Tag Archives: Leadership

Complexity Economics Shows Us Why Laissez-Faire Economics Always Fails

By Eric Liu and Nick Hanauer – Over the last three decades, an unprecedented consolidation and concentration of earning power and wealth has made the top 1 percent of Americans immensely richer while middleclass Americans have been increasingly impoverished.

Traditional economic theory is rooted in a 19th- and 20th-century understanding of science and mathematics. At the simplest level, traditional theory assumes economies are linear systems filled with rational actors who seek to optimize their situation. Outputs reflect a sum of inputs, the system is closed, and if big change comes it comes as an external shock. The system’s default state is equilibrium. The prevailing metaphor is a machine.

But this is not how economies are. It never has been. As anyone can see and feel today, economies behave in ways that are non-linear and irrational, and often violently so. These often-violent changes are not external shocks but emergent properties—the inevitable result—of the way economies behave.

The traditional approach, in short, completely misunderstands human behavior and natural economic forces. The problem is that the traditional model is not an academic curiosity; it is the basis for an ideological story about the economy and government’s role—and that story has fueled policymaking and morphed into a selfishness-justifying conventional wisdom.

It is now possible to understand and describe economic systems as complex systems like gardens. And it is now reasonable to assert that economic systems are not merely similar to ecosystems; they are ecosystems, driven by the same types of evolutionary forces as ecosystems. Eric Beinhocker’s The Origin of Wealth is the most lucid survey available of this new complexity economics. more>

AI’s Ethical Implications: The Responsibility Of Firms, Policymakers and Society?

By Frederick Ahen – The market for AI is massive.

The expertise needed in the field is growing exponentially; in fact, firms are unable to meet the demand for specialists. Contributions of AI to both advanced and emerging economies is significant and it is also powering other fields that once depended on manual labor with painstakingly slow processes.

For example, precision agriculture now uses drones to help irrigate and monitor plant growth, remove weeds and take care of individual plants. This is how the world is being fed.

Journalists are using drones to search for truth in remote areas. Driverless cars are being tested. Drones are doing wonders in the logistics and supply chain areas. But drones are also used for killing, policing and tracking down criminal activities.

There are many other advantages of AI in the health sector, elderly care and precision medicine. AI machines have the capacity to do things more efficiently than humans or even tread spaces that are more dangerous for humans.

This is the gospel. Take it or leave it.

But there is more to the above. What is also true is that ‘the world is a business’ and business is politics that controls science, technology and information dissemination. These three entities know how to subliminally manipulate, calm, manage and shape public sentiments about anything.

They control how much knowledge we can have and who can be vilified for knowing or speaking the truth, demanding an ethical approach to the production and use of AI or turned into a hero for spinning the truth.

So, the question is, which industrial policies will promote the proper use of AI for the greater good through ethical responsibility in the midst of profits, power, politics and polity? more>

What Peter the Great Discovered in Amsterdam: Inclusivity Creates Wealth

By Nick Cassella – After coming to power in the late 17th century, Peter the Great of Russia decided to escape the confines of the Kremlin and travel incognito across Europe for a variety of diplomatic and personal reasons.

During his European odyssey, Peter visited Holland and was amazed at the commercial success of the small nation.

Trade was clearly a factor, but so too was religious toleration. Holland at the time was what Mathis calls an “intellectual and artistic clearinghouse” where clever thinkers, who let their pen or mouth wander too far, escaped repressive regimes.

In this land of inquisitive minds, Dutch religious tolerance was born. While this principle was not encoded in law, people would “look the other way” so that Calvinists, Catholics, and others could live together peacefully and productively.

Peter began to realize that Dutch commercial prosperity largely derived from its tolerant nature. He left Europe “intrigued by the atmosphere of religious toleration” and swore to mitigate the intolerance and rigidity of the Russian Orthodox Church on his return home.

The levels of wealth inequality across the world and in nations is, to put it lightly, suboptimally distributed. The United States offers a sterling example. Brookings senior fellow, Richard Reeves, looked at Congressional Budget Office data and found the top 20 percent “saw a $4 trillion increase in pretax income in the years between 1979 and 2013” while “the combined rise for the bottom 80 percent…was just over $3 trillion.”

The only way to defend wealth distortion like this is to claim a well-functioning society necessitates great inequality. Just like the religious intolerance of yore, today’s exclusive brand of economics is clearly not the best way to organize a group of people, but instead represents the best way for a few individuals to maintain power and wealth. more>

Updates from Chicago Booth

Blockchain’s weakest links
By Chana R. Schoenberger – Blockchain” has become a business buzzword. Commentators, thought leaders, and business experts are highlighting how the distributed-ledger technology promises to revolutionize business and logistics. Universities are teaching courses in blockchain. Blockchain jobs are “booming in Asia,” reports CNBC.

