Posts filed under 'Innovation'
Events @CBS
| Peter Klein |
I’ve just arrived in Copenhagen, where I’m spending a month as a visiting professor at the SMG. Copenhagen Business School has become one of the most intellectually exciting places in Europe. This week alone the school is hosting the DRUID summer conference which features people like Anita McGahan, Sid Winter, Will Mitchell, Russ Coff, Mike Ryall, and many others, along with a workshop on corporate governance with keynotes by Mark Roe, Randall Morck, Annette Poulsen, and Florencio Lopez-de-Silanes Molina. Of course these are only appetizers for the next week’s main course, the PhD seminar on The Theory of the Firm and Its Applications in Management Research conducted by Professors F. and K. Truly an embarrassment of riches!
1 comment 17 June 2009
Factor-Biased Technological Change
| Dick Langlois |
Back in October, I blogged about Daron Acemoglu’s presentation at the Economic History Association meeting. There now seems to be an NBER working paper version of that talk, called “When Does Labor Scarcity Encourage Innovation?” Here is the abstract.
This paper studies the conditions under which the scarcity of a factor (in particular, labor) encourages technological progress and technology adoption. In standard endogenous growth models, which feature a strong scale effect, an increase in the supply of labor encourages technological progress. In contrast, the famous Habakkuk hypothesis in economic history claims that technological progress was more rapid in 19th-century United States than in Britain because of labor scarcity in the former country. Similar ideas are often suggested as possible reasons for why high wages might have encouraged rapid adoption of certain technologies in continental Europe over the past several decades, and as a potential reason for why environmental regulations can spur more rapid innovation. I present a general framework for the analysis of these questions. I define technology as strongly labor saving if the aggregate production function of the economy exhibits decreasing differences in the appropriate index of technology, theta, and labor. Conversely, technology is strongly labor complementary if the production function exhibits increasing differences in theta and labor. The main result of the paper shows that labor scarcity will encourage technological advances if technology is strongly labor saving. In contrast, labor scarcity will discourage technological advances if technology is strongly labor complementary. I provide examples of environments in which technology can be strongly labor saving and also show that such a result is not possible in certain canonical macroeconomic models. These results clarify the conditions under which labor scarcity and high wages encourage technological advances and the reason why such results were obtained or conjectured in certain settings, but do not always apply in many models used in the growth literature.
5 comments 15 June 2009
More “New Economy” Hyperbole
| Peter Klein|
Wired’s Chris Anderson drinks the New Economy Kool-Aid. It’s the same old argument — information technology reduces transaction costs, leading to a radical disaggregation of industry and society — still supported by little more than a few colorful anecdotes, not any kind of systematic analysis. The new twist is the financial crisis, described by Anderson as “not just the trough of a cycle but the end of an era.”
What we have discovered over the past nine months are growing diseconomies of scale. Bigger firms are harder to run on cash flow alone, so they need more debt (oops!). Bigger companies have to place bigger bets but have less and less control over distribution and competition in an increasingly diverse marketplace. . . . The result is that the next new economy, the one rising from the ashes of this latest meltdown, will favor the small.
Nonsense. The major banks, the Chrysler corporation, and whoever is next to fail have not become nimbler and smaller, but larger; they have become part of the Federal government. Fannie and Freddie have swollen and taken on additional responsibilities. The financial crisis, as argued repeatedly on these pages, was spawned by a credit bubble brought about by loose monetary policy and massive government subsidization of the home mortgage market. It has nothing to do with firms being too large or somehow failing to take advantage of the Next Big Thing in social networking or cloud computing. I mean, seriously, is there anything here that couldn’t have been written ten years ago?
To all the usual reasons why small companies have an advantage, from nimbleness to risk-taking, add these new ones: The rise of cloud computing means that young firms no longer have to buy their own IT equipment, which helps them avoid having to raise money or take on debt. Likewise, the webification of the supply chain in many industries, from electronics to apparel, means that even the tiniest companies can now order globally, just like the giants. In the same way a musician with just a laptop and some gumption can accomplish most of what a record label does, an ambitious engineer can invent and produce a gadget with little more than that same laptop.
Bah. Humbug.
5 comments 25 May 2009
My “No New Economy” Slides
| Peter Klein |
Here, for the curious, are my slides from this morning’s talk at the Law and Economics of Innovation conference, titled “Does the New Economy Need a New Economics?” (Short answer: no.) This will eventually morph into a paper so comments are most welcome (and thanks to those who have already helped). I’m looking forward to Susan Athey’s keynote later today.
