Author Archives: Diane Coyle

From citizen to subject in cyberspace

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Vili Lehdonvirta’s Cloud Empires is a terrific book. As the title suggests (and the fashionably chatty subtitle spells out just in case), the subject is the political power of large/gatekeeper digital platforms and specifically how in their essential rule-making capacity they are steadily taking on more activities of the state – but doing so without a public service motive (profit instead) and without accountability: “The internet was supposed to free us from powerful institutions. … Then they delivered something different – something that looks a lot like government again, except that this time we didn’t get to vote.”

The book starts with the origins of the internet and digital platforms, including the early libertarian hopes. The first section concerns platforms as economic institutions. One focus is the operation of online labour markets, including mTurk, but also using oWork/Upworker as a case study; the platform become increasingly internally regulated as it grew, among other things setting a minimum wage – of $3 an hour, reflecting the globalisation of online labour. Another chapter concerns privacy, and its complete erosion as platforms increasingly grappled with the need to enforce social order online at massive scale.

The theme through this first section is the transition from libertarian optimism about the absence of control to a non-territorial but nevertheless tightly regulated series of platform domains, with platforms setting their own rules within their own jurisdictions – with the only accountability being people’s ability to leave. You might put it that Albert Hirschman’s ‘exit’ is the only option as neither voice not loyalty have any traction, and even that is limited by the power of network effects. Exit would have to be collective to be effective.

The second section concerns the political power of the platforms. It starts with a wonderfully astute chapter on crypto-currencies, making the point (it has always seemed clear to me but seemingly not to others) that these are not ‘trustless’ but simply relocate trust. And yet many or most are inherently untrustworthy (to use Onora O’Neill’s framing). “The crypto elite who run these organisations are, if anything, less accountable to people than conventional financial and regulatory elites.” The founders may be entirely sincere and nice, and they may even seem to give their communities voice, but in writing the take-it-or-leave-it code, they impose dictatorship. (And have clearly read none of the vast literature on incomplete contracts….) Other authors such as Lawrence Lessig have drawn the comparison between code and law, but I found the social science perspective here very helpful.

Another chapter considers the way the platforms have undermined the traditional public institutions providing health care and education. Neither platforms nor gig workers have an incentive to invest in training or a long-term relationship, and in the US at least that casualised workforce has to rely on GoFundMe campaigns to cover medical bills. “Internet empires are undermining industrial society’s mechanisms of building and maintaining human capital.” What will the essential social safety net look like in the platform economy?

The concluding chapter pulls the threads together in the argument that platforms are usurping the traditional nation state. “Silicon Valley technologists reinvented the economy only in the sense that through trial and error they rediscovered much of what states already knew. Instead of revolutionizing our social order, they reimplemented it with computer code.” Algorithms are bureaucracy. (And indeed, a lot of traditional statecraft depended on technology – including classifying and collecting data, monitoring behaviour). The book argues that states simply gave up some of their former territory of control through outsourcing, or ceasing to collect data in house. In addition, the digital platforms have advantages – they are fast and efficient, and in (narrow) ways provide a great service.

So what to do about it? The book makes the case for an online bourgeois revolution to develop collective action power that will make digital platforms accountable. I must say that the prior chapters don’t give me any optimism that might provide effective. My prescription would be for democratic states to regain the lost territory through a combination of rule-making over online activity and improved efficiency of traditional bureaucratic states. Though I’m not too optimistic about that either.

All of which makes the book an essential read. I have some quibbles (for example, I’d disagree that platforms are effective central planners), but perhaps I’m wrong. The book is firmly rooted in Vili’s own work and the wider literature on digital platforms, spanning economics, sociology and political science, while being very readable with lots of examples and case studies. A strong recommend.

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Regiments of Women Economists

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The unattractive word ‘herstory’ always makes me grit my teeth but of course I had to read A Herstory of Economics by Edith Kuiper. Nobody with any interest in economics can have failed to notice the welcome discussions of what a male-dominated profession it is, and how distorting that is. Not much has changed yet as a result (in terms of proportion of women, or selection of research questions, or indeed sometimes-toxic culture) but at least there is an awareness and a plan on the part of the professional associations.

