Month: November 2005

Forbes on Schumpeter and Drucker

From Steve Forbes’ excellent tribute to Peter Drucker:

No surprise that the economist fellow-Austrian (at least by birth) Joseph Schumpeter was Mr. Drucker’s hero. In 1983, at the centennial of both Schumpeter and the then-legendary John Maynard Keynes, Mr. Drucker wrote in Forbes that Schumpeter’s centenary birthday would hardly be noticed. Yet “Schumpeter it is who will shape the thinking and inform the questions on economic theory and economy policy for the rest of this century, if not for the next 30 or 50 years.” Today Schumpeter’s emphasis on the crucial importance of entrepreneurship and “creative destruction” are now commonplaces.
As Mr. Drucker wrote over two decades ago, “The economy is forever going to change and is biological rather than mechanistic in nature. The innovator is the true subject of economics. Entrepreneurs that move resources from old and obsolescent to new and more productive employments are the very essence of economics and certainly of a modern economy. Innovation makes obsolete yesterday’s capital earnings and capital investment. The more an economy progresses the more capital formation — profits — will it therefore need.” These two men saw profits as a moral imperative, a genuine “cost” in the cost of staying in business because “Nothing is predictable except that today’s profitable business will become tomorrow’s white elephant.”

For the full tribute, see:
STEVE FORBES. “A Tribute to Peter Drucker.” The Wall Street Journal (Tues., November 15, 2005): A22.

Dobby’s Absence Tarnishes Goblet of Fire

Source of image: Warner Brothers photo posted at: http://www.newsday.com/features/booksmags/sns-potter-movie-jpg,0,7776280.photogallery?coll=ny-homepage-bigpix2005
You can’t make a long and complex novel into a movie, even a long movie, without cutting and simplifying. Harry Potter and the Goblet of Fire is a good movie, but not as good as the book. Much has been said of the movie’s dark side. The book had a dark side too, but what is missing from the movie is a key element of the book’s light side: Dobby, the rascally, loyal, house-elf with the mismatched socks. For those who have seen the movie, without having read the book, here is one of my favorite (albeit serious) Dobby passages:

“Dobby has traveled the country for two whole years, sir, trying to find work!” Dobby squeaked. “But Dobby hasn’t found work, sir, because Dobby wants paying now!”
The house-elves all around the kitchen, who had been listening and watching with interest, all looked away at these words, as though Dobby had said something rude and embarrassing. Hermione, however, said, “Good for you, Dobby!”
“Thank you, miss!” said Dobby, grinning toothily at her. “But most wizards doesn’t want a house-elf who wants paying, miss. ‘That’s not the point of a house-elf,’ they says, and they slammed the door in Dobby’s face! Dobby likes work, but he wants to wear clothes and he wants to be paid, Harry Potter. . . . Dobby likes being free!” (p. 378; ellipsis in original)

Rowling, J.K. Harry Potter and the Goblet of Fire (Book 4). New York: Arthur A. Levine Books, 2000.

Unintended Consequences

China’s plans to vaccinate billions of chickens against avian flu could backfire and end up spreading the disease, poultry and vaccine experts warned last week.
Vaccination teams can easily carry the virus from farm to farm on their shoes, clothes and equipment unless they change or sterilize them each time, the experts said. That could be particularly difficult in a country like China, where the veterinary care system is underfinanced and millions of birds are kept in small flocks by families.
Also, experts said, the task is likely to be overwhelming, because the Chinese eat about 14 billion chickens a year, so mass vaccinations would have to be repeated again and again, while the risk of the disease being reintroduced by migratory birds, in which it is now endemic, would be constant.
Bird vaccination campaigns involve a huge amount of labor because the animals must be injected one by one. China’s Agriculture Ministry said last Tuesday that it would inject all of the nation’s 5.2 billion chickens, geese and ducks with a vaccine.
Vaccinators were partly to blame for an outbreak of exotic Newcastle disease in California that lasted from 1971 to 1973, Dr. Carol Cardona, a poultry expert at the University of California at Davis, said last week.
In that case, the disease arrived with South American parrots imported for pet stores and spread to commercial poultry farms, but the state tried to vaccinate all “backyard birds,” like home-raised poultry.
“It became very clear that the vaccination crews themselves actually spread the virus,” Dr. Cardona said. “It’s very likely that this may happen in China as well.”

For full article, see: DONALD G. McNEIL Jr. “Health Experts Fear Chinese Flu Vaccination Plan Could Backfire.” The New York Times, Section 1 (Sun., November 20, 2005): 4.

Tom Cruise as Joseph Schumpeter?

After the film “A Beautiful MInd” on economist John Nash, The Economist suggests that there might be a market for movies about Keynes and Schumpeter. Here are there comments on the Schumpeter project:

Joseph Schumpeter. He said he wanted to be the world’s “greatest horseman, greatest lover and greatest economist”, and later claimed two of three—he and horses just didn’t get along. A perfect role, surely, for Tom Cruise, who was first choice to play Mr Nash. Schumpeter’s best-known theory even sounds like a Hollywood thriller: “Creative Destruction”. Now how would they merchandise that?

“Economists on film: Keynes the movie?” (Dec. 20th 2001), downloaded online from: http://www.economist.com/finance/displayStory.cfm?Story_ID=917413

Creative Destruction in “The Man in the White Suit”

Source: Amason.com
From David Thomson’s Amazon.com review of the movie “The Man in the White Suit”:

The Man in the White Suit focusses on the destructive aspects of all new inventions. Although Joseph Schumpeter’s name is never mentioned, his creative destruction concept pervades the story line. Sidney Stratton (Alec Guinness ) a non-credentialled and eccentric scientist who creates a new cloth that apparently will not wear out nor get dirty. The overall human community will enormously benefit—but what about those people who earn a living in the impacted industry?

