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Tectonic Plates and Microfoundations

In 1915, Alfred Wegener argued that all the continents of Earth once used to fit together as one giant supercontinent, which he later named Pangea. As Wikipedia summarizes:

In his work, Wegener presented a large amount of circumstantial evidence in support of continental drift, but he was unable to come up with a convincing mechanism. Thus, while his ideas attracted a few early supporters ... the hypothesis was generally met with skepticism. The one American edition of Wegener's work ... was received so poorly that the American Association of Petroleum Geologists organized a symposium specifically in opposition.... ... By the 1930s, Wegener's geological work was almost universally dismissed by the scientific community and remained obscure for some thirty years.

Today, of course, every schoolchild knows about Pangea. But for a long time the theory was dismissed, not because it lacked evidence or predictive power -- it explained why the shapes of the continents fit together, why mountain ranges and coal fields lined up, why similar fossil were found in places separated by oceans, and so on -- but because Wegener had no plausible mechanism.

A similar problem happens in the social sciences. Paul Krugman recently noted that while Larry Bartels (in his new book Unequal Democracy) provides solid, convincing evidence that Republican presidents systematically preside over slower growth and increasing inequality, most social scientists don't believe him because we haven't yet identified the mechanisms. Krugman:

Now, I'm a big Bartels fan; I've known about this result for quite a while. But I've never written it up. Why? Because I can't figure out a plausible mechanism. Even though I believe that politics has a big effect on income distribution, this is just too strong -- and too immediate -- for me to see how it can be done. Sure, Republicans want an oligarchic society -- but how can they do that?

Bartels, for his part, argues that providing the mechanisms isn't his job -- his goal is to highlight the phenomena and encourage many others to research the mechanisms:

How do presidents produce these substantial effects?

One of my aims in writing Unequal Democracy was to prod economists and policy analysts to devote more attention to precisely that question. Douglas Hibbs did important work along these lines ... He found that Democrats favored expansionary policies ... while Republicans endured and sometimes prolonged recessions in order to keep inflation in check. (Not coincidentally, unemployment mostly affects income growth among relatively poor people, while inflation mostly affects income growth among relatively affluent people.) In recent decades taxes and transfers have probably been more important. Social spending. Business regulation or lack thereof. And don't forget the minimum wage. Over the past 60 years, the real value of the minimum wage has increased by 16 cents per year under Democratic presidents and declined by 6 cents per year under Republican presidents; that's a 3% difference in average income growth for minimum wage workers, with ramifications for many more workers higher up the wage scale. So, while I don't pretend to understand all the ways in which presidents' policy choices shape the income distribution, I see little reason to doubt that the effects are real and substantial.

When it comes to addressing such arguments more generally, the most famous commentator is Jon Elster. In his classic article "Marxism, Functionalism, and Game Theory", he insists:

Without a firm knowledge about the mechanisms that operate at the individual level, the grand Marxist claims about macrostructures and long-term change are condemned to remain at the level of speculation.

(To be fair, Elster doesn't make this as a general argument, but his vehemence has led some of his followers to suggest that it is.)

To be clear, I think discovering mechanisms is important work. All I'm arguing is that it shouldn't be a necessity for believing in a theory. Instead, I believe it's an irrational side-effect of an emotional distaste for gaps in knowledge.

As evidence, let me note that such demands for mechanisms never go more than one level deep. Nobody has ever said, "Well, your theory that people are motivated by greed is all very nice, but I just can't believe it until you can explain how greed is manifested in the brain." Neuroscience is obviously the microfoundation of psychology, but psychological theories are regularly accepted without neuroscientific microfoundations.

In general, it seems like such commentators support a double-standard. Theories with mechanisms should be judged by their fit with the evidence and predictive power. Theories without mechanisms should be judged by the evidence and predictive power and whether you can think of any plausible mechanisms. I don't see how this can be justified. There's no reason mechanism should be privileged in the assessment of knowledge; things are true or false, even if we don't know why they are true or false.

Indeed, it we typically only investigate the causes of phenomena once we're convinced that they exist. (Elster admits as much in Explaining Social Behavior, noting that establishing a phenomena's existence is the first step towards explaining it.) So let's stop making the mistake of not believing things are true because we don't know how they happen.

posted 2008-05-13T23:13:01 # (comments)

Simplistic Sociological Functionalism

(I thought I should talk about the other form of functionalism for a change.)

Often sociologists notice a pattern in which certain attributes of a social system fits well with a particular social structure. To take an example I have at hand, Rosabeth Moss Kanter notes that because a secretary has access to facts that could embarrass her boss, it's convenient for the boss that the secretary is entirely dependent upon him for wages and status.

Unfortunately, these claims are often phrased as saying X causes Y. Here's how Kanter does it:

The possibilities for blackmail inherent in [a secretary's] access ... to the real story behind the boss's secrets ... made it important that she identify her interest as running with, rather than against, his. Thus, forces were generated for the maintenance of a system in which the secretary ... was to find her status and reward level dependent on the status and, hence, success of her boss. (Men and Women of the Corporation, 82)

Note that, although she is unusually careful to hedge her comments ("made it important", "forces were generated", "maintenance of a system") Kanter is making a particular historical claim here: the secretary could blackmail, which pushed the boss to tighten control. But this is not the type of claim that Kanter, who's research consisted mostly of direct observation of present-day offices, is likely to have any real evidence for.

Making such claims is problematic, both because most sociologists don't really know whether they are strictly true, and because they lead Jon Elster to show up at your house and yell at you for hours. But both problems can be easily avoided: simply rephrase such comments to describe the phenomena as effects rather than causes.

Instead of saying a secretary's ability to blackmail leads bosses to tighten their grip, simply note that the boss's tight grip has the effect of weakening the secretary's ability to blackmail. You get all the same points across and nobody gets hurt. See? Easy.

posted 2008-05-13T03:15:10 # (comments)

How to Fix the News

Newspaper circulation continues to decline. The top-selling paper in the country, USA Today, distributes only 2 million copies a day (half, no doubt, placed outside hotel room doors). Around the same number, with an average age of 71, watch The O'Reilly Factor nightly, with the number decreasing as the audience dies off. Everyone quietly concedes the news industry is dying. It's the Internet's fault, they all assure us.