9 comments 7 May 2009
“New Economy” Bleg
| Peter Klein |
The heady dot-com days of the late 1990s brought breathy pronouncements from journalists and some academics that the “new economy” had changed all the old rules. Intellectual capital, not physical capital, is the source of value, so plant and equipment is irrelevant. Information goods are produced at zero marginal cost so firms should give away, rather than sell, their products. Profits don’t matter, only installed base counts. Managerial hierarchy is obsolete; cost curves are flat; supply-and-demand analysis is passé; even opportunity costs don’t matter anymore. The dot-com crash and subsequent shakeout brought many people back to their senses, but even today we continue to hear hyperbolic claims about the newness of the new economy.
I’d like to include some of these wildly exaggerated claims in my talk next week at the GMU/Microsoft forum. Can readers supply some quotes I can use (the more outrageous the better)? Like this:
[W]hen it comes to technology, even the most bearish analysts agree the microchip and Internet are changing almost everything in the economy.
– Greg Ip, WSJ, 18 January 2000
One curious aspect of the Network Economy would astound a citizen living in 1897: The very best gets cheaper each year. This rule of thumb is so ingrained in our contemporary lifestyle that we bank on it without marveling at it. But marvel we should, because this paradox is a major engine of the new economy. . . . Through most of the industrial age, consumers experienced slight improvements in quality for slight increases in price. But the arrival of the microprocessor flipped the price equation. In the information age, consumers quickly came to count on drastically superior quality for less price over time. The price and quality curves diverge so dramatically that it sometimes seems as if the better something is, the cheaper it will cost.
– Kevin Kelly, New Rules for the New Economy, 1998
Once a marketing gimmick, free has emerged as a full-fledged economy. . . . The rise of “freeconomics” is being driven by the underlying technologies that power the Web. Just as Moore’s law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.
– Chris Anderson, Wired, February 2008
Why have [stock] exchanges at all? Certainly not to help investors. Exchanges are at last being exposed as anachronisms, sustained by inertia and by the desire of incumbents, with help from regulators, to keep raking in monopoly rents. But the curtain is coming down.
– James Glassman, WSJ, 8 May 2000
I’m sure there are much more colorful statements (i.e., straw men for me to knock down) out there. Any suggestions?
5 comments 29 April 2009
Peters Against Aggregation
| Peter Klein |
When I saw the title of Brayden’s post, “Don’t Give Up on Aggregation Yet, Peter,” I thought he’d been reading my macroeconomics posts. Alas, Brayden, prefers meatier fare, such as this post by Barnard College sociologist Peter Levin. Levin is worried about the aggregation of knowledge represented by the open-source, wikified, crowdsourcing movement about which people are all, well, atwitter. (We’ve expressed more than a few reservations about this stuff ourselves.) His main concern, if I understand correctly, is the possibility of information cascades. However, much of the cascades literature deals not with the wisdom of crowds, but the wisdom of experts (tulip-bulb traders, mortgage-backed securities underwriters, etc.). The more expertise decision-makers grant to their peers, the more likely they — in the face of uncertainty — will interpret their peers’ (ostensibly expert) opinions as reliable indicators of underlying reality, and hence the greater the likelihood of cascades.
Brayden takes a different tack, arguing that aggregation mechanisms can be designed to mitigate the chance of outliers biasing the results. I think Brayden is right but am not sure his comments address the underlying mechanism — the microfoundations, to use a certain co-blogger’s favorite term — that Levin is worried about.
Add comment 23 April 2009
Killing the Fax
| Lasse Lien |
I’m in Spain, and I just got a fax. It’s been quite a while since I got one of those (faxes). The experience got me thinking about why the fax network still exists. The technology is clearly inferior to other technologies for any use I can think of, and has been so for quite a while now. Still you will be hard-pressed to find a business address that does not include a fax number. We seem to be in a prisoner’s dilemma situation now. The aggregate benefits are probably smaller than the aggregate costs, but nobody wants to exit first.
In general there seems to be a bias in the literature on network technologies, where a lot of attention has been devoted to bandwagon effects on the adoption side, but little has been said about the exit phase (based on a 5-minute poolside literature review). This could be because the two phases are completely symmetric, with the disincentive to exit early mirroring the disincentive to enter early. If the two phases are not fully symmetric, however, it would be nice to know more about the exit side. Since new network technologies are invading our lives at an accelerating pace (MsN, Facebook, Twitter, etc.), the problem of exit is IMHO as acute as the problem of adoption.
HT: Peter Klein (who adopts them all).
