Posts filed under ‘Institutions’
Secure Abjure Tenure
| Scott Masten |
Thanks to Peter, Nicolai, Dick, and Lasse for the invitation to guest blog and for the opportunity to sound off on current issues to a broader audience than just my LCD screen. [Thank you! — LCD Screen.]
A fairly recent example of such an issue was the discussion — anew — of proposals — anew — to abolish professorial tenure. Earlier this month, the New York Times Sunday Book Review ran an essay titled “The End of Tenure?” This was preceded by a July NYT “Room for Debate” forum on the question “What if College Tenure Dies?” and a proposal a week or so later by the American Bar Association to eliminate the term “tenure” from the ABA standards covering job security and academic freedom. A flurry of blog posts on the merits of tenure — many by law professors — ensued.
Leaving aside the details of the debate, an interesting pattern emerged in the “sides,” with more market-oriented (libertarian- or conservative-leaning) writers tending to be more critical, or at least skeptical of the merits, of tenure (see, for example, here and here; here; and here, compared, for instance, with this. The rule-proving exception is here). (more…)
Research Findings That Don’t Surprise Me
| Peter Klein |
The Institutional Causes of China’s Great Famine, 1959-61
Xin Meng, Nancy Qian, Pierre Yared
NBER Working Paper No. 16361, September 2010This paper investigates the institutional causes of China’s Great Famine. It presents two empirical findings: 1) in 1959, when the famine began, food production was almost three times more than population subsistence needs; and 2) regions with higher per capita food production that year suffered higher famine mortality rates, a surprising reversal of a typically negative correlation. A simple model based on historical institutional details shows that these patterns are consistent with the policy outcomes in a centrally planned economy in which the government is unable to easily collect and respond to new information in the presence of an aggregate shock to production.
It is said that when the Nobel Prize in economics was first established, prizes were given for using economics to teach people things they didn’t already know, e.g., that economic growth might increase inequality, that depressions are caused by central banks, that macroeconomic stabilization policy doesn’t work, etc. Now, prizes are given to economists who teach other economists things that regular people already know — politicians are self-interested, you shouldn’t put all your eggs in one basket, institutions matter, different people know different things, etc.
Get Ready for the Slow-Conversation Movement
| Peter Klein |
Conversations today are constantly hijacked by digital fact-checkers. Every fact or statement, it seems, must be checked or augmented in real time with at-our-fingertips online information. We no longer trust each other to come up with good-enough facts or allow each other add colorful embellishment to our stories. Let me give a recent example to make my point. Over lunch the other day, I shared a story with my colleagues — the surreal experience of being accidently given a presidential suite at a Four Seasons Hotel. “This was an amazing room, probably 3000+ square feet with over-the-top appointments everywhere,” I said. No more than two minutes after making the statement, an associate checked on his BlackBerry the size of the presidential suite, correcting me that it was closer to 2000 square feet.
What happened to natural conversations, those based on what is already in our heads, unburdened by verfication? As the fast food movement has seen an opposing slow food movement take hold and shape, I predict we’ll soon see a similar desire for putting down for a moment all the “information enhancements” that come with mobile, digital-sparring tools.
That’s Anthony Tjan blogging at HBR. As someone who reads a lot of student papers — not to mention newspapers, magazines, and blogs — I tend to favor more fact checking, not less. But I see the point.
This is relevant for teaching and public speaking as well. I don’t record my classes, but I suspect that day is not far off (and some of my public talks are already preserved, for better or worse). Will professors be more rigid, overly cautious, less spontaneous, less natural, knowing that everything they say is ripe for verification, by current or future students (or administrators)? What is the appropriate balance between monitoring and governance and classroom spontaneity, ad hocery, and silliness?
In Defence of L’Ancien Regime
| Nicolai Foss |
It is sometimes instructive to reflect on the massive changes that the University has undergone since the Second World War. On the negative side, the advent of the mass university has very likely led to a dumbing down of the curriculum in many disciplines and a fall in the requirements for entry. It has paved the way for a powerful bureaucratic caste, and the “bureaucrat-professor” who is in the academic industry because of his specialized management skill, and not because of his wish to engage in scholarly pursuits and the training of the most intelligent persons in a given society. On the benefit side, many more people can now share in science and general learning, very likely contributing to economic growth.