Read the whole review, and others, at: http://www.amazon.com/gp/product/B00006FMAV/104-8533764-5015948?v=glance&n=130&n=507846&s=dvd&v=glance

Some Evidence Patents Matter

Apparently the evidence is mixed on the importance of patents as an incentive to innovation, though it always seemed intuitive to me that patents should matter. Petra Moser has just published research from his dissertation, that seems to add evidence on the side of patents mattering:

How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World’s Fairs

Petra Moser

Abstract: Studies of innovation have focused on the effects of patent laws on the number of innovations, but have ignored effects on the direction of technological change. This paper introduces a new dataset of close to fifteen thousand innovations at the Crystal Palace World’s Fair in 1851 and at the Centennial Exhibition in 1876 to examine the effects of patent laws on the direction of innovation. The paper tests the following argument: if innovative activity is motivated by expected profits, and if the effectiveness of patent protection varies across industries, then innovation in countries without patent laws should focus on industries where alternative mechanisms to protect intellectual property are effective. Analyses of exhibition data for 12 countries in 1851 and 10 countries in 1876 indicate that inventors in countries without patent laws focused on a small set of industries where patents were less important, while innovation in countries with patent laws appears to be much more diversified. These findings suggest that patents help to determine the direction of technical change and that the adoption of patent laws in countries without such laws may alter existing patterns of comparative advantage across countries. (JEL D2, K11, L51, N0, O14)

Source:
Moser, Petra. “How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World Fairs.” The American Economic Review 95, no. 4 (2005): 1214-1236.

Massive Firings Get Reported; Massive Hirings Do Not

The media have a tendency to cover massive layoffs and firm failures but rarely mention when firms hire a large number of people or when a surprisingly large number of new firms are being formed in particular months. From an evolutionary point of view, firm bankruptcies are undesirable only if they are not brought about by other firms that provide better products and services. Joseph Schumpeter’s (1942) characterization of capitalism as a process of creative destruction underlines the evolutionary view that better economic structures can only be achieved by allowing underperforming entities to be replaced by organizations that can make better use of their resources. (p. 225; italics in original)

Murmann, Johann Peter. Knowledge and Competitive Advantage: The Coevolution of Firms, Technology, and National Institutions, Cambridge Studies in the Emergence of Global Enterprise: Cambridge University Press, 2003.

Dear Feds: Stop Bugging US!

15bugs.1842.jpg Asian lady beetles (Photo source: online version of article cited below, downloaded from: http://www.nytimes.com/2005/11/15/national/15bugs.html?pagewanted=1)

(p. A18) This Asian cousin of the benign, beloved ladybug has transformed domestic life in rural and suburban regions from Louisiana to Canada, intruding on the peace – and the attics, curtains and nostrils – of a significant swath of the nation.

Some years, the beetle problem is terrible. Some years, like this one, there are fewer beetles. But even so, in the 12 years that the beetle has spread from the South through the East and Midwest, irritation has given way to fury in its favorite wooded haunts.
“Please help us get rid of these bugs!” one Kentuckian commented on an anonymous survey by the University of Kentucky’s entomology department. “It’s so bad you can’t eat safely. They are falling into the food and drinks.”
A second person wrote, “A huge swarm enveloped my house last fall, causing me to fall off the porch and break my shoulder.” From a third came a cri de coeur: “Get rid of these pests. They are making me crazy. They have ruined my life.”
Unlike domestic ladybugs, the multicolored Asian variety likes to keep its polka dots indoors in the winter. In older rural neighborhoods, where houses are not knit tight, only insecticide can hope to keep them out. They swarm by the tens of thousands. Unlike the domestic ladybug, the Asian variety leaves a yellow stain. It can bite. Worst of all, it stinks.
. . .
It was for the benefit of farmers like the pecan growers that the Department of Agriculture released Asian lady beetles in the 1980’s in Georgia and elsewhere. The promise of aphid-free fruit trees and crops had prompted the department to try to import the bugs repeatedly, from 1916 on. But they never seemed to survive, until the early 1990’s.
A 1995 article in the journal Agricultural Research quoted William H. Day, a federal entomologist with the Agricultural Research Service, saying, “U.S.D.A. scientists have gone overseas for more than 100 years to search for, test, import, rear, release and evaluate exotic beneficial lady beetles, parasitic wasps, other insects and microorganisms.”

FELICITY BARRINGER. “Asian Cousin of Ladybug Is a Most Unwelcome Guest.” The New York Times (Tuesday, November 15, 2005): A18.
(Note: ellipsis added.)

It’s Hard to Be Consistent

After Alfred Kahn succeeded in leading the effort to deregulate the airline industry, he apparently received some complaints about some of the results of deregulation:

When Senator Barry Goldwater, the 1964 Republican presidential candidate and author of the bestselling Conscience of a Conservative, wrote him to complain about unpleasant conditions aboard now-packed flights, Kahn replied that this was the inevitable consequence of breaking up a “cartel-like regime.” He added, “When you have further doubts about the efficiency of a free market system, please do not hesitate to convey them to me. I also warmly recommend some earlier speeches and writings of one Senator Barry Goldwater.” (p. 382)

Yergin, Daniel, and Joseph Stanislaw. The Commanding Heights: The Battle for the World Economy. New York: Simon & Schuster, 1998.
The results of the free market combine the preferences and actions of all of the participants in the market. So even the most fervent advocate of the process, will inevitably find some of the results distasteful or unpleasant. But the advocate should try to be consistent for two reasons. Primarily, because the free market embodies free choice, and free choice is morally good. Secondarily, because the free market produces more good results than any other process.