5 comments 21 April 2009
Law and Economics of Innovation
| Peter Klein |
I’m speaking at this year’s edition of the Law and Economics of Innovation, organized by Geoff Manne and Josh Wright and co-sponsored by GMU Law and Microsoft. It’s May 7 in Arlington. Check out the slick conference website (and Geoff’s post at ToTM). If you don’t want to hear me, at least come for Susan Athey’s keynote. Tom Hazlett has the best paper subtitle: “Of Newtons, Blackberries, iPhones & G-Phones.” How many of you youngsters have heard of the Newton?
2 comments 13 April 2009
Open Innovation: Not So New
| Peter Klein |
The new issue of the always-interesting Industrial and Corporate Change features a paper by the always-interesting David Mowery, “Plus Ca Change: Industrial R&D in the Third Industrial Revolution.” Picking up this blog’s theme that Very Little Is New Under the Sun (OK, not explicitly), Mowery argues that the much-touted New Econonmy concept of “open innovation” is not, in fact, completely new, but an incremental change from previous R&D practices:
The structure of industrial R&D has undergone considerable change since 1985, particularly in the United States. But rather than creating an entirely novel system, this restructuring has revived important elements of the industrial research system of the United States in the late 19th and early 20th centuries. In particular, many of the elements of the Open Innovation approach to R&D management are visible in this earlier period. This article surveys the development of industrial R&D in the United States during the postwar period. In addition to emphasizing continuity rather than discontinuity, this discussion of the development of US industrial R&D during the Third Industrial Revolution stresses the extent to which industrial R&D in the United States, no less than in other nations, is embedded in a broader institutional context. My discussion also highlights the extent to which its development has been characterized by considerable path dependency.
Add comment 5 April 2009
Public Entrepreneurship
| Peter Klein |
A surprising aspect of the recent growth in the entrepreneurship literature is the number of papers, projects, courses, centers, etc. studying entrepreneurship in non-market settings: “social entrepreneurship,” “cultural entrepreneurship,” “environmental entrepreneurship,” and so on. At my own university students can take entrepreneurship courses not only in the Colleges of Business or Engineering but in the College of Agriculture, the School of Natural Resources, the College of Journalism, and even the School of Social Work. (One of my colleagues organized a conference last year aimed at cattle ranchers seeking to market their, um, byproducts as fertilizer, with the classic title: “Manure Entrepreneurship: Turning Brown into Green.”
Translating concepts, theories, and research methods from the entrepreneurship literature to non-market settings raises challenging issue, however. How is entrepreneurship defined? What corresponds to entrepreneurial profit and loss? What is the entrepreneur’s objective function? Are there competitive processes that select for the better entrepreneurs? None of the classic writers on entrepreneurship — Cantillon, Say, Schumpeter, Knight, Mises, Kirzner — wrote explicitly on entrepreneurship in non-market settings, as far as I am aware. Mises, in fact, distinguishes sharply between “profit management” (or entrepreneurial management) and “bureaucratic management,” identifying the former with initiative, responsibility, creativity, and novelty and the latter with rule-following within strict guidelines (see Bureaucracy, 1944, and chapter 15, section 10 of Human Action, 1949). (more…)
1 comment 27 March 2009
Dutch Treat
| Peter Klein |
There’s only two things I hate in this world. People who are intolerant of other people’s cultures, and the Dutch. — Nigel Powers
Karel Davids’s new book, The Rise and Decline of Dutch Technological Leadership: Technology, Economy, and Culture in the Netherlands, 1350–1800 (Brill, 2008), provides an interesting look at knowledge flows within and between regions, an important idea in the modern literatures on economic geography and regional innovation. Writes EH.Net reviewer William TeBrake:
According to Davids, the northern Netherlands, the territory encompassed by the Dutch Republic, was the technological leader during much of the seventeenth and eighteenth centuries, before relinquishing that role to England by 1800, and in the process of explicating the rise and fall of Dutch technological leadership, he has called into question a number of commonplace assumptions found in the historiography of the period in question. . . .
One of the most interesting features of his study is the attention he pays to the truly remarkable concentration during the seventeenth and eighteenth centuries of literally hundreds of industries powered by windmills in the Zaan district, just across the IJ/harbor from Amsterdam, forcing the reader to reconsider how revolutionary the English Industrial Revolution really was. Further, there are several important areas in which he has significantly revised current understanding of the course of technology, economy, and society during the late-medieval and early-modern periods. . . . [For example], Davids makes clear that technological leadership in the Dutch Republic was much less tied to economic advancement than is usually assumed. Indeed, the Republic’s technological leadership began to peak only when the economy of the Dutch Republic already had begun to decline, during the late seventeenth century, and such leadership continued for another century thereafter, before giving way to England only after 1780. Finally, Davids makes a compelling case for locating the causes of technological leadership (and its decline) not only in market forces but also in institutional and cultural conditions, including the relative openness or secrecy of economic, cultural, and political life.