As the universities are broadly speaking financed by the taxpayer, politicians and their henchmen in the ministeries of education, science, technology, etc. happily undertake to steer the universities. Thus, inspired by as-yet-largely-unvalidated claims of a general shift in the “mode of knowledge production,” university bureaucrats, managers, and politicians are calling for increased “inter-disciplinarity” and “relevance,” notably in the form of mobilizing multiple disciplines in the context of concrete problem-solving in “business” (the so-called “Mode II”). In the context of business schools, it seems almost de rigeur in certain quarters to deem business schools largely “irrelevant” (meanwhile, business happily employs the products of business schools, paying MBA and other graduates hefty salaries, presumably motivated by the high usefulness, indeed, “relevance,” of these graduates).
Contrast all this with universities not so many decades back. There are not many who stand up on behalf of l’ancien regime of universities. But here are two who do, one implicitly and the other one (much) more explicitly. (more…)
The Modern University
| Peter Klein |
[I]f you were starting a top university today, what would it look like? You would start by gathering the very best minds from around the world, from every discipline. Since we’re living in an age of abundant, not scarce, information, you’d curate the lectures carefully, with a focus on the new and original, rather than offer a course on every possible topic. You’d create a sustainable economic model by focusing on technological rather than physical infrastructure, and by getting people of means to pay for a specialized experience. You’d also construct a robust network so people could access resources whenever and from wherever they like, and you’d give them the tools to collaborate beyond the lecture hall. Why not fulfill the university’s millennium-old mission by sharing ideas as freely and as widely as possible?
What would this modern university look like? It certainly wouldn’t resemble Harvard or Swarthmore or Michigan or Texas A&M. It would look like TED, profiled in this month’s Fast Company. Or Wikiversity or the Mises Academy or some nonprofit or for-profit alternative we haven’t heard of yet.
See also: “Are Universities Worth It?”
Bruce Caldwell on The Road from Mont Pèlerin
| Peter Klein |
Don’t miss Bruce Caldwell’s review of Philip Mirowski and Dieter Plehwe, eds., The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective (Harvard, 2009). “Mont Pèlerin” refers, of course, to the Mont Pèlerin Society, the association of classical liberal academics and journalists founded by Hayek in 1947. Bruce finds the volume informative, despite its frequently disdainful tone toward its subjects. He also raises an important general point, one that I’ve wrestled with a lot since the financial crisis: does anybody listen to us?
The second question [raised by the book] has to do with the potency of intellectuals to shape world events or, more narrowly, even economic and social policy. It is evident that members of the Mont Pèlerin Society, for all of their diversity, still preferred some form of liberalism . . . to other ways of organizing economic and political affairs. But how important were they in the emerging global consensus that began in the 1980s in favor of trade liberalization and privatization? Were not, for example, the dismal performance of Keynesian demand management policies in the United States, Britain, and elsewhere in the 1970s; the heavy-handed actions of the trade unions in Britain during the “Winter of Discontent”; the sclerotic performance of countries like India who had embraced a modified version of the planning model for their own; and, of course, the patent economic and political failures of the East Bloc, far more important in turning the tide, however briefly, towards globalization? Was not George Stigler (himself a founding member of the Society) right in his comment about economists that “our influence appears to be powerful only when we support policies ripe for adoption” (Stigler 1987, p. 11)?
Two Economics Papers About Culture
| Peter Klein |
The New Institutional Economics focuses mainly on formal rules, both “macro” (constitutions, legal systems, written languages) and “micro” (firms, contracts, other formal agreements). But there are many studies of informal or semi-formal constraints — norms, conventions, religion, belief systems, and other aspects of culture, broadly conceived. Given their commitment to methodological individualism, New Institutional Economists tend to explain the emergence and stability of these phenomena as the consequences — typically unintended — of purposeful individual choices (which distinguishes us from our colleagues on the other side of the aisle). (Culture is important within organizations, as well as between them, though attempts to explain organizational culture in this manner have been less successful.)
Does Culture Matter?
Raquel FernándezThis paper reviews the literature on culture and economics, focusing primarily on the epidemiological approach. The epidemiological approach studies the variation in outcomes across different immigrant groups residing in the same country. Immigrants presumably differ in their cultures but share a common institutional and economic environment. This allows one to separate the effect of culture from the original economic and institutional environment. This approach has been used to study a variety of issues, including female labor force participaiton, fertility, labor market regulation, redistribution, growth, and financial development among others.
