Tag Archives: review

And, not or: state and market

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A holiday weekend, so I’m working my way through the book pile. I’ve raced through the absolutely excellent Privatizing Welfare Services: Lessons from the Swedish Experiment by Mårten Blix and Henrik Jordahl. This should go on any public policy course reading list in future, and is also a must-read for the policy world too. Lessons from other countries can be valuable, and in the UK we tend mainly to look at the US and to a lesser degree other Anglophone places, so this overview of Sweden’s experience is very welcome.

For Sweden has experienced a transformation in the past 4 decades from the post-war comprehensive cradle-to-grave welfare state to one where 17% of public services are provided by the private sector. This includes major services in healthcare, nurseries and schools, and elderly social care. As the book says, there has been a large amount of evaluation of the reinvention of Sweden’s welfare state, but not much of it in English. So this critical overview is invaluable.

The authors argue that without reform, the old-style welfare state would have become increasingly costly and ineffective. Citizens were by the 1980s dissatisfied with quality. The first, and controversial, steps came in the mid-1980s; for example in 1984 the first private pre-school received public funding. The economic crisis of 1992 cemented what seemed inevitable. However, service privatization has proceeded gradually if steadily rather than in a Thatcher-style ideological wave. This meant that its evident early successes, in expanding availability and improving choice, made it too popular for Social Democrat governments to reverse. In addition, different municipalities proceeded at different paces, so successes spread by imitation.

The book is organized thematically. Chapters cover quasi-markets, spending controls and efficiency, welfare reform, competition and choice, management of welfare services, and public opinion. Its conclusions are nuanced. Service privatisation has generally been effective in improving outcomes and improving the financial sustainability of the social contract, the authors conclude. But there are challenges.

One is the existence of information asymmetries between the state and private providers (I’m reminded of the excellent Hart, Schleifer and Vishny paper, which also always goes on my reading lists). Another is that the world is constantly changing, so no arrangement of collective choices is likely to stay unchanged for ever; it must respond to context. However, the other point that leaps out for me is the benefit of having both public and private service provision. This both reduces the information asymmetries (as the state is a provider too), and ensures that competition occurs along more dimensions than price alone (mitgating against cost and quality reductions for the sake of profit). All conclusions consistent with the view I set out in Markets, State and People.

The only downside – it is, alas, an expensive book. But one well worth recommending to your library.

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Endogenising economists

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I’m afraid I was underwhelmed by The Power of Creative Destruction by Philippe Aghion & his co-authores Céline Antonin and Simon Bunel. The book falls between the two stools of textbook for econ courses and overview for the general reader. It is based on course notes and has that tone (and charts/tables/referencing of the literature), but all the technical apparatus students would need has been removed. Professor Aghion is of course a terrific economist who has published lots of excellent papers on growth and innovation. However, that too is a downside here, as the book is the Aghion view of the world rather than a broader survey of the economics of innovation and growth.

The oddest aspect of this is his contrast between the Solow neoclassical growth model and the ‘new paradigm’ of Aghion-style Schumpeterian growth. Set aside this claim to novelty, which might cause many other Schumpeterian economists to raise an eyebrow; there is nothing here about the competing workhorse approach of endogenous growth models. Paul Romer makes it to the footnotes, Paul Krugman’s increasing returns models not that far, Ken Arrow too isn’t mentioned. Joseph Stiglitz fares best out of the prominent thinkers about markets, growth and development in the context of increasing returns. The book is more or less an account of Prof Aghion’s own research, and his own papers (excellent as they are) are the most-often cited. So while accepting the importance of creative destruction and new ideas, the absence of much about information and ideas is pretty glaring. There is a chapter about R&D but little about the economic models endogenizing it.

I could quibble about other features too, such as relying on patents to measure innovation, but it’s this missing aspect of the dynamics – the scope for endogenous, self-fulfilling or -averting phenomena – that seems a particularly big gap. The discussion of intellectual property lacks any nuance: it is simply asserted that patent protection is essential. Of course it is, but that isn’t the point of the present policy debate, which is exactly about whether the right balance between patent-protected monopoly and broad access to new ideas has been struck.

