tag:blogger.com,1999:blog-70512828784662749232024-03-28T20:29:31.915-07:00The Coming ProsperityHow to Make the Most of Humanity's MomentPhilhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.comBlogger76125tag:blogger.com,1999:blog-7051282878466274923.post-59104522448640120042012-04-13T20:54:00.000-07:002012-04-13T20:54:20.147-07:00In Praise of Punctuality (... or Why I'm Not an Optimist)<div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">We'll, I can't say I didn't ask for it. When you title your book <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;">The Coming Prosperity, </em>you can expect to be called an "optimist" at minimum--even "<a data-mce-href="http://www.city-journal.org/2012/bc0403dr.html" href="http://www.city-journal.org/2012/bc0403dr.html" style="color: #743399; line-height: 1.5;">Dr. Boom</a>" or the "<a data-mce-href="https://twitter.com/#!/jcsrobinson/status/188958980855439360" href="https://twitter.com/#!/jcsrobinson/status/188958980855439360" style="color: #743399; line-height: 1.5;">Permabull</a>."</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">You also can't be surprised at a bit of reflexive skepticism, as evidenced by this announcement of a <a data-mce-href="http://www.examiner.com/art-in-arlington/literature-book-talk-the-coming-prosperity-philp-auerswald" href="http://www.examiner.com/art-in-arlington/literature-book-talk-the-coming-prosperity-philp-auerswald" style="color: #743399; line-height: 1.5;">talk I'm giving on April 18</a> at Artisphere in Arlington, VA: "With a title like that, one should expect some 'happy talk...'"</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">Fine. But, just for the record, I don't see my book as being optimistic, nor do I regard myself personally as "an optimist." Why not?<span style="line-height: 1.5;"></span></span></div><a name='more'></a><span style="font-family: inherit;">I have a simple working definition of optimism: An optimist is someone who is chronically late.</span><br />
<div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="line-height: 1.5;"><span style="font-family: inherit;">The reason that optimists are (by definition) people who are chronically late is that optimism is the state of mis-comprehending the true, underlying statistical distribution of potential outcomes. "Let's see, " the optimist says to him/herself. "It's 250 miles from DC to New York. My wedding ceremony in mid-town Manhattan starts at 5pm. I'm sure that I can average 50 miles per hour. That's five hours. So I'll leave home at noon." Not good, right? (… and anyone who's been a groom or bridegroom knows I'm not making this stuff up.)</span></span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">Optimism can also be kind of sad. In my case, I would be an optimist if I believed that the hair on the top of my head was going to grow back. Soon. But here's the thing: that's not happening. To comprehend this fact is to be neither optimistic nor pessimistic. It's simply to understand and accept reality.</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">Now, to be honest, given my "optimists are perpetually late" definition, my mother would say that I am an, in fact, an optimist--or a recovering optimist, at best. And I would have a hard time arguing with her on that one. So, given that I may be more vulnerable to this characterization than I'm letting on, why would I make matters worse by titling my book <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;">The Coming Prosperity</em>?</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">Here's the thing: I'm not selling optimism. I'm shorting fear.</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">As we all know, the market for fear is a lively one. We see people selling fear all the time. We call such people "fear-mongers," which literally means "sellers of fear." They do it because it works. Lots of people buy fear. The evidence abounds.</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">However, fear mostly generates poor decisions and conflict. I title chapter 13 of the <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;">The Coming Prosperity</em> "Fear Itself " because I agree with FDR: "<a data-mce-href="http://www.youtube.com/watch?v=ObLXVcWiJPg" href="http://www.youtube.com/watch?v=ObLXVcWiJPg" style="color: #743399; line-height: 1.5;" target="_blank" title="FDR's first inaugural address, March 4, 1933">the only thing we have to fear is fear itself</a>." If that's happy talk, then you can say you heard it from Dr. Boom.</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">So that's why I titled the book the way I did. And I am far from the only person right now who sees positive trends all around. (Ref <a data-mce-href="http://auerswald.org/2012/02/16/taking-the-scare-out-of-scarcity/" href="http://auerswald.org/2012/02/16/taking-the-scare-out-of-scarcity/" style="color: #743399; line-height: 1.5;" title="Taking the Scare out of Scarcity">here</a> and<a data-mce-href="http://www.amazon.com/Getting-Better-Development-Succeeding-And-Improve/dp/0465020151" href="http://www.amazon.com/Getting-Better-Development-Succeeding-And-Improve/dp/0465020151" style="color: #743399; line-height: 1.5;" title="Getting Better"> here</a>, for example.) Indeed, my George Mason University colleague Tyler Cowen is featured on the cover of the May-June issue of <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;">The American Interest </em>with <a data-mce-href="http://www.the-american-interest.com/article.cfm?piece=1227" href="http://www.the-american-interest.com/article.cfm?piece=1227" style="color: #743399; line-height: 1.5;" target="_blank" title="Tyler Cowen, "What Export-Oriented America Means"">a piece about an export-led American resurgence</a>. Has the author of <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;"><a data-mce-href="http://www.amazon.com/The-Great-Stagnation-Low-Hanging-ebook/dp/B004H0M8QS" href="http://www.amazon.com/The-Great-Stagnation-Low-Hanging-ebook/dp/B004H0M8QS" style="color: #743399; line-height: 1.5;" title="The Great Stagnation">The Great Stagnation</a></em> suddenly turned into an "optimist"?</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">No, Tyler is no more an optimist than I am. We're both trying to do what we're ostensibly paid to do: use fact-based analysis to the best of our abilities to describe, in the words of John Maynard Keynes, "the true interpretation of the trend of things." (Ref the opening quote in <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;">The Coming Prosperity</em> for more.)</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">Has the moment arrived for a message about the remarkable potential of the present moment on the global scale? I'd say, read <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;"><a data-mce-href="http://www.amazon.com/gp/product/0199795177/ref=as_li_ss_tl?ie=UTF8&tag=auerswaldorg-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0199795177" href="http://www.amazon.com/gp/product/0199795177/ref=as_li_ss_tl?ie=UTF8&tag=auerswaldorg-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0199795177" style="color: #743399; line-height: 1.5;" target="_blank">The Coming Prosperity</a></em> and decide for yourself. But you won't be surprised to hear me, as the author<em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;">,</em> express my delight in finding that the book's<em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;"> </em>message is arriving none too late. Indeed, it turns out to be right on time.</span></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-35778808358490731612012-04-07T11:59:00.000-07:002012-04-07T11:59:51.811-07:00Introduction to the The Coming Prosperity<div class="section"><div class="layoutArea">Here's how <a href="http://www.amazon.com/gp/product/0199795177/ref=as_li_ss_tl?ie=UTF8&tag=auerswaldorg-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0199795177" target="_blank" title="The Coming Prosperity"> </a><em><a href="http://www.amazon.com/gp/product/0199795177/ref=as_li_ss_tl?ie=UTF8&tag=auerswaldorg-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0199795177" target="_blank" title="The Coming Prosperity">The Coming Prosperity</a> </em>begins...<br />
<blockquote>This is a book about the unparalleled possibilities of now.<br />
<a name='more'></a>It takes as its backdrop an inescapable fact: the majority of the world’s population is at last connecting with the global economy; billions of people are deriving benefits from the past five centuries of technological and institutional innovation from which they have previously been excluded. As a consequence, human well-being will likely improve to a greater extent in coming decades than at any time in history. But progress toward global prosperity is not inevitable. The choices we make today will determine the extent and reach of the coming prosperity, and the part we play in it.<br />
<br />
There would be no need to write this book if a general appreciation existed for the scope of the coming prosperity, or the half millennium of historical momentum from which it derives its impetus. Yes, the ascendance of China, India, and Brazil is universally recognized. But, for some understandable reasons, this new reality still mostly inspires alarm rather than eager anticipation.<br />
<br />
In the US, in particular, the economic ascent of the global majority is mostly either blamed for the nation’s alleged decline or damned as the underlying cause for an array of global challenges—from climate change to water scarcity. Sure, Shanghai is suddenly full of whiz kids poised for dominance in the science fairs of the future, and villagers in Kenya can now receive money from a relative abroad on their cell phones. Great—that’s good for them. But such changes aren’t going to do much for veterans returning home from Iraq and Afghanistan who can’t find work, or for families who lost their homes to foreclosure in the most severe recession since the Great Depression. Paychecks for most US workers have not reversed the downward slide they began when Richard Nixon was president—back when the most high-tech object in an average American household was a Casio calculator. The number of people on food stamps exceeds the population of California. Much of Detroit remains a wasteland, New Orleans is struggling to regain its former glory, and everywhere else different versions of the new American Nightmare—persistent un- employment, lost wealth, and exhaustion of technological possibilities— seem to be overtaking the American Dream. The coming prosperity? Nice try. A country headed down the tubes is more like it.<br />
<br />
Let’s be honest: There is truth here. America is not just a place in transition. It is, in too many homes, a place in pain.<br />
<br />
But the immediacy of pain on our doorstep should not blind us to the epochal promise of prosperity that is evident on the horizon. That promise is every bit as tangible for Peoria as it is for Beijing. New pathways of progress are opening up more rapidly than old ones are closing. Never have more people had greater opportunity to create value for society, and for themselves, than we do today.<br />
<br />
Of course, shared value is no more about profit than prosperity is about the accumulation of more stuff. While the search for economic profit and the desire for material wealth are, inarguably, very powerful human motivators, they do not constitute the totality of human interest. In the world’s wealthiest places as well as the poorest, some of the most remarkable entrepreneurs and innovators will always be those who think less of how they will benefit, and more about what they will change. The efforts of such individuals to push back against entrenched incumbent interests are an essential element of the coming prosperity.<br />
<br />
Without purpose, there is no progress. For individuals, companies, and nations alike, it’s time to be what matters.</blockquote><div class="column">More about the book in this <a href="http://auerswald.org/2012/04/06/kauffman-foundation-interview/" title="Kauffman Foundation Interview">Kauffman Foundation video interview</a>.</div><br />
<div class="column"><span style="font-size: xx-small;"><span style="line-height: 20px;"><br />
</span></span></div></div></div><div class="section"></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com1tag:blogger.com,1999:blog-7051282878466274923.post-17923618419687549412012-04-07T11:58:00.000-07:002012-04-07T11:58:39.822-07:00Kauffman Foundation Interview<object classid="clsid:D27CDB6E-AE6D-11cf-96B8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,47,0" height="375" id="flashObj" width="580"><param name="movie" value="http://c.brightcove.com/services/viewer/federated_f9?isVid=1" /><param name="bgcolor" value="#FFFFFF" /><param name="flashVars" value="videoId=1537179685001&playerID=40280745001&playerKey=AQ~~,AAAAAF1AP-k~,paP-6btd7SPcN3he8b6wgT6uI64ClnLc&domain=embed&dynamicStreaming=true" /><param name="base" value="http://admin.brightcove.com" /><param name="seamlesstabbing" value="false" /><param name="allowFullScreen" value="true" /><param name="swLiveConnect" value="true" /><param name="allowScriptAccess" value="always" /><embed src="http://c.brightcove.com/services/viewer/federated_f9?isVid=1" bgcolor="#FFFFFF" flashVars="videoId=1537179685001&playerID=40280745001&playerKey=AQ~~,AAAAAF1AP-k~,paP-6btd7SPcN3he8b6wgT6uI64ClnLc&domain=embed&dynamicStreaming=true" base="http://admin.brightcove.com" name="flashObj" width="580" height="375" seamlesstabbing="false" type="application/x-shockwave-flash" allowFullScreen="true" swLiveConnect="true" allowScriptAccess="always" pluginspage="http://www.macromedia.com/shockwave/download/index.cgi?P1_Prod_Version=ShockwaveFlash"></embed></object>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com3tag:blogger.com,1999:blog-7051282878466274923.post-64176310352312213792012-04-02T19:40:00.003-07:002012-04-08T17:01:01.263-07:00Reconciling The Coming Prosperity with the Great Stagnation: Excerpt from my Interview with Richard Florida<div class="mceTemp" style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">Richard Florida and I have been friends, and at times colleagues, since the late 1990s. He was insightful and articulate back then, as he is now. Back when Richard first started working on the "three Ts"--talent, technology, and tolerance--he was just about the only economist seriously looking at the role of creative individuals in driving the development of regions and nations. That's changed ... though, as the continued fixation with industrial policy and clusters indicates, the technocratic tendency is still to relegate actual human beings to the footnotes.</span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">Richard generously offered to write a blurb for <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;">The Coming Prosperity. </em>A couple of weeks ago he interviewed me about the book, and <a data-mce-href="http://www.theatlanticcities.com/jobs-and-economy/2012/03/how-rise-developing-world-will-help-america/1369/" href="http://www.theatlanticcities.com/jobs-and-economy/2012/03/how-rise-developing-world-will-help-america/1369/" style="color: #743399; line-height: 1.5;">posted the exchange to </a><em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;"><a data-mce-href="http://www.theatlanticcities.com/jobs-and-economy/2012/03/how-rise-developing-world-will-help-america/1369/" href="http://www.theatlanticcities.com/jobs-and-economy/2012/03/how-rise-developing-world-will-help-america/1369/" style="color: #743399; line-height: 1.5;">Atlantic Cities</a>. </em>Richard's questions were great. Here's an except that gave me that chance to reconcile my view of the next quarter century with the seemingly opposite view offered by my George Mason University colleague Tyler Cowen in his Spring 2011 bestseller, <em style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; line-height: 1.5;"><a data-mce-href="http://www.amazon.com/The-Great-Stagnation-Low-Hanging-ebook/dp/B004H0M8QS" href="http://www.amazon.com/The-Great-Stagnation-Low-Hanging-ebook/dp/B004H0M8QS" style="color: #743399; line-height: 1.5;">The Great Stagnation</a>:</em></span></div><blockquote class="tr_bq"><span style="font-family: inherit;"><strong style="color: black; font-style: italic; line-height: 1.5;">Why specifically do you disagree with economists and others who believe that we are entering an age of prolonged stagnation and decline?</strong></span><br />
