"Innovation + Equality“

How to create a future that is more Star Trek than the Terminator

Joshua Gans & Andrew Leigh

"Austrian-born Economist Joseph Schumpeter did not suffer from excessive modesty. At the end of his life, he told his friends that he had set himself three life goals: to be the greatest lover in Vienna, the best horseman in Austria, and the world's top economist. He said that he had attained two of these three goals--but wouldn't disclose which ones."

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According to Schumpeter, "the price of progress falls into two broad categories: the price paid to get creation and the price paid in terms of destruction."

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"The creation price arises when the wealth of society is allocated to those who were the drivers of progress and away from those who are not. The people who drive progress need an appropriate reward for their efforts. Whatever remains should be allocated to others."

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"The destruction price focuses on the costs that arise when innovations and new technologies are introduced into the economy. Critically, the people who feel the costs are frequently different than those who received the benefits. The destruction price can be disproportionately borne by those who are already vulnerable and who do not enjoy the gains in creation."

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"This is why and are intertwined. If our system involves those who create being rewarded for their efforts, then we must ensure that some of those rewards come back to those who are harmed by new innovations. Both prices must be financed out of the rewards."

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typically involves two stages: exploration and exploitation.

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"[David] Autor and coauthors have looked at job change by dividing jobs into three categories: manual, routine, and abstract."

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"Routine jobs are occupations such as data entry, administrative support, and repetitive manufacturing tasks... what makes routine jobs vulnerable to computerization is that they involve following established rules. "Put the tape in the recorder. Type up the letter. Save and print." Or, "Scan the customer's order. Take their payment.""

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"By contrast, abstract jobs involve problem solving, creativity, and teamwork. When a lawyer advises a client whether to accept a plea bargain or a manager decides how to respond to an employee arriving late for work, they are tackling problems that do not have a closed-form solution. It is unlikely that computers will replace the work presently done by artists, veterinarians, merchant bankers, architects, physicians, professors, or politicians - at least until the singularity comes along."

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"More interesting is the resilience of manual jobs to computerization. Despite the predictions of science fiction - from Star Wars to The Jetsons - attempts to automate the work of jobs such as cooking, cleaning, security work, and personal care have largely failed."

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"In any analysis of advanced country , it's clear that trade and immigration play second fiddle to technological forces. One statistic that sums this up is that over the period 1995 to 2005, the United States lost 3 million manufacturing jobs. Meanwhile, China lost over 10 million manufacturing jobs."

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"During those years, technological advances cost over three times as many Chinese jobs as us ones. As Harvard's Larry Katz encapsulates the impact of globalization versus innovation, "Over the long haul, clearly automation's been much more important - it's not even close."“

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"Moreover, whether a job will actually be depends not just on its characteristics but on the relative cost of people and machines. The day that someone invents a superrobot that can do your job is not the day you get fired. You'll keep your job if renting the machine cost more than paying your salary. Even if the machine is cheaper, you may keep your job just because customers prefer dealing with a real person. Do you want to put your child into the first robot-run daycare center?"

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"Put yourself back in the year 2000, and imagine you had to forecast what would happen in the US labor market in the coming decades. Maybe you would predict a fall in the number of lighthouse keepers and level crossing attendants. But would you have anticipated the rise of app developers, data miners, and social media managers? In practice, it's invariably easier to pinpoint the sectors where jobs will be lost than those in which new positions will be created.“

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"One of the hardest things to know about technological change is the way it may create new job openings. When we replaced human lift operators with automatic elevators, it suddenly became much more affordable to build skyscrapers - creating thousands more openings for construction workers. When we replaced horses with cars, our city streets stop being filled with manure, which was not only good for public health, but also for street vendors and open-air restaurants."

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"Since then, most of the job creation has occurred in urban areas. Similarly, one of the toughest things to know about driverless cars is how they might create new jobs as they reshape logistics, reduce congestion, and transform the commuter experience."

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"Growing up in the 1970s, we watched far too many television shows about superheroes. For hours we followed the exploits of figures such as Wonder Woman, Superman, Spider-Man, and the Hulk... yet it's worth thinking for a moment about what the superheroes would do for a job in today's labor market... In today's labor market strength is less important than ever."

