Growthology

An Exciting Day

I just received in the mail a copy of Matt Ridley's forthcoming book, The Rational Optimist. I was fortunate enough to be able to attend a seminar last year at which Ridley discussed the book and solicited input and ideas.

Based on that discussion and Ridley's extraordinary intelligence and writing ability, this book will be stupendous, no doubt about it. Check out his blog here; good stuff.

The Great Brain Race

My friend and colleague Ben Wildavsky is a senior fellow at the Kauffman Foundation and author of The Great Brain Race: How Global Universities Are Reshaping the World, to be published in May by Princeton University Press. May 12, Ben tells me.

 

Take a minute to read this excellent summary essay Ben recently published in Times Higher Education.

Here is a long excerpt to whet your appetite:

Long known primarily as the world's largest exporter of students, China is now doing much more to build its human capital at home. In addition to expanding the quantity and quality of its own universities, it is forging partnerships with Western universities that operate programmes in China. And it has lured home some academics who left for the West, but who now find appealing opportunities in newly revitalised universities.

Moreover, China is not alone. The yearning to create competitive universities is also vividly on display in Singapore, which seeks to become a world-renowned educational hub and has brought in numerous Western partners, including the Massachusetts Institute of Technology. South Korea, for its part, is creating what amounts to an academic free-trade zone in a 52,000-acre complex near Incheon International airport, playing host to branch campuses of many Western universities.

Nor is academic globalisation confined to Asia. The lavishly funded King Abdullah University of Science and Technology opened in Saudi Arabia last year, seeking to join the top ranks of world scholarship via alliances with the likes of Imperial College London and Stanford University. KAUST is also taking advantage of the new global talent market, poaching its first president, Choon Fong Shih, from the National University of Singapore.

The book's website is www.greatbrainrace.com. It features a book excerpt, a video interview, links to articles adapted from the book, and several online ordering options. The book has already been endorsed by Judy Woodruff of PBS Newshour, Yale president Richard Levin, Sebastian Mallaby of the Council on Foreign Relations, and Andrew Witty, CEO of GlaxoSmithKline. 

The Great Brain Race tells the story of the transformation of the global academic landscape in recent years. Nearly 3 million students now study outside their home nations; globe-trotting faculty hop from the United States to Singapore to Saudi Arabia; Western universities create branch campuses in the Middle East and Asia; and new or rejuvenated research universities in China, South Korea, Europe, and beyond vie with American giants for the top spots in global education rankings.

 

If you didn't know, Ben was once in charge of the annual U.S. college rankings for a major U.S. magazine. He agrees with me, by the way, that the Air Force Academy is the best all around undergraduate education available. So I guess all this global hubbub is about who is number 2, West Point or Annapolis, right?

 

Final note: Ben did not ask or know about this review. He is a great writer, this is a great topic, and I hope you make an effort to read this great book. To put the topic in context: economic growth is, we now know, fundamentally about ideas and the human capital that adopts and invents them. Globalization is about the evolving network of flowing goods, capital, and ideas. And labor. Growth and globalization cross paths in front of every university. Summed up, a central "battle" for 21st century leadership is the competition for brains. Ben Wildavsky's book could not be more important for America's leaders to understand what is at stake in preserving and expanding our prosperity.

Advice for Jeff Bezos (Amazon on the Mississippi?)

The eBook is getting very, very interesting. It has inspired one of the wackier posts I have ever written ...

WIRED blog epicenter says the Barnes & Noble brick and mortar locations gives it a huge advantage, which is my gut instinct, too. 

This eBook latecomer, founded in 1873, has something Amazon cannot replicate: 1,300 or so physical locations (including college stores) across all 50 states. Ironically, the same high-overhead stores that helped Amazon undercut Barnes & Noble’s book prices could give the bricks-and-mortar retailer an advantage at selling e-book readers, for at least three reasons.

First, Barnes & Noble’s stores give consumers a place to play with the nook, the Que, and other e-book-reading devices the chain plans to sell, before taking the e-book plunge. This is crucial, because e-books represent a far bigger leap for readers than the one music fans made when they switched from CD to MP3 players that let them use the same headphones. Readers who are reticent to forgo “dead tree” reading material for some new-fangled gizmo might change their minds after seeing the nook and Que proReader in action.

