| Peter Klein |
Microfinance and microenterprise have been touted as a new model for economic development, a way to encourage investment, innovation, and business creation and raise living standards without having to go through large-scale industrialization. We’ve tended to be skeptical, however, particularly about the most touted microfinance providers such as the Grameen Bank. Theoretically, the kinds of repayment plays that make microfinance feasible (high interest rates, strong peer monitoring) seem to limit its scope; besides, not everyone wants to be a business owner. The empirical evidence has not been encouraging — microfinance may achieve some social goals, like a sense of empowerment among microenterprise owners, but does not seem to have much impact on overall economic activity. It may not be possible to jump from a largely rural, agrarian society to an entrepreneurial capitalist one without going through a period of large-scale industrial development.
These musings are inspired by a new NBER working paper from the J-PAL group which uses a randomized controlled trial to study the effects of microfinance in an urban Indian setting. The results confirm the suspicions above: access to microfinance brings about some changes in behavior, but has no noticeable effect on standards of living or overall economic performance. Here’s the info:
The Miracle of Microfinance? Evidence from a Randomized Evaluation
Esther Duflo, Abhijit Banerjee, Rachel Glennerster, Cynthia G. Kinnan
NBER Working Paper No. 18950, May 2013
This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.
| Peter Klein |
As the Niall Ferguson kerfuffle begins fading from memory it’s worth revisiting the underlying issue: What kind of person was John Maynard Keynes, and (how) did his social, cultural, moral, and aesthetic views affect his scientific work?
Here are a few recommended readings:
- Ralph Raico, “Was Keynes a Liberal?” (Independent Review, 2008)
- Schumpeter’s obituary of Keynes (AER, 1946)
- Murray Rothbard, “Keynes the Man” (in Dissent on Keynes, 1992)
These works are not kind to ole’ John Maynard (I’m posting them, what did you expect?). Rothbard, for example, emphasizes Keynes’s “overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego,” also referring to Keynes’s “deep hatred and contempt for the values and virtues of the bourgeoisie,” including savings and thrift. It’s hard to imagine that Keynes’s personal views on thrift could be unrelated to the now-ubiquitous, über-Keynesian idea that spending, not savings and capital accumulation, is the driver of economic growth.
On time preference, and its social and cultural causes and consequences, I recommend Time and Public Policy by T. Alexander Smith (University of Tennessee Press, 1988), which unfortunately appears to be out of print. Here is a brief review by Israel Kirzner.
| Nicolai Foss |
When I was a graduate student 20-25 years ago I remember transaction cost economics being routinely mocked by all and sundry for “being static,” “neglecting learning,” and “not saying anything about innovation and entrepreneurs,” in addition, of course, to the usual charges of working with an impoverished and overly cynical view of human nature.
While TCE still highlights opportunism as a key assumption, it is fair to say that over the last decade important work has brought dynamics, learning and innovation within the orbit of TCE. This has mainly been brought about by a coterie — some of which are former students of Oliver Williamson — such as Nicholas Argyres, Kyle Mayer, Todd Zenger, Steve Michael, O&M’s Peter Klein, and last, but certainly not least, Jackson Nickerson.
Jackson is the author of a large number of truly innovative papers in management research and economics, many of which have a TCE bent. Thus, with Todd Zenger he has done important work on envy (and other aspects of social comparison processes) as an antecedent of internal transaction costs, on why firms seem to switch between extremes in their organizational forms, and, again with Zenger, he has pioneered a “problem-solving approach” to economic organization.
My department will feature this extremely original thinker as a speaker in our seminar series on Friday (here). Jackson will present a novel take on the dominant design stream of thinking about industry evolution, building on the US auto industry data base that (his co-authors) Lyda Bigelow and Nick Argyres have successfully exploited in earlier publications. Will be exciting!!
| Peter Klein |
On this blog we’ve tended to celebrate, rather than denigrate, diversity in higher education. While others fear that MOOCs and other forms of online learning will cheapen the product, we think that “education,” like “health care,” is not a homogeneous blob but a set of discrete, marginal goods and services that can be offered in a variety of combinations, at different prices, and via many forms of delivery, local and remote. Naturally, the dominant incumbents try to resist the innovative incumbents by erecting entry barriers — what else would you expect?
A recent New Yorker piece on MOOCs recognizes this diversity, and makes the fundamental point that US higher education is already diverse — in other words, the digital revolution is simply pushing the industry down a path it was already going.
When people refer to “higher education” in this country, they are talking about two systems. One is élite. It’s made up of selective schools that people can apply to—schools like Harvard, and also like U.C. Santa Cruz, Northeastern, Penn State, and Kenyon. All these institutions turn most applicants away, and all pursue a common, if vague, notion of what universities are meant to strive for. When colleges appear in movies, they are verdant, tree-draped quadrangles set amid Georgian or Gothic (or Georgian-Gothic) buildings. When brochures from these schools arrive in the mail, they often look the same. Chances are, you’ll find a Byronic young man reading “Cartesian Meditations” on a bench beneath an elm tree, or perhaps his romantic cousin, the New England boy of fall, a tousle-haired chap with a knapsack slung back on one shoulder. He is walking with a lovely, earnest young woman who apparently likes scarves, and probably Shelley. They are smiling. Everyone is smiling. The professors, who are wearing friendly, Rick Moranis-style glasses, smile, though they’re hard at work at a large table with an eager student, sharing a splayed book and gesturing as if weighing two big, wholesome orbs of fruit. Universities are special places, we believe: gardens where chosen people escape their normal lives to cultivate the Life of the Mind.