...which is why Dianna is an antiquities curator, Clark and Peter are journalists, and Bruce is a scientist.

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"Part of the problem is that there are massive returns to being the best. If you're a consumer choosing a free product, who wants to use the second best social network, the second best search engine, or the second best shopping marketplace? In traditional Industries, powerful firms sometimes the amassed marketshare by making it hard for customers to switch. For firms such as Google and Amazon, it is the very ease with which customers can switch that allowed them to dominate their Industries."

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"Across advanced nations, [researchers at the OECD] find that since the start of the century, "frontier firms" have enjoyed productivity growth of 3 to 4% annually, "laggard firms" have experienced productivity growth around half a percent per year. The gap is particularly pronounced in sectors with large barriers to entry as in Industries where "winner-takes-all" dynamics dominate competition."

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""As the top firms have increased their market share, their profits have grown dramatically. In the 1960's and 1970's, the top tenth of firms earned an annual return on capital of around to 20%. By the late 1990s, this had risen to 40%. Today, the top tenth of firms earn an annual return on capital of around 100%. These frontier firms are pulling away from the rest. In the 1990s, the return on capital was three times larger than the median firm. Now it's eight times larger."

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"If stock ownership and consumption for evenly distributed across the population, then rising profits would have minimal impact on inequality. People might frown at having to overpay for an airline ticket, but they soon start smiling when they realized that they held shares in the airline. Higher dividends and capital gains would largely compensate for higher prices."

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"It turns out, however, that the typical shareholder is a good deal better off then the typical consumer. The top fifth of the US population accounts for 39% of the consumption, but holds 89% of the shares. By shifting money from consumers to shareholders, excess markups effectively channel resources from the poor to the rich. Market power might be one reason for the growth in ."

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"Being big doesn't make you a bully, but it's harder to twist arms if you are scrawny. Companies with high market shares have a greater motivation and capacity to engage in anticompetitive conduct, such as predatory pricing, bid rigging, dividing territories, price fixing, and boycotting."

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"Some inventions are not protected from copying at all. The approach has helped create one of the world's most widely used computer operating systems (Linux), the largest ever genetic map (The Genographic
Project), breakthroughs in astronomy (via NASA's photo organizing project), and the world's largest encyclopedia (Wikipedia)."

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"In some sense - which aims to increase take up by offering services at zero price - is the opposite of monopoly - which charges a higher price and ends up serving fewer customers. Individuals who contribute to opensource projects gain the satisfaction of helping others and the kudos that comes from improving a service used by millions... Some companies support open-source projects in order to attract staff and customers, and because they can then charge for related services..."

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" flourishes when people can pursue their ideas without having them stolen by others. Big companies frequently have this ability by default. Smaller innovators need a government institution to help."

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"Back in the 1980's, it became obvious that if you wanted to deregulate telecommunications - moving away from a system in which carriers had a complete - you need to allow calls to be made and received across networks. That is, you needed interconnection between different telecommunications networks so they could effectively compete. For social media, the same principle applies. You want people to be able to communicate across networks."

"This would mean that if someone were to invent a better , they could connect their network to Facebook. Letting new social media platforms compete for individual Facebook users rather than having to compete for the entire network would encourage more competition among social media platforms, leading to better outcomes for users."

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That's a fascinating idea. New, innovative social networks struggle because is so massive and has all the users. If social networks all employed a shared protocol and accepted each other's content (cough cough ) competition and innovation would be easier."

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The authors seem not to realize that , , , exist, but this is literally their function. Of course, because these are to the big social network platforms, they're seeking to share users rather than compete for them."

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""Every major technological change in the recent years," contends Mazucato, “traces most of its funding back to the state." Moreover, she argues, such public were not riskless. "We pretend that the government was at best just in the background creating the basic conditions (skills, infrastructure, basic science.) But the truth is the involvement required massive risk taking along the entire chain:" basic and applied research and early financing.

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"As Fred block of the University of California at Davis observes, the narrative of plucky entrepreneurs creating all the big ideas is fundamentally at odds with reality. "The key of the past 200 years cannot be attributed to ingenious tinkering by inspired engineers or concerted initiatives by corporate Laboratories," he writes."

