Friday, April 20, 2012

Bred as House Pets

Walter Russell Mead argues that standard white collar jobs are going to be hit with more competition in coming years.

Increasingly, it looks to me as if large chunks of the upper middle class are about to get whacked. ... Lawyers, accountants, business managers and executives, university professors and administrators, architects, designers, upper level civil servants, NGO managers: this means you.What’s happening is that computers and software are reaching the point where they can effectively displace more and more routine skilled labor — just as for the last forty years we’ve seen automation reducing the need for routine human labor in factories.

This undermines Democrat hopes for redistribution, he believes, because the upper class is going to be having its own problems. Wealth will not automatically flow to the professions as before. And the answer is not more "helping bureaucracies", but to make life easier for start-ups.

This also means college kids need to think differently:

These kids have been raised to point toward bureaucratic, institutional success. Go to school, stand in line, keep your nose clean, get the grade, get into the next good school, and repeat until you get a job offer. At that point, get on the escalator of success — as an associate in a law firm, for example — and if you do your job well, you will have a reasonably smooth ride to the top.
But the standard hierarchies of the twentieth century are fading:

Graduating into a world that looks less and less like the world they’ve been led to expect, these young adults are going to have to figure out new ways to get ahead. They are going to have to become entrepreneurs.
Success will mean more willingness to take risks:

A state that wants to be on the cutting edge of the future should be thinking less about setting up enterprise incubators and more about how to restructure its educational system so the next generation graduates debt free. Debts drive students toward salaries and security; that is exactly the opposite of what our incentives should do.
The career paths they’ve been trained for are narrowing and they are going to have to launch out in directions they and their teachers didn’t expect. They were bred and groomed to live as house pets; they are going to have to learn to thrive in the wild.

I really enjoy reading Mead. But I don't think we can remake the economy just in terms of providing personal services for each other, as he seems to think. Of course there will be some exciting new products and services. But they may not employ a US labor force of 140 million at the same wages as before.

The fundamental point I keep making on this blog is the nature of needs changes as you go up the hierarchy of needs. Needs become more non-rival and less excludable. They become more to do with happiness, self-realization, personal connection and personal growth.

And that means they are less easily packaged and exchanged in the market. The market is a wonderful thing, but it has borders of usefulness.

Instead, the challenge is going to be largely ethical, as I keep discovering on this blog. I find myself reading relatively more moral philosophy than labor economics in thinking about how the economy is changing. We need to actually think about "the good life" again.

We still need incentives for people to flourish and lead productive lives. But if we can provide basic goods and services with such efficiency we don't need a mass industrial labor force, then we need to think about what people do instead. We need to think about purpose and virtue and flourishing.

The borders of the market and exchange economy are not the mirror image of the borders of the state, though. The twentieth century welfare state does not work any more, either.

The irony is we increasingly have overwhelming material abundance, at least in the developed world. But it is producing economic problems. It is not a Marxist-style accumulation crisis so much as a phase shift, like the move from agriculture to an industrial economy. We just have to recognize that is what's happening.

 (edit: fixed missing word, 5/4)

Thursday, April 19, 2012

Everything you know about entrepreneurship is wrong

How do you achieve anything when the world seems uncertain and unpredictable? How does any new venture succeed? And are entrepreneurs nuts to run the kind of risks they do?
Here's an intriguingly different way to look not just at these questions, but also how people think more generally: Effectuation: Elements of Entrepreneurial Expertise by Saras Saravathy, a professor at Darden Business School at U Va.

It is a brilliant take on how much of the traditional understanding of entrepreneurship is wrong. Published in 2008, it has reportedly been shaking up the business school world.

She systematically interviewed 27 leading entrepreneurs and found most of them had a distinctive way of looking at things. And it was not consistent with the traditional view of the entrepreneur as a crazy, risk-taking visionary (although they often like to see themselves this way when they have succeeded.)
Entrepreneurship is not a personality trait or an extra willingness to take risks, she says.

It is not even a special skill in recognizing new demand or new opportunities. New markets are seldom created by new demand, as consumers often have no idea they would want a new product.
But successful entrepreneurship is a form of expertise, however. It is a way of thinking, a method of dealing with uncertainty. There is a logic of "effectuation", as opposed to causation or prediction.
So what is effectuation?
Effectual logic provides useful design principles for transforming extant environments into new futures in the face of ambiguous goals.
That definition is brainy but a bit indigestible (and the book as a whole is quite academic). But she does boil down what this means in practice.
She says (and I quote):
    • Expert entrepreneurs begin with who they are, what they know and whom they know, and immediately start taking action.
    • They focus on what they can do and do it, without worrying much about what they ought to do.
    • Some of the people they interact with self-select into the process by making commitments to the venture.
Expert entrepreneurs use a bird-in-hand principle, she says, creating something new with existing means rather than aiming to discover new ways to achieve given goals. They think in terms of affordable loss, rather than calculating expected returns. And they will negotiate with all stakeholders who will make actual commitments to the project.
They almost uniformly prefer one initial customer/partner to help develop a product rather than market research or elaborate prediction of market segments and size. They see human agency as the primary driver of opportunity, rather than technology or economic trends.

