Author: Art Diamond

Greta Thunberg “Brushed Off” Need to Know Economics

(p. A7) DAVOS, Switzerland — Greta Thunberg, the 17-year-old Swedish climate activist, spent this week inside the halls of power at the World Economic Forum, . . .

. . .

Speaking to reporters just before the march set off, Ms. Thunberg and four youth activists from Europe and Africa rebuked business and government leaders at the World Economic Forum for not taking climate action and warned that they would continue to press them to stop investing in fossil fuels. Those demands, Ms. Thunberg noted, “have been completely ignored.”

Asked about a suggestion by Treasury Secretary Steven Mnuchin that she learn economics in college before calling for divestment, Ms. Thunberg brushed off such criticisms as irrelevant. “If we care about that, we wouldn’t be able to do what we do,” she said.

For the full story, see:

Somini Sengupta. “Teenage Activist Joins Climate March on Last Day at Forum.” The New York Times (Saturday, January 25, 2020): A7.

(Note: ellipses added.)

(Note: the online version of the story has the date Jan. 24, 2020, and has the title “Greta Thunberg Joins Climate March on Her Last Day in Davos.”)

French Labor Law Reduces Firm Innovation

I heard an intriguing paper at the January 2020 AEA meetings in San Diego. It shows that a French labor market regulation discourages firm innovation. The abstract of the working paper version of the paper appears below.

We study the impact of labor regulation on innovation. We exploit the threshold in labor market regulations in France which means that when a firm reaches 50 employees, costs increase substantially. We show theoretically and empirically that the prospect of these regulatory costs discourages firms just below the threshold from innovating (as measured by patent counts). This relationship emerges when looking nonparametrically at patent density around the regulatory threshold and also in a parametric exercise where we examine the heterogeneous response of firms to exogenous market size shocks (from export market growth). On average, firms innovate more when they experience a positive market size shock, but this relationship significantly weakens when a firm is just below the regulatory threshold. Using information on citations we also show suggestive evidence (consistent with our model) that regulation deters radical innovation much less than incremental innovation. This suggests that with size-dependent regulation, companies innovate less, but if they do try to innovate, they “swing for the fence.”

The source of the abstract quoted above, is:

Aghion, Philippe, Antonin Bergeaud, and John Van Reenen. “The Impact of Regulation on Innovation.” 2019.

Clayton Christensen Wrote Well on Innovation

Clayton Christensen’s The Innovator’s Solution (co-authored with Michael Raynor) was packed with insights and examples on how entrepreneurs and incumbent firms innovate. He wrote several other thought-provoking and useful books, starting with his now-famous The Innovator’s Dilemma. Just a few days ago, I told one of my students from Africa that he should read Christensen’s latest book, which gives wonderful examples of how entrepreneurial innovation in developing countries can help them prosper.

This evening (Thurs., Jan. 24, 2020) I was discouraged to receive an email alert from the Wall Street Journal saying that Christensen died today.

A year or so ago, I sent him a late draft of my Openness to Creative Destruction, which references his work several times. He never responded. Maybe he already was too ill to look at it, or maybe he didn’t like it. I’ll never know. But either way, I thank him for all that his books taught me about innovation.

Christensen’s best book is:

Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Christensen’s best-known book is:

Christensen, Clayton M. The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business. New York: Harper Books, 2000.

Christensen’s most recent book is:

Christensen, Clayton M., Efosa Ojomo, and Karen Dillon. The Prosperity Paradox: How Innovation Can Lift Nations out of Poverty. New York: HarperBusiness Press, 2019.

Incumbent Italian Firms Invest in Cronyism, Not Innovation

I heard an intriguing paper at the January 2020 AEA meetings in San Diego. It shows that, at least in Italy, big incumbent firms protect their position more through investment in cronyism than through investment in innovation. The abstract of the NBER working paper version of the paper appears below.