One key thing I learned from Kuiper’s book is that there have been many more female economists than I ever realised. As well as some (now-)familiar names – Joan Robinson, Sadie Alexander, Rosa Luxemburg, Elinor Ostrom – the list at the front has many names I didn’t know, and also some I did know but had never considered to be economists. But the book makes a persuasive argument that this reflects the exclusion of women from universities until well into the 20th century, and writers on economics outside academia should therefore be included. The list is almost three pages long, for the period up to around the mid-20th century. Even then it has some omissions – Phyllis Deane for instance, or Edith Penrose. (Maybe the latter is a bit too late for this history, but then Ostrom is included.)

The book is ordered in broadly thematic rather than chronological chapters, after an introductory chapter about the origins of political economy, covering subjects like property rights, education, production, consumption and wealth/finance. The final two chapters cover government policies and then the role of feminist economics. While this organisation makes sense – a chronology would not have worked – it does mean there are some sharp corner turns as a chapter jumps from, say, an analysis of labour in the household to Ida Tarbell’s expose of Standard Oil, in the chapter on production.

Nevertheless, the book describes the important contributions of women to economics over more than a century, and in doing so illustrates the kinds of questions and social reality generally ignored by the male mainstream. It ends with a focus on the need for feminist economics to expand. I’ve never myself been interested in the separate arena of feminist economics because all of economics and economists should be feminist. The AER should be covering the kinds of questions that feature more often in Feminist Economics: the macroeconomics of gender and care (the topic of the current special issue)? Absolutely.

Still, that’s mostly about tactics. A Herstory of Economics gives a voice to some of the pioneers never included in the standard intellectual histories of the subject.

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Ways of seeing?

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James Poskett’s Horizons: A Global History of Science is concerned with the role played in scientific discovery by non-white, non-European people (mainly men….). The book starts with Aztec and Inca knowledge particularly about natural history, medicine and astronomy. The European voyages of the early modern period made it so clear that Aristotle and Plato in fact hadn’t known everything that they helped overturn scholasticism. The book proceeds through the subsequent centuries but also, centrally, across space. People outside NW Europe (and later N America) knew stuff.

I was particularly interested in the section on non-Linnaean classifications in Africa and Asia (being a classification nerd); and also those about the impact of Einstein’s theories on confidence in measurement (being a measurement nerd too). And one other thought – not particularly made by the author, whose concern is acknowedging previously overlooked contributions by people around the world – that it left me with is the role of people who knit together bodies of disparate knowledge in a new world view. After all, Newton acknowledged the shoulders he stood on; but a different metaphor might be that he shook the kaleidoscope and created a new pattern of seeing.

I enjoyed this book, learning a lot. I must say it was slightly marred for me by the continual repetition of the point about needing to acknowledge non-European contributions – the material makes the case so effectively itself that additional polemic isn’t needed. But it is of course an important point, and the book is a nice introduction to some of the sources of knowledge from other parts of the world.

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Goliaths everywhere

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James Bessen’s The New Goliaths is one of my books of the year so far (with a fashionably chatty subtitle). Indeed, I’d been looking forward to it because I liked his previous one, Learning By Doing, so much. Based on his impressive research on technology over a number of years, and on his prior experience as the founder of a successful early digital startup, the core of the argument is that a small number of (generally) large companies have built IT systems that can manage immense complexity in their operations. Sophisticated software and massive flows of data enable them to co-ordinate in previously unimaginable ways, delegating decisions to where the information can go. The complexity – say of a new model of software-laden car or a major retailer’s logistics system – increases the cost of entry for potential competitors. The Goliaths are to be found not just in ‘Big Tech’, but in many sectors of the economy.

What’s more, “The investment in software is only part of the total investment in these systems. The entire technology investment that firms make in these proprietary systems goes well beyond software code to include data, workforce skills and investments in alternative organizational structures.” An example used throughout the book is Walmart – which McKinsey found accounted for a substantial proportion of the US 1990s productivity boost. Somewhat counter-intuitively, at least for those who see Big Tech as the main competition problem, Bessen sees Walmart as the unassailable incumbent in US retail, whereas Amazon is the one example of successful entry, and one offering a platform to other retailers.