But what if it wasn't? The other day I heard a news program that was so good that I wanted to listen to it again. And I'm not alone -- all my friends have been talking about it as well. And while I don't have exact numbers, it seems as popular as any one of those other news outlets. That show? The This American Life episode on The Global Pool of Money -- a comprehensive explanation of the housing mess.

There were three things about the show that made it stand out from the rest of the news pack:

1. It believed in the intelligence of its audience. It didn't try to pander with sex or disasters or quick cuts. It took a serious news story and investigated it thoroughly for a full hour, with only one break. And it didn't try and dumb any of it down -- it explained the whole thing, from top to bottom.

2. It didn't assume you already knew the subject. Most news stories on important topics are incomprehensible to the average person who doesn't know much about their topic. Here's a quote from a random news story about the housing crisis: "They said financial institutions have been unwilling to expose themselves to the mortgage market, and lenders are hesitant to lend to risky borrowers in a declining house price market after the subprime meltdown." Unless you've been following the story (like the reporter, presumably) do you really know what that means? TAL instead assumed you knew nothing and explained every component and term so that you actually had a picture of what was going on.

3. It was done in an entertaining and conversational tone. It didn't treat the news as some important series of facts that had to be seriously conveyed to you. It treated it as something interesting they wanted to tell you about, a story that involved real people's lives (who you got to hear from at length) and was full of genuinely interesting pieces. Look at that news quote above one more time. Can you really imagine someone sitting down and saying that with a straight face?

At first these things may seem contradictory -- how can you believe in the intelligence of your audience while assuming they don't know anything? how can you be entertaining and yet still explain a subject? -- but the more you think about them you see how well they fit together. Being intelligent doesn't mean you're knowledgeable; it means you're curious. Which means you want to hear the whole story from beginning to end and which means you might actually find it entertaining. And being conversational prevents you from assuming the mask that lets you talk down to your audience while pretending they only need to hear the handful of new facts that you're providing.

In every other field, that kind of formality has been dropped. Even banks run advertisements these days about how their associates will be your friend. And yet the news chugs along with its arrogant formality, watching its audience get older and older, and wondering why its circulation is declining.

Together, these three points seem like the recipe for a genuine news show: intelligent, comprehensive, and entertaining. And yet, I can't think of a single thing that follows them. Surely in an era of desperation and experimentation, the wacky idea of actually respecting your audience has to be worth a try by someone. Anyone want to give it a shot?

posted 2008-05-12T03:38:36 # (comments)

Science or Philosophy?: Jon Elster and John Searle

As the name suggests, the social sciences have often seen themselves as an analogue or extension of the natural sciences and have from the beginning aspired to their successes. Like many who want to duplicate success they do not understand, social sciences has been obsessed with duplicating the form of the natural sciences and not its motivations. Just as rival music player manufacturers have tried to copy the look of the iPod without understanding why it takes that look, the social sciences have copied the structure of the natural sciences without understanding why they take that structure.

The greatest success of the natural sciences is undoubtedly the laws of physics. Here, an handful of simple equations can accurately predict the motion of a vast variety of everyday objects under common actions. Seeing this, social scientists have aspired to derive similar laws that predict the behavior of whole societies. (Others, meanwhile insist the entire project is impossible because the society will respond to the creation of the law, making the law invalid -- reflexivity.)

But reflection upon the history of the natural sciences will see that this notion is insane. Physics did not develop thru attempts to discover the laws that explained all of motion. Instead, various kinds of motion (like falling objects) were described, rules for their behavior deduced, and commonalities in those rules discovered. Eventually it was the case that the commonalities were so great and the rules so few that a handful of laws could explain most of the phenomena, but this assumption was not made a priori.

Jon Elster argues that the social sciences should proceed in a similar way: various social phenomena should be described, the mechanisms that give rise to them explained, and the commonalities among mechanisms discovered. Most of his work consists of practicing social science in this way, with a few attempts at laying out a toolbox of these common mechanisms.

Modern social science is so split between attempts at grand law-like theories and modest essays of careful description that Elster's third way seems alien and hard to comprehend. But there is a clear model that social scientists can look to: analytical philosophy.

Analytical philosophers do not take as their task grand law-like explanations for the world. Instead, they set upon a particular piece of conception -- language, free will, ethics -- and try to discover its logical structure. In doing so they often develop tools they shared in common with other philosophical projects.

This similarity can perhaps be best seen in the work of the man who is Jon Elster's closest equivalent in the world of analytical philosophy, John Searle. In his career, Searle has addressed a number of topics: language, intentionality, consciousness, social reality, and rationality. Throughout he has taken has his task providing a clear description of the phenomena and explaining the pieces it consists of. And in explaining those pieces, he frequently develops tools that he reuses in his other explanations.

Take the notion of direction of fit. Searle argues that all statements have a direction of fit, which can be either up, down, both, or null. If we imagine (by convention) that statements float above the world pointing down at the things they represent, then statements like "John and Jill are married", in which it is the job of the statement to change to accurately represent the world, have a downward direction of fit. By contrast, statements like "I want to marry him", in which it is the world must change to match the statement, have an upward direction of fit.

This notion, which Searle and Austin developed for describing language, Searle later reused for describing mental states. Love, for example, has an upward direction of fit, belief downward, and joy null. And in my own everyday life, I have found the same tool useful in thinking about various phenomena I've encountered.

Social scientists don't seem to read much philosophy. I suspect most of them see it as an alien culture consisting of, as Paul Graham put it, "either highly technical stuff that doesn't matter much, or vague concatenations of abstractions their own authors didn't fully understand." But perhaps they should, because even if the technical stuff lacks interest (and considering some of the topics involved, I'm skeptical that this is always the case), the tools, and the way they're wielded, should be a lesson.

posted 2008-05-11T23:14:12 # (comments)

The Toolbox Does Not Shrink

For the past forty years, Jon Elster has attempted to explain things ranging from the emotions to technological change. The result is dozens of books (and even more papers) in three languages across four universities. And throughout, his work has not just been exemplary social science, but has always struggled with the question of what social science should be -- what kinds of explanations are legitimate, which techniques should be used, and so on.