Do Social Connections Reduce Moral Hazard? Evidence from the New York City Taxi Industry
C. Kirabo Jackson, Henry S. SchneiderThis study investigates the role of social networks in aligning the incentives of economic agents in settings with incomplete contracts. We study the New York City taxi industry where taxis are often leased and lessee-drivers have worse driving outcomes than owner-drivers as a result of a moral hazard associated with incomplete leasing contracts. Using instrumental variables and fixed-effects analyses, we find that: (1) drivers leasing from members of their country-of-birth community exhibit significantly reduced effects of moral hazard; (2) network effects appear to operate primarily via social sanctions; and (3) network benefits can help to explain the organization of the industry in terms of which drivers and owners form business relationships.
One-Size-Fits-All Higher Ed?
| Peter Klein |
Alternative title: “An Economist Tries Talking to an English Professor, and Gives Up.” Perhaps one of you wants to take up the mantle over at UD?
The point, which I’ve raised in previous posts (e.g., here and here), is that higher education isn’t one, well-defined thing, but a variety of things, and we should welcome experimentation, innovation, and — well — diversity. Blockquoting myself:
“Diversity” is the primary mantra of higher-education institutions. So why not have some diversity in organizational forms? “Education,” after all, is not a homogenous good. As with healthcare, one size doesn’t fit all. Shouldn’t we encourage entry, and applaud entrants who experiment with alternative curricula, teaching methods, incentive structures, sizes, and shapes? Let a thousand pedagogic flowers bloom, I say!
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WikiLeaks and Napster
| Peter Klein |
Apropos my WikiLeaks post, comparing the recent data dump to the data-sharing and data-mining practices increasingly common in academia, a Thursday New Yorker post by Raffi Khatchadourian takes the New Economy framing even further, comparing Wikileaks to Napster. “Shutting WikiLeaks down — assuming that this is even possible — would only lead to copycat sites devised by innovators who would make their services even more difficult to curtail.” The recording industry shut down Napster, spawning Bittorrent — a far more dangerous competitor. Khatchadourian says the Defense Department should “consider WikiLeaks a competitor rather than a threat, and to recognize that the spirit of transparency that motivates [Wikileaks founder Julian] Assange and his volunteers is shared by a far wider community of people who use the Internet.” Had the DoD had released the footage of the 2007 Apache helicopter attack itself, rather than waiting for WikiLeaks to publish it on YouTube, it could probably have contained the damage much more effectively. Naturally, I wouldn’t expect the DoD — or the RIAA — to be that smart. (HT to TechDirt via David Veksler.)
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Incentives Matter, Soviet Edition
| Dick Langlois |
As economists like Benito Arruñada and Eric Hilt have shown, fishing and whaling have always used an incentive system in which crew members are paid a share of the profits of the voyage. Recall that Ishmael in Moby Dick contracted for a 300th lay, a 300th “part of the clear nett proceeds of the voyage, whatever that might eventually amount to.” This provides relatively high-powered incentives, in that it is a reward based on results, though it works only when team members can monitor each other easily and when the market for workers is competitive. (This contrasts with the reward system in, say, professional sports, where one is rewarded on the basis of one’s own performance rather than on that of the team. But that may be changing.)
I was surprised to discover that even Soviet factory ships used a similar system, as described in the Martin Cruz Smith novel Polar Star — a work of fiction but clearly well researched and probably accurate. “The Polar Star’s pay was shared on a coefficient from 2.55 shares for the captain to 0.8 share for a secondclass seaman. Then there was a polar coefficient of 1.5 for fishing in Arctic seas, a 10 percent bonus for one year’s service, a 10 percent bonus for meeting the ship’s quota, and a bonus as high as 40 percent for overfulfilling the plan. The quota was everything. It could be raised or lowered after the ship left dock, but was usually raised because the fleet manager drew his bonus from saving on seamen’s wages. Transit time to the fishing grounds was set at so many days, and the whole crew lost money when the captain ran into a storm, which was why Soviet ships sometimes went full steam ahead through fog and heavy seas.”