5 comments 23 March 2009
High-Tech Austrians
| Peter Klein |
Austrian economists are social and cultural conservatives who bury their noses in thousand-page tomes, favor bow ties and vests, and gaze longingly toward Old Vienna, right? Guess again! These guys are on the cutting edge. To wit:
- You can follow the (in-progress) Austrian Scholars Conference on Twitter and watch the plenary sessions online.
- Both volumes of Murray Rothbard’s Austrian Perspective on the History of Economic Thought are now available as free e-books (1, 2).
- There are a bunch of Austrian economics groups on Facebook; this is the largest.
4 comments 12 March 2009
Ben Jones on the Burden of Knowledge
| Peter Klein |
Ben Jones, who does very interesting work on innovation and economic growth, has a new paper on the “burden of knowledge,” the idea that as an economy’s knowledge base increases, the amount of education necessary to be an effective innovator increases as well, mitigating the effects of knowledge accumulation on growth. Abstract:
This paper investigates a possibly fundamental aspect of technological progress. If knowledge accumulates as technology advances, then successive generations of innovators may face an increasing educational burden. Innovators can compensate through lengthening educational phases and narrowing expertise, but these responses come at the cost of reducing individual innovative capacities, with implications for the organization of innovative activity – a greater reliance on teamwork – and negative implications for growth. Building on this burden of knowledge mechanism, this paper first presents six facts about innovator behaviour. I show that age at first invention, specialization, and teamwork increase over time in a large micro-data set of inventors. Furthermore, in cross-section, specialization and teamwork appear greater in deeper areas of knowledge, while, surprisingly, age at first invention shows little variation across fields. A model then demonstrates how these facts can emerge in tandem. The theory further develops explicit implications for economic growth, providing an explanation for why productivity growth rates did not accelerate through the 20th century despite an enormous expansion in collective research effort. Upward trends in academic collaboration and lengthening doctorates, which have been noted in other research, can also be explained in this framework. The knowledge burden mechanism suggests that the nature of innovation is changing, with negative implications for long-run economic growth.
5 comments 5 March 2009
Patent Pools and Innovation
| Dick Langlois |
In a (fairly) recent paper, which may soon see the light of day in volume from Cambridge University Press, I argued against Alfred Chandler’s analysis of RCA and the early American consumer electronics industry. In Inventing the Electronic Century (2001) Chandler holds that, by creating capabilities (notably central R&D capabilities), RCA was the fountainhead of innovation in that industry, at least until after World War II. I argue instead that, as a government-created patent pool, RCA in fact retarded innovation in what was actually a fairly modular industry. Recently, I came across a paper by two economists from Stanford called “Do Patent Pools Encourage Innovation? Evidence from the 19th-Century Sewing Machine Industry.” They provide quantitative evidence that an earlier patent pool (also) retarded innovation. Here is the abstract:
Regulators favor patent pools to encourage innovation in industries where overlapping patents and excessive litigation suppress innovation. With patent pools, member firms share patents freely with each other and offer one-stop licenses to outside firms. Thus patent pools are expected to promote innovation by reducing litigation risks for pool members and lowering transaction costs for outside firms. We examine this prediction at the example of the first patent pool in U.S. history, the Sewing Machine Combination (1856-1877). Our data confirm that pools reduce litigation risks for members and that pool members patent more in the years leading up to the pool. Pool members, however, patent less as soon as the pool is established and only resume patenting after the pool dissolves. We construct objective measures of performance to examine whether such changes reflect changes in strategic patenting or actual effects on innovation. Performance data suggest that innovation slowed as soon as the pool had been established and resumed only after the pool had been dissolved. Why might patent pools discourage innovation? Our data indicate that pools may discourage innovation by increasing litigation risks for outside firms and by diverting research by outside firms to inferior technologies.
This last point also held true in the case of RCA: as RCA controlled all of the key patents for the radio and licensed them only en bloc, there was no incentive for outsiders to create new products that would compete with only one or two of RCA’s technologies.
1 comment 19 February 2009
The Future of the Textbook
| Peter Klein |
Cliff Kuang at Fast Company points us to smARThistory, which looks very nice, and asks:
Why the hell are we still teaching kids from textbooks? Granted, the system works. But you’d at least expect more experiments in the genre, along the lines of smARThistory. For one, textbooks for each student routinely cost hundreds, even thousands per year — and a massive chunk of those costs aren’t in the production of the material, but rather its printing and distribution. Better to give kids laptops, and dynamic textbooks with high production values (like smARThistory). You could arrange them with assigned lessons that require modules to be checked off. A system of clicks or periodic questions could ensure that the kids are engaged. And what about flash animations that illustrate physics or math concepts? The list goes on. If done right, a virtual textbook would far outshine any print textbook we’ve ever cracked.
