Growthology

Want a job? Get a license.

Would it surprise you to know that 29 percent of the U.S. workforce has a job requiring a license, up from 5 percent in the 1950s? Would it further surprise you to know that the economic consensus is that licensing raises prices, restricts job opportunities from the less privileged, and offers little or no quality improvement in service rendered?  And would it surprise you to know, lastly, that the ivory tower has essentially turned a blind eye to this research?

Let me recommend this tremendous and readable paper by E. Frank Stephenson and Erin E. Wendt in the May '09 EJW:

Consider the textbook by George Borjas. There are 11 pages covering the minimum wage. If he devoted pages in proportion to workers covered, then 11 pages on the minimum wage would correspond to 99 pages on licensing. Ehrenberg and Smith would give 72 pages to licensing. Hyclak, Johnes, and Thornton would give 135 pages to licensing. Instead, in each case, there is zero.

That this is terrible policy is hopefully self-evident. But are we surprised that its use is rampant? In a world where fear sells protectionism, not so much. In states that really care about fighting poverty, you will see lower licensing regulations.

New Asymmetry: Robots in the U.S. Military

Economic growth has some perverse implications. Not only does new technology allow for enhanced weaponry, but it also implies a reluctance for humans to tolerate casualties. One could argue that the collapse in human mortality and frailty in modern societies has stoked a rising intolerance for the bloodshed of war. An interesting result is that American attitudes towards was seem less sensitive to the carnage of war, so long as our side is relatively unscathed.

Regardless of other causes, the basic fact is that robotic war-fighting is extraordinarily effective in terms of costs and benefits. For surveillance alone, a small robot can see bad guys or sniff our roadside bombs in a mortally costless fashion that defies imagination and traditional concepts of war. Once you expand imagination to the offensive realm, the impact of robotics is obviously revolutionary. Consider these facts, quoted from P.W. Singer's article in Wilson Quarterly:

• When U.S. forces went into Iraq in 2003, they had zero robotic units on the ground. By the end of 2004, the number was up to 150.  By the end of 2005 it was 2,400, and it more than doubled the next year. By the end of 2008, it was projected to reach as high as 12,000.

• All told, some 22 different robot systems are now operating on the ground.

• The amount spent on ground robots, for example, has roughly doubled each year since 2001.

• In addition to the Predator and Reaper [two large robotic air drones], a veritable menagerie of drones now circle in the skies over war zones. Small UAVs such as the Raven, which is just over three feet long, or the even smaller Wasp (which carries a camera the size of a peanut) are tossed into the air by individual soldiers and fly just above the rooftops, transmitting video images ....

• As new prototypes of aerial drones hit the battlefield, the trend will be for the size extremes to be pushed in two directions ... The military's estimation of what is possible with micro air vehicles is illustrated by a contract let by DARPA in 2006.  it sought an insect-sized drone that weighed under 10 grams (roughly a third of an ounce), was 7.5 centimeters long, has a speed of 10 meters per second and a range of 1000 meters, and could hover in place for at least minute.

The big idea in military strategy is "asymmetric warfare" where conventional forces face an enemy that is smaller, lighter, and qualitatively different. While that asymmetry poses difficult problems, the rise of robotic warfare is in the process of turning asymmetry upside down. The power of force stemming from greater financial resources, traditionally manifested in heavy conventional arms, is being supplemented by robotic forces that are smaller, lighter, and qualitatively different than revolutionaries and guerillas.

Peace on Earth?  It would be nice to think so. While I am convinced the battlefield is changing faster than most soliders, let alone policymakers, can anticipate, the path to peace is on the other side. Strategic counterinsurgency requires transformative construction, not transformative weaponry. I'm certainly not the first to say so. I wouldn't put it past the brightest minds in the Pentagon to already have worked on robots that build roads, schools and hospitals.

The Information Economy, Huh?

Automation at factories means that there are simply fewer and fewer manufacturing jobs. And this is a good thing. Machinery does most of the work growing the food we eat, and producing the goods we use (durable and nondurable). What's left is information, hence the moniker "The Information Age."

But if this is the great era of data, then what's with the demise of so many information companies? Newspapers, Record Labels, Encyclopedias, all heading south.