On the other hand, the only way to test a Kindle before you buy is if you can borrow one. And while you can test-drive the Sony e-book reader at Sony Style stores, there are only 50 or so of those nationwide, and other retailers that sell that device don’t allow customers to try them out

The intermix of online and meatspace retailing is, well, mixed. Gateway famously faceplanted with its meatspace effort. I even visited one, and was a loyal Gateway(2000!) customer. (I loved them for the ads in PCMag, but those were the days, eh Jimmy?). And then there's the Apple Store. A huge success so far, and probably the engine for continuous near-term dominance in iPods and now smart phones.

Sony Style has been a mixed effort, I think. Of course, I did get my first physical touch of an e-Book there. And I've been fascinated by the undead nature of Radio Shack. What DO they sell? I mean, I bought my first laptop there actually - a Tandy? And I keep finding myself there once a year. But every time I walk by a Radio Shack in the mall (any mall), it just feels like a massive decades-long missed opportunity.

Keep in mind that I am, as many Kauffman folks are, a Kindle early adopter.  My 1.0 Kindle is here beside me as a write. (I know, I know, I said I never early adopt. But if this hint doesn't get me a free review version of a 3 or, dare I say, 4 -- which I apparently have to disclose or refuse or something, as if I were a President getting honored by foreign royalty -- then what is this blogging any good for?)

Speaking of missed opportunities, maybe the marriage of virtual and actual reality is an essential part of any 21st century business plan. If so, what should online retailers do?

My advice: Jeff Bezos should get Amazon in the brick and mortar space in a big way. He knows better than to get tied down with a chain of stores in malls and strip malls where his baby would morph into the Radio Shack of tomorrow. No, what he needs is a theme park sized Ultimate Store. Like the Pyramids of Giza and the Library of Alexandia combined.

It should be a wonder of the world ...and could double as a warehouse if you think about it. Put the Amazon Pyramid somewhere in the middle of the continent... though astride the Missippi river would be ironically bizarre. Maybe Denver. Or hey, why not Kansas City?

• It could have rides like a theme park -- Disney did it for Milne's Pooh, why not for Rowling's Harry Potter?
• It could have amazing authors give guest lectures and shows every night and day -- Vegas does it for Celine Dion, why not Stephen King? Why not Steve Martin? Why not Steve Wozniak??
• It could have long tail sections for every four and five word category imaginable. SF/SpaceOpera/Hard/Postsingularity. There is no meatspace analogy here, which is why it would be so cool!
• And don't forget, comic books are BOOKS.  Marvel and DC would want to partner with Amazon instead of Disney. Wait, scratch that.

And best of all, I would go there. Every summer. With my kids. And we wouldn't lose them, like we do at Barnes and Noble sometimes. And instead of partnering with Starbucks, they could partner with Red Bull and party all night. Maybe it's just a small minority of us who are freaksih book lovers, but the final test of any genius idea is solpsistic: I think my idea is great. And remember: You read it here first!

Rereviewing a book

My goodreads.com friend, Chris Prottas, just posted this interesting review of William Easterly "Quest":

Recently went back and re-read this book. As other reviewers mentioned, I am curious to see what Easterly would say of this more optimistic earlier work, but regardless this text is an excellent, accessible history of economic development in the 20th century. Easterly explains the progression of economic thought and the fate of the 'latest and greatest' foreign aid ideas spurred by ever changing growth theories.

Contrary to some of the spurious one-line reviews below, this book is definitely not the work of a laissez-faire ideologue. Easterly is, however, quite critical of the aid establishment's record (though, once again, optimistic about the potential for aid as poor gov'ts grow increasingly competent and decreasingly corrupt).

Easterly is concerned with economic growth, and he adroitly explains how aid of all shapes and forms has largely failed to positively impact development. If you'd like to see some of the good aid has done, you will have to look to improvements in quality-of-life, not the subject of this book, which can be found in Charles Kenny's draft "The Success of Development." How much credit should go to NGOs and how much to commercial firms who lowered the price of living well through technological innovation is up for debate, but it's important to remember that Easterly is talking specifically about the aid establishment's impact on economic growth.

