New Economist

Chinese cheating

Pressure in China to innovate seems to be taking its toll. FT journalist Richard McGregor reports that a fake chip storm rocks China’s science elite:

China’s scientific establishment has been shaken by the sacking of a dean at one its most prestigious universities for falsely claiming to have invented a much-praised “indigenous” computer chip.The scandal coincides with a concerted push by the central government to put “innovation” at the heart of an economic development model which has so far relied on imported technology.

...Jiaotong University in Shanghai said late on Friday it had fired Chen Jin, dean of the Microelectronics School, for faking research behind a series of chips for digital signals processing. Mr Chen was also the general manager of the Hanxin Sci-Tech, the company that produced the chips.

...Xinhua, the official news agency, said Mr Chen had “fooled” technical appraisal teams from the university and government ministries that had funded his project into believing that he had developed the chips himself.

“On the basis of the investigation summaries, the university concluded that Chen’s deeds had flouted academic ethical codes and the university constitution, and had brought the research community into disrepute,” the Xinhua statement said. Mr Chen’s chip was neither based on technology he said he had developed himself, nor could it perform the functions he claimed for it, the short statement said.

Business Week's Michael Mandel comments:

Now the question is whether this is an isolated instance, or whether it reflects a systemic pattern of Chinese leaders trying to push their country up the technology ladder faster than it can go. The Chinese economy has already made a stellar leap, clearly moving from 'developing' to 'low industrial' status. But can it go 'high industrial' or even "innovative" status in one big push? I don't think so.

US productivity growth "not likely to persist": Boston Fed

Strong US productivity growth "is not likely to persist or be repeated". Instead the US can expect "healthy but unexceptional" productivity growth rates in the future", a new Boston Fed working paper claims. The 1990s surge in US technology investment and productivity growth was a "snap-back" following a period of low investment, argue the authors, Boston College's Peter N. Ireland and Boston Fed economist Scott Schuh.

These arguments can be found in Boston Fed Working Paper 06-10, Productivity and U.S. Macroeconomic Performance: Interpreting the Past and Predicting the Future with a Two-Sector Real Business Cycle Model. Using a two-sector real business cycle model, their estimation exercise points to "the consumption-goods-producing sector as the principal source of the productivity slowdown of the 1970s". As the authors conclude:

...the more recent episode of accelerated growth in investment and investment-specific technological change appears largely as a snap-back in levels to a long-run deterministic trend rather than a persistent shift in growth rates.

Thus, the results offer up a mixed outlook for the future. The estimated model confirms that the productivity slowdown of the 1970s has ended. But it also suggests that the productivity revival of the 1990s is not likely to persist or be repeated.

Instead, the model points to future productivity growth rates in both sectors that match their healthy but unexceptional longer-run averages from the entire postwar period.

The authors add a caveat, that "even greater optimism for the future may be called for". Maybe so, but these are hardly dire predictions. To me they appear quite plausible - after all, mean reversion is to be expected after periods of above or below trend growth.

New book: 'The Wealth of Networks'

Via Crooked Timber and Brad DeLong comes news of Yochai Benkler’s The Wealth of Networks: How Social Production Transforms Markets and Freedom, just published by Yale University Press. CT's Henry Farrell writes:

There’ll be more about this book on CT soon – for the moment, suffice to say that I think that this is a really important book, not only for people interested in the politics of technology, but for people interested in left or liberal politics more generally. It fizzes with ideas.

Yochai Benkler is professor of law at Yale Law School.  He argues that:

..the rise of peer production ...presents a stark challenge to conventional thinking about the economics of information production.

...It is important to see these phenomena not as exceptions, quirks, or ephemeral fads.. It is a mistake to think that we have only two basic free transactional forms—property-based markets and hierarchically organized firms. We have three, and the third is social sharing and exchange. It is a widespread phenomenon—we live and practice it every day with our household members, coworkers, and neighbors. We coproduce and exchange economic goods and services. But we do not count these in the economic census. Worse, we do not count them in our institutional design.

