Author Archives: Diane Coyle

De-gilding the age

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I’ve been reading Mordecai Kurz’s The Market Power of Technology: Understanding the Second Gilded Age, in between more summer-holiday type books (half way through Paul Murray’s excellent The Bee Sting now). Kurz’s underlying argument is one I find plausible: Technical innovation by corporations (on a platform of publicly-funded basic scientific research) drivers growth, but corporations translate innovation into monopoly power and rents. Policy alternates between lax and tough competition enforcement, the latter limiting the period of monopoly power. In between, there have been gilded ages.

The book distinguishes the return to capital productively employed from wealth, the accumulation of those rents. It argues that “all intangible assets are just different forms of monopoly wealth” – clearest for IP assets that explicitly guarantee firms’ monoplies. The book argues for prevention of tech mergers, break-up of vertically integrated parts of big corporations, and limitations on the granting of patents and copyright. Tech-based market power cannot be avoided but it should be contained.

The book combines economic and business history with an extended formal model of Kurz’s approach (and this means it is probably not a book for the general reader). The formal modelling is actually the part I found least compelling – particularly in Chapter 5, which for example assumes the monopoly producer has a constant returns to scale production function. This chapter estimates that monopoly power led to delays of 12-15 years in the diffusion of electricity in the US, but – unless I missed a key step –  the calculation seems not to take account of the impact of scale effects, which would shorten those estimates.

The previous chapter has an intriguing chart (4.9): the 50s-late 70s are reported as a period of high monopoly profits – like the 20s and the 2000s on – yet were obviously a period of strong productivity growth and rising living standards. Kurz explains these decades as not being designated a gilded age because policy ensured rising real wages and high employment. But actually if monopoly wealth brings about rapid growth through self-reinforcing technological innovation, it would be nice to have more of that. The policy lesson seems to be more about redistribution and labour market policies than about competition enforcement to limit the monopoly rents. The periods of low welath and low market power in this historical chart were periods of weak growth or worse.

I’d also like to have had more about countries other than the US, and indeed some other examples – is Walmart a tech monopoly? Or Nike? Few other countries span as much of the technology frontier as the US, so diffusion becomes the more important issue, and market power protected by IP and other tactics can be deployed anywhere. But wealth inequality is high in many countries – are all characterised by companies garnering monopoly rents and if so how?

Still, the book does set in a coherent theoretical framework the many recent books that have addressed the issue of market concentration and particularly big tech. It’s an interesting framing of current growth challenges, and one I broadly agree with. And Kurz’s call for tougher competition policy echoes many others. We will see whether it will translate into tougher enforcement and an ened to this second gilded age.

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Summer reading

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It’s our summer vacation & despite having the grandchildren with us this year (9 months and 4 1/2) I’ve managed to read quite a lot. I particularly enjoyed Philippe Sands The Last Colony: A Tale of Exile, Justive & Britain’s Colonial Legacy. Sands has an amazing talent for making legal analysis a compelling narrative of justice. This book concerns the long process of having Britain’s illegal separation of the Chagos Islands (including Diego Garcia) from Mauritius, and forced removal of the islanders, recognised by the UN and the International Court of Justice in the Hague. The UK does not come out of this well – through multiple governments, it – we – battled the process and then refused to recognise the finding. So this is not entirely a party political issue: one of those standing firm against acknowledging the fault and compensating islanders properly was David Miliband as Foreign Secretary. As Sands writes, “Two Prime Ministers and Five Foreign Secretaries have embraced lawlessness, for reasons that are unclear.” The UK has hardly begun to face up to its colonial past, trailing many other countries in acknowledging history. The book is also ultra-depressing about Britain’s post-Brexit loss of influence in international fora.

Another compelling read was Serious Money by Caroline Knowles, a sociologist’s walk through ultra-high net worth London, interviewing a few of the plutocrats and many of those who serve them – who are, unsurprisingly, hesitant about talking. It’s very persuasive about how damaging it has been for the city to have a swathe of the centre hollowed out as a playground of the rich. (Although, as she adds, “Given the ways in which Britain intervened in the middle east to control oil and politics in the early 20th century, Middle East appropriation of prime London real estate seems oddly apposite.”) Some of the descriptions of uber-rich life are eye opening. The most optimistic line in the book? “The biggest clue that serious money is seriously fragile lies in its overwhelming secrecy, concealment and separation of wealthy life; private streets, private clubs, security cordons, the proprietary secrets of the algorithm, private meeting rooms, private hideaways. Why this secrecy? What exactly is hidden and why?”

Also enjoyed: Magnificent Rebels by Andrea Wulf, Demon Copperhead by Barbara Kingsolver, Long Live the Post Horn by Vigdis Hjorth, The Light of Day by Eric Ambler.

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Financial geopolitics & economic statecraft

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Sovereign Funds: How the Communist Party of China Finances Its Global Ambitions by Zongyuan Zoe Liu is a rather detailed book but a fascinating insight into the evolution of China’s financial policy and its strategic investments using leveraged foreign exchange reserves. The book argues that China has created a new type of fund, Sovereign Leverage Funds, created through the use of complicated debt instruments. Unlike Sovreeign Wealth Funds, they do not require a stream of profits from an activity such as the export of commodities. “SLFs are a political-economic innovation because they are the product of the state leveraging its political and financial resources to make it possible to capitalize a fund,” which can then be invested overseas for startegic geopolitical purposes – the BRI. The SLFs can influence their portfolio investments through the use of voting rights – or a threat of disinvestment.