But that is not the kind of higher education most Americans know. The vast majority of people who get education beyond high school do so at community colleges and other regional and nonselective schools. Most who apply are accepted. The teachers there, not all of whom have doctorates or get research support, may seem restless and harried. Students may, too. Some attend school part time, juggling their academic work with family or full-time jobs, and so the dropout rate, and time-to-degree, runs higher than at élite institutions. Many campuses are funded on fumes, or are on thin ice with accreditation boards; there are few quadrangles involved. The coursework often prepares students for specific professions or required skills. If you want to be trained as a medical assistant, there is a track for that. If you want to learn to operate an infrared spectrometer, there is a course to show you how. This is the populist arm of higher education. It accounts for about eighty per cent of colleges in the United States.
Most citizens of the elite world described above know little about the second world, but have a vague sense that it is cheap and tawdry (and that its uninformed consumers are exploited by fly-by-night, for-profit producers). The online revolution has already had a huge effect on vocational education, though most of the media attention is on the so-far modest, very marginal effects on the elite world.
| Dick Langlois |
In September I will be part of a symposium on “Institutions and Economic Change,” organized by Geoff Hodgson’s Group for Research in Organisational Evolution. The workshop will be held on 20-21 September 2013 at Hitchin Priory, Hitchin, Hertfordshire, England. Here is the program and call for participation:
Masahiko Aoki (Stanford University, USA)
“Between the Economy and the Polity: Causation or Correlation. Theory and a Historical Case from China”
Francesca Gagliardi (University of Hertfordshire, UK)
“A Bibliometric Analysis of the Literature on Institutional Complementarities”
Geoffrey Hodgson (University of Hertfordshire, UK)
“A Manifesto for Legal Institutionalism”
Jack Knight (Duke University, USA)
“Courts and Institutional Change”
Suzanne Konzelmann (Birkbeck College, University of London, UK)
“‘Picking winners’ in a Liberal Market Economy: Modern Day Heresy – or Essential Strategy for Competitive Success?”
Richard Langlois (University of Connecticut, USA)
“The Institutional Revolution: A Review Essay”
Ugo Pagano (University of Siena, Italy)
“Synergy, Conflict and Institutional Complementarities”
Abstracts are available on this GROE webpage: uhbs-groe.org/workshops.htm
This workshop is designed to provide in-depth discussion of cutting-edge issues, in a forum that permits the attention to detail and definition that is often lacking in larger, conference-style events. The expected maximum number of participants is 50. Our past Workshops have filled up rapidly, so please book early to avoid disappointment. The workshop will include a poster session where participants may present their research, as long as it is related to the workshop theme. To apply to be included in the poster session send an abstract of your paper to Francesca Gagliardi (firstname.lastname@example.org). To reserve a place on the workshop please visit store.herts.ac.uk/groeworkshop
| Dick Langlois |
The title of this paper caught my attention.
“Cognition & Capabilities: A Multi-Level Perspective”
J. P. Eggers and Sarah Kaplan
Academy of Management Annals 7(1): 293-338
Research on managerial cognition and on organizational capabilities has essentially developed in two parallel tracks. We know much from the resource-based view about the relationship between capabilities and organizational performance. Separately, managerial cognition scholars have shown how interpretations of the environment shape organizational responses. Only recently have scholars begun to link the two sets of insights. These new links suggest that routines and capabilities are based in particular understandings about how things should be done, that the value of these capabilities is subject to interpretation, and that even the presence of capabilities may be useless without managerial interpretations of their match to the environment. This review organizes these emerging insights in a multi-level cognitive model of capability development and deployment. The model focuses on the recursive processes of constructing routines (capability building blocks), assembling routines into capabilities, and matching capabilities to perceived opportunities. To date, scholars have focused most attention on the organizational-level process of matching. Emerging research on the microfoundations of routines contributes to the micro-level of analysis. The lack of research on capability assembly leaves the field without a bridge connecting the macro and micro levels. The model offers suggestions for research directions to address these challenges.
The reason it caught my eye is that some 16 years ago I published a paper with exactly the same title (albeit with a different subtitle). Of course, I didn’t approach the issue in exactly the way these authors do, which is obviously close to Nicolai’s work on microfoundations. But I did arguably try to “link the two sets of insights,” and I did not do so “only recently.”
| Peter Klein |
That’s the title of a new review paper by Aaron Chatterji, Ed Glaeser, and William Kerr (a gated NBER working paper, unfortunately). Agglomeration has been a huge issue in the entrepreneurship, technology strategy, innovation policy, and economic growth literatures and it’s nice to have an up-to-date, not-very-technical review paper. (Hopefully there is an ungated copy out there somewhere.)
Clusters of Entrepreneurship and Innovation
Aaron Chatterji, Edward L. Glaeser, William R. Kerr
NBER Working Paper No. 19013, May 2013
This paper reviews recent academic work on the spatial concentration of entrepreneurship and innovation in the United States. We discuss rationales for the agglomeration of these activities and the economic consequences of clusters. We identify and discuss policies that are being pursued in the United States to encourage local entrepreneurship and innovation. While arguments exist for and against policy support of entrepreneurial clusters, our understanding of what works and how it works is quite limited. The best path forward involves extensive experimentation and careful evaluation.
Update: ungated version here.