Do political connections affect firm dynamics, innovation, and creative destruction? We study Italian firms and their workers to answer this question. Our analysis uses a brand-new dataset, spanning the period from 1993 to 2014, where we merge: (i) firm-level balance sheet data; (ii) social security data on the universe of workers; (iii) patent data from the European Patent Office; (iv) the national registry of local politicians; and (v) detailed data on local elections in Italy. We find that firm-level political connections are widespread, especially among large firms, and that industries with a larger share of politically connected firms feature worse firm dynamics. We identify a leadership paradox: When compared to their competitors, market leaders are much more likely to be politically connected, but much less likely to innovate. In addition, political connections relate to a higher rate of survival, as well as growth in employment and revenue, but not in productivity – a result that we also confirm using a regression discontinuity design. We build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome certain market frictions. Our model highlights a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity.

The abstract quoted above is from:

Akcigit, Ufuk, Salome Baslandze, and Francesca Lotti. “Connecting to Power: Political Connections, Innovation, and Firm Dynamics.” NBER Working Paper #25136, National Bureau of Economic Research, Inc., Oct. 2018.

Armed Parishoners Avert Massacre

(p. A1) WHITE SETTLEMENT, Texas — A gunman opened fire at a church in Texas on Sunday morning [December 29, 2019], killing two people with a shotgun before a member of the church’s volunteer security team fatally shot him, the authorities said.

About 250 people were inside the auditorium of the West Freeway Church of Christ in White Settlement, near Fort Worth, when the gunman began shooting just before communion, said Jack Cummings, a minister at the church.

Mr. Cummings said the gunman was “acting suspiciously” before the shooting and drew the attention of the church’s security team. The team, he said, has existed for at least 10 years and is made up of members of the church’s congregation who are licensed to carry firearms and practice shooting regularly.

“They saved a lot of lives today,” Mr. Cummings said. “Because this thing would have been a massacre otherwise.”

For the full story, see:

Patrick McGee and Mihir Zaveri. “‘This Would Have Been a Massacre’ if Not for Church Security.” The New York Times (Monday, December 30, 2019): A9.

(Note: bracketed date added.)

(Note: the online version of the story was last updated on December 31, 2019, and has the title “Shooting at Texas Church Leaves 2 Parishioners Dead, Officials Say.”)

Flying Cars Face “a Long Road to Regulatory Approval”

(p. B3) Curtiss Autoplane. Fulton Airphibian. Taylor Aerocar.

Businesses and entrepreneurs have been promising a mass-produced flying car for more than a century. None have succeeded, but that hasn’t stopped Hyundai and Uber from wanting in on the action.

. . .

. . . there is a long road to regulatory approval. According to Morgan Stanley, air taxis will probably be used first in package delivery, which has fewer technical and regulatory barriers.

For the full story, see:

Niraj Chokshi. “Hail a Flying Car? Soon, Hyundai and Uber Say.” The New York Times (Wednesday, January 8, 2020): B3.

(Note: ellipses added.)

(Note: the online version of the story has the date Jan. 7, 2020, and has the title “Where’s Your Flying Car? Hyundai and Uber Say They’re Working on It.”)

Facebook’s “Lord of the Rings” Defense of Free Speech

(p. B1) On Dec. 30, [2019] Andrew Bosworth, the head of Facebook’s virtual and augmented reality division, wrote on his internal Facebook page that, as a liberal, he found himself wanting to use the social network’s powerful platform against Mr. Trump. But citing the “Lord of the Rings” franchise and the philosopher John Rawls, Mr. Bosworth said that doing so would eventually backfire.

“I find myself desperately wanting to pull any lever at my disposal to avoid the same result,” he wrote. “So what stays my hand? I find myself thinking of the Lord of the Rings at this moment.

“Specifically when Frodo offers the ring to Galadrial and she imagines using the power righteously, at first, but knows it will eventually corrupt her,” he said, misspelling the name of the character Galadriel. “As tempting as it is to use the tools available to us to change the outcome, I am confident we must never do that or we will become that which we fear.”

For the full story, see:

Kevin Roose, Sheera Frenkel and Mike Isaac. “Agonizing at Facebook Over Trump.” The New York Times (Wednesday, January 8, 2020): B1 & B7.

(Note: bracketed year added.)

(Note: the online version of the story has the date Jan. 7, 2020, and has the title “Don’t Tilt Scales Against Trump, Facebook Executive Warns.”)

Feds Investigate Theft of Intellectual Property by Chinese Nationals

(p. A10) BOSTON — Zaosong Zheng was preparing to board Hainan Airlines Flight 482, nonstop from Boston to Beijing, when customs officers pulled him aside.

