New Economist

Welcome to 2008, the year of free

Another article of note in The World in 2008 is by Chris Anderson, editor-in-chief of Wired magazine and author of The Long Tail. His piece, Freeconomics, explains the merits of giving it away:

..What is getting too cheap to meter is processing power, storage, bandwidth and all the other enabling technologies of the digital revolution. Thanks to the exponential doublings of Moore’s Law and its equivalents for hard drives and communications, the cost of a given unit of computation, storage or transmission is inexorably dropping towards zero.

One of the first to notice this and consider its implications was a Caltech professor named Carver Mead. In the late 1970s he was reflecting on the amazing learning curve that the combination of quantum mechanics and information science had started on the surface of silicon wafers. Like Moore before him, he could see that the 18-month doublings in performance would continue to stretch out as far as anyone could see. But he went one step further to consider what that implied about computers. He realised that we should start “wasting” them.

Waste is a dirty word, and no more so than in the 1970s and 1980s. An entire generation of computer professionals had come to power doing just the opposite. In the glass-walled computer facilities of the mainframe era, they exercised their power in deciding whose programs should be allowed to run on the expensive computing machines.

Among Mead’s disciples was Alan Kay, working at Xerox’s Palo Alto Research Centre. Rather than conserve transistors for core processing functions, he developed a computer that would frivolously throw them at such silly things as drawing icons, windows, pointers and even animations on the screen. The point of this profligate eye candy? It was ease of use for regular folks, a previously neglected market. Kay’s work became the inspiration for the Apple Macintosh, which changed the world by opening computing to the rest of us.

Today the same is happening in everything from bandwidth to storage. The learning curves of technology cut prices at a rate never before seen. The cost of storing or transmitting a kilobyte of data really is now too cheap to meter. Soon the same will be true for a megabyte, and then soon after that a terabyte. And the internet touches nearly as much of our economy as electricity did when Lewis Strauss issued his prediction.

Outsourcing India

It was bound to happen, but it's a remarkable story nonetheless. Thousands of jobs taken by India from the west are being re-exported as wages shoot up. The Guardian's Randeep Ramesh reports that India outsources outsourcing:

From his tree-top-high office, Kris Gopalakrishnan, the head of India's giant software company Infosys, explains the rise of an economic phenomenon about to engulf the world: outsourcers are outsourcing themselves.

Once known for sucking jobs out of call centres and IT departments in the west, Indian technology firms are re-exporting them to wealthier nations as wage inflation and skills shortages at home reverse the process.

Infosys spent $250m this year buying the Polish call centres of Philips, the electronics group, manned by workers who speak half-a-dozen European languages. The company is building up a network of offices stretching from Mexico to eastern Europe to China to provide an "anytime, anywhere" solution to its clients. "Our customers are global, so we have to become so," says Mr Gopalakrishnan.

Infosys is not alone. Wipro, another hi-tech titan, has been on a spending spree, buying up companies in America, Finland, Portugal and Europe for hundreds of millions of dollars. Azim Premji, Wipro's chairman, raised eyebrows on Wall Street when he talked this year of setting up divisions in Idaho, Virginia and Georgia - US states he said were attractive because they were "less developed".

Tata, India's largest firm, is running call centres in Britain. ABN Amro, the Dutch bank recently bought by an RBS consortium for £48bn, will pay Tata Consultancy Services $200m to send work halfway across the globe to Brazil, where software programmers will run computer systems.

Indian software companies' skill is that they have been able to take complex tasks from multinational firms, pull them apart and put them together more efficiently. This expertise has reached a stage where it can be done anywhere across the globe - grafting Indian technical knowhow onto white-collar workers in Brazil or Saudi Arabia or even back to the US.

 

Amazon's US textbook ripoff?

Are US students being ripped off by Amazon.com? Jonathan Dingel at Trade Diversion blog points to a forthcoming paper by Yale's Christos Cabolis and colleagues, A Textbook Example of International Price Discrimination (PDF). The paper finds that although books for general audiences are similarly priced internationally, "textbooks are substantially more expensive in the United States" (on amazon.com) than the UK (amazon.co.uk). They argue that "cost factors cannot explain this phenomenon and discuss several demand-side explanations."

