Category Archives: Neo-Schumpeterianism

Nutwood City Limits…..

by in Economics, Industrial Policy, Neo-Schumpeterianism

red squirrel

Cute, huh? Everybody loves a red squirrel. Maybe it’s the effect of Ladybird books or Beatrix Potter (who I believe was secretly a Furry). Despite the irrefutable fact that a squirrel is essentially a rat with an expensive PR agency, you have to love them in all their acorn munching, tree scampering, tasting brilliant in Majorcan style paella cutitude. Because that’s what we do. We love animals that look cute. Trust me, the internets are full of them.

But what matters  in a system? The cute species or the OMG fugly earthworm that aerates the soil and allows the plants to grow upon it, and therefore provides the plant feedstock upon which the cute creatures live? Why doesn’t the WWF use a blind ugly worm as its logo? Naturally, we tend to focus attention on the big cute species, but that’s because of their significance to us not to nature.

And so to industrial policy. The red squirrel effect is an effect in industrial policy that I have just made up to describe the tendency to focus on cute species rather than systems. For good Ol’ squirrel Nutkin, you can insert a given champion/sub-sector/favourite policy example and extol its virtues to your hearts content and then turn round and say that therefore makes a case for some kind of industrial policy or other. It’ll look superficially great. You’ll compete to have an opportunity to associate yourself with its success. Then in twelve months, it’ll launch it’s new product. A Leyland Princess. It’ll tank. There’ll be angry enquiries. Taxpayers, that subset of the population represented by the Daily Mail, will be furious. Reports will be written, recommendations made, policies changed and you’ll be back at square one. That’s how industrial policy worked in the UK in the 1970s, for a given value of worked of course.

The fact of the matter is that if you do want to operate an industrial policy, you have to do so given that you have concern for the system in which industrial activity takes place. If you don’t have an ecosystem niche for a red squirrel then it doesn’t matter how many red squirrels you try to support: they will all die out regardless. If, on the other hand, you have a forest with the right type of basic feedstocks, the right overall balance of species within it, and importantly the right predators, then you have a chance of introducing a red squirrel colony and having it work. (Incidentally, the Heck brothers who, supported by Goring, tried to breed back the extinct aurochs found out the hard way: their breed, Heck cattle, were never able to thrive in the wild because they had not co-evolved to work within that system. As a result, Hecks that escaped into Belarus died out pretty soon. The remainder became a) domesticated and b) studied and found not to be so similar to the original aurochs, to the extent that Spanish fighting bulls are probably a closer match. But that’s for another day.)

So if you are going to have concern for a system, then you need to start with the root species. For any given industrial system these are going to be “general purpose” or “basic and enabling technologies”. Both of these descriptions are actually misnomers. The ‘technology’ is technology in an economic, not engineering sense, and therefore means ‘way of changing inputs to outputs’ and are described as people, methods and things, i.e. capital, labour and way of combining the two to make an output. I emphasise this point because it is not sufficient to have a general purpose technology without the people and know how needed to make it work. The feedstock of industrial systems is therefore a stock of human and technical capital that enables technologies higher up in the food chain to access the root feedstock. Now the existence of root feedstock is something that government should be able to help manage: after all, it has oversight of the bulk of the education system turning out people who understand the feedstock and its access points right? (Er,,, well,,,,)

The second aspect to a general systems approach to industrial policy that you have to consider is the question of what’s so special about red squirrels anyway. Every politician has their favourite example to hold up. None of them are any good. They might be profitable, glamorous, or anything else for a while, but they are only contingent and temporary. We worry about preserving red squirrels because they are being outcompeted by grey squirrels. But the forest actually doesn’t care. Whilst red squirrels are the most efficient users of feedstock energy, they will have the niche. When something else comes along, it will have the niche. What is key for industrial policy is that it looks at the feedbacks between species as much as it does any one species. Change will happen whether or not it is directed, but a change which cannot co-exist with the system is going to do either of two things: either it won’t take root or it will invade and damage the system around it. How you manage these effects are better strategic choices in general than trying to preserve a system as it is, which may take more energy (=money) to do than can be generated from the preserved system.