The now-familiar struggles of the newspaper industry is in the news again with the brinksmanship in labor negotiations at the Boston Globe, as well-told by David Warsh in this week's economicprincipals.com essay. David is more optimistic than I about the business of newspapering, but I'd like to think I'm more optimistic about the future of journalism. He concludes,

Never mind Warren Buffett’s admonition over the weekend that there is no price at which he would consider a newspaper an attractive investment (he still has positions in two, the Buffalo News and the Washington Post). Repair work has never been his passion. With a little luck, the best regional papers – The Boston Globe, the Chicago Tribune, the Baltimore Sun, the Los Angeles Times – will wind up back in the hands of people who know how to run them.  If so, the newspaper industry will return to a scaled-down semblance of its former self – a profitable and stable group of companies in the first-draft-of-history business. But then, I am a congenital optimist. I have sometimes been wrong.

Yet I find the story of Encarta even more interesting.  Encarta, as you may recall, was the revolutionary Microsoft product that put an encyclopedia on a CD-ROM in 1993 which was the creatively destructive force that assaulted Encyclopedia Brittanica, first published around 1768. Now it is Encarta that will be shuttering -- this year, even refunding existing users rather than continue into 2010 -- signaling the acceleration of technology cycles in the new century. In this NYT piece, Randall Stross describes how the destroyer became the destroyee:

It’s hard to look at the end of the Encarta experiment without the free and much larger Wikipedia springing immediately to mind. But Encarta arguably would have failed even without that competition. The Google-indexed Web forms a virtual encyclopedia that Encarta never had a chance of competing against.

Encarta was conceived pre-Web and had a long gestation. In 1985, Bill Gates envisioned a CD-ROM encyclopedia as a “high-price, high-demand” product with the potential of becoming as profitable to Microsoft as Word or Excel.

Wherefore Doctors?

Most readers probably saw this lead story in Monday's New York Times: "Doctor Shortage Proves Obstacle to Obama Goals."

If only there were an option of equal quality but lower cost!?!

Short-term Backstop, Long-term Transformation

Out here in suburban Kansas, enrollment at the local community college has been increasing: Johnson County Community College (a fantastic institution, by the way) is experiencing its highest totals ever for a spring semester. The most popular fields of study? Health and entrepreneurship.

That, in and of itself, is unsurprising: higher education often sees a spike in times of recession. Yet in a larger sense, JCCC and other similar institutions around the country may augur a broader shift in the higher education landscape. At least, I hope they do. Enrollment at JCCC is now around 20,000, comparable to some of the country's best state universities--include continuing education, and the number rises. The school expects to benefit, too, from the Johnson County Education and Research Triangle.

In the early decades of the twentieth century, the "high school movement" transformed the relationship between the citizenry, the education system, and the emerging industrial economy. Undoubtedly, a similar transformation is taking place today--community colleges like JCCC, the increasing use of technology in education, completely new ways of teaching, etc etc.

The nature of these transformations is such that, while the federal government will play an unavoidably large role (just given its size and sway in education these days), we won't even be able to coherently outline the future of education until it's already upon us. The only things we can say for sure is that it will be a far more structurally diverse system than today, and it will be much more substantive than simple calls for more money.

The Future of Macro = Jobs of the Future

Arnold Kling writes about the future of macro, and this passage merits close reading:

I believe that confidence in generic fiscal policy is also misplaced. Superficially, it makes sense that government spending can replace private spending when the latter breaks down due to a crisis in the financial sector. However, the fiscal-stimulus theory fails to take into account the fact that what is going on in the real economy, particularly after a financial shock, is a reallocation of resources out of dying sectors and into emerging sectors. (emphasis added)

Instead of looking at fiscal stimulus, I think that economists should focus directly on the adjustment process, particularly in labor markets. How do new industries emerge to absorb the resources that are released from industries that collapse during a financial crisis? What sorts of policies can make this transition take place more quickly and with less difficulty? What labor market institutions are most conducive to economic recovery? Should government try to create policies that mitigate the cyclical behavior of income shares, so that profits rise less during a boom and fall less during a recession?

iPhone Entrep Horde

Call it Steve Jobs' revenge. In what might be called the original "Clone War" of the 1990s, the superior Mac OS and hardware were routed by the Wintel clones -- IBM clones really, including Dells, Gateways, and something called a Compaq. Apple had a fetish for perfection, and old Steve just could not abide letting lesser mortals have a license to make compatible machines. Nor could the great Apple sully its OS by making a version that would run on a clone. Worse yet, Apple wanted to make almost all its own software and snubbed independent software developers.

Maybe that's an unfair charge, you say? Well, I was one, so I remember it pretty vividly. Our company, NeocorTech (a name that liternally nobody got for the half decade we were in business), made Japanese translation software that ran on non-Japanese Windows machines. And how many calls a week did we get asking if we made a Mac version? At least one. And of course, the answer was no. Why? Because Apple made it very hard for us.

