Attitude and aptitude explain why the US and China are the sole superpowers of the 21st century. They also explain where it went wrong for Europe. We had aptitude and still mostly do. But we lost the attitude. We are the global virtue-signalers who lost our appetite for cutting-edge research a long time ago.

The China of the Nineties had the attitude, but lacked the aptitude, and sent its best students to Western universities to make up for it. The US has both — aptitude and attitude — and will continue to be a dominant global power for a long time to come.

Mokyr writes: “Unless accompanied by innovations and productivity growth, growth exclusively based on a cooperative ethic will eventually peter out.” He is a critic of the self-styled intellectuals in our societies who are motivated by reputation and peer recognition. This is a swipe at his own profession, and other pseudosciences like epidemiology that gave us the Covid lockdown, based on dubious models, and statistics that fail to meet professional standards. The mathematician and author Nassim Nicolas Taleb dismissed the economics profession as a “citation ring” — very much in the spirit as Mokyr.

There was a time when the Europeans had them both — aptitude and attitude. But that was a long time ago. Gottlieb Daimler invented the motor car, probably the single most successful product of the industrial age, in 1885. It would be several decades until the car revolutionized how we live. Modern suburbia would have been unthinkable without it. For the German economy in particular, the car was an invention that kept on giving — until this decade. We have reached the end of this long cycle of innovation. Germany still has a big car industry, but it is no longer making a lot of money. The future of cars is electric, digital and, in particular, Chinese.

The computer is the only other single product that has ever managed to rival the car — and surpass it — in terms of its economic impact. But that, too, took a long time. The computer did not have any discernible impact on productivity growth until quite recently. We are already seeing the impact of AI in some pockets of the labor market. AI is bad news if you are a wedding photographer, a freelance writer, or a legal assistant. It will end up killing millions of mid-tech jobs while creating new jobs in other areas.

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Why China will beat the West

By Wessie du Toit

When China embarked on modernization under Deng Xiaoping in the Eighties, it pursued a strategy of export-led economic growth and invested the proceeds into innovation and modernization. The West misunderstood China’s strategy as one moving towards Western-style democracy or capitalism. In reality, it was always about strengthening the communist system, even under Deng, and making it more successful and resilient.

China also defied another Western economic policy consensus — that governments should never pick winners. Those old enough may remember how we all laughed about the Soviet Union’s five-year plans. No one was laughing last week when the Fourth Plenary Session of the 20th Central Committee of the Chinese Communist Party agreed the 15th Five-Year Plan. It has been through these five-year plans that China managed to dethrone the German car industry, and to monopolize the technologies that would turn rare-earth minerals into magnets that are indispensable for high-powered engines. When Europeans tried picking winners, more often than not they ended up picking losers.

I remember a meeting I had in the early 2000s with the famous economist Edmund Phelps, who won the economics Nobel Prize in 2006. He gave me a daring prediction: Germany would decline relative to the rest of the world and to the rest of Europe. He said the reason was Germany’s obsession with old technologies like the car. His forecast ran counter to conventional wisdom, like those of the financial media, which upheld Germany as a virtuous role model. Phelps turned out to be right, but it took another two decades until Germany’s decline became visible to a lot more people. And it took two decades for the Nobel Prize committee to recognize the importance of innovation and disruption.

For four decades now, Europe has been falling behind the US, and now China, in all things digital. The EU has made matters worse with a string of legislation that weighs down digital technology. This deadweight began with data protection regulation from the 2010s, and stretched to more recently applied AI and crypto regulations, alongside laws to restrict the business of the US tech giants, and to force social media platforms to moderate their content. Europe still has good engineers, but we are a digital desert.

What China realized early on — and what Europeans in particular are mostly in denial of — is that there is a link between innovation and geopolitical power. It is interesting that the capitalist US and communist China both agree with Mokyr’s worldview, whereas the Left-liberal consensus in Europe and Canada is on the other side of that argument — the losing side. It is the tragedy of the political center that the radical ends of the political spectrum are more innovation-friendly.

Where can we observe that link? The US and its allies dominate advanced semiconductors; China dominates rare earths and their downstream products. Both superpowers therefore have geopolitical chokeholds on each other. Last week’s deal between Xi and Donald Trump was a ceasefire in a continuing cold war.

But by far the single most important link between innovation and geopolitical power is through the military. The geopolitical dominance of the US today had its origin in the postwar collaboration between the military and science. In the postwar era, the military became the biggest sponsor and customer of the rapid engineering developments of the electronic age. The internet was based on a communication protocol that was developed for the US military — a technology to allow data to be transmitted when communication got physically interrupted in one channel and re-routed through another. The single most important algorithm of the 20th century — the Discrete Fourier transform, without which modern digital devices would be unthinkable — had its origin in a meeting in the White House when a scientist decided he needed a faster way to identify signals from Soviet underground nuclear testing.

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Europe’s Ukraine loan is a bad bet

By Wolfgang Munchau

Europe will clearly not regain geopolitical dominance, but there are second-best strategies. In AI, for example, most of the benefits will come from using it — not from making it. Some AI algorithms are open-source. In theory, Europe should still have a chance. In practice, it does not. Its tech regulation frustrates not only AI startups, but also broader use of AI. This is what Mokyr meant by “attitude and aptitude”. You need both to succeed. And Europe’s attitude is anti-innovation. Don’t be fooled by the EU’s overhyped Horizon Europe program, which is a pork-barrel spending program for second-rate universities. Europeans like to think of themselves as being innovative and “pro-science” — but they keep falling further behind the US and China. Europe’s priorities are to protect workers and existing industries.

Outside the EU, things look a little brighter. The largest European country most likely to succeed in this category is the UK. The UK is way ahead of the EU in AI investments. Yet after Brexit, the UK did not follow the EU in its generalized anti-tech crusade. The UK has a higher concentration of research universities that specialize in areas relevant to 21st-century science. One of the most exciting prospects is the development of a science corridor between Oxford and Cambridge. It will take a long time, but it is the right way to proceed.

The history of innovation since the 19th century holds two important lessons. The first is that the economic benefits of innovation are massive and can last for more than 100 years. The great European inventions of the 19th and early-20th centuries were not the result of luck, but of attitude and aptitude. The second lesson — the one that Germany is learning the hard way now — is that things end unless you keep innovating.

This is where the other half of this year’s Nobel Prize for economics comes in. It went to Philippe Aghion and Peter Howitt, who produced an economic model for “creative destruction”. This is a term coined by the Austrian economist Joseph Schumpeter in 1942. Creative destruction is the mechanism through which new innovation can replace old. As every gardener knows, you have to let things die to grow something new. In the world of mainstream economics, this is a controversial statement. In the world of European politics, it is total anathema.

You can still see Daimler’s contraption on display at a museum in Stuttgart. This is where you have to go to get a whiff of attitudes and aptitudes lost a long time ago. It is in museums, and Grade A-listed buildings, where Europe still excels.

With the polls narrowing there’s a question as to whether this approach will work any better. But if the current government is returned next week, might we see a more radical agenda emerge into the light?

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The 10 brains behind Dominic Cummings

By Peter Franklin

If anyone in this administration has big ideas it’s Dominic Cummings. That much is clear from his blog, an in-depth guide to his thinking and influences. He stopped blogging when he followed Boris Johnson into Downing Street.

But last week there was a new post. This was mostly about Brexit and the election campaign, but there was an intriguing post-script:

“If you’re interested in ideas about how the new government could really change our economy for the better, making it more productive and fairer, you’ll find this paper interesting. It has many ideas about long-term productivity, science, technology, how to help regions outside the south-east and so on, by a professor of physics in Sheffield: A Resurgence of the Regions: rebuilding innovation capacity across the whole UK.”

The media love to portray Cummings as some kind of Bond villain, so is this professor — one Richard Jones — his mad scientist?

In a word, no. The media, finding no hint of insanity in Jones’ work, tried to make something of his political differences with Cummings instead. That’s a shame, because the real story is whether the paper, having been endorsed by Boris Johnson’s licenced thinker, represents the Conservatives’ real manifesto.

I’ve read it and agree with the following assessment by Stian Westlake, a Whitehall advisor on innovation policy:

“The mini-storm over Dom Cummings citing @RichardALJones’s recent paper on innovation policy prompted me to re-read it, and *boy* is it good. I agree with more or less everything, and as a bonus it is delightfully written…

“On a couple of occasions I’ve been asked by a new science minister ‘what should I read on innovation?’, and it was always quite a hard question to answer. But now, I’d just say ‘read that’.”

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It begins with an unsparing look at the weaknesses of the British economy. Basically, the UK is two economies: there’s our thriving capital, surrounded by a prosperous hinterland; and then there’s ‘Outer Britain’ (as officialdom once called it), which is stuck in what Jones calls a “low innovation, low skills, low wage equilibrium”.

Outside the orbit of London, neither business nor the state puts enough investment into skills, innovation and infrastructure. That’s because there’s not enough demand for these things. At the same time, the high-productivity enterprises that might supply the necessary demand don’t set up shop here because the necessary skills etc can’t be supplied. It’s a chicken-and-egg situation.

Britain beyond the South East is working hard and creating jobs, but people and communities don’t just need work, but prospects too — a chance to get on, not just get by. For that to happen a ‘jobs miracle’ is not enough, we also need a productivity revolution — a shift to a high innovation, high skills, high wage equilibrium.

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The state can’t achieve this alone, it ultimately depends on private enterprise. However, government can provide the catalyst.

Jones observes that “the industrial strategy of the Conservative administrations between 1979 and 1997 was not to have an industrial strategy”. This continued until the dog-end of the New Labour years. This was deliberate; industrial policy was associated with failures of post-war planning and the strife-torn industrial relations of the Sixties and Seventies.

And yet, it became abundantly clear that the industrial non-strategy of the Eighties and onward was broken too. Not only has the UK’s established economic model not worked for most of the country, it was also implicated in the devastating crash of 2008.

In the course of our current decade, there’s been a big shift in Conservative thought. In 2016, a new Department of Business, Energy and Industrial strategy was created — its name signalling the end of an old taboo. And even though ‘regionalism’ has remained a forbidden term, concepts such as the Northern Powerhouse have been actively promoted as part of a decentralising agenda.

Then there’s the U-turn on research spending. After a long period of decline, the Government wants more public and private sector investment in science and innovation. Its manifesto commits to a “target of 2.4 per cent of GDP being spent on R&D across the economy”.

Furthermore, there’s a new consensus that investment in science and technology can’t just be limited to academic research in Britain’s universities. Our higher education sector is one of strongest in the world, but we are weak in what the paper describes as “translational research” — i.e. turning knowledge into innovation, and innovation into enterprise.

Countries such as Germany have strong translational research institutions, a key component in the ecosystem of universities, leading-edge companies, supply chains, providers of technical education and the networks through which individuals, businesses and organisations cooperate and compete to build local economies. Jones calls this the “industrial commons” — which is intact and flourishing in some parts of the country, but hollowed-out in others by decades of de-industrialisation, political centralisation and under-investment.

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In this decade, there are signs that Whitehall and Westminster have woken up to this reality. We’ve seen significant decentralisation of power and resources; industrial policy, as mentioned, is firmly back on the agenda; and support for innovation includes funding for a growing network of Catapult centres — institutions which specialise in translational research and the regeneration of our industrial commons.

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Only lateral thinking can save us from economic stagnation

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So, does that mean that Richard Jones’ programme for regional revival is being implemented?

Yes and no. Some of the elements are definitely in place — but we’ve yet to see a full and conscious commitment to the most revolutionary aspects of his argument.

For instance, he’s not just calling for more funding for research (including translational research) but a sea-change in how it’s allocated. The established approach is “place blind”. This principle is that instead of ensuring a particular geographical spread of resources, the money should go to where the decision-makers think it will be most productively used. That’s sounds fair, but in practice it tends to pile further advantages on those areas that already have the edge on everywhere else. When it comes to R&D that means the so-called ‘golden triangle’ of London, Oxford and Cambridge.

Jones sees this is an example of the Matthew Effect — named after a verse in Saint Matthew’s Gospel:

“For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.”

When it comes to individual funding decisions, choosing a location with top universities, leading-edge companies and a highly skilled workforce maybe entirely rational, but it ignores the bigger picture which is the need to build capacity in more than just one part of the country.

To make that change, geographical neutrality must be abandoned — along with the investment decision models that embed the Matthew Effect in their underlying assumptions. This needs to apply to the funding of skills and infrastructure as well as research. Furthermore all these forms of investment need to be coordinated with one another on the basis of direct knowledge of local economic needs. Thus further decentralisation of decision-making power over these resources is a key test of just how seriously Government takes this agenda. If power-hoarding departments like the Treasury aren’t howling in rage, then we’ll know the reformers aren’t pushing hard enough.

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Increasing the supply of productivity boosting inputs is only half the battle. Professor Jones emphasises the other half which is all about stimulating demand. As well as the usual ways in which government encourages companies to move to priority areas there is something that it can do directly, which is use its vast power as a policy maker, regulator and purchaser to make markets in leading edge products and services.

That’s exactly what happened with success stories such as offshore wind power. As well as investing in relevant skills, infrastructure and technology development, the government has mandated the purchase of renewable energy at a guaranteed price — thus enabling private-sector investment. With the industry established, competitive auctions for the right to build new wind farms then put pressure on developers and manufacturers to cut their costs. Today, the industry is close to being subsidy free.

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Britain should decolonize the Commonwealth

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The public sector spends vast sums of money with external suppliers every year — Jones quotes a figure of £255 billion. Government also influences procurement in regulated industries such as energy. Last week, Boris Johnson said that public procurement should be used to support British industry. But it’s important that this isn’t a matter of mere ‘propping-up’ — both central and local government must use its economic clout strategically to nurture clusters of innovation throughout the country.

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But isn’t this all a tad protectionist? In fact, isn’t it downright statist?

Well, yes, it is protectionist up to a point, but no more so than what our competitors, the Americans, Germans and Chinese, have been doing for decades. The UK, having suffered persistently high trade deficits and multiple currency devaluations, needs to worry less about free trade purity and more about how we’re going to earn our living as a country.

As for the charge of statism, the fact is that the state is, and always will be, the biggest customer in the economy. Big private companies don’t just purchase goods and services on short-term cost calculations alone, they use their clout to influence and develop supply chains that meet their long-term strategic needs. So why on Earth wouldn’t HMG want to do the same?

That’s especially true given the enormous challenges facing us as a nation. Professor Jones mentions the challenge of decarbonising the economy without bankrupting it and also the urgent need for productivity breakthroughs in health and social care. I’d add three further challenges to the list: the controversial goal of building millions of new homes over the next twenty years; the public transport solutions desperately needed to rescue our traffic-choked towns and cities; and the ecological revolution required to restore life to our degraded landscapes and seascapes. 

The idea that the state shouldn’t use its purchasing power to encourage the innovation upon which all this depends is frankly insane.

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To revive our cities we must set them free

By Peter Franklin

Of late, however, HS2’s headline stats aren’t in miles per hour, but billions of pounds. An initial price tag of £32 billion for the whole project ballooned into an official budget of £56 billion – with the BBC now reporting that a further £30 billion might be needed on top of that. Pessimists fear the final cost could break the £100 billion barrier.

Will Boris Johnson have the guts to pull the plug? Early indications suggest that he might have given way to the usual umming-and-ahhing. But with anything approaching a twelve figure number, you have to ask what we could have had instead.

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For instance, how about a hyperloop? 

A hyperloop is a maglev train that floats inside a tube-enclosed track from which most of the air is sucked out. By drastically reducing air resistance the train is able to achieve extraordinary speeds – something like 700 mph, three times the speed of ‘high speed’ rail.

Does it work in practice though? Elon Musk (who else?) has been developing the technology, and encouraging other companies to get involved with their own ventures. One of these companies is Hyperloop Transportation Technologies, which appears to be on the brink of building the first commercial hyperloop project in the United Arab Emirates.

According to a Gulf News report by Cleofe Maceda, the initial work is already underway:

“The chairman of Hyperloop Transportation Technologies (Hyperloop TT), Bibop Gresta, revealed to state news agency WAM that the hyperloop capsule that will be set up in Abu Dhabi has already left the assembly plant in Spain to the southwestern region in France.

“Gresta said the capsule will be assembled, tested and optimised in the French city of Toulouse before it will be transported to the UAE.”

If that goes well the plan is to build a 150km track all the way to Dubai – with an envisaged journey time of 12 minutes.

And the cost of such an endeavour? Well, the proof is in the construction – but this is what the company is saying:

“Gresta said the cost of the project is estimated to be around $20 million… to $40 million… per kilometre…

“However, Gresta said any money put into the mega project can be recouped in eight to 15 years.”

Let’s take the upper bound of that estimate ($40 million per kilometre) and apply it to the combined track length of phases 1 and 2 of HS2 – 532 km. That comes to $21.3 billion.

Yes, yes – I know: I’m making a back-of-a-fag-packet calculation. We’d need a whole lot of other information for a robust comparison between HS2 and the hyperloop costings: Does the latter include the cost of new stations? What are the comparative capacities of the two systems? What about the environmental impacts?

Then there’s the fact that while high speed rail is a tried-and-tested technology, the Abu Dhabi to Dubai hyperloop would be the first commercial link of its kind anywhere in the world.

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Who wants to be 'boosted' by Boris?

By Freddie Sayers

But to my mind that’s the biggest argument against HS2: for the sort of money being committed, one would expect something a bit more advanced than some increasingly standard infrastructure. The Chinese high speed rail network, for instance, is already 29,000 km in length and expected to reach 38,000 km by 2025.

Assuming no delays to the current schedule, the first phase of HS2 will be finished by 2026 – at which point it will be possible to travel from London to Birmingham half-an-hour faster than is presently the case. Wow! If we’d known the 21st century would so exciting! HG Wells didn’t see that one coming, did he?

The UK is making a habit of spending huge amounts of money on underwhelming technology. As well as HS2, there’s ‘HPC’ – Hinkley Point C, a new nuclear power station. We’ve committed tens of billions of pounds to the purchase of overpriced electricity from an already out-of-date French reactor design, with a track record of delays and cost overruns. And we’ll still be paying for it in 2060!

The third of the horrible H’s is Heathrow expansion. No one knows how much this one will end up costing as they’re still working out the infrastructural and environmental implications of expanding a hub airport that was built in the wrong place to begin with. Even if the wider project (including supporting infrastructure) requires no public subsidy – we’re talking about vast sums of private investment that could be more productively (and sustainably) put to use elsewhere. But rather than properly explore options fit for the 21st century, the government decision was to double-down on the biggest planning mistake of the post-war era.

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Don't scorn Boris's ambition

By Mary Dejevsky

I’m not necessarily against grands projets. Sometimes a country has to gather up all its might and do something that only a great and united nation can achieve. But when we do, it’s got to produce something special – a confident leap into a better future, a wonder of the modern world.

Whether the hyperloop ventures in the Emirates and elsewhere succeed remains to be seen. But on the criterion I set out above – that of wondrousness – we can be sure that HS2, Hinkley Point C and Heathrow expansion will not – despite the colossal combined cost.

As a nation we are paying moonshot prices for mundane results.

Believe it or not, there were people before the crisis who believed there’d never be another recession. Of course, there are always people who act as if there’ll never be another recession — e.g. the suckers who buy at the top of the market just before the crash. But I’m referring to a more select group — those who’d thought about economic stability as a policy challenge and concluded that the central banks had got it licked.