He argues that while the strength and domain of copyright, trademarks and patents have expanded, social trends in the past few years "are pushing in the opposite direction." Benkler's vision is a utopian one, seeing a networked information economy as "an opportunity to change the way we create and exchange information, knowledge, and culture". This will "offer individuals greater autonomy, political communities greater democracy, and societies greater opportunities for cultural self-reflection and human connection."

Cynics will snort. Business will wonder how to profit from it. Politicians will see it as a threat. But anyone interested in these issues should certainly take the time to read this book.

Benkler has posted the whole book and individual chapters on a Wiki, under a Creative Commons noncommercial sharealike license, with "an invitation to collaborate".

How the internet is replacing television

Though the imminent death of television has been proclaimed many times, it has not become extinct and is not likely to. But the reach, and influence, of mass free-to-air broadcasting has been slowly declining for decades. Twenty years ago everyone watched the same shows. Since then the audience has become much more fragmented due to narrowcasting via cable and satellite. The internet "is becoming central to our lives" and will replace television's key role in the home, argues Observer writer John Naughton in The age of permanent net revolution (registration required):

Broadcast TV is being eaten from within, by narrowcast digital television - in which specialist content is aimed at subscription-based audiences and distributed via digital channels. But waiting in the wings is something even more devastating - Internet Protocol TV (IPtv) - television on demand, delivered via the internet. And it's coming soon to a computer screen near you.

The trouble for broadcast TV is that its business model depended on attracting mass audiences. Once audiences fragment, the commercial logic changes. And new technologies like personal video recorders (PVRs), which use hard drives rather than tape, enable viewers to determine their own viewing schedules and (more significantly) to avoid ads - think of Sky Plus, think of TiVO.

As the CEO of Yahoo! said recently at the Consumer Electronics Show in Las Vegas, the era of 'appointment-to-view' TV is coming to an end. This doesn't mean that broadcast TV will disappear, incidentally. That's not the way ecologists think. It will continue to exist for the simple reason that some things are best covered using a few-to-many technology. Only a broadcast model could deal with something like, say, a World Cup final. But it will lose its dominant position in the ecosystem, with profound consequences for us all.

The internet will take its place. Note that I do not say the web. The biggest mistake people in the media business make is to think that the net and the web are synonymous. They're not. The web is enormous, but it's just one kind of traffic that runs on the internet's tracks and signalling. And already it's being overtaken by other kinds of traffic. According to data gathered by the Cambridge firm Cachelogic, peer-to-peer networking traffic now exceeds web traffic by a factor of between two and 10, depending on the time of day. Already the signs of the net's approaching centrality are everywhere - in the astonishing spread of broadband, for example, together with the rise of online retailing, streaming media, Google and the explosive growth in internet telephony.

Naughton explains why the internet is set to take over, using blogging and digital photography as examples:

New book: Better Humans?

From smart pills to designer babies and extended life spans... A public debate is needed now about the potential for new technologies to make us ‘better than human’ according to a report published today by UK think tank Demos and the Wellcome Trust. Better Humans? The politics of human enhancement and life extension (0.6Mb PDF) is a new collection of essays by leading scientists and commentators, edited by Paul Miller and James Wilsdon:

We all share a desire for self-improvement.Whether through education, work, parenthood or adhering to religious or ethical codes, each of us seeks to become a ‘better human’ in a variety of ways. And for some people, more consumerist pursuits hold the key to self-improvement: working out in the gym, wearing makeup, buying new clothes, or indulging in a spot of cosmetic surgery.

But now a new set of possibilities is opening up. Advances in biotechnology, neuroscience, computing and nanotechnology mean that we are in the early stages of a period of huge technological potential. Within the next 30 years, it may become commonplace to alter the genetic make-up of our children, to insert artificial implants into our bodies, or to radically extend life expectancy.

This collection of essays explores the implications of human enhancement technologies and asks how citizens and policy-makers should respond.