As he reaches his late sixties, it is understandable if he begins to think of his legacy. That certainly would help explain his latest book, Explaining Social Behavior: More Nuts and Bolts for the Social Sciences (Cambridge University Press, 2007), a 500-page masterpiece that I expect will be seen as the summation of a brilliant career.

It's a book unlike any other and, as a result, unless read from start to finish can seem bizarre, if only because one has little sense of what the book is trying to do. It is not a guidebook, or a textbook, or a piece of social science in itself. In short, it is nothing less than an attempt to summarize an idealized vision of the whole of social science in simple language.

The book's foundational assumption (as implied by its title) is that the goal of social science is to discover explanations for social phenomena. It begins by describing what explanations are and discussing their different forms. But the bulk of the book consists of tools that can be used in explanations: emotions, norms, time discounting, weakness of will, magical thinking, cognitive dissonance, heuristics and biases, rationality, irrationality, neuroscience, evolution, externalities, game theory, pluralistic ignorance, informational cascades, collective action, cyclical preferences, institutions, etc. -- in short, the entire toolkit of the social sciences.

Just as amazing as the breadth topics is the way in which they're covered. Elster explains each phenomenon clearly and concisely, so that any educated reader can understand them with little effort, without ever sacrificing intellectual depth. His explanations are peppered with examples from an amazing variety of sources: ancient history, recent history, personal experience, the classics of social science (e.g. Tocqueville), the great philosophers (Montaigne, Pascal, Mill), and classic novelists (e.g. Proust). The result is a book which not just introduces readers to the discoveries of the social sciences but to the intellectual world as a whole. Bibliographical notes following each chapter as well as the conclusion provide a rich guide for further exploration.

And yet it's not simply a compendium of interesting results in the social sciences, but attempts to defend a particular conception of what the social sciences should be. In the conclusion, Elster defends his notion of social science as the attempt to discover particular explanations for particular phenomena against the "soft obscurantism" of the literary theorists and the "hard obscurantism" of the economists. As part of this, he turns his back on the notion of rational-choice models being an explanation in themselves, noting that their many assumptions are in desperate need of empirical defense.

In response to an earlier draft of this review, Elster wrote "I'm glad you appreciate the details in my book, but you're missing the big picture, which is that there isn't any." Instead of trying to build a Grand Theory which explains all of social life, we should try to build explanations of particular phenomena from the nuts and bolts we have lying around. And "even if a dominant explanation of a given event or episode is discarded and then resurrected, the building blocks or mechanisms at work in the discarding and resurrection remain. The repertory, or the size of the toolbox, does not shrink."

For anyone who cares about social science, Elster has done an amazing service in clearly describing the toolbox's contents and defending its importance.

• Buy the book

This is the first post of Elster week.

posted 2008-05-10T21:23:20 # (comments)

Money and Control

"I never give money to those people," she said. "They're only going to spend it on drugs, anyway." And what's so wrong with that?, I wondered. I can see why one might want to discourage Harvard students from spending all their time getting stoned (although, I have to say, I don't see anyone doing that), but if your life is spent sitting outside, hungry, cold, and miserable, drugs seem like a pretty decent use of the money.

But, more importantly, since when is that your call to make? That you live in a nice house with a bulging wallet and he lives on the street is due to an enormous number of random factors that could just as easily have been reversed. And even if you're arrogant enough to believe you're a better person in some way -- smarter, harder-working, more ambitious -- since when does being better give you the right to tell other people how to live their lives? Is Tiger Woods allowed to just come along and take the chocolate out of your shopping cart at the supermarket?

It is a sad fact of reality that you have money and he has none and that, as a result, he needs the money to buy material goods. But no moral consequences can be derived from this. Just because history has given you the power to choose whether this person can acquire certain material goods doesn't give you the right to make that call.

Now it's true, you don't have to give him money at all. Most don't. But if you feel that other people deserve to live a life without privation, at least let them choose how to live that life.

Perhaps an example closer to home will help. Remember when your father offered to help you buy a house if only you went back to school? That was the same thing -- trying to use the fact that he had money and you didn't in order to get you to do what he wanted. For years, he'd been trying to get you to go back to school; and you didn't, because it was your decision and you didn't want to. But then he realized he could use the money to control you. Remember how that chafed?

At the time you brushed it off as "his money, his call". But don't you see how that's not true? Whether you go to school or not was never his call. And while it's certainly within his rights to help you buy a house, using that to try to and control you was wrong. You deserve to make your own choices about your life -- we all do.

Including that man there.

posted 2008-04-19T21:27:10 # (comments)

Money and Worth

The streets of San Francisco are lined with poor people looking for a little spare change. Many different strategies are tried -- some just shake a jar, others call for help, some make specific small requests, and a fellow I saw today just kept sunnily repeating "a nickel and a smile will last a long while" in an endearing tone. Others, however, try to earn their keep -- playing music, doing tricks, selling special papers like Spare Change.

I have a strong urge to help out the first group, those who simply ask, but helping the second has always struck me as odd. People tell me that it's better if the poor receive their money by doing work, because it lets them retain some dignity, but I've never quite bought that. After all, how much dignity do you get when your income comes from people patronizingly pretending to buy a newspaper specially created for this ruse?

But there's a much more serious problem with only giving the poor money for doing things. It encourages them to think their worth as a person is defined by their success in the capitalist economy.

Now there is a grain of truth to this delusion. There are many useful jobs for which society can compensate you. (Although even that, frankly, requires a level of non-useful skill at fitting into the general capitalist system.) But that's about it. There are many useful jobs that society doesn't compensate well. There are many useful people who can't do any of those jobs because society never trained them or gave them the opportunities required. And even if, perchance, there existed someone who cannot and even with training and opportunity could not do anything useful, it seems clear to me that their simple existence as a human being endows them with some inalienable value. (If human beings didn't have value, then we would have no one to do useful things for.)