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The most important policy we don't talk about

By Peter Franklin

The source of their confidence was the decision of western governments to transfer control over interest rates to independent monetary experts. The hope was that, free from the meddling of fly-by-night politicians, Al Greenspan et al would keep the money supply just tight enough to tame inflation, but never so tight as to strangle growth. It was called the ‘Great Moderation’ — a Goldilocks economy skipping along happily ever after.

But we all know how that turned out, don’t we boys and girls? Goldilocks ran into some very mean bears and was never seen again.

Or was she? The Great Recession (in both the US and UK) ended 10 years ago – and there hasn’t been a recession since, not even a little one.

This is unprecedented, says The Economist:

“Around the world investors, businesses and central bankers are grappling with a startling fact: at the end of July America’s economy will have been growing for 121 months, the longest run since records began in 1854, according to the NBER, a research body.”

No one is talking about a Great Moderation this time around. Indeed, some markets are showing signs of nervousness. And yet other indicators are still positive — not least job creation:

“…in June America’s economy created a whopping 224,000 new jobs, more than twice as many as needed to keep up with the growth of the workforce. “

There are all sorts of things that could still go badly wrong: war with Iran; a chaotic Brexit; a renewed Eurozone crisis; an unforeseen build-up of instability in the global financial system; or a delayed reaction to all those doses of quantitative easing.

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Why low interest rates poison the economy

By Peter Franklin

Nevertheless, it’s clear that the economy isn’t behaving the way it used to. But then why should it? Western economies have gone through big and permanent shifts in the past. There’s no reason why they shouldn’t do so again.

We speak of economic ‘growth’ without thinking through the implications of the organic metaphor. In growing, living things don’t just get bigger over time they undergo qualitative changes too. A tree, for instance, isn’t just a larger version of sapling, let alone the seed the sapling grew from. Or take human development: an adult behaves differently from a teenager (or ought to), who in turn behaves differently from a primary school age child, who behaves differently from a toddler.

Perhaps economies are like people in this respect. They grow, and also grow-up. It would be nice to think that we’re moving on from the exhausting tantrums and meltdowns of the toddler economy into something a little more self-controlled.

The Economist notes that while Americans are living through the longest economic expansion on record, the average rate of GDP growth in this period has been significantly lower than in the three previous expansions (2.3% versus 3.6%). But is slower growth a price worth paying for greater stability?

Not in the long run, it isn’t. Seemingly small percentage differences in annual growth will make a big difference when compounded over generations. If you care about the standard of living your children or grandchildren might enjoy when they’re your age now, then the difference between 2.3% and 3.6% is chasmic.

Even in the short run, economic stability isn’t so great if it comes at the expense of political stability. If there’s not enough growth to make everyone feel they’re getting on in life, then you can bet that those missing out won’t he happy about it —A especially if the wealthy (plus a larger cohort of college-educated knowledge workers) take the lion’s share of what’s available.

One theory is that the skewed distribution of the proceeds of growth is what’s causing the long, but slow, expansion that we’re living through. It all starts from the fact that the rich save a greater proportion of their money than the non-wealthy. This means lower levels of consumption and heavier flows of capital looking for a home. Therefore economies are less likely to run short of consumable items or capital. Prices stay low. Interest rates stay low. And the economy strolls on.

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The catch is that for too many workers, wages also stay low. So, instead of inflationary pressures building up in the economy, it’s resentment in the body politic.

Can we shift the economy into a higher gear? It would help if the rich could be persuaded to put more of their money into productivity-boosting investments. Smart reforms to the tax system might just do the trick — but only if enough innovations worth investing in actually exist.

The economy’s strange behaviour may reflect a slowing down of technological progress. While we’ve become much better at matching supply to demand and thus avoiding inflationary crunches, some economists fear that we’re not making the big breakthroughs that drove up productivity and wages in 20th century.

If this is true and permanent, then our economy is not leaving its infancy behind but entering its dotage.

But is it?

Usain Bolt is certainly the fastest over 100 or 200 metres, but if he and his fellow sprinters were to compete in a major marathon, they wouldn’t stand a chance of winning. In 2016, it was reported that Bolt had never run a mile (in one go) – let alone 26 of them (plus 385 yards). At the middle and long distances, the top names change, and also the body types. Distance runners have long, lean muscles rather than thick ones, their wiry frames built more for stamina than explosive speed.

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The most dramatic shift in competitiveness comes in the ultra running events – i.e. any race longer than a marathon. These include ‘conventional ultramarathons’ such as the IAAF-recognised 100km race, but also jaw-droppingly extreme events like the Montane Spine Race, which stretches 268 miles along the Pennines from Edale in Derbyshire to Kirk Yetholm in the Scottish Borders.

In these supreme challenges of endurance, women are competitive against men. Earlier this year, the remarkable Jasmin Paris completed the course in 83 hours, 12 minutes and 23 seconds – smashing the previous record of just over 95 hours.

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Who’s best at what is often a matter of time. From the less than 10 seconds of the 100 metres to the gruelling day-upon-day of the Spine Race, different people excel at different timescales. And not just in running.

It’s a subject that Malcolm Gladwell explores in two brilliant episodes (here and here) of his Revisionist History podcast. His particular focus is on America’s Law School Admission Test. The LSAT is a standardised exam that determines whether you get into law school – and also which law school. Needless to say, the most prestigious institutions take their pick from the highest-scoring candidates. And, of course, it’s the cream of the crop that get the plum jobs after graduating.

The podcast features a speech by the late Supreme Court Justice Antonin Scalia, in which he said that he only chose clerks from the top law schools because it was the surest way of not making a hiring mistake. The kicker was that his remarks were made at a law school that did not fall within this highest echelon; yet far from reacting with hostility, his audience laughed along merrily.

So an awful lot rides on one’s LSAT score. But what exactly does it measure? Well, you can see for yourself in the current sample paper. It doesn’t test legal knowledge, but rather reading comprehension and logical reasoning. There are five sections – including three sets of multiple choice questions used to calculate each candidate’s overall score. There’s also an unscored ‘writing sample’ (essay) section, which can be used by two schools as a supplementary means of assessment.

The fifth section is also multiple choice – but instead of being used to assess the candidate in any way, the results are used to assess experimental questions for use in future exams. The examiners use the results to ensure that the LSAT is an effective measure of aptitude for law school students. Eliminating bias is a further objective. For instance, a question on which there was a significant gap in performance between male and female candidates would be rejected for future use.

And yet, Gladwell argues, the LSAT is biased – towards those who can blast through the questions at speed. Each section has to be completed in a strict 35 minute time slot. Therefore it doesn’t just measure comprehension and reasoning, but rapid comprehension and reasoning.

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This wouldn’t matter if a test that gave people more time to think produced much the same ranking of candidates. But what if time made all the difference?

It certainly does when it comes to physical challenges like running, and we can see a similar pattern in purely intellectual activities.

Gladwell gives the example of chess, which at the top level has an international ranking system established through competition. In a standard chess game, players have 90 minutes in which to complete their first 40 moves and 30 minutes for the rest of the game. However, there are various gradations of fast chess, in which players have much less time to make their moves. This changes the rankings significantly. The best player in the world in standard chess is not the best player in ‘blitz chess’ or ‘bullet chess’.

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In his 2011 book Thinking Fast and Slow, Daniel Kahneman describes two modes of thought: “system 1”, which is instantaneous and instinctual and “system 2”, which is considered and calculating. One doesn’t have to limit oneself to that particular dichotomy to see that time gives us the space to deploy mental abilities that can’t be hurried. For instance, time to think gives the top chess players the ability to mentally picture the branching permutations of how a game might develop multiple moves ahead.

Of course, most things in life are not like chess. Being unconstrained by the rules and logic of a gamified environment, they’re immensely more complicated. But that makes time to think all the more important. Human beings are capable of all sorts of things beyond the split second and the unforgiving minute – like empathy, insight, creativity, inspiration. We’d all be lost without them, but especially those in positions of power and responsibility who have to deal with a bigger slice of life’s complexity than anyone else.

And yet the means by which we select our elites are biased towards quick thinkers not deep thinkers. The LSAT is hardly alone in perpetuating ‘fast privilege’. Similar against-the-clock methods can be found everywhere from IQ tests to civil service examinations.

And it’s not just pure aptitude testing either. In theory, our universities test students on their knowledge of whatever subject they’re studying. But what manner of knowledge: profound or superficial?

Oxford University’s Philosophy, Politics and Economics (PPE) degree has been described by Andy Beckett in The Guardian as the “degree that runs Britain” – because so many members of the political and media elites are PPE graduates. There’s a very long list of them here, which includes David Cameron, Jeremy Hunt, Bill Clinton, Rupert Murdoch and Ann Widdecombe.

PPE students are required to ingest knowledge across a broad front and regurgitate it in the form of frequent essays, tutorial performances and exams. But though no soft option, it is a degree for generalists not specialists – and thus an all-too-fitting preparation for UK politics. David Willetts, another PPE graduate, describes British political life as “an endless recreation of the PPE essay crisis.”

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Writing about his book Bluffocracy (co-authored with Andrew Greenway), James Ball argues that Britain has “become a nation run by people whose knowledge extends a mile wide but an inch deep.” A reshuffle is always a good time to see their bluffing skills in action. Politicians walk into new jobs, pick up an unfamiliar ministerial brief and proceed to talk about it in parliamentary debates and media interviews as if they were life-long authorities on the subject.

Journalistic attempts to expose their lack of knowledge are usually thwarted because the interviewers are bluffing too – resorting to easily deflected gotcha questions, instead of deeper conversations that might reveal something important about what our politicians think (or don’t think).

Last week, Yascha Mounk floated the theory that the real problem with PPE and similar Oxbridge degrees is that they reward students for making deliberately counterintuitive arguments:

“…ambitious students at Oxbridge are taught to go for a First by doing something extraordinary. 

“And by far the easiest way of doing something ‘extraordinary’ is to make a spirited case for a counterintuitive (and probably wrong) conclusion.

“This pedagogical tradition is responsible for (or perhaps stems from) a lot of the best things about Britain… It’s why British commentators are rarely boring…”

However, he thinks it also encourages “influential people – including writers and politicians – and especially writers turned politicians” to make “fun cases for irresponsible positions”. Which, he suggests, is one reason why we’re facing the prospect of a no deal Brexit.

Mounk concedes his theory is “probably wrong” and, ironically, itself an example of making a clever argument for a wacky proposition. However, the serious point that can be made is that the quality most valued in our highflyers is the ability to assimilate as much information as possible in as little time as possible – and then reapply it with maximum speed and agility.

Whether it’s the debating society tricks pulled by our politicians, or the “delivery at pace” expected of our civil servants, or the ‘hot takes’ extracted from our journalists, or the frenetic workload of the corporate lawyer, what recruiters are looking for is processing capacity not understanding.

*

In the wake of the global financial crisis, many books were written in an attempt to understand what went wrong. One of the best was A Call for Judgement by Amar Bhide. The argument is encapsulated in his Harvard Business Review essay, The Judgement Deficit – in which he says that while the decentralised, entreprising nature of capitalism saw off the centralising tendencies of state socialism, it then fell victim to a new kind of self-imposed centralisation:

“…one that is the work not of old-fashioned autocrats, committees, or rule books but of statistical models and algorithms. These mechanistic decision-making technologies have value under certain circumstances, but when misused or overused they can be every bit as dysfunctional as a Muscovite politburo. “

The most spectacular example is what happened to the financial sector:

“A host of lending officers used to make boots-on-the-ground, case-by-case examinations of borrowers’ creditworthiness. Unfortunately, those individuals were replaced by a small number of very similar statistical models created by financial wizards and disseminated by Wall Street firms, rating agencies, and government-sponsored mortgage lenders. This centralization and robotization of credit flourished as banks were freed from many regulatory limits on their activities and regulators embraced top-down, mechanistic capital requirements. The result was an epic financial crisis and the near-collapse of the global economy. “

It’s not that IT replaced all the people – humans are still an essential component of even the most advanced corporate systems. However, they have allowed a huge amount of previously human judgement to be automated and therefore centralised. A bigger proportion of the decisions that matter can be concentrated at the highest levels of management – allowing the financial rewards for such work to be concentrated there too.

A corporate operation that shifts the balance to IT-mediated systems as opposed to distributed decision-making by experienced human workers is also easier to scale-up. This allows markets to become increasingly concentrated in the hands of fewer, larger companies – meaning even more money for those at the top. It also means that corporate growth can be achieved by exploiting monopoly effects rather than investing in product improvement, which of course is bad for innovation.

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Innovators, though, are disruptive of centralised systems – which is another reason to select the knowledge class elite on their ability to think fast, not deep.

I realise I’m painting a picture of them as cogs in a machine, which isn’t entirely fair. These are highly able individuals and some of the most able – e.g. those recruited into top law firms, consultancies, financial institutions and tech companies – are very well rewarded. They’re also made to work punishing hours – a reflection of their scarcity value and the desire of a corporate system to get the most out of its most expensively purchased components.

What’s true of the business world has a parallel in politics – only in this context the centre hoards power for its own sake, not to maximise profit and executive pay. In theory, a government minister should be in a position to think deeply about the policies they’re responsible for, drawing upon the expertise of their civil servants and the experience of frontline workers. Armed with such knowledge they’d then be in a position to pursue meaningful reforms.

But anyone who’s seen government from the inside could tell you that’s not how it works at all. The purpose of most ministers is not to exercise judgement on any significant matter but to process and communicate decisions made in Downing Street and the Treasury – if only by rubber stamping the mechanistic actions of whatever slice of the civil service hierarchy he or she nominally oversees.

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Of course, no centralised system of control is ever so perfect as not to need running repairs and work arounds. There’s always a demand for those who can improvise solutions when things don’t run according to plan and where local circumstances present unanticipated challenges. Dealing with such situations requires both judgement and creativity – but only in service of the system. Those most capable of it rise through its ranks; until, that is, they mess up irredeemably – at which point they can provide one final service: as a scapegoat for the failings of the system itself.

*

The crying shame of the way we select our elites is that our finest, most fertile, minds are being wasted. They’re either sidelined because they don’t excel at tests of quick thinking, or because they can think both fast and deep, but are kept too busy by the systems they serve to ever think the disruptive thoughts that they’re capable of.

Sometimes an independently-minded individual does break lose – defying the selectors to follow their own paths. The tech pioneers who dropped out of college to start-up disruptive enterprises are a classic example. The irony though, is that some of the companies they founded have become monsters – corporate behemoths exercising super-centralised control not only over their own business, but ours too.

Neoliberalism was meant to set the market free – and yet, despite the IT revolution, this is an era of stagnant wages, growth and productivity. In seeking an explanation, we should start at the gateways of the knowledge economy.

“A weird and disturbing change has come over the Conservative Party.

“I’m not talking about the raging divisions and defections over Brexit, or the fact it seems to be preparing to get rid of yet another leader — after all, civil war over Europe and regicide are longstanding Tory traditions.

“I’m talking about a much more unusual and unprecedented phenomenon: the fact that the Tories, both in government and more generally, seem to have stopped talking and thinking about economics.”

What Westlake goes on to say is certainly much more than a rant – in fact, it’s an essential read (especially if you happen to be a government minister).

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There’s too much in it to unpack the whole thing in one go – so I’ll focus on what I take to be the core argument:

“To the extent that Number 10 has an interest in economic policy, it is the economics of ‘Erdington Modernisation’, that version of self-proclaimed One Nation Toryism associated with Nick Timothy, the PM’s former chief of staff best known for writing the Tories’ self-destructing 2017 manifesto.”

Erdington, by the way, is a working class district of Birmingham – which is England’s second city, and yet so far behind the capital in status that it’s become a symbol of the problem with our London-centric economy. When she became Prime Minister, Theresa May promised “an economy that works for everyone” – the core tenet of the Erdington approach:

“It’s the belief that British economic policy has spent far too much time and money on winners, and that the country would be both fairer and more prosperous if we diverted resources to the Rest…

“To use Nassim Taleb’s characterization, Erdington economic policy argues we should focus on Mediocristan — the average business, the average worker — rather than Extremistan — the upper (and lower) end of the distribution.”

Westlake sees the political sense in this: “most people are by definition normal – that’s statistics”. However, he questions the economics. He thinks we need to focus on the upper end of the distribution – the most successful businesses, institutions and cities. This is where you find the star players, the game changers, the champions who will maintain our relevance in a hyper-competitive global economy. Instead of trying to “fix the laggards, who have always been with us”, we should “help the next generation of world-beaters to grow”.

Westlake makes a powerful case (again, I urge you to read the whole piece.) However, I do think there’s problem with it. For a start, by “Extremistan”, Nassim Taleb does not mean the upper and lower ends of a statistical distribution – nor does “Mediocristan” refer to its middle. Rather, the labels refer to two entirely separate statistical realms.

In Mediocristan, the upper and lower ends are not very different from the middle. Consider, for instance, the distribution of human height – the very tallest people are not even twice as tall as people of middling stature. In Extremistan, however, one or both ends of a distribution deviate hugely from the mean. Personal wealth is a prime example – the richest people having thousands of times more money than the average person.

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In some ways, western economies are becoming more extreme. There’s a long-term trend toward market concentration (i.e. the biggest companies taking a bigger share of their sectors); pay differentials between executives and workers have widened; and the most successful businesses have become geographically concentrated in a handful of global cities (with extreme property prices to match).

You’d think that all this focus on the best and brightest would have resulted in a productivity boost. But, no – the general trend across the West is deceleration among the drivers of growth – a phenomenon which economists call secular stagnation (‘secular’ in this context meaning long-term). Westlake points out that in the UK,  “our disappointing productivity growth… over the last decade has not been the fault of the [long tail of low productivity firms], but of our best firms…”

Some people think that the laggards are holding back the leaders – with ultra low interest rates and government bailouts allowing so-called ‘zombie companies’ to stagger on, thus tying up capital and talent that could be more productively deployed elsewhere. But this is getting it backwards. If the leading companies were doing their job – i.e. developing genuinely innovative products – the laggards would be rendered obsolete. The leaders would do to the zombies what the automobile industry did to the horse-and-cart, or what the PC computer did to the also-ran computer formats of the 1980s. This is how they do business in Extremistan, with risk-taking frontier firms – most of which crash and burn, a few of which change the world.

Unfortunately, this is not the way that most western economies do business. If our leading companies can’t quite shake off a long-tail of inferior competitors, it’s because they’re not that much better themselves. Furthermore, their leading position might be less to do with any innovative edge and more to do with the unmerited benefits of bigness (which I explore here).

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Of course, it’s not that proper innovation and entrepreneurship have ceased altogether, just that there’s not nearly enough of it. Too often there’s no choice to make between Extremistan and Mediocristan because it’s Mediocristan as far as the eye can see. Simply choosing to back the biggest mediocrities is no way forward.

It would be great if we had politicians willing to face up to this problem. But then again, it’s a rather dangerous thread for them to be pulling on.

What helps us do these things is efficiency: the one thing of which we can never have too much. But what if our constant striving to streamline is actually having a negative effect?

That’s the argument advanced by Edward Tenner in his new book, The Efficiency Paradox. Efficiency is “something self-evidently desirable,” he says, “until it isn’t”.