41eUnCMDnVL._SX329_BO1,204,203,200_On the other hand, I also read Carlo Rovelli’s Helgoland and warmly recommend it. It sets out his view about quantum phenomena as manifestations of the fact that reality is relational: nothing is experienced, perceived, measured, or understood except in relation to everything else. “Every vision is partial. There is no way of seeing reality that is not dependent on a perspective. …. The actor of this process is not a subject distinct from phenomenal reality, outside it, nor any transcendent point of view; it is a portion of that reality itself.. …. Relations make up our ‘I’, as our society, our cultural, spiritual and political life.”

This appeals strongly to my intuition and echoes the argument of my forthcoming book, Cogs and Monsters, one of whose key threads is the point that economists can not stand outside the society they seek to analyse. Even the economists are endogenous.

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Onions and eternal vigilance

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This might sound weird, but I thoroughly enjoyed reading The Plague Cycle: The Unending War Between Humanity and Infectious Disease by Charles Kenny. It’s an absorbing history of exactly what the subtitle says, arguing that Malthus was wrong even when he was right: populations were indeed kept in check in a natural cycle for most of history, but the way this happened was infection, not starvation, when population sizes and densities increased by enough to make human settlements attractive homes for various pathogens.

As the book describes, people found responses to waves of disease: keeping strangers out or confining them; cooking and spices (hotter countries or regions have spicier cuisines). Who knew that, “[M]any spices kill bacteria. Garlic, onion, allspice and oregano inhibit or destory every bacterium they’ve been tested on.” But the significant breakthroughs, allowing urbanisation and modern economic growth through agglomeration, depending on the technological advances that started piling up just as Malthus’ book was published.

I say technological, but some advances were ideas requiring no laboratory. Oral rehydration therapy, devised by Indian doctor Dilip Mahalanabis in 1971, is cheap and simple. “But for its full potential to be realised, everyone has to know about it.” The book tells us that 95% of parents in Kerala know to give fluids to a child with diarrhea, but, “In West Bengal – where Dr Mahalanabis did his life saving work over four decades ago – more than half still give children less to drink.”

As the book goes on to explain, the techniques for defeating disease, from the simple to sophisticated vaccines (although – again, who knew? – Gandhi was an opponent of vaccination), enabled urban agglomeration and globalisation. For all their downsides, these have been the dynamo of modern prosperity: people exchanging ideas (in ways that Zoom etc just don’t make possible). It cites Abhijit Banerjee and Esther Duflo’s finding that infant mortality rates are now lower in urban than in rural areas, an amazing reversal of the historic gradient.

The book ends with the new challenges, from anti-microbial resistance, to sentiment about vaccines and the toll taken by the Wakefield scandal, to the institutional challenges manifest in tackling Covid19. While The Plague Cycle represents work predating this pandemic, it could not have been published at a more timely moment. There will be more pandemics. Antibiotics and antivirals are ceasing to be effective because of over-use and mis-use. Continuing basic research has to be funded. I hope everyone will read this and do all they can to get across the message of eternal vigilance in this ‘unending war’.

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Baumol meets Marx

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I read Jason Smith’s Smart Machines and Service Work: Automation in an Age of Stagnation because there was a positive discussion of it on Twitter. I’d describe it as a mash-up of Baumol (‘cost disease’) and Marx (‘exploitation’).

The first part of the book is a rant about technology and why today’s tech will not increase productivity. It channels Robert Gordon and criticises economists like Erik Brynjolfsson (or before him Paul David) for arguing there are delays between innovation and the productivity effects they produce.