<a name='more'></a></blockquote><blockquote class="tr_bq"><span style="font-family: inherit;"><span style="font-style: italic; line-height: 1.5;">It all comes down to who is “we” and what is “prolonged.”</span><span style="font-style: italic; line-height: 1.5;">If we’re talking about the world as a whole over the next quarter century and beyond, the trend really is unambiguous--up.</span> </span><span style="font-family: inherit; font-style: italic; line-height: 1.5;">And, by the way, none of this requires wishing away the very real threats to future prosperity posed by climate change, water scarcity, reduced biodiversity, and other 21st century challenges. If people are the problem, people are also the solution.</span> </blockquote><blockquote class="tr_bq"><span style="font-family: inherit; font-style: italic; line-height: 1.5;">I</span><span style="font-family: inherit; font-style: italic; line-height: 1.5;">f the “we” is people in the United States and the “prolonged” is the next decade, then the “Great Reset” that you first described three years ago in the pages of The Atlantic captures the dynamic more accurately. That reset isn’t easy… and it’s not getting easier anytime soon. So, yes, the next five or ten years in the U.S. may continue to look like stagnation, even decline. But that appearance will only be part of the story.</span></blockquote><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="line-height: 1.5;"><span style="font-family: inherit;">I'll come back to this topic in future posts. </span></span></div><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">The interview drew some great comments that pulled the conversation in a different direction. Alexandra pointed out the need to ensure that the coming prosperity does not come at the expense of those people and communities around the world who are most deeply connected to their native environments and ancestral practices:</span></div><blockquote class="tr_bq"><span style="font-style: italic; line-height: 1.5;"><span style="font-family: inherit;">Whenever we think that promoting globalization at all costs will somehow “save” those people, we are completely ignoring the fact that they have been self-sustaining for thousands of years. They don’t need consumer products to live or be happy. They only need them when the rest of the world takes over their land and resources, and enslaves them into forced labor. This mode of thought is just modern day imperialism, rebranded for the 21st century… and that’s what’s bothering me. I believe that the answer is to live and let live – and that’s the most difficult answer of all.</span></span></blockquote><div style="color: #444444; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><span style="font-family: inherit;">Alexandra is dead on. As I point out in my response, I've for the past year involved in a project focused on using technology to strengthen the ability of marginalized and vulnerable populations to make and defend land claims. The <a data-mce-href="http://www.amazonteam.org/" href="http://www.amazonteam.org/" style="color: #743399; line-height: 1.5;">Amazon Conservation Team </a>is one organization doing great work along these lines. <a data-mce-href="http://www.landesa.org/" href="http://www.landesa.org/" style="color: #743399; line-height: 1.5;">Landesa</a> and <a data-mce-href="http://www.medeem.com/" href="http://www.medeem.com/" style="color: #743399; line-height: 1.5;">Madeem</a> are two others. Much, much more needs to be done, however, to ensure that legal institutions--including land rights--are accessible and inclusive on a global scale.</span></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com1tag:blogger.com,1999:blog-7051282878466274923.post-4069906639595170112012-04-01T15:15:00.002-07:002012-04-08T17:01:23.703-07:00Growthology: The Neutron Book?On Friday I posted a review of Acemoglu and Robinson's new book, <em><a href="http://www.amazon.com/Why-Nations-Fail-Prosperity-ebook/dp/B0058Z4NR8">Why Nations Fail</a> </em>to the Kauffman Foundation's Growthology blog<em>:</em><br />
<br />
<a href="http://www.growthology.org/growthology/2012/03/the-neutron-book.html">Growthology: The Neutron Book?</a>: "The advertised central thesis of the book (in contrast with what I think is the core idea in the book) is introduced a bit later, on page 42, when the authors state:<br />
<blockquote>Economic institutions shape economic incentives… It is the political process that determines what economic institutions people live under, and it is the political institutions that determine how this process works… As institutions influence behavior and incentives in real life, they forge the success and failure of nations.</blockquote>Institutions shape behavior, so institutions matter. Politics shapes institutions, so politics matters.<br />
<br />
From that point forward, Why Nations Fail alternates awkwardly between lively storytelling and frequently unpersuasive attempts to shoehorn narrative nuance into conformity with The Point of the Book.<br />
<br />
... As it stands, Why Nations Fail comes close to being a neutron book. It describes wondrous worlds full of clever people after then, after the detonation of The Point of the Book, leaves only the buildings standing... The people: gone."<br />
<br />
Bottom line: Great (narrative) content, weak (conceptual) packaging.Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-73460900203055403952012-02-16T14:58:00.001-08:002012-04-08T17:01:51.718-07:00Taking the Scare out of Scarcity<div><b>Review of Peter Diamandis and Steven Kotler, <i>Abundance: The Future is Better than You Think, </i>New York: Free Press, 2012.</b></div><div><b><br />
</b></div>The human community occupies a planet of finite resources. As population grows, people and nations will necessarily compete with increasing ferocity. Scarcity-driven crises will provoke dramatic oscillations in human welfare, leading almost inevitably to a collapse of civilization.<br />
<div><br />
</div><div>Got that?</div><div><br />
</div><div>Welcome to the world of the Reverend Thomas Robert Malthus, author of <i>An Essay on the Principle of Population</i>. The core thesis of Malthus’s 1798 masterwork is neatly summarized in a line early in the book: “The power of population is indefinitely greater than the power in the earth to produce subsistence for man.” </div><div><br />
</div><div>The logic behind the argument advanced by Malthus was compelling. For over two centuries <i>An Essay on the Principle of Population</i> has not only been studied, but has been endlessly copied and revived in various forms. Early twentieth century eugenicists employed Malthusian arguments to justify inhuman controls on the reproductive freedoms of other people ... and worse. Malthusian fears came back in a widely read book by Paul and Anne Ehrlich published in 1968 and titled <i>The Population Bomb; </i>the Ehrlich's message was updated as recently as 2010 in a lead essay in <i>Foreign Affairs </i>titled "The New Population Bomb." Woven throughout this two-centuries old body of work is a single unifying theme: the reproductive power of people is a paramount problem for society as a whole. Beware the future.</div><div><i><br />
</i></div><div>So much for the theory of demographic doom. What of the facts? <br />
<a name='more'></a>Well, the facts are fairly straightforward. Human population really started to take off at the end of the eighteenth century, just when Malthus was writing his famed book<i>. </i>That is also when the industrial revolution began. That is also when the institutions of market-based democracy first assumed something like their modern form. And that is also (not coincidentally) where the welfare of human beings surged forward, breaking a pattern of relative stagnation that previously had lasted for millennia. </div><div><br />
</div><div>In other words, the more populous the planet has become, the better off human being have been. This is a trend that has been ongoing for centuries. (For a summary, see <a href="http://www.youtube.com/watch?v=jbkSRLYSojo">this talk</a> by Hans Rosling. Must watch if you haven't seen it already.)</div><div><br />
</div><div>Peter Diamandis and Steven Kotler summarize this very history at the start of their very-soon-to-be-released book, <i><a href="http://www.amazon.com/Abundance-Future-Better-Than-Think/dp/1451614217/ref=sr_1_1?ie=UTF8&qid=1329431488&sr=8-1">Abundance: The Future is Better than You Think</a>. </i>The title suggests that this book provides a refutation of neo-Malthusian fear mongering. And that is exactly what it does, and more. Fears of scarcity driven crises, the authors argue, have been overwhelmed by the trend of history<span style="background-color: white; color: #444444; font-family: 'Trebuchet MS', Trebuchet, Verdana, sans-serif; font-size: 15px; line-height: 21px;">—</span>a trend which leads persuasively toward inclusive prosperity, not demographic doom.</div><div><br />
</div><div>Now, as readers of this blog are aware, I am also the author of a <a href="http://www.amazon.com/Coming-Prosperity-Entrepreneurs-Transforming-Economy/dp/0199795177/ref=sr_1_1?ie=UTF8&qid=1329406669&sr=8-1">very-soon-to-be-released book</a> about the unparalleled possibilities of today. So, in that particular context, what was my reaction to <i>Abundance? </i>Put simply: psyched. I found <i>Abundance</i> to be a thrilling read<span style="background-color: white; color: #444444; font-family: 'Trebuchet MS', Trebuchet, Verdana, sans-serif; font-size: 15px; line-height: 21px;">—</span>both because of the trends and stories the authors present, but also, selfishly, because this book serves as the perfect companion to my own <i>The Coming Prosperity </i>(and vice versa)<i>. </i></div><div><br />
</div><div>Here's why: The fact that a proposition has held true in the past is no guarantee that it will hold in the future. In order to "connect the dots going forward" (to spin the famous quote by Steve Jobs) you need to understand not just what happened in the past, but how it happened. In <i>The Coming Prosperity</i> I focus on the "how" of entrepreneurship, with some reference to technology; Diamandis and Kotler focus on the "how" of technology, with some reference to entrepreneurship. The complementarity is almost as if by design. Since the need for a new narrative is profound, it is delightful to have such good company in the effort. (Umair Haque's <i><a href="http://www.amazon.com/Betterness-Economics-Humans-Kindle-ebook/dp/B006K5K5GI/ref=sr_1_1?s=books&ie=UTF8&qid=1329431713&sr=1-1">Betterness</a></i> is also notable in the context, along a different dimension of complementarity, as is Vijay V. Vaitheeswaran's <i><a href="http://www.amazon.com/Need-Speed-Greed-Innovation-Businesses/dp/0062075993/ref=sr_1_1?s=books&ie=UTF8&qid=1329432896&sr=1-1">Need, Speed, and Greed</a>.</i>)</div><div><br />
</div><div><i>Abundance</i> presents a colorful inventory of innovation threads, woven together to form a rich tapestry of opportunity inviting us into the twenty-first century. If the book has a flaw, it is that the tour of the future Diamandis and Kotler offer is so wide-ranging that it is almost dizzying. Abundance itself abounds in agriculture, energy, education, health care, space travel and beyond.</div><div><br />
</div><div>The enthusiasm the authors show for their topic is excusable. Diamandis in particular has been roaming the technological frontier full-time for nearly three decades, notably as the founder of the X PRIZE Foundation and the co-founder and chairman of Singularity University. The first of these organizations has led a veritable explosion of interest in the use of prizes to incent innovation; the second is a fascinating and deeply provocative new entrant in the world of disruption in higher education.</div><div><br />
</div><div>Early on Diamandis makes a critical point that it is important to note: "I am not talking about Trump Towers, Mercedez-Benz, and Gucci. Abundance is not about providing everyone on the planet with a life of luxury--rather it's about providing all with a life of possibility .. a world where everyone's days are spent dreaming and doing, not scrapping and scraping."</div><div><br />
</div><div>If you already believe, as I do, that ours is the most dynamic and promising era in human history, you will greatly enjoy the compendium of technologically-inspired futures that Diamandis and Kotler offer. On the other hand, if you doubt for a moment that <i>Abundance</i> and not scarcity is the organizing principle for the twenty-first century, then you truly owe it to yourself to buy this book. The feast of possibilities that awaits you is one you will savor with each page, and not soon forget.</div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com2tag:blogger.com,1999:blog-7051282878466274923.post-62848406871278995312012-01-30T13:33:00.001-08:002012-04-08T17:04:12.349-07:00Collaborative AdvantageHere's the video from a panel I moderated at <a href="http://events.iadb.org/calendar/eventDetail.aspx?lang=en&id=3269">the launch event for Global Entrepreneurship Week 2011</a>. The topic of the panel was "Collaborative Advantage: How Diaspora Entrepreneurs Are Creating Connections for Shared Prosperity." The panelists are:<br />
<br />
<ul><li>Semhar Araia, Founder & Executive Director, Diaspora Africa Women’s Network (DAWN) <a href="https://twitter.com/#!/Semhar">@Semhar</a></li>
<li>Kalsoom Lakhani, Founder,<a href="http://invest2innovate.com/"> i2i</a> <a href="https://twitter.com/#!/kalsoom82">@kalsoom82</a></li>
<li>Bill Barhydt President, CEO, <a href="http://www.m-via.com/">m‐Via</a>, Inc. <a href="https://twitter.com/#!/billbarhydt">@billbarhydt</a></li>
</ul><br />
You can decide for yourself after viewing how awesome these folks are. (Hint: Very.)<br />
<br />
<iframe frameborder="0" height="340" scrolling="no" src="http://cdn.livestream.com/embed/unleashingidea?layout=4&clip=pla_7f7b1ca5-08a5-4008-b510-26ecc8b99ffd&height=340&width=560&autoplay=false" style="border: 0; outline: 0;" width="560"></iframe><br />
<div style="font-size: 11px; padding-top: 10px; text-align: center; width: 560px;"><a href="http://www.livestream.com/unleashingidea?utm_source=lsplayer&utm_medium=embed&utm_campaign=footerlinks" title="Watch unleashingidea">unleashingidea</a> on livestream.com. <a href="http://www.livestream.com/?utm_source=lsplayer&utm_medium=embed&utm_campaign=footerlinks" title="Broadcast Live Free">Broadcast Live Free</a></div><br />
"Collaborative Advantage" is also the title of chapter 11 of <i><a href="http://www.amazon.com/Coming-Prosperity-Entrepreneurs-Transforming-Economy/dp/0199795177">The Coming Prosperity</a>. </i>Here's an excerpt:<br />
<a name='more'></a><br />