The first part of the book traces the origins of the arrangements in CHina’s historic opening up and accumulation of massice foreign exchange reserves. The Asian Financial crisis of 1997 was a key moment in determining the leadership to ensure China built up massive reserves: “Awakened by the severity of the crisis, CPC leaders realised dor the first time that national security could not be narrowly defined only by military competences … but must also include financial security.” (I was in Hong Kong as a journalist for the IMF/World Bank meetings held there in September 1997 – an amazing experience.) The 2008 crisis was another key moment. The existence of the SLFs has allso given China’s state owned enterprises a ready source of finance for overseas acquisitions and infrastructure investment, putting them at an advantage compared to their competitors.

The book then sets out a detailed account of the SLFs and their evolution through to the post-Covid period. It argues that liberal market economies should follow China’s example and set up their own SLFs to “act as white knight investors to defend strategic industries from unwanted foreign takeovers.” Challenges like investing in the green transition will require leverage, it argues. Such funds are institutions between state and market and “can be powerful tools for the practice of financial statecraft.”

There are loads of interesting details. For instance I had never realised that many of the cities authorised to be new economic zones after April 1990 were former treaty ports: “From the perspective of the Party, its revivial of China’s former treaty ports conveyed a message to the Chineses people: only the Party was capable of leading China’s broader economic revivial and redeeming the country from its prior century of humiliation.”

I know far too little about either international finance or Chinese politics to evaluate the book’s argument, but it seems reasonable. It also seems to be a rosy perspective, given what one reads about over-leverage domestically and problems with some BRI investments. As ever, the capacity of the CPC to take a strategic view is striking  – especially in a country that sometimes seems governed from tweet to tweet. I’ve argued in a recent article for the use of long-term vehicles like soveriegn funds or investment banks to institutionalise learning in economic policy. I found the book fascinating and will look forward to reading some reviews by readers who do have the right expertise.

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Communicating economics

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Somehow, things haven’t slowed down since the end of term but I’ve been anticipating the holidays with some lighter than normal reading. Along with some detective novels, I read Hernan Diaz’ excellent Trust – apparently being made into a Netflix series which will be interesting as it has an Instance of the Fingerpost structure – about the making of gilded age money and what it does to people; and Georgi Gospodinov’s intriguing Time Shelter. They were both supposed to be saved for holiday reading but needs must.

Still, alongside this fare, I also read Making Economics Public: The Hows and Whys of Communicating Markets and Models, edited by two science communication experts, Vicki Macknight and Fabian Medvecky. Their introduction opens with the paradox that economics is very influential – often dominating the news and policy decisions – and yet there is a chasm in understanding and language between professional economists and the public. Concepts familiar and fundamental in economics (such as tax incidence, or the difference between household and government budgets, or why a central bank sees raising interest rates as key to bringing down the rate at which food prices are increasing) are not widely understood. Often not even by the expert journalists supposedly communicating the technicalities to the public.

I’ve long believed this chasm is ultimately an existential risk to economics: nobody gets to retain such influence without public legitimacy. It’s also a concern that some economists see the problem as a need to explain what ‘we’ think more clearly so the slow-of-understanding finally get what ‘we’ mean. As all good science communicators know, communication is a two-way process, done with the ears as well as the mouth. So this slim volume of essays is very welcome.

The book has three sections – why, how, and what are the challenges – and a final essay on economic rhetoric and freedom by Deirdre McCloskey. I needed no persuading on the first of these. The ‘how’ section has some nice chapters, including one on teaching by Chris Colvin (don’t swamp the students with maths) and one on media and communication by Romesh Vaitilingam. There’s a nice chapter by Carlo Martini in the challenges section about teaching students to recognise ‘pseudo-expertise’ of which there is plenty in economic discussions – only look at Twitter any day. (It isn’t always easy.)  All the essays are worthwhile, though, and it’s a slender book. Pricy, per page, though: one to get from the library.

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Positivism and its tragedies

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For a couple of years now I’ve been mildly obsessed with reading about the Vienna Circle and positivism, given the philosophy’s profound impact on economics (for example via Robbins) and given its seeming unravelling now (see relevant chapter of Cogs and Monsters – now in paperback). For example, David Edmonds’ The Murder of Professor Schlick, Wolfram Eilenberger’s Time of the Magicians, Karl Sigmund’s Exact Thinking in Demented Times, Benjamin Labatut’s When We Cease to Understand the World.

This week I polished off Journey to the Edge of Reason, Stephen Budiansky’s biography of Kurt Gödel. The book is an evocative portrait that draws on Gödel’s own diaries written in a unique shorthand. It’s a gripping read. Like so many inhabitants of Austro-Hungary, Gödel experienced a turbulent early 20th century, fled the German Reich (in a somewhat dilatory manner) in the 1930s, and settled in the US (at the Institute for Advanced Studies in Princeton). There his closest friend was the other resident genius, Albert Einstein. Journey to the Edge of Reason is a terrific portrait of a troubled, lonely man, yet one whose strange mind revolutionised mathematics and logic.

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