| Peter Klein |
Lepore only deals with the easy marks in her take down of Christensen and one suspects Christensen and his supporters can easily fend those off. It is the fundamental contradiction in taking a positive theory towards prediction that is where this entire ‘disruption industry’ falls down. I’d like to see journalists engaging more on that level so that we can be done with those bridges too far for good.
What Josh means by “fundamental contradiction” is that a disruptive technology, in Christensen’s definition, must not only be behind the cutting edge in some technical dimension, but also satisfy unmet consumer demands. The latter must be uncertain ex ante, otherwise the market leaders would also be developing the disruptive technology. Christensen advises incumbents to “disrupt themselves,” but this assumes they know which technologies will eventually be disruptive. Because they don’t, they must choose among several alternatives, including “do nothing” (i.e., try to exploit late-mover advantage).
The incumbent’s decision, contrary to Christensen’s reasoning, reflects entrepreneurial judgment, which may or may not be correct. There is no formula for managing disruptive technologies.
See also Lynne’s insightful commenta.
| Peter Klein |
An interesting paper from Mara P. Squicciarini and Nico Voigtländer examines the role of “knowledge elites” — individuals at the upper tail of the human capital distribution* — in French economic growth around the time of the Industrial Revolution. Key passage:
To measure the historical presence of knowledge elites, we use city-level subscriptions to the famous Encyclopédie in mid-18th century France. We show that subscriber density is a strong predictor of city growth after 1750, but not before the onset of French industrialization. Alternative measures of development confirm this pattern: soldier height and industrial activity are strongly associated with subscriber density after, but not before, 1750. Literacy, on the other hand, does not predict growth. Finally, by joining data on British patents with a large French firm survey from 1837, we provide evidence for the mechanism: upper tail knowledge raised the productivity in innovative industrial technology.
In other words, growth is driven by the knowledge (and, presumably, skills, preferences, and beliefs) of the elites, not the population at large.
Squicciarini and Voigtländer don’t deal directly with the distribution of income and wealth (they do show that regions with higher Encyclopédie subscriber density had higher per-capita incomes), presumably those individuals in the upper tail of the knowledge distribution were also one-percenters in income or wealth. This brings to mind one of Bertrand de Jouvenel’s arguments about inequality, namely that it spurs technological innovation:
[I]t is a commonplace that things which are now provided inexpensively to the many, say spices or the newspaper, were originally luxuries which could be offered only because some few were willing and able to buy them at high prices. It is difficult to say what the economic development of the West would have been . . . if the productive effort had been aimed at providing more of the things needed by all, to the exclusion of a greater variety of things desired by minorities [i.e., elites]. . . . History shows us that each successive enlargement of the opportunities to consume was linked with unequal distribution of the means to consume.
I suspect Squicciarini and Voigtländer’s knowledge elites were largely the same as de Jouvenel’s “minorities” (in a robustness check for reverse causation, Squicciarini and Voightländer use membership in scientific societies as a proxy for knowledge elites, and these scientific societies were the primary producers and consumers of scientific instruments, for example). What would Monsieur Piketty say about this, I wonder?
| Peter Klein |
2012 marked the 30th anniversary of Mark Casson’s classic work The Entrepreneur: An Economic Theory. Casson was one of the first economists since Frank Knight to elaborate on the role that uncertainty and judgment play in entrepreneurial decisions. Casson’s book offers not only a critique of the theories of competition and the firm offered in neoclassical microeconomics, but also a positive theory of the entrepreneur as a judgmental decision-maker under uncertainty. Casson’s work had a strong influence on the Foss-Klein approach to entrepreneurship, as well as Dick’s work on the theory of the firm.
Sharon Alvarez, Andrew Godley, and Mike Wright have written a nice tribute to The Entrepreneur in the latest edition of the Strategic Entrepreneurship Journal.
Mark Casson’s The Entrepreneur: An Economic Theory (1982) has become one of the most influential books in the field of entrepreneurship. For the first time, this article outlines its origins and summarizes its main themes. The article goes on to show how Casson’s subsequent research has closely followed the research agenda he set for himself in The Entrepreneur and illustrates the continuing challenge his work presents to entrepreneurship scholars. The article is based on an interview the authors conducted with Mark Casson on the thirtieth anniversary of the book’s publication.
As Sharon, Andrew, and Mike note, “Casson’s incorporation of Knightian judgment into a broader economic framework is probably the area where the book has had its greatest impact (albeit mostly among management scholars and not economists).” For Casson — as well as Knight — judgment constitutes decision-making under uncertainty that cannot be captured in a set of formal decision rules, such that “different individuals, sharing similar objectives and acting under similar circumstances, would make different decisions” (Casson, 1982, p. 21). Unfortunately, while judgment continues to play an important role in entrepreneurship research, it has been largely overshadowed (in my reading) by the opportunity-discovery perspective that builds on Kirzner rather than Knight (though that perspective is itself coming under heavy fire).