<blockquote>I opened this chapter with a quote from another returned Egyptian émigré, Wael Ghonim, creator of the Facebook page that catalyzed the Egyptian revolution. Following his graduation from the American University of Cairo, Ghonim took a job with Google. He was soon promoted to head of marketing for the Middle East and North Africa, a position based in Dubai. When a young Egyptian Internet activist, Khalid Said, was beaten to death by police, Ghonim was moved to create, under the pseudonym “El Shaheed,” a Facebook page titled “We Are All Khalid Said.” That was the page used to announce the first of a sequence of large-scale protests that, as we all know, resulted in the end of the regime of Hosni Mubarak. </blockquote><blockquote>When Ghonim was released from detention and identified for the first time as El Shaheed, he repeatedly insisted that the revolution had been leaderless. “Our revolution is like Wikipedia, okay?” he said to one interviewer. And, of course, he was right. Ghonim was not the author of the change that occurred in Egypt. The protesters themselves, in all the cities in which they took to the streets, also did not alone create the historic transformation that captivated the world for seventeen days in the winter of 2011. </blockquote><blockquote>That outsider incursion was complemented by insider acts of courage— from those still-unnamed soldiers and their commanders who, on the ground, advocated for restraint, to Mona El-Shazly, the correspondent forthe independent Egyptian channel, Dream TV, who broadcast an<a href="http://blogs.wsj.com/dispatch/2011/02/08/the-interview-with-wael-ghonim-that-galvanized-protesters/"> interview with Wael Ghonim</a> that was widely reported to have intensified opposition to the Mubarak regime at a critical point in the protests. A general principle applies. When it comes to making change happen, outsiders are powerless. On the other hand, insiders are trapped. As a consequence, change happens as a consequence of outsider incursion and insider excursion. </blockquote><blockquote>When you are aware of, and open to, developing the relationships that define your environment, you are in a position to understand the possibilities of the present. This is a big deal. A brilliant sociologist by the name of Ron Burt has ably and persuasively documented that neither induced homogeneity nor rigid compartmentalization within institutional silos is a particularly good strategy for organizational success. Instead, the organizations that function best are those characterized by “integrated diversity”—clearly distinct areas of knowledge, experience, or understanding that are aware of, and communicate with, one another. Situational awareness and renewed diversity are preconditions for sustained learning and development. As I’ll discuss in the next chapter, the most effective people within organizations harvest value by building bridges between different knowledge silos. </blockquote><blockquote>Similarly, resilient and prosperous societies are ones that create ample space for outsider insurgents and insider deviants. This social fringe—the boundary between what is and what cannot be—is the space occupied by entrepreneurs, inventors, and innovators. It is also a space naturally occupied by members of diasporic communities of all varieties.</blockquote>(... 35% off cover price, <a href="http://www.amazon.com/Coming-Prosperity-Entrepreneurs-Transforming-Economy/dp/0199795177">pre-order special on Amazon</a> ;)Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com1tag:blogger.com,1999:blog-7051282878466274923.post-65217982708150788082012-01-07T14:11:00.000-08:002012-01-07T15:39:10.079-08:00The Coming Prosperity (cover)In case you were wondering...<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinZm5pURr321eOaw5IQjrASN-vqrKeZrb8Cmj0Yj8vRM6yotBKrI3vxlk-dFVP-XNN3waTJh3KaBLdcs4xy2Ut2Q6jijp-CYwK7gDlkd62_iPfM5TwiDZCvIMStpT15kfZz1ydIDyrYuJ3/s1600/Auerswald_The-Coming-Prosperity_cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinZm5pURr321eOaw5IQjrASN-vqrKeZrb8Cmj0Yj8vRM6yotBKrI3vxlk-dFVP-XNN3waTJh3KaBLdcs4xy2Ut2Q6jijp-CYwK7gDlkd62_iPfM5TwiDZCvIMStpT15kfZz1ydIDyrYuJ3/s400/Auerswald_The-Coming-Prosperity_cover.jpg" width="265" /></a></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com1tag:blogger.com,1999:blog-7051282878466274923.post-78804154558178067992012-01-07T11:15:00.000-08:002012-01-07T16:01:33.015-08:00Fear Itself<i>From chapter 13 of </i><a href="http://www.oup.com/us/catalog/general/subject/Economics/Demography/?view=usa&ci=9780199795178">The Coming Prosperity</a><i> (forthcoming from Oxford University Press, March 2012)</i><br />
<br />
Among the items in the back of the hardware store, right next to the lime, is ammonium nitrate. Ammonium nitrate is good as fertilizer; it’s also pretty good for making explosives. In fact, regular old agricultural fertilizer was the operative ingredient for the bomb used in the 4/19 attacks. Doesn't ring a bell? That was the bombing of the Alfred P. Murrah Federal Building on April 19, 1995. It killed 168 people. At the time it was the most severe terrorist attack on US soil.<br />
<br />
Of course, the Oklahoma City bombing isn’t forgotten. But it’s not exactly remembered, either. Now, granted, the toll from the attack on the Murrah Building was about 5 percent of the toll from the destruction of<br />
the World Trade Center towers. And the Oklahoma City bombing wasn’t broadcast live on TV, it didn’t involve a pair of national landmarks (I’m including the Pentagon, which as you recall was also attacked on 9/11), and it didn’t result in $30 billion in insured losses.<br />
<br />
That said, would we remember the 4/19 attacks in the same way if they had been carried out by a posse of Koran-thumping extremists rather than a couple of homegrown ones? Let’s be honest: despite (or perhaps due to) <a href="http://www.fbi.gov/stats-services/publications/terrorism-2002-2005/terror02_05.pdf">the fact that domestic groups have perpetrated the overwhelming majority of terrorist attacks in the US</a>, head scarves make more of an impression than baseball caps on the cable news feed. At the end of the day, the story behind the Oklahoma City attacks just didn’t sell—politically or otherwise. Terrorist attacks perpetrated by self-proclaimed ultrapatriots from the Midwest—well, they must be an aberration. The attackers? Dumbed-down Unabombers. No real information there. Just noise.<br />
<br />
But how about this, from former Senator Rick Santorum in 2006: “In World War II we fought Nazism and Japanese imperialism. Today, we are fighting against Islamic fascism.” Now that’s more like it. From that eloquent starting point, security screamers can cut and paste the usual language of external menace. Our very way of life is at risk. The line is drawn. The struggle against terrorism is equivalent to World War III. And so forth.<br />
<br />
What does any of this have to do with reality? Not much. Comparisons of Islamic fundamentalism to fascism in the 1930s or communism in the 1950s may have sounded good from the podium over the past decade, but they areare almost entirely empty when considered from both economic and historical standpoints. Germany in 1930 was a country with demonstrated capacity as a global economic leader whose steady development had been halted at the start of the twentieth century only when the Treaty of Versailles brought a pointless war to its conclusion through a bankrupting peace. Even Japan, greatly underestimated in the West before it attacked Pearl Harbor, had steadily built its economic foundation and technical capabilities over a period of almost a century by patiently investing and strategically imitating Western techniques. Even in a worst-case scenario (much worse for the countries affected than for us) the countries that might conceivably be susceptible to the sway of Islamic fundamentalist ideologues today do not even have the economic capability of the Soviet Union in the 1950s; they do not compare at all with Germany or Japan of the 1930s.<br />
<br />
Of course, innovation and technical change have also created new modes of attack that make small groups potentially threatening today in a way that only an entire nation could have been threatening in the past. But a historical perspective is valuable here, as well. Consider that, worldwide, over sixty million people lost their lives during World War II. Among armed combatants, the United States could count itself lucky in having lost only 290,000 of its sixteen million service members. Such losses are inconceivable today in the context of an attack by a terrorist adversary, touting Islamic fundamentalist ideology or not—even when we consider the truly nightmarish scenario of nuclear attack. Yet even eight decades ago, the democratic institutions, including the decentralized markets, had a remarkable capacity to adapt and respond following World War II. For what reason might we believe that capitalism and democracy are any more fragile today than they were back then? By what measure can any present threat, posed by even the most malicious nonstate adversaries, compare with the combined industrial might demonstrated by the German, Japan, and other Axis powers during World War II, or by the Soviet Bloc during the Cold War? Our respect for the capabilities of foes and our recognition of the reality of potential threats must be matched with an equally realistic appraisal of our society’s resilience and capacity for recovery.<br />
<br />
The simple reality is this: terrorists of various types exist, they are dangerous, and they will almost certainly be responsible for further deaths of innocents in the United States and elsewhere in the world in coming decades. But there is basically zero prospect that such attacks will alter the forward trajectory of global history—unless, of course, political leaders dramatically increase their impacts through exaggerated responses.Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com1tag:blogger.com,1999:blog-7051282878466274923.post-14085988555422820912011-12-31T11:05:00.000-08:002011-12-31T11:05:03.852-08:00My predictions for 2012 in zero words<div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="margin-left: 1em; margin-right: 1em; text-align: center;"><a href="http://thecomingprosperity.blogspot.com/2011/08/repurpose.html"><img border="0" height="215" src="http://1.bp.blogspot.com/-bkGlgM04iSg/Tv9bcgtPvqI/AAAAAAAAAEk/NEHquQpy1sc/s320/rainforest-repurpose.jpg" width="320" /></a></div><br />
<br />
Happy new year.Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-74909843448366994032011-12-11T18:33:00.000-08:002011-12-12T03:46:31.309-08:00The One-Sector EconomyHere's a talk I gave a couple of months ago on Capitol Hill at <a href="http://americaandtheglobaleconomy.wordpress.com/tag/wilson-center-on-the-hill/" target="_blank">an event organized by the Woodrow Wilson Center</a> to discuss the <a href="http://www.startupamericapartnership.org/blog/2011-07-20/startup-act-proposal-jumpstart-american-economy" target="_blank">Startup America Act</a>:<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="315" src="http://www.youtube.com/embed/OPYzl7npf24" width="560"></iframe><br />
<br />
Sums up in 10 minutes my motivation for writing <i><a href="http://www.oup.com/us/catalog/general/subject/Economics/Demography/?view=usa&ci=9780199795178" target="_blank">The Coming Prosperity</a>.</i>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-79378402603063485502011-10-23T17:32:00.000-07:002011-10-23T19:51:52.802-07:00The Population BoonI did a phone interview last week with Josh Landis from<i> CBS News Sunday </i>on the topic of the world at 7 billion. Josh and his "The Fast Draw" partner Mitch Butler drew from the interview in putting together a nice short segment (2:18) that aired today:<br />
<br />
<embed allowfullscreen="true" allowscriptaccess="always" background="#333333" flashvars="si=254&&contentValue=50113667&shareUrl=http://www.cbsnews.com/video/watch/?id=7385660n&tag=cbsnewsSectionsArea.1" height="279" salign="lt" scale="noscale" src="http://cnettv.cnet.com/av/video/cbsnews/atlantis2/cbsnews_player_embed.swf" type="application/x-shockwave-flash" width="425"></embed><br />
<br />
More people solve more problems: a core theme of <i><a href="http://www.oup.com/us/catalog/general/subject/Economics/Demography/?view=usa&ci=9780199795178">The Coming Prosperity</a>.</i>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-58828185345999169972011-10-14T21:06:00.001-07:002012-04-08T17:03:06.675-07:00I come to bury industrial policy, not to praise it (pt II—Rodrik)<div class="MsoNormal">[<i>continuing from previous post </i><a href="http://thecomingprosperity.blogspot.com/2011/10/i-come-to-bury-industrial-policy-not-to.html" style="font-style: italic;">"I come to bury industrial policy, not to praise it (pt I</a><i><a href="http://thecomingprosperity.blogspot.com/2011/10/i-come-to-bury-industrial-policy-not-to.html">)"</a></i>]<br />
<br />
... Now on to Dani Rodrik's contribution to the <a href="http://www.economist.com/debate/days/view/541">2010 <i>The Economist</i> debate concerning industrial policy</a>. Rodrik's role was to argue <i>against</i> the following motion:<br />
<blockquote>"This house believes that industrial policy always fails." </blockquote>Rodrik begins his argument by pointing out—correctly—that there is, in a technical sense, no way he can lose. "... always fails"? Give me a break. How could an idea tried repeatedly over the period of decades in much of the world have "always" failed? All that's required to win the debate is to find a single success. I pointed out one in my previous post. So he's won the debate before he even gets started.<br />
<br />
But then, unfortunately for his case, Rodrik goes further.<br />
<a name='more'></a> He builds his argument bit by bit, reaching a crescendo at the end with a statement that comes perilously close to substituting "always <i>fails</i>" with "always <i>can work</i>":<br />
<blockquote><span class="Apple-style-span" style="background-color: white;">Fostering structural transformation and innovation is a central public purpose. Governments cannot evade the challenge. The only debatable question about industrial policy is not "whether" but "how."</span></blockquote>Now, even though I'm a third of the way through part II of a blog post on "industrial policy," it's not too late to share a bit of elaboration, in <a href="http://web.hks.harvard.edu/publications/workingpapers/citation.aspx?PubId=2135">Rodrik's own words</a>, about what that term means (at least, to him):<br />
<br />
</div><div class="MsoNormal" style="margin-left: 0.5in;">The conventional approach to industrial policy consists of enumerating technological and other externalities and then targeting policy interventions on these market failures. The discussion then revolves around the administrative and fiscal feasibility of these policy interventions, their informational requirements, their political-economy consequences, and so on. We start also from generic market failures, but then we take it as a given that the location and magnitude of these market failures is highly uncertain.<br />
<br />
... The task of industrial policy is as much about eliciting information from the private sector on significant externalities and their remedies as it is about implementing appropriate policies. The right model for industrial policy is [one] of strategic collaboration between the private sector and the government with the aim of uncovering where the most significant obstacles to restructuring lie and what type of interventions are most likely to remove them. Correspondingly, the analysis of industrial policy needs to focus not on the policy outcomes—which are inherently unknowable ex ante—but on getting the policy process right. (pp. 2-3)<br />
<br />
</div><div class="MsoNormal">Rodrik focuses on specific "<a href="http://thecomingprosperity.blogspot.com/2010/05/truth-about-free-markets-and-market.html">market failures</a>" that he assert is of particular significance in early- to mid-stages of national economic development: “information externalities entailed in discovering the cost structure of an economy, and coordination externalities in the presence of scale economies.” (p. 5) In other words, a key obstacle to development according to Rodrik is the fact that <i>entrepreneurs systematically have inadequate incentives to search for potentially profitable, but untried, economic activities</i>. The reason is entrepreneurs who successfully engage in such search will soon find their new ventures copies by later entrants, dissipating the quasi-rents that they have earned. As a consequence of this appropriability problem—more or less exactly analogous to that which is generally characteristic of the search for new ideas—the effort devoted to the search for fundamentally new economic activities will be inadequate to get under-developed economies out of a low-diversification, low-income, and low-growth trap.<br />
<br />