Presumably, however, the share was not of profit but of some fixed amount. The incentive came from the quota bonuses, which, as the novel details, were subject to political manipulation. Interesting nonetheless that the system used incentives of the broadly traditional kind, and that it explicitly rewarded workers differently for different skill level and status.
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Too Much Research
| Peter Klein |
Bill McKelvey is one of the signatories to a controversial Chronicle piece that ran last month, “We Must Stop the Avalanche of Low-Quality Research.” The five authors, from a variety of academic disciplines, argue that “the amount of redundant, inconsequential, and outright poor research has swelled in recent decades, filling countless pages in journals and monographs.” As evidence they point to increases in the numbers of journals, journal pages, and authors and decreases in average citation rates.
[I]nstead of contributing to knowledge in various disciplines, the increasing number of low-cited publications only adds to the bulk of words and numbers to be reviewed. Even if read, many articles that are not cited by anyone would seem to contain little useful information. The avalanche of ignored research has a profoundly damaging effect on the enterprise as a whole. Not only does the uncited work itself require years of field and library or laboratory research. It also requires colleagues to read it and provide feedback, as well as reviewers to evaluate it formally for publication. Then, once it is published, it joins the multitudes of other, related publications that researchers must read and evaluate for relevance to their own work. Reviewer time and energy requirements multiply by the year. The impact strikes at the heart of academe.
I think this assessment is generally on target, in my own field at least. What percentage of the articles in your favorite scholarly journal do you read, let alone remember? How much of the research in your field really adds value? Of course, search tools make it easier to find relevant information, so I’m not sure the point about lit reviews is all that compelling. Still, it does seem increasingly difficult to sort wheat from chaff.
I’m less impressed with the authors’ proposed solutions — limiting the number of publications that can be considered for promotion and tenure, making greater use of impact factors, and enforce tighter page restrictions. These strike me as superficial fixes. The main problem is the vast increase in the scale and scope of the “scientific” enterprise itself, almost all of it due to public funding. There are simply too many universities and institutes, too many research faculty, too many granting agencies, too much research money. It’s a self-perpetuating process, almost exclusively driven by supply-side considerations (who on earth “demands” the output of most English departments?). Some of you will be shocked by the claim that there’s “too much” research money, particularly in today’s austere climate. But I mean too much relative to some social optimum, not too much relative to what university professors want.
Why would we expect this kind of system to produce high-quality research? Perhaps it’s a miracle that any good work gets done at all.
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More on Managerial Coordination and the Vanishing Hand
| Dick Langlois |
Many many thanks to Mari Sako and Susan Helper for taking the time to comment on my post about their paper in ICC. To give the discussion more visibility, I am elevating my response to a new post.
My Vanishing Hand argument is an attempt to explain theoretically the demise of the large multi-unit Chandlerian enterprise, the essence of which was managerial coordination across vertically integrated stages of production. That is to say, my argument was about vertical disintegration. To assert that a more-disintegrated system still uses managerial coordination across firm boundaries is not to resurrect Chandler’s vision; it is to back away from Chandler’s vision. (I document Chandler’s vision, and its intellectual roots, with more care in the book than in the original “Vanishing Hand” paper.) My argument is fundamentally about vertical integration, and I have no problem with the idea that managerial coordination is often exercised across the boundaries of firms. I’ll return to this point in a second.
Sako and Helper argue that, if minimum efficient scale is falling, the size of firms should be falling. And Giovanni Dosi and his coauthors claim that firm size isn’t falling. Well, first of all, MES determines plant size not firm size. It sets a lower bound on firm size; it doesn’t guarantee a smaller firm size. But the real point here is: what does “size” mean? As I pointed out in my response to Dosi et al., their evidence is at best about firm size in the sense of price theory: number of widgets per unit time. My argument is about firm size in the sense of Coase: number of activities undertaken within the boundaries of the firm. Vertical disintegration is perfectly consistent with larger firm size in the sense of price theory; in fact, we might expect it. (more…)
Isomorphism in Higher Education
| Peter Klein |
Amitai Etzioni is upset that new firms are entering the higher-education market and offering — gasp! — a differentiated product. Worst of all, they operate on a for-profit basis! (“For-profit,” as left-leaning intellectuals know, is synonymous for “evil.”) Consider:
The education students receive at for-profit colleges bears little resemblance to the kind they would get at a true liberal arts college. Neither does it resemble the collegial image the for-profit colleges love to project. Professors at these schools often work on short contracts. There is no tenure. The executives make staggering salaries. Most students are taught online, often by poorly qualified professors who have very limited contact with the students. . . .