His beef is with big data (in which large collections of information are analysed computationally to reveal patterns, trends and associations), which is great at helping us to do more with less, or even to do less with much less. It’s not so good at helping us do something new and hitherto unimagined –those things that extend our capabilities.

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Things like flight. It wasn’t big data that invented the aeroplane, but risk-taking humans who took a chance on heavier-than-air flight being possible, in many cases throwing themselves from high places in pursuit of their dream. Once you have aeroplanes, efficiency – through the use of big data – can do wonderful things, such as minimise unwanted environmental effects, reduce prices to put flight within reach of ordinary people, and let us choose the seat we want online.

This is what Tenner, quoting Clayton Christensen, Derek van Bever and Bryan Mezue, calls “efficiency innovation”, typical of the platform-based disrupters such as Uber and Amazon, that “makes existing goods and services available to more people at lower prices”. But “market-creating innovation” that generates the new products or services, such as photocopiers or aeroplanes, takes longer to bear fruit.

Take the labour market. Optimists about the future of jobs in an increasingly automated age point to previous waves of mechanisation, when new industries arose to employ redundant workers. Cars created new jobs for people who previously worked with horses, for example, and then aviation created an entirely new industry that today employs about 10 million people worldwide, directly and indirectly.

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To some extent, I share that optimism; but for that pattern to persist in future, we need market-creating innovation to keep creating new industries. Those bigger gambles that won’t pay off for years, if ever, are less appealing to investors than the quick hits of market-disrupting efficiency innovation.

The most valuable companies in the US in 1917 made their money from steel, oil and the telegraph or telephone business. Today, the top five worldwide by market value are all in data, including Facebook and Google, whose business model rests on delivering advertising with ever-greater efficiency.

You could argue that those platforms are providing radically new products and services, albeit as a side product. Certainly, their existence has transformed the way we communicate with each other and find information. We learn more every week about how much data they collect about us – their users – and yet we continue to use the platforms we know are digitally surveilling and profiling us.

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This means that our experience of news and of our friends’ opinions, of videos created by users like us, or of political campaigns, is significantly mediated by algorithms that filter the endless tide of digital output. When those algorithms are gamed to feed us untruths, or horrific live videos of a suicide or murder, we ask why they can’t be made more efficient in preventing that kind of abuse.

The problem is, as Tenner puts it, that these “algorithms are written neither to advance a political outlook nor to establish the truth, but to maximise traffic and increase advertising revenue for the platform company”. The efficiency that the algorithms are designed to optimise is not for the benefit either of society or of the individual service user.

But “efficient at what, and for whose benefit?” is only the first question we should be asking. Tenner’s argument goes much deeper, challenging whether efficiency in itself is achievable or even desirable.

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Let’s go back to the “market-creating innovation” that produces new products and services. How can we make that innovation process itself more efficient? “The paradox of efficiency,” says Tenner, “is that progress towards greater efficiency is wasteful.” To make leaps of insight and creative imagination, human beings need to be inefficient. We need boredom, serendipity and “desirable difficulty”. We understand concepts better when we have to work harder to get them.

Experiments with reading on paper versus onscreen, with handwritten versus typed note-taking, and even with more and less legible typefaces, point to this “desirable difficulty” as a help in grasping underlying ideas. If you want to win a pub quiz, browse the internet on your smartphone. But to grasp big ideas, read a paper book in an archaic font, or listen to a lecture while making notes by hand.

Tenner has many other examples of how pursuing efficiency through technology and data can lead to its opposite. Using wearable tech to monitor physical activity and nudge us towards healthier lifestyles turns out, in experiments, to reduce activity, weight loss, and even happiness and well-being. Time and energy saved by home automation through the Internet of Things will probably be expended in the battle to secure networks against hackers.

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None of this means we should turn our backs on the algorithms – only that we should not rush to defer to their mechanical judgment. “Balancing algorithm and intuition to achieve inspired inefficiency,” as Tenner puts it, can free us from repetitive and time-consuming tasks to be creative and inventive. Combining contextual knowledge of a subject with the processing power of search engines or data analysis can deliver breakthroughs in discovery or invention.

The danger comes when we outsource our judgment, underestimating our human minds, shaped through the messy process of life in human society, and overestimating what algorithms can do. We may be fallible but, unlike computers, we understand what it means to live in this world, and we can imagine other worlds in which we might live in the future.

If we never go beyond doing the same things with increasing efficiency, we are missing opportunities that are no less important for being hard to quantify. Inefficiency is an unlikely rallying cry for the digital age, but it opens doors we might otherwise not even see.

On the 16 September 1992, the Chancellor of the Exchequer, Norman Lamont, put up interest rates from 10% to 12%. The aim was to stop currency dealers from selling the Pound and forcing the UK out of the EU Exchange Rate mechanism (or ERM – a precursor to the single currency). It didn’t work. Markets continued to ‘short’ the Pound – and so Lamont announced that he would raise interest rates to 15%. (Let me assure younger readers that I haven’t missed out a decimal point – rates really were that high back then).

But while borrowers looked on in absolute dread, the wheeler-dealers were unmoved. The Pound was forced out of the ERM and fell sharply in value, just as the short sellers had intended. Interest rates fell back down, the economy picked up, but the credibility of John Major’s government never recovered – and nor, among a large part of electorate, did trust in the EU.

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So much flowed from that fateful day – ‘Black Wednesday’; 13 years of New Labour; the rise of British Euroscepticism; and a lingering horror of high interest rates.

That last one might just prove the most significant. Along with other economic crises, it laid the groundwork for the so-called ‘great moderation’ – an era in which monetary policy was delegated to central bankers who used their control to squeeze inflation out of the economy. A long-term decline in interest rates was thus enabled. It all came to grief in the 2008 financial crisis, of course; but the after-effect was that interest rates fell even lower – in many cases right down to zero or thereabouts.

Still, what’s bad for savers is good for the economy, right? If it’s cheap to borrow then that means more spending and more investment at a time when there’s not enough of either (especially the latter).

But what if low interest rates are the reason why investment and, therefore, productivity and wage growth are all so anaemic?

Evidence that this is the case is presented in a working paper by the economists Ernest Liu, Atif Mian and Amir Sufi. They suggest that the standard economic models have overlooked an entire dimension of economic reality:

“Traditionally, a lower interest rate is viewed as expansionary for the production side of the economy…

“However, these models do not take strategic competition and market structure into account. Is it reasonable to assume that a significant reduction in the long-term interest rate would have no impact on the competitiveness of an industry?”

Liu and his colleagues propose an alternative model based on the assumption that low interest rates are more advantageous to the leading companies in each sector of the economy than for their competitors. We’ll come back as to why that might be case, but assuming it is, what are the implications?

The argument is that the market leaders respond to the advantageous environment by investing more than their rivals, thus extending their lead – so much so, in fact, that their competitors see there’s no point in trying to catch-up and therefore invest even less. That’s the first blow to investment and productivity. The second blow is that the market leaders notice that their position is unassailable and therefore also ease up on investment. Obviously, that’s bad news for the economy – investment dries up, productivity growth decelerates and markets become less competitive.

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So, why would low interest rates give the market leaders a strategic advantage in the first place? The authors make the point that when money is cheap, investment can be patient – i.e. it doesn’t need to unlock some game-changing innovation; all that’s required is the slow but certain extension of the company’s market dominance.

Strategies include buying out the competition; acquiring the rights to potentially disruptive technology; mopping up untapped markets; establishing effective control over an industry’s supply chains; or splashing out on lobbyists to rewrite regulation to the company’s advantage. These things won’t make the company better than the competition, just bigger – indeed big enough to establish an effective monopoly.

Because the leading company in any sector is by definition the one already closest to sewing up the market, it is also the one most likely to benefit from, and therefore attract, the cheap money. Its lesser rivals, meanwhile, retreat into niches, put themselves up for sale or go bust.

The rewards of dominance include the favour of the stock market. In a low interest rate environment, investors are desperate for half-way decent returns – and so an unchallenged industry leader, with reliable earnings, provides the ideal cash cow. Share values therefore go up; and if the company uses its capital to buy back its shares, their value goes up even faster.

If you ever wondered why stock markets boom and the corporate elite gets rich despite the general slow down in growth and productivity improvements, there’s your explanation.

This isn’t just a theory, by the way. Liu and colleagues find plenty of real world evidence:

“The empirical analysis tests this hypothesis using CRSP-Compustat merged data from 1962 onward. A ‘leader portfolio’ is constructed that goes long industry leaders and shorts industry followers, and the analysis examines the portfolio’s performance in response to changes in the ten year Treasury rate. The model’s prediction is confirmed in the data. The leader portfolio exhibits higher returns in response to a decline in interest rates, and this response becomes stronger at a lower initial level of interest rates.”

The authors aren’t saying that this effect explains the whole of the great growth slowdown (or ‘secular stagnation’ as economists call it), but it does help explain why we see productivity problems and market concentration across such a wide range of sectors and economies. Interest rates are at historically low levels across the western world and beyond – helping big companies to eat the competition just about everywhere.

How could those in charge of monetary policy not have noticed this disastrous side effect? I suspect the answer lies with the standard economic models I mentioned at the beginning of this article, on which basis monetary policy is based. All models simplify, but if they over-simplify what they bring is blindness not clarity.

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Unsurprisingly, Uber’s success has attracted imitators – but imitators of what, exactly?

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I’m not just talking about ride hailing services here – but a variety of markets in which one set of people (typically consumers) need to be coordinated with another set of people (typically providers). These are called ‘two-sided markets’ – and if there’s some kind of enterprise sat in the middle that actively coordinates interaction between members of the two groups then that is called a ‘multi-sided platform’. An example of platform business would be a credit card company that enables shoppers to buy things from vendors and pay for them at a later date.

Being all about coordination and communication, platform businesses have proliferated and thrived in the age of the internet and the smartphone. A lot of the tech giants, like Amazon and Google, fall firmly into this category.

Those two are much bigger than Uber, of course. However, what makes Uber special (and the subject of such intense scrutiny) is that it is the most prominent example of the most controversial type of platform business – i.e. those that coordinate the supply of labour.

In a thought-provoking piece for The Atlantic, Alexis C Madrigal, writes about the influence of Uber and its emulators:

“As a group, all of these companies have brought hundreds of thousands of people into new work arrangements that are more than a gig but less than a job. They’ve rearranged the way people get basic tasks done, and they’ve wired those in local industries—handymen, house cleaners, dog walkers, dry cleaners—into the tech- and capital-rich global economy…”

This hands a great deal of market power to the digital middlemen, raising concerns over actual and potential abuses.

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But what about the benefits to the consumer? What about the great leap forward in convenience? All economic revolutions have their rough side, but when we’re talking about humanity’s progress from rural poverty to the fully automated smart cities of the future, what’s a little turbulence along the way? Get the technology up-and-running first and we’ll sort out workers’ rights later, right?

But looking at a sample of 105 Uberesque start-ups, Madrigal wonders where the great leap forward actually is:

“…because the ideas themselves are not rocket science, the competition has been fierce. Just in this sample, there are eight Ubers for doctors, six booze-delivery companies, five laundry services, and four each of massage, dog-walking, and car-washing start-ups.”

Using the dog walking companies as an example he suggests that the “consumer impact is small”:

“Instead of taking a number off a bulletin board in a coffee shop and calling Eric to walk Rufus, you hit a few buttons on your phone and Eric comes over.”

At least Google and Facebook got their start by offering the best version of a truly revolutionary product – respectively, online search and social media. The ability to hail a cab or hire a dog walker is not so revolutionary; it is something people could do almost as conveniently fifty years ago.

However, that doesn’t mean that the Uber-wannabes aren’t absorbing an awful lot of investment. Madrigal says the start-ups on his list have attracted “$7.4 billion in venture-capital” and asks whether this is “really the best and highest use of the Silicon Valley innovation system?”

A good question, but the horrible truth is that, for want of better alternatives, it might just be.

Yes, it would be great to put one’s venture capital into the next revolutionary innovation – something as transformational as, say, the smartphone. But where is it?

While the world waits for the next big thing, money gravitates to the next small thing instead – and in the era of digitally networked capitalism, a modest improvement in consumer convenience and a narrow edge over one’s competitors is sufficient to establish a dominant, and possibly lucrative, market position.

This strikes me as an argument for the kind of public investment that got the internet off the ground in the first place. Though the big tech companies are sitting on vast piles of cash, they’re not going to invest it in disrupting the status quo – they are the status quo. Meanwhile, smaller, independent tech investors frequently lack the heft, expertise or patience to break new ground.

However, if government or philanthropic investment can get the ball rolling on new technology, then the job of finding commercial applications would give the private sector something more useful to do with its money.

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It is not the role of the state to replace private investment; but, as I’ve argued before, government does have a legitimate interest in channelling its flow. Sometimes this is by directing it away from places where it would do harm – for instance by using the tax system to take the profit out of property speculation; but in the case of innovation it’s all about opening up new and better possibilities.

In capitalism’s golden age, this is what government was all about – and it’s what we desperately need to get back to.

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It’s hard to argue with that, except on one crucial point: Brexit may be the context within which these issues are ignored, but it is not an adequate excuse. Indeed, Brexit should be an inducement to think deeply about the country we want to become and its place in the world.

As we know, the process of exiting the EU is immensely complicated in itself and further complicated by the short-sighted self-interest of the various Parliamentary factions. But compare Brexit to what Britain faced during the Second World War – or rather don’t, because there is no comparison. Three-quarters of a century ago, we were locked in an existential struggle for civilisation (and I hope that even the most fevered Brexit-obsessive would not claim that today).

Nevertheless, as bombs were still raining down on London, there were enormously consequential efforts being made in Whitehall to prepare for peace. The great public policy thinkers of the time – most famously, William Beveridge – were laying the foundations of the post-war welfare state. In fact, key pieces of legislation, such as Rab Butler’s 1944 Education Act, were passed during the war.

Whatever the mistakes they made, no one can accuse the reformers of that generation of thinking too small. What they authored wasn’t just a series of reforms, but the blueprint of a post-war settlement that lasted for decades.

Their present-day successors are paralysed not by Brexit, but by a political culture in which consequential policy-making is centralised in Downing Street (and the Treasury) and fully subordinated to the ultra-short-term priorities of news management. A monomaniacal focus on ‘the narrative’ leaves little room for anything else, and if reform is pursued by ministers outside the inner circle, it is despite not because of the system – with any momentum lost as soon as the reformers are moved on or out.

This is a state of affairs that long pre-dates Brexit. One only has to look at the record of the five-year-long Coalition government or the 13 years of New Labour before that. Up until 2008, it was all about pumping more money into public services, and afterwards about managing the consequences of the financial crisis. In both phases, the underlying weaknesses of our economic and social structures were largely ignored – as they continue to be.

This week, Dominic Cummings, who served as campaign director of Vote Leave, published a blog post. It didn’t attract the attention it deserved because it wasn’t directly about Brexit – but merely concerned with the most important economic issue of our time.

That, by the way, is the diminishing returns of the investment we put into science and technology. The reason why this matters so much is that innovation is what drives improvements in economic productivity and therefore growth, wages and our general prosperity.

Cummings builds his comments around two recent pieces of research, one of which, by Michael Nielsen and Patrick Collison, I unpacked here. Writing about their work for the Atlantic, Nielsen and Collison don’t pull any punches:

“Productivity growth is a sign of an economically healthy society, one continually producing ideas that improve its ability to generate wealth. The bad news is that U.S. productivity growth is way down. It’s been dropping since the 1950s, when it was roughly six times higher than today. That means we see about as much change over a decade today as we saw in 18 months in the 1950s.”

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Cummings quotes another troubling statistic: while there are now 18 times more people working on transistor-related research than in 1971, the rate at which computers become more powerful (as described by Moore’s law) is, at best, holding steady. It’s a pattern that can be seen across many fields of research: more and more brains are required to maintain progress.

While the growing number of people involved in making each new discovery is taken as an indicator of declining productivity, it might also be part of the explanation. Cummings directs us to a paper in Nature by Lingfei Wu, Dashun Wang and James A Evans:

“One of the most universal trends in science and technology today is the growth of large teams in all areas, as solitary researchers and small teams diminish in prevalence.”

The authors investigate whether team size matters and find that it does:

“…we analyse more than 65 million papers, patents and software products that span the period 1954–2014, and demonstrate that across this period smaller teams have tended to disrupt science and technology with new ideas and opportunities, whereas larger teams have tended to develop existing ones.”

In other words, the tendency is for large teams to produce small advances in what is already known, and for small teams to produce the breakthroughs. There are many reasons why small teams tend to strike out in interesting new directions. For a start, fewer people need to be persuaded to take the necessary risks. Furthermore, if the risk fails to pay off, the embarrassment is contained. The upside (i.e. making a breakthrough) is big, while the downside (i.e. sending a few people off on a wild goose chase) is small. 

Large teams, however, have more to lose. The larger the team, the greater the body of managers required to organise it and thus the more powerful the vested interest in maintaining institutional continuity (i.e. jobs for bureaucrats). It’s much safer for them to direct resources to tried-and-tested, if not especially exciting, avenues of research.

It’s not that gradual progress along these established avenues isn’t important, but we also need a research effort that can open up new ones. Which is why Wu and his colleagues say that “science policies should aim to support a diversity of team sizes”.

This is just a single aspect of the great productivity challenge of our time, but one that could be readily fixed by diversifying public investment in science and technology. Unfortunately, the government bureaucracies that ultimately make those decisions are themselves ‘large teams’ and thus prone to the same vices of risk-avoidance and self-preservation.

In the 20 years I’ve spent working in policy units, think tanks, government departments and new media, I can say without any doubt that all the genuine innovation I’ve ever encountered has come from small teams. And every time the products of that work have been ignored, diluted or suppressed, it’s always the doing of a bigger, more bureaucratic, system.

What Dominic Cummings says about science policy applies across the board:

“The politicians and officials don’t care so there is no force to push sensible experiments with new ideas. Almost all ‘reform’ from the central bureaucracy pushes in the direction of more power for the central bureaucracy, not fixing problems.”

Many people hope that Brexit will loosen the hold of Europe on our development as a nation. But unless we tackle the forces of inertia at home, it will be thoroughly pointless.

A system that does not empower change-makers will not achieve change.

Suggested reading

The EU is flunking its Brexit opportunity

By Helen Thompson

Suggested reading

The Year UnPacked

By Peter Franklin

In an excellent briefing for MIT Technology Review, Martin Chorzempa explains why the Chinese are so far ahead of the West when it comes to ‘fintech’ (i.e. financial technology).

Basically, it’s all about the apps:

“Ant Financial’s Alipay and Tencent’s WeChat have changed the way many people live their financial lives. They are one-stop shops that enable half a billion Chinese to access a dizzying array of services, from payments, loans, investments, and credit scores to taxi rides, travel bookings, and social media.”

Online financial services obviously exist in the West, but there’s nothing to match the scale or scope of the main Chinese apps – and the services thereby enabled:

“Because so much is sold via these apps, Alibaba and Tencent know the health (or lack thereof) of many small businesses across China. As a result, they can lend to companies that banks might consider too risky. Likewise, people with no traditional credit score can get cheap loans because Ant Financial has their payment and purchase history.”

Of course, that raises the question as to why these apps have become so important and powerful compared to their western equivalents. Chorzempa makes it clear that it’s not because China has developed cutting-edge technology not yet available in the West. The key fintech systems were developed elsewhere, it’s just that the Chinese have run further and faster with what’s available than we have. Furthermore, they’ve done it in an astonishingly brief period of time; Chorzempa reminds us that just 15 years ago only 7.3% of Chinese people used the internet compared to 65% of Americans.