In economics and management we sometimes use online simulations, experiments, and other interactive learning tools, but the traditional textbook (or set of journal articles) reigns supreme. Do the newer tools work? Which are most effective? And, most important, what clever names can we give them? huMANresources? pricECONnections?
Add comment 10 February 2009
Burying the Carbon Issue
| David Gerard |
As noted here, a “small” chunk of the House stimulus package is earmarked for carbon capture and sequestration (CCS) demonstration projects. For a coal-fired electric power plant, CCS entails the separation of the carbon dioxide during the combustion stage, compression into a fluid, and injection into a deep (> 1 km) geological formation where it will remain indefinitely.
Regardless of one’s views on global climate change or the government’s role in addressing it, it seems pretty clear that policy makers are moving us toward a carbon-constrained world. The rationale for CCS in such a world is straightforward. Unlike conventional pollutants, today’s carbon emissions will remain in the atmosphere for close to 100 years. Stabilizing atmospheric CO2 concentrations at current levels will require extraordinary (perhaps 80%+) reductions from current emissions levels. However, carbon or no carbon, it is highly improbable that we can meet our projected energy needs (at least in the near term) without continued reliance on fossil energy sources.
I am involved with the CCSReg project that is developing recommendations for the development of a regulatory framework for CCS if the US legislates reductions in carbon emissions. Earlier this month, we issued an interim report with several preliminary recommendations, including putting money toward demonstration projects (summary).
The potential regulatory issues range from identifying and mitigating environmental and safety risks to addressing public acceptance issues associated with the NUMBY (not under my back yard) syndrome. The property rights issue might interest many in this audience, as it is not clear who owns the underground pore space (if anyone), or how much these owners should be compensated for having CO2 filling it up (if anything). This could be resolved on a state-by-state basis, though many potential sequestration sites are located in multiple states. (more…)
1 comment 29 January 2009
“Beta Culture” and Opportunity Cost
| Peter Klein |
I enjoyed this rant on “beta culture” — the trend toward earlier and earlier releases of hardware and software, before many bugs are worked out — but wish the author understood the concepts of opportunity cost and marginal analysis. I used to assign Gene Callahan’s classic “Those Damned Bugs!” in my introductory classes to explain these concepts. Would it be nice if new products worked perfectly right out of the box? Sure. Is perfection worth the wait? Probably not. That isn’t to say that all new products are launched on the right side of the temporal benefit-cost margin — the BlackBerry Storm might qualify as alpha, not beta — but using the problems of some new products to crusade against early release more generally misses the mark.
3 comments 29 January 2009
Technological Change
| Peter Klein |
You Macophiles may get a kick out of Larry Magid’s 1984 LA Times review of the original Mac (now celebrating its 25th anniversary). Packed with 128K RAM, a 400K floppy drive, a 9-inch monitor, and something called a “mouse,” it wowed the critics from the get-go. Magid was particularly impressed with the MacWrite software, which “can vary the size and style of your type on the screen and on paper. . . . You can vary the type size from 9 point (about the size used in most newspapers) to 72 point headlines. You can also change your type style, selecting an Old English font or one of the more common type styles. Your type can be in bold, italic, underline or even shadow print.” Wow!
Magid doesn’t say anything about speed, which concerned me the first time I saw one in person (yes, back in 1984; I’m that old). The old IBM-compatible PCs running command-line MS-DOS were much faster for basic word processing, database, and spreadsheet applications than the pretty WYSIWYG design popularized on the Mac.
3 comments 22 January 2009
Guilds and Innovation
| Peter Klein |
Most economic and management historians see the guild system as partly responsible for the stagnation of the medieval European economy. A new book, Guilds, Innovation and the European Economy, 1400-1800 (S. R. Epstein and Maarten Prak, eds., Cambridge, 2008) offers a revisionist view, challenging the stereotype of guilds as “moribund rent-seekers whose habitual reaction to technical innovation was resistance and rejection.” The reality is more complex, says reviewer Christine MacLeod:
What emerges from this exceptionally coherent volume is not only the complexity of this institution, whose history spans more than half a millennium and a myriad of particular trades and local circumstances, but also the persistent tensions to which it was subjected, both internally from individualistic and capitalist challenges to its collective ethos and externally from the exigencies of nation states. Moreover, it adds another spur to the demanding search for innovation in the workshop and on the construction site, rather than in the too easily accessed and counted records of the patent office.
