I’ve been reading John Cassidy’s How Markets Fail: the Logic of Economic Calamities, and in it I discovered a great Adams Smith quote. You probably know that Smith wasn’t an unthinking free market cheerleader. What you might not know is that Smith believed government should stomp on financial speculation:
Smith and his successors also believed that the government had a duty to protect the public from financial swindles and speculative panics, which were both common in 18th and 19th century Britain…
To prevent a recurrence of credit busts, Smith advocated preventing banks from issuing notes to speculative lenders. “Such regulations may, no doubt, he considered as in some respects a violation of natural liberty,” he wrote. “But these exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are and ought to be, restrained by the laws of all governments, of the most free, as well as the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed” (p.35).
Now that it’s vacation time, I’m finally digging through piles of articles I saved to read later. Found a great tibit from Steven Johnson about innovation. He writes that on his recent book tour for his new book, Where Good Ideas Come From, someone jokingly asked him, “Are you a Communist?” It’s because the findings of his book go so deeply against the convention wisdow that innovation mostly comes from free markets.
In my research, I analyzed 300 of the most influential innovations in science, commerce and technology — from the discovery of vacuums to the vacuum tube to the vacuum cleaner — and put the innovators of each breakthrough into one of four quadrants. First, there is the classic solo entrepreneur, protecting innovations in order to benefit from them financially; then the amateur individual, exploring and inventing for the love of it. Then there are the private corporations collaborating on ideas while simultaneously competing with one another. And then there is what I call the “fourth quadrant”: the space of collaborative, nonproprietary innovation, exemplified in recent years by the Internet and the Web, two groundbreaking innovations not owned by anyone.
The conventional wisdom, of course, is that market forces drive innovation, with businesses propelled to new ideas by the promise of financial reward. And yet even in the heyday of industrial and consumer capitalism over the last two centuries, the fourth quadrant turns out to have generated more world-changing ideas than the competitive sphere of the marketplace. Batteries, bifocals, neonatal incubators, birth control pills — all originated either in amateur labs or in academic environments.
Now-ubiquitous technology like GPS was created by public-sector agencies for its original military use. And most of the building-block innovations that make GPS possible — satellites themselves, or the atomic clocks that let them coordinate their signals so precisely — were first conceived in nonmarket environments.
The fourth quadrant, however, is not locked in a zero-sum conflict with markets. As in the case of GPS, this fourth space creates new platforms, which then support commercial ventures.
Why has the fourth quadrant been so innovative, despite the lack of traditional economic rewards? The answer, I believe, has to do with the increased connectivity that comes from these open environments. Ideas are free to flow from mind to mind, and to be refined and modified without complex business development deals or patent lawyers. The incentives for innovation are lower, but so are the barriers.
When we champion fourth-quadrant innovation, we are not arguing for top-down bureaucracies and central planning. Stalin would have despised Wikipedia….
The choice shouldn’t be between decentralized markets and command-and-control states. Over these last centuries, much of the history of innovation has lived in a less formal space between those two regimes: in the grad seminar and the coffeehouse and the hobbyist’s home lab and the digital bulletin board. The wonders of modern life did not emerge exclusively from the proprietary clash between private firms. They also emerged from open networks.
Via the Nation, I’ve just learned about an interesting group called the Southern Energy Network, a network of students in the South that currently boasts 65 campuses. Their three-year plan:
1) Establish and facilitate statewide networks in all 12 Southeastern states (KY, NC, SC, TN, GA, FL, AL, MS, LA, AR, VA, WV) and assist in the organizing of state summits to enable, empower, and connect the student and youth community in the Southeast.
2) Facilitate the launch of sustainable energy campaigns on 25 campuses and achieve the adoption of comprehensive greenhouse gas reduction plans on 10 campuses.
3) Leverage campus victories to achieve greenhouse gas reduction plans and/or comprehensive clean energy policies in ten cities
Looks like they’re doing some very smart work; definitely worth checking out.
Last year, I wrote about how everybody’s favorite idea for painlessly cutting healthcare costs – computerizing medical records – wasn’t really going anywhere. As part of the stimulus package, Obama tried to give those efforts a boost. How’d it go? Not so well, according to Computerworld:
Only 12% of U.S. hospitals had adopted electronic health records (EHR) as of last year, a modest increase over an adoption rate of 9% in 2008, according to researchers at the Harvard School of Public Health.
And of the 12% that have gone electronic, plenty are still struggling:
* A study by University College London found that many EHR projects fail, and “the larger the project, the more likely it is to fail.” Researchers say the systems can improve auditing and billing but may make primary clinical care less efficient.
* Experts from the Institute of Medicine who visited healthcare facilities last year found that “care providers had to flip among many screens and often among many systems to access data; in some cases, care providers found it easier to manage patient information printed or written on paper.”
One big reason why healthcare IT is still going so slowly: the joys of a market economy.
Often, the cost savings from the use of technology don’t go to the owner of the technology but to another player in the healthcare system, like the insurers.…A CIO at a for-profit company would have a hard time getting approval for an IT investment that saves money for the industry but not for the company.
“The incentives [in healthcare] are not aligned at all. In fact, there are perverse incentives there,” Stettheimer points out. “That’s very simplified, but it’s a problem we need to overcome.”
I’m feeling pretty brain dead from banging my head against the theory wall, and work on the rest of my life is getting pretty crazy. So, I’m going to take the rest of the year off. I’ll post whenever I bump into something interesting, but I’m going to give myself a little respite from making sure I post something substantive every week.
See you in the new year!