A third point is that systems are fuzzy at the boundary. In ecosystems we would be looking at transition zones between systems. For an industrial system, it is recognising that the bounds of the system are open and porous. Entry and exit points have to be kept open enough to keep allowing new sets of entrants to the system or  those who can no-longer exist within it to leave as painlessly as possible. An insular industrial system within an interconnected world doesn’t imply that preservation is worth the effort. It usually implies that you are preventing some flow to another system, making that system behave sub-optimally as well as the system you are trying to preserve.

Finally, the most overlooked feature of an industrial or other system are the ‘hyphens’ within it. Hyphens connect two elements of the system in some way. Intra-system connections are as important as inter-system connectors: they provide essential specialisations which connect, inter-alia, different capital stocks (‘IT in biotech’), expertise (‘technology lawyers’) or people (‘networking’, to the extent that it is actually real does this).

What you emerge with from the systems perspective is an absolute mess of factors that could be control variables if you chose them to be, but would be better off not doing so because their effects on other systems components might be deleterious. Those effects are hidden to you as a ‘system strategist’ working only from a system description. They are often not known to participants within the system (who rely on signals rather than direct outputs). The control variables that make sense are those which improve the quality of the whole system (so good general technological education would be useful. As an aside, I’ve had many reports of what was learnt in IT at schools, and a good many of them were something like “remedial MS office”. How do people learn IT and not C or whatnot? Does the education system really think that the Her Britannic Majesty’s Commonwealth is best served by people who can type a letter when they’re told to rather than people who can hack up a new word-processor if they need to? Don’t answer that. We already know the answer is yes.) and enable transitions from one state of the system to another. (Systems exhibit chaotic transitions. People don’t handle that so well, so gearing unemployment towards managing transitions and enabling people to do the next thing would be useful. That’s just an example for labour. It could be discussed in the same way for changing a quality of capital or a type of input).

Ultimately, unlike biology, economics only takes place in the wild. In the wild, technologies and companies only exist within systems. If we forget this, industrial policy becomes an exercise in futility. If we learn this, we can make fewer and better decisions and be rewarded with more robust and more dynamic systems.

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These go up to 11

by in Economics, Neo-Schumpeterianism, Recording theory and Practice and tagged ,

This ain’t a scene it’s a God damn Arms Race!

No actually I’m not a Fall Out Boy fan, but it is a good chorus, and it might illustrate some of the things I will be banging on about to talk about arms race competition. There’ll even be models an’all later, but here’s some of the basics in a couple of little cases and a long explanation of my favourite engineering tool.

(I probably didn’t mention, I have a bit of a background in sitting at the console in a recording studio so if there are technicals that a) don’t seem right to fellow recordists then I’m probably oversimplifying for non recordists and b) if there are technicals that don’t make sense to non-recordists then I’m probably trying too hard to get across their purpose etc. Either way, I’m probably annoying both of you, and I’m very sorry)

You’re there, watching television, comfortably settled in front of the sofa, when a programme reaches it’s commercial break. Suddenly, the adverts begin, seemingly twice as loud as the programme. You fumble for the controller, perhaps wishing you’d just downloaded the show from the internet, where some kind soul would have pre-edited out the adverts.

The loudness of adverts is a minor annoyance in the grand scheme of things, deserving of the “first world problems” dismissal at best. However, they also form an interesting case in both the uses and abuses of technology and in the type of incentives that lead to loudness competition. The technology in question, the family of devices known as limiters or compressors, is one of the most useful tools in a sound artists kit. They are used for giving punch and presence to mixes, gluing disparate sounds together or sweetening vocals and their use is common throughout the recording or broadcasting industries. However, they can also be put to use in making the overall sound product ‘louder’. It is this use which is the main pre-occupation of the story.