In other words, markets are made, especially through partnerships, not found by segmentation or prediction.
Effectual models begin with given means and seek to create new ends using non-predictive strategies... It makes these relationships a matter of design rather than decision.

So entrepreneurship is more like stitching together a patchwork quilt rather than solving a prefabricated rational jigsaw puzzle, she argues. Standard economics is fine for understanding established markets. But effectuation generalizes this. Established markets are a subset of markets that can be fabricated.
Effectuation is also a means of dealing with deep uncertainty. Its "problem space" includes Knightian uncertainty, where it is impossible to calculate probabilities for future consequences, goal ambiguity, when preferences are not given, stable or well-ordered, and isotropy.
Isotropy refers to the fact that in decisions and actions involving uncertain future consequences it is not always clear ex ante which pieces of information are worth paying attention to and which are not.
Incidentally, the word isotropy is new to me, but I think it is the key to many of the challenges we face. Most major economic and social problems are a matter of attention and perception, not simply analysis and parsimonious prediction.
Effectuators do not start off with a goal in mind, she says. Instead, they begin with a set of means and ask what they can do with them, and allow goals to emerge. And much of the goals and nature of the entreprise are set by the kind of partnerships that emerge.
Effectuation emphasises alliances and precommitments from stakeholders as a way to reduce and/or eliminate uncertainty and erect entry barriers.
Effectuators do not think about competitors, so much as partnerships right from the start. And they see unexpected events as opportunities to leverage and/or exercise control of the situation, as potential serendipity.
Effectual logic turns standard causal logic on its head, she claims.
Causal and effectual logics both seek control over the future. But causation focuses on the predictable aspects of an uncertain future. The logical premise goes something like this: To the extent we can predict the future, we can contol it. Effectuation, on the other hand, focuses on the controllable aspects of an unpredictable future. The logic here is: To the extent that we can control the future, we do not need to predict it.
And entrepreneurs do not necessarily seek risk.
effectuators see themselves not as risk rakers defying long odds but as active agents capable of causal intervention in changing those odds.
And over time the failure rate for entrepreneurs is better than for new firms they start. They take limited risks and kill off unsuccessful ventures quickly, she says.

I find all of this persuasive. She does not mention it, but there are also many echoes from another famous research paper which dates back to 1959, The Science of "Mudding Through" by Charles Lindblom. He argued that administrators and policymakers proceed not by the "root" method of rational means-end analysis, but by the "branch" method of starting with where they are and doing successive limited comparisons. They "muddle through" instead of deducing the most rational way forward - and indeed, this is the only realistic way to do policymaking.

Other studies find corporate managers and decision-makers have a similar perspective. They think of risk not as volatility, as financial economics has it, but as the extent to which they can control the situation in the event of contingencies.

And both can be seen as examples of the "adjacent possible" which evolutionary theorist Stuart Kauffman says is one of the building blocks of how evolution works. Evolution is an algorithm which efficiently explores nearby possibilities.

But entrepreneurs do not see the process as a standard "monkey with a dartboard" variation and selection. They feel they can exercise some control.

She does not explore the policy implications of her stance. But they could be considerable, given the amount of government money that is shovelled into promoting new business and influencing location every year. And it is a practical and fascinating account of how the economy evolves in practice.

Wednesday, April 18, 2012

What isn't for sale?

Harvard philosopher Michael Sandel writes in the April Atlantic ( which I just caught up with):


In hopes of avoiding sectarian strife, we often insist that citizens leave their moral and spiritual convictions behind when they enter the public square. But the reluctance to admit arguments about the good life into politics has had an unanticipated consequence. It has helped prepare the way for market triumphalism, and for the continuing hold of market reasoning.


It means we treat too many things as commodities, entities which can be bought and sold. The fact we don't have a real discussion of the ends of society does not mean we get some anyway by default. Being neutral between ends just tends to presuppose or privilege some particular ends.


He goes on:


This nonjudgmental stance toward values lies at the heart of market reasoning, and explains much of its appeal. But our reluctance to engage in moral and spiritual argument, together with our embrace of markets, has exacted a heavy price: it has drained public discourse of moral and civic energy, and contributed to the technocratic, managerial politics afflicting many societies today.


We have to debate the proper way to value many things, he argues, such as civic duty, the environment, health or citizenship. So he is interested in the legitimate boundaries of the market.

And that is something I agree with. You can believe both that markets can be miraculously effective in many ways, and that they are a tool, not an end in themselves. You don't use a hammer to polish your ceramics.

Incidentally, I think the Atlantic is probably the most consistently interesting magazine in existence at present.