Add comment 22 December 2008
Interesting Blogs
| Peter Klein |
- Urban and Regional Studies, by Pedro Marquez
- Beerkens’ Blog, by Eric Beerkens
- Estzer’s Blog, by Eszter Hargittai
- Terminal Degree, by a funny music professor
1 comment 9 December 2008
A Note on Systems Integration
| Dick Langlois |
First let me apologize for being out of circulation for so long. I’ve been inundated with teaching and committee work this semester, but I hope to get back in the swing of things as the year winds down.
The New York Times had an interesting article the other day on a company called Super Micro Computer, a public family-run company in San Jose that puts together leading-edge servers and other hardware for clients that include eBay and Yahoo. The company sells high performance and speed, both the speed of the computer and the speed of the company in designing and delivering its products.
Whereas rivals long ago sent key design work to Asia to take advantage of cheaper, plentiful labor, Super Micro still relies on hundreds of expensive engineers working at its San Jose headquarters. These workers are charged with grabbing the latest and greatest components from suppliers and coming up with new designs months ahead of lumbering heavyweights like Hewlett-Packard and Dell.
Clayton Christensen and his coauthors have argued that a premium on high performance calls for vertical integration and systemic integration in order to fine tune and customize systems, whereas a premium on cost reduction leads to modularity, standardization, and vertical disintegration. The Super Micro case seems to question this conclusion. On the one hand, the company emphasizes design and produces customized units. On the other hand, however, the company is really just a systems integrator — not a vertically integrated company — whose advantage lies in discovering and making use of the innovation of others. In Carliss Baldwin’s phrase, the company “leverages modularity” along the performance margin in much the same way that Dell does (or at least once did) along the cost margin. My conjecture is that, the more inherently modular (whatever that means) the product is, the more systemic integration can be squeezed into a single independent stage of production (systems integration) and the less necessary is genuine vertical integration — even when performance is what matters.
2 comments 25 November 2008
Creative Capitalism
| Peter Klein |
The book is coming out in a few weeks, and the blog is back in business. I didn’t follow all the previous discussion but what I read was of high quality and reflected diverse, and interesting, perspectives.
1 comment 16 November 2008
Bill Shughart’s Review of Prophet of Innovation
| Peter Klein |
It’s in the December 2008 issue of Managerial and Decision Economics. Excerpt:
Many readers, as I did, will close Prophet of Innovation with a feeling of dissatisfaction. On the plus side, McCraw’s life of Joseph Alois Schumpeter is not as dauntingly long as it seems: Nearly 30% of the volume is devoted to notes and other end matter, and so the text runs to a more digestible 506 pages. Generous line spacing and a respectable number of archival photographs speed the pace of reading.
On the minus side, Prophet of Innovation pales in comparison with the recent and far more penetrating biographies of John D. Rockefeller, Sr. by Ron Chernow, of J. P. Morgan by Jean Strouse, and of Andrew Mellon by David Cannadine. In the end, one doesn’t know Joseph Schumpeter quite as fully as one now knows those titans of industry. And we certainly don’t know him as well as we know Robert Skidelsky’s John Maynard Keynes, who was born the same year (1863). Something is missing from Prophet of Innovation, perhaps because McCraw chose not to be “concerned with Schumpeter’s economic thinking, narrowly construed” (p. xi). That choice, in my judgment, fatally compromises any attempt to tell the story of a man who lived and breathed economics over a distinguished, remarkably productive academic career that spanned four decades, taking him from the classrooms of the University of Vienna, where he (and Ludwig von Mises) studied under Eugen von Böhm-Bawerk, to Harvard Square.
