Post-Pandemic Optimism from Joel Mokyr

These days optimism is rarer than before. So it is uplifting to read an historian such as Joel Mokyr writing that “at the end of the day, the post-pandemic economy may not be all that different from what we had in 2019, and insofar that it is different, not all changes will necessarily be bad”.

Mokyr’s reasons for optimism are rooted in the fact that modern economic growth is rooted more in advances in science and technology than on the engine of “Smithian growth”, which is, basically: commerce, though the two things are obviously connected (difficult to imagine technology advances to be independent from the knowledge and even the casual opportunities created by increased contact and thus specialization, as Matt Ridley explains in How Innovation Works).

The problem with Smithian growth is that the institutions that sustain it are very fragile. Markets depend on “peaceful politics, trust and cooperative institutions”.

A shock, whether war or a virus, can wipe those out in just days. We have experienced this in our lifetimes: A major terrorist attack or a pandemic can disrupt markets in a matter of weeks and bring the infinitely complicated machinery of international markets to a grinding halt. In August 1914, with the outbreak of hostilities in Europe, the entire system based on the gold standard and the institutions that supported international specialization and exchange collapsed. It took many years for the system to recover, and it could be argued that not until the 1950s did the world return to the kind of proto-globalization that had taken place in the decades before 1914.

For Mokyr, the fact that modern economic growth is  “based on more productive technology and the science that underlies it” makes it more resilient. Different than trust, “knowledge, once acquired, cannot be easily reverse”. And science and technology informs our societies so profoundly that, in the wake of the pandemic, they have been widely mobilised for the fight against COVID19.

Mokyr also points out that a more science-oriented mentality and, more generally, the experience of change should make us better understand flexibility. “Leaders of our business and technology community would be wise to keep sight of the flexibility and adaptability of our economy, as unemployment soars and businesses small and large in the service sector face bankruptcy.” Alas, this wise advice tends to collide with the urges of politics, as leaders in the political world are, particularly as anxiety mounts, in the need of providing impressions of safety, very often regardless of the costs.

This article by Mokyr, which I summarised without giving it justice, is well worth reading.

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Shall We Care About Innovation?

The final post of a #ReadWithMe series on Matt Ridley’s How Innovation Works

 

If Matt Ridley is right, and “most innovation consists of the non-random retention of variations in design”, shall we really care about innovation? If innovation comes out of a largely random process, how can we control, plan, help it?

There is a substantial industry of “fostering innovation”, both in government and its advisors and private consultants and private managers, too. They tend to frame innovation as something which is in the hands of producers, of makers. Producers, makers, inventors are certainly a big part of it: but so are customers, users who produce feedback and help in fine tuning ideas and applications. In other words, it is a mistake to consider innovation as the output of a process of “intelligent design”: it comes out of a process of selection, in which the contrivances of designers survive not because they are“good” or “ambitious” or “radical” but because they proved to be “useful”.

 

Failure in designing and fostering innovation is proved by the fact, Ridley argues, we are closer to an innovation famine than to an innovation plenty. Peter Thiel popularized the idea that we are very innovative in bits, not so much so with atoms. Ridley agrees. In recent years we achieved momentous changes in information technology, not so much elsewhere.

“My grandparents had the opposite experience from what my generation has seen: big changes in transport and few in communication. Born before the motor car or the aeroplane, they lived to see supersonic planes in the sky, wars fought by helicopter and men on the moon.”

 

Ridley does not blame the complacency and stagnation only on the private sector. “Multinationals have absorbed the mentality of planners, rather than entrepreneurs”. One common theme in his book is the idea that innovation tends to start small, and is often pursued by smaller companies, by outsiders. “Big companies are bad at innovating, because they are too bureaucratic”.

 

In its essence, Ridley believes there is a tinkering, artisanal element in innovation. But he also maintains that successful innovation requires, on the part of the producer, an agility and flexibility which are often absent in bigger organizations.

 

This puts him literally at the opposite pole from some of the conventional wisdom on the matter. Lots of people think innovation needs big money, great corporate structures or great government structures also in order to administer competitive bids and somehow “foster” private entrepreneurship, and plenty of capital to endure if an idea is not immediately profitable.

 

What’s the key difference, between this vision and Ridley’s? I would answer with a word: “directionality”. Ridley believes innovation “happens”. Others believe the course of development can be shaped by decisive action. You need somebody in charge, to “direct” efforts towards a certain goal. Ridley would respond that this way you are likely to lose at least as many opportunities as you purportedly gain.

 

How Innovation Works is a refreshing read. It is a book about innovation as we knew it, not as we wished it. Of course the future can always be different from the past, yet perhaps it is worth considering the past and its lessons, if we can spot them.

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Who Invented the Computer?

Part 7 of a #ReadWithMe series on Matt Ridley’s How Innovation Works

 

It looks like a question easy enough to answer. It is not.

“The origination of the computer is as mysterious and confusing as that of far more ancient and uncertain innovations. There is nobody who deserves the accolade of the inventor of the computer. There is instead a regiment of people who made crucial contributions to a process that was so incremental and gradual, cross-fertilized and networked, that there is no moment or place where it can be argued that the computer came into existence”.