So Microsoft had a horde of software coders to match the horde of Intel's clone machines, and we overwhelmed the Macintosh. For a long, long time, my partners and I were part of the crowd of Apple haters who mocked them like Americans mock the French. They were hilarious snobs - oozing stylish class and business ignorance.

And then Steve came back to Apple. And he got it. And when he launched the second coming of computer technology in the iPod/iPhone, he deployed the strategy of the horde of third party developers. And lo, they built a plentiful garden of awesome capitalist creativity that nobody, not even the French, can deny.

Back in the 90s, you still needed a company to deploy your software. But Apple's AppStore took things to an entirely new level. Raw Entreps are making awesome stuff and living the American dream faster and more fully than ever before. Check out this story from WIRED:

Apple's iPhone application store is as crowded as a Beyonce concert, with more than 20,000 apps available. But one independent developer still managed to rake in $600,000 in a single month with a single iPhone game.

Ethan Nicholas, developer of a tank artillery game called iShoot, told Wired.com he quit his job the day his app rose to No. 1 in the App Store, earning him $37,000 in a single day.

"I'm not going to be a millionaire in the next month, but I'd be shocked if it didn't happen at the end of the year," he said in a phone interview. "If it weren't for taxes I would be a millionaire right now."

Until recently, there has been no realistic way for individual programmers to make serious money on their own. Most of the software market is dominated by big companies, and the traditional distribution method for independent developers -- shareware -- isn't conducive to striking it rich. By contrast, Apple's iTunes App Store provides a platform for marketing, selling and distributing software; all a developer needs to provide is a good idea and some working code.

So the question is: What recession?

The Bizarro Bailout

The ongoing sagas of the stimulus bill and financial bailout are, understandably, dominating headlines and online chatter. In no way do I intend to belittle the severity of the current recession and the overall gravity of the situation but, if history is any guide, these policy debates run in parallel to a bizarro world in which a separate economic future is developing.

In this bizarro world, the high-growth companies of tomorrow are just coming into existence, and innovations we cannot even imagine are in their infancy. A few years ago in the American Economic Review, economist Alexander Field declared the 1930s to be "the most technologically progressive of any comparable period in U.S. economic history."

In the bizarro spirit, then, I spent part of the morning canvassing what I like to think of as the frontiers of economic growth--the spaces where our future is being made right now. The stimulus and bailout matter to these frontiers, of course, but it's important to note that the as-yet-imagined future is materializing without word from Washington or Wall Street or anywhere else.

This is just awesome.

Stem cells are key.

The stimulus is apparently directed toward "shovel-ready" projects, but instead of shovels, what about nano-particles?

And this just sounds crazy, but still awesome.

Emergent Innovation: interview with Nathan Myhrvold

This is what makes Joel Achenbach special -- a fantastic interview with Microsoft's genius behind the throne, Nathan Myhrvold, written for the Princeton Alumni magazine and titled:

Inventing the future

The very cool world of Nathan Myhrvold *83

All of which raises a rather profound question: Were teeth inevitable? And what about the innovations in our own world — are they the result of carefully orchestrated projects, schemes, and hard work, or do they tend to bubble up from a million accidents and casual inspirations?  

“Broadly, overall, the way society works is emergent, and it is built on progress — it generally runs downhill toward something better,” Myhrvold says as we get deep into the philosophical weeds on all this stuff. The world is a better place now than it was 500 years ago, he declares. Driving that improvement is, he believes, technology. He’s an unabashed technophile. And he seems to have a strong libertarian streak.

“Creating new technology through invention is the single biggest value driver that our society has,” he says. “Humans grabbed the tiger by the tail when we invented agriculture, and it was one of the best and one of the worst things we ever did.”

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.

Yglesias' failure of imagination

Matt Yglesias has a delightful way of thinking about how the jobs of the future will unfold. It starts with a smart way of looking at the "decline" of existing sectors and extrapolates. Smart and - as Virginia Postrel would say - very dynamisty ...

Meanwhile, one needs to understand that, somewhat counterinuitively, when you have a very efficient economic sector what happens is that it tends to go away. Consider agriculture. Our modern-day agricultural technology is way better than what was available 200 years ago. But agricultural progress hasn’t meant that everyone goes to work in the super-charged high-tech agriculture of the future. It’s meant that more food than ever is grown with fewer person-hours of labor than ever. We should expect this to continue apace. For all the talk of trade’s impact on American manufacturing, the bigger issue has been automation and robots. But either way, even though people will continue to consume manufactured goods—just as we still eat—manufacturing will be a less-and-less important part of the economy.

