Via Felix Salmon, I found this interesting piece by Tim Wu, comparing monopolies in broadband and energy, and looking at ways to make better use of currently idle spectrum. Wu’s starting point is that “Like energy, bandwidth is an essential economic input”. In fact, as he implies, information is more essential than energy to a modern economy. It’s massive amounts of information, rather than massive amounts of energy, that distinguishes our economy from that of 50 or 100 years ago.
Category: Economics – General
The great risk shift, yet again
The Wall Street Journal has a fascinating article about how corporations like Intel are loading up their general pension funds with obligations to pay massive “supplemental” benefits to senior executives. It’s partly a tax dodge, and partly an example of what Jacob Hacker has called the great risk shift. The extra liabilities increase the risk that the fund will fail, but the top brass can be protected against this eventuality with a trust fund, while the rank and file get to take their chances.
Update To clarify, in response to comments here and at Crooked Timber, the pension entitlements of ordinary workers are supposed to be protected by the government through Pension Benefit Guaranty Corporation, and to the extent that this works as expected, risk is shifted to the PBGC rather than to workers. But as both the WSJ story and the discussion at CT make clear, things don’t always work as planned. Some benefits paid to ordinary workers turn out to be classed as supplemental and therefore lost when the scheme fails.
Suppressed viewpoints on climate change
There’s a lot of complaints about how some viewpoints in the climate change debate are being suppressed. As Tim Dunlop notes, most of them come from a group which gets lots of press attention (in fact, far more than its support among the public, let alone among climate scientists, would justify). But there is one viewpoint that seems almost completely suppressed. Like other Australians, the vast majority of supporters of the Coalition parties accept the scientific evidence and support action to mitigate climate change but I can’t think of a single member of the rightwing commentariat who does so with any enthusiasm. (The closest in the print media is John Hewson, who has a fortnightly column in the Fin. He’s good on climate change, but I wouldn’t regard him as a full-time member fo the commentariat). Among rightwing bloggers, the orthodoxy is similarly monolithic. The only exceptions of whom I’m aware are Harry Clarke and Opinion Dominion.
(Note: I’ve changed some terminology in response to comments)/
Weekend reflections
It’s time once again for weekend reflections, the longer version of Monday Message Board. Civilised discussion and no coarse language please.
Friedman units
My column in Thursday’s Fin says “the next six months will be crucial”.
Putting the creativity back in creative capitalism
Although the conversation here takes place under the banner of ‘creative capitalism’ there has been relatively little discussion of creativity in the ordinary sense of the term. Yet the relationship between creativity and capitalism has rarely been more complex and interesting than it is today.
The central technical innovation of the past twenty years or so has been the rise of the Internet, and particularly the various incarnations of the World Wide Web. Without the Internet and the Web it is unlikely that we would have seen any significant recovery from the productivity growth slowdown of the 1970s and 1980s.
Yet neither the Internet nor the Web was a product of the market economy, and even now the relationship between market incentives and the social contribution made by Internet-related activities is tenuous at best.
Both the Internet and the Web developed as non-commercial activities, outstripping or absorbing a variety of commercial competitors (Genie, Delphi, AOL and so on) before being opened up to commercial use in the mid-1990s. And even since large-scale commercial involvement began, most of the exciting innovation continues to come from noncommercial users (blogs and wikis, for example) or from non-commercial content producers (YouTube, Flickr and so on). By contrast, heavily funded commercial innovations such as push technology and portals have failed or declined into insignificance.
The dominant driver of the Internet economy is not profit-seeking innovation but individual and collective creativity. Creativity is, and always has been, driven by a wide range of motives, some altruistic and others, like the desire to display superior skill, rather less so. Trying to tie all of these motives to direct monetary rewards is futile and, if pushed too far, counterproductive (More on this from me and Dan Hunter here, with discussion here and here).
Of course, corporations still have a large role to play in the economy of the Internet. A company like Google, for example, provides services that cannot easily be replicated by users acting either individually or collectively. But Google depends crucially and directly on the content created by users and more generally on the goodwill of the Internet community.
If these assets were lost, Google would be vulnerable to displacement; Microsoft’s loss of its seemingly unassailable dominance of both personal computing and the Internet software market is an illustration. Google’s slogan ‘don’t be evil’ and its sensitivity to criticism, for example over its compliance with Chinese censorship laws, illustrates the point. Equally, so do the many products Google creates and gives away, with no obvious path to future profit.
So, more than in the past, it makes sense for corporations to cultivate diffuse goodwill, rather than focusing solely on profit, perhaps modified by the need to buy off powerful interests. In the context of an economy where creative collaboration is central, this can’t be done through a neat separation of targets and instruments, with a charitable PR-oriented effort bolted on to a profit-maximising corporation.
Extending all of this to the challenge of helping poor countries develop creates further challenges. Companies will need to do more than bring corporate expertise to bear on the problem. They will also need to mobilise contributions of skills and resources from outside the company. If such contributors are not to feel exploited and abused, the project can’t be directly tied to the goal of profit maximisation. All this may yet be a bridge too far.
Richard Posner recognises much of this but argues that corporate managers should instead adopt a hypocritical pose of general concern until they have secured a userbase large enough to be locked in, then exploit it to maximise profits. There are a several problems here. First, sincerity is not as easy to fake as all that, particularly in an organisation where you can’t let everyone in on the joke. Second, setting up a monopoly by stealth, then extracting the maximum rent is a trick that can be pulled off at most once. Finally, if the managers of a company are chosen to be capable of successfully conning the public in the interests of shareholders, why would anyone expect them to forgo the chance to enrich themselves at shareholders’ expense.
Yet more on fiduciary obligation
I’m planning a further post about the notion of ‘creative capitalism’, but before I get on to it, I thought it might be useful to clear up some of the confusion surrounding the alternative view, that managers have a ‘fiduciary obligation’ to act solely in the interests of shareholders, reflected in debate here, at Crooked Timber (including this great post by Dsquared) and at the Creative Capitalism blog.
Plugs
Bris Science next Monday, City Hall at 6:30 will be on a subject much debated here, “Wolf in a sheep’s labcoat: pseudoscience in the 20th century” by Mike McRae of CSIRO. I’m double-booked but I still hope to make it along.
The Centre for Policy Development is holding a debate between Janet Albrechtsen and Greens MP Lee Rhiannon on the subject of political donations (no donation required to attend). 13 August, 6pm, Customs House Sydney. RSVP here
Back to the future
According to all political commentators I’ve read, the Liberals have achieved a triumph in policy formulation on climate change, reverting to the policy they put at the last election, where climate change was a central issue. It’s a while ago now, but can anyone remember how that turned out for them?
Starbucks on the way out
Since I’ve previously commented quite a few times about Starbucks, I thought I should note this news. It’s a pity for those who will lose their jobs in a softening labour market, but not really a surprise.
Update A letter in the Fin Review makes the point that Starbucks suffered in competition with Gloria Jeans (for non-Oz readers, a truly horrible food court coffee chain, closely associated with one of our less appealing churches), because GJ is a franchise operation, with most franchisees being small enough to avoid payroll tax, while Starbucks were company-owned and had to pay. If the coming tax review could get rid of payroll tax, it would be a huge boon.
John Quiggin 