</div><div class="MsoNormal">The way out of that trap—again, according to Rodrik—is industrial policy. What this means is, as Rodik emphasizes repeatedly in the paper just cited and as he has written over and over since, is undertaking a <i>process</i> by which government seeks information from industry, then uses policy mechanisms at its disposal to catalyze entrepreneurial activity in the generation of new, profitable products. Once the new products are part of the economy, and early entrants are suitably rewarded to ensure (second-best) dynamic efficiency, copy-cats will enter and a new, sustainable industrial activity will be added to the country’s portfolio.<br />
<br />
</div><div class="MsoNormal">Of course, the devil in getting the process right is most assuredly in the details. A brilliantly argued paper written in 1995 describing the successful industrial policies implemented by the Korean government a half-century ago has this to say about the conditions that were required for success in that environment:<br />
<br />
</div><div class="MsoNormal" style="margin-left: 0.5in;">… [W]hat was required was a competent, honest and efficient bureaucracy to administer the interventions, and a clear-sighted political leadership that consistently placed high priority on economic performance [along with] an exceptionally high degree of equality in income and wealth<span style="font-family: TimesNewRoman;">—</span>wealth distribution played an important role in shaping the political landscape in both countries. This is probably the single most important reason why extensive government intervention could be carried out effectively, without giving rise to rampant rent seeking.<br />
<br />
</div><div class="MsoNormal"><span class="Apple-style-span" style="font-family: inherit;">This paragraph is, in my view, among the most important ones written on the topic of industrial policy—one that rather seriously calls into question generalizability of the Korean experience. Who authored this massive caveat to the industrial policy paeans that followed? Gene Grossman, Victor Norman, and (actually first among them), Dani Rodrik.</span><br />
<br />
I agree with <i>this</i> paper of Rodrik's. He and his co-authors were absolutely correct about the exceptional conditions required to make industrial policy work. Even if the particular characteristics that held for Korea in the 1960s and 1970s also held in Taiwan at the same time, or for Chile in another era, or ... well, it doesn't matter much: one can say with great confidence that they do not hold much of anywhere else—particularly not in the places in which the process of development remains stuck in low gear. Most persistently poor places do not possess a competent, honest and efficient bureaucracy. Most persistently poor places do not possess a clear-sighted political leadership that consistently places high priority on economic performance. Most persistently poor places do not possess an exceptionally high degree of equality in income and wealth. In fact, there are real questions as to where these conditions hold in middle-income and wealthy countries either. As a consequence, there is little reason to believe that a strategy that was effective in Korea in the 1960s is going to work in most other places.<br />
<span style="font-family: TimesNewRoman;"><br />
</span></div><div class="MsoNormal">Now, it is worth pointing out along the way that at least three other objections can be made with respect to the framework advanced by Rodrik:</div><ul style="margin-top: 0in;" type="disc"><li class="MsoNormal"><a href="http://books.google.com/books?id=nyAjjdsMHFgC&pg=PA18&lpg=PA18&dq=%22The+Simple+Economics+of+Technology+Entrepreneurship:+Market+Failure+Reconsidered%22#v=onepage&q=%22The%20Simple%20Economics%20of%20Technology%20Entrepreneurship%3A%20Market%20Failure%20Reconsidered%22&f=false">Limits to appropriability aren’t the primary problem faced by entrepreneurs</a></li>
<li class="MsoNormal">Cluster-building strategies <a href="http://www.isc.hbs.edu/econ-clusters.htm">have been tried</a> and <a href="http://wadhwa.com/2011/07/15/washington-post-industry-clusters-the-modern-day-snake-oil/">mostly haven't worked</a></li>
<li class="MsoNormal"><a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1435821">Imitation of successful entrepreneurial strategies is not easy</a></li>
</ul><div class="MsoNormal">Elaboration of each of these points would take another three blog posts. However I can offer a sketch of an argument that could be advanced in a more complete critique.<b><o:p></o:p></b><br />
<br />
</div><div class="MsoNormal"><b>Limits to appropriability aren’t the problem.</b> <a href="http://books.google.com/books?id=nyAjjdsMHFgC&pg=PA18&lpg=PA18&dq=%22The+Simple+Economics+of+Technology+Entrepreneurship:+Market+Failure+Reconsidered%22#v=onepage&q=%22The%20Simple%20Economics%20of%20Technology%20Entrepreneurship%3A%20Market%20Failure%20Reconsidered%22&f=false">Limits to appropriability from innovation are not the fundamental impediments to entrepreneurial initiative in the context of technology-based innovation.</a> A parallel argument can be made about the search for new economic activities in an under-developed country.<br />
<b>Cluster-building strategies have been tried and <a href="http://wadhwa.com/2011/07/15/washington-post-industry-clusters-the-modern-day-snake-oil/">mostly don’t work</a>:</b> Cluster building strategies are mostly closely associated with Harvard's Michael Porter. While Porter's work on clusters has received a great deal of attention, it has the deficiency that, to put it bluntly, it doesn’t seem to work.</div><div class="MsoNormal"><b>Imitation of successful entrepreneurial strategies is not easy. </b>A key premise of the argument in Rodrik is that imitation of successful entrepreneurial strategies is easy. Implicit in this view is the notion that new-to-the-world technological innovations are relatively difficult to copy, but that the sort of relatively simple, new-to-a-particular-region economic activities that would generate new products in a developing country are relatively simple. This is a very questionable claim. What is likely true is that low efficiency, low-effectiveness approaches are easily copied to producing a new product are likely to be easily copies in a developing country—just as they are in a developed country. However, in both settings, there is every reason to believe that the underlying problem solved by an entrepreneur will be a complex one, and consequently that any solution found to the problem <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1435821">will not be easily copied</a>. If this is true, then the implied policy strategy is very different: rather than seek to build product-based clusters, focus on <a href="http://cep.lse.ac.uk/_new/research/productivity/management.asp">enhancing the management capabilities of firm</a>.</div><div class="MsoNormal"><br />
Overall assessment: While Rodrik wins the debate on a technicality, the argument he advances is so overstated that it's an effective draw.</div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com1tag:blogger.com,1999:blog-7051282878466274923.post-37509170701661362142011-10-14T20:15:00.002-07:002012-04-08T17:02:32.966-07:00I come to bury industrial policy, not to praise it (pt I—Lerner)<div class="MsoNormal">A recent <a href="http://www.blogger.com/goog_256738905">renewal of public discussion regarding the virtues of industrial policy</a>,<i> </i>juxtaposed against the ongoing Solyndra spectacle, prompted me the other day to revisit <a href="http://www.economist.com/debate/days/view/541">an <i>Economist </i>debate from last year</a> between Josh Lerner and Dani Rodrik. The debate was on the following motion:<br />
<blockquote>"This house believes that industrial policy always fails." </blockquote>Lerner, whose expertise is mostly in rich country (US & Europe) innovation policy, argued<i> for</i> the motion; Rodrik, a development economist, argued <i>against</i>.<br />
<br />
This Lerner-Rodrik debate is worth revisiting for two reasons. First, Lerner and Rodrik are exceptional intellects with imposing publication records, debating an important topic. Second—most entertainingly for me as the guy in the bleacher seats—they both manage to be wrong, in spite of having ostensibly staked out opposing positions.<br />
<br />
Let's start with Lerner.<br />
<a name='more'></a>Here, as <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=4746">when he first wrote on this topic over a decade ago</a>, Lerner focuses on what he characterizes as "the disastrous history of most loan programmes to finance high-growth entrepreneurial businesses." To evidence the disasters, he points to two problems:<br />
<ol><li><b>bureaucratic incompetence</b> as evidenced by failure of programs to be self-sustaining, because they demand too little of the few "winners" and thus are rapidly depleted as a consequence of the majority's losses, and</li>
<li><b>"regulatory capture"</b> whereby "programmes geared towards boosting nascent entrepreneurs may instead end up boosting cronies of the nation's rulers or legislators." </li>
</ol>Lerner eloquently articulated his perspective with regard to bureaucratic incompetence (part 1 of his argument) in a 2001 paper titled <a href="http://www.atp.nist.gov/eao/gcr_787.pdf">"When Bureaucrats Meet Entrepreneurs: The Design of Effective 'Public Venture Capital' Programs" (p. 81)</a>:<br />
<blockquote><span style="color: black;">The initial reaction of a financial economist to the argument that the government needs to invest in growth firms is likely to be skepticism. A lengthy literature has highlighted the role of financial intermediaries in alleviating moral hazard and information asymmetries. Young high-technology firms are often characterized by considerable uncertainty and informational asymmetries, which permit opportunistic behavior by entrepreneurs. Why one would want to encourage public officials instead of specialized financial intermediaries (venture capital organizations) as a source of capital in this setting is not immediately obvious.</span></blockquote>Now no economists is going to dispute either that financial intermediaries play a role in "alleviating moral hazard and information asymmetries," or that "young high-technology firms are often characterized by considerable uncertainty and informational asymmetries." No disagreements there. But there are real problems with the following sentence: "Why one would want to encourage public officials instead of specialized financial intermediaries (venture capital organizations) as a source of capital in this setting is not immediately obvious."<br />
<br />
First of all, venture capitalists have long conceded that they're not particularly interested in seed stage, technology-based ventures. (See e.g. <a href="http://www.atp.nist.gov/eao/gcr_787.pdf">this 2001 piece</a> [p. 104] by venture capital legend David Morgenthaler, or just Google the topic to sample the veritable avalanche of substantiation that has been published since.) As the median size of venture capital deals grew beginning in the mid-1990s and pressure on managing partners to provide attractive returns to investors in mammoth funds intensified accordingly, venture capital tended increasingly to flow to projects in later stages of development, to already-proven technologies, or to other investments with potential be rapidly "flipped." But a real science-based company—one of the few that aspires to accomplish the difficult transition <a href="http://www.atp.nist.gov/eao/gcr02-841/gcr02-841.pdf">from invention to innovation</a>—can take a decade or more to get to the point where it earns revenue, much less a profit. Given such technical and market uncertainties, venture capitalists and even many individual "angel" investors understandably preferred to avoid funding speculation. The very success of the venture capital industry has driven it away from funding technology entrepreneurs in the early stages. High "hurdle rates" for expected returns to venture capital investments translate into high hurdle rates for reading business plans. The gap between the resources required by early stage technology entrepreneurs (typically, in the $100K to $2 million range) are inconsistent with the deal size required by mature venture capital firms to support operations given their current scale of operations.<br />
<div><br />
</div>Here's the more fundamental point: Government investments in potentially high-growth firms is good idea precisely <i>because of </i>the fact that Lerner stresses: the "specialized" skills of financial intermediaries such as venture capitalists are not easily imitated, and thus are in short supply. Why? Again, as Lerner notes, early stage development involves not only high quantifiable risks, but also daunting uncertainties. When the uncertainties are primarily technical (as is the case in science-based innovation), garden variety bankers and fund managers are ill-equipped to quantify them. For new technologies that have the potential to create new product categories, market uncertainties are also high and similarly difficult to quantify. The "due diligence" that investors in venture capital funds require of managing partners and that angel investors require of themselves is intrinsically difficult—and getting more so as both technologies and markets become increasingly complex.<br />
<br />
As Lerner himself implies in the above quote, simple labor economics suggests that a public official on a government salary will be less capable of evaluating the market prospects of a new technology than will a highly paid venture capitalist. To suggest otherwise is, rightly, to invite derision. However, the same set of basic principles suggests that venture capitalists are, typically, highly compensated because their skill set is not easily imitated. Barriers to entry and high compensation both imply that the venture capitalist's opportunity cost of time is much higher than that of the public official. For that reason, the efforts of public officials to evaluate the commercial dimensions of technical proposals—for example, the review of applications for competitive government awards such as those given by the U.S. Small Business Innovation Research (SBIR) program—are better understood as <i>complements to</i>, rather than <i>substitutes for</i>, the due diligence performed by venture capitalists.<br />
<br />
Differences between venture capital and public modes of support for technology entrepreneurs go beyond both the capabilities of specialized intermediaries as compared with those of public officials and the quantity of funding sought. As <a href="http://knowledge.wharton.upenn.edu/article.cfm?articleid=976">work by David Hsu</a> (and others since) has documented, entrepreneurs who seek venture capital investments are typically seeking more than funding. They also seek mentoring, access to contacts, and strategic guidance. In return they relinquish a degree (sometimes large) of control over their organizations. In contrast, a technology entrepreneur seeking a government award can not expect to benefit from mentoring and other such forms of support. At the same time, however s/he can be assured that his/her equity stake will not be diluted. The risk/reward profile of the two forms of financing is thus sufficiently different to call into question the appropriateness of terms such as "public venture capital" frequently used to describe various modes of public financial support to technology entrepreneurs. While the funds supplied may be public, the mode of support bears very little resemblance to venture capital.<br />
<br />
To the extent that the sort of there are systematic and persistent impediments to the funding of potentially high-growth, technology based firms, they do so—again!—because the skill set of individuals specialized in evaluating linked technical and commercial opportunities is very difficult to imitate. For this reason, varied contractual arrangements coexist, each offered within one of a diverse set of institutional contexts. Taken together, in a vibrant technology ecosystem, these arrangements provide technology entrepreneurs with a menu of options each with a distinct risk/reward profile. Design and implementation of effective policies to support technology entrepreneurs begins not by looking at one or another category of support in isolation, but rather with an understanding of, and appreciation for, the entirety of this menu of options.<br />