Suggested reading

The dark side of China's Social Credit System

By Peter Franklin

But perhaps what really needs an explanation is not the speed of China’s fintech advance, but the lack of progress in America and other western nations.

Tech giants such as Google, Amazon and Facebook have built up their empires by dominating a particular field of online service provision – such as search, online retail and social media. But missing from that list of digitised and disrupted sectors is finance.

In the West, the online provision of personal financial services is more an extension of the ‘traditional’ industry than a disruption of it. Unlike, say, the high street retailers, the high street banks and building societies do not yet face an Amazonian existential threat.

As for the application of fintech by the established industry, that has been evolutionary not revolutionary – enabling rationalisation and centralisation (bye-bye, bank branches; so long, bank managers) as opposed to Chinese-style disruption.

When you consider the ‘value’ that Facebook has extracted from its access to our holiday snaps and social networks, it’s astonishing how little the banks have done with everything they know about our personal finances. Imagine the money that Silicon Valley could make if it controlled such a commercially-potent source of data – or rather, don’t imagine: just look at China.

As so often, it turns out that necessity was the mother of invention.

“In 2004, when Alipay launched as a simple payment option, Chinese finance was extremely low-tech. Clunky state-owned banks had nearly gone bankrupt from bad loans, and they cared little for average consumers. People had to travel to bank branches and wait in long lines to pay their bills; savings were eroded because the government set the interest rate on deposits below inflation; and barely anyone could get a credit card.”

In the West, however, the established banks are good enough, from a customer-point-of-view, not to drive people towards a disruptive online alternative. Unfortunately, from a taxpayer-point-of-view, we had to bail them out. So why should they bother innovating entirely new sides to their business models when they’re already too big to fail?

Suggested reading

The traitors and thieves of Silicon Valley

By Jonathan Tepper

Perhaps we should be grateful that we haven’t seen the equivalent of an Amazon or a Facebook disrupting the financial sector (or emerge from within it). While the biggest banks may be too big to fail, at least there’s a lot more than one of them. The tech giants, on the other hand, tend towards globalised monopolistic positions in the sectors they operate in.

A near total concentration of market power is unhealthy in any industry, but in finance it could prove fatal.

That (global) statistic is from Jake Swearingen’s report on the future of the smartphone industry for New York Magazine.

If you don’t give a fig for the future of the smartphone industry, then don’t hang-up – because it illustrates something of great importance to the future of the entire economy.

We’ll begin with a little recent history:

“From roughly 2007 until 2013, the smartphone market grew at an astonishing pace, posting double-digit growth year after year, even during a global recession. They were the good years… millions and then billions of smartphones going out; billions and then trillions of dollars in rising company valuations; every year new models of phones hitting the market, held up triumphantly at events that were part sales pitch, part tent revival.”

Double-digit growth during the deepest recession since the war? Who wouldn’t want to be in that business? But remember the wise words of Herbert Stein: “If something cannot go on forever, then it will stop.”

Why smartphone sales growth can’t go on forever (or at least for a while yet) is an interesting question. Market saturation is one answer – pretty much everyone has one of the blasted things (I’ll come on to the developing world later). Another factor is that we’re not upgrading as fast as we used to:

“…there’s no doubt that the replacement cycle for phones is elongating. ‘Over the last five years, the replacement cycles of smartphones in the U.S. has has increased from an average of 20.6 to 24.1 months,’ says Jennifer Chan, global insight director at Kantar. More worrying for smartphone manufacturers is that desire for new technology doesn’t really spur consumers to buy new phones.”

The underlying problem is that the latest smartphones are both too good and not good enough.

They’re too good because they do just about everything you’d want from a smartphone – and do it with increasing reliability

“Durability has vastly improved; waterproofing is now standard on smartphones, so a brief dip in the sink or toilet doesn’t mean you need a new phone, and the weakest links in smartphone hardware — batteries which tend lose their ability to hold a charge over time and screens that crack and shatter — have improved.”

These are near-perfect products, so why would you want another one next year?

And yet smartphones also aren’t good enough because new models have ceased to offer breakthrough, must-have features.

Thus the industry is left to compete on price or luxury. Price – and therefore commoditisation – is what’s driving competition in an as yet unsaturated market in developing nations. The luxury, high-end product strategy has worked out pretty well for Apple so far, but without those breakthrough advances, where does it go next?

The trouble with beautifully made, ultra-reliable products is that they’re keepers – and at Apple prices one would hope so. As for super-luxurious products, there’s only so many people rich enough or foolish enough to want a gold-plated iPhone, which in any case, is more about jewellery than technology. Even worse for the tech companies, the real status symbol among the elites has become not having a smartphone.

Suggested reading

Do you have to be rich not to have a smartphone?

By Peter Franklin

As I’ve argued before, the most dangerous word in economics is enough. One of the worst things that an industry can do is fully satisfy what we want from it. And as more and more industries do that there are profound implications economic growth itself.

Imagine that an omni-capable electronic gadget hits the shelves in 2019. Let’s call it the Acme ‘Everything’ – because that’s literally what it does: everything you could possibly want. Furthermore, it never wears out or breaks down, so each person only needs one of them. Effectively, we’d all be immensely rich, our material needs and wants abundantly catered for. The effect on the economy, however, would be disastrous. In fact, after the last sale to the last customer, GDP would fall to zero as there would be no need to buy anything ever again.

Obviously, we’re nowhere near to such a device, but collectively the many devices we currently depend on are getting closer to a state of sufficiency than they were. By producing extra functionality and reliability at no additional cost, they increase their value to us, but without increasing consumer spend, producer revenue or GDP.

Suggested reading

Does capitalism have an answer to ‘fully automated luxury communism’?

By Peter Franklin

Of course, not having to buy another smartphone or have your car repaired, frees up money that can be spent on other goods and services. But for a particular industry – and ultimately the whole economy – that requires the development of products that can cater to previously unmet needs and wants. Moreover, consumers have to recognise that they actually have these needs and wants.

This gets more difficult the less obvious they are. Jake Swearingen mentions the manufacturers who hoped that we’d want “3-D televisions and curved TV sets” – but for the most part we didn’t.

It’s hard persuading people to desire something they’ve never felt the lack of. And in some ways the bigger the technological breakthrough represented by a new product, the harder it is. It requires an intuitive breakthrough on the part of the consumer.

It helps to work with familiar concepts. For instance, the motorcar was initially understood as the ‘horseless carriage’. Mobile phones are the great example of our own time. Consumers intuitively grasped the relevance of the technological leap because it combined the idea of telephony with that of mobility. Similarly, smartphones combined the idea of the mobile phone and that of the internet (not to mention the camera).

Suggested reading

The truth about Gen Z

By Eliza Filby

The next leap forward, however, is less obvious. Swearingen mentions augmented reality, but a device that combines all the things that a smartphone gives you access to with your natural field of vision is not especially intuitive or attractive.

And that, in a nutshell, is a fundamental challenge to economic growth in 21st century: while advanced economies are getting better at improving the familiar; they are getting worse at envisaging the new.

Not in our world, of course, but in that of Pavane – a novel by the science fiction author Keith Roberts.

Strictly speaking, Pavane isn’t sci-fi, but ‘alt history‘ – a fictional setting in which the course of world events takes a different turn. The best-known examples include Robert Harris’s Fatherland and Phillip K Dick’s The Man in the High Castle.

Unlike those two novels, which ask ‘what if the Nazis had won the Second World War?’, Pavane asks ‘what if the Catholics had won the Reformation?’ Roberts’ answer is that with an all-powerful church in charge of all of western Europe, the pace of technological and social change would have been much slower. (About a hundred years slower in the novel’s parallel version of the 20th century.)

One could read Pavane as a last gasp of old-fashioned English anti-Catholicism. But there’s a twist [spoilers]: In a coda to the novel it is revealed that the church authorities had fore-knowledge of how the 20th century would turn out if they didn’t act to slow down technological progress. Looking back across the possible timelines, Roberts has one of his characters utter these chilling words:

“Did she [the Church] hang and burn? A little, yes. But there was no Belsen. No Buchenwald. No Passchendaele.”

It’s pure speculation, of course. And, from a serious historical point of view, one can take issue with some or all of its counterfactual logic. Yet it asks a supremely important question: not the ‘what if?’ that is the premise of the novel, but whether civilisations should ever suppress science and technology.

Further reading

Is Europe on the brink of a new Thirty Years' War?

By Peter Franklin

As children of modernity, the very idea strikes us as scandalous – and also ridiculous: something that we shouldn’t and couldn’t do even if we wanted to (which, of course, we wouldn’t).

And yet, as I hope to show, we can and we must.

*

Can you guess who wrote this?

“I am convinced that the multiplication of the Feeble-Minded, which is proceeding now at an artificial rate, unchecked by any of the old restraints of nature, and actually fostered by civilised conditions, is a terrible danger to the race.”

Adolf Hitler? Oswald Mosley? No, I’m afraid it was Winston Churchill – in a 1910 letter to HH Asquith.

It’s surprising that the Left-wing Churchill-bashers of our own time haven’t made more of his support for eugenics. But, then, many of their own heroes and heroines from this period were also up to their necks in it. In fact, it’s hard to find many public intellectuals at the time who spoke up against eugenics. GK Chesterton was one of the few exceptions.

The conventional wisdom was that the use of sterilisation to eliminate congenital ‘weaknesses’ from the population was a reasonable, indeed progressive, thing to do. There were some experts who had doubts as to the practicality or effectiveness of such measures, but few with moral qualms. The theories were put into action in many countries including that exemplar of social democracy, Sweden – where something like 15,000 people were sterilised as a condition of release from institutions (with a further 5,000 or more sterilised in other coercive circumstances).

That was, of course, as nothing compared to the horrors of Nazi eugenics. The post-war world was shocked to its senses, and though not all eugenic practices came to an end, the respectability of eugenicism as an intellectual and political movement was destroyed. In the decades since, the taboo has endured even as our knowledge of human genetics has grown – and therefore the theoretical basis for eugenic policies.

Nor is it just theory. We have tools for the manipulation of DNA that the eugenicists of the early 20th century could not imagine. And yet we place strict controls on how we use them – especially in regard to human DNA.

Those controls don’t go as far as some people would like. We license various manipulations of early stage human embryos – including cloning. We use genetic screening to identify foetal abnormalities – which are then eliminated from the human population through abortion. In Nordic countries such as Denmark, the termination rate for Downs Syndrome babies is close to 100%. However, such procedures are presented as a matter of life saving medical research or reproductive rights, not eugenics. The Danish government has explicitly denied that it has a programme to eliminate people with Downs Syndrome from the population (though, in effect, that is what they are very close to ‘achieving’).

The range of traits, both physical and psychological, whose incidence we could interfere with is expanding. Writing for UnHerd this week, Tom Chivers explains just how close we are to making genetic edits to boost IQ. He also suggests that the Chinese government is taking a disturbingly close interest in the technology.

Further reading

Should we edit genes to boost IQ?

By Tom Chivers

Yet despite our growing capabilities, we have yet to use them to re-engineer humanity. We can’t be sure what’s going on in clandestine laboratories, of course – but not a single government anywhere in the world is admitting to a policy of modern day eugenics.

So, yes, we do suppress technology – and the eugenic application of genetics is not the only example. In fact, there is an ever-expanding array of national and international agreements to constrain the development and application of a number of different technologies.

*

A key motivation for the actions of the Catholic Church in Pavane was to stifle the development of nuclear technology until mankind was ready for such knowledge. One might argue that the real history of the nuclear age shows that we had no need of a techno-inquisition. After all, we’re still here, aren’t we? Yes, we are, but only through luck (or Providence). Nuclear weapons have been developed, tested, stockpiled and used in anger. We know that there were a number of Cold War incidents in which we came terrifyingly close to an accidental Armageddon.

Further reading

Don’t sweat the small stuff, or why the ‘New Optimists’ are only half right

By Peter Franklin

Nor are we done with this nightmare. Nuclear weapons can’t be uninvented, and, in fits and starts, they continue to proliferate. That things aren’t much, much worse is thanks to the internationally agreed restrictions that we place on nuclear technology – for instance those mandated by the Nuclear Non-Proliferation Treaty.

Other treaties restricting military technologies include the Chemical Weapons Convention, the Biological Weapons Convention and the Outer Space Treaty. But it’s not just weapons and potential weapons that we seek to control in this way.

Climate change treaties, most recently, the Paris Agreement, imply far-reaching restrictions on our use of fossil fuels and therefore the technologies that extract, refine and use those fuels. To meet their targets on reducing greenhouse gas emissions, the nations of the Earth have effectively committed themselves to leaving most of world’s hydrocarbons in the ground.

That includes energy sources that we haven’t exploited yet, such as methane hydrates, which could be available in vast quantities if only we had an affordable means of doing so. However, developing the necessary technology would take investment – which climate change treaties effectively disincentivise by sign-posting a future in which it will be illegal to carry on burning fossil fuels at anything like the current level (at least not without carbon carbon capture and storage). This creates a huge political risk for investors who are therefore likely to take their money elsewhere.

This too is tech suppression – and, again, it’s for all the right reasons.

*

In mid 1970s, an Iranian-American author called Fereidoun M Esfandiary legally changed his name to FM-2030 (no, that’s not a typo). He regarded traditional naming conventions as a relic of the past – and he was all about the future.  When he died in 2000, he left instructions for his body to be cryogenically preserved in the hope that scientific progress would one day enable his resurrection.

Further reading

The most influential religion you’ve never heard of

By Peter Franklin

A more reliable legacy might be the ideas he left behind. One of these was the notion that the politics of Left and Right will be superseded by the politics of Up and Down. ‘Up’ stands the onwards-and-upwards of technological optimism. ‘Down’, I suppose, stands for the downbeat or down-to-earth attitudes of technology pessimists and sceptics. ‘Up-wingers’ are a motley crew including transhumanist libertarians, fully automated luxury communists and believers in the ‘Singularity‘; while ‘down-wingers’ range from religious conservatives to anti-automation trade unionists to deep green environmentalists.

FM-2030’s big idea is proving prophetic. For a start, the old Left-versus-Right political divide has never looked so obsolete. The new politics of Open-versus-Closed may be more about the globalisation enabled by technology than technology itself – but that could soon change. Advances in fields like robotics, artificial intelligence and genetics have such profound implications that it’s difficult not to see technopolitics moving front and centre.

Could we see a political realignment with a radical Up-wing party facing off against their reactionary Down-wing opponents? Well, I’m not sure that the Down-wingers would accept that terminology, which defines the debate according toUp-wing assumptions. So, here’s a different and better way of thinking about these issues: active versus passive. As a democratic society we can either passively accept the technological choices that others would like to make on our behalf – or we take an active part in the decision-making process.

Further reading

The Amish: America's most sophisticated users of technology

By Peter Franklin

Moreover, the real choice is not between progress and no progress, but between different paths of technological development. That’s because in suppressing one technological path we can open up opportunities along another. For instance, while climate change agreements weaken the case for investment in polluting technologies they have the opposite effect on clean technologies. As restrictions on greenhouse gas emissions have tightened, we’ve seen sustained progress across a range of low carbon technologies including renewables, smart grids, energy storage and electric vehicles.

Though we may recoil at the idea of suppressing technology, our horror presupposes that the avenues for technological progress are limited and that the resources we can devote to pursuing them are not. In fact, the opposite is true: there is no shortage of paths to the future, but we lack the means to take all of them. Even if there is no ethical objections to any of them, we would still have to choose.

Taking the time to consider our options – and thinking through the consequences – is anything but regressive.

In sub-Saharan Africa as a whole, growth in 2018 is forecast by the World Bank to be 3.1%, rising to 3.6% next year. If you exclude the “big three” – Nigeria (2.5%), South Africa (1.1%), and Angola (1.6%), where oil prices and other special factors come into play – it’s closer to 5%. And the 3.1% average for all 49 nations obscures an even more interesting statistic – Africa hosts six of the world’s ten fastest growing economies:

“Most of 2018’s top performers are non-commodity intensive economies. The list is led by Ghana (8.3%) … Ethiopia (8.2%), Côte d’Ivoire (7.2%), Djibouti (7%), Senegal (6.9%) and Tanzania (6.8%).”

For comparison: while the US just announced an annual growth rate of 4.1%, according to a recent Bloomberg report it’s likely a blip (driven by the short-term impact of tax reform and anticipation of a trade war); the recent norm has been around 2%. The latest UK figure is a miserly 1.2%.

The African game-changer has been the mobile phone. By 2019, according to the World Economic Forum report, there will be 930 million mobile phones in Africa, which works out at almost one for per person: “There is greater mobile penetration than electricity penetration. Now, people are able to connect, get news, trade, get access to healthcare and even transfer money.”

It may seem counter-intuitive, but could the lack of traditional infrastructure actually be enabling this? I put this to Dr. Nagy Hanna, global innovation guru and former head of strategy with the World Bank.[1. Nagy Hanna’s books include Mastering Digital Transformation: Towards a Smarter Society, Economy, City and Nation (Innovation, Technology, and Education for Growth) (Emerald Publishing, 2016)] “That’s half the story. But yes – there are no legacy systems. There are mobile-based systems. Moving fast to a cashless society.” So what’s the other half? “The other story that is promising is the development of innovation hubs. Mostly in South Africa but also Kenya, Ghana – they’re not evenly spread.”

Innovation hubs in the West have historically been funded by venture capital. The most famous is Silicon Valley’s Y Combinator that has nursed a succession of star starts-ups including DropBox and AirBnB.

Further reading

How long before the world's youngest continent revolts?

By Daniel Knowles

In Africa it’s a different story. In some cases, foreign aid is funding the hubs, Dr. Hanna tells me. In others, it’s smaller-scale private/local funding, mostly tailored to small-scale enterprises. Local inventers and innovators flock to them. “These are well-educated people…. Their problem is scaling up – to have a major impact on development.”

Major western companies are showing increasing interest. “The hope is that multinationals will move in, fund, bring scale. IBM, CISCO, Apple, are all engaged.” That’s because they see vast potential. Given the pace of both economic and population growth in these countries the potential of their markets is huge. What’s more, Dr. Hanna says, through participating in the local innovation scene in booming economies like Kenya and Ghana, these major companies “have a big opportunity to learn how to meet unique African needs and challenges.”

Of course, working in an environment without legacy infrastructure brings its own special problems. For example, logistics bottlenecks, which offer particular challenges to e-commerce, including high transport costs. There’s also a continuing need for a more business-friendly environment right across the continent. Kenya, for example, is still ranked number 91 in the world for business-friendliness. It takes an entrepreneur 25 days to set up a business in Kenya – in the United States, where I live, it literally takes less than half an hour.

Further reading

Western aid undermines African democracy

By Ian Birrell

Yet Kenya is an African success story, and host to one of the most innovative tech applications worldwide – the mobile banking app M-PESA. In the west we getting used to various payment systems that use our mobile phones, but M-PESA, launched over a decade ago, was way ahead of the game. (For comparison, Apple Pay was launched in 2014.) The statistics are stunning. M-PESA processes 48% of Kenya’s entire GDP. It’s used by 93% of the adult population.