But then he has this clunker: "But there are lots of fields of endeavor in which markets don’t work well." And he wraps up his analysis with this:

What will be left is big government. Or, rather, bigger and bigger government. Teaching kids. Taking care of the elderly. Patrolling the streets. Making the SUPERTRAINS run on time. And it’s going to be fine.

Really? Let's name the fields that the market fails.

"Health care, you fool! The U.S. needs a national health care system!"  (those are the voices of leftist crowds that read our blog).

"National security! Police! And it's high time to expand our roads." (those are the voices of the right-wingers that throng here).

OK, just stop. In almost every case where somebody tells you there is a need for public goods because of a market failure, they neglect to imagine how the ends could be more efficiently achieved by government either (a) designing a better market to correct the failure or (b) financing the good, but leaving production to market suppliers.

And if you think health care in the U.S. is a the best example of a market failure, you really have no idea how deeply involved the government is. Or maybe you haven't heard of Medicaid. Or the tax code's treatment of health expenditures. Congress could fix medicine in America in one fell swoop, like Alexander at Gordia, by forcing income taxes to account benefits as normal income.

Likewise, if you think we need more traffic cops, I'd like to introduce you to new-fangled technologies called GPS and the red-light camera. Policing will go the way automation in many ways. As for the military, let's remember how well nation-building worked in Iraq before Petraeus shifted back to basics, and don't forget that the strength of the military is its workforce which has been organized by market-based pay instead of coercive conscription. It's hardly a perfect institution, but it will get better the closer it moves to market design instead of command & control.

Actually, the big areas that don't work very well in America are places where government is most deeply involved. Public education is the prime example. But it's not because of the teachers, or even their unions, it's because of the legal morass that makes everyone risk averse and that puts regulations above the nurturing of children.  If public education were organized differently so that children and parents were customers, excellence - and yes, efficiency - would prevail. Instead, thanks to big government, our country routinely destroys lives through the public education system because of an unimaginative anti-market bias. 

We know Yglesias is right that factory jobs are automating. We know that goods production is going the way of food production and that in the future, service sector jobs will make up the vast bulk of employment.  But you know what? The future is now. Already, 5 in 6 jobs are in the service sector. Take a look at my favorite graphic in 10 years, from the 2003 Dalls Fed's annual report:

But I think Yglesias has a failure of imagination. Just because it's hard to imagine the sectors that have yet to emerge is a poor excuse for suggesting that liberated labor should simply drift into big government make-work.

I can imagine a future where more people work in the private sector -- doing the work demanded by consumers. More gardeners. More scientists. More life coaches. More artists, authors, interior decorators, chefs, and mentors. Matt can see that future, but he can't imagine it will be organized by his fellow citizens instead of a benevolent social planner.

* * *

Addendum: let me spike out the argument that the free-wheeling market for stocks, bonds, and derivatives caused the current recession. Without markets for those things, we would have no boom to bust. Second, I have yet to see a solution to human greed and the recurrence of bubbles that does not kill off human growth, innovation, and progress. But good luck with that. If the point is that we need better capitalism, welcome to the blog. That's the whole point.

Job Churn in Georgia

West Point today isn't the same town Ferguson grew up in. Textile company executives used to live here. But when the textile industry collapsed in the 1980s, the victim of foreign competition, they moved away. Thousands of jobs were lost. A few small technology firms took up some of the slack. But the high-tech bust of the late 1990s proved to be another job killer. "We survived without a federal bailout," Ferguson says sarcastically. Now, while much of America wallows in the gloom of a recession, there's great joy in West Point. "West Point will have more economic growth in the next 24 months than anywhere else in the country," Ferguson boasts. And he may be right.

KIA has come to town. The Korean automobile manufacturer is building a huge assembly plant, which will employ 2,900 workers when it begins turning out cars a year from now.

That's a section from Fred Barnes' story about the "other American Auto industry" in the U.S. -- foreign brands or "transplants." The story is filled with interesting anecdotes from the field and some good analysis. But I especially liked this paragraph above which captures three cycles of creative destruction over a short span of time.

Farms of the Future

It's easy when thinking about jobs of the future to neglect the sector that has been with us since the beginning of and is basically the foundation of human civilization.  But farming is changing dramatically, despite employing just 1 in 50 Americans today, in contrast with 48 in 50 when the U.S. broke free from Britain.