<div><br />
</div>As for the "regulatory capture," the debacle surrounding the Solyndra bankruptcy would seem to provide definitive evidence that programs to support high-growth companies are just as subject to political gaming and cronyism as any other large-scale government energy initiative—be it a policy to support corn-based ethanol or (if you want to see some real money) one to give oil companies breaks on off-shore drilling leases in the name of "energy independence." And, that reality is, the answer is that the Solydra debacle does provide such evidence ... at least, for a program handing out loan guarantees worth half-a-billion dollars to a single company. However, such a program simply cannot be compared with the Small Business Innovation Research Program, which awards competitively administered grants (not loans) that average <i>one thousandth</i> the size of the loan guarantees for Solyndra. The SBIR is relevant because it is the program that Lerner actually studied, originally, in deriving the lines of argument he advanced in <i>The Economist</i> debate<i>. </i><br />
<br />
As it turns out, I'm also quite familiar with this program, having spent three years as part of the research team for a National Academy of Sciences study of its effectiveness. (I was the research lead for <a href="http://www.nap.edu/catalog.php?record_id=12052">the Department of Energy report</a>). In the actual context of the SBIR program, evidence of "regulatory capture" usually focuses on a few "SBIR mills" who receive a disproportionate share of grants without demonstrating real commercial impact--ostensibly proving that they're gaming the system. I studied <a href="http://www.slideshare.net/auerswald/nas-sbir-crearecase091905final">one such company</a> while I was working on the of the National Academies study--Creare, based in Hanover, New Hampshire.When visited Creare I saw lots of geeks with PhDs, and not too many crony-looking types. I ultimately learned that Creare had incubated more than a dozen spin-off companies, with aggregate sales at that time of over $300 million. None of that impact would have shown up as "commercialization" in the terms employed by Lerner in <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=4746">his original, and still most serious work on this topic</a>.<br />
<br />
So the problem with Lerner's argument is that he happens to direct his attention just the one type of "industrial policy" that is actually most likely to work: competitive, professionally evaluated awards extended to early stage companies in countries with highly developed private equity markets. Can such programs be worth while? Yes. If they count as "industrial policy," then the motion fails.<br />
<br />
Now <a href="http://thecomingprosperity.blogspot.com/2011/10/i-come-to-bury-industrial-policy-not-to_14.html">as for Rodrik's argument <i>against</i> the motion</a>...<br />
<br />
<i>This post draws from </i><i>Philip Auerswald (2007) </i><i><a href="http://books.google.com/books?id=nyAjjdsMHFgC&pg=PA18&lpg=PA18&dq=%22The+Simple+Economics+of+Technology+Entrepreneurship:+Market+Failure+Reconsidered%22">"The Simple Economics of Technology Entrepreneurship: Market Failure Reconsidered,"</a> in David B. Audretsch, Isabel Grilo and Roy Thurik eds., </i>The Handbook of Entrepreneurship Policy<i>, Northampton, MA: Edward Elgar.</i></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com5tag:blogger.com,1999:blog-7051282878466274923.post-13780793321434156332011-10-13T20:04:00.000-07:002012-01-31T09:14:23.640-08:00You Get What You CelebrateCarl Schramm has a post on Forbes.com titled "<a href="http://remembering%20steve%20jobs%20by%20celebrating%20the%20life%20he%20lived/">Remembering Steve Jobs By Celebrating The Life He Lived</a>":<br />
<blockquote>Here’s what President Obama said in January 2009 to the million people on the National Mall who gathered to celebrate his inauguration: “It has been the risk-takers, the doers, the makers of things—some celebrated, but more often men and women obscure in their labor—who have carried us up the long, rugged path towards prosperity and freedom.” Steve Jobs, whose loss we mourn, was one such risk-taker, doer, and maker of things. His life represents the best of what America has to offer. </blockquote><blockquote>Entrepreneurship and innovation are at the heart of our national narrative. We owe it to Steve Jobs—and to the thousands of inventors, innovators, and entrepreneurs whose daily efforts are keeping America not only in the game, but on the frontier of global progress—to put the celebration of entrepreneurship and innovation at center stage in the nation’s capital. Not just on inauguration day, but every day. </blockquote><blockquote>Here is a proposal: Why not bring the excitement of entrepreneurship and innovation to the National Mall and share it with the more than 30 million people from around the United States, and the world, who visit there every year? We’re not talking about a hands-on science center. We are talking about an Apple-worthy festival of design and ingenuity. A mind-blowing food court of the imagination. A permanent celebration of the living spirit of America’s greatest entrepreneurs and innovators, open and available to all... (more <a href="http://www.forbes.com/sites/carlschramm/2011/10/11/remembering-steve-jobs-by-celebrating-the-life-he-lived/">here</a>)</blockquote>As <a href="http://thecomingprosperity.blogspot.com/2011/09/time-to-bring-entrepreneurship-and.html">I recently posted on this opportunity myself</a>, you'll know that I agree with Carl. This isn't just a building. Its an opportunity to make a national statement of historic proportions.<br />
<br />
For consumers the rule may be, "you get what you pay for." For nations, it's ultimately "you get what you celebrate."<br />
<br />
<i>Who decides? The Secretary of the Smithsonian, who in turn is accountable to the Smithsonian's <a href="http://www.si.edu/Regents/members.htm">Board of Regents</a> and the members of the <a href="http://cha.house.gov/about/membership">Committee on House Administration</a>. Just FYI. More to follow.</i><br />
<br />
@makersonthemall<br />
@innovateonmall<br />
innovationonthemall.orgPhilhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-84444036818555512902011-09-28T18:31:00.000-07:002011-09-29T14:42:50.348-07:00Maker Faire is AwesomeHere are a few videos I took at Marker Faire New York the weekend before last:<br />
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<a href="http://www.blogger.com/"></a><span id="goog_1670284465"></span><span id="goog_1670284466"></span><br />
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</div><div style="text-align: center;"><iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.youtube.com/embed/WN62M48ZjJY?feature=player_embedded' frameborder='0'></iframe></div><br />
The Kauffman Foundation has put together this video with clips from Maker Faire Kansas City (slightly higher production value here):<br />
<br />
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</div><div class="separator" style="clear: both; text-align: left;">I could go on at great length about why I think this is important. (Tween kid overhead saying to Dad: "We are soooo coming back here next year!") But <a href="http://radar.oreilly.com/2010/10/innovation-education-and-the-m.html">Tom Kalil's already done a good job of that</a>. And, anyhow, where would I start?. "Maker Faire is integrative..."? "Maker Faire is open-ended..."? "Maker Faire is essential for..."? Sure. Yadda yadda. But the bottom line? Simple.</div><div class="separator" style="clear: both; text-align: left;"><br />
</div><div class="separator" style="clear: both; text-align: left;">Maker Faire is awesome.</div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-85721453271219530142011-09-25T11:46:00.000-07:002011-09-25T13:35:31.288-07:00Regional Ecologies of Innovation<i>I wrote this piece with <a href="http://www.branscomb.org/lewis.html">Lewis Branscomb</a> and <a href="http://www.hks.harvard.edu/fs/rzeckhau/">Richard Zeckhauser</a> in 2001. As it was part of a grant application, it was never published. The topic of innovation ecosystems keeps coming up (e.g. <a href="http://www.innovation-ecosystems.org/2011/05/31/ies2011/">here</a>), so it seems worth posting. More on related themes <a href="http://www.atp.nist.gov/eao/gcr06-902.pdf">here</a>, <a href="http://www.pnas.org/content/93/23/12743.full.pdf">here</a>, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1400784">here</a>, <a href="http://www.atp.nist.gov/eao/gcr02-841/gcr02-841.pdf">here</a>, and <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1376427">here</a>.</i><br />
<br />
<span class="Apple-style-span">The problem of regional imbalances in technology-based innovation is hugely important.</span><span class="Apple-style-span" style="font-family: Minion; font-size: 15px;">[1]</span><span class="Apple-style-span"> Standard approaches to this problem tend to assume that technology-based innovation and resultant economic growth will automatically occur if</span><br />
<div class="MsoListBullet"><span style="font-family: Symbol;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>local research institutions are sufficiently strong;</div><div class="MsoListBullet"><span style="font-family: Symbol;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>the regional concentration of high tech firms is sufficiently high;</div><div class="MsoListBullet"><span style="font-family: Symbol;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>the regulatory environment is sufficiently favorable to risk capital,</div><div class="MsoListBullet"><span style="font-family: Symbol;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>political leadership is sufficiently strong.</div><div class="MsoNormal">All of the above "conditions" for regional innovation are necessary, but they are not sufficient. No amount of government support for a nascent venture capital industry will help a region devoid of technology entrepreneurs. A state-funded technology park established near a top research university will house few tenants if the university discourages faculty from seeking to commercialize their innovations. An isolated cluster of heavily subsidized start-up firms constitutes an innovation ecosystem no more than an assemblage of parrots and potted ferns is a rainforest.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal">Private sector actors in the innovation system, informed policy makers, and academics all know that, to paraphrase [former House speaker] Tip O’Neil about politics with modest hypebole, “all innovation is local.” However, the more specific questions that engage policy makers lie beyond our current state of knowledge:</div><div class="MsoListBullet"></div><ul><li>Where an innovation-based economy does exist, how does government act (or refrain from acting) to support its continued growth? Where one does not exist, what can be done to encourage one to develop?</li>
<li><span style="font-family: Symbol;"><span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>What are the critical links in the innovation network? What opportunities, if any, exist for partnerships between governmental bodies operating at different scales or in neighboring jurisdictions and various actors in the innovation system? What should be the roles of local, state, and federal governments in supporting innovation?</li>
<li>In an ideal world, what programs should local, state, and federal government fund, how much should the programs receive, and how should their success be measured?</li>
</ul><div class="heading3">A better understanding of regional innovation, and thus better public policy and program design, depends on being able to answer the follow questions:<a href="http://www.blogger.com/post-create.g?blogID=7051282878466274923" name="_Toc515777118"></a></div><div class="MsoListBullet"></div><ul><li>What fundamental set of behaviors, contracts and incentives characterizes the “regional ecology of innovation”? By what processes are basic scientific breakthroughs translated into commercializable products and processes? What of incremental improvements to products and processes?</li>
<li>In innovation ecosystems, how do networks of relationships and trust form? What are their limitations of scale and scope (e.g. geographical scope, number of names in the "Rolodex," qualitative variety of contacts)?</li>
<li><span style="font-family: Symbol;"><span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>How do the local, state, and federal governments engage in the innovation system, positively and negatively? What kinds of policies and programs at each scale of government best support currently thriving innovation ecosystems, and which best nurture the development of new ones?</li>
<li>To what extent is regional specialization—e.g., the development of regional technology “clusters”—truly a requirement for successful competition in global markets for knowledge-based goods and services? Does regional specialization increase the likelihood of capturing economic gains from innovations locally? In an era when technologies, products, and services are increasingly developed upon shared platforms, with networks of research centers, suppliers, and customers linked in complex ways across industry boundaries, are clusters less important? How relevant today are assumed boundaries between ‘traditional’ economic activities (e.g. textiles, fishing, and agriculture) and new, technology-based industry areas considering, for example, advances in robotics and ag-biotech? How do new technologies provide p remote regions overcome traditional limitation in the digital economy, given new technologies?<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[2]</span></span></span></li>
</ul><div class="MsoListBullet"><a href="file:///C:/Documents%20and%20Settings/Philip%20Auerswald.001/My%20Documents/1-working-consulting-and-social-enterprise/Chesapeake-Crescent-Initiative/6048427_NSF-PFI_05-09-project-description.doc#_ftn12" name="_ftnref12" title=""><span class="MsoFootnoteReference"></span></a></div><div class="MsoNormal"><a href="http://www.blogger.com/post-create.g?blogID=7051282878466274923" name="_Toc515777119"></a>We use the terms “ecology” and “ecosystem” metaphorically. At the same time, we recognize that the project may benefit from exploring further the insights for human systems of research by leading ecologists and evolutionary biologists (see e.g. Levin 1992). The use of evolutionary and ecological metaphors in economics has a long history in economics, dating back at least to <st1:city w:st="on"><st1:place w:st="on">Marshall</st1:place></st1:city> (1890). Yet natural system differ from human social systems in fundamentals respects. </div><div class="heading2"><br />
</div><div class="heading2"></div><div class="heading3"><span class="Apple-style-span" style="font-size: large;"><a href="http://www.blogger.com/post-create.g?blogID=7051282878466274923" name="_Toc515777121"></a>Technology-based innovation and economic growth</span></div><div class="heading3">In the 1950s and 1960s many economic models informing public policy assumed that basic science (and spinoffs from military R&D) “automatically” led to productivity and market growth.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[3]</span></span></span> However most industrial innovation is based on modest extensions of existing technology, so most productivity gains result neither from advances in basic science nor from radical new technologies, but rather from steady improvements to existing innovations. During the 1980s, Japanese success in the high tech industries in which <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> firms had been dominant were finally understood as a failure of domestic firms to adequately prioritize manufacturing efficiency and consumer satisfaction.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[4]</span></span></span> In the 1990s the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> economy surged. Growth derived fundamentally from a dramatic increase in productivity. While the sources of these productivity gains are debated among economists,<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[5]</span></span></span> most attribute a substantial part of this growth in real terms to the surge in the creation of entrepreneurial, venture capital-backed, technology firms.</div><div class="heading2"><br />