People on the street don't deserve our money because they can pretend to do certain menial jobs. Nor should their sense of dignity be bound up in doing them. Instead they, like everyone else, deserve our money because they are people and if we cannot care for other people, then we have precious little else.

posted 2008-04-19T21:06:35 # (comments)

Slaves of Some Dead Sociologist

Imagine you were suddenly put in charge of Google. What would you spend your time doing? Branding? The Google brand is pretty important, but it's not really something you can control directly; it's more of a side-effect of the other decisions you make. (If your legal team decides to give up the names of Chinese dissidents to the secret police, that's going to hurt your brand.) Product design? Clearly this is also important, but at a company the size of Google it's too big a job for one person -- most of Google's innovative new products are designed by rank-and-file engineers. Strategy? This is a good one, and probably what Google's current rulers spend most of their time on, but I'm skeptical as to how good anyone can really be at long-term strategy with such a huge company. Hiring? Obviously hiring is pretty important, but even the greatest group of people aren't going to save your company if they waste their time once their inside.

No, I think the most important thing a person in charge of a large company can work on is sociology -- designing the social structure of the company. It's the sociology that determines who gets hired, what their life is like, how much freedom they have, what sorts of things they work on, etc. Clearly these structures determine an enormous amount about the corporation. And yet, strikingly, I've never heard of a single corporation that has a high-level group devoted to studying and improving them.

"Practical men," Keynes famously wrote at the end of his General Theory, "who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." And sociology seems to have worked out much the same way. Chandler claims that the modern command-and-control corporation was worked out just about identically by several different people around the same time and its military methods have been with us ever since.

Despite enormous changes in the kinds of things big companies do as well as in the way that they do them, the actual structure of the large corporation (with very few exceptions) has hardly changed at all. It's gotten to the point where even tinkering with the cubicle seems radical.

Since such questions are so alien, let me give a sense of the questions I mean. For example, how do you hire? Right now, it appears that at Google each team gets to hire people for its projects and then once you're inside Google you get to switch to another project if you like. Why not have a team dedicated to hiring which tries to find the best way to pick the best people as well as making sure they match a particular company culture?

Also, how do projects get picked? Do you have a command-and-control structure deciding what things need to get worked on from the top? Do you let everybody work on what they like? Do you let the company vote on what its priorities should be?

What do you do with people who don't work out? Do you have performance reviews? Bonus pay? Three-strikes firing offenses? Or do all these systems just make working more frightening and problematic?

It seems to me any reasonable company ought to have a whole department dedicated to working on these issues, studying the systems that are in place, studying the kinds of things that others have tried, and doing their own experiments to see if they can do things better. And yet, to my knowledge, no one does. Even the handful of companies that do something innovative with their corporate structure did it as a one-off -- they have no team dedicated to coming up with and trying new such innovations.

Now normally when you discover that everyone else is doing something wrong, there's an opportunity for you to get ahead by doing it right. But that's much more difficult here, because these questions only really make sense for large organizations and very few of us find ourselves in charge of large organizations. For example, its arguable that Fog Creek has done some things along these lines, but it's pretty difficult to tell since they've never had more than a couple dozen people.

Instead, the real innovation hasn't come from companies, but the online peer-production projects, like GNU/Linux, that take contributions from a distributed set of volunteer contributors. But such groups solve the problem largely through eliminating it -- they don't have to worry about who to hire and how to treat them because they don't hire anyone.

Instead, most of the people who work on GNU/Linux are hired by other companies where they must contend with the antiquated social structures that those companies provide. And since those are the brutal facts that most humans must contend with, it would be nice if more people were thinking about alternatives.

posted 2008-04-15T01:50:12 # (comments)

Welcome, watchdog.net

As you've probably noticed, it's political insanity season in the US. I can hardly go outside these days without running into someone complaining about the latest piece of campaign gossip. I've mostly tried to keep it off this blog, but it's hard to not get swept up in the fever. As someone who wants to make a difference in the world, I've long wondered whether there was an effective way for a programmer to get involved in politics, but I've never been able to quite figure it out.

Well, recent events and Larry Lessig got me thinking about it again and I've spent the past few months working with and talking to some amazing people about the problem. I've learned a lot and must have gone through a dozen different project ideas, but I finally think I've found something. It's not so much a finished solution as a direction, where I hope to figure more of it along the way.

So the site is called watchdog.net and the plan has three parts. First, pull in data sources from all over -- district demographics, votes, lobbying records, campaign finance reports, etc. -- and let people explore them in one elegant, unified interface. I want this to be one of the most powerful, compelling interfaces for exploring a large data set out there.

But just giving people information isn't enough; unless you give them an opportunity to do something about it, it will just make them more apathetic. So the second part of the site is building tools to let people take action: write or call your representative, send a note to local papers, post a story about something interesting you've found, generate a scorecard for the next election.

And tying these two pieces together will be a collaborative database of political causes. So on the page about global warming, you'll be able to learn more about the problem and proposed solutions, research the donors and votes on the issue, and see or start a letter-writing campaign.

All of it, of course, is free software and free data. And it's all got a dozen different APIs to make it easy for others to build on what we've done in their own work. The goal is to be a hub, connecting citizens, activists, organizations, politicians, programmers, and everybody else who's interested in politics.

The hope is to make it as interesting and easy as possible to pull people into politics. It's an ambitious goal with many pieces and possibilities, but with all the excitement right now we want to get something up as fast as possible. So we'll be developing live on watchdog.net, releasing pieces as soon as we finish them. Our first goal is to put up data about every representative and a way to write them.

I've managed to find an amazing group of people willing to help out with building it so far. And the Sunlight Network has encouraged me and graciously agreed to fund it. But we still need many more hands, especially programmers. If you're interested in working on it, whether as a volunteer or for pay, please send me an email -- me@aaronsw.com -- telling me what you'd like to help with.

