Monday, June 24, 2013

Peter Radford — Human capital – The knowledge dimension

People like Tyler Cowan, for example, predict a diminished trajectory for GDP growth because our economy is not innovating as well as it once did. According to Cowan, our latest inventions have a far smaller impact on future wealth creation than did those of a century ago. This conclusion feeds into his standard right wing cry for freeing up enterprise and the reduction of social entitlement programs. He says we cannot afford those programs because of the diminished future, and if we want to move the growth curve back upwards we need to reduce government controls.
But my narrative produces a different interpretation: the cause of our diminished future resides in the private sector’s single minded pursuit of profit being extracted from efficiency rather than from innovation. We have succeeded mightily in squeezing profits from our current set of ideas. But at the cost of thinking about and finding the innovations that build the future.
We have become overly bureaucratic, technocratic, and reliant on primary knowledge.
I think the Golden Age of Human Capital is yet to come. The age of problem solving, that is. Not the age of rote learning.
Real-World Economics Review Blog
Human capital – The knowledge dimension
Peter Radford

Peter Radford's analysis is interesting to compare with Joseph Schumpeter in Capitalism, Socialism and Democracy. Schumpeter saw the failure of capitalism based on economic liberalism and its replacement by social democracy as coming from the decline of entrepreneurship and innovation. His work is dated in that the context and changed greatly so the path that Schumpeter predicted based on then current trend has shifted considerably.

The path that Peter Radford describes is characterized by a push for efficiency and cost-cutting over innovation and entrepreneurship. This has become the driving force in US business. While Radford foresees a resurgence of innovation and entrepreneurship, the evidence is thin. Instead what we are seeing is the social reaction that Schumpter foresaw, but for different reasons. 

It is not government responding to popular desire that is causing the shift away from innovation and entrepreneurship, but rather it is the current business model based on efficiency that is resulting in social unrest and a call for greater social democracy to deal with the effects of inequality, which the wealthy and powerful brush off as class envy if they are even aware of it, being isolated in a bubble.

10 comments:

F. Beard said...

"...the cause of our diminished future resides in the private sector’s single minded pursuit of profit being extracted..."

In the Bible, profits are good but profit taking isn't! So how does one have profits without profit taking? Usury is ruled out immediately and so are stock dividends but the use of common stock as money itself is not since the profits accrue in the value of the stock.

F. Beard said...

"but rather it is the current business model based on efficiency that is resulting in social unrest and a call for greater social democracy to deal with the effects of inequality"

No, efficiency is good. But what is bad is that productivity gains are not justly "shared" with the workers as they would be except for the existence of the government-backed "credit" cartel.

Matt Franko said...

F,

" efficiency is good."

How do you measure it?

"Well, this bridge cost 5M shares of MacDonalds, 6M shares of k-mart, and 8M shares of PF Changs China Bistro to build... while this other similar bridge cost 5M shares of Kentucky Fried Chicken, 6M shares of Target, and 8M shares of Buffalo Wild Wings to build... hmmmmm which bridge construction method was the more efficient????"

"In the Bible, profits are good but profit taking isn't! "

Where are you getting that?

"Or what woman having ten drachmas, if she should ever be losing one drachma, is not lighting a lamp and sweeping the house and seeking carefully till she may be finding it?
9 And, finding it, she is calling together the friends and the neighbors, saying 'Rejoice together with me that I found the drachma which I lose!'"

This is "in the Bible" and this woman's household has "taken profits" of at least 10 drachmas obviously....

rsp,

F. Beard said...

Well, this bridge cost 5M shares of MacDonalds, 6M shares of k-mart, and 8M shares of PF Changs China Bistro to build... while this other similar bridge cost 5M shares of Kentucky Fried Chicken, 6M shares of Target, and 8M shares of Buffalo Wild Wings to build... hmmmmm which bridge construction method was the more efficient????"
Franko

The bridge would be financed with FIAT only! Government must ONLY accept and use its own inexpensive fiat as money.

F. Beard said...

Wages are earned profits. As for profits being good but profit taking not being good:

Bible search for word "profit"


In you they have taken bribes to shed blood; you have taken interest and profits, and you have injured your neighbors for gain by oppression, and you have forgotten Me,” declares the Lord God. Ezekiel 22:12 [bold added]

F. Beard said...

And don't forget that good ole fiat could be used entirely for private debts too and would be if its value was not wasted by, say, propping up the counterfeiting cartel and having to ameliorate the damage it causes (unemployment, poverty, etc.) Of course the latter is not a waste but a great deal of it would not be necessary with ethical money creation.

F. Beard said...

Example of profit being good:

Thus says the Lord, your Redeemer, the Holy One of Israel, “I am the Lord your God, who teaches you to profit, Who leads you in the way you should go. Isaiah 48:17

Matt Franko said...

F,

Sounds like they were getting some good advice...

Too bad it all went to shit anyways...

rsp,

Magpie said...

Radford often writes very well-thought pieces.

I'm not sure this is one of them.

"First, the early 1980′s was also the onset of the single minded pursuit of shareholder value."

Ask bank shareholders how's that working out for them.

-----

Here's a note published today in Australia's leading broadsheet:


"BHP chiefs cast aside wage restraint as pay shoots off the scale", by Peter Martin (SMH) June 26, 2013

http://www.smh.com.au/business/bhp-chiefs-cast-aside-wage-restraint-as-pay-shoots-off-the-scale-20130625-2ov7w.html

If you believe BHP-Billiton's CEO's marginal productivity rose in one decade as much as their pay, I have a bridge to sell to you.

Matt Franko said...

Mag,

They rip-off the true shareholders all of the time....

If they werent making bank in the mining business they would come up with back-dating stock options or some other scheme...

I blame the institutional shareholders for just sitting there doing nothing about all of this...

rsp