 

For Matt Ridley, four are the features of the computer which make it different from a calculator: it must be digital, electronic, programmable, and capable of carrying out whatever logical task, at least in principle. Walter Isaacson finds the turning point in the ENIAC, which begun operations in 1945 at the University of Pennsylvania. Ridley doesn’t agree: a better candidate would be Colussus, the computer built in Britain during World War II to crack the German codes. Who should take the credit then? “The construction was led largely by an engineer named Tommy Flowers, a pioneer of using vacuum tubes in complex telephone circuits, and his boss was the mathematician Max Newman, but they consulted Alan Turing”.

 

Ridley’s chapter on the origin of the computer is a delight. He goes back, up to Charles Babbage, to prove that ENIAC (and for that matter) the modern computer was not “so much invented as evolved through the combination and adaptation of precursor ideas and machines”.

 

Writes Ridley “the deeper you look, the less likely you are to find a moment of sudden breakthroughs, rather than a series of small incremental steps”. We tend to think differently because, as I mentioned earlier, we tend to search for visible hands, for clear moments of changes, for Innovator with a capital “i”. What escapes this picture is how much innovation is a matter related with feedback mechanisms. In a sense, I think this is perhaps the greatest accomplishment of Ridley’s book: he uses plenty of interesting stories of innovators, but he never gets tired of explaining that their brilliant undertakings need to be received by consumers – and so sometimes they were adapted, used in different contexts, and became useful in a previously unpromising and unforeseen circumstances. In this sense, “innovation is the child of freedom”, Ridley explains, “because it is a free, creative attempt to satisfy freely expressed human designs”.

 

Read the previous posts in this series here.

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Who Invented the Dog?

6th in a #ReadWithMe series.

When you look at your dog, you seldom thing it is “a crucial innovation”. Yet dogs were. We have difficulties even conceiving that somebody, at a certain point, thought about domesticating them, as we are so used to having them on our side. Yet somebody, at some point, did.

 

The domestication of dogs happened between 20,000 and 40,00 years ago.

“The DNA from a wolf that died 35,000 years ago in northern Siberia … hinted that by then wolves were separate from dogs. Thus well before the last glacial maximum, but during a much colder period than today, people living on the Eurasian mainline somehow made friends with wild wolves and turned them into useful tools. Or was it the other way around?”

 

It is likely, writes Matt Ridley, “that the domestication began with wolves tentatively hanging around human camps to try to scavenge leftover carcasses. The bolder ones risked being speared, but got more food; gradually boldness in the presence of people became commoner in one group of wolves till people saw the advantage of having semi-tame wolves hanging around”.

 

Ridley knows that “it is stretching it to call domestication genetics an innovation”, particularly when the view widens to include the way in which we human beings domesticated: we are dogs to our wolves ancestors. Though it is not clear which genes accomplished the result, some kind of selection took place, changing us profoundly, in a way fitter to a far more gentle, less violent and rumbustious life.

 

In closing his chapter on the invention of the dog, Ridley makes one of the key points of his book in a very clear way: “Innovation is a lot less directed and planned, even today, than we tend to think. Most innovation consists of the non-random retention of variations in design”.

 

 

Read my previous posts here.

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Innovation Travels

5th in a #ReadWithMe series.

 

Henry Robinson Palmer was a trained engineer. As Matt Ridley writes:

“In 1826 he was appointed to oversee the extension to a dock in east London. Having finished the excavation and construction of the locks he turned his attention to the buildings. He seems to have hit upon the idea of using an iron sheet for the roof an open shed, but to make the sheet stronger, he passed the wrought iron through rollers to give it a sinusoidal wave. On 28 April 1829 he patented the use or application of fluted, indented or corrugated metallic sheets or plates to the roofs and other parts of buildings”. This “immensely strengthened the iron sheet, made it more rigid and capable of spanning a wide gap without extra support while supporting a load such as snow. Crinkly tin was born”.

 

Corrugated iron is mentioned by David Edgerton in his book The Shock of the Old, as one of those innovations the so-called “first world” takes for granted but are proving very useful still in developing countries. “In the nineteenth century”, writes Edgerton, “it spread around the world to areas of British Army operation as transportable housing. … It was hugely important In the twentieth century as a truly global technology. Its cheapness, lightness, ease of use and long life made it a ubiquitous material in the poor world in a way it never been in the rich world”.

 

Writes Ridley: “in the slums of today’s expanding megacities, where property rights are uncertain, corrugated iron is not only affordable and available but buildings made of it can be easily dismantled and moved. It is one of the first things shipped into earthquake zones to provide shelter in short order”.

 

Innovation travels, so to say. It may be received differently in different contexts. Its success depends on the circumstances, and on people’s needs, more than on the sheer brilliancy of a certain invention or of a given inventor (though Palmer was clearly brilliant: he also imagined a monorail system and conceived something similar to containerization, an improvement which was to come to fruition one century later).

 

Read the earlier posts in this series herehere, here, and here.

