What’s up, Joseph?


My editorial on You Tube >> https://youtu.be/XnlGWiliAwk

I am starting to mirror my research blog at a new site, namely https://discoversocialsciences.wordpress.com . My goal for the next year or so is to create a fully-blown, scientific and educational website devoted to social sciences. I thought that Word Press is a good tool in that view. Anyway, for the months to come, my readers from http://researchsocialsci.blogspot.com can find a copy of each post at https://discoversocialsciences.wordpress.com and vice versa.

This said, I am getting back to scientific writing. That science is not going to develop by itself: it needs me. Yesterday, in my update in French (see http://researchsocialsci.blogspot.com/2017/08/a-bientot-milton.html ), with the help of Milton Friedman (yes, I know he is no more among us since 2006, and still he wants to be of some help) I started to lay the foundations for that book I intend to write this year, to satisfy the terms of my research grant, and the terms of my curiosity. As I was doing it, some facts attracted my attention. This is usually how it starts with me. Some facts attract the attention of the curious ape in me, and then, man, God only knows what can happen next. As I am basically agnostic, I can even face a situation when no one knows what happens next.

Anyway, facts attracted my attention. Calm down, ape, we are going to play with those facts in a minute. Now, please, let me explain to the readers. Nice ape. So I am explaining. My basic field of interest in that research grant is innovation, which you might already know from my last two posts. In economic sciences, scientific invention is treated very much as exogenous to innovation in production. Probably it goes back to Joseph Schumpeter and his theory of business cycles (see Schumpeter 1939[1]). Schumpeter assumed that science is exciting, of course, but just some science does any stir in the world of business. Sometimes, a scientific invention hits the business so hard that the latter is being knocked off balance, or, in elaborate scientific terms, it is being pushed off the neighbourhood of general Walrasian equilibrium, where was dozing calmly just before the shock, and it goes into creative destruction.

Having made that observation, Joseph Schumpeter couldn’t but explain what is so special about those precise scientific inventions, which make the world of business rock and sway. His assertion was that science knocks business off balance when said science can significantly improve the efficiency of the production function in business. Economic sciences use the term ‘productivity’ to express this efficiency. It is an old intuition, going back to Adam Smith and David Ricardo, that productivity is the key to successful business practice. Still, for a long time since those first T-rexes of economics, it was assumed that business actions taken by business people simply display different levels of efficiency, full stop. If someone was really keen on moral philosophy, like John Stuart Mill, they could add that it is a good thing to develop efficient practices, and generally a bad habit to indulge in inefficient ones. Still, some kind of diversity in productive output was being implicitly assumed to exist in the social fabric around us.

Joseph Schumpeter took a different hand of cards to approach the problem. Born in 1883, his scientific mind had been bred both on the stupefying speed of development in industrial production, and on the great reshufflings in industrial structures, made of spectacular bankruptcies, mergers, and acquisitions. To Joseph Schumpeter, capitalism was by definition something similar to the battle for Gondor. It was supposed to be epic, turbulent, and spectacular, or it didn’t count as real capitalism. Schumpeter used to perceive technologies as something akin to tsunamis. His question was simple: when two or more tsunamis meet at some point, which one prevails? Answer: the most powerful one. The transformative power of new technologies was supposed to be observable as their capacity to increase efficiency in the use of production factors, or their productivity.

Look, Joseph, I fully agree with you that new technologies should be more productive than the old ones. Only you see, Joseph, after your death we started to have sort of a problem: they are not. I mean, new technologies do not seem to be definitely more productive that the old ones. I am sorry, Joseph. I know that any respectable scientist has the right to have a quiet after-life, but I just had to tell you. You take that database called Penn Tables 9.0 (Feenstra et al. 2015[2]). I know you liked data and statistics, Joseph. This was the basic for your critical stance towards Karl Marx, who did not really bother about real numbers. So you take that Penn Tables 9.0, Joseph, and you take out of it a variable called ‘total factor productivity’. They even have it, over at Penn Tables, in two different flavours.