Blockchain “lets us imagine a world that’s not dominated by Google, Facebook, or, for that matter, the [US National Security Agency], one where we, the people, the core components of global society, get to say how our data is managed,” reads The Truth Machine: The Blockchain and the Future of Everything.

It’s a lot of attention for what is essentially an accounting technology. The plumbing behind financial services is generally unaccustomed to such publicity.

Companies are expected to spend $2.1 billion on blockchains by 2018, and $9.2 billion by 2021, according to research firm IDC. But first, like any new technology or market—and blockchain is both, in some sense—it has to overcome a few issues to prove its staying power.

For starters, there are different types of blockchains, and researchers have identified some potentially severe challenges facing the most ubiquitous type, known as “proof-of-work.” The choices companies and others make in the near future about which system to use, and how to use it, will determine how blockchain systems progress—and if blockchain does indeed mark a next era of tech.

Because bitcoin mining is a proof-of-work system, miners use electricity to run computers as they race to solve math problems to earn the right to validate the next block in a blockchain, and thereby win a bitcoin reward. This has raised another big concern with Nakamoto’s system: energy use.

As Bitcoin prices surged, so did mining and its impact on the power grid. If Bitcoin were a country, it would rank 39th in worldwide energy usage, behind the Philippines (38th) and ahead of Austria (40th), more>

Related>

Why Is the US Losing the AI Race?

By Chris Wiltz – AI is rapidly becoming a globally valued commodity. And nations that lead in AI will likely be the ones that guide the global economy in the near future.

“As AI technology continues to advance, its progress has the potential to dramatically reshape the nation’s economic growth and welfare. It is critical the federal government build upon, and increase, its capacity to understand, develop, and manage the risks associated with this technology’s increased use,” the report stated.

While the US has traditionally led the world in developing and applying AI technologies, the new report finds it’s no longer a given that the nation will be number 1 when it comes to AI. Witnesses interviewed by the House Subcommittee said that federal funding levels for AI research are not keeping pace with the rest of the industrialized world, with one witness stating: “[W]hile other governments are aggressively raising their research funding, US government research has been relatively flat.”

Perhaps not surprisingly, China is the biggest competitor to the US in the AI space. “Notably, China’s commitment to funding R&D has been growing sharply, up 200 percent from 2000 to 2015,” the report said.

AI’s potential threat to national security was cited as a key reason to ramp up R&D efforts. While there has yet to be a major hack or data breach involving AI, many security experts believe it is only a matter of time.

Cybersecurity companies are already leveraging AI to assist in tasks such as monitoring network traffic for suspicious activity and even for simulating cyberattacks on systems. It would be foolish to assume that malicious parties aren’t looking to take advantage of AI for their own gain as well. more>

How the Incas governed, thrived and fell without alphabetic writing

By Christopher Given-Wilson – Between the 1430s and the arrival of the Spanish in 1532, the Inkas conquered and ruled an empire stretching for 4,000 kilometers along the spine of the Andes, from Quito in modern Ecuador to Santiago in Chile. Known to its conquerors as Tahuantinsuyu – ‘the land of four parts’ – it contained around 11 million people from some 80 different ethnic groups, each with its own dialect, deities and traditions. The Inkas themselves, the ruling elite, comprised no more than about one per cent.

Almost every aspect of life in Tahuantinsuyu – work, marriage, commodity exchange, dress – was regulated, and around 30 per cent of all the empire’s inhabitants were forcibly relocated, some to work on state economic projects, some to break up centers of resistance. Despite the challenges presented by such a vertical landscape, an impressive network of roads and bridges was also maintained, ensuring the regular collection of tribute in the capacious storehouses built at intervals along the main highways. These resources were then redistributed as military, religious or political needs dictated.

All this suggests that the Sapa Inka (emperor) governed Tahuantinsuyu both efficiently and profitably. What’s more, he did so without alphabetic writing, for the Inkas never invented this. Had they been left to work out their own destiny, this state of affairs might well have continued for decades or even centuries, but their misfortune was to find themselves confronted by both superior weaponry and, crucially, a culture that was imbued with literacy. As a result, not only was their empire destroyed, but their culture and religion were submerged. more>

Updates from Chicago Booth

Why we’re all impact investors now
By Chana R. Schoenberger – Laurence “Larry” Fink, the founder and CEO of BlackRock, the world’s largest asset manager, which has more than $6 trillion in assets under management, issued an open letter to CEOs this past January—and reportedly sent many of them into a tizzy.