Before we get to that stage it’s worth considering what a compressor or limiter actually does in principle. The device is actually an arrangement of two simpler components. The first, an envelope follower, takes the output of a signal and, as its name suggests, follows it. When the level of the signal is above a given, generally user specified, value, the thresh-hold, the envelope follower sends a signal to the second component, the levelling amplifier. This reduces the level of the parts of the signal by a specified amount, usually denoted by a dial marked ‘ratio’. The signals are then re-combined, often being passed through a second stage of amplification, generally called “make-up”. The result of this process is that sounds whose peak volume is greater than the thresh-hold are attenuated. The dynamic range of the whole signal is therefore ‘squashed’, showing a smaller difference between peak and troughs in its volume.

If it seems counter-intuitive that an amplifier that reduces the volume of loud signals would make the whole signal louder, you need to consider the difference between peak volume and average volume. The peak is, as it’s name suggests, the level of the loudest signal (‘transient’) in the whole. Reducing the gap between peak and floor and then re-amplifying the signal afterwards means that the average volume of the signal will be higher. Peak volume, in broadcasting terms, is given as an iron limit that may not be exceeded. Average volume, on the other hand, is not so simple to define, and as a consequence technical standards for loudness are far more recent. So when an advert wants to grab your attention, the avenue of shouting at a higher peak volume is closed. Instead, it gets attention by shouting every word.

The use of loudness as a competitive tool is not restricted to broadcast advertising. In recorded music, listener attention is also a desired reaction, and the cheapest way to get it is to simply make the average volume of your song higher. It will come as no surprise that the average volume of recordings has been rising consistently since the introduction of digital recording to the mass market in the 1980s. The process pretty much reaches it’s apotheosis with Metallica’s Death Magnetic album, which I find pretty much unlistenable on the grounds of its loudness. This process is generally held to have a couple of different components. The first, the technological change component is an expression of firstly the greater headroom afforded by digital recording and secondly the greater prevalence of devices tailored to using that headroom. The second is the demand component and is a little more complex in the sense that it has to account for 1) greater concentration among media outlets leading 2)greater homogeneity of outputs across media “strands” which means that 3) competition becomes less about diversity of niche and more about being the biggest thing in the centre of the market place.

This process is generally called “The Loudness War”, and the important things to remember, as I said, before I even think about giving any of the modelling stuff away, is that it is

  1. Dynamic. Arms races are  expressed in terms of the change in something over a period of time. This becomes crucial when we finally do take the plunge to modelling.
  2. Bounded. This can either be in terms of carrying capacity (for ecological arms race models), diminishing marginal benefit (economics models), or technology (in fact in this case a limiting factor is that the ultimate of a continuously amplified signal is just a square wave.

  3. Impose External costs. The participants in an arms race competition act according to their own interests. Costs or benefits may fall on non-combatants. In this case the ultimate listeners of Metallica’s Death Magnetic album pay the ultimate external cost of the participants need to attract radio attention.

(There are few resonances you might have noted here. One is that the process of competition leading to external costs when individual participants are engaged in an arms race is very similar to the cost of increased safety in SUVs. Brilliant Paper by Michelle White (2004) here. The second is that this framework is a bit, well Marxish. Actually that’s true: Marx’s insight that capital and labour fight over profits is approximately equivalent to a Lotka Volterra framework with negative feedback. An arms race is the same type of framework with positive feedback: i.e. Bees and flowers rather than foxes and bunnies. Finally the interesting feature is the runaway use of something that is actually quite useful in another context, which is generating that nice bit of round, warm presence in your mixes.)

Arms race competition is not a bug, it’s a feature. It is absolutely central to any type of competition where one of the key dimensions is technology. (Technology is present everywhere, but it’s not always the most important part of the competitive environment).  The next time you do the fumble for the remote at the ad-break, remember, it’s not particularly personal, you just got in the way of a gunfight.