Unlike more complex western systems, M-PESA doesn’t need an app – it’s based in the phone itself (many Africans do not have smartphones); SMS (texts) facilitate money transfers. Since it was launched, the number of ATMs in the country has dropped by a third. And its success exemplifies the need for western companies to engage on the ground – and the opportunity when they do. In the case of M-PESA, the prime mover was Vodafone’s Kenyan subsidiary, Safari.com. And, as is often the case with wildly successful innovations, the original goal was quite limited – to manage micro-lending.

Will these fast-growing African economies be the successors of the Asian tigers? Aid agencies funding innovation hubs and multinationals taking the long view and seeing vibrant markets down the road are marvellous signs of hope. But the real challenge lies in the hands of governments. Countries like Kenya are steeped in colonial-era regulation and a post-colonial tradition of heavy-handed political leaders. For Africa to realise its economic potential, those nations need to work their way up the business-friendly rankings, enabling them to capture the energies that technology and its entrepreneurs are letting loose. Getting rid of red tape is now the challenge.

Writing from a left-wing perspective, Chris Dillow argues that this is inconsistent with what is perhaps the core principle of conservatism:

“There is one great truth which, historically, rightists have known better than many leftists. It is that our knowledge and rationality (two different things) are seriously limited.

“Hayek, for example, famously based his defence of free markets upon the fact that: ‘The knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.’”

He also quotes Edmund Burke’s advice that individuals should not rely exclusively on their “own private stock of reason” but also “avail themselves of the general bank and capital of nations, and of ages”.

Further reading

Tories must learn to face their demons, not pretend they don't exist

By Graeme Archer

Dillow sees a contradiction between this epistemic humility and the right-wing tendency towards cultural conservatism:

“The paradox is this. If you believe that knowledge and rationality is limited and partial, then it is you who should especially welcome the voices of feminists and ethnic minorities. Their perspectives form part of the ‘general bank and capital’ of wisdom of which Burke spoke. Without them, we are trading only upon the stock of reason of old white men – which is limited. (I should know: I am an old white man).”

He goes on to suggest that a tension exists between “harnessing diversity” and conserving the “wisdom of the past” and that there is a trade-off between inclusion and tradition.

It’s a thought-provoking and challenging idea – and it deserves a serious conservative response.

My starting point is that there is hugely more diversity between individuals than between categories of individuals (whether based on sex, ethnicity or culture). It is from the unique qualities of each person that the richness of human knowledge is mainly and ultimately derived. I’d add that realising this potential depends on a cultural context in which individuals are not only encouraged to develop their aptitudes and inspirations, but also have the opportunity to freely compete and cooperate with others. Most important, the achievement of those creative relationships needs to be shared across time and space as part of a living, evolving tradition.

Potential is easily stifled and achievements readily forgotten. But they don’t have to be. The option to nurture and conserve is always there. That is why some cultures of the past, including those we might today regard as ‘monocultural’, were capable of bursts of world-changing innovation: for instance, the artists of Renaissance Italy, the inventors of Industrial Age northern England and the rebuilders of post-war Japan.

We might also want to ask ourselves why the internet, a facilitator of cultural interaction like nothing else in human history, is a sump of mediocrity, not a fount of human progress. Here, after all, is a technology that connects billions of people and provides instant access to the vast stores of knowledge – and yet what have we done with it?

Further reading

The digital revolution: a disaster for progressives and conservatives alike

By Peter Franklin

We’re still creating new art of course, making new discoveries in science and founding new industries. But are the breakthroughs of the early 21st century really comparable to those of the early 20th or 19th?

It’s puzzling that the current era of globalisation is one in which the growth rates of advanced economies are in long-term decline. Surely, with all those barriers coming down and the end of deference to the ‘wisdom of the past’ we should witnessing a ‘great acceleration’ not the great stagnation that we’re actually stuck in. Globalisation without integration has not delivered.

Note that none of this is an argument against ‘diversity’ in the sense that Chris Dillow uses the word. Rather what I’m saying is that diversity should not be placed in opposition to the wisdom of the past. Specific cultural traditions matter and we should be keeping them alive – not least by including people that were previously excluded.

The conservative response to Dillow’s challenge is therefore one of partial but not complete agreement. We should enlarge not discard our traditions – making greater what made us great.

The quotation is attributed to Napoleon Bonaparte, who knew a thing or two about moving the world. His words have been endlessly re-quoted – in countless articles about the irresistible rise of today’s China as an economic, technological and military superpower.

It’s not all hype, of course. Many of the ‘killer facts’ really are true. For instance, China really did use more concrete in three years (2011-13) than America did in the entire 20th century.

But however impressive the scale of Chinese investment and technology, it’s important to realise that the People’s Republic is not omnipotent.

Consider the Belt and Road Initiative, a vast programme of actual and proposed infrastructure investment designed to link-up markets across the Eurasian landmass and beyond. In theory, the sum total of investment could reach $8 trillion; in practice the initiative is already running into trouble.

Further reading

China is railroading its exports through Europe – literally

By Peter Franklin

Writing for Bloomberg, Mihir Sharma, focuses on the political backlash against China’s BRI investment in Malaysia:

“In many ways, China’s stumbles in Malaysia are exactly what BRI skeptics had always warned would happen in countries across Asia. Projects that might be easy to execute in China would run into delays and cost overruns in less-regimented countries; growth in debt, deficits and Chinese immigration would spark political opposition; and, when a new political leadership cancelled those projects, bilateral and multilateral tensions would spike.”

Malaysia is not alone. Other Asian and European countries are also having second thoughts:

“China has a capital surplus that needs to go somewhere. But, if it wants its investments to be sustainable, China will have to behave in these countries a lot more like the Western capital it seeks to displace. That means being cautious, cooperative with local capital and civil society, and respectful of political sentiment, even from dissidents.”

Needless-to-say, democratic give-and-take isn’t exactly exactly a ‘core competence’ of the Chinese government. The input of western partners in the Initiative is looking more important than ever.

Further reading

How Brexit Britain could help China build a new world

By Peter Franklin

Another area in which Chinese economic policy has had a shock-and-awe effect is state investment in leading-edge technology. Examples include quantum computing, artificial intelligence and driverless vehicles.

The gaps in China’s technological prowess get rather less attention. Here’s an earlier Bloomberg article, in which Adam Minter highlights an especially surprising example:

“Semiconductors are the building blocks of electronics, found in everything from flip phones to the servers that make up a supercomputer. Although China long ago mastered the art of making products with semiconductors produced elsewhere (the iPhone is the most famous example), it wants to move beyond being a mere assembler…

“…China is currently the world’s biggest chip market, but it manufactures only 16 percent of the semiconductors it uses domestically.”

Further reading

China’s taking a quantum leap in its tech rivalry with the West

By Peter Franklin

With western trade policies taking a Trumpian turn, acquiring chip technology from other countries is going to be harder than ever. However, developing the technology at home also presents a challenge:

“For decades, labor-intensive industries – such as assembling mobile phones – were the route to riches in China, attracting investment from entrepreneurs and bureaucrats alike. Making semiconductors, by contrast, requires billions in up-front capital and can take a decade or more to see a return.”

Minter gives the example of Intel which invests billions of dollars in R&D every year. As important as public investment is at the very frontiers of technology, one has to question whether the state can substitute for product-orientated innovation by companies who know their business better than any government could. For all its flaws, the western model of capitalism still has some key advantages. 

Of course, in questioning the idea of an unstoppable China it is important not to go to the opposite extreme. Despite its many problems, including horrendous pollution, growing personal debt and its deep social inequalities, China is a giant, it is awake and it will continue to move the world.

Then again, that makes the country’s weaknesses all the more important.

Further reading

Communist China's class-ridden society

By Peter Franklin

There’s one big exception, however: the homes we live in. Most of those are hand-made. The building materials may be machine-made, but the piece-by-piece, one-off process of construction is labour-intensive, time-consuming and frequently unpredictable.

There’s got to be a better way. Prefabrication is one approach, but that involves a trade-off between the size of the prefabricated components and their transportability. It also tends to constrain the materials that can be used and the variety of forms the building can take.

In the early 20th century, Thomas Edison wasted a lot of time and money on the development of the single-pour concrete house. Employing a set of re-usable moulds, he believed he could mass produce affordable housing for all. Unfortunately, the moulds were so complicated and expensive that it was easier and cheaper to build the traditional way. A sideline in concrete furniture also came to a predictably sticky end.

Further reading

We must stop tolerating terrible architecture

By Peter Franklin

Edison’s single pour method didn’t just fail because of the practicalities; the principle was flawed too. A solid mass of concrete creates a structure that is virtually indestructible, but also unmodifiable – great for a bomb shelter, but not a home.

In an article for The Conversation, Seyed Ghaffar says that to successfully revolutionise house building we need to “automate and improve processes that have already been proven manually.”

A century on from Edison’s doomed attempt we might just be on the brink of getting it right:

“It’s often claimed that 3D printing – known in the trade as ‘additive manufacturing’ – will change the way we live. Most recently, a team from Eindhoven University of Technology announced plans to build the ‘world’s first’ habitable 3D printed houses…

“Additive manufacturing uses a combination of materials science, architecture and design, computation and robotics. Yet in some ways, it’s not as futuristic as it sounds. The simple approach of layer-wise construction… has already been practised for a long time in the construction sector, for example in conventional brick layering techniques.”

In fact, with 3D printing we might be able to go well beyond what even the most skilled human builders are capable of:

“When the printer and the feedstock have been properly set up, they will be able to produce full-size building blocks with a smart geometry which can take load without reinforcements. The shape stability of the truss-like filaments in these blocks is an essential part of printing, which provides strength and stiffness to the printed objects.”

Nature has all sort of cunning ways of creating light but strong structures – from the spider’s web to the bones of flying birds. The rapid, but precise, movements of 3D printers could allow us to draw inspiration from evolution, and extrude building materials to achieve great intricacy and efficiency.

Ghaffar believes that smart and automated construction methods could “revolutionise the industry within the next ten to 15 years”.

Will this make houses more affordable? It may well bring construction costs tumbling down – but, remember, not even a robot can make new land. Therefore, we’ll need policies to stop land monopolists from sucking up the value created by new technology.

Further reading

The cost of property may slowly kill Silicon Valley - but a Land Value Tax might give it new life

By Peter Franklin

That said, the automation of house building may make it harder for developers to manipulate land prices by manipulating the rate at which land with planning permission is built out. With robots greatly speeding up the pace of construction, there’ll be no excuse not to build new homes as fast as demand requires and planning policies allow.

One last thought: Though Edison’s poured concrete technology was misconceived, the prototype houses he built with it could be surprisingly beautiful. The developers of today’s new construction methods would be well advised to pay equally close attention to the aesthetics.

If you want the public to accept new development, then the golden rule is that it should make places better not worse.

On Wednesday, I wrote about the French government’s long infatuation with Minitel – a demonstrably inferior rival to the internet. But that sort of folie du grandeur is hardly unknown on the other side of the English Channel. Time and again, Her Majesty’s Government has misallocated the country’s wealth on a monumental scale.

Suggested reading

The French 'internet' – when state innovation goes wrong

By Peter Franklin

It has had ample opportunity to do so, because the modern state always has been, and always will be, the country’s biggest investor. When it spends between a third and a half of UK GDP every year, it could hardly be otherwise. Of course, most of this is current spending on things like public sector pay, pensions and benefits. But there’s also a huge capital spend of nearly £80 billion every year.

On top of that, there’s the influence of government decision-making on private sector investment. On matters like planning, transport and energy, government policy has shaped, and continues to shape, the development of entire industries and regional economies.

Before we give the entrepreneurial state an even bigger role, we need to examine its past performance as an investor – which, by any fair standard, is distinctly chequered.

What follows is a top ten of terrible investment decisions made by British governments since the Second World War:

1. Heathrow Airport

London is a global city it needs a world class airport – ideally a hub airport.

So where do you put it? How about right up against the city itself, surrounded be residential suburbs, hemmed in by reservoirs and within the orbit of the main ring road – thereby maximising the number of people whose lives are blighted by noise and air pollution, while minimising the space for expansion? Yep, that’ll do!

How on earth did the British government first make (in 1946), and then keep reinforcing, such a shortsighted decision? Well, there was an military airfield that needed a purpose immediately after the war[1. Jason Ford, ‘January 1946: The origins of Heathrow Airport’, The Engineer, 18 January 2018] – and it wasn’t as if air travel was ever going to find a mass market, was it?

It later dawned upon the geniuses of Whitehall that perhaps a mistake had been made – and that maybe, just maybe, a coastal location on the Thames estuary might be a better option. But government finds it hard to correct mistakes; and, expertly guided by those with a vested interest in the status quo, it follows the path of least resistance as surely as a pilot follows the path of a runway.

2. The Beeching Cuts

Few people doubt that post-war Britain had to prune the dense Victorian tangle of its railway network.

However, when Dr Richard Beeching was asked to propose a programme of rationalisation, his tool of choice wasn’t a pair of secateurs, but an axe.[2. Christian Wolmar, ‘Beeching guilty as charged but should not have been alone in the dock’, Christian Wolmar blog, 17 March 2013]

The biggest villain, however, was Ernest Marples – the government minister who commissioned the Beeching report. Marples also just happened to be the founder of a motorway construction company. No conflict of interest there!

The decimation of the network was bitterly opposed at the time (the Beeching report was published in 1963) and bitterly regretted in later decades[3. Jonathan Glancey, ‘It looks like Dr Beeching was too hasty after all’, Telegraph, 22 March 2013] – when demand for rail travel began to rise again. Though some lines and stations have been reopened, in many cases it’s no longer an option because tracks have been ripped up and land sold off for development.

To give just one example: the Oxted line used to connect London, via its Uckfield branch, down to Lewes and Brighton. It could have been upgraded to supplement the now heavily used Brighton mainline. Unfortunately the line from Uckfield to Lewes fell victim to Beeching’s axe and the old route is now blocked by development. An immensely valuable corridor from London to the south coast was lost to Beeching’s myopia and Marples’ dodgy machinations.

3. Concorde

Ah, Concorde – you were the future once!

The supersonic plane is reckoned to be the most beautiful passenger aircraft that ever flew. Unfortunately, it was also one of the most expensive.

The enterprise began in the 1960s as a joint venture between the British and French governments. There were great hopes of sales all around the world. However, British Airways and Air France (both state-owned at the time) were the only airlines to purchase and operate the aircraft. Escalating development and manufacturing costs led other airlines to back out at supersonic speed. In the end, only twenty were ever built, including the prototypes.

The first flight was in 1969, but commercial services didn’t start until 1977. One had to be seriously rich to afford a ticket – but there were takers because, at twice the speed of sound, Concorde could cross the Atlantic in a mere three hours. Sadly, its speed was also a weakness – the sonic boom phenomenon meant that supersonic flight was banned over inhabited areas, limiting services to trans-oceanic routes.

Suggested reading

Can Britain build an innovation economy?

By Vicky Pryce

Concorde wasn’t the biggest white elephant to get airborne. A more worthy candidate for that honour is the Tupolev Tu-144, developed by the Soviet Union at around the same time as Concorde (and so similar in looks that it was nicknamed the ‘Concordski’). However, it greatly exceeded its western cousin in the scale of its economic and technological failure. Crashes brought an end to commercial flights shortly after they started.[4. ‘Concordski: How the Soviet Union lost the supersonic race, BBC, 1 June 2016]

Tragically, it was a crash – Air France Flight 4590 – that brought about the end for Concorde too.[5. The disaster, in which all aboard were killed, together with four people on the ground, is believed to have been caused by debris from another aircraft]

4. AGR nuclear power stations

Tony Benn, that great champion of socialist state planning, was, as ‘Minister of Technology’, instrumental in saving Concorde from cancellation in late 60s.[6. Tony Benn, ‘Concorde special – the politician – Tony Benn’, Flight Global, 21 October 2003] Fittingly, he also played a pivotal role in another ill-fated venture – the Advanced Gas-cooled Reactor or AGR.[7. Geoffrey Owen, ‘Book review: ‘The Fall and Rise of Nuclear Power in Britain’’, Financial Times, 7 March 2016] The supposedly superior design was meant be a sure-fire winner for British industry. In practice, the AGRs were plagued by construction delays and operational problems. Many of the problems continue to this day and we still have the decommissioning costs to look forward to – which were, of course, significantly underestimated.

With an unerring failure to learn from past mistakes, the current UK Government is now committed to Hinkley Point C – the fabulously expensive[8. Holly Watt, ‘Hinkley Point: the ‘dreadful deal’ behind the world’s most expensive power plant’, Guardian, 21 December 2017] new nuclear power station due to be built next to Hinkley Point B, the first of the AGRs. HPC is of a different and more recent design – but one that already has a track record of construction delays and cost overruns. Undaunted, the Government has signed us up to the project – only this time we’ll be blowing billions to the benefit of French-owned industries instead of British ones. Brilliant!

5. The overbuild of coal-fired power stations

Another triumph for state planning and investment in the energy sector was the massive overbuild of dirty coal-fired power stations in the 1960s and 1970s.[9. Dieter Helm, Credible energy policy: Meeting the challenges of security of supply and climate change, Policy Exchange, 2008, chapter 2]

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China's entrepreneurial state has lessons for the West

By Michael Burleigh

The state-owned Central Electricity Generating Board (CEGB) had assumed that demand for electricity would increase in line with economic growth. In fact, thanks to energy efficiency and the off-shoring of manufacturing capacity to the Far East, energy demand has increasingly decoupled from growth.[10. Euan Mearns, ‘UK electricity demand, GDP and energy policy’, Energy Matters, 16 October 2013, figure 1]

The legacy of the CEGB’s strategic error has been one of pollution plus a UK energy sector focused on ‘sweating assets’ not the development of greener, cleaner energy technologies fit for the 21st century.

6. The strangling of Birmingham

Britain’s great industrial cities literally made the modern world. Their decline in the 20th century was due to many factors, but one of the most important was the centralisation of political power in London.

In the post-war period, Whitehall decreed that the growth of Birmingham, which was booming at the time, had to be curtailed – in order to reallocate growth to cities further north.[11. Henry Overman, ‘Booming Birmingham and the Need for Rebalancing’, Spatial Economics Research Centre blog, 28 May 2013]

The central planners would discover that this is not how growth works. The long-term impact of their meddling hobbled Birmingham’s economy[12. ‘How to kill a city’, The Economist, 31 May 2013] while doing nothing to help the North. Instead, by an amazing coincidence, investment and enterprise became concentrated where the politics and the power was – i.e. London.

7. The fall of Euston

The strangling of Birmingham was greatly assisted by town planners and architects. The city’s fine Victorian architecture was marred by, or demolished to make way for, ring roads, tower blocks and other concretopian horrors.

For instance, the city’s Birmingham New Street station – a wonder of the industrial revolution – was knocked-down and replaced in the mid-60s by one of the most hated buildings in the country. At the other end of the line to London, the classical wonder that was Euston station met the same fate: demolished to make way for a modernist successor.

But while Birmingham plumbed the depths of brutalism, the new Euston didn’t even achieve that dubious distinction. It is an architectural non-statement – a low-slung slice of lifelessness. Not before time, it’s now set to be replaced – as Birmingham New Street already has been.

The plans for the new new Euston include a reconstruction of the Euston Arch – a famous landmark that was destroyed, quite unnecessarily, as part of 1960s redevelopment.