</div><div class="heading2">At the end of the 1990s, perceptions shifted again toward a view that technology-based radical innovations uniquely replenish the economy’s long-term potential—though their short-term contribution to economic growth is relatively minor. The role of technology entrepreneurship in general, and particularly the institution of venture capital, as engines of <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> economic expansion became almost an article of faith among politicians, pundits, policy-makers and the public. The stampede of investors into, then out of, the public market for equity in technology-based “new economy” firms and the volume of traffic from <st1:place w:st="on">Silicon Valley</st1:place> to Wall Street came increasingly to represent not just a single economic sector, but rather the scorecard for the economy as a whole.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[6]</span></span></span></div><div class="heading2"><br />
</div><div class="heading2">The actual relationship between innovation and job growth and venture capital investment is a considerably murkier problem than newspaper accounts or stump speeches would suggest.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[7]</span></span></span> Innovation today is usually the product of many different types of entities working together. The techno-wizards, perhaps joined by a few others in small start-up efforts, bring their new ideas. Venture capitalists and angels add their money, their contacts, and their vision of the marketplace. Strategic partners offer downstream or upstream customers, rapid access to established marketing networks, and swift scalability in manufacture. Investment bankers proffer the end-of-the-rainbow pots of gold. Beyond this, universities may provide basic technologies for license, governments key incentives for location, lawyers effective structures to allocate shares and align incentives. Specialization across firm types and corporate boundaries characterizes today's successful high tech firm. The success of each of these firm types, the metaphorical equivalent of species in an ecosystem, depends on the presence of others.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[8]</span></span></span> Understanding the detailed characteristics of the processes supporting innovation at a microeconomic level is critical not only to resolving their impacts at the macroeconomic level, but to designing public policy that allow them to function efficiently and equitably.</div><div class="heading3"><a href="http://www.blogger.com/post-create.g?blogID=7051282878466274923" name="_Toc515417391"><br />
</a></div><div class="heading3"><span class="Apple-style-span" style="font-size: large;"><a href="http://www.blogger.com/post-create.g?blogID=7051282878466274923" name="_Toc515777122"></a>Technology entrepreneurs in the innovation system: What do we know?</span></div><div class="MsoNormal">Schumpeter (1912) foreshadowed current discussions, referring to the role of the entrepreneurs in bringing together resources to create “new combinations” of economic activity—ones that occasionally succeeded in challenging incumbent forms of economic activity.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[9]</span></span></span> At the start of the 21<sup>st</sup> century, what do we know about the process by which technology entrepreneurs in partnership with venture capitalists, corporate technology managers, university technology licensing officers and others in the innovation system conceive and implement “new combinations”? Though our understanding is fragmentary, we can make some observations:</div><div class="MsoListBullet"></div><ul><li>Both technologies and the markets in which they are bought and sold are becoming increasingly complex. Arriving at a detailed understanding of either requires many years of painstaking effort. Yet, having reached the frontier of knowledge regarding a technological area <i>or</i> a market, an innovator cannot rest for long because knowledge depreciates rapidly.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[10]</span></span></span> Markets exert pressure to standardize and modularize. Complexity on one hand and standardization on the other are thus almost yin and yang forces, the former reinforcing the traditional role of personal contacts, the latter pushing the drive toward impersonal markets.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[11]</span></span></span></li>
<li>Nearly all new technological applications arise either from incremental change to, or new combinations of existing technologies. Understanding how to combine existing technologies (e.g., the internal combustion engine and the air-foil) to create a new product (e.g., the airplane) requires having some understanding of how each of the technologies works separately. As technologies become more complex, new combinations require collaboration.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[12]</span></span></span></li>
<li><span style="font-family: Symbol;"><span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>The key obstacle to funding a technological collaboration—bringing into existence a new technological and/or economic combination—is the ability to identify the minute subset of potential combinations for which a viable market exists and which matches the skill set of a group of specialized technologists whose services can be engaged—a task referred to by venture capitalists as “due diligence.”</li>
<li><i>Technology</i> entrepreneurs are not, as a rule, able to carry out this work on their own. To build one’s knowledge base to the point where one is working at or near the technological frontier and to organize a quality research team is a challenging enough job description. Most technology entrepreneurs cannot additionally maintain a venture capital caliber network of business contacts.</li>
<li>Quality venture capitalists and angel investors must be able to evaluate the quality of new combinations. They must also be able to gain and maintain a good knowledge of the abilities of a large group of potential participants in such projects, particularly those with high levels of technological abilities. Furthermore, venture capital companies continue to add value along the way. They do this in partly by helping companies develop their business plans, products, and marketing strategies. They also do this extensively through their reputations and connections—making introductions, and attesting to quality.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[13]</span></span></span> The success of the best venture capital firms (those that capture a disproportionate share of the returns in the industry) depends far less on their ability to <i>pick </i>winners than on their ability to <i>create</i> winners. This both adds value to the firms they fund and enables them to attract the most promising firms. Given the particular difficulties of the contracting for technological information,<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion; font-size: 11pt;">[14]</span></span></span> barriers to entry will be high, so individuals and firms that successfully manage such contracting should reap high rewards (a theoretical prediction readily supported by data).</li>
<li><span style="font-family: Symbol;"><span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>The effort to value technological information—assessing the market possibilities of new, perhaps recombined, technologies—is likely to be severely constrained; few skilled individuals are available to evaluate of new combinations. There will be always be many more potential new combinations of technologies—imaginable, but not tried—than there are companies and their financial supporters to try them out. The gap between potential breakthrough ideas and the number that receive a fair trial may grow in the future, as the execution of new technological combinations increasingly requires the collaboration of different actors with specialized skills.</li>
<li><span style="font-family: Symbol;"><span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>Modern technologies require the continual exchange of information and products; yet traditional markets can not accommodate such transactions. In response, contracting is now accomplished with alternative arrangements. The firmest ties come through a merger. Incentives get aligned, information exchange is no longer guarded. At the opposite extreme we see alliances, where two or more firms work together for a time, often with capabilities but not dollars changing hands. Alliances may even be institutionalized, as they are with the Internet, where no charge is imposed by any provider to carry the information initiated by others. Diagrams of firms’ relationships with strategic partners often have dozens or even hundreds of lines of connection.</li>
</ul><a href="file:///C:/Documents%20and%20Settings/Philip%20Auerswald.001/My%20Documents/1-working-consulting-and-social-enterprise/Chesapeake-Crescent-Initiative/6048427_NSF-PFI_05-09-project-description.doc#_ftn23" name="_ftnref23" title=""><span class="MsoFootnoteReference"></span></a><br />
<div class="MsoListBullet"><a href="file:///C:/Documents%20and%20Settings/Philip%20Auerswald.001/My%20Documents/1-working-consulting-and-social-enterprise/Chesapeake-Crescent-Initiative/6048427_NSF-PFI_05-09-project-description.doc#_ftn24" name="_ftnref24" title=""><span class="MsoFootnoteReference"></span></a></div><div class="heading3"><span class="Apple-style-span" style="font-size: large;"><a href="http://www.blogger.com/post-create.g?blogID=7051282878466274923" name="_Toc515777123"></a>The regional ecology of innovation: Rainforests or amber waves of grain?</span></div><div class="MsoNormal">Historical evidence amply documents the presence of significant knowledge spillovers and other intra-industry increasing returns to scale within regions—automobiles in Detroit, venture capital in Silicon Valley, biotechnology in the Boston metro region and carpets in North Carolina. Persuasive theoretical arguments, and some empirical evidence, support the claim that sustained regional growth requires not only the presence of specialized industry clusters, but also a certain degree of economic diversity. Barriers to entry in the field of any complementary capability will hurt the entrepreneurial industry as a whole. Not surprisingly, the most innovative regions of the country have seen rapid entry in such fields as venture capital, or technology-oriented law firms. Countries or regions with rigid regulatory structures for investment entities will find themselves disadvantaged way beyond what we would expect from a purely first order analysis.</div><div class="MsoNormal">Nonetheless, generalizing from the experience of particular regions is dangerous. Reason why include the following:</div><div class="MsoNormal"></div><div class="MsoNormal" style="margin-left: 0.25in; text-indent: -0.25in;"></div><ul><li>Regions vary not only in their economic structure, but also in their culture and history. Even within regions of the U.S., attitudes towards trust, reputation and risk vary significantly.</li>
<li><i>Ex post</i> analyses may infer incorrectly infer causation from chance.</li>
<li><span style="font-family: Symbol;"><span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span>For competing regions just as for competing firms, entering a market in which there already exists an established incumbent—e.g. a Silicon Valley—is very different from creating a new market.</li>
</ul><div><hr align="left" size="1" width="33%" /><div id="ftn1"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[1]</span></span></span> The National Venture Capital Association (www.nvca.org) reports that, in 1999 for example, 76 percent of venture capital investments were concentrated in four states. Within Massachusetts, for example, multiple initiatives have failed to generate economic growth based on high technology innovation in various regions outside the Boston metro. Other areas, such as the route 495 corridor, have begun to develop a regional ecology of innovation relatively spontaneously.</span></div></div><div id="ftn12"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[2]</span></span></span> A state with a limited technology base might reasonably do as West Virginia and Arizona have done in the fields of biometrics and optics, respectively: seek to nurture and support specific innovation/industry clusters from the ground up. However, in regions with a well developed innovation system such as that in the Boston metro area, there is a far greater reason to believe that a large scale, targeted state program would distort, rather than enhance, private incentives.</span></div></div><div id="ftn13"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[3]</span></span></span> Alic et al. (1992).</span></div></div><div id="ftn16"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[4]</span></span></span> Dertouzos, Lester and Solow (1989).</span></div></div><div id="ftn17"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[5]</span></span></span> Important recent contributions to this literature include Jorgenson and Stiroh (2000) and Nordhaus (2001). Bresnahan and Trajtenberg (1995) directly address measurement issues involved in assessing the contribution to growth of “general purpose technologies.”</span></div></div><div id="ftn18"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[6]</span></span></span> Such perceptions are reinforced by the astounding growth and magnitudes of venture capital disbursements—in 2000 alone exceeding $100 billion.</span></div></div><div id="ftn19"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[7]</span></span></span> Gompers and Lerner (1999, p. 137) note: “Demonstrating a causal relationship between innovation and job growth on the one hand and the presence of venture capital investment on the other is, however, a challenging empirical problem. To what extent are the mechanisms [of venture capital] uniquely suited to addressing the needs of entrepreneurial, high-technology firms? To what extent is venture capital just one of many financing alternatives for these firms, with its own set of strengths and limitations? This topic will reward creative researchers in the years to come.