You can also download individual essays:

Chapter 1 Stronger, leaner, faster - Paul Miller and James Wilsdon
Chapter 2 Is it wrong to try to improve human nature? - Arthur Caplan
Chapter 3 Welcome to a world of exponential change - Nick Bostrom
Chapter 4 The mand who wants to live forever - Paul Miller and James Wilsdon
Chapter 5 The transhumanists as tribe - Greg Klerkx
Chapter 6 Brain gain - Steven Rose
Chapter 7 The cognition-enhanced classroom - Danielle Turner and Barbara Sahakian
Chapter 8 Better by design - Sarah Franklin
Chapter 9 More life - Jon Turney
Chapter 10 Nip/Tuck nation - Decca Aitkenhead
Chapter 11 The perfect crime - Rachel Hurst
Chapter 12 The unenhanced underclass - Gregor Wolbring
Chapter 13 Does smarter mean happier? - Raj Persaud

These issues will also be debated at Forum 2006, a major international conference on human enhancement taking place at Oxford University from 14-17 March 2006. Organised by the James Martin Institute, the conference will bring together scientists, ethicists and policymakers to explore the implications of these developments.

UPDATE: Josie Appleton discusses the book on Sp!ked Online: Can technology make us more or less human? For Appleton, its not about the technology:

In all these questions, it's human values that are the key - not the particular technology being used, or even the provenance of the body part. It is possible to make a foreign organ into part of yourself - as seen in organ transplants, prosthetic limbs, or the recent face transplant of a French woman. Equally, it is possible to feel that your own body parts don't really belong to you - as seen in cases of sex-change operations, or voluntary amputation. The question hangs on whether we are self-possessed or alienated from ourselves.

It's because this area is really a debate about values that it is interesting. Do we want to live longer - if not, why not? How do we use technologies to extend ourselves rather than avoid ourselves? It is also why it should be a matter for public discussion, rather than just the concern of scientists and futurists.

Mandel versus Setser: Intangibles and the US economy

The US economy is cover story for the latest issue of Business Week. Michael Mandel writes about Unmasking the economy: Why it's so much stronger than you think. Mandel's central thesis is that national accounts no longer accurately estimate national output:

In a knowledge-based world, the traditional measures don't tell the story. Intangibles like R&D are tracked poorly, if at all. Factor them in and everything changes.

...Everyone knows the U.S. is well down the road to becoming a knowledge economy, one driven by ideas and innovation. What you may not realize is that the government's decades-old system of number collection and crunching captures investments in equipment, buildings, and software, but for the most part misses the growing portion of GDP that is generating the cool, game-changing ideas. "As we've become a more knowledge-based economy," says University of Maryland economist Charles R. Hulten, "our statistics have not shifted to capture the effects."

Quite. The piece has sparked an interesting response from Brad Setser, Is national income accounting biased against the US? Brad does not fully 'buy' Mandel's argument on the national accounts:

Mandel's core argment is that the national accounts understate US investment in the knowledge economy and other intangible assets, understate savings by counting investment as consumption and fails to capture US knowledge exports.

...I don't buy the broader argument, at least not in full. Mandel didn't mention the Japanese knowledge Toyota exports to its US plants.  Or the German knowledge that Mercedes and BMW export to their US (and Eastern European) plants.  Or the French knowledge exported in the perfume, fashion and wine businesses ...

The flow of intangibles in the global economy is not one way. Nor do US firms capture all of the benefits of their "intangible" knowledge exports.  A US firm sets up a plant in China, and teaches its employees the secrets of building cars or computer chips.  And then a Chinese firm poaches its US firms' employees.   This is no doubt good for economic development, as it helps increase the productivity of Chinese firms.   But it makes it harder for the US to continue to reap monopoly profits on its knowledge.  Or its brands.

Mandel replied yesterday on his Economics Unbound blog: Brad Setser on Intangibles is worth reading - as are the comments on both blog posts. This is an important debate to have, and I am sure will be a recurring theme in future years.