Highly recommended, along with White Man's Burden, Daron Acemoglu, Douglas North's new book, Dani Rodrik's articles, and yes -- some Collier too! (Just ignore Sachs)

Makes me wonder what books I go back and re-read again and again. Easterly's Quest is one of them. I love to reread sections of old econ textbooks, to be honest. Sometimes for information I have forgotten, but more often for a nostalgic reflection on how my eyes see the text in contrast with how those words felt the first time they hit me. I never studied Mankiw's textbooks, but I taught them, so those feel a little different than the nostalgia of a Samuelson or Granger or Varian or Mas-Colell or Alpha C Chiang. Krugman's popular titles I've reread dozens of times. For fiction, I confess to rereading Memoirs of a Geisha as well as all the novels of Vernor Vinge. Just this weekend, I reread Stephen King's The Stand for the second time, last being in the summer of 1980.

Top five novels:

The Last Ship
Memoirs of a Geisha
A Sense of Honor
The Foundation
The Might Avengers (collected works, 1977-82)

A Few Thoughts on Tyler Cowen's New Book

[Another guest post from Charles Johnson, one of our summer interns.]

Tyler Cowen's new book, Create Your Own Economy: The Path to Prosperity in a Disordered World is one of the more engaging books I've read recently. It rests comfortably in the niche between books about behavorial economics and social technology. Careful readers of this blog will note that Tyler Cowen was a participant in the Kauffman Economic Bloggers Forum in February. We prepared videos of the participants. You can see him on video discussing blogging here. Cowen is a seasoned blogger at his blog, Marginal Revolution. 

The thesis for Cowen's new book is that technology is allowing many of us to become autistic-like in our processing of information and consumption of entertainment and culture. We've moved into a "bits" culture where we can constantly be orienting and re-orienting our culture. This remix culture is evident in everything from iPods, to blogs, to delicious, and to Facebook. In a way, I took this part of the book as a kind of demonstration that we can all become renaissance men because the costs of such renaissance have plummeted. We don't need Jefferson's library when we have a worldwide web with easy information at our fingertips. 

Cowen's book can be read as an appeal, that, for the sake of society at large and the individuals in particular, we should embrace neurodiversity, or the different ways in which our brain is wired. (You can hear him discuss the book in an interview with John J. Miller of National Review here.)

I was struck by this paragraph about autism and the foundation of companies. We know that dyslexics tend to have high rates of firm creation. (See here for more details). But what about autistics? 

Here Cowen points to the work of Simon Baron-Cohen, who is a researcher of autism at the University of Cambridge. (Simon Baron-Cohen created an AQ test -- or autism quotient -- that you can take here to see if you might have autistic-like tendencies.) Cowen recounts that Baron-Cohen believes that there may be a lot more autistic high achievers than most people realize. On p. 24-25, Cowen writes about some of these high achievers. [The bolding is mine.] 

Craig Newmark, founder of the web forum Craigslist, has written on his blog that his history as a "recovering nerd" is connected to Asperger's. It is perhaps no accident that autistics are known for their attachment to lists as a means of processing, recording, and ordering knowledge. Bram Cohen, creator and former CEO of BitTorrent, also describes himself in terms of Asperger's syndrome. He founded the company at age twenty-nine and BitTorrent has been a pioneer in exchanging digital information over the web; one of his key insights was how BitTorrent could break up files into smaller bits and send through the bits rather than the whole file at once. Cohen mastered three programming languages by the age of sixteen and his work on BitTorrent is regarded as brilliant. The best-known example of an autistic high achiever is Temple Grandin, a woman who has pioneered commonly used improvements in animal treatment and slaughterhouses; her unique cognitive perspective has helped her understand when animals are afraid and how they can be made to feel more secure. 

I've yet to see a scientific paper or serious clinical discussion of the autistics who hold political office, work in Hollywood, start web 2.0 companies, or run major U.S. corporations or hedge funds.

If Baron-Cohen is right that there is the huge reserve of highly successful autistic achievers, I wonder why there hasn't been some kind of online, Craigslist-type sorting website that seeks to place autistic people with the things in which they specialize or some kind of wider texting that seeks to identify and help autistic people find their niches.  