<span class="MsoFootnoteReference">”</span> A recent paper by Kortum and Lerner (2000) represents are rare, or possibly unique attempt to isolate the contribution of venture capital to innovation in the U.S. </span></div></div><div id="ftn20"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[8]</span></span></span> David Teece (1987) introduced the concept of “complementary assets” to describe these external dependencies that govern subsequent economic success of high tech innovations. This has been expanded into the notion of the economic efficiency of social capital, Fountain (1998). </span></div></div><div id="ftn21"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[9]</span></span></span> This combinatorial approach to innovation has been taken up recently by Romer (1996), Weitzman (1998; see quote above), and <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1461801">Auerswald, Kauffman, Lobo and Shell (2000)</a>. Romer (1996: p. 204) suggests likens combinatorial innovation to the discovery of new recipes: </span></div><div class="MsoFootnoteText" style="margin-left: .2in;"><span class="Apple-style-span" style="font-size: x-small;">New growth theorists... start by dividing the world into two fundamentally different types of productive inputs that can be called “ideas” and “things.” Ideas are nonrival goods that could be stored in a bit string. Things are rival goods with mass (or energy). With ideas and things, one can explain how economic growth works. Nonrival ideas can be used to rearrange things, for example, when one follows a recipe and transforms noxious olives into tasty and healthful olive oil. Economic growth arises from the discovery of new recipes and the transformation of things from low to high value configurations. </span></div></div><div id="ftn22"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[10]</span></span></span> The increasing complexity of both technological and market environments pressures venture capital firms to try to develop synergies through specialization within their own domain. Where one firm nurtures contacts in Internet advertising, another does so in biotechnology. The specialization goes beyond expertise to the structure of the network of relationships developed by the firm.</span></div></div><div id="ftn23"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[11]</span></span></span> Consider, for example, the PC—for some years now a mature technology. The insides of a personal computer suggest a production process easy to decentralize and distribute among a large number of fiercely competing small firms. Modular standards have been clearly established. Prices are falling precipitously. Outsourcing of production is the norm. Yet, at the same time, there are dozens of new technologies appearing on the horizon that are requiring complex contracting, networks and trust. These are the new combinations—amply associated with uncertainties, informational asymmetries and unknowables—that are well suited to the venture and angel mode of support.</span></div></div><div id="ftn24"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[12]</span></span></span> See Somay and Teece (2000) and Tassey (2001) for a further discussion of increasing technological complexity and its implications for innovation policy.</span></div></div><div id="ftn25"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[13]</span></span></span> Reputations and the link to networks explains why a new MBA hired by a leading VC firm like Kleiner Perkins can generate a million dollars of business, but that same MBA forming a new firm with three peers could not expect to generate a fraction of this business.</span></div></div><div id="ftn26"><div class="MsoFootnoteText"><span class="Apple-style-span" style="font-size: x-small;"><a href="file:///C:/Documents%20and%20Settings/Philip%20Auerswald.001/My%20Documents/1-working-consulting-and-social-enterprise/Chesapeake-Crescent-Initiative/6048427_NSF-PFI_05-09-project-description.doc#_ftnref26" name="_ftn26" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Minion;">[14]</span></span></span></a> See <a href="http://www.pnas.org/content/93/23/12743.full.pdf">Zeckhauser (1996)</a></span></div></div></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com3tag:blogger.com,1999:blog-7051282878466274923.post-30669331740118845812011-09-10T07:58:00.000-07:002011-09-10T08:42:55.586-07:00Resilience is Security<span class="Apple-style-span" style="background-color: white; font-family: inherit; line-height: 19px;">I wrote this in 2007. It's still my view on the eve of the 10th anniversary of the 9/11 attacks:</span><br />
<blockquote><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="background-color: white; line-height: 19px;">Illusory threats, if not recognized as such, can provoke reactions far more costly and dangerous than the threats themselves. And when leaders deliberately exaggerate threats to create fear for political purposes, the success of such adversaries is enhanced further.</span> </span></blockquote><blockquote><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="background-color: white; line-height: 19px;"></span></span>Such successes are not inevitable. Wise leaders do have the option of responding to vulnerabilities by honestly acknowledging the fact that Americans, like any other people who enjoy an open society, will always be vulnerable to terrorism and to the actions of rogue states. A responsible democratic government should act to minimize these threats, particularly when they involve potentially catastrophic outcomes, but innovation, resilience and adaptability are ultimately the most powerful tools to counter them. When political leaders and private citizens band together to cultivate technology, cut through red tape and build the capacity for response and recovery at home, lasting security may be achieved even under the shadow of persistent threats from abroad.</span></blockquote><span class="Apple-style-span" style="font-family: inherit;">Full essay is <a href="http://www.the-american-interest.com/article.cfm?piece=269">here</a>.</span>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-61609080697287364062011-09-08T15:22:00.000-07:002011-09-23T19:50:33.817-07:00Time to Bring Entrepreneurship and Innovation to the National Mall<div class="MsoNormal"><span class="apple-style-span"><span style="color: black; font-family: Arial; font-size: 11pt;">More than a century ago an idealistic scientist gave his fortune to a country he'd never visited to create a research institute in a swamp. The scientist was James Smithson, the country the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>, and the swamp the National Mall. Smithson’s gift provided its author with an enduring legacy extending over nearly two centuries. Generations of trustees have carried out the founder’s vision of advancing "the increase and diffusion of knowledge among men." Now the time has come to update Smithson's vision for the the 21st century and create a space on the National Mall dedicated to entrepreneurship and innovation.</span></span><span style="color: black; font-family: Arial; font-size: 11pt;"><br />
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<span class="apple-style-span">While the mission of the Smithsonian has remained constant, the nature of knowledge has not. At the end of the nineteenth Century the advancement of knowledge generally meant heroic discovery or patient inquiry conducted in isolation; the Smithsonian's infrastructure was accordingly designed to document and display physical artifacts related to that process. Yet in the twenty-first century, as Secretary of the Smithsonian Wayne Clough has noted, "the great issues of the day typically are interdisciplinary." Advances in knowledge increasingly require collaboration and open communication across both disciplinary and geographical boundaries. The complexity and urgency of terrestrial challenges have compelled an increase in the value placed on knowledge developed in the search for practical solutions to global challenges.</span><br />
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<span class="apple-style-span">Museums today provide a bridge from past discoveries to future opportunities. Among the Smithsonian’s greatest assets is its unique ability to reach, and to touch, millions of people with inspiring and educational experiences. At their best, the Smithsonian’s programs open minds and change lives. In that spirit the Smithsonian can use its great collections and unique location to inspire its visitors to think deeply about the interaction between our planet and the life that populates it, about our major challenges, and about the astounding progress that is attainable through entrepreneurship and innovation.</span><br />
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<span class="apple-style-span">At different intervals in the history of the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>, the Mall and the Smithsonian have provided us, the people of this country, with a setting for our own redefinition and reinvention. In the midst of the Great Depression, Andrew Mellon funded the creation of a National Gallery of Art, to affirm <st1:country-region w:st="on"><st1:place w:st="on">America</st1:place></st1:country-region>'s position as a global power. In the midst of the Cold War, the Smithsonian established the <st1:place w:st="on"><st1:placename w:st="on">Air & Space</st1:placename> <st1:placetype w:st="on">Museum</st1:placetype></st1:place>, to celebrate the trans-atmospheric supremacy that was, for a time, so critical to our national self-conception.</span><br />
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<span class="apple-style-span">Now the time has come, once again, for the Mall to play a central role in the renewal of our national narrative; the time has come to establish a permanent space to recognize--in words President Obama himself spoke on the Mall in his inaugural address—"the risk-takers, the doers, the makers of things--some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom." No plexiglass this time. Rather <a href="http://makerfaire.com/">Maker Faire</a>. <a href="http://techshop.ws/">Tech Shop</a>. <a href="http://fab.cba.mit.edu/">Fab Lab</a> and <a href="http://d-lab.mit.edu/">D-Lab</a>. Resources for brainstorming about <a href="http://www.mitpressjournals.org/innovations">entrepreneurial solutions to global challenges</a>. A "Genius Bar" with the resources to start a company in an hour or less. And maybe a few robotic Pterodactyls swooping down occasionally from the high arches to pick up trash.</span><br />
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<span class="apple-style-span">Remarkably, there exists an empty building on the Mall that can do this. It is a building with a history perfectly suited to celebrating entrepreneurship and innovation by all Americans and advancing <st1:country-region w:st="on"><st1:place w:st="on">America</st1:place></st1:country-region>’s vital role in the 21st century as a source of entrepreneurial solutions to global challenges. Completed in 1881, the<a href="http://www.si.edu/Museums/arts-and-industries-building"> Arts & Industries building</a> (situated directly to the East of the <st1:place w:st="on"><st1:placename w:st="on">Smithsonian</st1:placename> <st1:placetype w:st="on">Castle</st1:placetype></st1:place>) was the first building expressly built as a museum on the Mall. It was designed by renowned architect Adolf Cluss to receive the collections of the 1876 Centennial Exposition. The building was also designed to exhibit the results of research being conducted by Smithsonian scientists working in the Castle next door. But the exhibits were left largely untouched for much of the next century, changing the function of the building from celebrating the new to archiving the old. The original Arts & Industries exhibits were eventually moved, and the building closed to the public in 2004.</span><br />
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<span class="apple-style-span">The first Secretary of the Smithsonian once said that "The worth and importance of the Institution is not to be estimated by what it accumulates within the walls of its building, but by what it sends forth to the world." The same can be said for the <st1:country-region w:st="on"><st1:place w:st="on">United States</st1:place></st1:country-region>. Our worth in the twenty-first century will be determined by the continued efforts of the millions of entrepreneurs and innovators who daily invent a new and more promising reality for their communities, their regions, their country, and the planet we all share.</span><br />
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<span class="apple-style-span">There is no progress without purpose. Identity is what we are, but initiative is what we become. A nation needs both. Let's renew our national narrative by creating at the Arts & Industries building a <st1:place w:st="on"><st1:placename w:st="on">National</st1:placename> <st1:placetype w:st="on">Center</st1:placetype></st1:place> for Entrepreneurship and Innovation.<o:p></o:p></span></span><br />
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<span style="color: black; font-family: Arial; font-size: 11pt;"><span class="apple-style-span"><a href="http://www.slideshare.net/auerswald/smithsonian-centerforentrepreneurshipandinnovation-conceptstatement010610draft">Full concept statement</a></span></span><br />
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</span></span><br />
<span style="color: black; font-family: Arial; font-size: 11pt;"><span class="apple-style-span">twitter: <a href="http://twitter.com/#!/innovateonmall">@innovateonmall</a></span></span><br />
<span class="Apple-style-span" style="font-family: Arial;"><span class="Apple-style-span" style="font-size: 15px;">web: <a href="http://innovationonthemall.org/">innovationonthemall.org</a></span></span></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-15882928395511245272011-09-08T08:34:00.000-07:002011-09-12T14:04:34.950-07:00What if Development Economics Was Actually About Development?<div>Pop quiz: Is a "business-friendly" environment the same as an "entrepreneur-friendly" environment?</div><div><br />
</div><div>Answer to that is coming up. But my guess is that 9/10 entrepreneurs get the answer right (10/10?), and 9/10 economists get it wrong.</div><div><br />
</div>Now as for the topic of this post, "What if Development Economics Was Actually About Development?" You might rightly ask, "What is development economics about, if not development?" Read recent books co-authored by <a href="http://www.amazon.com/More-Than-Good-Intentions-Economics/dp/052595189X">Dean Karlan</a> and <a href="http://www.amazon.com/Poor-Economics-Radical-Rethinking-Poverty/dp/1586487981">Esther Duflo</a>, or <a href="http://www.amazon.com/What-Works-Development-Thinking-Small/dp/0815702825">this volume</a> edited by Jessica Cohen and Bill Easterly, and you will find out. "Development economics" is about <a href="http://thecomingprosperity.blogspot.com/2010/01/aid-effectivess-does-not-development.html">improving the effectiveness of development projects</a>. It's about enhancing the value we get from the ~$125 billion that flows each year from rich countries to poor countries to improve the lives of poor people. That's "development economics."<br />
<br />
Development economics is mostly<i> not </i>about the technological and organizational transformations that are propelling the human community into an unprecedented era of increased prosperity. It is mostly not about structural changes in a $69 trillion global economy. It is mostly not about the global revolution in mobile telephony--the most ubiquitous and powerful technology people have ever created. It is mostly not about the creation and diffusion of vital standards--ISO, container shipping, TCP/IP--that have enabled global economic integration. It is mostly not about <a href="http://blogs.cgdev.org/global_prosperity_wonkcast/2011/09/07/migration-and-the-trillion-dollar-bills-on-the-sidewalk-michael-clemens/">the astounding power of migration </a>to improves lives and livelihoods. And it is mostly not about the initiative of entrepreneurs who bring imagination to opportunity to create new forms of business, products, and services that even they did not imagine could exist when they first started out.<br />
<br />
Most of all, "development economics" is mostly not about development. That is because projects don't develop. And they don't create development. Here's a definition (thank you Dictionary.com):<br />
<div><br />
</div><div><span class="Apple-style-span" style="background-color: white; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 16px;"></span><br />