A book review in the Wall Street Journal on Monday added something to my short list: A Revolution Down on the Farm, by Paul K. Conkin, reviewed by Blake Hurst:

In recent decades, the most startling change in food production has had to do with productivity: Its rise has been so dramatic that U.S. agriculture turns out to be, in Mr. Conkin's words, "the most important industrial revolution in American history." He notes that, since 1950, agricultural productivity per hour of work has grown sevenfold (compared with 2.5-fold in the economy's nonfarm sector). Between 1950 and 1970, the farm work force declined by half, but the value of its total product "increased by approximately 40 percent." In 1900, the yield for corn was 2.5 bushels per acre; it was 40 bushels in 1950, 80 in 1970 and more than 120 in 2000. The output for other field crops has grown in a similarly exponential fashion, not to mention livestock productivity. Post-1950, Mr. Conkin writes, change was so rapid "that almost no one was able to measure, or comprehend, what was happening."

The reasons for such growth are many. Mr. Conkin gives a full account of the "great new machines" (including combines and cotton pickers) that have made harvesting faster and easier, as well as describing the ever more potent fertilizers, insecticides, herbicides and animal- breeding techniques that scientists have made available to farmers. The "revolutionary surge" in output and efficiency has been a great blessing to America and the world, of course.

Pro Sports

It seems absurd that professional sports represent a major growth sector for future jobs, given the U.S. population of 300 million, not to mention the global population of 6 billion. Surely the number of professional atheletes won't rise to a number that is statistically much different than zero in the scheme of things. Even in a world with 100,000 pro atheletes, it is not a realistic proposition that this is a growth sector worth spending much time considering.

That was my thinking before the 232-day baseball strike that led to the cancellation of over 900 games, including the entire post-season and World Series in 1994. That strike hurt more than players and owners. It hurt the workers who sold hot dogs and cold beer in the stands. It hurt neighborhood restaurants and hotels and their workers. It hurt TV moguls!

The whole universe of professional sports employment is multiple times larger than the mere number of players. Armies of coaches, scouts, trainers, media analysts, camera crews, highlight voiceover actors, writers ... even bloggers.

Just consider the television contracts for the National Basketball Association. CBS paid $27 million for the rights to broadcast NBA games during the three seasons of 1973-1975 (ending in the spring of 1976). The current contract gives ABC/ESPN/TNT the network/cable rights for just under $8 billion over the next eight years. A billion a year paid to broadcast something that cost 9 million a year when I was just a boy. I put the numbers for previous contracts back to 1973 (Hat Tip insidehoops.com) in this chart just to see the trend for my own lying eyes to disbelieve:

Granted, in real dollar terms, $1 billion is still not much of a splash in a $14312.5  billion nation. That represents 0.007 percent of the economy. Which of course doesn't include player salaries, coaching and staff, sponsorship deals, tickets, concessions, merchandising, and so on.

And this is just the NBA.  Don't forget Tennis, Football (pro and semi-college-pro), Baseball, Soccer, etcetera, etcetera. Help me out here ... can we get up to 0.1 percent of the economy you think? (ed: Easily, just add stadium deals). Another way to think of it: why let Congress bail out Wall Street when for $700 billion it could easily pay for seven centuries of NBA games instead? 

OK, get serious.  Here's what I am looking for: advice on books. 

Best sports book I have ever read to date is Halberstam's "Playing for Keeps," though "Moneyball" by Michael Lews is in a completely different league.  Not meant as a pun, I swear. Both great. 

What else should I be reading, fellow sports fans? On my potential list are:

• Bowls, Polls, and Tattered Souls by SI's Mandel
• How Soccer Explains the World by Foer
• The Blind Side by Lewis
• The Work of Professional Football (Soccer) by Roderick
• The Meaning of Sports by Mandelbaum

1893

The financial crisis gripping Wall Street this week is fascinating because most Americans probably have no idea how serious the issue is.  Look outside, it's a beautiful autumn day with blue skies, warm winds, and green trees gradually coloring their leaves. Don't depressions happen in grainy black and white?

Financial crises to some degree are cyclical, not in the sense of a timely pattern, but in the sense of broadly common causes. The seasons of business are not regular, but the winters are always bitter.

When we gaze back to 1893, the year of Edna Parker's birth (who is the oldest living person in the world), we see the seeds of our modern world at the same time we see a world where the business seasons were much harsher and routine.

The "Panic of 1893" was the result of an economic expansion that became a speculative bubble. It was perhaps the most severe recession in America until the Great Depression. The rate of unemployment rose from 3 percent to at least 12 percent by 1894, and some accounts have it as high 18 percent. The Great Depression saw unemployment rise to 24.9 percent.

