Monthly Archives: December 2017

Rational, level-headed, compelling, cheerful – our ‘Perspectives’ series

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Seeing the materials for the latest in our Perspectives series – Driverless Cars: On A Road to Nowhere by Christian Wolmar – has prompted me to boast a little. This is the 14th title in the series, which started out as an experiment to see if there was any appetite for short, focused books about economics and related subjects. In my heart of hearts, I wasn’t at all sure we’d succeed, so my expectations have been greatly exceeded!

Christian’s book is a wonderful, and passionate, tirade against driverless car hype, but the book is also very persuasively argued. My scepticism about this particular technology is now pretty solid. As this bit of Giles Chapman’s blurb puts it, “This is just what the robot evangelists don’t want you to read: a rational, levelheaded, compelling yet cheerful analysis of why the driverless car‘s route to success is so uncertain.”

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It’s difficult to single out individual titles. But to mention a few, both Dave Birch’s books have been best sellers for us – Before Babylon, Beyond Bitcoin and his earlier Identity is the New Money. The recent book by Rebecca and Jack Harding, The Weaponization of Trade is a really thought-provoking analysis of the links between rhetoric and reality, and between trade and international security relations. I have a personal soft spot for Mike Emmerich’s Britain’s Cities, Britain’s Future and Kate Barker’s Housing: Where’s the Plan? because of my own interests. But then when I start looking at the list, I also have to praise – well, all of them. Like David Metz’s Travel Fast or Smart? Julia Unwin’s Why Fight Poverty? …..

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There’s an offer for people who want to pre-order Driverless Cars: On A Road to Nowhere and other special offers available – and still time to order as perfect stocking fillers!

Management as a productive resource

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I’ve been browsing through Edith Penrose’s Theory of the Growth of the Firm, having read the biography by Angela Penrose, No Ordinary Woman. Published in 1959, it is an interesting narrative approach to the dynamics of individual firms, with plentiful examples from case studies. One can see that it was heading in a very different direction methodologically from mainstream economics, and hence why Penrose was taken up by business schools instead.

Yet mainstream economics is arguably rediscovering her core reasoning:
“The emphasis is on the internal resources of the firm – on the productive services available to a firm from management within the firm. … the experience of management will affect the productive services that all its other resources are capable of rendering.” The manager’s mind interprets the environment in which the firm is operating, the expectations of future demand and the directions in which to expand, she continues. It is not only the objective resources available, but how the management of the firm can use them, and how they understand the competitive environment in which they are operating. All of this reminded me very much of the recent World Management Survey work by Nick Bloom, John Van Reenen and colleagues looking at the importance of management quality for firm productivity. They write: “Economists have long puzzled over the astounding differences in productivity between firms and countries. In this paper, we present evidence on a possible explanation for persistent differences in productivity at the firm and the national level — namely, that such differences largely reflect variations in management practices.” Maybe Penrose was less puzzled than many.

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Enlightened Economist Prize 2017 – longlist

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I’m late this year with drawing up my longlist. The rules are that the contenders are the books I happen to have read this past 12 months (they don’t have to have been published in 2017), and the choice of the ultimate winner is mine alone. Criteria include: interest and importance, enjoyability/readability/accessibility, and being related to economics (ruling out my history and pop science reading). Links are to reviews on this blog.

With that, and in no particular order, the 2017 longlist is:

The Undoing Project by Michael Lewis

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Hall of Mirrors by Barry Eichengreen

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The Financial Diaries by Jonathan Morduch and Rachel Schneider

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The Wisdom of Finance by Mihir Desai

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Beating the Odds by Justin Yifu Lin and Celestin Monga

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The Pricing of Progress by Eli Cook

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Adaptive Markets by Andrew Lo

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Economics for the Common Good by Jean Tirole

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Straight Talk on Trade by Dani Rodrik

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The Attention Merchants by Timothy Wu

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I’ll decide on the winner before Christmas. The Prize is the offer of a fine lunch or dinner should the prizewinner and I find ourselves in the same place. Oh, and the glory.