Dingel, meanwhile, provides a comparison of prices for economics and statistics textbooks in the US and UK that appears to confirm those findings:

I've found a number of cases where American customers can save money by purchasing their textbooks from amazon.co.uk and paying for international shipping (£6.98) rather than using amazon.com. Check it out:

                                                                                                                                                     

Title	Authors	.com	.co.uk	$ diff	% diff
Mathematics for Economists	Simon & Blume	126.74	84.69	42.05	33
Advanced Macroeconomics	Romer	56.25	83.56	-27.31	-49
Econometric Analysis of Cross Section and   Panel Data	Wooldridge	80	89.98	-9.98	-12
Economics for Business	Sloman	95	73.39	21.61	23
Mathematics for Economics and Business	Jacques	115	75.84	39.16	34
Options, Futures and Other Derivatives	Hull	158.99	88.45	70.54	44
Statistics for Business and Economics	Newbold et al.	153.33	91.84	61.49	40
Introductory Econometrics for Finance	Brooks	35.5	61.17	-25.67	-72
Statistics for Economics, Accounting and   Business Studies	Barrow	100	75.84	24.16	24
Microeconomics: Principles and Analysis	Cowell	78.35	79.32	-0.97	-1

Prices reported in USD with an exchange rate of 1.88 USD per GBP.

Productivity analysis and measurement

The productivity debate continues. Last week saw a two-day OECD Workshop on Productivity Analysis and Measurement in Bern. This week I will be featuring several of those papers, along with one or two others I've spotted. For starters, here is the agenda for the Bern conference, with links to the papers and presentations:

Monday, 16 October 2006

Session 1 (9h15-12h00) Productivity growth in Switzerland

     1.   Keynote address: The challenges for increasing productivity growth in Switzerland
           Aymo Brunetti, Chief Economist (State Secretary for Economic Affairs Switzerland)

     2.  Productivity growth and innovation in Switzerland - An international perspective (pdf),
           Presentation (PowerPoint)       
           Dominique Guellec (OECD)

     3.   MFP measurement: from data pitfalls to problem solving – the Swiss way (pdf)
           Ruth Meier  (Swiss Federal Statistical Office)

    4.   Innovation, Technology and Productivity in Switzerland - A Micro Data Analysis
           Jan-Egbert Sturm (KOF - Swiss Institute for Business Cycle Research)

Session 2 (12h00-15h45): Productivity, innovation and technology

      5.   Research and Development as a Value Creating Asset (pdf)          
            Emma Edworthy and Gavin Wallis (Office for National Statistics, United Kingdom)

      6.   Dutch retail trade on the rise? Relation between competition, innovation and productivity (pdf)
            Harold Creusen, Björn Vroomen, Henry van der Wiel and Fred Kuypers

      7.   Infrastructures and ICT. Mesurement Issues and Impact on Economic Growth (pdf),
            Presentation (PowerPoint)         
            Matilde Mas (Ivie and University of Valencia)

      8.   Empirical analysis of the effects of R&D on productivity: Implications for productivity measurement? (pdf), Presentation (PowerPoint)
            Dean Parham (Productivity Commission, Australia)

Session 3 (16h15-17h30): Measuring and analysing labour input

      9.   Labour input productivity: comparative measures and quality issues  (pdf)         
            Antonella Baldassarini and Nadi Di Veroli (ISTAT)

    10.   Are Those Who Bring Work Home Really Working Longer Hours? (pdf), Presentation (PowerPoint)
            Lucy Eldridge and Sabrina Pabilonia (U.S. Bureau of Labor Statistics)

Tuesday, 17 October 2006

Session 3 continued (9h00-10h10): Measuring and analysing labour input

    11.   Growth in Euro Area Labour Quality  (pdf)
            Presentation (PowerPoint)         
           Guido Schwerdt and Jarkko Turunen (European Central Bank)

    12.   The Comparative Level of GDP per Capita in Canada and the United States: a Decomposition into Labour Productivity and Work Intensity Differences (pdf)      
            Jean-Pierre Maynard (Statistics Canada)

