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Numbers, objectivity and meaning

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I’ve carved out as many empty days as possible this summer to make significant headway with my next book, and as well as writing I’ve been re-reading some golden oldies. One is Theodore Porter’s classic Trust In Numbers: The Pursuit of Objectivity in Science and Public Life. For those who haven’t read it, it’s a historical exploration of the pursuit of quantification in economic domains (accounting, cost benefit analysis) as an expression of objectivity. A core argument is that the assertion of quantified objectivity is a signal of a group’s lack of power rather than the opposite; powerful groups or people expect to have their judgment trusted.

This is counter-intuitive if one has read so often that the deployment of numbers is the way social and political power is exerted by economists and others. But the case Porter makes is persuasive, certainly as far as the historical origins of quantification go. He also acknowledges that objectivity has become a desired characteristics of societies governed by the rule of law: “A decision made by the numbers … has at least the appearance of being fair and impersonal. Scientific objectivity thus provides an answer to a moral demand. … Quantification is a way of making decisions without seeming to decide.” But he adds: “Objectivity lends authority to officials who have very little of their own.” So numbers have the dual purpose of signalling impartiality and thereby giving authority to the number-producers: “The reputation of accounts and statistics for grayness helps to maintain their authority.”

My book will be anything but gray. It is looking at how economic statistics are constructed and how inadequate they have become as metrics of social progress (or its absence) given the technology-driven changes in the structure of the economy as well as the imperatives of making the environment count. These changes have been under way at least since my first book The Weightless World was published 26 years ago, but the social process of constructing the statistics is a slow one, carried out within the expert community of national statisticians. Thinking about how to replace what we have now – given the issues I highlighted in GDP – involves some deeply conceptual and philosophical questions.

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Preoccupations

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I enjoyed a little book of essays by Amartya Sen, The Country of First Boys. This is a collection of reprints from articles in The Little Magazine in the early 2010s. Collections of this kind tend to be slightly repetitive because columnists have certain preoccupations they circle back to (certainly including me!). In this case, it is democracy and freedom, the importance of free speech in enabling public reasoning, identity, gender inequalities, and of course development, education and poverty. On the other hand, it is a highly accessible and enjoyable summary of some of Sen’s work.

Some points leapt out at me (reflecting my own current preoccupations). One was the example of Kerala, which has become one of the highest per capita income states in India, having been one of the poorest. Universal and good education and healthcare were a key part of its development. “Central to this understanding is the critical importance of social infrastructre in facilitating economic growth,” Sen writes (pxlix). “The role of infrastructure – physical and social – in economic performance has been a neglected subject in policymaking.” Another point was the role of ‘countervailing powers’ in ownership – a multiplicity of private owners (aka competition) but also other models – co-operatives, public ownership, independent bodies. Diversity of organisation rather than just diversity of views. This in the context of media, but – having been business model agnostic – I now think it makes for healthier competition in any market to get away from monocultures.

Anyway, a nice book for summer evenings reading in the late sunshine.

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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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