The paper is gated, unfortunately. But you can access Casson’s own summary of his (and others’) ideas in this EconLib article.
| Peter Klein |
A new paper from former guest blogger Peter Lewin:
University of Texas at Dallas – School of Management – Department of Finance & Managerial Economics
Metropolitan State University of Denver
A comprehensive understanding business-cycles needs to account not only for the allocation of resources over time, but also for resource allocation across industries at any point in time. Intertemporal disequilibrium has been a common theme of many theories of the business-cycle. But to properly understand how these “time-distortions” take place and how the price-mechanisms that drive them work, a clear and well-defined conceptualization of the “average length” of the structure of production, is required. The insights provided by Macaulay’s duration and Hicks’s Average Period do this. We show that financial duration and related concepts have a direct connection to macroeconomic stability. By doing this we point to important implications for macroeconomic policy. We claim not only that a low interest rate contributes to the creation of asset bubbles, we show also the market mechanism through which the real sector is affected. We argue that to accept that duration matters for resource allocation is to accept the core of the Austrian Theory of the Business Cycle (ABCT) and, therefore, that to reject the ABCT core thesis suggests also rejecting the importance of duration for resource allocation.
| Peter Klein |
New economic historians have turned their back on traditional historians and sought their place among economists. This has provided good jobs for many scholars, but the acceptance by economists is still incomplete. We therefore have two challenges ahead of ourselves. The first is to argue that economic development can only be fully understood if we understand the divergent histories of high-wage and low-wage economies. And the other big challenge is to translate our economic findings into historical lessons that historians will want to read. These challenges come from our place between economics and history, and both are important for the future of the New Economic History.
His broader claim is that the disciplines of economic history and economic development should be more closely integrated. “Both subfields study economic development; the difference is that economic history focuses on high-wage countries while economic development focuses on low-wage economies.”
| Dick Langlois |
I was trying to avoid jumping into the fray about Capital in the Twenty-First Century so as not to participate in the mania, as if throwing one more tiny ember into a wildfire would cause measurable additional damage. But I couldn’t resist after seeing an article entitled “How Thomas Piketty Explains American Sports.” Written by someone called Kevin Lincoln in a left-wing mag called Pacific Standard, the article discusses the NBA’s proposal to raise the minimum roster age from 19 to 20, thus reducing the number of one-and-done college players and depriving John Calipari of his livelihood. (Did I forget to mention that UConn won both men’s and women’s national championships this year?) Lincoln correctly points out that such a change is in the interest not only of the D-1 colleges, who get to keep their stars longer, but also of the NBA, since it offloads more player development to the colleges. Sounds perfectly reasonable – exactly the kind of analysis you would expect from, say, a free-market public-choice economist. What on earth does this have to do with Piketty?
The concept of “over-accumulation” was coined by economist David Hershey, and with the ascent of Thomas Piketty’s Capital in the Twenty-First Century into bestsellerdom, it’s something that anyone with even a passing interest in economics is probably familiar with. In our current economy, actors who have gathered large amounts of capital tend to invest it in the creation of further capital for themselves rather than funneling it back into production. In turn, the economy stagnates, with the world’s financial resources concentrating in the hands of the rich with no money left over to raise wages for the working class.
Yes, this scheme will probably raise the wealth (a little) of NBA owners. But it doesn’t have anything to do with the accumulation of capital. For both owners and players, the NBA is all about people getting wealthy from entrepreneurial insight and scarce valuable skills — exactly contrary to Piketty’s predictions.
The author is obviously economically illiterate — how exactly can people “create further capital for themselves” without somehow “funneling it back into production”? Yet the fact that someone smart enough to write a free-lance article would connect the NBA to Piketty speaks, it seems to me, to what the Piketty phenomenon is all about. In my view, we should not be comparing Piketty with Marx or Keynes. We should be comparing him with Dan Brown. Like the Da Vinci Code, Capital is an otherwise unremarkable book that managed to put together a volatile mix of elements. Both books captured some kind of zeitgeist, of course, but they did so in a remarkably precise way. They rely on similar elements: a theory of how the world works that doesn’t stand up to minimal scrutiny but is easy to understand, seems to explain the mysterious and ineffable, and, most importantly, confirms the gut prejudices of its readers. Capital is not as much a conspiracy theory as the Da Vinci Code; it’s a nineteenth-century story about aggregate income shares. But it is also an empty-enough vessel into which readers (especially those who haven’t actually read it) can pour their own conspiracy theories. The NBA is the Opus Dei of capitalist sports.
While we’re on the subject, I also want to mention that, to my mild surprise, the best review of Piketty I have run across is by Larry Summers. He gathers together all the technical criticisms in many other reviews and then adds a few of his own. While he pats Piketty on the back for his wonderful interest in inequality, he leaves the theoretical claims in a tattered pile on the floor.
[A guest post from Peter St. Onge, Assistant Professor of Marketing at Feng Chia University in Taiwan.]
Is academia the epitome of mankind’s quest for knowledge? Is it an adjunct to the productive forces that drive us ever-closer to a utopia of plenty? Or is it a self-licking ice cream cone? Here are a few data points.
For each keyword or phrase-in-quotes, the first column measures google searches (average ttm, in thousands, reported 5/15/14 on Google Adwords Keyword Planner). The second column measures academic papers on Google scholar between 2012-2013 (as of 5/15/14). The third column measures the ratio of academic papers divided by monthly searches. And the fourth column gives Google Adwords’ “suggested bid” — this suggests what an advertiser might offer for a “click” when somebody enters the search term or phrase, so is roughly the market value of a visitor searching for that term.
These measures are roughly intended to capture popular interest (the quest for knowledge) and market value (adjunct to production) compared to academic interest.
First, some general business terms, with “gender identity” thrown in for fun, ranked by papers-to-search ratios:
|Google Scholar||Google monthly searches (k)||Papers 12-13 (k)||Papers/ searches||Suggested Bid|
The highest ratio of academic vs popular interest? Management. Beating even “gender identity.” And the lowest? Finance, followed by entrepreneurship. The people demand more finance and entrepreneurship papers. Perhaps because they want to learn how to invest and start businesses, but this is conjecture.
What else jumps out here is the overwhelming interest among the public in finance. Indeed, there are more than 4 times more searches for the word finance than all the other terms together. “Finance” is 20 times more popular than accounting or management, and 15 times more than marketing. Perhaps business schools are misallocating their resources unless their departments aren’t at least 80% finance? (more…)