Session 4 (10h40-15h45): New productivity measures for OECD countries

    13.   Productivity Measurement at Statistics Netherlands: A Progress Report (pdf)
            Presentation (PowerPoint)
            Dirk van den Bergen, Myriam van Rooijen-Horsten, Mark de Haan and Bert M. Balk
            (Statistics Netherlands)

    14.    Estimates of industry level multifactor productiviy in Australia: Measurement initiatives and
issues (pdf)
            Carl Obst, Australian Bureau of Statistics

    15.   Estimates of Labor and Total Factor Productivity by 72 industries in Korea (1970-2003)   (pdf)
            Presentation (pdf)
            Hak K. Pyo (Department of Economics, Seoul National University) and
            Bongchan Ha (Korea Institute for Industrial Economics and Technology)
            Keun Hee Rhee (Korean Productivity Center)

    16.   Productivity in the European Union: A Comparative Industry Approach (pdf)
 Mind the gap! International comparisons of productivity in services and goods production  (pdf)
            Bart van Ark, Marcel Timmer (University of Groningen) and Mary O’Mahony (National Institute for Economic and Social Research, United Kingdom)

    17.    A Net Profit Approach to Productivity Measurement, with an appication to Italy (pdf)
            Presentation (PowerPoint)
 Carlo Milana (ISAE, Italy)

    18.   Measuring the Contributions of Productivity and Terms of Trade to Australia’s Economic  Welfare (pdf), Presentation (PowerPoint)         
           Erwin Diewert (University of British Columbia, Canada) and Dennis Lawrence (Meyrick Associates)

Session 5 (16h15-17h30): Issues in productivity analysis

    19.   Privatisation vs. productivity in Poland (pdf)
            Izabella Zagozdzinska and Jacek Kotowski (Central Statistical Office, Poland)

    20.   Does Sweden give away its TFP for free?  (pdf), Presentation (PowerPoint)         
            Tomas Skytesvall (National Accounts, OECD) and Hans-Olof Hagen (Statistics Sweden)

Wednesday, 18 October 2006

Session 5 continued (9h00-10h45): Issues in productivity analysis

    21.  Firm demography and Aggregate Productivity Growth (pdf)
           Barbro Widerstedt (Swedish Institute for Growth Policy Studies)
           (Presented by Lars Fredrik Andersson, Swedish Institute for Growth Policy Studies)

    22.  Trends in ‘structural’ productivity levels in the major industrialised countries (pdf)      
           (Renaud Bourlès (Université de la Méditerranée) and Gilbert Cette (Banque de France)

    23.  Quantifying the Productivity Counterpart of Outsourcing in the Italian Manufacturing Industries (pdf)       Francesco Daveri (University of Parma), Massimiliano Iommi (ISTAT) and Cecilia Jona-Lasinio
            (ISTAT)

Session 6 (11h15-12h15): Panel discussion – conclusions and future orientations

Panelists: Gilbert Cette, Banque de France
                Graeme Davis, Treasury Department Australia
                Erwin Diewert, University of British Columbia, Canada
                Gerardo Layva Parra, INEGI, Mexico
                Paul Schreyer, OECD

Discussion session on productivity levels and industry PPPs (13h15-15h15)

This session is intended to review some of the recent work on measurement of productivity levels and industry PPPs. There will be only short presentations, and the focus will be on comments from experts. This session is organised in cooperation with the EU KLEMS consortium. Participation is in principle on invitation, but all participants of the workshop on 16-17 October who also wish to attend are welcome to do so. Please contact Paul Schreyer ([email protected]) or Bart van Ark ([email protected]).

    24.   Reader on Productivity Levels (pdf)
            Bart van Ark and Marcel Timmer (University of Groningen) and Dirk Pilat (OECD)

    25.    PPPs for Industry Output: A New Dataset for International Comparisons (pdf)         
            Bart van Ark, Marcel Timmer and Gerard Ypma (University of Groningen)

    26.   International Comparisons of Industry Output, Inputs and Productivity Levels: Methodology and New Results (pdf)
            Marcel Timmer and Robert Inklaar (University of Groningen)

Does chatter matter?