We only officially started work yesterday, so there's not much up yet, but hopefully it'll give you a sense of where we're going:

• Visit watchdog.net

posted 2008-04-13T22:38:17 # (comments)

Banff

When you step off the plane in Calgary, there are, rather improbably, men in cowboy hats. Albertans consistently refer to their province as "the Texas of Canada" and apparently its largest city has taken the notion to heart.

I take a ride with a man who appears to have spent his life preparing to be the consummate businessman. His handshake is firm, his knowledge of geopolitics impeccable. He is a master of the telling anecdote, the commanding voice, the comprehensive but guarded answer. He has built planes, been in bands, managed corporate strategy, and now he is on assignment in Mexico, where he must staff up a factory to build planes for a Canadian business that is wary of such "offshoring".

He has gone, he explains, from a life in which he researches technicalities for position papers on corporate strategy to one life in which he gets up every morning, drives to a factory, locks the doors (to punish latecomers), walks the line, and tries to figure out how to get airplanes built and delivered.

As we drive, he demonstrates his radio contact to the folks back home in Mexico. Right now they are trying to figure out how to get a plane body they have built from Mexico to Canada in time for additional construction to begin on Monday morning without breaking any laws in the complicated patchwork of trucking regulations.

I feel endlessly inferior to this confident man of business, until I discover he knows very little about technology or copyright law. He does understand, however, that Google must be very popular, as he visits it "at least two or three times a day". I try to contribute something back by attempting to explain some things about the subject, although I talk too fast and don't explain enough, so I'm not sure much was clear.

It is a long drive past a short skyline to Banff, a city that literally resides inside a national park, one which requires a permit to enter and in which no new construction is permitted.

Tourism most certainly is, however, and the city is dotted with hotels and conference centers nestled into the sides of imposing mountains, with glorious vistas in all directions. The hotel I am staying at is almost comically opulent, with a Roaring 20s theme of sparkling black gowns amidst weak white art deco lights. My room is huge.

At check in I am given my badge and binder and hat and vest. There is a party that night at the bar. I want to soak up the discussions, to see how the elite live and what they discuss, but I am too shy to barge into any of the conversations. It is just like any other party: I sit against the wall and try to remain inconspicuous.

The next morning I am scheduled to give a brief talk to this self-described group of "young leaders" of Canada. Taking the stage after the platitudes of a high-ranking Albertan government official, I find myself on a panel on "the Internet and Mass Collaboration" (the one technology panel at the conference) and am asked to give five minutes of provocative thoughts. In a bright red t-shirt amongst a sea of suits, I approach the podium:

I suppose I'm here to be the brash young person from San Francisco. I'll try my best to fill that role. For years I've been a user and a builder of these technologies. Most recently, I co-founded Reddit, a democratic news site which was purchased by the magazine publisher Condé Nast, and I am now working on Open Library, an attempt to create a Wikipedia for books. [...]

There's a lot of talk, here and elsewhere, about how Internet collaboration is going to revolutionize business and politics. Just add some Internet collaboration, they say, and your business will suddenly start working better and smarter--and cheaper, as well. But the Internet is not this magic pixie dust you can sprinkle on anything. In the States, the back of every ketchup bottle now has a notice explaining that you can now create your own advertisements for the ketchup company. In return, well, in return they might use your ad. This is magic pixie dust thinking at work: people are not going to suddenly start designing your ad campaigns for you just because you asked them to.

We have to remember that these things are done by real people, not magical abstractions. The rhetoric often suggests that some magical force of "peer production" or "mass collaboration" has written an encyclopedia or created a video library. Such forces do not exist; instead there are only individual people, the same kind of people who drive everything else.

The power is that these people are collaborating. But they are collaborating because they have come together to form a community. And a community works because it has shared values. But here's the thing: these shared values are profoundly anti-business. [Laughs from the audience.] I mean, look at Wikipedia. This is a group who wakes up every day and tries to put the encyclopedia publishers out of business by providing a collection of world knowledge they can give away to everyone for free.

If you want someone to do your company's work for you, finding a well-organized online community with strong anti-business values seems like a bad idea. [Laughs.]

So what do you do? I have a friend who is even more brash than I am and when anyone asks her for business advice she tells them simply: Well, in the future, your servants are going to rise up and eat you. So, invest in toothpicks.

I quickly scurry back to my seat, afraid this crowd will rise up and eat me for such brazen aggressiveness. But instead, I am cheered with laughter and applause. Nobody ever addresses my toothpicks comment. For the next hour, me and the rest of the panel answer questions from the audience, and I comfortably talk about everything from the gender gap in technology (which, I assure them, is worse than in any other field and a result of the most disgusting discrimination and misogyny) to the future of news (freelancers and aggregators, not institutions).

Afterward, and for the next few days, dozens of people come up to compliment me on my talk. "So you do this sort of thing a lot then?" they all say. I receive three more speaking invitations before lunch and people repeatedly request to sit next to me at meals.

I spend a great deal of time with Michael Geist and his family. Geist is invariably referred to as "the Lawrence Lessig of Canada". A law professor in the country's capital, he writes a weekly column and gives frequent speeches on technology policy (copyright law, net neutrality, open spectrum, etc.). But unlike Lessig, who has an otherworldly aura of fame about him, Geist is entirely down-to-earth, continually expressing genuine shock at how boneheaded and awful his opponents in industry and government are. While I spend most of the rest of the time explaining things to people, I have to work hard to avoid doing that with Geist -- he either knows intimately or has actually worked on every relevant thing I can think to mention.

After our panel is a panel on work-life balance, mostly dominated by James Milway, director of the Institute for Competiveness and Prosperity. There are two other women on the panel to balance him, but Milway speaks with such booming confidence and authority that the other panelists comments seem to just disappear. Milway says everything you'd expect a right-wing economist to say: Canadians aren't working hard enough, they're not working long enough, they keep spending time doing silly things like increasing the minimum wage and engaging in rent control which are just obviously wrong. Increasing vacation time will just lead to fewer workers getting hired. This is all clear in our regressions. Europe's economies are dying; workers there are far unhappier. And so on.