Inside his checked luggage, wrapped in a plastic bag and then inserted into a sock, the officers found what they were looking for: 21 vials of brown liquid — cancer cells — that the authorities say Mr. Zheng, 29, a cancer researcher, took from a laboratory at Beth Israel Deaconess Medical Center.

Under questioning, court documents say, Mr. Zheng acknowledged that he had stolen eight of the samples and had replicated 11 more based on a colleague’s research. When he returned to China, he said, he would take the samples to Sun Yat-sen Memorial Hospital and turbocharge his career by publishing the results in China, under his own name.

. . .

Mr. Zheng’s case is the first to unfold in the laboratories clustered around Harvard University, but it is not likely to be the last. Federal officials are investigating hundreds of cases involving the potential theft of intellectual property by visiting scientists, nearly all of them Chinese nationals.

For the full story, see:

Ellen Barry. “Chinese Man Is Accused Of Smuggling Lab Samples.” The New York Times (Wednesday, January 1, 2020): A10.

(Note: ellipsis added.)

(Note: the online version of the story has the date December 31, 2019, and has the title “Stolen Research: Chinese Scientist Is Accused of Smuggling Lab Samples.”)

Bay Area Californians Moving to Where Living Costs Less

(p. A1) SAN FRANCISCO — Christine Johnson, a public-finance consultant with an engineering degree, was running for a seat on the San Francisco Board of Supervisors.

She crisscrossed her downtown district talking about her plans to stimulate housing construction, improve public transit and deal with the litter of “needles and poop” that have become a common sight on the city’s sidewalks.

Today, a year after losing the race, Ms. Johnson, who had been in the Bay Area since 2004, lives in Denver with her husband and 4-year-old son. In a recent interview, she spoke for millions of Californians past and present when she described the cloud that high rent and child-care costs had cast over her family’s savings and future.

“I fully intended San Francisco to be my home and wanted to make the neighborhoods better,” she said. “But after the election we started tallying up what life could look like elsewhere, and we didn’t see friends in other parts of the country experiencing challenges the same way.”

. . .

(p. A12) Greg Biggs is adding more machines and moving jobs to cheaper locations. Mr. Biggs is the chief executive of Vander-Bend Manufacturing, a company in San Jose that makes metal products including surgical components and racks where data centers store computer servers. Vander-Bend has doubled its head count over the past five years, to about 900 employees, and pays $17 to $40 an hour for skilled technicians who need training but not a college degree.

This is precisely the sort of middle-income job needed in the Bay Area, which like many urban areas is bifurcating into an economy of high-wage knowledge jobs and low-wage service jobs.

The problem is he can’t find enough workers. The unemployment rate in San Jose is around 2 percent, and many of Vander-Bend’s employees already commute two or more hours to work. To compensate, Mr. Biggs has bought several van-size robot arms that pull metal panels from a pile then stamp them flush, bend their edges and assemble them into racks. He has opened a second location 75 miles away in Stockton, where labor and housing costs are a lot lower.

This is in most ways a success story. Vander-Bend is raising wages and training workers. The machines aren’t replacing jobs but instead make them more efficient, and the company is bringing higher-wage positions to a region that needs more of them. But for workers, even substantial income gains are being offset by rising costs.

For the full story, see:

Conor Dougherty. “True, California Is Booming. Also True: California’s a Mess.” The New York Times (Monday, December 30, 2019): A1 & A12.

(Note: ellipsis added.)

(Note: the online version of the story has the date December 29, 2019, and has the title “California Is Booming. Why Are So Many Californians Unhappy?”)

Art Carden Praises “Openness to Creative Destruction”

Economist Art Carden has written a fine review of my Openness book under the title “New Ideas Are the Key to Economic Development.” The review is fair, mostly positive, and well-written. His main reservation is that he sides with many other distinguished libertarians, but against me, on my argument that the patent system should be reformed rather than abolished.

Here is the final paragraph of Carden’s review:

I am glad to see Openness to Creative Destruction appear in print. It strikes a fine balance between detail and a big-picture perspective that, I think, can be read profitably by specialists and students alike. Anyone who wants to understand how the world grew rich and, importantly, what will sustain our enrichment would do well to have this book on the shelf.