I came upon this idea when I was spending time with my next door neighbor, who has Asperger's. He has an obsession with clocks and with taking them apart and putting them back together. Imagine the societal benefit if he could be placed with a clock making company. 

Indeed, if I could fault Cowen's book for one thing, it's that it doesn't take the ideas he's advocated and move towards policy. Still, perhaps policy is not one of those things for which Dr. Cowen is wired and I ought to respect his neurodiversity. 

Weekend Reading

Michael Lewis, "Wall Street on the Tundra," Vanity Fair

"Symposium: Government and the Economic Crisis," Claremont Review of Books ($)

Amartya Sen, "Capitalism Beyond the Crisis," New York Review of Books

On Bill Gates, Economists, and "Creative Capitalism"

My review of Creative Capitalism, the book version of the blog inspired by Bill Gates's speech at Davos a year ago: just posted to the City Journal website.

Super Crunching

I’ve got another great read for our readers – Super Crunchers by Ian Ayres, of Yale Law School. Ian is one of the best and more original “law and economics” scholars in the country, and indeed the world. And, it just so happens, he’s a native of Kansas City, the home of the Kauffman Foundation. But that’s not the reason I’m plugging his book. This book is a real treat: an explanation of how data mining is transforming business, social policy, and Internet, all largely in a positive way.

But Ayres is also even-handed, highlighting the potential dangers to personal privacy through all this data mining. It’s not clear much can or will be done about it, however. Few people appear so far to value their privacy, if one looks at market transactions. That could change, however, with more data breaches and revelations of how data are used.

Another downside to all this data crunching is the erosion of discretion. As data crunchers find that formula-driven decision making beats intuition and personal judgment, the nature of jobs and those who fill them change. With formula-based rules, many more people can teach, approve loans, handle customers, and even provide medical care than ever before. The current holders of these jobs naturally feel threatened and may do their best to oppose change. But just as the word processor has changed the job of secretary into “personal assistant,” the continued rise of super crunching will change the nature of many jobs throughout our economy.

Some readers will see these changes as disturbing; others as inevitable. The smart ones among us will realize what is happening and get ahead of the curve. The really smart ones – the entrepreneurs among us – will find ways of making fortunes from the continued march of technology, and the ever expanding ways that the digital revolution is changing our lives.

Book of the Week

The Knack, by Norm Brodsky and Bo Burlingham.

After years of building companies and mentoring would-be entrepreneurs, Brodsky has finally collected his thoughts in one volume. And it is fantastic. As Bob has noted, you can now walk into the bookstore, sweep all the alchemy cookbooks how-to entrepreneurship books off the shelf, and replace them with The Knack. 

Shakespeare's IP Issues

First, a thank you to readers Devin, Charles, and Sergey for their thought-provoking comments in reaction to my post on potatoes, plants, and innovation. Devin and Charles both raise interesting questions about the nature of the innovation ecosystem and the co-evolution of humans and food sources. Sergey, meanwhile, has happily lengthened my reading list. Thanks, guys: great stuff for further discussion.

Now to Shakespeare and those troublesome intellectual property issues. Tangled questions of patents, copyright, licenses, use restrictions, etc, inevitably pop up in most discussions of innovation these days. They have been high profile in the last few years because of Supreme Court cases and the well-chronicled ills of the music industry. Larry Lessig in particular has been at the forefront of these matters: to what extent should we allow copying and "mashups" in the production of new intellectual property?

I don't really have a hard and fast position on this either way, but I've been reading Bill Bryson's slim biography of Shakespeare and found it interesting that the golden age of Elizabethan drama was also marked by--and perhaps had its source in--constant copying and even outright theft. "To Elizabethan playwrights," says Bryson, "plots and characters were common property." Some of the greatest names in drama--Jonson, Shakespeare, Marlowe--were inveterate IP infringers.

The point, however, is not to diminish their achievements, but to show that this sharing was precisely a major reason for the period's flowering of creatity. Boundaries and rules were "exceedingly elastic" with the result that all of the strictures of classical drama were gleefully defenestrated. Strict divisions between comedy and tragedy, limits on dialogue, the prohibition on soliloquies--"Elizabethan playwrights refused to be bound by such rigidities." Without the falling away of these rules and the blurring of boundaries, "Shakespeare could never have become Shakespeare." (Bryson, by the way, is a phenomenal writer and I highly recommend his books to anyone.)