The schools’ stripped-down curricula and poor instruction often make for nearly worthless degrees. When students graduate from these colleges, many cannot find jobs — or at least not the kinds they were promised — and eventually, many of them default on their loans.
Of course, this in no way resembles the situation at traditional colleges and universities, at which all instructors are highly qualified, administrators make minimum wage, instructors spend lots of time with their students, and all students get exactly the jobs they were promised and pay their loans back immediately. (more…)
Bailouts in Historical Perspective
| Peter Klein |
O&M has been consistently anti-bailout, whether recipients are banks, manufacturing firms, or homeowners. Besides encouraging moral hazard, bailouts also stymie the fundamental market process of moving productive assets from lower- to higher-valued uses. A market economy, after all, is a profit-and-loss system. Without losses, what’s the point?
A new edited volume, Bailouts: Public Money, Private Profit (Columbia University Press, 2010), explores bailouts in historical perspective, going back as far as the US financial crisis of 1792. Editor Robert Wright and his contributors try to steer a middle course, with Wright endorsing Hamilton’s Rule (formerly Bagehot’s Rule) of providing public loans to failing firms only if they have good collateral, and at “penalty” interest rates. Still, as Wright notes in his introduction, “There is no statistical evidence, however, that bailouts [of any kind] can speed economic recovery. In fact, bailouts can slow recovery by creating policy uncertainty, distorting market incentives, and in extreme cases fomenting sociopolitical unrest.”
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Management Journal Impact Factors 2009
| Nicolai Foss |
Eugene Garfield may not exactly be defunct, but it is entirely tr
ue that practical men, such as university presidents, deans, and department heads, are slaves of the Science Citation Index he created. In fact, so are the rest of us who have eagerly been waiting for the publication of the impact factors for 2009. They have just arrived and it is fascinating stuff. Here are a few immediate observations on the management IFs:
- Abstracting from MIS Quarterly, the Strategic Management Journal is #3.
- Journal of Management is, at #5 (and #4 if MIS Q is left out) cementing its position as a top journal.
- Strategic Organization is up on #8! Way to go, Joel and colleagues! But can you sustain that position?
- Journal of International Business Studies has dropped a few positions but is still in the top-10.
- Journal of Management Studies (#14) has emerged as a close competitior in terms of ranking to Organization Science (#12). It is the undisputed #1 Euro management journal (it has also just entered the Financial Times ranking).
- Resarch Policy, which was among the top 10 only two years back, is now #22.
- Management Science is now down to #24. There are management departmetns where this journal is considered A+.
Of course, we all know the many reasons why all this should be taken with more than the proverbial grain of salt. For example, as Ram Mudambi points out (personal conversation), more and more journals play the impact factor game and force authors to cite recent papers in the journals, and reference lists grow longer and longer. Perhaps Article Influence Scores represent the superior alternative.
The “Knowledge Filter” and the New Economy
| Dick Langlois |
I recently ran across a paper by Bo Carlsson, Zoltan Acs, David Audretsch, and Pontus Braunerhjelm called “The Knowledge Filter, Entrepreneurship, and Economic Growth.” It’s actually a 2007 paper, part of a series these authors in various combination have been writing about the idea of a “knowledge filter.” The standard story about knowledge (in the new growth theory, but long before that as well) is what I think of as the R&D sausage-machine: one pours inputs like capital and labor into the meat grinder of R&D and out comes knowledge, which shifts the production function. In a series of papers, Carlsson et al. have argued that there is a “filter” somewhere within the meat grinder that determines how effectively the inputs get turned into useful knowledge. Although I’m sympathetic to criticism of the sausage machine story, you can imagine why I don’t think the knowledge-filter idea helps much: it’s just another black box that can be sized to fit whichever facts (stylized or real) one has at hand. Why not do away with the model altogether and instead think hard about the structure of knowledge and how it has interacted with institutions and organizational forms?