This dynamic, of superstar firms in many industries from retail to autos to finance with a widening productivity advantage, has consequences for income inequality: the workers in those firms are paid more because they gain invaluable experience simple by working in the superstar companies, so wages are dispersing within sectors. The skills are scarce because you have to work for a big, sophisticated complex firm to get the skills, which are thus in short supply. It has led to less dynamism – fewer entries and exits in many markets. Small firms simply can’t match the spending on R&D of the big ones: one example given is voice recognition software, where pioneer Nuance was a massive commercial success, but still couldn’t match the spending of big firms: Amazon (again) has more than 10,000 engineers working on Alexa products, more than ten times the number Nuance had at its peak. “Proprietary information technology is exacerbating economic and social devisions. It is widening the gaps between the pay of workers at different firms. It is leading to greater segregation of skill groups across firms and cities.”

The complexity dynamic has implications too for competion policy – which becomes challenging, because after all the superstars generally offer great services – and regulation more broadly – because the information asymmetry between company and regulator grows ever wider.

So what to do? The book advocates for mandating open standards, morecompulsory licensing, and for reforming IP law to tilt the incentives for big companies to do more voluntary unbundling of their services, clamping down on worker non-compete agreements to spread skills. All excellent, and ultimately inevitable policies, as the inequalities are socially and politically unsustainable. But there’s much devil in the detail, and there will be massive lobbying against change. So this is a political struggle rather than a technocratic one.

But that’s to wander off into the future. I highly recommend The New Goliaths. It synthesizes a growing body of research into how firms use technology, how that interacts with organisational structures and markets,  and what the consequences are. It’s also really well-written, with lots of examples and a grounded understanding of the realities and limits of technology policy.

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Exporting US capitalism

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When I was in the early days of my previous journalism career, writing for the Investors Chronicle, and also pregnant with child number 1, I was taken by a stockbroker (I think it was Smith New Court, bought by Merrill Lynch in 1995) on an investors’ tour of Budapest and its environs. It was early 1990, and the ‘shock therapy’ privatisation of companies in the formerly communist countries was under way. One visit vivid in my memory was the day trip to Ganz Electric on the outskirts of Budapest, where it seemed like iron ore went in at one end and everything from tractors and trains to light bulbs emerged at the other. But the toilet paper for the office suite was locked up in a cupboard to which only the Director’s formidable secretary had a key.

Ethan Kapstein’s Exporting Capitalism: Private Enterprise and US Foreign Policy brought this all back to me because one of the chapters covers that post-perestroika era. (Indeed, my previous job had involved interpreting perestroika for western European clients of an economic forecasting company and I, like many others, was coming to realise that the figures for material output of the Soviet bloc had led us to greatly over-state the prior economic growth of those countries.) Kapstein, now a Prof at Arizona State and a Director of a conflict studies center at Princeton, had previously been a banker and worked for the US Government and the OECD. He therefore had a seat on various front lines in variously troubled economies. This experience illuminates the book’s analysis. I found it a very interesting read.

The book is a history of the ups and downs of the US’s consistent focus on relying on private investment, particularly FDI, as a vector for economic development and a handmaiden to US foreign policy goals – above all, limiting the spread of Communism to developing countries. Starting with postwar Taiwan, the US has insisted on the central role of private enterprise. One explanation is ideological, the deep-seated US reverence for business and the market. Another is simple pragmatism: official aid will never be sufficient to meet the scale of the investment need in low or middle income countries. A third is an implicit theory of change: that multinational FDI builds local supply chains and has multiplier effects, setting down long-term roots for sustained development, and inoculating local people against socialist ideas and undesirable (from the American perspective) other overseas influence.

Of course, the record has been mixed, to say the least, even among the post-Communist countries. The multinationals required to do the investing have their own aims, which are not obviously aligned with long-term national development needs. Some – such as ITT in overthrowing Allende in Chile – played deeply troubling roles. With hindsight, shock therapy was too much shock and not enough therapy – the idea being to create quickly enough people with enough of a stake in the market to prevent a reversal to communism. But heterogeneous local institutional and political conditions turned out to make a big difference to outcomes.

The historical chapters in this book are fascinating. I was stopped short in one of the final chapters by the reflection that times are changing (indeed) and the US is now converging on China’s state capitalism. This seems a bizarre over-interpretation of the shift – more complex than often painted – away from globalisation. And anyway, as this chapter observes, official aid is still absolutely dwarfed by investment need. The private sector will fill the gap, or the investment won’t happen. It would be good to get away from the old chestnut that state and market are opposites, when they succeed or fail together, and for the same reasons. The history of FDI underlines the need for contextual nuance. Still, a very interesting and enjoyable read, gaining much from the author’s personal practical experience.

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