Tag Archives: growth

The idea of progress

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A while ago I started reading [amazon_link id=”1451695764″ target=”_blank” ]Abundance: Why the Future is Better than You Think[/amazon_link], by Peter Diamandis and Steven Kotler, only to put it down part way through. It’s very readable but has a rather breathless tone which put me off. It also covers the same kind of territory of techno-optimism as the excellent [amazon_link id=”1846683572″ target=”_blank” ]An Optimist’s Tour of the Future[/amazon_link] by Mark Stevenson and [amazon_link id=”0007267126″ target=”_blank” ]The Rational Optimist: How Prosperity Evolves[/amazon_link] by Matt Ridley – even some of the examples overlap. And it has some of the environmental optimist flavour of Mark Lynas’s [amazon_link id=”000731342X” target=”_blank” ]The God Species: How the Planet Can Survive the Age of Humans[/amazon_link]. Having said this, I finished Abundance yesterday and did enjoy it.

[amazon_image id=”1451695764″ link=”true” target=”_blank” size=”medium” ]Abundance: The Future Is Better Than You Think[/amazon_image]

It is important to point out that for all the well-founded economic and environmental and political gloom in so many countries at present, there has been huge progress over our lifetimes in things that matter to us, from improved longevity and health to smartphones and low-energy lightbulbs. And that there is at present an amazing array of technological discoveries close to commercial potential – all of the innovations covered in these titles in what could be described as the techno-optimism genre.

It’s all the more important as there’s a countervailing techno-pessimism genre, including Brynjolfsson and McAfee’s [amazon_link id=”B005WTR4ZI” target=”_blank” ]Race Against the Machine[/amazon_link] arguing that innovation is making people redundant, a theme picked up by Paul Krugman in his column Rise of the Robots this week, with as a side-branch Robert Gordon asserting that innovation-driven growth is over anyway.

Why is it important to be optimistic? Because expectations about the future shape today’s decisions. Paul Krugman himself demonstrated this in a marvellous but little known 1991 QJE paper on endogenous growth theory, History Versus Expectations (pdf), showing that growth outcomes depend on expectations of a promising future outweighing the disappointments of the past.

History casts a long shadow unless the future shines a bright light. Progress only occurs when people believe in the idea of progress.

Having said that, the techno-optimists can lack important nuance. Abundance is a good example of that shortcoming. The authors allow no room for doubt, and give no space to questions such as how the investment required for the innovations they describe will be financed, how innovators will succeed when incumbents have so many relevant markets sown up, where the complementary infrastructure will come from, and how politics will navigate the sharing of costs and benefits. So I prefer (not surprisingly) my own (2001) formulation of the ‘[amazon_link id=”1587990822″ target=”_blank” ]Paradoxes of Prosperity[/amazon_link]’.

I don’t want to sound too down on Abundance just because I happen to have read some other similar books. It has loads of good nuggets of information and soundbites. For example:

“When seen through the lens of technology, few resources are truly scarce; they’s mainly inaccessible.”

“Human beings are designed to be local optimists and global pessimists.” (We are more optimistic about thing we think we can control, think we’re all more intelligent and better drivers than average etc. – although global pessimism is what helps impending disasters become self-averting. Was there a genuine Y2K problem or not?)

I was interested to learn that India has switched from being a major importer to a major exporter of cotton thanks to GM varieties.

I also really liked, for personal reasons, Bill Joy being quoted on the ‘dematerialisation’ being brought about by modern technologies. In 1996 I published The Weightless World (pdf), which used the fact that the economy of 1990 literally had no greater physical mass than the economy of 1980, thanks to minaturisation and the use of new materials and the switch towards services. Bill Joy has updated this by pointing out that one smartphone is now a phone, camera, TV screen, radio, web browser, tape recorder, range of books etc.

So, if you know someone who’s feeling – not surprisingly – pessimistic about the state of the world, you should give them one of the techno-optimism books as a seasonal gift. Cheering up the population one person at a time until we collectively believe in the possibility of progress again is an important civic duty.

[amazon_image id=”1846683572″ link=”true” target=”_blank” size=”medium” ]An Optimist’s Tour of the Future[/amazon_image]

Technology, people and place

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Diego Comin, Mikhail Dmitriev, Esteban Rossi-Hansberg have written a fascinating summary of their work on the diffusion of technology, published as a CEPR working paper. The headline is that distance matters, and that the diffusion process follows the same kind of pattern seen in the transmission of epidemics.

The authors note that their data (covering a large number of technologies) strongly confirms the  pattern of east-to-west diffusion of technology described by Jared Diamond in his fantastic book [amazon_link id=”0099302780″ target=”_blank” ]Guns, Germs and Steel[/amazon_link]. The argument there was that geographical latitude explained the success of certain important agricultural innovations. So how could it also matter for the spread of, say, ATMs, cellphones or TVs? “Distance is a significantly more important impediment across parallels than across meridians.” The VoxEU authors suggest this is because technologies are spread – like diseases – by people, and the patterns of social contact for reasons of history and geography are more prevalent east-to-west than north-to-south.