By the way, my nominations for the best non-econ books I read this year are:

Second Hand Time and The Unwomanly Face of War by Svetlana Alexievich

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The Deluge by Adam Tooze

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East West Street by Philippe Sands

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There is no alternative?

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Is Capitalism Obsolete by Giacomo Corneo is framed as an exploration of alternatives to capitalism by an economics professor father to his idealistic daughter. The Prologue is an email exchange between them, in which she writes: “Your economic system is wasteful, unjust and alienating. And wastefulness, injustive and alienation are not the result of some natural law. They are the result of particular social rules, the rules of capitalism. And keep in mind that the capitalist economic system is the product of a relatively short period in history. Just as it once emerged, it will one day decline and be replaced with a better set of rules.”

Set up in this way, the book explores some of the alternative models posited at various times, from Plato’s Republic and Thomas More’s Utopia through anarchism and socialist planning to modern variants including ‘shareholder socialism’ (state ownership of key industries) and the currently fashionable cure-all, Universal Basic Income. At the end of this journey, the economist concludes: “There is, at present, not really much else on offer.” However unfair, wasteful etc capitalism is, there is no convincingly superior alternative. Instead, the author proposes a range of reforms – cracking down on cross-border tax avoidance/evasion, investing in infrastructure & public services etc – concluding, “A pluralist market economy with an effective and generous welfare state represents the best economic system that is currently available to us.” An appendix contains a more detailed specific reform proposal, the idea that the state should invest in quoted companies to build up a socially responsible sovereign wealth fund paying a social dividend to citizens.

I have never found the abstraction ‘capitalism’ a helpful term when it encompasses societies as contrasting as Norway and the United States, and have always quite liked the slightly out-of-fashion ‘varieties of capitalism‘ approach. Even if you think the term useful, though, looking at the news this past week, Corneo is surely rather optimistic here in seeing any possibility for reform. Capitalism might be declining, as the daughter asserts, but it looks more likely to be replaced by something worse, call it plutocracy, than by something better.

This is a slighly odd book. I guess it’s meant to be pedagogical, taking students on a tour of historical thinking about economic systems, but this makes the framing material about the current day rather perfunctory, and then the actual reform proposal is stuck in an appendix. Although a mildly diverting read, I’m not sure it works well either as a history of thought book or as a current affairs one.

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No Ordinary Woman

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I’ve really enjoyed reading No Ordinary Woman, a biography of Edith Penrose by her daughter-in-law Angela Penrose. It is a life story kind of biography – only one chapter (by Edith’s grandson Jago) covers her economic thinking in The Theory of the Growth of the Firm – but what a life.

There’s no question in my mind that, had she been a man, Penrose would be far more esteemed within the economics profession. I haven’t read The Theory of the Growth of the Firm (shame on me – got it out of the library now), and it seems it has been far more influential in management and business schools than in economics. It seems, from the chapter here, that it explores the firm as an institution, and the dynamics of the way firms shape the economic environment.  One can see how this is more at home in the business literature, valid (in fact, essential) as this kind investigation is.

But whatever its stature, Penrose had an extraordinary career as an empirical economist helping shape the field of study of multinational firms, an academic leader (head of the economics deparment at SOAS as it built its reputation, and later at INSEAD), and a public servant (serving on many public bodies and commissions after she and her husband settled in the UK). At the time the OPEC crisis erupted, she was just about the only academic who had studied the oil industry and the Middle East economies. She travelled widely, learnt Arabic and did some consultancy work in her spare time – and all this while bringing up her family and being a housewife to her husband, much-loved but clearly a traditional man of his era.

Anyway, from this affectionate biography, Penrose sounds like she would have been terrific fun and stimulating to know. And it is inspiring to read about a woman who accomplished so much against great odds. Next week in Manchester we’re hosting an event for 14-15 year old school girls to encourage them to do economics in the 6th form. Edith Penrose has to join the pantheon of female economists we’ve been preparing.

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