Monthly Archives: December 2013

Unicorns, plumbing and organisations

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Some things that are on the surface very dull turn out to be the most important and interesting. I’m fascinated by the plumbing and wiring aspects of the economy, rather than the abstract theory. Macroeconomics is about dragons and unicorns, very glamorous. But I’m more interested in statistics – what are we measuring, and what are we causing to happen, when we look at GDP growth, or inflation? And in the literal wiring – where is the internet and who owns the cables? And in organisations too – when we say ‘the banks’ or ‘firms’, who do we mean and why do they do what they do?

So after reading the excellent [amazon_link id=”081572151X” target=”_blank” ]The Metropolitan Revolution[/amazon_link] by Bruce Katz and Jennifer Bradley, I looked up an organisational technique they mention called appreciative inquiry. It notes that efforts to change something or bring something about, the initial question is often: “what’s the problem we’re trying to solve?” What if you start by asking: “what can we do and what do we want?”

[amazon_image id=”081572151X” link=”true” target=”_blank” size=”medium” ]The Metropolitan Revolution (Brookings Focus Book)[/amazon_image]

Sometimes problems need solving, but I like the way appreciative inquiry seems to build in the kind of relationship and coalition building actually needed to achieve anything in a complicated organisational context. It looks worth finding out more about it, and thinking about this approach (alongside the excellent [amazon_link id=”1455525200″ target=”_blank” ]The Org[/amazon_link] by Ray Fisman and Tim Sullivan, which is a brilliant overview of the role of asymmetric information, principal-agent problems and other economic tools play in understanding organisations). Wikipedia lists some journal articles – I’d be very grateful if anyone knows of a beginner’s guide to appreciative inquiry.

[amazon_image id=”1455525200″ link=”true” target=”_blank” size=”medium” ]The Org: The Underlying Logic of the Office[/amazon_image]

Globalisation and legitimacy

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It has always been a bit depressing reading about trade negotiations, which have long been a battleground between competing interests – nation against nation, industry lobbies against the general interest, developing against rich world. Mutual gains from trade, anyone? The World Trade Organisation has been a particular focus of suspicion on the part of people who are anti-capitalism or anti-corporate. Most economists note that no country has ever developed out of poverty without opening up to trade, although of course views differ about how to do so, with some liking the idea of protecting certain industries.

I think these arguments are almost always wrong – the extremely rare potential exceptions involve very large economies of scale where the global market can only support a very few  competing firms (aerospace?) and culturally important goods or services where replacement of domestic by global goods could have adverse non-economic externalities (French movies?).

There are claims that the successful Asian economies only developed because they protected their new industries but this misreads the character of state intervention. Joe Studwell’s excellent book [amazon_link id=”1846682428″ target=”_blank” ]How Asia Works[/amazon_link] shows that the success stories in the region provided production subsidies and infrastructure but made very sure domestic ‘champions’ were exposed to the full blast of international competition.

[amazon_image id=”1846682428″ link=”true” target=”_blank” size=”medium” ]How Asia Works: Success and Failure in the World’s Most Dynamic Region[/amazon_image]

Still, the economic arguments don’t explain why it’s so hard to get a trade deal. In theory the WTO is a better forum than its predecessor, the GATT talks, because it is rules-based and puts every member on an equal footing. Yet there have always been suspicions about its legitimacy as a place where all countries get a fair deal. It is one element of the wider shortcomings of global economic governance. Jim O’Neill’s new book in the Perspectives series, The BRIC Road to Growth, calls for urgent reforms of the governance institutions. The ones we have can’t respond quickly to events, and don’t reflect the shift of economic gravity that has already occurred and will continue. These are linked: effectiveness is rooted in legitimacy. Whatever the outcome of the talks in Bali, the wider global governance problem just won’t go away.

[amazon_image id=”1907994130″ link=”true” target=”_blank” size=”medium” ]The BRIC Road to Growth (Perspectives)[/amazon_image]

Poverty, fear and loathing

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Economics is famously, or notoriously, abstract. It is a discipline focused on the calculating parts of human behaviour, rather than the emotions. This would have made no sense to Adam Smith. As Emma Rothschild argues in her book [amazon_link id=”0674008375″ target=”_blank” ]Economic Sentiments[/amazon_link], “Economic life is a system of sentiments.” This is why for Smith, [amazon_link id=”1840226889″ target=”_blank” ]The Wealth of Nations[/amazon_link] followed [amazon_link id=”0143105922″ target=”_blank” ]The Theory of Moral Sentiments[/amazon_link]. Economic behaviour only makes sense in the context of understanding what drives human beings.