It tells you a lot about the mentality of the time that British Rail – the state-owned company that destroyed the Arch – refused to say what had become of its remains. Fortunately, these were rediscovered in the 1990s by Dan Cruikshank.[13. Daniel Wright, ‘Lost beauty #9: Hardwick’s Hall (the old Euston station, London, UK)’, The Beauty of Transport, 10 June 2015] 

If the old stones can’t be be incorporated into the reconstructed arch, they should instead be fashioned into a monument to the spirit of post-war architecture and central planning. An extended middle finger, perhaps?

8. Insanity begins at home

Arguably, the best location to assess the acumen of government bodies is in their headquarters. After all, if they can’t run their own homes properly, why should we trust them with anything else?

Happily, there’s a long tradition of buildings that symbolise what we’ve come to expect from the organs of the state that reside within them.

Suggested reading

Only an entrepreneurial state can defend our nation

By Allan Mallinson

For instance, there’s the Home Office – whose cleaners turned out to be illegal immigrants. Or the Department of Energy and Climate Change, whose HQ was so energy inefficient that they had to turn off the air-con to cut back on its carbon footprint. Or Alexander Fleming House, once home to the Department of Health and Social Security – when it was notorious for Sick Building Syndrome. Outstanding stuff.

My favourite example, however, was an edifice known as Marsham Towers (a.k.a. ‘the three ugly sisters’). Completed in 1971, the complex consisted of three slab-like towers of twenty storeys each. They only interconnected at ground level, which wasn’t a big issue when the plan was to accommodate three separate government departments. However, the layout became a serious problem when the ministries were merged into one. How’s that for joined-up government?

And the name of the new super-ministry whose HQ wasn’t just dysfunctional, but also the most notorious eyesore in London? Why, the Department of the Environment, of course.

Just over thirty years after it opened, the building was knocked-down – a testament to the sustainability of purpose-designed state architecture.

9. Gordon’s gold

At about the same time that Marsham Towers was being reduced to rubble, the Government was completing the disposal of another asset – the country’s gold reserves. Gordon Brown, then Chancellor of the Exchequer, believed that gold was a ‘lazy asset’,[14. Robert Peston, ‘Gold and Gordon Brown’, BBC, 4 March 2008] because it just sat in a vault offering no guaranteed return. So, between 1999 and 2002, he sold off 395 tons of gold at an average price of $275 per ounce.[15. Paul Farrow, ‘Gold: Does Gordon Brown’s regret selling half of Britains’ gold reserves 10 years ago?’, Telegraph, 8 May 2009] By 2007, gold was trading at $600 per ounce. The price peaked at over $1,800 in 2011. Even today, it trades at something like $1,200.[16. https://tradingeconomics.com/commodity/gold] Buy low, sell high, is basic idea when it comes to trading, but Brown had sold at the very bottom the market – a decision that cost the country billions.

Brown had forgotten that the purpose of gold is not to provide a predictable return, but a hedge against instability in the foundations of economic policy. As one of the key architects of those foundations – including the regulatory framework for the world’s most important financial centre (the City of London) – Brown was in no position to make an objective decision as to their soundness.

When the financial crisis burst almost every asset bubble except gold, Brown’s arrogance was fully exposed. It is not so much his failings as a commodity trader that condemns him, but his fundamental misunderstanding of risk.

Are these really the sort of people we want running an entrepreneurial state?

***

So there you go – my top ten statist fiascos. Of course, I do realise that I’ve only provided nine of them – but I’ve already exceeded my word count and blown through several deadlines. Things didn’t quite turn out as planned.

Of course, they never do. So perhaps we should think twice before entrusting major investment decisions to people who aren’t qualified to make them and who’ll never be held accountable for the consequences.

Germany remains some 30% more productive than the UK; France and the US some 25%. This is in part because business investment has stalled, not helped by a retrenchment of public sector capital spending in the years following the crisis. Without investment, innovation atrophies, and with it growth.

R&D expenditure in the UK stands at a paltry 1.67% of GDP – below the European average of just over 2%, and well below world leaders Israel and Japan, both of whom spend over 4%. And within this total R&D, government spends just £10 billion per annum, or a disappointing 0.6% of GDP.

More on the entrepreneurial state...

China's entrepreneurial state has lessons for the West

By Michael Burleigh

The latest industrial strategy pledges to increase the total spend to 2.4% by 2027 – clearly indicating that the Government sees innovation as a ‘public good’ – but whether that can be achieved remains to be seen.

The worry is that individual companies would not, if left to themselves, make the level of investment needed to boost the economy as a whole. Businesses take a narrow definition of benefits, they do not price in any positive ‘spillover’ effects (seemingly unconnected benefits) or ‘externalities’ (benefits to others) that flow to the rest of the economy as a result of investment.

If the market is failing to innovate adequately, to the detriment of the economy, does that mean that state intervention is justified? In my mind the answer is a resounding: yes! The dilemma, of course, is how best to intervene.

The ideal, surely, would be to change market incentives by putting more emphasis on long-term returns. But that would require changing accepted norms and cultures. Even though R&D spending should increase innovation, efficiency and productivity, such benefits take time. In the short term, profits are cut – and that isn’t always favoured by institutional investors.

Perhaps it would be better to just alter the fiscal framework, or increase government subsidies. But that requires an understanding of ‘additionality’ – in other words, whether the desired outcomes would have happened anyway, meaning that taxpayers’ money is wasted. Was it worth, for example, the UK government introducing in 2013 a low tax ‘patent box’ to encourage companies (like big pharma) to invest in R&D and commercialise their patents, or would firms have invested in the UK anyway? A better focus for taxpayer investment might be small and medium size businesses where the need is likely to be greater and the impact wider.

Or perhaps greater competition is the answer. Large monopolies, or oligopolies, enjoying high profits have little incentive to invest. While on the other hand, the difference innovation can make for a competitive firm can be significant. Research clearly shows a positive relationship between competition and innovation.[1. See for example Richard Bundell et al., ‘Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms’, The Review of Economic Studies, 1999; Paul Geroski, ‘Innovation, Technological Opportunity and Market Structure’, Oxford Economic Papers, 1990].

This all suggests that a mix of better conditions for innovation, and a series of targeted but properly costed and evaluated interventions may help boost the UK’s lagging productivity – and with it, all important economic growth.

The UK has done a number of things already. The Technology Strategy Board, now Innovate UK, emerged from the first innovation strategy produced in the early 2000s. In 2016-17 it provided some £560 million worth of project funding, and also attracted large private funding, to assist collaborative research in areas such as emerging and enabling technologies, life sciences, scientific instruments and manufacturing and materials.

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The government agency that made Silicon Valley

By Nigel Cameron

There is now also a £725 million Industrial Strategy Challenge Fund focused on innovation, announced in the 2017 Industrial Strategy White Paper, and ten ‘catapults’ which are not-for-profit centres aimed at promoting innovation by connecting businesses with universities and other research organisations.

These are positive steps, but more needs to be done and the sums are still small. Academics like Mariana Mazzucato would argue that an obsession with limiting state intervention to correcting market failure is misplaced. Instead, the state should be actively shaping markets.

That implies, however, that government knows best, and there’s not much evidence that it has been particularly successful at picking winners so far. Current suggestions for a National Investment Bank, for example, would only make sense if it functions at arm’s length from politicians, and it is staffed by experts with banking and commercial skills.

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The French 'internet' – when state innovation goes wrong

By Peter Franklin

But as Mazzucato suggests, “building dynamic public-private partnerships” to drive innovation makes sense, particularly if that partnership shares the risks and profits. Sadly, the UK is behind the curve. It missed out on developing a sovereign wealth fund, for example, as Norway did so successfully with the oil and gas proceeds when they were at their height in the 1970s and 1980s.

To that end, taking a strategic stake in firms as Mazzucato proposes, and investing in innovation though the process, may indeed be the way forward. Perhaps the UK should take a leaf out of France’s book. The most state-controlled country in Western Europe is, under Macron’s Presidency, about to sell off state shares in companies, partly to raise funds for – you guessed it – a €10 billion Innovation Fund.

Except that the origins of the internet are deeply statist. Indeed, the Defense Advanced Research Projects Agency (DARPA) – which created the internet in its original form – can be described as an arm of America’s ‘deep state’.

ARPANET on the one hand, Minitel on the other

On UnHerd this week, Nigel Cameron provides an account of how DARPA developed ARPANET, which evolved into the internet we know today. He goes on to describe how it also serves as Exhibit A in Mariana Mazzucato’s[1. Mariana Mazzucato, The Entrepreneurial State. Debunking Public vs. Private Sector Myths. Revised edition, Public Affairs, 2015] case for an entrepreneurial state. And no wonder, the internet’s story provides powerful support for all three parts of her argument: firstly, that the state plays a vital role in scientific progress and innovation; secondly, that the state has a special role to play in creating the shared infrastructure that supports private enterprise; and, thirdly, the state should itself be much more entrepreneurial – not least in capturing (and reinvesting) a fair share of the private sector profits enabled by its inventions.

Further reading

The government agency that made Silicon Valley

By Nigel Cameron

There’s a great deal in Mazzucatoism that I support. However, it’s vital that we go into this with our eyes open. The entrepreneurial state doesn’t always get it right – and when it gets it wrong it can do so on a scale and with a degree of bloody-mindedness that the private sector would be hard-pressed to match.

So while the example of ARPANET should inform public policy – and a shift to a more entrepreneurial state – it needs to be considered alongside the great counter-example: Minitel. 

But before I get on to that bittersweet tale, some historical context.

When did you first encounter the internet? If you’re old enough to recall the information Stone Age, there must have been some point at which you realised that a new age was dawning. For me it was the early 1990s, when, on a visit to Goldsmiths college, a member of faculty showed me a system that allowed academics to exchange knowledge online. This was my first glimpse of the internet. Ironically, the chap was a communist – a nice one as it happened, but seemingly oblivious to the hyper-commercialised behemoth the internet would become.

Videotex – just like the internet, only much worse

I had somewhat more of an inkling, however – because I saw something like the internet back in the 1980s. It was called Prestel, which was a UK-based videotex service – and at the time it struck me as being entirely commercial in purpose. In someways it was even more commercial than today’s internet because there was a price tag attached to every page of information.

Videotex is similar to teletext, the system that was used to provide TV subtitles for the hard of hearing. Videotex, however, allows for the two-way exchange of information. Therefore, it can perform many of the functions provided by the internet – including text messaging, online shopping and other interactive services. Unlike teletext, which you only needed a (analogue) TV to access, videotex services typically required a phone line, a modem and a terminal. They were  usually operated by phone companies (rather than broadcasters) – who saw videotex as a way of generating extra revenue.

Like ARPANET, Prestel was developed by the state – specifically the Post Office (the state-owned monopoly that used to run the UK’s telephone network as well as the postal service). When, in 1984, the telecoms side was privatised as British Telecom, Prestel was privatised with it. BT continued to develop and market the videotex service, but it never achieved more than 90,000 subscribers – and in 1994 it was sold off. The new owners tried to make a go of it, but by the mid-nineties it was becoming clear that that the internet was the future. And that was pretty much the end of Prestel. Indeed, it is all but lost to history – just a few pages of content (of which there were tens of thousands) saved to users’ floppy disks.[2. ‘Prestel introduction’, Celebrating the viewdata revolution, accessed 19 June 2018]

Vive la différence

In France, however, it was a very different story. Like the British Post Office, the French state telecoms company, PTT (later France Télécom), decided to develop a videotex service – which was named Minitel. France Telecom wasn’t privatised until 1998 and the French government decided to back Minitel in a big way. Millions of Minitel terminals were given away free during the 1980s and 90s – thus overcoming the cost hurdle that prevented the widespread adoption of Prestel in the UK. As a result, the French were communicating, shopping and banking online long before it became the norm in other countries. I can remember French relatives of my parents’ generation ’emailing’ one another at a time when the only Brits doing the same were academics and socially-awkward young men with neck-beards (overlapping categories, I know).

That part of the service known as Minitel rose (‘pink Minitel’)[3. John Lichfield, ‘How France fell out of love with Minitel’, Independent, 9 June 2o12] enabled the French to pioneer another digital activity: the mass consumption of online pornography – even if it was mainly text-based. Like today’s internet companies, the government passed the buck of child protection to parents – but, being French, they did slap a tax on the offending sites.

The inability of Minitel to display more than rudimentary graphics (of whatever nature) was a key reason for the decline of the system. Despite a user-base of 25 million at its mid-90s peak, the reality was that the technical limitations of videotex could not compete with the internet. Once broadband was rolled out, Minitel’s fate was sealed. In 2012, the system was shut down (though with hundreds of thousands of terminals still in use).[3. Hugh Schofield, ‘The life and death of the France-wide web, BBC, 28 June 2012]

Pourquoi?

Various post-rationalisations can be made for the great Minitel experiment – not least that France became the first country to develop a mainstream online culture. But where is the entrepreneurial legacy of all that investment? If you look at rankings of the world’s top internet, IT and software companies, you will see that most of them are American or (increasingly) Chinese. There are some Japanese and other Asian companies, but very few European companies and none to speak of from France.

Of course, the private sector is also capable of backing the wrong technology (remember Betamax?). Alternatively, they might miss the boat when a new technology disrupts a once thriving business model (the impact of digital cameras on Kodak being the classic example). But when private companies make the wrong call, they either find a way of moving on or they go under. Either way the mistake is terminated.

However, the entrepreneurial state does not face the same constraints: it can’t easily go bust; it can easily raise capital from its ‘investors’ by taxing them; and it’s under little pressure to show a short-term return. This has the great advantage of allowing it to become a patient investor in technologies that might take decades to achieve their full potential (as was the case with ARPANET). But it also has the great disadvantage of allowing politicians to take an entire nation up a technological dead end – and to persist in that folly long after a private company would have given up.

C’est la folie

Commenting on the Charge of the Light Brigade, Field Marshal Pierre Bosquet said “C’est magnifique, mais c’est pas la guerre” (it’s magnificent, but it’s not war). Replace war with entrepreneurship and you could say the same about Minitel. You could go even further and see the whole episode as a metaphor for the French way of doing things – gloriously dirigiste, but doomed to be superseded by les Anglo-Saxons.

And yet this is not an exclusively French vice. Later this week I’ll be presenting a list of the British state’s worst investment decisions. Brace yourselves!

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Flyover France – the forgotten frontier

By Peter Franklin

In the United States, President Roosevelt’s wartime science guru, Vannevar Bush, laid out a plan for a post-war government-science partnership that resulted in the National Science Foundation.[1. The report that led to the National Science Foundation (and its equivalent in every developed nation) – Science, the Endless Frontier. His brief and extraordinary essay published in 1945 in Atlantic Magazine, As We May Think actually envisages an “internet” as a hyperlink system based on microfiche! “Consider a future device…  in which an individual stores all his books, records, and communications, and which is mechanized so that it may be consulted with exceeding speed and flexibility. It is an enlarged intimate supplement to his memory.”] The core idea: governments need to fund basic research.[2. The parallel National Institutes of Health, first funded for cancer research, is now the big brother as bioscience has flourished. Current funding: NSF $8 billion. NIH $35 billion.]

A decade later, the Soviet Union’s launch of the world’s first satellite, Sputnik, in 1957, sent shock-waves through America and refocused government minds on innovation. How on earth could this despised centrally-managed regime have beaten the US into space?

In February of 1958 President Eisenhower set up the Advanced Research Projects Agency (DARPA – the D for Defense was added later) with a simple mission: to make sure the US would never again be surprised by developments in new technology.

From the start, DARPA has operated as a unit of the Department of Defense, though it’s been free to think long-term and not feel bound by the need to develop weapons. It’s a nimble organisation, with only a couple of hundred employees – and a budget of $3 billion.

Its approach is to look way into the future and find and fund the smart people who will get us there. Some of its work is seriously secret.[3. I was once asked to help a company get funding from DARPA, and I hired a former DARPA programme manager to make it happen. Then he explained that if DARPA really liked the company’s hush-hush product they might just decide to classify it – make it a state secret. And the company decided to look elsewhere.] But many of its innovations are well known.

Its most recent claim to fame is self-driving cars. Big car companies are now sparring with Silicon Valley start-ups to turn their experimental vehicles into production models, but it was as recently as 2004 that DARPA kick-started this rapid technological development. Instead of splashing out large sums to university researchers, DARPA decided to run a competition. Anyone could compete, their cars had to trundle across 142 miles of desert to get to the finish line, and the winner would take home $1 million. Incredibly given where we are now, every single entry in that first round failed to make it. But DARPA persisted, and in 2005 five vehicles crossed the finishing line, with Stanford University taking home the prize. DARPA moved on to an urban course, and then decided its support was no longer needed.

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Of course, DARPA’s biggest claim to fame is the internet. Or, as it was originally called, the ARPANET. Back in the 1960s there was a simple need: a system that could not be destroyed by a Soviet nuclear attack. Hence the idea of joining up computers – initially between universities – in a network that did not depend on any single hub. And that burning platform led to DARPA funding 70% of all US computer research in the early 60s.

It was two key thinkers working on the project, Vint Cerf and Bob Kahn, who came up with what we now recognise as the internet. The story goes like this: Cerf was hanging around in a hotel lobby and came up with the idea of a new ‘communications protocol’ that would enable networks to connect with each other. It came to be known as TCP/IP. First tested on ARPANET in 1977, it’s the standard we’re still using today. [4. For more details, see the article on ARPANET in Encyclopaedia Britannica]

The outlines of this story are well-known, but its implications less so. Because DARPA and other US government funding agencies did not just invent the internet – they devised the tools that made the digital economy possible; and enormously profitable.

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By Peter Franklin

As economist Mariana Mazzucato demonstrates in her celebrated book The Entrepreneurial State, for example, every key component in the iPhone was developed by the United States government. [5. Mariana Mazzucato, The Entrepreneurial State. Debunking Public vs. Private Sector Myths. Revised edition, Public Affairs, 2015] And it’s quite a list. Aside from the internet itself, which is the basis of every single 21^st century high-tech company (including the 60+ ‘unicorns’, Silicon Valley start-ups valued at more than $1 billion), the whole succession of technologies that power our devices has emerged from publicly-funded science. From touch-screens to voice-activated Siri (and her equivalents) we have government investment to thank.

In fact, the entire eco-system of the internet was funded by DARPA. This article on “10 amazing DARPA inventions” starts off with the internet, and moves onto hyper-text linking (which led to the World-Wide Web); an early version of Google street-view; the Unix operating system; and GPS.

And while it’s true that Sergei Brin and Larry Page wrote the algorithm that created Google, what’s less well-known is that they made their key discoveries with funding from the National Science Foundation.

Mazzucato’s argument is simple. As a matter of history, the core technologies that enabled Silicon Valley were not developed by Silicon Valley geniuses funded by Silicon Valley venture capital. It was the federal government, chiefly through DARPA, who made the development of these now ubiquitous technologies possible, and who gifted them to anyone who was interested.

American (and, of course, increasingly, Chinese) companies have been very interested, and their vast profits are the fruit of investment by the US taxpayer. Public risk, private profit.

Let’s take Apple, who have sold over a billion iPhones: current net profits are around 20%, its market capitalisation is edging towards one trillion dollars, and at the moment it has nearly $300 billion just sitting in the bank. If anyone has done well out of US public science investment, it’s the company Steve Jobs built.

