelling to psychology and neuroscience. But, reading the Acemoglu and Robinson book, [amazon_link id=”1846684293″ target=”_blank” ]Why Nations Fail[/amazon_link], institutional economics itself is at an exciting stage.

[amazon_image id=”0262025620″ link=”true” target=”_blank” size=”medium” ]Lives of the Laureates: Eighteen Nobel Economists[/amazon_image]

[amazon_image id=”0451528816″ link=”true” target=”_blank” size=”medium” ]The Federalist Papers (Signet Classics)[/amazon_image]

I’ve started reading Daron Acemoglu and James Robinson’s eagerly-awaited book, [amazon_link id=”1846684293″ target=”_blank” ]Why Nations Fail: The Origins of Power, Prosperity and Poverty[/amazon_link], and am enjoying it.

[amazon_image id=”1846684293″ link=”true” target=”_blank” size=”medium” ]Why Nations Fail: The Origins of Power, Prosperity and Poverty[/amazon_image]

I think the book is going to prove one of the classics of political economy, as the argument links economic outcomes to political institutions but also endogenises the politics. So that notorious Clinton phrase from the 1992 campaign, ‘It’s the economy, stupid,’ in fact got it backwards. It’s all about the politics.

Its early chapters have reminded me of Mancur Olson’s [amazon_link id=”0300030797″ target=”_blank” ]The Rise and Decline of Nations[/amazon_link] (1982), in which he applied the logic of collective action to differing international economic trajectories, arguing that the emergence of increasingly powerful special interest groups steadily caused a kind of furring of the arteries of each economy. As he put it: “Special interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.” (p47) This process over time would cause the relative decline of what was the leading economy, and see the rise to prominence of a less sclerotic rival. His book compares the 20th century fortunes of the UK and US.

[amazon_image id=”0300030797″ link=”true” target=”_blank” size=”medium” ]The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities[/amazon_image]

A batch of new books about American decline and China’s revival – reviewed by Gideon Rachman in the Financial Times today and including Arvind Subramanian’s [amazon_link id=”0881326062″ target=”_blank” ]Eclipse: Living in the Shadow of China’s Economic Dominance[/amazon_link] – bring this dynamic into the 21st century. For it’s hard not to see the Olson logic of cartelisation and special interest politics dominating America today. My review of Acemoglu and Robinson will follow in a few days.

[amazon_image id=”0881326062″ link=”true” target=”_blank” size=”medium” ]Eclipse: Living in the Shadow of China’s Economic Dominance[/amazon_image]