The 1880s had seen a period of remarkable economic expansion in the United States. In time, the expansion became driven by speculation, much like the "tech bubble" of the late 1990s, except that the preferred industry was railroads. Railroads were vastly over-built, and many companies tried to take over many others, seriously endangering their own stability so to do.... As concern of the state of the economy worsened, people rushed and caused bank runs. The credit crunch rippled through the economy.

Despite all this 1893 turmoil, baby Edna Parker was born in rural Indiana, the "Hoosier" state that was not yet known for its basketball or industrial prowess. The timing was all the more fascinating because, in fact, the game of basketball had just been invented, and the first college basketball game was played in the spring of 1893. What else was started that year?

• January 13 - The Independent Labour Party of the UK has its first meeting.
• February 1 - Thomas A. Edison finishes construction of the first motion picture studio.
• February 23 - Rudolf Diesel receives a patent for the diesel engine.
• July 11 - Kokichi Mikimoto, in Japan, develops the method to seed and grow cultured pearls.
• September 19 - New Zealand becomes the first country to grant women the right to vote.

So, there you have the seeds two new political forces: women and labor. You also have the seeds of the two main branches of the entertainment industry: motion pictures and sports, as well as the seeds of a luxury jewelry sector in peals. And you have the diesel engine.  All in the simple year of 1893.

Do you think anyone will wear pearls tonight, drive their diesel car to a movie theater, and talk about voting for Sarah Palin?  Or do you think they will just stay home and worry about the credit crisis of 2008? 

FOXO3A

To understand the future, first understand the past. And what better way to appreciate the contrast of economic growth from the past century to the present than by seeing that century from the eyes of those who lived it?

Imagine the perspective of the oldest person in the world, someone born two centuries ago. According to Wikipedia, the oldest living person is Edna Parker, born on April 20, 1893. She is 115 years old.

Think of her this way. Everyone alive the day before she was born is no longer. Everyone alive today was not when she was born. Edna Parker bridges two very different worlds. She was 20 before the U.S. entered World War 1, before scotch tape was invented, and before America was one of the world's Great Powers.

The Shelbyville News, a local Indiana paper, wrote up this a few years ago:

After getting married in 1911, she lived the arduous but rewarding life of a farm wife.

...

The Parkers continued farming in the Bengal area for many years, and she recalls getting out of bed at 4 a.m. to milk cows and feed the pigs, and then returning to the kitchen to make a big breakfast of fried eggs, fresh biscuits and bacon.

Much of her work revolved around the constant preparation of food, and this was especially true when harvesting and planting was taking place. She talked about the large amounts of food needed to feed the men — often as many as eight to 13 — as they labored to bring in the crops.

Neighbors at that time all pitched in and helped each other with their planting and harvesting, and as the men worked in the fields, the wives would gather and help each other prepare the big meals that were eaten at enormous, long, wooden “threshing” tables, which had seven or eight extension leaves.

Parker apparently was quite skilled at killing and plucking chickens — fried chicken being a staple of the large country meals and many a church supper. She said that after catching them and wringing their necks, she would stand on a chicken’s neck, pull it up to stretch it out and then chop off its head. After boiling and plucking seven or eight of the birds, she then peeled and mashed potatoes, cooked green beans and baked numerous pies and cakes.

“We liked fruit pies,” Parker said, “with no crust on top. And we made the cakes in bread pans.”

In fact, the fruit trees on her farm provided apples, cherries and peaches — all of which had to be picked and canned. The same was true of the many vegetables — lots of beans, corn, cabbage cucumbers, mangos and more — that she grew, tended, picked and preserved.

“And rhubarb,” Parker added. “We loved rhubarb. We had good food. There were good cooks back then.”

After fixing the huge noon meal for the hungry men, the women immediately started work on preparing a tasty supper — there were seldom any leftovers during threshing season. The women served the men, washed the dishes and then sat down to eat.

Although the women were expected to help with the farm work, Edna said that housework and caring for children was considered “women’s work.” She couldn’t remember her husband ever making a meal or changing a diaper.

“Oh, I guess he might have been able to do it in an emergency,” she said thoughtfully.

The Wall Street Journal published a science article on September 19th exploring the "wellderly" -- people who live extremely long - and healthy - lives of 100 years and more. Modernity has extended the lifespan of the average person considerably by advancing the basics of nutrition, cleanliness, exercise, treatment and understanding of disease, and so forth. But it appears that extreme longevity is uncontrollable.

Earlier this month, researchers at the Pacific Health Research Institute in Hawaii analyzing elderly Japanese-American men reported that a single biochemical misprint in the DNA typography of a gene called FOXO3A appeared to double or triple the chance of living to be 100 years old. They compared variations of five genes thought to influence aging in 213 men aged 95 or older to DNA samples from a group of 402 men who had died before reaching age 81.