I have the same problem with this as with Gordon’s magnum opus: it might turn out to be correct that today’s techs have no productivity impact, but focusing only on digital entertainment and communication devices is completely unpersuasive. Vaccines, hello? The wave of biomedical innovation like the development of mRNA vaccines has rested on the plunging cost of gene sequencing, enabled by computation applied to massive amounts of data. Lab benches, test tubes, and also computers. The transition to green energy supply will require large-scale computation to manage storage, networks and grids. Additive manufacturing has many potential applications including printing organs and tissues. These applications are genuinely slow to emerge: large additional investments in equipment are needed, the organisational and ethical hurdles are high, other discoveries might be required to make them economically viable. We’re lucky so much of the prior mRNA research had been done before 2020.

Anyway, the book halfway through then turns to the growth of the service sector, the automation of routine tasks, and the debate about the potential impact on jobs. It looks back, too, at the well-known decline in middle-income jobs and growth of the contingent workforce. Having introduced Baumol’s familiar ‘cost disease’, it then turns to a Marxist analysis. Having never learned Marxist economics I found this quite interesting but heavy going, as it has its own jargon. Still, it is surely right to consider the impact of automation in the context of power struggles, or class conflict.

The book has some sections where it pauses to ask what is actually meant by ‘productivity’, a question of evergreen interest to me. It touches here on the issue of time use and time saving in services, and on activities crossing the production boundary, making it hard to measure ‘true’ productivity. As it points out, many previously household (uncounted) activities became marketed during the 20th century (‘commoditised’), and are often low-pay and precarious. However, the book then veers back to the more abstract class struggle.

All in all, I found the book quite interesting for its novel (to me) perspective, and it is well written. But much of the (non-Marxist) economic literature it draws on will be familiar to many people enticed by the subject matter. What it adds to the technology debate is, quite rightly, the issues of power and deregulation of the labour market,  beyond discussions of gig platforms. But it didn’t tell me anything new about the productivity puzzle.

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White elephants and icons

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I just read a marvellous 1980 book, Great Planning Disasters by Peter Hall. The first half of the book consists of specific case studies. To qualify, the cases have to have been costly, involved processes of planning by public authorities, and have been perceived by many people to have gone wrong. Those included are London’s third airport saga (indeed), London’s ‘motorways’ (no, they don’t exist),  Concorde, San Francisco’s BART system, and the Sydney Opera House. Also included are two schemes that looked like they would be disasters but turned out not to be: California’s new university campuses and the British Library.

One of the interesting things about the book is having an additional 40 years of hindsight. The London airport saga continues, with Heathrow now having not just a 4th and indeed a 5th terminal but still not an additional runway. Stansted has become London’s 3rd airport, sort of, though we have the bijou London City as well. Concorde alas is no more: I remember still the exhilaration the crowd I was in felt at an open air concert in Kew Gardens felt when it flew overhead toward Heathrow, after the announcement the small fleet would be retired. The British Library has been a clear success. The Sydney Opera House had to have a major refurbishment. But as I ask my students when we discuss cost benefit analysis, do you think it should never have been built: is it an icon or a white elephant?

The second part of the book draws out the themes from the case studies, discussing it from the perspective of the actors and their incentives: affected communities, bureaucrats and politicians. One theme in all the case studies is that major projects take a long time to conceive, plan, approve and fund, and during that time political actors change, as does the zeitgeist. Individuals can have a big impact. One striking example is that an influential and forceful advocate of locating the new British Library next door to the British Museum (where he was chair of trustees) became an influential and forceful advocate of its actual site next to St Pancras when he was made chair of the new national libraries’ board. Technology changes too, costs rise – always – and demand forecasts over decades are almost sure to be wrong, albeit in an unknown direction.

There is no easy answer to the conundrum of how to avoid great disasters. The book recommends taking care with forecasting techniques, having regard to distributional consequences (and how this affects the politics), and communicating the uncertainties. I think the conclusion I draw, having been thinking about this, is that planning big projects is a political, not merely a (complicated) technical, decision. That makes two things important: building enough consensus, and aligning all the interventions that could make a project a self-fulfilling success. Oh, and multiplying the initial cost estimates many times over, except not too much to scare people from approving and investing in the first place.

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