Innovation, Intangibles and a Farewell to Nostalgia

Yesterday I attended the Adam Smith Institute Forum 2017 in London, a welcome burst of exciting energy and interesting ideas. A few hundred enthusiastic young souls, curious about the ASI, progress and of course the speakers themselves, gathered for an intense 8 hours of lectures, debates, panels and discussions. What makes the ASI Forum distinct is how it intentionally tries to keep speeches short (Ted-Talk style 10-15 minutes) and then lumps often-quite different speakers together for a panel section, where questions came from the lively twitter-feed (#ASIForum, and we managed to trend in London for a while). Here's a brief summary of three speakers and the fruitful discussions they provoked (of course, there were tons more, leaving my brain somewhat exhausted and overwhelmed).

Johan Noberg - Against Nostalgia

The primary reason I decided to go to ASI Forum 2017 was Johan Norberg, the Swedish columnist and historian as well as senior fellow of the Cato Institute, who've made ripples in global debates over poverty, migration and globalisation at least since his 2001 book In Defense of Global Capitalism. On a more personal note, reading a few words in his Migrationens Kraft almost 5 years ago, thrusted me onto the journey I'm currently on. I owe him a debt of gratitude too large ever to repay, and it was therefore an extreme honour of mine to finally meet him in person (suffice to say, I made quite a fool of myself fanboing away).

His speech, 'Against Nostalgia', was a standard stats-heavy Norberg-speech, personal anecdotes combined with serious academic research in order to make a lasting impression – in this case to explain the material progress of the world by rebutting and countering notions of nostalgia ("the good old days", "how it used to be", "It was better when I was young"). By expanding the data and examples in his book Progress (among which I read over the summer), he shows that by every metric imaginable, material living standards are better today than they ever were; life expectancy, incomes and poverty rates, health outcomes, safety all tell the same story of continuous improvement, and somehow we refuse to see it!

More interestingly, when asking people who long for some ideal version of the past when this particular past is supposed to have been (When exactly, Mr. Trump, was America Great?), Norberg reveals something interesting: The golden age we admire wasalmost always when that generation grew up. The anti-globalists of today overwealmingly yearn for the 1950s & 1960s, and so Norberg tracks down what intellectuals, pundits and literary sources said about its time. Unsurprusingly, he finds that they in turn complained about their youths and contemporary crises, yearning for the 1920s. Again, Norberg looks for the Great Society back in 1920s and find people complaining over their times, yearning for the 1890s. He jokingly argues that this process can be extended to the first people who ever wrote anything, inventing the written word in order to complain about how their societies are collapsing from a change in behaviour or values. Judged by this pattern, Norberg finds the following pattern:

1. Whatever technology and norms/practices/values existed when I was born is perfectly normal and the normal state of the world. 
2. Whatever happened and changed while I was 15-35 years old is good and exciting and I probably made a great career out of it. 
3. Anything invented and changed after I turned 35 is an abomination, silly, against nature and defies the natural order.  

Of course, this exaggeration is meant to amuse, but it does tell something about our misplaced yearn for some idealised idea of the past, which Norberg attributes to survival bias. People commonly adore some amazing feat of our architechural or literary past and say "they don't make things like that anymore", neatly ignoring the fact that everything else from that era (mindless scribbles or unstable wooden houses) were washed away in storms and civilisation, replaced by improved houses and art and better literature. One massive selection bias, in other words.

The bottom line is this: things are getting better, and our memories and imaginations betray us. Nostalgia is a gut feeling and we shouldn't trust it: "Nostalgia is a lie".

Stian Westlake - Capitalism Without Capital

Another great talk that really caught my attention was Stian Westlake's plug for his and co-author Jonathan Haskel upcoming book Capitalism Without Capital: The Rise of the Intangible Economy. Despite having read two chapter of it, I still haven't quite grasped their very ambitious argument: 

Investment that was traditionally in physical assets (equipment, buildings, factories, tools) has recently moved into intangible assets (brands, software, research, knowledge) which in Haskel & Westlake's view changes the way in which an economy works. Importantly and interestingly, they're trying to explain many hot topics of recent years such as secular stagnation, wage and wealth inequality and low-growth through their analysis of intangibles. For instance, intangible assets are scalable in a way that traditional factories weren't, increasingly concentrating value-adding production in a few major companies (see Google/Facebook/Amazon). Their assets also differ from traditional assets in their value on a secondary market: a used machine can generally be sold off to other producers, its parts re-used in other sectors of the economy, whereas most intangible assets are company-specific (algoritms, software, Toyota's Kanban system).

Interestingly, one of their conclusions is that when intangible assets gradually become a bigger deal, cities themselves become more valuable. In a way, Haskel & Westlake try to derive pay differentials and property values of many large cities to the value of intangibles. The code, the software, the intangible assets of companies affect our economies in ways we yet haven't analysed well enough –mostly because investments in such assets often don't show up in national accounts and investment statistics. An interesting topic I intend to come back to shortly.

Judy Stephenson - Do you want to be paid for your time or your product?

I also wanted to briefly comment on my current Oxford lecturer, Dr. Judy Stephenson, and her talk about how we're paid today compared to the past. Her story is a full-circle change from predominantly being paid in piecemeal (weavers, merchants, small-scale farmers etc) to early-20th century workers almost exclusively paid for hours rather than output, to the new gig-economy again reverting back to performance pay.

She explains the development of how we are generally paid as a story of transaction costs; getting paid by performance makes sense on economic grounds, and many economics textbook may very well say that, could we just overcome certain obstacles, all pay would be made according to correctly-specified production in order to minimise free-riding and efficiency loss. How, then, can we account for this U-shaped development in pay from overwealmingly piece-meal to standardised pay-by-the-hour and again moving back to freelance/paid-by-performance GIG economy?

Stephenson tells a story of bargaining costs and transaction costs (apologies for the quality of my quickly-recreated depictions of her charts). Back in the day, being paid piecemeal was subject to particular agreement and specification; she showed us 23-page lists for weavers' output with specified pay associated with certain cloth – a negotiation and standard that itself probably took some effort. And it lasted for no longer than 2 years, before it was replaced by a different standard. Clearly, the loss of efficiency associated with time-based pay (free-riding, monitoring, slacking off work) might very well be less than the efforts/resources devoted to arranging piecemeal rates. With technology and algoritms matching buyers and sellers on peer-to-peer platforms, much of what made old-age piecemeal rates unworkable are now made possible, explaining the return of the gig economy. One problem she identifies in such systems is that employers tend to cut rates and, anticipating that, producers cut effort.
___

All in all, ASI Forum 2017 was quite a burst of exciting ideas and engaging discussions that I hope to get back to writing about in due time.