The idea that creativity and innovation result from the combining and recombining of old ideas is well-grounded in the research literature. (See in particular Dean Keith Simonton's work.) And, obviously, our time differs a great deal from the late sixteenth and early seventeenth centuries--many businesses and jobs depend on heightened protection of intellectual property. But the parallel is still instructive: should we choose to limit what people can do with others' ideas, we may miss out on great amounts of innovation. This is sort of the direction in which all of the much-heralded new social media points, as well as Tim's discussion of the jobs of the future.

There's no correct answer, of course, and it may be that muddling through turns out to be the best course. I have doubts, in any case, about the ability of any society to truly limit its members' creative drive.

All the World's Libraries At the Click of The Mouse

Google does the Library at Alexandria one better. From the New York Times,

A settlement in October with authors and publishers who had brought two copyright lawsuits against Google will make it possible for users to read a far greater collection of books, including many still under copyright protection. The agreement, pending approval by a judge this year, also paved the way for both sides to make profits from digital versions of books.

...

Revenue will be generated through advertising sales on pages where previews of scanned books appear, through subscriptions by libraries and others to a database of all the scanned books in Google’s collection, and through sales to consumers of digital access to copyrighted books. Google will take 37 percent of this revenue, leaving 63 percent for publishers and authors. The settlement may give new life to copyrighted out-of-print books in a digital form and allow writers to make money from titles that had been out of commercial circulation for years. Of the seven million books Google has scanned so far, about five million are in this category.

Neal Stephenson Interview ...

... over at Goodreads.com. A sample:

GR: You've mentioned that you use a different writing system for each book. You famously wrote the nearly 3,000-page Baroque Cycle with a fountain pen. Did this book demand a new system? Describe a typical day spent writing.

NS: In this case I used a very similar process. Up in the morning, go to office, read through yesterday's pages and edit them, then move on to writing new pages. By 10 or 11 in the morning I'm done. Eventually I transfer it into a computer. Then I go exercise and spend the afternoon working on something completely unrelated. The only real difference between how I wrote Anathem and how I wrote The Baroque Cycle was that in the case of Anathem I printed out the manuscript and read through it quite a bit more frequently than I did in the case of The Baroque Cycle.

In Defense of Consumption

Nearly four months ago, two economists at the University of Chicago released a paper purporting to show that much of the ballyhooed rise in income inequality in the United States actually closes when measured by prices and inflation across different classes of goods and services.

This paper has been written up in a few different places (see here and here), so I won't dwell on its counterintuitive yet completely common-sense conclusions, except to say that it (and other work on consumption as a better measure of relative inequality) confirms this observation made long ago by Joseph Schumpeter:

    "The capitalist achievement does not typically consist in providing more silk stockings for queens but     in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort."     (Page 67 of Capitalism, Socialism and Democracy.)

Consumption is often derided as either wasteful or mindless or soul-destroying. (This, by the way, is not a partisan issue: you can locate various criticisms of consumption at any point on the spectrum of American politics.)

Such knocks, however, see only one stage of consumption: the actual purchase of a product or service or its actual use. They usually don't extend (necessarily) to what that consumption gets you. When you "consume" a cell phone, what you're really consuming is connection with other people. When you purchase a better refrigerator, you're consuming the ability to store food for longer periods of time than was available to most humans throughout history, thus raising the ability to improve nutrition. When you buy a drink from Starbucks, you're getting not only the drink itself but also the experience and interaction with others. (One of the original investment bets behind Starbucks, remember, was provision of a "third place" for people to get together.)

In other words, there is a great essay waiting to be written in defense of consumption. I'm not the first to observe this, of course--a couple of years ago Nick Gillespie had a brief but fantastic commentary on Marketplace. I won't venture into that perennial bugaboo of video games--there has been plenty of recent scholarly work on their cognitive and social benefits. See, for example, this interesting story in yesterday's New York Times, on the front of the Arts section no less. Also in the Times is Rob Walker's fantastic weekly column, Consumed, which provides an additional perspective on consumption and all its manifold uses and benefits. Walker has a new book out, too, which I look forward to reading.