[amazon_image id=”0099302780″ link=”true” target=”_blank” size=”medium” ]Guns, Germs and Steel: A short history of everybody for the last 13,000 years[/amazon_image]

There is a forward-looking aspect to this, of course. Trends in the movement of people do change over time, and have changed with globalisation. More significant, anybody thinking about long-term growth needs to think about the adoption of ideas. Most new ideas will come from outside the borders of one country, attached to people from elsewhere. One cannot think about innovation (among other things) without thinking about immigration – as Ian Goldin, Geoffrey Cameron and Meera Balarajan argued in their book [amazon_link id=”069115631X” target=”_blank” ]Exceptional People: How Migration Shaped Our World and Will Define Our Future[/amazon_link].

[amazon_image id=”069115631X” link=”true” target=”_blank” size=”medium” ]Exceptional People: How Migration Shaped Our World and Will Define Our Future[/amazon_image]

What we don’t know about innovation and productivity*

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A few interesting comments on productivity have crossed my path recently. This blog post in The Economist addresses Robert Gordon’s habitual scepticism about technology-driven productivity growth, expressed again in a recent paper (pdf). I agree with the blog’s point about the inadequacy of traditional metrics when it comes to capturing the implementation and experience of innovations, which is what productivity growth consists of.

A few days earlier came Plan I from NESTA and a comment by Mariana Mazzucato about the specific role of public funding and strategic leadership in innovation. The former report usefully captures the wide range of influences that turn innovations into economic growth. The latter focuses on one of those influences, the co-ordination (and funding) role of the state – arguing strongly for the government to back innovation more actively in the UK.

It all sent me back to a great book of essays by Richard Nelson from 1996, [amazon_link id=”0674001729″ target=”_blank” ]The Sources of Economic Growth[/amazon_link]. One of his themes is the need to look at firm-level behaviour and data to analyse innovation and productivity growth. As firms are different, and rivalry between them drives innovation (in an evolutionary framework in his mind), aggregates disguise what’s happening. He also argues that standard marginal analysis is inappropriate outside decisions or outcomes at the margin – one can look at small changes sensibly, but not at big changes of the kind that come from important innovations.

He also adds a cautionary note about concluding either that innovation is solely a private, profit-driven business, or that public intervention is essential. Countries differ in important ways, he argues, and at present we do not understand well enough the innovation system as a whole in any single country, never mind across all of them.

[amazon_image id=”0674001729″ link=”true” target=”_blank” size=”medium” ]The Sources of Economic Growth[/amazon_image]

* The answer is – a lot

Who can end the end-of-worldism?

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It is hard to find reasons to be cheerful about the state of the world economy, especially after reading Dani Rodrik’s all too scarily plausible scenario for a replay of the Great Depression, but worse, ‘The End of the World As We Know It.’ His scenario starts with a Syriza victory. The news that the Greek people decided to stay teetering on the brink of the financial and economic precipice rather than leaping over it right now is a small comfort.

I turned to Benjamin Friedman’s 2005 book, [amazon_link id=”1400095719″ target=”_blank” ]The Moral Consequences of Economic Growth[/amazon_link], a powerful argument that growth and public values, economics and politics, are inextricably related. He traces back to its Enlightenment roots the idea that progress in one sphere is related to progress in another. He sees the Great Depression in the United States (but not Europe) as the one exception to the general rule that economic stagnation or decline leads to an erosion of a society’s openness and commitment to democracy: “America during the Great Depression strengthened its commitment to these positive values and, moreover, did so in ways that proved lasting.” (p159) The reason, of course, was the exceptional response of the New Deal, and FDR’s leadership.

One reason for feeling so gloomy about the US and Europe alike now is that there is no sign of exceptional political leadership. Extremists are gaining political ground. The false consciousness of the anti-GDP and happyism movement is alluring for some people who ought to know better than to stick their heads in this romantic sand. I know economists have no reason to act complacent these days, but where are the politicians?

[amazon_image id=”1400095719″ link=”true” target=”_blank” size=”medium” ]The Moral Consequences of Economic Growth[/amazon_image]

Spain’s long run economic performance

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In 1996, the Centre for Economic Policy Research published [amazon_link id=”052149964X” target=”_blank” ]Economic Growth in Europe Since 1945[/amazon_link], edited by Nick Crafts and Gianni Toniolo. At times like now, it’s supremely useful to remind oneself of the historical perspective. The chapter on Spain (by Leandro Prados de los Escosura and Jorge C Sanz) suggests the country’s story is one of sustained long-run underperformance.

The authors identify just two periods when Spain grew faster than other large economies: the 1960s, and the years from 1986-93. The former they attribute to a delayed post-war reconstruction, much slower in Spain than elsewhere because of the political context. The latter reflects structural reforms and access to European markets after Spain joined the EU. Over the longer period, however, there is only one of the comparator countries with a weaker trend economic growth rate than Spain – and that’s the UK. Uh oh – but at least we recapitalised our banks quickly.

[amazon_image id=”052149964X” link=”true” target=”_blank” size=”medium” ]Economic Growth in Europe since 1945[/amazon_image]