Afterwards I go up to him to argue with his economics. "You're using the standard economic assumption that the demand curve for labor slopes downard," I say. (This is economese for the concept that as you raise the cost of hiring someone, people hire less.) "But every study on this subject -- from Card and Krueger to Michael Manning -- finds that this simply isn't the case. Manning's monsopony model, in which you take into account that there are significant costs to changing jobs, finds that all of your results no longer follow."

Manning is a fast speaker and has boundless energy and he tries to talk right over me. "Every--every--hold on there--every--almost all--there's a strong consensus in economics that raising the minimum wage is a bad idea," he finally gets out. "Sure," I say, "but they're wrong -- when you actually look at the studies that's just not true." "No, there's a strong body of studies--even in our regressions we find that." We argue for a while about the validity of the Card and Krueger work and he finally asks, "What's the argument for the opposite case? Why would employers do that?" I try to explain the Manning model but halfway through realize I don't fully understand it. So I switch tacks.

"Look at what Card found when he was doing his research -- employers were happy to raise non-wage benefits to get employees but just refused to raise wages, even when more employees would have made them more money. They weren't being economically rational." "Well, there you go," he says, as if he's won the argument. "If you don't think people behave rationally then we're done."

"But of course people don't behave rationally!" I squealed. "Look at all the research in behavioral economics -- it's blatantly obvious people don't behave rationally." "Well then, you might as well throw away the whole field of economics!" he shouted. "Precisely. I'm glad you agree -- economics is bogus." He just laughed and stormed off, but not before giving me a working paper from his institute.

We ended up sitting near each other at lunch. He was explaining that his institute was completely funded by the Ontario government but remained strictly independent. "So how'd you get the government to fund a right-wing think tank?" I asked. He laughed. "Well, normally I'd say we're more middle-of-the-road, but I guess you're right, we are pretty right-wing. I don't know. Harris [the previous major premier of Ontario] started us but [the current one] loves us too."

That night there was a talk by Rory Stewart, the other person I got to know and enjoy at the conference. Stewart is an amazing fellow. An incredibly handsome man, with a perfect British accent and the most well-tailored suits, he nonetheless has the look of something otherworldly about him. His face is pulled back and marked as if he's seen things no one in a suit that nice was meant to see. I adored him from the first.

He somehow got it in his head to walk across Afghanistan and his talk consisted of photos and descriptions of this incredible journey. he begun in a major city and walked for years, depending almost entirely on the hospitality of strangers in each town to keep him alive and moving. He walked every day, through deserts and snowstorms, with company and without. And what he found was an incredibly kind people, living in terribly poor conditions in autonomous villages, with a passionate faith in their religion (including such rules as keeping women out of site).

Stewart now runs an NGO in Kabul, which is doing the work that the coalition forces in the country found too "low-priority" to do: clear seven feet of garbage from the streets, build thriving businesses and shops in the downtown district, and prepare commercial products for import and export. Stewart spoke bluntly about the military mission and the government, suggesting it was unlikely to do much good.

It was 11pm by the time the discussion was over, so I went straight to bed.

The next morning was dedicated to addressing the most pressing issue in foreign policy, perhaps overall: whether we should bring the troops home instead of continuing to lose their lives maintaining an increasingly violent occupation in a country we originally invaded under the guise of fighting terrorism but in which we now remain because we fear it will fall apart if we will leave. This being Canada, that country is Afghanistan.

The day started with a passionate speech by the Afghanistan Minister for Education, who pleaded for us to let the country take control of its own affairs and to ensure "its greedy neighbors" (widely agreed to be a euphemism for Pakistan) didn't destroy it.

Then there was a star-studded panel, including Rory Stewart, an Afghani PR officer, an Afghani citizen, the head of the entire Canadian Army, the ambassador from Afghanistan, and the head of a Canadian government development agency. (I don't have the list in front of me, but I believe that's correct.) It was pretty impressive to see the head of the Canadian Army and he was a pretty impressive fellow, equally fluent in literature and philosophy as politics and warfare. But he steadfastly refused to take a position on whether the army should remain in Afghanistan, insisting that was a question for the population through their government. Stewart cleverly began the panel by saying that everyone in it had vested interests, including him, and that we should work hard to try to derive the truth from their statements.

At lunch we hear the most amazing presentation. It's a pitch for, I am not making this up "Development-In-A-Box(TM)" -- a system that (again, I am not making this up), uses "preconfigured solutions ... embedded in business processes ... automating compliance ... [with] fully automated ... wireframes." (And that's just the part I managed to record -- the rest of it was far worse.) The presentation was complete with completely absurd PowerPoint clip art: a cargo crate flying to world hotspots, a hammer and sickle flying over a tank riding over an AK-47 pointed at a pile of Chinese-made goods, all above a 3D banner reading "Less Clausewitz, More Sun-Tzu".

Adding to the sense of unreality, the speaker sounded like a broken animatronic Abe Lincoln, placing bizarre emphasis on random words and constantly speaking in a faux-upbeat tone.

The gist of the proposal was this: come up with a bunch of computer programs and simple rules that can be followed in any country, no matter how badly destroyed, to get its economy up and running so that investors can come in and start taking advantage of it. It was a reasonable idea, he explained, to get the economy started before a democratic government was because that was how history had usually proceeded -- after all, "the US only let everyone vote like fifty years ago."

I swear, I would have been convinced the talk was given by the Yes Men if it wasn't quite so bad. Even so, we were half-convinced it was some kind of prank. At least now I understand why businessmen kept falling for the Yes Men's pranks. (To be fair, there was a bunch of pushback. Not the least of which came from Rory Stewart, who pointed out that entering a wide variety of countries with pre-written rules might not be spectacularly effective.)