This story of how a government agency, DARPA, jump-started the digital economy needs to be better known, and one signal service of The Entrepreneurial State has been to help puncture the illusion that the Silicon Valley geniuses came up with it all themselves. It also raises some big questions about who drives innovation, and how it is paid for.

If American taxpayers funded the research that led to the development of the iPhone, shouldn’t those taxpayers share in the rewards? Mazzucato makes a strong case for a clawback, which could be recycled into further public science investments. She may be right, if it can be done in a way that does not inhibit the next round of entrepreneurs. But it’s important to note that these companies already benefit the economy – and therefore the public purse. They pay tax, have created a lot of high-paying (as well as low-paying) jobs, and had the usual multiplier economic impact on their localities and supply chains that vibrant innovative companies produce.

Nonetheless, a windfall tax on digital companies making outsize returns – ring-fenced to fund new research – could be one solution to the Mazzucato challenge. A form of DARPA dividend. It’s worth noting that Apple’s current cash mountain alone could fund DARPA one hundred times over.

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A more fundamental question is whether governments should see themselves as “entrepreneurial”, and set out to do just what DARPA did, as a matter of practice. The idea that governments should set industrial policy is hotly contested, with critics tending to characterise such an approach as ‘picking winners and losers’.

It’s ironic that while European governments (and the Japanese) are happier talking like this, it was in the United States, where the rhetoric of free-market capitalism tends to shut down conversations about industrial strategy, that the DARPA-digital lift-off actually took place. There’s a good argument that governments can’t avoid industrial policy choices – either they have one they talk about, or they have one by default. On the other hand, there’s also an argument that the DARPA-digital story is unusual, perhaps unique, and certainly not something that a government could set out to replicate.

Maybe it was unique, but that’s no reason to sit on our hands. Governments have nothing to lose and everything to gain by funding far-sighted research. One of the beauties of the DARPA model has been to keep this separate from the National Science Foundation/National Institutes of Health funding, which suffers from traditional peer review (fellow-experts who tend to strangle really fresh thinking at birth), and also from pressures to make it translate readily into business ideas and profits. The internet is worth trillions, but it took a generation before that became clear.

While there have been huge commercial and economic benefits from these technical advances, it is, however, important to remember that neither Vannevar Bush nor President Eisenhower had profit on their minds as they planned science and technology’s central role in America’s future. Their focus was security – keeping ahead of the Soviet Union. Their efforts succeeded beyond their wildest dreams, in part precisely because the focus was on long-term innovation rather than economic returns. There will always be private capital for the latter.

The clearest lesson from The Entrepreneurial State is that the blue-sky thinking of the mid-20th century paid off in the 21st – but that the original objectives of that research investment could not have foreseen the digital revolution that it spurred.

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Mission to make money: a new space race is taking off

By Nigel Cameron

Across Asia the state played a crucial role in promoting successful industrialisation. This is true of India, Indonesia, Japan, Singapore, South Korea and Taiwan. Even the odd man out – independent Singapore after 1965– had ‘government linked corporations’, and still has an investment vehicle (Temasek Holdings) with assets of $275 billion and a sole shareholder – the Ministry of Finance. It is much more than a sovereign wealth fund.

In China the party-state assumed the burden of reconstructing a country ravaged by civil war, occupation and revolution. The industrial scene was dominated by State-Owned Enterprises (SOEs), though from the late 1970s an incipient private sector – both in agriculture and light industry – developed in line with Deng Xiaoping’s dictum about the colour of cats (meaning the balance of state and private) being irrelevant to whether they caught mice.

The drive to reform eventually spread to SOEs under premier Zhu Rongji (1998-2003), whose mantra was ‘grasp the large, release the small’. Tens of thousands of failing SOEs were liquidated or privatised, with 40 million workers redirected into the booming private economy in a brief five years period. Many surviving SOEs were restructured and often listed on the stock exchange.[1. Nicholas Lardy, ‘The Changing Role of the Private Sector in China’, Reserve Bank of Australia, 2016] Unlike free market fundamentalist ‘shock therapy’, Zhu Rongji’s approach ensured continuous economic growth and social stability despite tens of millions losing their jobs.

Today’s SOEs are fewer and much bigger, so much so that western corporates quake at their approach. There are two categories. First, ‘national champions’ in banking, defence, energy, mining, telecommunications, transport and utilities. Three of these giant corporations, China National Petroleum, Sinopec and State Grid, are on the list of the world’s ten largest companies, and all with assets equivalent to entire countries. The oil giant Sinopec, for example, disposes of only slightly less revenue than the Australian government.

Below them are many more local and provincial SOEs, often in sectors like automobiles, IT, hotels and restaurants.[2. Korin Kane, ‘The size and sectoral distribution of state-owned enterprises’, OECD, 28 September 2017] While many SOEs are lackluster performers, there are many that do innovate, albeit in unsexy areas like viscose thread, affordable TV sets, and hot coil boxes in steel works.

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Nonetheless, it is often said that SOEs are a pernicious drag on China’s economy, often by westerners who regard them as an obstacle to their own market penetration. While China’s SOE’s generate 16% of all jobs, and a third of industrial output, they also soak up a third of all loans, thereby contributing to China’s unsustainable domestic debt.

There has been constant talk of reform of SOEs but much of it is the equivalent of shuffling a pack of cards to give the illusion of activity. The November 2013 Third Plenum of the 18^th Central Committee decreed: “we must ensure that the market has a decisive role in the allocation of resources”, albeit within a system still based on “the dominant position of public ownership” and “the leading role of the state-owned sector”.

Private sector investment in SOEs was encouraged. But private investors were reluctant to risk becoming involved in bloated enterprises, where the men with a red Party telephone on their desks call the shots following the instructions – and priorities – of Beijing.[3. As vividly described in Richard McGregor’s The Party, London, 2016] The Party may order continued loss making over-production to guarantee local jobs, or suddenly cut back coal or steel production as happened earlier this year, to head off a trade war. Increasingly corporate rearranging of the chairs replaces more hard-nosed structural reform.

The thinking seems to be that through sheer scale, these companies can force their way onto the world stage, especially if they digitalise production and supply chains. As in life, so in industry, marrying one fat slob with another rarely produces an entrepreneurial genius.[4. Sara Hsu, ‘China goes in circles: another attempt to reform state-owned enterprises doesn’t do enough’; Forbes 13 June 2017] Most recently, there has been a further ‘statist’ resurgence, with the levels of private sector investment declining to a mere 0.3 times that of the state.[5. Wendy Wu, ‘Chinese state firm executives frozen out of Central Committee as Xi Jipling’s anti-corruption plan bites’, South China Morning Post 26 October 2017]

Which brings us to the current era dealt with by Mazzucato. Conventional Chinese SOEs are unlikely to create the 15 million jobs a year China needs, 8 million of them graduate positions, and they are yesterday’s news in terms of the advanced sectors the Party wishes to see flourish.

In the most advanced industries, Chinese companies are rapidly catching up in purely innovative terms, and clichés about copycats and espionage no longer hold. China is in the lead, for example in next generation technology which will merge on and offline worlds through face or voice recognition technology, while Da Jiang Innovations makes 80% of the world’s commercial drones.

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The catch-up rates are striking. TenCent ($405 billion), which owns WeChat, is more valuable than Facebook ($399 billion), and Alibaba ($437 billion) is closing on Amazon ($459 billion). Together with Baidu, hence the acronym BAT, these giants finance start-ups in cities like Shenzen, which has eclipsed Hong Kong’s ‘old’ economy of finance and property and is now where Californian techies seek out cutting edge innovations. To hedge their bets, the Chinese invest in San Francisco and Indian start-ups too.

China’s government plays a major role in innovation, although having a huge population which readily adopts new technology also helps – the Chinese spend $790 billion using their phones, eleven times more than is spent by people in the US.

The government has boosted the number of graduates from one to seven million over the last fifteen years, with a further 11 million attending technical and vocational colleges. 188 million Chinese school children, including those in remote rural areas, will soon find themselves being individually taught by AI-enabled ‘teachers’ which recognise their faces.

The Chinese state has encouraged partnerships with leading universities and the Academy of Sciences and industry. It encourages competition between cities and regions to grow their economies and to attract talent. It has no inhibitions about people becoming incredibly rich, provided corruption is not involved, which may explain why so many western trained Chinese techies are heading back to the motherland.

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Through central plans, the government sets priority – currently electric vehicles, robotics, quantum computers, biomedicine and new materials. It sets tight deadlines for when China has to achieve global dominance in solar panels, 3-D printers, drones and robots. It does this through subsidies, tax breaks, loans and cheap inputs like electricity and low rents, not to mention an R&D budget that will reach 2.5% of GDP by 2020. If needs must, China can simply buy interesting European companies, as Midea in Guangdong did with Germany’s Kuka robotics. The Chinese state is driving innovation, and with it, economic growth.

Although, contrary to Mazzucato’s claims about the state doing the breakthrough research, much of China’s R&D budget is devoted to late-stage research, rather than the fundamental research which still absorbs most western R&D spending.

But China’s government also knows when to leave things alone, which is why data management, privacy and commercial rights issues are omitted until after tech champions like Tencent are up and running, another reason why China is ahead in exploiting freely available big data.

One final thought. Mazzucato felt obliged to write a book on the entrepreneurial state, while a Chinese scholar didn’t, precisely because ideological wrangling is so pervasive here. This debate is incomprehensible in China. The Chinese just look at the functionality of the cat, rather than its ideological coloration, and that may well be why they will be the innovative power in decades to come.

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The government agency that made Silicon Valley

By Nigel Cameron

I’m glad to say that someone else has noticed – John Harris of the Guardian is also less than impressed:

“Back in 1999, Google hit 1bn searches a year. Wifi began to make an impact about two years later. Thanks to the pioneers of Facebook and Twitter, the age of mass social media dawned between 2004 and 2006 – and non-stop posting, messaging and following was soon enabled by the iPhone, launched in 2007. These things have changed the world… But the revolution they represented is old now, and nothing comparable has come along for more than a decade.”

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Harris goes on to excoriate the hype surrounding the tech giants’ increasingly insignificant product launches :

“Every now and again, at some huge auditorium, a senior staff member… will take the stage dressed in box-fresh casualwear, and inform the gathered multitudes of some hitherto unimagined leap forward, supposedly destined to transform millions of lives. (There will be whoops and gasps in response, and a splurge of media coverage – before, in the wider world, a palpable feeling of anticlimax sets in.)”

Tech optimists will be able to quote all sorts of figures about advances in processing power, bandwidth and other metrics for the size, speed and reach of the digital world. They’ll also be able to point to online products and services that just weren’t available ten years ago.

However, it’s not the growing capacity of the technology that Harris is calling into question, but whether it’s been used to do anything that’s both new and useful. There’s a key distinction to be made here between new products that change society because of what they enable us to achieve and those that change society merely because they’ve got better at grabbing our attention.

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Many in the tech industry are avoiding their products. Should we do the same?

By Peter Franklin

Imagine you could wave a wand and magic-away the last ten years of technological progress – specifically, progress in digital.

Waving that wand in, say, 2008 would have wiped out the iPhone and mass market smartphones generally – though mobiles of a more basic nature would still be common (game of ‘Snake’ anyone?). The internet would survive in a just-about-recognisable form, but it would be painfully slow. There would be no YouTube, no Twitter, no Facebook, no MySpace even. Social media as we know it would be gone.

However, the effect of waving the wand in 2018 would be… underwhelming. Smart phones wouldn’t as advanced or as ubiquitous, but they’d still be there, as would social media. Streaming of music and video would be back to its infancy (as a mass consumer product), but it would still be a thing. In fact, in terms of all the fundamental things you can do with digital tech, it’s hard to think what we’d lose.

There are a few bits and pieces we’d miss. Language translation these days is actually useful, though far from flawless. Voice recognition is breaking through as a technology that people use in their living rooms – definitely one to watch. Facial recognition systems are also making an impact; though more so in some places than others. Virtual reality has finally become a consumer product, but, thus far, a niche one – not much more significant than the 3D TVs we’re not rushing to buy.

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Personally, I’m very grateful for the combination of the iPad Pro, the Apple Pencil and MyScript software, which converts my onscreen handwriting to text with near miraculous accuracy. However, I’ve yet to meet a single other person using the same to liberate themselves from the keyboard – maybe they’re all too young to have ever used anything else to write with.

Harris does admit that we may be on the brink of some genuinely significant breakthroughs:

“Amazing and sometimes life-enhancing innovations, I dare say, are being worked on by tech geniuses across the world. In fields such as driverless transport, virtual reality and blockchain technology, new inventions may eventually transform our lives, and fulfil the cliched big-tech promise about making the world a better place.”

As always, there’s a path to be trod between boundless optimism and hopeless pessimism. Knee-jerk cynicism is also to be avoided. However, before asking whether new technologies are good or bad for society, we should ask whether they matter that much one way or the other.

Like a lot of Silicon Valley alumni, Zuckerman (now a professor at MIT) views today’s internet with a degree of horror. An old enemy – the push to create a proprietary internet walled-off from outside information sources – has come back from the dead and is more powerful than ever:

“…imagine that you had a web browser that could only look at Facebook. It couldn’t look at any other website. Well, that’s what we had more or less in the days of AOL and CompuServe. They finally had to open up, otherwise they would die. But that was that walled-garden model.

“In many ways, that’s now what we’re all dealing with on our phones, you know? My Facebook app won’t let me look at Twitter, and it won’t let me look at Mastodon, and it won’t let me look at anything else.”

The new tech lords have yet to capture the web in its entirety, but Zuckerman believes that their dominance comes at a terrible cost:

“I really feel like we’ve lost about ten years of innovation. I feel like this last decade has been pretty boring for the web.”

He’s right. Think about the development of internet in decade-long chunks. In 1988, most of us hadn’t even heard of the internet, but by 1998, email was widespread and websites commonplace (even if we were still using dial-up modems to access them). Fast forward another ten years to 2008 and broadband had become the norm. Google and Facebook were also achieving default status – indeed the internet as we know it today was pretty much all there already.

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But that’s the problem: the internet in 2018 is really not that different from the internet in 2008. Compared with the enormous leaps of the previous two decades, the most recent decade has been one of consolidation – and, some might say, stagnation.

Of course, thanks to the smartphone (and the spread of halfway decent wi-fi) the internet has gone fully mobile over the last decade – but it’s still basically the same internet, only on a smaller screen. Any upgrades on ‘web 2.0’ are after, not before, the decimal point.

Zuckerman pins the blame on market incumbency:

“You used to be able to do something novel online for a modest amount of money. And in many ways, it’s still pretty easy to program something new. But it’s very difficult to build an audience for it unless you are essentially willing to pay quite a bit of money to an existing partner. Or essentially try to buy that audience through Facebook or Google.”

He’s not arguing that there’s been no internet-related innovation over the last decade. Tellingly, however, it’s been concentrated in domains beyond the digital advertising oligopoly. One of these is China – where market barriers place Google and Facebook on the outside. The other one that Zuckerman mentions, is the market for services such as Uber and AirBnB – which are about applying internet technology to “monetise the physical world”.

A third domain that Zuckerman doesn’t mention is the digital assistant – e.g. Alexa, Siri etc. Admittedly, this is yet another area that the tech giants currently control. Furthermore, these aren’t services that generate their own revenue streams (other than the sale of speaker units). For the moment, they can be viewed as extentions of established Silicon Valley business models.

However, as the AI that powers digital assistants continues to improve, a more disruptive scenario presents itself. The standard social media business model is all about attracting, directing and retaining our attention within a proprietary online environment whose purpose is to sell digital advertising.

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The purpose of a properly smart digital assistant, however, would be to trawl the internet so that we don’t have to – finding the information and making the arrangements we need to improve our experience of the real world. If they’re any good, these are services that we’d pay for directly – just as people pay for human assistants.

The digital assistant would be much cheaper, of course, and would truly represent the next leap in the development of the Web – an internet that doesn’t distract us, but instead helps us to achieve what we really want to do with our lives.

Meanwhile, businesses based on selling our attention to advertisers will get exactly what they deserve.

The giants of social media may appear to be impregnable, but in the end it’s all a matter of time.

In the big finish to the 2008 Olympics in Beijing, the Bird’s Nest stadium was invaded by Boris Johnson (then Mayor of London), Leona Lewis and a brand new London bus (above).

London was clearly proud of the New Routemaster – a 21st-century update on of the iconic red doubledecker – and wanted to show it off to the world. Its hybrid diesel-electric engine, however, was no more than a nod to a better future.

To see what that might look like, we have to go back to China, where all-electric buses are transforming public transport.

Jeremy Hodges reports on this revolution for Bloomberg:

“The numbers are staggering. China had about 99 percent of the 385,000 electric buses on the roads worldwide in 2017, accounting for 17 percent of the country’s entire fleet. Every five weeks, Chinese cities add 9,500 of the zero-emissions transporters—the equivalent of London’s entire working fleet, according Bloomberg New Energy Finance.”

The only reasonable response to these numbers is “wow!’ London might also like to ask itself whether it, er, missed the bus.

Of course, a decade ago all-electric buses were still seen as being a long way from going mainstream. Then again, you sometimes have to make the future happen:

“A decade ago, Shenzhen was a typical example of a booming Chinese city that had given little thought to the environment. Its smog became so notorious that the government picked it for a pilot program for energy conservation and zero emissions vehicles in 2009. Two years later, the first electric buses rolled off BYD’s production line there. And in December, all of Shenzhen’s 16,359 buses were electric.”

It is true that China’s air pollution problems are so bad that only drastic action will do. Nevertheless in acting with an appropriate scale of ambition, the Chinese are not only improving the environment, they’re also creating huge export opportunities:

“Other cities are taking notice. Paris, London, Mexico City and Los Angeles are among 13 authorities that have committed to only buying zero emissions transport by 2025.

“London is slowly transforming its fleet. Currently four routes in the city center serviced by single-decker units are being shifted to electricity. There are plans to make significant investments to the clean its public transport networks, including retrofitting 5,000 old diesel buses in a program to ensure all buses are emission-free by 2037.

Not coincidentally, production of that other iconic London vehicle – the black cab – is also going all-electric. Also worth noting is that the manufacturer, the London Taxi Company, has relaunched as LEVC (the London Electric Vehicle Company). Oh, and these days, it’s a wholly-owned subsidiary of Geely, a Chinese company. Is that enough straws in the wind for you?

The West has an awful lot of re-thinking to do – on the environment, on transport and on industrial policy too.

We also need to rethink our basic assumptions about China. The idea that world-changing technology is developed by the West and copied in the East is now badly out of date. 

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By Peter Franklin

In a blog for Scientific American, John Horgan considers an even more disturbing possibility, which is that science itself is stagnating:

“…economists are concerned primarily with what I would call applied science, the kind that fuels economic growth and increases wealth, health and living standards. Advances in medicine, transportation, agriculture, communication, manufacturing and so on. But their findings resonate with my claim in The End of Science that ‘pure’ science—the effort simply to understand rather than manipulate nature is bumping into limits. “

What evidence do we have that that scientific progress is slowing down?

“Some scientists… [scoff] at the idea of a scientific slowdown. Biologists, pointing to CRISPR, optogenetics and other advances, [are] adamant that the pace of discovery is, if anything, accelerating. My response: Yes, fields like genetics and neuroscience are indeed churning out findings, but to what end? Gene therapy has been an enormous disappointment, and treatments for mental illness remain appallingly primitive.”