Add comment 13 November 2008
Historical Origins of “Open Science”
| Peter Klein |
An interesting piece on science and patronage by Paul David, with a comment by Ken Arrow:
The Historical Origins of “Open Science”: An Essay on Patronage, Reputation and Common Agency Contracting in the Scientific Revolution
Paul A. David, Stanford University & The University of Oxford
This essay examines the economics of patronage in the production of knowledge and its influence upon the historical formation of key elements in the ethos and organizational structure of publicly funded “open science.” The emergence during the late sixteenth and early seventeenth centuries of the idea and practice of “open science” was a distinctive and vital organizational aspect of the Scientific Revolution. It represented a break from the previously dominant ethos of secrecy in the pursuit of Nature’s Secrets, to a new set of norms, incentives, and organizational structures that reinforced scientific researchers’ commitments to rapid disclosure of new knowledge. The rise of “cooperative rivalries” in the revelation of new knowledge, is seen as a functional response to heightened asymmetric information problems posed for the Renaissance system of court-patronage of the arts and sciences; pre-existing informational asymmetries had been exacerbated by the claims of mathematicians and the increasing practical reliance upon new mathematical techniques in a variety of “contexts of application.” Reputational competition among Europe’s noble patrons motivated much of their efforts to attract to their courts the most prestigious natural philosophers, was no less crucial in the workings of that system than was the concern among their would-be clients to raise their peer-based reputational status. In late Renaissance Europe, the feudal legacy of fragmented political authority had resulted in relations between noble patrons and their savant-clients that resembled the situation modern economists describe as “common agency contracting in substitutes” — competition among incompletely informed principals for the dedicated services of multiple agents. These conditions tended to result in contract terms (especially with regard to autonomy and financial support) that left agent client members of the nascent scientific communities better positioned to retain larger information rents on their specialized knowledge. This encouraged entry into their emerging disciplines, and enabled them collectively to develop a stronger degree of professional autonomy for their programs of inquiry within the increasingly specialized and formal scientific academies (such the Académie royale des Sciences and the Royal Society) that had attracted the patronage of rival absolutist States of Western Europe during the latter part of the seventeenth century. The institutionalization of “open science” that took place within those settings is shown to have continuities with the use by scientists of the earlier humanist academies, and with the logic of regal patronage, rather than being driven by the material requirements of new observational and experimental techniques.
See also this and this on science funding. And of course Hayek’s Counter-Revolution of Science (free full text!) should be consulted.
3 comments 11 November 2008
Beware of Geeks Bearing Formulas
| Peter Klein |
The entrepreneur, writes Mises in one of my favorite passages, “is a speculator, a man eager to utilize his opinion about the future structure of the market for business operations promising profits.” The entrepreneur relies on his “specific anticipative understanding of the conditions of the uncertain future,” an understanding that ”defies any rules and systematization.”
This passage was in my mind today as I read the WSJ front-pager about the computer models used by AIG to analyze asset risk. Poor Gary Gorton, who designed many of AIG’s models, is put on public display. AIG’s catastrophic failure is likely to fuel skepticism about the use of such models for risk analysis, though Gorton maintains the problem was the application of the models, not their basic design. (His Yale colleague Ian Ayres will likely agree.) Longtime skeptic Warren Buffet has the best line: “Beware of geeks . . . bearing formulas.”
Today’s paper also includes an item on Harry Markowitz, including this:
As with all new information tools at our disposal, applying portfolio theory to investing entails its share of trial and error. Mr. Markowitz admits some people might object to asking him how to repair the credit crisis. “You, Harry Markowitz, brought math into the investment process,” he imagines some people thinking. “It is fancy math that brought on this crisis. What makes you think now that you can solve it?”
He draws a line between his portfolio theory and its later misapplication. “Not all financial engineering is always bad,” he says, “but the layers of financially engineered products of recent years, combined with high levels of leverage, have proved to be too much of a good thing.”
Update (Nov. 5): See this related piece from the Times.
3 comments 3 November 2008
Who Invented the Internet?
| Peter Klein |
OK, we now know it wasn’t Al Gore. (And John McCain didn’t didn’t invent the BlackBerry either.) But who did invent the internet? Physicists have long maintained that they did. Michael Nielsen (via Josh Gans) disagrees:
It’s true that the principal inventor of the web, Tim Berners-Lee, was a programmer working at CERN, the huge European particle accelerator. In 1988 he sketched out a way of hooking up hypertext ideas, developed by people like Ted Nelson and Bill Atkinson, to the internet, developed by people like Vint Cerf and Bob Kahn. He talked the idea up at CERN for a year, with no response. In 1989 he wrote up and circulated a formal proposal around CERN. Again, no response for a year. Finally, he coded up a prototype in his spare time. In this, he actually was helped by his manager, who said it was okay if he used one of CERN’s workstations to build the prototype. It was launched to the world about one year later.
Berners-Lee didn’t succeed because CERN was doing fundamental research. He succeeded in spite of it.
Nielsen goes on to make a more general claim about large organizations tending to stifle innovation, but that is a more complicated and difficult issue. Yesterday in my entrepreneurship class we discussed Zoltan Acs and David Audretsch’s 1990 book Innovation and Small Firms, which paints a more nuanced picture (e.g., the relationship between firm size, scope, complexity, etc. and innovation varies widely by industry, market structure, time, manufacturing technology, and the like).
Here is my take on the history of the internet, and here is an academic paper on internal capital markets and innovation.