There was also a group photo in the mountains and some scheduled trips around town, but I neglected to bring a jacket so I mostly stayed inside the hotel, luxuriating in my oversized room and using my overpriced Internet connection. But soon enough it was time to catch the bus back to Calgary, and then to gritty, working-class San Francisco and the literal view from the ground, not the metaphorical one they need up in the mountains.

posted 2008-03-16T08:07:27 # (comments)

Review: The New Ruthless Economy

During the boom years of the New Economy nineties, new technologies led to a boost in productivity and profits. But over the same period, compensation for actual workers stayed the same or even went down. In this book, Simon Head investigates the other side of technology: the way it keeps the average worker down.

Head finds that "scientific management" -- the system that turned assembly lines into sweatshops in the 1880s -- has expanded to conquer the service sector as well. Where old management consultants reorganized factories to deskill workers (by making them repeat mindless jobs over and over) and regulate behavior (by having overseers and stopwatches making sure they met their quotas), new management consultants reorganize call centers to deskill workers (by having them simply read scripts off a computer screen) and regulate behavior (by having their computers measure how long they spend on the phone and at lunch and in the bathroom).

But it's not just call centers: Head finds the same technological reengineering of business in everything from factories to doctor's offices, where HMO-enforced policies require doctors to do little more than type symptoms into a computer and prescribe the recommended treatment, with little time to investigate what might actually be wrong with the patient.

Head's argument is much like that of David Noble in Forces of Production: we had a choice about how to use new technology. We could use it to turn employees into ever-more-skilled craftspeople, allowing them to be more effective and creative in their jobs now that they had machines to do their dirty work. Or we could use it to turn employees into faster cogs for a machine, forcing them to follow rigidly-composed scripts carefully specifying their role.

We are once again choosing the second. Only this time it may hurt companies, not just employees. At least in manufacturing jobs, you can keep some kind of quality control tracking on the final product. A Toyota may not be very good, but if everyone follows the rules at least they will all be about the same. Service industry jobs require dealing with individual customers in all their messiness. And customers don't make good components in carefully "reengineered" machines.

The result is things like the infuriating 1-800 numbers we're all familiar with: incompetent customer support, useless service, uninformed advice. Which means customers walk away. As management cuts costs by outsourcing their call centers to less and less skilled employees, they also cut profits by alienating their customer base. (Head cites powerful studies by Frederick Reichheld finding that tiny increases in customer retention can lead to doublings in revenue.)

Head writes clearly and plainly, although the book lacks the concision of his brilliant pieces for the New York Review of Books (which this book grew out of). And while he does do some on-the-ground reporting, especially from car factories, the book has more of an eye for acronyms than for anecdotes. This is disappointing, because the techniques at the heart of the book (the automated systems for monitoring employees) would make for gripping reading, yet Head never gives us a glimpse of what they actually look like in practice.

For those with only a little time, the key chapter (6) is available online [PDF]. For those who want to dig deeper, I can recommend two related books from the same year: Christian Parenti's The Soft Cage goes into more detail about surveillance technologies in all areas of life while his friend Doug Henwood's After the New Economy goes into more detail about the economic numbers behind such things.

• Get a copy

posted 2008-03-09T06:41:58 # (comments)

The Visible Hand: A Summary

What follows is my summary of The Visible Hand by Alfred D. Chandler, Jr.

Part 1

It's difficult today to imagine what American companies were like before the 1840s. They were small concerns, owned and operated by the same person in one location, and focusing on a particular type of product (cotton, provisions, wheat, dry goods, hardware, drugs) and one piece of the distribution chain (retailing, wholesaling, importing, exporting). Their corporate structure (the partnership), accounting techniques (double-entry bookkeeping), and financial instruments (letters of credit) were essentially unchanged from those used by the Italians in the 1390s.

Bigger projects were pursued through personal relationships between small firms: family farms had their slaves grow crops, which they sold to the local merchant, who shipped it to his son or nephew in London, who sold it to the local merchants there, and thence to the customers. (At the same time, credit headed the other direction.) As time went on, the number of intermediaries only increased: factors and jobbers and brokers and dealers and commission agents. Coordination was handled through the market.

(The one exception was the Bank of the United States, which had branches in many locations and thus could coordinate on something of a national scale. But it was politically unpopular and both the First and Second banks were allowed to expire by Congress.)

There was incredible inefficiency, but it mattered little since the technology of the time did not allow for great speed or volume. Canal boats were still pulled by animals, for whom four miles an hour was an impressive speed, and most products (clothing, furniture, clocks, nails) were produced by hand in people's homes through the "putting-out" system. There were a handful of textile factories, but since they depended on water-power there was only room for a few of them.

Part 2

All this changed with the railroads, a technological improvement which allowed business to move their products vastly faster. Careful coordination was essential (one didn't want trains crashing into each other), market entry expensive (constructing a railroad line cost a great deal of money), and network effects powerful (a railroad was much more valuable if it could move things all the way across the country).

As a result, the railroads built big enterprises, with professional managers to operate them. The businesses were the first to be structured along largely modern lines (the line-and-staff system): a board of directors appointed a professional manager as president, who oversaw a series of vice presidents supervising various company-wide topics (finance, traffic, legal) as well as a general manager. The general manager oversaw a number of divisions, each with departmental managers with profit and loss responsibility and a staff of their own. Each department sent statistics back to headquarters, allowing senior management to improve overall efficiency.

In addition to consolidating various different roles into a single organization, the railroads consolidated different organizations into a cartel with a few large players who coordinated pricing schemes and extracted the maximum each merchant was able to pay. The quintessential player in this era of empire-building was the speculator Jay Gould and his nemesis Cornelius Vanderbilt.

Gould got his start in 1868 when Vanderbilt attempted to seize control of the Erie railroad, the nearest competitor to his New York Central. Gould succeeded in stopping him and became the Erie's largest stockholder and president. He then leased two additional lines and purchased shareholder proxies for two more lines, which he used to vote new directors into power, who then agreed to sell the lines to the Erie. (The courts and legislature quickly moved to stop him and the Pennsylvania seized control of the lines.) He merged with additional lines in Illinois, Ohio, and Michigan, before attempting to corner the market on gold, leading to a stock market crash. The crash forced other lines to sell, but Vanderbilt had more funds and bought them up.