Revenge of the math geeks

Geeks may not inherite the earth, but they're certainly getting plenty of ego stroking at the moment:

A generation ago, quants turned finance upside down. Now they're mapping out ad campaigns and building new businesses from mountains of personal data.

That is the central thesis of Business Week's new cover story: Why Math Will Rock Your World. We are seeing nothing less than the "mathematical modeling of humanity", claim the authors. To me that sounds a little too much like Hari Seldon, so I'd treat the claims below with a degree of scepticism:

The world is moving into a new age of numbers. Partnerships between mathematicians and computer scientists are bulling into whole new domains of business and imposing the efficiencies of math. This has happened before. In past decades, the marriage of higher math and computer modeling transformed science and engineering. Quants turned finance upside down a generation ago. And data miners plucked useful nuggets from vast consumer and business databases. But just look at where the mathematicians are now. They're helping to map out advertising campaigns, they're changing the nature of research in newsrooms and in biology labs, and they're enabling marketers to forge new one-on-one relationships with customers. As this occurs, more of the economy falls into the realm of numbers. Says James R. Schatz, chief of the mathematics research group at the National Security Agency: "There has never been a better time to be a mathematician."

History on the net? Bring on the H-Bot

Is the internet an accurate source of historical data? Most history professors are sceptical, avoiding internet sources. But it could soon revolutionise the way history is assessed, taught - and even researched. The latest issue of First Monday carries an article by Daniel J. Cohen and Roy Rosenzweig which shows that on at least basic historical facts, the internet can provide a surprisingly accurate indication of the historical consensus. Here is the abstract from Web of lies? Historical knowledge on the Internet:

Scholars in history (as well as other fields in the humanities) have generally taken a dim view of the state of knowledge on the Web, pointing to the many inaccuracies on Web pages written by amateurs. A new software agent called H-Bot scans the Web for historical facts, and shows how the Web may indeed include many such inaccuracies—while at the same time being extremely accurate when assessed as a whole through statistical means that are alien to the discipline of history.

For a new application, the H-Bot does remarkably well. When tested on the 33 multiple-choice questions from the fourth-grade NAEP American history exam, it got 27 answers right, a respectable 82 per cent. As the authors note, "the average fourth grader does far worse". And "...its successors are likely to reach 95 or even 99 percent." Why should we care? In part, "because these developments have significant implications for us as teachers and researchers".

In a very short time, when cell phone access to Web-based materials becomes second nature and H-Bot (or its successors) gets a little bit better, students will start asking us why we are testing them on their ability to respond to questions that their cell phones can answer in seconds. It will seem as odd to them that they can’t use H-Bot to answer a question about the Pilgrims as it is today to a student who might be told that they can’t use a calculator to do the routine arithmetic in an algebra equation.

The genie will be out of the bottle and we will have to start thinking of more meaningful ways to assess historical knowledge or “ignorance.” And that goes for not just high school instructors and state education officials but also the very substantial numbers of college teachers who rely on multiple-choice questions and Scantron forms.

The nature of historical research, too, will change:

These mathematical methods and other algorithms drawn from the computational sciences also suggest new techniques for historical research and new approaches to teaching history in an age in which an increasingly significant portion of the past has been digitized.   

It surely won't be long before an economics professor or grad student with a software bent develops the Econ-bot and takes economic teaching down the same path... and if they don't, Google will.

Productivity and the Nordic model

Indulge me, dear reader, with yet another post on the Nordic economies. A recent ECB Occasional Paper No 39, by Anatoli Annenkov and Christophe Madaschi, examined Labour productivity in the Nordic EU countries: a comparative overview and explanatory factors 1980-2004 (PDF). They find that:

Since the mid-1990s, the Nordic EU countries, particularly Sweden and Finland, have experienced stronger labour productivity growth than the larger euro countries. Like in the US, innovation and technological changes have played a major role in explaining the higher labour productivity growth in the Nordic EU countries compared with the larger euro area economies.