Anyway, maybe the research paper with which I began this post will give us a new view of not only relative inequality but also consumption in general and its possible uses in, for example, international development.

(I am indebted to Kauffman Foundation president Carl Schramm for some of the insights and comments in this post.)

My Summer Reading ... Web App

I'm really trying to read everything worthwhile ever written, and just limiting myself to non-fiction, graphic novels, and tech blogs ... but there seems to be a conspiracy of writers who incessantly put more and more stuff on the sales rack. This has got to stop. Maybe I should save my kids the frustration and just tell them books are for dummies. Or maybe ...

... introduce them to Goodreads.com. I've been playing with some other bookish versions of Friendster -- the name for such web technologies is a "social cataloging application" (wiki link). A year or so ago, I actually toyed with the idea of creating a site like this, but punted when I discovered LibraryThing, which has almost everything I dreamed of and a few ingenious things that went beyond my imagination. Very cool. I've skimmed some others, including shelfari.com and Facebook's iRead app, and all of them have uniquely great features, but so far nothing compares to GoodReads.com. 

This may be a risky experiment, but I'm going to try it anyway. If anyone reading growthology.org is interested in seeing my reading list at GoodReads, check this link. Let me apologize in advance: I may get overwhelmed by the millions of you who try to friend me (this means you, Mom), but I'll give it a try.

FYI, this post was spurred by a biographical sketch in the NYTimes today on John Kao, author of Innovation Nation. Kao, 57, is a leading thinker on innovation and entrepreneurship, and I have not made up my mind whether his insights are worth the price of admission -- some things are right on target, others seem like PR buzz. Want my overall opinion of the book? You'll have to check my GoodReads page / alert in a few days ... after I finish reading it!

Jacobs' Three Product Stages

I borrowed a book from Dane Stangler without his permission, and couldn't resist because I have wanted to read this book for such a long time: The Economy of Cities by Jane Jacobs.  Written in 1968, the year of riots that radically altered the shape of Detroit and other great cities, the book is amazingly insightful.  Consider this, which I call the Lesson of Three Product Stages:

Garment making, I think, affords an interesting clue to future manufacturing because it exemplifies manufacturing of three distinctly different kinds.  The oldest is craftwork.... The second is mass production.... The third method of garment manufacturing has arisen chiefly during this [20th] century, has grown much more rapidly than the other two, and has become the dominant form.  For lack of any present generic name, let us call it differentiated production.  This method produces relatively modest amounts of each item as compared with mass production, yet it is not craft manufacturing either.... Thanks to this third kind of garment making, one can look at a crowd of thousands of persons in a large city park on a fine day or gathered to watch a parade, and be hard put to find two women or two children dressed in identical outfits. (Chapter 8)

From what I can tell by googling "differentiated production," this concept is underappreciated and sometimes mischaracterized.  Craft products are made by artisans, mass products are made by one-size-fits-all factories, and “differentiated” products are made by modernized assembly processes.  I think the problem is that the word differentiated describes the output, not the process.  Both stage 1 and 3 yield differentiated output, but stages 2 and 3 use mass production.  I am tempted to call stage 3 something new.  Customized? Personalized?  Micro-mass?

Maybe Jacobs Three-Stage Theory is canonical among city scholars, which is entirely likely.  But here's why it matters to me: I have seen the Three Product Stages occur in products that were not invented when I was born.  Key Example:

Personal Computers
Stage 1. 1973-76           Apple I (in a wooden box!)
Stage 2. 1977-81           Apple II, IBM PC
Stage 3. 1985-present    Dell custom-ordered components

So what products are in Stages 1 and 2 today?  And how soon do we think they will get to Stage 3? I can think of a few things in stage 2 (or 2.5) ... houses, game consoles, iPods, digital book readers.  But the most things that are stuck in stage 1 (or 1.5) are major capital infrastructure things like highways and skyscrapers and jumbo jets.  Does anyone doubt they will get to stage 2-3 this century?

Isn't the most interesting irony of Jacobs describing this 3-stage pattern in a book about cities is that it is not too hard to imagine whole cities moving from stage 1 to stage 3?  I keep thinking of all these City 2.0 retirement communities popping up in Florida, Arizona ...