Tuesday, April 17, 2012

The Great (and Cruel) Sea

I read The Great Sea: A Human History of the Mediterranean by David Abulafia last week. It's a history of the Mediterranean from earliest times, from the Maltese temples built before 2000 BC to the tourist influx of the late 20th century.

He stresses above all the interaction and merging and mingling of societies in the Mediterranean:

Alongside the tendency to look for internal explanations of change, interest in the ethnic identity of settlers has faded. Partly this reflects an awareness that easy identification of ‘race’ with language and culture bears no relation to circumstances on the ground: ethnic groups merge, languages are borrowed, important cultural traits such as burial practices mutate without the arrival of newcomers.

His story is one of exploration and trade, of Phoenician voyagers to Spain and beyond, of grain shipments and Roman efforts to clear the seas of pirates, from the trading empires of Venice and Genoa and Ragusa right through to the Suez Canal. Tiny towns like Amalfi or Ancona flourish briefly from trade. Tyre and Marseilles and Delos and Ostia and Alexandria rise and fall.


But one of the main impressions you come away with is endless conflict and war. It just seems to be a limitless litany of conquest and piracy and burnt cities, and slaves snatched from the coastline to labor far from their loved ones in foreign seas.


In fact, the slave raiding is particularly heartbreaking. Slaves seized by raiders might never know what had happened to their spouses or children, whether they were alive or dead or missing. They would never see them again. Slaves were taken in conquest in ancient Greek wars. And they were seized from the coastlines of Italy and Spain and Provence by Islamic raiders two thousand years later.

If the story is more complex than earlier historians believed, with more emphasis on ethnic intermixing and cultural borrowing and mutation, this is still not a heartwarming tale of benign multiculturalism.

It is a history written in flames. The earliest civilizations, "the First Mediterranean" of Minoan Crete and Mycenae and Troy, are destroyed in a cataclysm of burnt cities and a dark age which lasts five hundred years. The sea peoples invade Egypt, the Hittites disappear, the first trading cities of the Levant are destroyed. The Second Mediterranean is torn by war for another five hundred years, until Rome brings a temporary peace.

And a broader view of the basin as a whole gives a sense of pervasive conflict. Most people are familiar with the Peloponnesian War between the Greeks, or the Three Punic Wars betwen Rome and Carthage. But there were four hundred years of war between Carthage and Greek Syracuse across the straits in Siciliy. Carthage had been fighting for centuries before the Romans ever showed up. The Athenian catastrophe of the Syracusan Expedition of 415-413 BC was just one incident in centuries of war on the island.

And then after passing briefly over the Roman Empire Abulafia talks about the third Mediterranean, the medieval sea. beginning with the rise of Islam and its conquest of the North African shore. And then more endless war between Siciliy, the Kingdom of Naples, the Kingdom of Aragon/Catalonia, the Crusades, and invasion by the Turks culminting in the Battle of Lepanto.

The Fourth Mediterranean brings outside influence and navies from the English, Russians and others, and the Fifth Mediterranean is the modern relative backwater. But it is no more peaceful. Hundreds of thousands die as the Greeks are expelled from Smyrna in 1922. Cities where different communities have lived together for a thousand years are ripped apart.

It's just as well, as Stephen Pinker argues, that there is at least some trend towards less violence over history. Because what stays in your mind after this history is not the culture, the food, the trade links, the religious inspiration, the art or the science - but the cruelty.



Happiness movement: "Silly and Oppressive"

Robert Samuelson condemns happiness as a governmental aim:
Creating an impossible goal -- universal happiness -- also condemns government to failure. Happiness depends on too much that is uncontrollable. For starters, personality. We all know people who seem blessed -- stable marriage, healthy children, successful job -- who are restless, grumpy and sometimes depressed. Meanwhile, others plagued by misfortune -- sickness, shaky finances, family disappointment -- persevere and remain upbeat.
Contradictions abound. Freedom, the ability to choose, is also essential to well-being, says the happiness report. But freedom permits people to do self-destructive things that shrink happiness.

It is a license for government to intervene and interfere where it should not, he says.
The happiness movement is at best utopian; at worst, it's silly and oppressive.
I can understand why he might think this - but he is wrong. We just can't reduce everything to the same old debate about the size of the state. Instead, we should to focus on a related but much more productive debate about the purpose of the state, or society as a whole.

After all, you could equally argue that universal wealth or GDP growth is an impossible goal. People differ in their skills and economic attributes. Some value money more than others. Some have the nerve to speculate and take risks, others are lazy.

Still, there is one thing he is right about. I think that aiming for some Benthamite utilitarian artificial measure of happiness is a mistake. That is why the virtues approach is better - developing your talents and abilities and judgment for a purpose. (see my earlier discussion of Alisdair McIntyre or Deirdre McCloskey, for example.)

In other words, happiness is a better aim for society and the economy than GDP. But happiness is better approached by cultivation of personal and social virtues, which indirectly lead to happiness.

And that also sidesteps the debate on the size of the state, which is so twentieth century. The twenty-first century should be about what wealth is for.