I know you are an inquisitive mind, Joseph, so you can read about the exact recipes of those two flavours at http://www.rug.nl/ggdc/productivity/pwt/related-research-papers/capital_labor_and_tfp_in_pwt80.pdf . Anyway, the one labelled ‘ctfp’ measures total factor productivity at current Purchasing Power Parities, with your new home, USA, standing for the jauge (USA=1). The other one, called ‘cwtfp’, measures the welfare-relevant TFP levels at current PPPs (USA=1). I made a data pivot for you, Joseph. You can find it at my Google Disc, right here: https://drive.google.com/file/d/0B1QaBZlwGxxAZ3MyZ00xcV9zZ1U/view?usp=sharing

You can see by yourself, Joseph, that this productivity you used to be so keen about is not really keen to cooperate. Back in the day, until the late 1970ies, it had been growing gently and in conformity with the economic theory that you, Joseph, contributed to create. Only after 1979, something broke in the machinery, and total factor productivity started to fall. It is still falling, Joseph, and we don’t exactly know why. I mean, you have those General Electric, Tesla, Microsoft and l’Oreal guys launching another revolutionary technology every two or three years, but these revolutions kind of get bogged down, somewhere down the road to Total Factor Productivity.

Still, Joseph, there is light at the end of the tunnel, and this is not a train coming the opposite way. I like physics, Joseph, and I am kind of thinking that we can go a long way with physics. Them people in physics, they say we all need energy. On the top of that, Joseph, we have biology, and biology says we need to eat energy in order to have energy to spend. So I take two basic measures of our efficiency in the use of energy: the consumption of energy per capita, in kilograms of oil-equivalent, and the cereal yield in kilograms per hectare. You can find both of these metrics, as aggregate averages for the global economy, as published by the World Bank, right at this address here: https://drive.google.com/file/d/0B1QaBZlwGxxAZnJldTZDV0pHMWM/view?usp=sharing

So, Joseph, I’ll tell you what I think. We, as a species, are still quite young. We didn’t even have to fight off the dinosaurs: a bloody asteroid did the job. We came to the grand landscape of history with kind of a joker card up our sleeve. It is only now that we are realizing the true challenge of staying alive as a civilisation. The good thing is that we obviously learn to get more and more food from your average hectare. I know, not everybody eats cereals. I don’t, for example. Yet, once we have learnt how to get more cereals from one hectare, we can have some carryover to other types of food. I like bananas, for example. More bananas from one average hectare, it sounds optimistic to me. Could work nicely, Joseph, if nothing kills us in the meantime. We are still struggling to manage primary energy use, although we succeeded to press on the brake, those last decades. Still, I agree, Joseph: total factor productivity is a mess.

So what do we do, Joseph, with that book I am supposed to write until the end of this year, about innovation. I had that idea, Joseph, that I could kind of go a different way than you did. You represented innovation and technological progress as a way towards more efficient production. I am tempted to try a different approach. When we are around, we tend to gather around something: fire, temple, market place etc. As we gather around, there are more and more of us around, and then, there is that funny thing that happens: the more we are around per square kilometre, the more ideas we have per one thousand people. The more densely we live, the more things we can figure out. We do innovation simply because we can, not necessarily because we have precise gains in view. I mean, gains are important, but the process of figuring out things goes on kind of propelled by its own momentum. We invent things, we try them out, sometimes it works just smoothly (the wheel), sometimes we can even have fun with it (cognac and other distillates of fermented vegetable material), and sometimes it is kind of a failure.

So, Joseph, my view of technological change is that of adaptation going on in a loop. One of the most visible patterns in the historical development of mankind is that we create more and more densely populated social structures. Greater density of population creates new social structures, which impose upon us new challenges about how to sustain more people per square mile. This is how and why we invent and try new things. From this point of view, anything we do is a technology. The pattern of my average working day, combined with the working day of my neighbour, and all that combined with the way we feed ourselves and power our machines, it can all be perceived as a technology. Technologies that you defined, Joseph, like the process of making a car, could be just small building blocks in much broader and more intricate a process.

[1] Schumpeter, J.A. (1939). Business Cycles. A Theoretical, Historical and Statistical Analysis of the Capitalist Process. McGraw-Hill Book Company

[2] Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), “The Next Generation of the Penn World Table” American Economic Review, 105(10), 3150-3182, available for download at http://www.ggdc.net/pwt

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