Information and Communication Technology (ICT) diffusion is a key element to explain these differences. A number of institutional indicators, relating to market regulation, human capital, R&D investments and venture capital, show that the Nordic EU economies are better positioned than some of the larger euro area countries to exploit the opportunities provided by ICT in terms of productivity growth.

However, remaining labour market rigidities may not allow the Nordic EU countries to fully enjoy the benefits of ICT diffusion in terms of increased employment.

Innovation and technology are important. But can it be mere coincidence that the two Nordic economies that suffered a severe recession in the early 1990s - Finland and Sweden - also posted the strongest productivity growth since the mid-1990s? This surely reflects both the pro-cyclical nature of productivity measures (reflecting a strong post-recession rebound in growth), and the medium-term productivity boost from the structural reforms both countries underwent. I often find such points missing in the literature, which is a little too starry eyed about 'innovation'.

For more on productivity, a recent paper comissioned by the Nordic Council of Ministers also sheds light on the issue. Productivity Growth in the Nordic Countries found that:

..changes in the relative standard of living in the Nordic countries have been driven by parallel changes in relative productivity. The analysis also suggests that wages per employees have, in general, been higher in Denmark, Iceland, and mainland Norway than in Sweden, and that these higher wages do not, in fact, appear to be correlated with higher productivity.

And there was productivity convergence within the Nordic countries:

The analysis also provides strong support for so-called absolute β-convergence among the Nordic countries. Thus, initial differences between the countries, in terms of real output per employee, real output per hour, and real wage per employee, slowly fade away over time. This finding tells us that the Nordic countries are not that different when it comes to saving rates, levels of the technology, and government policies.

Dickens was right

The novels of Charles Dickens are replete with dodgy characters. So what has changed in 150 years? Not that much. Norwich Union report that the cost of fraud to the nation rose to nearly £16bn last year, or £650 per household. The BBC story gives an example of the inventive nature of these latter day rogues:

The link between fraud and organised crime is revealed by the example of a drugs gang in a big English city. The criminals have contrived hundreds of car accidents in which they lured members of the public to crash into the gang's cars.

"The scale of this operation is enormous," Chris Hill said. "This gang had induced more than 400 accidents in the course of a year.

Meanwhile The Register reports the UK 'full of fraudsters', with nearly half of people quizzed in a survey admitting to forgery and one in ten to low level identity fraud.

A quarter of 1,000 Britons polled in a survey by document and identity verification firm TSSI confessed to exaggerating their educational qualifications to gain employment. One in ten of those quizzed by TSSI admitted they had misused ID or access control systems by impersonating someone else or had assisted someone else to do so, while a third (32 per cent) admitted conning their way past security personnel. One in five (21 per cent) owned up to having used fake identity cards.

"Identity fraud is now a major risk to consumers, yet our study shows that low level identity abuse and fraud is commonplace to the extent that it is almost becoming socially acceptable," said Danny Chapchal, TSSI's executive chairman.

Nearly half (45 per cent) of Brits polled in the survey admitted to some kind of forgery. ID cards were by far the most popular item, with 18 per cent admitting to forging these. Other items included doctors notes (five per cent); fake letters on company letterhead (four per cent); reference letters (four per cent); travel tickets (two per cent); concert tickets (one per cent); and tickets for sporting events (one per cent).

Just over one in ten people (12 per cent) owned up to impersonating someone else over email. Seven per cent confessed to assuming another person’s identity through forging their signature on letters or cheques. Meanwhile one in seven (14 per cent) confessed to spying on people entering PINs, pass codes and passwords.

A nation of swindlers, con artists, fraudsters and charlatans? You bet. Dickens was right.

The Register points out, as I should, that TSSI's Dishonest Britain report (which can be downloaded here) is self interested. 

TSSI has a vested interest here, of course, in talking up the scope of the very dishonesty among the general public its technology is designed to addresses. Nonetheless we can't help but be impressed by the ability of its researchers to elicit admissions from random punters in train stations that might (were they not anonymous) result in an extended stay at Her Majesty's pleasure.