Only the one variant stood out among the eldest. "If you got two copies of this gene -- inheriting one from each parent -- you hit the jackpot," says geriatrics expert Bradley Willcox who conducted the study.

Just When You Thought We Were Out of Innovation . . .

Readers are undoubtedly familiar with the debates raging over American competitiveness and whether China or India or both will overtake the United States and consign us all to the dismal service sector tasks of burger-flipping, hair-cutting, and retail cashiering.

I exaggerate. But this is a not-so-subtle subtext running underneath debates over the continued decline in manufacturing jobs, as well as the persistent exhortations from the scientific and policy establishments that we need to train more scientists and engineers.

There often appears to be a disconnect, however, between the public debate and what is going on in the American economy. Such a disconnect is nothing new, but I sometimes think we only dimly grasp the shift beneath our feet.

By sheer coincidence today, I came across this chart on The Big Picture, showing a growing gap between world GDP and oil production, and this Resilience Report from Strategy+Business about "digital oil fields." One way to jointly read these is with the expectation that digital oil fields will help boost oil production. Maybe.

The more interesting tale here is the transformation of the oil industry: facing a labor crunch and spike in demand, it's responding by developing a "new breed of engineer and technician." The oil industry is becoming, or already is, an example of a "service system." Our friend Jim Spohrer over at IBM has been a leader in developing the science of service systems, management, and engineering.

This type of evolutionary transformation is occurring across the economy, as old and new technologies, new knowledge, software platforms, and continuous learning keep coming together to create ever-greater levels of integration that require new approaches (entrepreneurship), new ways of thinking, and new forms of business.

In this sense, the steady drumbeat for 'more scientists and engineers' begins to appear a bit shallow. We need them, of course, but before simply recruiting more students into the existing disciplines, maybe we should think about restructuring those disciplines. In an odd way, the age-old story of specialization, increasing returns, and greater knowledge that continues to shape the economy, may push us toward an educational system that emphasizes integrative, consilient thinking.

"The Flip Side"

OK, one more thought on the speed of technology adoption and then I promise I'll move on.

Reader JMD, commenting on the last post, wondered if there was any hope for "oldsters" in adopting new technologies as compared to the apparent speed of adoption by younger generations. JMD offered a formula, attributed to Kenichi Ohmae, that was one attempt to temporally chart adoption gaps. (I remain skeptical, with others, about Ohmae's book, The End of the Nation-State.)

JMD's question got me thinking: why do younger generations seem to adopt new technologies faster than their elders? First of all, do they? Second, if so, why? Many Growthology readers likely use Skype: we use it mostly to keep in touch with our children's grandparents. So there is one example of an older generation using a new technology: our parents use Skype to communicate with their grandchildren. (I suspect many Internet-based communications advances are driven in large part by grandparents today.)

And we all know people older than us who have taken up recent technologies better than those younger than them. Prima facie, though, it definitely seems as if younger people are not only faster to adopt, but better at adopting new technologies. But why? Do you think that in medieval Europe, the young picked up new agricultural techniques at a more rapid pace than their forebears? Or, more recently, did younger generations in nineteenth-century America push technological change more than their parents? One answer is that improved technologies or processes didn't exist to be adopted. But that's not really an answer: it raises the perennial question of economic history of why growth took off when it did in western Europe.

This isn't an irrelevant issue: technological adoption and all it entails (learning, knowledge, increasing returns) is absolutely crucial in accounting for economic growth. If faster technological generation and adoption has fueled the rapid growth in the world economy since 1820 (see the fabulous work of Angus Maddison), why did younger generations, seemingly all of sudden, become vehicles of this? So what do you think? Why do younger generations adopt technologies more rapidly? Is this an artifact of modern (as in since 1820) market capitalism? Might this have something to with rising life expectancy and perhaps changing attitudes toward childhood and adolescence in the last century or so? Have I stumbled on something here or am I spinning wheels?

OK, next week, with the Olympics, perhaps we'll touch on some issues pertaining to international economic growth and the "competitiveness" of nations.

The (Real) Tech Gap

Greetings, Growthology readers. As Tim promised, I will spend the next week expounding on what I happen to find interesting on any particular day in relation to economic growth. Here, humbly submitted, is my first attempt. We often hear it said today that the world has never changed so fast, that change is constant, etc. Is this true? Every time period likely stands guilty of chronocentrism, but there certainly seems to be something distinct about change in our time. Consider this:

Roughly 34 or 35 centuries ago, the Shang Dynasty ruled a great portion of modern-day China. At its height, the Shang presided over an efflorescence of progress: bronze tools, the horse, the chariot, and what is considered to be the first writing system in China all came together at once. By "at once," I mean a fairly short period of time in archaeological terms--roughly 200 years. (There is also an interesting debate over the nature of these advances, marvelously explored in Peter Hessler's Oracle Bones.)