Valar Morghulis.

by in Economics, Neo-Schumpeterianism

The funny thing about the confusing nature of the world is that it’s become genuinely hard to put myself on the political spectrum. It used to be that you knew where you were. For the first 18 odd years of my existence, these were fairly cast-iron verities. The enemy was obvious, whether you began from the perspective of being a leftist (handwringing pinko) or a rightist (capitalist fascist Pig Dog).

But now? I couldn’t honestly tell you what a leftist or a rightist or a centrist or a person on the fourth dimensional axis wants. Perhaps all ideologies have been submerged into a we know what’s best managerialism. Maybe there are no more ideologues (who at least propound something and allow you to be clear about what their premises are). Maybe people are just too afraid to come out with it (and dear Crom was it not a very quick fall from the open information Utopia we dreamed of in the Nerd Nation of the early 90s to the” Orwell meats Phillip K Dick in a crack lounge world” we seem to be on course for?). For whatever reason, it feels to me that whilst we have hit a set of what I suppose I am supposed to politely call challenges, there is a depressing dearth of solutions, and those few around seem  to be more about rebooting the last cycle of the economy than doing anything new.

“So what should we do, O wise one?” you plead. Obviously you do. I give you a simple, two word answer: “Break Stuff!”. You, equally obviously, then make a face that says “Wierdo” and run away to whatever convocation you feel happiest in. I am left pondering what it is about stasis that people find so attractive.

You see the thing about breaking stuff is that it doesn’t have to  actively require you to think about the stuff you’re going to break. It just requires you to get resources that would have bee used for the thing you are going to break to be used for whatever it is you wish to do rather than what the incumbent wishes they be used for. In other words, make something, break something else. I think of this as the Shiva principle, after the splendidly destructive Hindu God/Aspect of God, but if you’re of a more Chinese bent you can express it with the three straight lines of the trigram Heaven, or if, like me, you’ve come from the deep dark depths of industrial organisation theory, you can just call it Creative Destruction. All three express a simple point: that if resources are rival then any act of creation will also carry an aspect of destruction.

Now to me, Creative Destruction is actually as much of the left as it is of the right. No seriously. “Smash Capitalism and Replace it with Something Nicer” is as much a statement of creative  destruction as Gordon Gekko’s spiels. Evolution is not teleological. It has no direction save adaptation and no purpose save it’s own occurrence. How we choose to adapt to it is a human choice, and all too often the choice we make is to attempt to resist. This is often false kindness, a transfer of resources away from adaptation or embracing change into preservation of structures that might have fallen because better ones have come along. What’s leftist about conserving our current arrangements? If you complain about how unjust they are, wouldn’t you want to advocate an alternative?

The implications of accepting that creative destruction is a fact about the world are that you can take good actions in managing it. Consider, if you accept that technological change will create some economic distress, then build your systems about mitigating that distress by helping the displaced into new technologies. This is not something that any of our systems are good at. For instance what we in the UK do is insist that people are deployed in work that may well be skill depleting (and probably at minimum is not skill enhancing for people who haven’t been very long term unemployed and or have just come out of education), and in any case requires a subsidy from the taxpayer to be viable. Thus we neither respect an individuals endowment of ability nor try to increase it before we find a job for them that still needs everyone else to pay for it. Why aren’t both capitalists and socialists at the barricades for this?

So to both of you still reading this, what will follow are a series of posts which loosely theme around the possibility of taking an accepting view of change and the likelihood of being able to live with it, based on an evolutionary approach to technological change. It will take in the really big challenges (dealing with robots, getting off the planet) as well as the trivial ones (sorting out the financial crisis) and make a point or two about why predicating systems on change is a good idea, why competition is good and contestability vital and these are not inconsistent with re-wiring our assumptions so that we don’t write off so many people along the way. There might also be some heavily London N17 and N22 related rants, for which I apologise.

Valar Dohaeris