Is online chatter just noise, or does it contain information? Albert Saiz from the Wharton School thinks there is quantitative information content in internet chatter. In an IZA seminar in Bonn yesterday entitled Downloading Wisdom from Online Crowds he argued:

The internet consists of billions of opinions. Focusing on unstructured internet chatter, we investigate if there is any quantitative informational content in such massive amounts of cheap talk. We develop a technique that integrates information from the internet by quantifying relative amounts of chatter. We find the relative frequencies of internet chatter in reference to major social phenomena in a geographic area to be highly correlated with actual demographic and economic empirical data frequencies.

We exemplify the power of this technique by computing measures of corruption for countries, states and cities. These not only proved highly correlated with ratings of experts, but also allowed us to replicate the results in published papers establishing correlates of corruption. We discuss extensions and limitations of this approach.

Unfortunately the paper is not online yet, but I will post a link when it is.

Is Google the end of history?

Today's Guardian has an interview with Esther Dyson, editor-at-large of CNet. Here's a taster:

Technology Guardian: With the rise of Web 2.0, we're seeing huge growth in the number of startup companies and funding available. But what do you do when a company like Google squashes your business before it's started?

Esther Dyson: Really, the big question is, is Google the end of history? And the answer is that it's not, because the problem is that Google doesn't understand meaning: all it does is index text on the web - it knows nothing. For example, Time Warner acquiring AOL means something very different from AOL acquiring Time Warner - but Google couldn't understand the difference.

So the next big technology will be pattern recognition, which helps us understand what's going on and allows us to understand meaning. Right now a search engine is just a database; it isn't able to connect the dots. That could change if we had better natural language understanding, and Reuters, for example, is already pretty good at some of this. As we move further into TV and photography online, it's going to get more important. I'm an investor in a company, Powerset, which is working in this area.

IBM's massive Indian expansion poses risks for its competitors

Are there enough indian software workers to go around? Bloomberg's Andy Mukherjee reports on a hugely ambitious IBM plan to expand its indian operations, and its implications: IBM's India Plan Shows Need to Boost Talent

International Business Machines Corp.'s recent announcement that it would triple its Indian investments to $6 billion by 2009 has stunned the country's local software companies, and for a good reason. That figure equals the combined global assets of Tata Consultancy Services Ltd., Infosys Technologies Ltd. and Wipro Ltd., the top three Indian software exporters.

A bigger headache for the local companies is the inevitable price inflation that IBM's investment will create in an asset class that doesn't appear on their balance sheets and yet must be purchased, maintained and enhanced year after year: workers.

Some Indian companies are already feeling the pinch. Satyam Computer Services Ltd., the No. 4 exporter, last month reported an employee attrition rate of almost 20 percent in the quarter ended June 30, compared with about 17 percent a year earlier. To stem defections, Satyam raised its workers' pay in India and other low-cost countries by 18 percent starting July 1. Tata Consultancy and Infosys increased wages by 15 percent on April 1.

Some commentators have expressed concern that wage inflation in India is blunting the country's competitive edge in software services. These fears are overstated. It isn't particularly worrisome from India's perspective that the country's software engineers are now only a sixth as cheap as their U.S. counterparts. In 1998, that wage difference was about twice as large. The skills gap between its computer programmers and those from developed countries is shrinking even faster.

15 websites that changed the world

This month the web is 15 years old and in that short time it has revolutionised the way we live, from shopping to booking flights, writing blogs to listening to music. John Naughton lists what he considers are the 15 most influential websites to date in today's Observer: Websites that changed the world

Top of his list is eBay.com, followed by online encyclopaedia wikipedia.com. Third comes napster.com, the music file sharing website, followed by the video-sharing network, youtube.com. Weblog publishing system blogger.com, comes in fifth. As Naughton puts it:

The strangest thing is how casually we have come to take it for granted. We buy books from Amazon, airline tickets from Easyjet and Ryanair, tickets for theatres and cinemas online, as if doing so were the most natural thing in the world. We check the opening times at the Louvre in Paris or the Museum of Modern Art in New York (or browse their collections) online. We check definitions (and spellings) in online dictionaries, look up stuff in Wikipedia, search for apartments to rent on Craigslist or a host of local lookalikes such as Daft.ie in Ireland.