That two hundred years is perceived to be a short time frame shouldn't be particularly surprising--virtually our entire method of historical study (at least as it's taught in schools) is premised on looking at history in blocks of decades and centuries. We study ancient Greece, the Roman Empire, the Renaissance, the Industrial Revolution--all in large chunks of time.

Now, aside from the interesting and completely unanswerable question of how historians in the year 2200 will view the year 2008 in the long scope of history, how does the present day compare in terms of change? Please permit me a personal anecdote.

My wife and I have a two-year-old son. Like all toddlers, he is curious, particularly about things that aren't toys, like his father's cell phone. He often walks around the house pretending to talk to one of his uncles on my phone. And sometimes, he sits on the floor and puts the cell phone (a flip model) at a right angle and tell us he is checking "his computer." On one level, this is a cute story a parent could share at parties.

But if you think deeper about this, it illustrates something astounding about the pace of change in the world. The cell phone did not exist when my wife and I were born. The personal computer was in its infancy. Yet three decades later, these two technologies are so ingrained in the fabric of our two-year-old's life that he is treating as fungible two technologies that didn't even exist or barely existed when his parents were born.

It makes you marvel at how much the world has changed in such an incredibly brief span of time, and it makes you begin to wonder about technology and change thirty years from now. There will be technologies and firms and types of business that do not exist today, and likely don't even exist as sparks in someone's brain. And speaking of the brain, I also wonder about the impact (good, not bad) that this will have on the neurological structure of future generations. (See, for example, Steven Johnson's Everything Bad is Good For You.)

This is something that needs to be kept in mind whenever we discuss economic growth and economic policy in general: how do we leave the path open for the as-yet-unimagined leaps in technology and society?

Quirky jobs of the future

The error in anticipating jobs of the future is the similar to the error in assessing the impact of technology on GDP growth. The natural insitinct is to look for value in tech stocks when you  want to capitalize on the tech revolution, right? Wrong. The tech revolution has arguably created the most value in retail, notably the success of Wal-mart and the Walton family fortune.

Nonetheless, I can't escape the error. I want to believe that the definitive job of the future is "professional video game player." That seems like the ideal mix of an entertainment industry occupation using high tech. And it's happening. Yet it is also a jarring job description to an older generation that sees video games as the antithesis of work.

The problem with the story is that there isn't yet much demand for professional video games, resulting in a very meager existence of a very few pros. The book Game Boys by Michael Kane (no relation) describes the nascent rise of professional clans that play the game Counter-Strike in tournaments and have a huge cult following. Society pays billions of dollars to quarterbacks, pitchers, and goalies, who are playing games, so why not the world's Donkey Kong champion or Counter-strike sniper?

One of the central themes of Kane's book is that the market for pro video gaming is simply not materializing. Not yet, they say, but they have been saying it for an awfully long time. Indeed, the best part of the book's narrative is the agonizing uncertainty whether Jason Lake's investment in clan CompLexity will pay off. He started paying players out of his own pocket in 2004, a radical move in the obscure world of tourney gaming, which bought controversy and a string of big losses.

Non-tech?

Maybe the jobs of the future will catch us by surprise by having nothing to do with technology per se. In this category, I think of physical therapy as the perfect example. It represents the kind of pure service job that might be thought of as old school: literally hands on personal service, where individual healing happens one day at a time. In the schema of goods -- it is both rival and excludable, making difficult to replicate, franchise, or monopolize. And it is booming.

But beyond the two archetypes above (therapy and gaming), the real story may be that the jobs of future defy categories because they are so insanely diverse. It's worth remembering that we are talking about the ultimate extension of the theory of the division of labor, after all.  Hiscox UK, a British insurance company, reports seeing "steady rise in the number of non-traditional businesses looking for insurance policies to cover these unusual jobs." CNN covers the story:

Dog psychologists analyze the behavior of troublesome dogs, and saddle consultants help horse riders find the most comfortable ride. Others include Kosher certification consultants, who tell businesses how to prepare food in accordance with Jewish law; painting authenticators, who differentiate between real and fake masterpieces; and feng shui consultants, who advise clients on the Chinese practice of configuring objects to achieve spiritual harmony.

What do you think? How big does virtual reality become, and can it ever come close in scale to actual reality?