On Daily Kos, brooklynbadboy writes about a fascinating German program for the unemployed: Der Gründungszuschuss.
Der Gründungszuschuss roughly translates into “start-up grant.” It is a program for the unemployed that gives a monthly amount of seed capital for those on unemployment. The grant is means-tested and is paid on top of unemployment, health and other benefits. For example, a married couple with children can get a grant up to just under $32,000! A single person who is unemployed and has no children can get up to just over $25,000. The benefits are paid out over a period of nine months. After that, there is an extension of benefits called the “building phase” that pays an additional $400 per month for six months.
The German government expects that 20 to 30 percent of these businesses will fail. No matter. As policy, they’ve decided that they’d rather have people with an entrepreneurial bent out doing something rather than sitting around.
How do they deal with someone like your cousin Al, who’s got a hundred ideas for making quick money, none of them any good?
There are an extensive state-sponsored classes that must be attended to learn how to start a business properly. A carefully written business plan must be submitted to a board.
For people who aren’t delusional but need more help figuring out how to pull off building a business, there’s plenty of help:
The government also supplies free business consulting to help get the start-up off the ground and avoid pitfalls. There is an extensive array of government seminars to help grantees manage their businesses to success.
Here’s how it works in practice:
I learned about Der Gründungszuschuss from a friend in Cologne… His older brother was laid off from an internet service provider in 2008, got the start-up grant in 2009. He now has a small search optimization consulting firm with a partner and a secretary. In two years, he went from unemployment right into tax-paying independent businessman. And he put someone else to work and got some private capital off the sidelines.
It’s too bad most free-market cheerleaders don’t mean what they say; otherwise we can easily build a broad-based coalition that could make this fabulous program happen here.
Banging my head against the theory wall is fun, but I need a break. Since I’m going to switch gears and wrestle with someone else’s theory for the next few weeks, a quick recap of what I’ve recently learned.
- I can consolidate an awful lot of my ideas down to 3 Principles — Stack the Odds in Favor of the Good Guys, Use Checks & Balances, and We Aren’t As Smart As We Think We Are.
- When I boil my ideas down that far, it’s not clear right away from these Principles what it is I’m arguing. That might be OK — I’ve seen some good organizational development/business books that operate that way, and they work just fine. But I’m still uneasy with it; I’m still not convinced it’s the right way to go.
- I’m still having trouble explaining how I think these Principles, when taken together, give you a better way of thinking about the economy. I do just fine when I see specific examples — e.g., when someone argues corporate power corrupts the government so the government should play a smaller role in the market as possible. But the big picture? I’m not feeling it.
I’m not sure if the problem is that I’m setting the bar so high that I can’t finish off my framework and say, good enough for now! Or maybe the problem is I’m just not there yet. Either way, since this is a project I’m wrestling with in my spare time, I don’t see any reason to try to force it to closure just yet.
Before I stop headbanging for a bit, one last thought. I’ve been reading a book by Roger Martin called The Design of Business: Why Design Thinking is the Next Competitive Advantage. In it, Martin explains one key to solving what he calls “wicked problems.”
With hard problems, your job is to look at the situation, identify a set of definite conditions, and calculate a solution. With wicked problems, the solution can no longer be the only or even the primary focus. Instead, dealing with wicked problems demands that attention be paid to understanding the nature of the problem itself…. “Designers thrive on problem setting, as least as much as problem solving, explains Bill Buxton.
Maybe that’s what I need to do in my next round of headbanging — spend the little more time bonking my head against defining the problem instead of trying to solve it.
But for now, that’s enough. On to something that burns fewer brain cells!
I finally got a chance today to take a look at the progressive plan for balancing the budget that EPI, Demos, and The Century Foundation put out on Monday. There are a lot of smart ideas in the proposal, and it shows that we can deal with long-term budget issues without beating the crap out of the middle class and the poor.
I’ve only got one issue with it: too many words.
Take the Executive Summary. It’s nine freakin’ pages long. Nine. That, my friends, is not an executive summary. By the time an executive is a third of the way down the first page of a summary, their mind is already beginning to float: can I get away with bonking my executive assistant? What do I want to have for lunch today? If you haven’t grabbed them by then and they’ve got more than the rest of the page to go, forget it. Even a policy geek like myself is probably going to stop reading after page two and jump to the actual report.
If their “executive summary” doesn’t give us a bottom line, how about the press release? It’s only a page and a half long, but here’s the first paragraph:
Our Fiscal Security, a collaborative effort of The Century Foundation, Demos and the Economic Policy Institute (EPI), today released Investing in America’s Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility. This Blueprint is a comprehensive, detailed roadmap to immediate investments in job creation while addressing the nation’s long-run fiscal challenges. The Blueprint takes a very different approach from other prominent proposals, specifically prioritizing a strong economic recovery because widespread job creation and robust economic growth are essential to successful deficit reduction.
Let’s take the last sentence: “because widespread job creation and robust economic growth are essential to successful deficit reduction.” Really? I’m not saying it had to be as punchy as Demos’ “the middle-class is no accident.” But a sound bite to smack the Republicans upside the head this is not.
Why am I kvetching about the writing of this otherwise fine report (aside from the fact that I’m irritable this morning because I didn’t get enough sleep last night)? Because it’s a problem that an awful lot of progressive policy folks still have. If the media is convinced that you aren’t a Serious Person unless you want to inflict pain on the middle-class and poor folk, it’s going to be hard to punch through. When the odds are against you, you can’t just focus on having good ideas. You’ve also got to write short & sweet — and ideally with a little style.