Gould had more success in the telegraph industry, where consolidation came even more rapidly. Gould's railroads had contracts with Western Union allowing it to operate telegraph lines along the road. He canceled the contracts and signed agreements to partner with the lines attached to several other railroads. After he bought ocean lines to Latin America, Western Union was scared enough to purchase the competitor. (Gould sealed the deal by offering Vanderbilt, Western Union's largest stockholder, a controlling stake in one of his railroads if he persuaded the board to go through with the purchase.) After the sale, Gould started a new company with the telegraph lines of his remaining railroads, signed several additional deals, and announced plans to build a transatlantic cable. Western Union stock plummeted and Gould bought it up, becoming his competitor's largest shareholder. He used this position to persuade Western Union to purchase his competitor at an inflated price and become the controlling member of Western Union's board, a position he used to fend off any future competitors.

Theodore Vail played a similar role at AT&T, while local utilities (power, light, heat) ended up being operated by regulated "natural monopolies". Soon the nation's infrastructure was entirely owned by either public (e.g. the post office) or private (AT&T) monopolies. In each case, it was operated by professional managers who planned and controlled the entire system.

Part 3

The new national infrastructure (railroads, telegraph, steamships, post office) allowed for new national distributors (wholesalers, department stores, mail-order houses, chains) which were themselves organized and managed in the same ways. Department stores, for example, had a manager in charge of each department, with only things like janitors and delivery people shared across the entire store.

Such big stores moved to also take the place of wholesalers by building their own distribution networks and, in time, take control of manufacturing as well. Large mail-order houses like Sears Roebuck began building systems of conveyer belts and pneumatic tubes for ensuring orders got assembled promptly -- along with systems for punishing those who held the line up. And the geographically-distributed chain stores organized themselves under regional managers who kept tabs on local performance with a team of inspectors.

Geographic centralization, automation, and employee monitoring allowed such national concerns to move goods faster, which made them more efficient than the numerous local stores they put out of business. It was economies of speed, not of scale.

A similar speeding-up happened in production. The opening of the coal mines provided cheap power for new factories with mass-production machines while railroads provided a market their output. The factories were set up as simple assembly lines operating continuous-process machines, like those built to cut wheat, solder cans, and roll cigarettes. Henry Ford extended this system into assembly with his "moving assembly line" in which continuous conveyor belts moved parts past the workers. In each factory, managers personally oversaw the line foremen who oversaw each part of the process. By the 1880 census, 80% of manufacturing employees worked in factories, with the putting-out system remaining only for clothing.

Fredrick W. Taylor encouraged factories to speed up even further by following his system of "scientific management". He proposed a company's lines be run by a planning department which would conduct careful time-and-motions studies to discover the optimal way to carry out each part of the process. Line-level managers would then be responsible for ensuring that individual employees kept producing at the optimal rate. Few followed Taylor's recommendations exactly, especially his suggestion to place the planning department in charge of the lines, but many companies adopted his ideas to accelerate their factories.

Part 4

The new speeds, in turn, produced so many products that the national stores couldn't sell them all, leading the manufacturers into distribution and marketing of their own. They began building a regional sales staff, doing national ad campaigns, and buying up competitors. The result was national brands like American Tobacco, Diamond Match, Quaker Oats, Pillsbury Flour, Campbell Soup, Heinz, Borden, Carnation, Libby, Procter & Gamble, and Kodak -- most of which remain leaders today.

Why did these few leaders achieve such domination? It was not thru their superior technology -- they leased the machines they use for assembly. Nor was it their marketing acumen -- they all hired professional marketers for the job. And it could not be the power of their brands, for they all invented these brands from scratch. Instead, it was their superior organization that provided the main barrier to entry. Anyone who wanted to compete would have to build their own national network of managers, buyers, and salesmen.

And even this was made more difficult for competitors. The first-mover was able to start small, use profits to fund growth, and use the resulting economies of scale to lower prices while expanding nationally. But any competitor would have to start out by competing against this national, low-price network. They would either have much higher per-item costs since they were producing so much less or they would have to borrow enormous amounts of capital to build a high-volume network from the beginning. And who would want to fund such a risky endeavor? Newcomers did appear (Kellogg, Postum, Colgate, Babbitt) but they were rare and the industries remain oligopolies.

Industrial products (lumber, petroleum, metal, etc.) also began forming national oligopolies. It started with industry-wide trade associates, which quickly became cartels that conspired to fix prices. However, the incentive to cheat on the cartels by secretly lowering prices was too great and, since cartels were illegal, there was no legal way to prevent it. So companies moved to form trusts, in which one firm would hold in trust the shares of the other firms in exchange for shares of itself. When the Sherman Antitrust Act outlawed trusts, New Jersey stepped in to allow the creation of holding companies -- easy-to-establish corporations which simply held the stock of other corporations. But in the early 1900s the courts ruled that even this form violated the law and the companies moved to merge outright, forming a single corporation.

But such horizontal integration was rarely very profitable. The real success always came from vertical integration: taking control of suppliers and distribution.

Part 5

Managers who oversaw the factories carefully measured their efficiency. They wanted to maximize the use of the expensive equipment they had purchased, so the repeatedly pushed to speed up the lines and use them more efficiency. This increased efficiency resulted in increased production which resulted in corporate growth which naturally required more lines.

At the same time corporations continued this within-industry expansion, higher-level managers saw the generic processes at work and pushed for between-industry expansion: reusing the same management structures and same tools to grow the company and brand into new businesses.

And thus, managerial capitalism -- the corporate form in which professional managers ran large, national corporation whose owners had at most veto power over their efforts -- spread across the country. Their administrative coordination allowed for greater productivity and lower costs, but required a managerial hierarchy which could carry out more functions. The managers also allowed them to increase volume, but also allowed the managers to ensure a permanent place for themselves. The task of management became more technical and specialized and management became separated from ownership. As a result, managers were able to direct the company in ways that favored stability over profits, and the resulting huge enterprises changed the shape of the economy.

posted 2008-03-02T04:46:28 # (comments)

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