In fact, of course, that is what the authors actually do to some extent in this paper: one can read it without having to buy into the “filter” part. What caught my attention, in fact, is that this paper is ultimately an argument about the causes of the New Economy, and I am a collector of such arguments. The authors seem completely innocent of the large Post-Chandlerian literature on this topic, and they try to explain the transition from the large Chandlerian firm to more specialized entrepreneurial units strictly in terms of trends in R&D and knowledge creation.
[T]he industrial revolution was based in part on turning knowledge into economically useful knowledge and … university education and research in the United States became practically and vocationally oriented (in comparison with European universities), partly through the land-grant universities established in the mid- to late 19th century. In the early part of the 20th century, corporate research and development labs began to emerge as major vehicles of basic industrial research. Virtually all of the funded research prior to World War II was conducted in corporate or federal labs. In conjunction with a rapidly increasing share of the population with a college education, this made for high absorptive capacity on the part of industry and, as a result, a “thin” knowledge filter. In subsequent sections we discuss the emergence of the research university, the dramatic increase in research and development spending, and the shift of basic research toward the universities, especially during and following World War II. During the 1960s and 1970s, this led to a thickening of the knowledge filter in the form of an increasing need to “translate” basic (academic) research into economic activity. New firms have increasingly become the vehicle to translate research into growth; this can be seen in the greater role of small business and entrepreneurship from the 1970s onward.
Interesting. But I see two serious problems with this. First off, it misunderstands and vastly oversells the research labs of the mid-twentieth century. In most cases these were not drivers of innovation but absorbers of ideas invented outside the company by networks of smaller inventors — much like today. And when they did perform genuinely basic research, as in the case of Bell Labs, they were not at all tightly coupled to application. These labs were good at systemic development, that is, developing technologies that required a lot of disparate pieces to be created and put together. Color TV at RCA is an example. But they were not good at generating genuinely new useful knowledge or at more modular kinds of innovation — or, at least, weren’t as good as diffuse networks of inventors. In fact, as I mentioned in my previous post, the concentration of research (and patents) in the labs of RCA arguably slowed innovation in radio and consumer electronics generally. This leads to my second point: it’s not clear that one can explain everything just by looking at knowledge and R&D. There is actually a lot similarity between the regime of government funding of research through Land Grant institutions and the post-War grant system of Vannevar Bush: it was always channeled through the universities. Changes in government funding thus can’t really explain why there were large R&D labs at one time and small entrepreneurial firms at another. For that one has to think about issues of organization that go beyond the R&D function.
Study this Summer with Klein
| Peter Klein |
I’m participating in a distance-learning experiment this summer — no, not Bootsy Collins’s Funk University, but the Mises Academy, a new Mises Institute service offering short, non-degree courses to university students, management professionals, and the general public. Everything’s online — lectures, readings, discussions, assignments. I’m teaching “Entrepreneurship in the Capitalist Economy,” a course based on my favorite book (as Mankiw would put it). The course runs for 9 weeks from 7 June to 7 August and costs a mere $255 — that’s less than one or two of Nicolai’s books!
The course is pitched at the undergraduate/MBA level, with no formal prerequisites except intellectual curiosity, a good work ethic, and a sense of humor. Perhaps I’ll offer special extra-credit assignments for O&M readers. . . .
Drop me a line if you have any questions. I’d love to have you join me on this journey!
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Intellectual Steam
| Dick Langlois |
There’s nothing like a rousing academic argument, especially when it deals with an intriguing historical case. “The Fable of the Keys” by Liebowitz and Margolis is the paradigm here. I recently stumbled upon another example, the (apparently ongoing) dispute that pits George Selgin and John Turner against Michele Boldrin and David Levine on the question of to what extent James Watt’s steam-engine patents retarded innovation in steam technology and slowed the British industrial revolution.