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"Yet humans are storytelling creatures, so we are naturally drawn to accounts of the "Eureka" moment when a brilliant entrepreneur arrived at a breakthrough. This can lead us to miss the role of government and overstate the role of great people."

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"Interestingly, science is more geographically spread out than technology. Scientific research is concentrated in universities, wich are dotted across the United States. By contrast, US Technology commercialization agglomerates in a handful of areas, including Silicon Valley, Boston, Seattle, New York, Austin, Los Angeles and Washington, DC."

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"As we have noted, it is a myth to imagine that all flows from the private sector. Governments have been responsible for many of the technological breakthroughs that we use every day. Through intellectual property laws, education programs, public sector research agencies, and research grants, governments can help make society more innovative."

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"But just because the public sector has successfully encouraged innovation, it hardly follows that every government Innovation program will have a positive effect."

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"... too many proposals for increasing Innovation start from the implicit presumption that smart people can predict the future.... A wiser role for government is to acknowledge that some innovators will fail and to foster ongoing inquiry by as many great minds as possible. Not only is this the most efficient approach, it is also the most equitable one."

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"To this end, we propose 10 ideas for boosting innovation."

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"1. Encourage healthy competition between research funders... Agencies should be encouraged not to identify researchers already on the path to success, but rather been to the research trajectory upward."

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"2. Grants should foster moonshot Innovation. If research funders want big breakthroughs, then they need to take risks... but... When research funders take risks, they can expect more rockets and more fizzers."

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"3. Bring intellectual property laws into balance. Intellectual property protection doesn't just encourage innovators; you can stymie them. Walt Disney's works are protected by copyright until 2036, 17 years after his death. It is difficult to see what new ideas were induced by the 1998 decision to increase copyright terms from life plus 50 Years to life plus 70 years."

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"There would be no net economic benefits to increasing copyright terms still further.... Alex Tabarrok proposes a hump shaped Innovation strength curve, in which patents in initially increase Innovation, and then as they get too strong, they begin to reduce innovation. Tabarrok argues that we are on the wrong side of the Innovation curve, and proposes. Variable duration patents say, 3, 8, or 20 years in which the level of scrutiny by the patent examiner is stronger the longer term requested."

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"4. Build Innovation training for everyone... Government programs to encourage young entrepreneurs should explicitly target "lost Curies" by establishing themselves in disadvantaged neighborhoods."

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"5. Use promises and prizes to encourage innovation. In 2007, Canada, Italy, Norway, Russia, the United Kingdom, and The Bill and Melinda Gates Foundation committed 1.5 billion dollars to companies that could provide a vaccine to prevent pneumococcal disease."

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"Known as an "advanced market commitment," the group guaranteed pharmaceutical companies that it would buy millions of doses, so long as firms promise to keep the price at $3.50 products. Such incentives ... reduce the risk associated with embarking on such ventures."

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"6. Beware of tax breaks. From a political economy perspective, It can be tempting to reward by reducing a firm's tax liability rather than providing a grant... While research and development tax incentives can help firms bring ideas to market, grants are a better way of encouraging high-risk, long-term breakthroughs."

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@Argus I'd love to add a Marxist reply to most of these posts but it's midnight.

Innovation is only profitable if the competition has it, until then, it's always more profitable to increase intensity of work. That's why child labor is still a thing and amazon warehouses are still not automated. Falling rate of profit and so on.

If we want more progress, we need to eliminate the profit motif. Real inventions (not like the iphone) are seldom profitable, and precarious people rarely invent things.

@Argus Intellectual property laws are harmful to innovation. That's why the Chinese are ahead - because they talk to each other, while we're siloed off, and have to invent and build everything at least five times from scratch.

The people that pay us would never allow to let a single piece of software be "contaminated" by something like the GPL. This leads to horrendous amounts of man-hours/life-time of often brilliant people being wasted by duplicating stuff that already exists.

@Argus From what I've read, the break-up of the telecom monopoly in the US hasn't caused any progress. Lots of carriers divided the country among themselves, and the contemporary result is that you have areas that are ludicrously under-served, without any hope of switching carriers.

Contrast that with European infrastructure, especially when it comes to internet speeds and coverage. We have areas that only have coverage because our telecom is state run and owned, and taxes pay for serving those.

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