1 comment 23 October 2008
Searle Center Symposium on Property Rights and Innovation
| Peter Klein |
It’s next month in Chicago. The high-powered lineup includes Joel Mokyr, Avner Greif, Robert Merges, Lynne Kiesling, Stan Liebowitz, Scott Stern, my old classmates Emerson Tiller and Rich Brooks, and many more. Harold Demsetz gives the keynote. Wish I were going.
2 comments 15 October 2008
Government Funding and the Economic Organization of Scienctific Research
| Peter Klein |
A prominent climate scientist, Richard Lindzen of MIT, argues that the politicization of climate science over the last decade is but a symptom of a larger, more general problem caused by government science funding: namely an emphasis on demonstrable results that satisfy the public and have “practical” implications, rather than the pursuit of scientific truth (via Sean Corrigan).
For a variety of inter-related cultural, organizational, and political reasons, progress in climate science and the actual solution of scientific problems in this field have moved at a much slower rate than would normally be possible. Not all these factors are unique to climate science, but the heavy influence of politics has served to amplify the role of the other factors. By cultural factors, I primarily refer to the change in the scientific paradigm from a dialectic opposition between theory and observation to an emphasis on simulation and observational programs. The latter serves to almost eliminate the dialectical focus of the former. Whereas the former had the potential for convergence, the latter is much less effective. The institutional factor has many components. One is the inordinate growth of administration in universities and the consequent increase in importance of grant overhead. This leads to an emphasis on large programs that never end. Another is the hierarchical nature of formal scientific organizations whereby a small executive council can speak on behalf of thousands of scientists as well as govern the distribution of ‘carrots and sticks’ whereby reputations are made and broken. The above factors are all amplified by the need for government funding. When an issue becomes a vital part of a political agenda, as is the case with climate, then the politically desired position becomes a goal rather than a consequence of scientific research. This paper will deal with the origin of the cultural changes and with specific examples of the operation and interaction of these factors. In particular, we will show how political bodies act to control scientific institutions, how scientists adjust both data and even theory to accommodate politically correct positions, and how opposition to these positions is disposed of.
The paper is well worth reading by social scientists and organization theorists. Business-school faculty will recognize the parallels with the call for “relevance” in management education (see the links in Teppo’s recent post). And there are important connections to the arts and humanities; recent scholarship, for example, challenges the notion that public funding produces better art (painting, music, literature, drama) than patronage or commercial funding (Cantor, Cowen, Scherer). Some readers may respond, with Pilate, “What is truth?” Somebody has to pay the bills, in other words, and that party will want something in return. (more…)
Add comment 29 September 2008
Notes from the Economic History Association Meeting
| Dick Langlois |
I am only now (slowly and partially) emerging from a crush of administrative and teaching responsibilities at the beginning of the semester. But I did manage to drive down to New Haven last weekend for some of the Economic History Association meeting. It was an eventful meeting in many respects, including a fire at the hotel Thursday night that sent conference-goers into the street in their pajamas as well as an apparent outbreak of food poisoning from the Saturday night banquet. Happily, I was spared both of those experiences.
For at least two of the three sessions I managed to attend, there emerged a theme: that a lot of interesting work in economic history today is rediscovering and reinventing ideas that Nate Rosenberg, Paul David, and others were discussing in the 1970s and earlier: learning by doing and factor prices, technological and economic complementarities, and general-purpose technologies. (I have been known to talk about the Stanford School in this respect.)
In his keynote address on Saturday — evidently similar to his Clarendon Lectures last year and probably dating back at least to this paper — Daron Acemoglu talked about the issue of skill bias in technological change. In the 1970s, labor economists were arguing that Americans were investing too much in education, since rising wage rates should lead to labor-saving technical change, which would reduce the supply of skilled jobs. Of course, just the opposite happened: skilled jobs grew even faster than skilled workers, creating a skill premium in the U.S. Acemoglu presented a clever general-equilibrium model in which the bias of technological change is endogenous. Under certain assumptions, supply of a factor of production (like skilled labor) can create its own demand. The intuition is that a larger supply of a factor (like skilled labor) can increase the market for complementary innovations to an extent that offsets other effects. (For my own Rosenbergian take on why technical change should be biased toward higher skill levels, see here.) Interestingly, Joel Mokyr discussed Acemoglu’s presentation using a 1975 Paul David paper as a framework. (more…)
1 comment 25 September 2008
Innovation Story of the Day
| Peter Klein |
OMG. Somebody has created this.
It reminds me of the 2-bladed, then 3-bladed, and now 5-bladed razor, the latter of which was famously spoofed by the Onion (caution: bad language), only to have Gillette actually bring it out the next year. (Both Saturday Night Live, in 1975, and Mad Magazine, in 1979, had the idea first.)
3 comments 18 September 2008