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One of Civilization’s Greatest Accomplishments

One of the secrets of a good book is a curious author. Consider this from Matt Ridley:

“I walk a lot in London, and a few months ago I set myself a goal: somewhere in the vast city, while walking down a street, to catch the smell of sewage. I have yet to achieve this goal. Close to ten millions defecations occur in London every day, presumably, for most people it is daily occurrence. I hazard that I am rarely more than 100 feet from somebody actively at work on this task … Yet you never smell it. Why not? This is a new phenomenon, an innovation”.

 

How many people ever think about such things? The fact that a city as big as London doesn’t smell of sewage is now taken for granted, in spite of the fact the opposite was true for quite a long time. This is “one of the finest achievements of our civilization”, writes Ridley, and he is not joking.

 

One of the key elements behind the ingredients was the S-bend in the pipe beneath every toilet, which traps water so as to prevent the smell to come back up. Before it, “flush toilets were expensive and unreliable and they had the huge disadvantage that they took away the sewage but not its smell”. The S-bend, “one of those things that could have been invented at almost any time and by almost anybody”, was actually the product of a “fine mathematical mind at the height of the Enlightenment”, Alexander Cummings.

 

It may sound strange to recommend a book on innovation because he neatly presents, in only a few pages, the history of the water closet and the modern sewage network – but I think this is not a minor merit of Ridley’s book.

 

Besides commending Matt’s walking habits, I think it is worth stressing again the logic of the book: “innovation” consists not only of things that are big, visible, and breath-taking (pardon the pun). Innovation is a pervasive phenomenon in a modern economy, all the more relevant in the daily undertakings of life, that are improved, little by little, with most of us not noticing it and happily taking for granted a better status quo than our forerunners ever dreamt possible.

 

Read the earlier posts in this series here, here, and here.

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The UK and Covid19

The Economist published a lead article on Britain and Covid19. By and large, the piece attempts to be an indictment of Boris Johnson’s leadership. For The Economist, England had “the wrong kind of prime minister”: “Mr Johnson got the top job because he is a brilliant campaigner and a charismatic entertainer with whom the Conservative Party fell in love”. The main criticism of Johnson is that he did not lock the country down earlier, therefore going in the direction some scientists (in particular, Professor Neil Ferguson of the Imperial College) thought was best.

Yet perhaps Johnson should be held accountable for lack of other measures that did not include a lockdown. For example, for a long time, people entering in England weren’t tested but just asked to go through self-quarantine. The idea that locking England down a week earlier would have spared it half of its casualties is certainly a powerful criticism. Perhaps Professor Ferguson is right, but his views should be taken with more than a grain of salt.

The piece has however some interesting considerations, worth sharing and pondering.

1) Centralization and decentralization
In the pandemic, centralization of decision-making was widely praised and many people considered, for example, the “divided governance” of the emergency, between Washington and state government, as an additional risk factor. The Economist on the other hand points out that: “the government has wasted the most precious commodity in a crisis: time. In a federal system, like America’s, the central government’s failings can be mitigated by state and local authorities. In a centralised system, they cannot.” So, perhaps federal, decentralized systems are not necessarily performing worse in the emergency than centralized ones. Switzerland and Germany (a most successful state in coping with Covid19) are federal systems too.

2) The NHS
The NHS was not “overwhelmed” and went through “a swift reorganization” to cope with increased demand. I wonder how this happened and if perhaps it is an assessment that could be generalized: that is if hospital networks actually performed better than expected also in other countries and instead what failed was “public health”, i.e. the complex set of measures that were put in place to combat the epidemic.

3) PPE
The Economist argues that:

Delays in fixing ppe supply chains, promoting face coverings and increasing testing capacity were clearly errors at the time. Despite the urging of the country’s scientists and the World Health Organisation, by the middle of April Britain was still carrying out just 12,000 tests a day, compared with 44,000 in Italy and 51,000 in Germany. Because most testing was reserved for hospitals, care homes struggled to find out which of their residents and staff were infected. Competition for ppe was fierce, so they also struggled to get the kit they needed to protect their workers.
The government is not solely to blame. The pandemic made new demands on the system. Some crucial bits of machinery did not work. The publicly owned company which supplies the health service with ppe failed. Public Health England, which was responsible for testing and tracing, failed.

This complements the strong criticism of Public Health for being “horrendously bureaucratic” on the Daily Telegraph. Matt Ridley soberly explained that “The decisions by Public Health England not to go out to the market for testing, protective equipment and logistics, to cease testing almost completely in March and to send people to care homes from hospitals affected by the virus – these were just bureaucratic bone-headedness”.

The Economist faults the government for not mobilizing the private sector strongly enough for testing (a point also raised by Terence Kealey) and points out that failures in the supply of PPE were actually due to public procurement mistakes (just google PPE Covid UK and a list of disasters will appear on your screen).

It will take time, I think, to assess what went well and what went wrong with Covid19 – and it will take a better understanding of the virus and the illness it creates. Yet I think the idea that “you need bigger governments to cope with the pandemic” will look more and more like an oversimplication. Indeed, it is almost certain to look like a very expensive oversimplification, as it will be used as an excuse to increase government budgets substantially.

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