[amazon_image id=”0674008375″ link=”true” target=”_blank” size=”medium” ]Economic Sentiments: Adam Smith, Condorcet and the Enlightenment[/amazon_image]

Julia Unwin’s book Why Fight Poverty? in our Perspectives series lies in this tradition, and makes a really important contribution to the public policy debate. She argues passionately that poverty is not inevitable, it can be reduced, but nothing will change unless we face up to the emotions that seeing poverty arouse in most of us – the fear, the shame, the sense of disgust, giving rise to the creation and retelling of myths about poor people.

[amazon_image id=”1907994165″ link=”true” target=”_blank” size=”medium” ]Why Fight Poverty? (Perspectives)[/amazon_image]

The role of ‘moral sentiments’ in addressing poverty is a timely theme on the day the Joseph Rowntree Foundation and Prospect are launching a recent set of essays (free e-book) on poverty at an event in the House of Commons. One of the chapters in Julia’s book is titled ‘Is poverty inevitable?’ The answer is no.

What does Cleveland, Ohio have that London doesn’t?

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This summer we visited the wonderful gallery in the ducal palace in Urbino, where the painting that most absorbed me was Laurano’s Citta Ideale.

Citta Ideale

Of course it isn’t ideal – no people, no bustle. For any fan of Jane Jacobs’ [amazon_link id=”067974195X” target=”_blank” ]The Death and Life of Great American Cities[/amazon_link] or [amazon_link id=”0394729110″ target=”_blank” ]Cities and the Wealth of Nations[/amazon_link], it’s the anti-ideal.

Cities are clearly having a major renaissance, in debate if not in reality. Last year brought Ed Glaeser’s excellent [amazon_link id=”0330458078″ target=”_blank” ]Triumph of the City[/amazon_link]. Benjamin Barber has just published If [amazon_link id=”030016467X” target=”_blank” ]Mayors Ruled the World: Dysfunctional Nations, Rising Cities[/amazon_link], which I’ve not yet looked at. I’ve just been reading a very interesting analysis of the economics and politics of US cities, [amazon_link id=”081572151X” target=”_blank” ]The Metropolitan Revolution: How Cities and Metros are fixing our broken politics and fragile economy[/amazon_link] by Bruce Katz and Jennifer Bradley. The first part is descriptive, looking at four American urban areas and the ground-up initiatives under way to stimulate economic revival and involve citizens in urban and civic renewal. The four are New York, Denver, north eastern Ohio (Cleveland, Akron, Canton etc) and Houston. For a non-American it is simply interesting to learn what’s been happening, although the chasm between rich and poor areas is in my experience far greater in the US than anywhere in Europe (bad as it is in our cities too).

[amazon_image id=”081572151X” link=”true” target=”_blank” size=”medium” ]The Metropolitan Revolution (Brookings Focus Book)[/amazon_image]

The second part is analytical, drawing together some of the themes about the effectiveness of different approaches to economic development, in the context of big technical, demographic and cultural changes. Technology-driven innovation has clearly increased the value of the externalities that occur in densely-populated and well-connected cities – ideas and trade are the vital ingredients.

The recipe for combining them to achieve economic and cultural success is the subject of the final two chapters. They constitute a call to enhance the devolution of political power down to the city-region level (and of course American cities already have freedoms to act that British city leaders can only wistfully dream of), and to have the confidence to act with conviction in creating their own destiny. I particularly like Katz’s and Bradley’s emphasis on “the informal power to convene.” It’s what I think of as proper, old-fashioned politics, talking the people and getting them to line up in support of a common aim. The Ohio example is particularly interesting here, as the book describes its (partial) economic recovery as a matter of building networks of enterprise, investment and civic engagement. The details are specific to the US, but it seems obvious to me that the general principles apply here in the UK too.

The other new book to mention in this context is Bridget Rosewell’s Reinventing London, in our Perspectives series. Bridget is probably the most knowledgeable and authoritative commentator on the London economy, given her involvement over many years in developing its economic strategy. The book draws lessons about the post-financial crisis shape of London’s economy from the city’s past successful adaptations to profound structural changes. Its recommendations cover four areas: supporting service industries other than finance, making London a place people want to live especially by ensuring there is enough housing in pleasant areas, and investing urgently in infrastructure and also specifically connectivity – including deciding soon on new airport expansion, wherever the new runways are to be built.

[amazon_image id=”1907994149″ link=”true” target=”_blank” size=”medium” ]Reinventing London (Perspectives)[/amazon_image]

Needless to say, I strongly recommend it!

Is this the dawn of an era of powerful cities and weak nations – much like the age of city states half a millennium ago? It seems highly likely. More than half the world’s people live in urban areas now. Most economic activity consists of trade in ideas and people and goods and services between cities. Mayors are important figures, who for the most part feel less bound by the constricting conventions of national party politics. As ever, though, political and social institutions lag behind technological and economic trends, and in centralised polities like the UK urban renaissance would involve some big changes. Even London, with more powers than any other UK city, has only limited control over its own destiny, airport included. But if all these books are right about the inexorable trend towards city-driven economies, this will be an important debate.