You can buy and sell just about anything (excluding body parts) on eBay. Children seeking pictures for school projects search for them on Google Images (and download them without undue concern for intellectual property rights). Holiday snaps escape from their shoeboxes and are published to the world on Flickr. Home movies likewise on YouTube. And of course anyone with doubts about a prospective blind date can do an exploratory check on Google before committing to an evening out with a total stranger.

Note: Sites mentioned above without links are not in the top 15, while six that were listed are not mentioned: friendsreunited.com, drudgereport.com, myspace.com, slashdot.org, salon.com and yahoo.com

I recall surfing with Mosaic on my university terminal in the early 1990s. Back then it was mainly about email, finding information and fun sites. Web design was appalling, finding things was hit and miss (even with Yahoo), and surfing the net from home meant long waits. Sometimes if I'd opened up a few new pages I'd go and make a cup of tea while they loaded.

These days I research trips and book most of my travel and accommodation online. I order most of my books and some CDs online. I use the internet intermittently throughout my working day - looking up papers, academics, events, news releases... I listen to streaming radio and music on my laptop. I check newspaper and magazine sites. I email. And I blog, of course. i cannot imagine life without the internet.

In another 15 years time I expect there will be plenty more to interest, excite, entertain and shock us.

Wage inequality: are computers to blame?

The rapid diffusion of computers into the workplace coincided with increasing wage inequality. If computers are complementary to human capital, then they will have contributed to this widening by increasing the demand for skilled workers.

What seems a quite straight-forward question has not been easy to prove. However a new paper by BLS economists Cindy Zoghi and Sabrina Wulff Pabilonia may give us some answers. Their working paper Which Workers Gain Upon Adopting a Computer? uses two panels of the Canadian Workplace and Employee Survey to estimate a first-differenced model. Their results are consistent with a skill-biased explanation for wage premiums for computer users:

..controlling for individual and establishment fixed effects, we find that within a year of adopting a computer, the average worker earns a 3.6 percent higher wage than a similar worker who did not adopt a computer. Returns are even larger for managers and professionals, highly educated workers, and those with significant prior computer experience. Employees who use computer applications that require high cognitive skills earn the highest returns.

UPDATE: For a recent paper with different findings, see Computer Use and Earnings by Mary A. Silles. This paper used longitudinal data for the UK to investigate the observed correlation between computer use at work and labor market earnings.

Our findings suggest that there are no returns to computer use at work. This is evidence against the productivity interpretation of these returns and supports the view that the premium can be attributed to unobserved characteristics.

Another recent study worth reading was written by San Francisco Fed economist Robert G. Valletta last year. His paper, The Computer Evolution: Diffusion and the U.S. Wage Distribution, 1984-2003 (PDF), does not find the diffusion of computers has been a mechanism for skill-biased technological change and consequent rising wage gaps in the United States:

Analysis of data from the periodic CPS computer use supplements over the years 1984-2003 reveals that the wage increase associated with workplace computer use was relatively constant over time and across educational categories during this period, with the notable exception of an increase in the relative return to computer use for highly educated workers between 1997 and 2001. Despite this advantage in computer use for college-educated workers in recent years, quantile regressions and conditional density estimation reveal that the diffusion of computers had little overall impact on the distribution of earnings.

Data fun for all the family

OK, I confess - I'm a  data junky. So I am very thankful to Jim Gibbon (via Eszter Hargittai of Crooked Timber) for posting about Gapminder. It provides the best visualisation of data I have ever seen. Here is Jim's post:

I’ve been blown away this morning by a new tool for displaying world development data called Gapminder.  If you want a spicy way to show off statistical data, it’s hard to imagine a more compelling software program.  There is a great video demonstration of Gapminder being used in what is possibly one of the best presentations I have ever seen (I laughed, I cried, my jaw dropped).  You can play around with the program online, but make sure to watch the video to get a sense of its capabilities.  (Note: No statistical knowledge required, appropriate for all audiences!)

The Gapminder Foundation was founded by Ola Rosling, Anna Rosling Rönnlund and Hans Rosling in Stockholm. It shows what a small non-profit can do.  You can checkout the Gapminder tool online - and there is also a related tool with even more options on the website: Trendalyzer. It's capabilities are awesome. The website also has plenty of downloads and presentations.