The implication here isn’t just that innovators are failing to find applications for advances in scientific understanding, but that the advances – or at least the fundamental ones – aren’t being made. Mental illness is a case in point: while the psychiatry profession is good at finding new ways of classifying certain symptoms, we don’t seem much closer to explaining their causes.

Of course, scientific progress is never constant; in each field there are times when the breakthroughs come thick and fast, followed by periods of stasis. That said, there comes a point when a discipline has been stuck for so long that its collective mind starts wandering:

“…many physicists remain stubbornly committed to strings and multiverses, things too small and large ever to be observed. Theories of consciousness have also gotten wackier lately. Prominent experts are espousing panpsychism, which holds that consciousness might be a property of many kinds of matter, not –just brains. As with strings and multiverses, panpsychism cannot be experimentally confirmed.”

Another symptom of malaise is the replication crisis and the related issue of ‘HARKing’ (hypothesising after results known) – a great way of churning out findings to dubious effect.

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The strain is beginning to show:

“Another sign that science is running out of gas is the sharp increase in average ages of winners of Nobel Prizes in science, and especially physics.”

I think the implication here is that the big prizes in science are turning into a kind of long-service medal, instead of a way of rewarding the younger scientists whose discoveries turn their disciplines upside-down. That’s not to argue that today’s prize-givers are snubbing the revolutionaries, but rather that scientific revolutions are now few and far between.

Even the good news has a cloudy lining:

“I began my career 35 years ago writing on these contraptions called ‘typewriters’ and doing research in places called ‘libraries.’ I’m still blown away by my ability to access virtually infinite knowledge instantaneously from a smart phone or laptop. Yeah, fake news, spam, cyber-war, but still.”

Horgan is right to be excited: this is an opportunity without precedent in all of human history. But why isn’t it fuelling a 21st-century renaissance – in both the sciences and the humanities?

That, surely, is an urgent question for the most brilliant minds of our day.

I’m not sure they’ll like the answer.

For a lot of us, it’s the likes of Google, Amazon, Facebook and Apple. Smaller, but game-changing companies, like Tesla and Uber might also get a look in. But what about Didi Chuxing, Xiaomi or Meituan-Dianping? Ring any bells?

Those Chinese enterprises aren’t exactly household names in the West; but, according to Christina Larson (in a report for Wired), they comprise “three of the world’s top five most highly valued private companies.”

Clearly, the notion of China as a supplier of cheap manufacturing capacity for the West is getting out-of-date:

“…a few years ago, China’s leaders decided they wanted the country to be known for a new kind of electronics – not only ‘Made in China’, but ‘Designed in China’.”

What China’s leaders want, they usually get:

“China [now] has the largest number of unicorns outside the US. In 2014, it overtook Europe as a destination for venture capital, according to PricewaterhouseCoopers.”

(In this context, a unicorn is a start-up business, typically in the tech sector, valued at $1 billion or more.)

Some might suspect that the Chinese have merely graduated from copying western products to copying entire business models. Larson argues there’s a lot more to it than that:

“China’s established internet titans – Baidu, Alibaba and Tencent, sometimes called ‘BAT’ – began as clones of US companies like Google and eBay. But these giants have since evolved in distinct new directions, rather like megafauna evolving new breeds within a Galapagos Islands ecosystem.”

That “ecosystem” is certainly well-protected from the outside world by trade barriers. Nevertheless, the pace and scale of development is impressive:

“In a country where personal cheques and credit cards never went mainstream, paying with your smartphone has become the norm: in 2016, China’s mobile payment market was 50 times the size of that in the US, according to research firm iResearch. Now the sidewalks of Beijing and other metropolises are crowded with millions of bright orange and yellow ‘smart’ bicycles, activated by commuters who scan a QR code with their phone camera and pay using one of the country’s two dominant digital platforms, Alipay and WeChat Wallet.”

In many ways, China is going further – and certainly faster – in applying technologies whose fundamentals were developed in the West. But is it enough to make the most of what’s already available?

As I’ve written about previously, innovation follows pathways whose potential eventually becomes exhausted. Unless they make the conceptual leaps necessary to discover new pathways, businesses, industries and eventually entire economies can find themselves themselves running out of steam.

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Only lateral thinking can save us from economic stagnation

By Peter Franklin

It’s easy to feel overawed by the Chinese rate of economic growth (especially compared to ours) – but, of course, they’ve had the advantage of being able to implement in a few decades technologies that were originally developed elsewhere over centuries. Indeed, they’ve been able to leapfrog intermediate stages of development that the West not only had to implement, but also invent in the first place.

There was a time when westerners were the catch-up kings, making the most of technologies that the Chinese (and other civilisations) had invented centuries earlier – such as paper and gunpowder. But eventually, to maintain our forward momentum, we had to become the pioneers. It won’t be long before modern day China has to do likewise.

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China’s taking a quantum leap in its tech rivalry with the West

By Peter Franklin

It’s a challenge the Chinese government understands, hence their massive state-led investments in frontier technologies like quantum computing. An awful lot hangs on whether China’s top-down approach to fundamental innovation produces better results than the mostly market-driven approach of the West.

You may not have heard of the most surprising scientific result of all time. It was published in the journal Psychological Science[1.  ‘False-Positive Psychology: Undisclosed Flexibility in Data Collection and Analysis Allows Presenting Anything as Significant’, 2011. Joseph P. Simmons, Leif D. Nelson, and Uri Simonsohn], and it found that listening to ‘When I’m 64’ by the Beatles literally made you younger by nearly 17 months.

Not “made you feel younger”, or “made your brain younger”: the study demonstrated that listening to certain songs made you younger. And these surprising findings met the standard of “statistical significance” which most scientific journals demand.

In fact, the three authors of the study had set out to deliberately make a point. They wanted to show that, by using routine statistical methods[2.  Scott Alexander, ‘Two dark side statistics papers‘, Slate Star Codex, 2 January 2014], you could find apparently solid results that were not merely unlikely but patently absurd.

The problem is that the standard of “statistical significance” is too easily subverted. And to prove it, the three authors used tricks to find relevant-looking patterns out of pure, random fluke results. We might call their techniques “cheating”, but they are routinely used in almost all walks of science.

Say you’re running an experiment into whether or not a coin is biased towards heads. You flip the coin three times; it comes up heads three times. Does that prove your hypothesis? No: sometimes you get three heads in a row just by chance.

That’d be called a “false positive”. Your chance of getting three heads in a row on a fair coin is 1 in 8, or as a scientist would write it, p=0.125.

In 1925, the great statistician RA Fisher arbitrarily decided[3.  Statistical Methods for Research Workers, RA Fisher, 1925] that “significance” should be defined as p=0.05, or a 1 in 20 chance of a false positive. That definition is the standard that most research is still held to. Your three heads in a row wouldn’t do it, but five would: that’d be a 1 in 32 chance, or p<0.03.

The “When I’m 64” study had p=0.04, and thus met the threshold.

To prove the thesis, they did a simple test: they took 20 subjects, randomly divided them into two groups, and then played one group the Beatles and one group a control song, “Kalimba” by Mr Scruff. In theory, randomly dividing the two group means that they should be, on average, the same; the only difference should be the intervention, which song they listened to. And that means that, in theory, if you find a significant difference between the two groups, it has to be caused by that intervention. It’s a randomised controlled trial, just the same as is used to test cancer drugs.

And the study found that the “When I’m 64” group was, on average, 1.4 years younger than the control group, and found that this difference was statistically significant. So they had proved – to the standard most journals demand – that “When I’m 64” causes you to get younger.

Essentially, they gave themselves lots of chances to get that 1 in 20 fluke, then hid all their failed attempts at getting five heads in a row.

For instance, as well as making their 20 participants listen to the Beatles and Mr Scruff, they also asked them to listen to “Hot Potato” by the Wiggles. And they also asked 11 other questions, including how old they felt, their political orientation, whether they referred to the past as “the good old days”, and so on.

This allowed them to look at lots of different possibilities which might demonstrate their conclusion. Did the people who listened to “Hot Potato” happen, by chance, to be more politically conservative? Did people who listened to the Beatles say “the good old days” more often? No? Then the scientists didn’t report on that. There were dozens of ways to analyse the data, easily enough to get a 1-in-20 result just by fluke.

This behaviour is called “hypothesising after results are known”, or HARKing[4.  Norbert L. Kerr, ‘HARKing: Hypothesizing after the results are known‘, Personality and Social Psychology Review, 1 August, 1998]. It means waiting until you’ve got your data, then sifting through it in imaginative ways until you find something that looks like a result. It gives you a much higher chance of (falsely) reaching a “significant” finding: using tricks like this, collectively known as “p-hacking”, Simmons, Nelson and Simonsohn say that the chances of a false positive can rise above 60%.

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If you don't 'get' statistics it's just as bad as not 'getting' Shakespeare

By Graeme Archer

And this happens all the time, in real papers. A study by the Oxford University Centre for Evidence-Based Medicine[3.  The Centre for Evidence Based Medicine Outcome Monitoring Project (COMPare), Ben Goldacre, Henry Drysdale, Carl Heneghan, 18 May, 2016] found that the top five medical journals in the world regularly publish studies which change what they’re measuring after the trial begins, a practice related to HARKing.

It isn’t that scientists are frauds; it’s that the incentive system in science is flawed

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It isn’t that scientists are frauds; it’s that the incentive system in science is flawed. As a community, we want science to build up a reliable body of knowledge. But as an individual scientist, you are incentivised to publish lots of papers showing exciting, novel results. And when the individual’s incentives don’t align with wider society’s, the individual incentives will win out almost every time. The trouble is, this wastes resources, skews results and creates fake narratives.

Chris Chambers[4.  Chris Chambers, ‘Psychology’s registration revolution‘, The Guardian], a professor of psychology at Cardiff, tweeted recently that he’d had a paper rejected for having conclusions that were “not necessarily novel”.

Short thread. Had a paper accepted today at @royalsociety Open Sci & another rejected at Appetite.

Here’s some review comments from Appetite, not as a whinge (I’m too old & leathery to complain about reviews) but as a reminder of the challenge we face reforming the field /1

— Chris Chambers (@chrisdc77) January 11, 2018

“We could have been more novel,” he wrote. “We could have HARKed this paper up the wazoo or p-hacked it. We didn’t.”

The trouble is a deep-seated flaw in the process of “peer review”. “They judge the work,” Chambers said, “not just on how important the question is and how well the study is designed, but also whether the results are novel and exciting.”

Might these challenges be somehow linked? The answer is yes, but not directly. Indeed, the market-leaders tend to be the most innovative and productive firms in their respective sectors, while overall performance is held back by a long-tail of smaller and/or less advanced firms.

In an important article for VoxEU.org, Jonathan Haskel and Stian Westlake argue that a third phenomenon lies at the root of what’s going on:

“…over the past 20 years there has been a steady rise in the importance of intangible investment relative to tangible investment… by 2013, for every £1 of investment in tangible assets (buildings, machines, vehicles, etc.) the major developed countries spend £1.10 on intangible assets (such as software, R&D, design, branding, training, and business process engineering).”

This matters because intangible assets have special economic properties:

“One is the ability of firms to scale intangibles over their operations more readily than tangibles. Uber can serve more customers with their existing software, but Bob’s Taxis, your local taxi firm, has to buy more cars. Another is spillovers – firms cannot use their rivals’ tangible assets, but can potentially use their rivals’ intangible assets.”

If their business is based on intangibles, it’s therefore easy for big companies to get even bigger – quickly ramping up production to meet demand, and readily developing new capabilities by attracting talented individuals and acquiring the intellectual property of other firms.

In getting bigger, such firms also get better because of synergies between intangible assets:

“…intangibles are often highly valuable when combined with other intangibles. For example, consider how the R&D and design in an iPhone combine with the organisational design of the App Store and Apple’s supply chains, and with Apple’s own brand to create one of the world’s most profitable products.”

OK, that explains why the shift to an intangible economy lends momentum to leading companies, but how does it explain the slowdown of the wider economy?

One theory is that the ‘laggard’ firms just can’t catch-up:

“If more of the capital stock is scalable, and exhibits synergies and spillovers, leading firms can pull away from their competition, scaling up over their intangible assets, assimilating knowledge from rivals, and combining intangibles in a way that laggards cannot.”

The old world of tangible innovation was different. For instance, when coal-powered machinery was superseded by oil-powered and electrical machinery, the factories that first adopted it may have had an initial advantage – but the competition was able to close the gap by slotting the new tech into their existing operations. However, in the new world where innovation is more about the multi-dimensional integration of intensely knowledge-based systems, the gap between the frontier firms and everyone else becomes unbridgeable.

There is, however, an alternative (or additional) theory, which is that the problem lies with not with the laggards, but the leaders. The idea is that many intangible investments, while profitable for the investor, are parasitic on the rest of the economy. Examples that Haskel and Westlake give include tax avoidance schemes, lobbying for special favours and spurious legal action over intellectual property. This is what economists call ‘rent-seeking’ i.e. economic activities that do nothing (or less than nothing) for overall productivity.

Is there anything government can do about the winner-takes-all economy?

In some cases, the answer is no. We have to accept that outdated business models aren’t worth saving. Indeed, when they tie-up talent and capital that would be better deployed elsewhere, we should welcome their dissolution. If the agent of change is a bigger firm that offers better goods and services – yes, even a foreign one – then we should not stand in its way.

Yet, at the same time, we must guard against monopoly. Government must disrupt rent-seeking at every opportunity, especially on the part of the most successful businesses. State bureaucracy is good at getting in the way of private enterprise – but when that enterprise is fundamentally unproductive, government should not hold back.

More positively, government can encourage competition by investing in shared infrastructure – making sure it’s accessible and useful to businesses of all shapes and sizes. Infrastructure includes the intangible infrastructure of knowledge networks, which when under the exclusive control of particular companies can put them in an unassailable position – think Facebook or Amazon. Government, however, collects vast amount of potentially valuable information. Effectively integrated, open access to publicly-gathered data could be a powerful antidote to the monopolistic exploitation of privately-gathered data.

In the winner-takes-all economy, government should allow market-leaders to be the best they can; while preventing them from doing their worst.

After the country became independent from the USSR, in 1991, it decided to pursue technological innovation as a way of carving out a distinct identity. The results have been remarkable. e-Estonia, the government’s tech arm, boasts today that 99% of public services are available to citizens in digital form, with only marriages, divorces and real-estate transactions requiring you to leave the house. Online voting for parliamentary elections arrived in 2007. The country’s tax returns are done online, with most of the data pre-completed thanks to links between the tax office and local banks.

Around 97 per cent of patients have a digital health record, to which doctors have quick and easy access: in emergencies, they can use a person’s ID code to find out potentially life-saving information such as blood type, allergies, recent treatments, and on-going medication. Patients can browse through their own health records and those of their children, and see who else has looked at them. More than 95 per cent of prescriptions are issued digitally.

Cabinet meetings are paperless, with non-contentious matters agreed online in advance, and as a result have been cut from five hours to as little as half an hour. Absent ministers can take part remotely. Most parliamentary activity is also done digitally. In total, e-Estonia reckons the country’s embrace of cyber saves it 800 years of working time every year. Little wonder Wired magazine describes it as “the most advanced digital society in the world’.

There is a commercial as well as a democratic point to all this. Estonia has been able to flog its smarts to other countries, including Finland, Azerbaijan, Namibia and the Faroe Islands.

And of course, where Estonia has blazed a trail, a stampede of fellow nations has quickly followed. Govtech is proving a majorly disruptive force to the way services have traditionally been delivered across the world. In the new era there is, simply, no longer any need to do things the old, slow, frustrating way.

The Phillipines

The government’s Department of Science and Technology has worked with IBM to create an AI-driven operations centre for dealing with disaster management. This provides emergency managers with a raft of information including advance warning of extreme weather events, feedback from first responders on the number of casualties and affected families, and the condition of buildings, roads and infrastructure.

Singapore

Never far from the frontline when it comes to innovation, Singapore has created a Government Technology Agency, where more than 1,800 tech whizzes, including software developers, data scientists, user-experience experts and geospatial engineers operate like a Silicon Valley start-up, experimenting, tweaking and tackling problems brought to them by various government agencies. The Hive focused initially on establishing the Business Grants Portal, which brings the government’s various grants together in one destination so companies can more easily apply for them. It has also done work on healthcare, an app for reporting non-emergency issues to agencies, and created chatbots that answer citizens’ questions and help them to complete forms. Its leaders are now installing crack teams of around 50 people into each government department.

Denmark

The Scandinavian state is a frontrunner in the use of telehealth, which enables remote contact between patients and doctors, plus digital advice, reminders, education, intervention and monitoring. This has been adopted in areas such as home rehabilitation and physiotherapy in Copenhagen, aiming to reduce hospital readmissions; in connecting diabetes patients and those with heart conditions with healthcare staff; and in home monitoring of older Danes, including video consultations and blood pressure monitoring.

Rwanda

Previously, reliance on the road network could mean the delivery of blood supplies to hospitals took five hours by ambulance. Now hospitals simply text a request, and drones parachute the blood in within around 15 mins. This avoids the need for refrigeration and dramatically cuts emergency response times.

Holland

Amsterdam is one of the world’s leading Smart Cities. It has cut living costs for homeowners by using a smart grid to reduce their CO2 emissions, brought in smart lampposts that save €10 billion per year, and automated bridge opening and closing to reduce waiting times for cars and ships, which has dramatically cut costs. It also uses an intelligent traffic management system, which has slashed the number of hours spent in vehicles.

These advances are important. Citizens around the world see the explosion in digital capability and potential and want governments to deploy technology for the public good. As the rest of their lives become more streamlined and convenient, they expect the same from the state. Slo-mo policians and civil servants look increasingly undynamic and out-of-touch with the modern world. A firm grasp of tech is vital – with alarming forecasts being made about the impact AI and robots will have on the workplace, the public is looking for reassurance that the state is alert to and managing this shift.

There’s a lot going on behind the scenes in the British government. The DWP is using natural language processing, machine learning and intelligent automation to read and categorise incoming correspondence, which is then sent to relevant staff. This liberates workers from the more mundane aspects of the job and, in theory at least, allows them to make a difference in more essential areas. Local authorities are going down the same path: Enfield Council, in North London, uses Amelia, robot technology that deals with frontline issues such as resident queries or authenticating licenses.

There is also a conversation to be had about the vast increase in storage and use of personal data and how this threat to individual privacy is best managed. It was public unease over state snooping that saw Tony Blair’s plans to introduce ID cards in the UK come to nothing in the 2000s. However, as we live more of our lives online, and willingly share more of our data with private companies, as biometrics and other identity analytics become commonplace, it seems likely we will return to the debate, and under different terms.

For example, future generations, raised in a different, more open and connected world, are likely to be less instinctively protective of their privacy. Arguments about convenience and inevitability will hold more sway, too. Estonia’s enthusiastic embrace of the new has seen the country introduce an overarching ID card, which, because all the government’s tech innovations speak to each other, has massively simplified the interface between citizen and the state.

As Siret Schutting of e-Estonia told Wired: “When you introduce an ID card, you get a lot of people asking, ‘Why do I need that?’ But then you add all of these services, and you can purchase a car from your living room, or vote from your living room or, when it’s like minus 40 outside and you have a newborn baby, you probably don’t want to go to the family office to name her: you do that online. Very small, pragmatic things.”

When you put it like that…