The Newcomen steam engine was a low-pressure device that, by using steam to create a vacuum, actually used air pressure to drive the engine. Watt invented and patented an improvement to the vacuum engine that involved a separate condenser to cool the steam, thus increasing efficiency. On the strength of his patent, Watt was bankrolled by the industrialist Matthew Boulton, and together they licensed the technology to others and did their best to block competing technology. Boldrin and Levine claim that the Watt patent constituted a wide-scope blocking patent, of the kind described by Merges and Nelson, which slowed development of rival technologies, including the high-pressure steam engine that was to be crucial in textiles and elsewhere. As a result, the Boulton-Watt patents and legal stratagems “delayed the industrial revolution by a couple of decades.” Selgin and Turner take issue with both facts and conclusions, arguing that patent law at the time, which derived from the 1625 Statute of Monopolies, actually forbade the patenting of a general idea and insisted that an innovation be instantiated in specific technology, in this case in the form of the condenser. In other words, they argue that patent scope was kept sensibly low in eighteenth-century Britain, something of which Merges and Nelson would approve. Thus Boulton and Watt could not, and in fact did not, slow the development of high-pressure steam through intellectual property, though they may have had an effect on the culture of contemporary inventors, who doubted the economies and feared the dangers of high-pressure steam at a time when complementary metallurgical technology was not yet up to the task. (Note to Selgin and Turner: here is a better reference on the dangers of high-pressure boilers in American steamboats.) (more…)
The Invention of Enterprise: Reviews
| Peter Klein |
If you haven’t yet had a chance to read Landes, Mokyr, and Baumol’s 600-page baby, The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times, here are reviews by Mansel Blackford and Reuven Brenner. Blackford is impressed; Brenner, not so much. Brenner is worth quoting at length:
[L]arge chunks of the book are more about the topic of inhibitions to enterprise and both the variety of ideas people came up with to rationalize them and the institutions rulers and governments put in place to enforce these ideologies. . . .
Unfortunately most of the chapters dealing with the topic of inhibitions miss the forest from the trees, as not one addresses what is to me the basic issue when examining “the invention of enterprise.” There is nothing more threatening to an established order — any order — than opening up, deepening, democratizing capital markets — accountably, allowing people to leverage their inventive, enterprising spirit. True, this would also disperse power — political power in particular. The deeper capital markets would also threaten established industries and commerce. Entrepreneurs, brilliant and ambitious as they might be, are not a threat. They can be sent to Siberia, forced into complacency by the Maos of this world, and the opportunistic ones will channel their ambition through the established powers.
But entrepreneurs with access to different, independent sources of risk capital — now that’s threatening, be they Brin and Page, Jobs or Milken at the time (quickly taking away much of the banks’ bread and butter of providing loans). Understanding this, even if not wanting to articulate it, provides enough incentives for those in power to subsidize, spread, and promote ideas and institutions inhibiting the deepening of capital markets under a wide variety of jargons, and thus inhibiting the invention and reinvention of enterprises. With time, people get accustomed to these institutions, their origins lost in the mist of time, inhibiting entrepreneurship and business for centuries. Today this may be happening a bit before our eyes. Suddenly, everything becomes a “bubble” — Internet, oil, houses, gold, bonds. Guess what: if everything is — why have capital markets to start with? If pricing no longer offers guidance to allocate capital; if stock and bond markets are not there to help correct mistakes faster — why should they continue to exist? And if they do not exist, who else remains but politicians, bureaucrats and the academics surrounding them — none of whom ever worked in a business even one day in their lives — who would then tax and borrow and subsequently allocate capital and “invent enterprises” based on — well — whatever.
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Religion and Economic Development
| Peter Klein |
Thanks to Tyler for calling my attention to Davide Cantoni’s job-market paper, “The Economic Effects of the Protestant Reformation: Testing the Weber Hypothesis in the German Lands”:
Many theories, most famously Max Weber’s essay on the ‘Protestant ethic,’ have hypothesized that Protestantism should have favored economic development. With their considerable religious heterogeneity and stability of denominational affiliations until the 19th century, the German Lands of the Holy Roman Empire present an ideal testing ground for this hypothesis. Using population figures in a dataset comprising 276 cities in the years 1300-1900, I find no effects of Protestantism on economic growth. The finding is robust to the inclusion of a variety of controls, and does not appear to depend on data selection or small sample size. In addition, Protestantism has no effect when interacted with other likely determinants of economic development. I also analyze the endogeneity of religious choice; instrumental variables estimates of the effects of Protestantism are similar to the OLS results.
In my AE 8050 class last semester we discussed several papers on religion, and other aspects of culture, as they affect economic development (e.g., Stulz and Williamson, 2003). Cantoni’s paper will go on my reading list next year.
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Organizations and Markets 
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