Fink’s letter said society is demanding that companies, public and private, need to “serve a social purpose,” benefiting not just shareholders but also employees, customers, and neighbors. And, he explained, from that point forward, BlackRock would be “eager to participate in discussions about long-term value creation and work to build a better framework for serving all your stakeholders.”

Executives, he wrote, should be able to answer their questions about the company’s actions. For example, what role does the company play in the community? How is it managing its impact on the environment? Is it working to create a diverse workforce?

“The time has come for a new model of shareholder engagement,” he wrote.

For nearly 50 years, many have been guided by the idea, laid out most famously by Milton Friedman, that the most appropriate way to create social change is to give profits to investors, and taxes to the government, and use that money to make an impact. more>

Related>

Everyone wants to “teach a man to fish.” But skills training alone doesn’t help the world’s poor.

By Kelsey Piper – Skills training programs take a lot of forms, but there are generally two kinds: programs aimed at individuals, which try to teach them everything they’ll need to take higher-paying local jobs, and programs aimed at business owners and prospective business owners, which try to teach them skills to run a business more efficiently and expand their operations.

Their objectives are laudable, but there’s just one problem: They largely don’t work.

Participation rates in the programs aren’t very high. People who do participate often drop out, if the program lasts more than a few days, and unsurprisingly, it’s hard to teach important results in that time. For that matter, participants might be right to ignore the program or drop out, as research suggests that the programs don’t reliably increase income.

This isn’t to say every skills training program is ineffective. But even the programs that do show results often don’t stand up to cost-benefit analysis: The results they get are worse than if they just gave people the money that is spent on training them.

That said, recent research has found cost-effective results for programs that take a combined approach: training and mentoring, plus direct grants of assets. Those programs, more than just pure skill-training approaches, look to be worth further study and investment going forward. more>

Why Brexit Won’t Cure Britain’s Broken Economic Model

By Simon Deakin – The critical thing with Brexit is to think about trade and regulation as being two sides of the same coin. When we talk about international trade we are really asking, which regulatory regime do we want to sign up to?

Inside the single market there is high degree of harmonization and convergence of rules, or what is sometimes called alignment. Regulatory alignment is the condition of frictionless trade in the European single market. It is a uniquely deep international trading arrangement because of the high degree of regulatory compliance that goes with EU membership.

We can’t achieve regulatory autonomy post-Brexit without giving up frictionless trade. So UK policy makers have to think about the consequences of moving away from the single market.

The first impact will be felt in those industries which rely upon regulatory alignment in order to function. For the car industry, and large manufacturers like Airbus, European supply chains will be very negatively affected by regulatory divergence.

That is why it is not surprising to hear that the car companies are going to put their production on hold if there is a prospect of a hard Brexit. They have said that they will pause their production lines for a while to see how their new supply chain arrangements can work. That will have a very serious impact on jobs.

Restrictions on migration from the EU after the transition period ends will not result in more jobs for British workers. The British government is likely to extend bespoke arrangements to allow firms in sectors such as agriculture, hospitality and construction to employ foreign workers outside the scope of British labor laws.

In some sectors, employers faced with rising wage costs are likely to respond by investing in labor-saving technologies, but that while this will improve productivity, it will not lead to net job creation. more>

How Capitalism Actually Generates More Inequality

By Geoffrey M. Hodgson – At least nominally, capitalism embodies and sustains an Enlightenment agenda of freedom and equality.

Typically there is freedom to trade and equality under the law, meaning that most adults – rich or poor – are formally subject to the same legal rules. But with its inequalities of power and wealth, capitalism nurtures economic inequality alongside equality under the law.

Today, in the USA, the richest 1 per cent own 34 per cent of the wealth and the richest 10 per cent own 74 per cent of the wealth. In the UK, the richest 1 per cent own 12 per cent of the wealth and the richest 10 per cent own 44 per cent of the wealth. In France the figures are 24 cent and 62 per cent respectively. The richest 1 percent own 35 percent of the wealth in Switzerland, 24 per cent in Sweden and 15 percent in Canada.

To what extent can inequalities of income or wealth be attributed to the fundamental institutions of capitalism, rather than a residual landed aristocracy, or other surviving elites from the pre-capitalist past? A familiar mantra is that markets are the source of inequality under capitalism. Can markets be blamed for inequality?

In real-world markets different sellers or buyers vary hugely in their capacities to influence prices and other outcomes. When a seller has sufficient salable assets to affect market prices, then strategic market behavior is possible to drive out competitors.

Would more competition, with greater numbers of market participants, fix this problem? If markets per se are to be blamed for inequality, then it has to be shown that competitive markets also have this outcome. more>