<div class="header" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 2px; padding-left: 0px; padding-right: 0px; padding-top: 0px; word-wrap: break-word;"><h2 class="me" style="color: black; display: inline; font-family: 'Arial Unicode MS', Arial, Helvetica, sans-serif; font-size: 18px; font-weight: bold; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="background-color: white; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 16px;">de·vel·op·ment</span></h2><span class="Apple-style-span" style="background-color: white; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 16px;"><sup style="bottom: 1ex; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; height: 0px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: relative; vertical-align: baseline;"></sup> <span class="pronset" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><embed align="texttop" flashvars="soundUrl=http%3A%2F%2Fsp.dictionary.com%2Fdictstatic%2Fdictionary%2Faudio%2Fluna%2FD02%2FD0238600.mp3&clkLogProxyUrl=http%3A%2F%2Fdictionary.reference.com%2Fwhatzup.html&t=a&d=d&s=di&c=a&ti=1&ai=51359&l=dir&o=0&sv=00000000&ip=6c38e45c&u=audio" height="15" id="speaker" loop="false" menu="false" quality="high" salign="t" src="http://sp.dictionary.com/dictstatic/d/g/speaker.swf" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;" type="application/x-shockwave-flash" width="17" wmode="transparent"></embed> <span class="show_spellpr" style="color: #333333; display: inline; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="prondelim" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;">[</span><span class="pron" style="color: #333333; display: inline; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;">dih-<span class="boldface" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; font-weight: 700; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;">vel</span>-<span class="ital-inline" style="color: #333333; display: inline; font-family: Georgia, Verdana, Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;">uh</span><img alt="" border="0" class="luna-Img" src="http://sp.dictionary.com/dictstatic/dictionary/graphics/luna/thinsp.png" style="background-attachment: scroll; background-clip: initial; background-color: transparent; background-image: url(http://sp.dictionary.com/en/i/dictionary/newserp/Sprite_Serp.png); background-origin: initial; background-position: -491px -482px; background-repeat: repeat repeat; border-bottom-width: 0px; border-color: initial; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-style: initial; border-top-width: 0px; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: text-top;" />p-m<span class="ital-inline" style="color: #333333; display: inline; font-family: Georgia, Verdana, Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;">uh</span><img alt="" border="0" class="luna-Img" src="http://sp.dictionary.com/dictstatic/dictionary/graphics/luna/thinsp.png" style="background-attachment: scroll; background-clip: initial; background-color: transparent; background-image: url(http://sp.dictionary.com/en/i/dictionary/newserp/Sprite_Serp.png); background-origin: initial; background-position: -491px -482px; background-repeat: repeat repeat; border-bottom-width: 0px; border-color: initial; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-style: initial; border-top-width: 0px; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: text-top;" />nt</span><span class="prondelim" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;">]</span> <a href="http://dictionary.reference.com/help/luna/Spell_pron_key.html" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: underline;" target="_blank"><img border="0" class="luna-Img" src="http://sp.dictionary.com/dictstatic/g/d/dictionary_questionbutton_default.gif" style="background-attachment: scroll; background-clip: initial; background-color: transparent; background-image: url(http://sp.dictionary.com/en/i/dictionary/newserp/Sprite_Serp.png); background-origin: initial; background-position: -491px -482px; background-repeat: repeat repeat; border-bottom-width: 0px; border-color: initial; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-style: initial; border-top-width: 0px; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: text-top;" /></a> <span class="pron_toggle" style="color: #333333; display: inline; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><a alt="Toggle for IPA" class="pronlink" href="http://www.blogger.com/post-edit.g?blogID=7051282878466274923&postID=1588292839551124527" style="color: #333333; cursor: pointer; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: underline;" title="Click to show IPA">Show IPA</a></span></span></span></span></div><div class="body" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0em; margin-left: 0em; margin-right: 0px; margin-top: 0em; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><div class="pbk" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="background-color: white; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 16px;"><span class="pg" style="color: #333333; display: inline; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; font-weight: bold; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 3px; padding-top: 0px;"><span id="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;"><span id="hotword" name="hotword" style="color: #333333; cursor: default; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">noun</span></span></span></span><br />
<div class="luna-Ent" style="background-attachment: initial; background-clip: initial; background-color: initial; background-image: none; background-origin: initial; background-position: initial initial; background-repeat: initial initial; color: #333333; display: block; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 1em; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 5px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="background-color: white; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 16px;"><span class="dnindex" style="color: #7b7b7b; display: block; float: left; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; font-weight: bold; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; width: 28px;"><span id="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;"><span id="hotword" name="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">1.</span></span></span></span><br />
<div class="dndata" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 37px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="background-color: white; color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 16px;"><span id="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;"><span id="hotword" name="hotword" style="color: #333333; cursor: default; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">the</span> <span id="hotword" name="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">act</span> <span id="hotword" name="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">or</span> <span id="hotword" name="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">process</span> <span id="hotword" name="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">of</span> </span><span style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><a href="http://dictionary.reference.com/browse/develop" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; font-style: normal; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: underline;">developing</a><span id="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">; </span></span><span id="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;"> <span id="hotword" name="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">growth;</span> <span id="hotword" name="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">progress:</span> </span><span class="ital-inline" style="color: #333333; display: inline; font-family: Georgia, Verdana, Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span id="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;"><span id="hotword" name="hotword" style="color: #333333; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">child </span><span id="hotword" name="hotword" style="color: #333333; cursor: default; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">development;</span> <span id="hotword" name="hotword" style="color: #333333; cursor: default; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">economic</span> <span id="hotword" name="hotword" style="color: #333333; cursor: default; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: 1.25em; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; position: static;">development.</span></span></span></span></div></div></div></div><br />
<div><br />
</div><div>"Process of developing" means that there is change. A transition from one state of being to another. That is what development means. So social scientists who study development should be interested in how societies change.</div><div><br />
</div><div>Development, therefore, is a dynamic phenomenon. But the tools that define "development economics" are, overwhelmingly, static. In order for a project to be evaluated--for example with a "<a href="http://thecomingprosperity.blogspot.com/2011/09/why-randomized-controlled-trials-work.html">randomized controlled trial</a>" (RCT)--the parameters of the project have to be strictly defined. ("Controlled" says it all). The project is a <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1461801">recipe</a>. The assessment is method for determining if that recipe works in a particular place, and at a particular time.<br />
<br />
In <a href="http://thecomingprosperity.blogspot.com/2011/09/why-randomized-controlled-trials-work.html">my last post</a> I addressed the limitations to RCTs created by the "in a particular place" clause. (Ref. the challenge of "external validity".) But the "at a particular time" clause is even more problematic.<br />
<br />
The point is simple: If the phenomenon under consideration is actually important to the process of development, it will, by definition, be changing. Consider just the example of mobile telephony offered above. The numbers, options, and opportunities change on an almost monthly basis. Not just superficially, but fundamentally--at the level of options, learning, and even human preferences. (Ref. "non-stationarity of the underlying process" mentioned in my last post.) But the tools of "development economics" in its current form are inherently, even assertively, static. The viability of the RCT method, in particular, depends on applying precisely the same "treatment" to each target population. If the treatment is not the same, or if important elements are omitted from the "recipe" (they will be), then the assessment is invalid.<br />
<br />
Is ingenious program evaluation a total waste of time? Of course not. It is a contribution...to people charged with managing projects anyway. But it is not the study of development.<br />
<br />
I almost forgot: Is a "business-friendly" environment the same as an "entrepreneur-friendly" environment? ... Hmm. Well <a href="http://www.amazon.com/Theory-Economic-Development-Interest-Business/dp/0878556982">here is a book that is <i>actually </i>about development</a> that provides some answers. More on that in my next post ;)<br />
<br />
<span class="Apple-style-span" style="background-color: #eeeeee;">UPDATE: Citing <a href="http://cyrussamii.com/wp-content/uploads/2011/05/GBF-Paper_2011-04-27-1.pdf">this paper</a> by Casey, Glennerster, and Miguel as an example, Dean Karlan (@deankarlan) points out to me that RCTs can be used to evaluate "a process of change that includes the decision on what </span><span class="Apple-style-span" style="background-color: #eeeeee;">to do, who does it, etc."</span></div></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com2tag:blogger.com,1999:blog-7051282878466274923.post-52532929621654004202011-09-07T09:01:00.000-07:002011-09-07T09:58:37.883-07:00Why Randomized Controlled Trials Work in Public Health...and Not Much Else<div class="MsoNormal" style="text-indent: 0in;">If there is a next big thing at the moment in the field of economics, it is the application of techniques from medical research—specifically, “randomized controlled trials,” or RCTs—to assess the effectiveness of development or other government-initiated projects. The general thrust of the work is as simple as it is brilliant: rather than employ complex, and often unreliable, statistical methods to tease out the extent to which a project or policy actually had a beneficial impact on intended beneficiaries, why not follow the tried and true methods employed by pharmaceutical researchers to assess the efficacy of medical treatments? The steps are: 1) randomly divide the experimental population into a treatment group that receives “benefits” from the program, and a control group that doesn’t; 2) assess outcomes for both groups; and 3) determine whether or not a significant difference exists between the two groups.<o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal">This approach, <a href="http://www.fastcompany.com/magazine/158/india-poverty-vaccinations">championed by MIT economist Esther Duflo</a> (winner of the prestigious Bates Clark Medal, granted to the most promising economist under the age of forty) among others, is a marked improvement on the <i style="mso-bidi-font-style: normal;">status quo</i> in development aid, which not infrequently involves assessing program effectiveness by simply checking whether or not the money was spent. Clearly, a world in which aid money is allocated to projects that actually <i style="mso-bidi-font-style: normal;">benefit</i> people is preferable to one in which money goes to whoever most effectively maneuvers to get the money to start with and then most reliably manages to spend it. In this way, the use of RCTs in development arguably advances the goal of aid effectiveness.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal">So, to be clear, RCTs quite credibly represent the “gold standard” in program assessment. If other methods are used, it is usually because RCTs are too expensive or otherwise impractical. Describe your favorite entrepreneurial initiative to an economist and the most probable skeptical response you’ll receive is: “Sounds wonderful, but where’s the evidence of effectiveness? In order to find out whether or not it worked, you really need to do a randomized controlled trial."</div><div class="MsoNormal"><br />
</div><div class="MsoNormal">So what is the problem with applying RCTs to development? The Achilles heel of RCTs is a little thing known to the statistically inclined as “external validity”—a phrase that translates informally to “Who cares?” (In a future post I'll elaborate on another fundamental flaw of RCTs, which is technically termed the "non-stationarity" of underlying processes.)</div><div class="MsoNormal"><o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal">The concept of external validity is straightforward. For any assessment, “internal validity” refers to the mechanism of conducting a clinical trial, and the reliability of results on the original setting. A professionally conducted RCT that yields a high level of statistical significance is said to be “internally valid.” However, it is fairly obvious that an intervention rigorously proven to work in one setting may or may not work in another setting. This second criterion—the extent to which results apply <i style="mso-bidi-font-style: normal;">outside</i> the original research setting—is known as “external validity.” External validity may be low because the populations in the original and the new research setting are not really comparable—for example, results of a clinical trial conducted on adults may not apply to children. But external validity may also be low because the environment in the new study setting is different in some fundamental way, not accounted for by the researcher, from the original study setting. Econometric studies that seek to draw conclusions about effectiveness from data that span large geographical areas or highly varied populations thus typically have lower levels of internal validity, but higher levels of external validity.<o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal">So, once again, the fundamental issue is not the purity of the methodology employed (as exciting as such methodological purity is to the technically inclined) but rather the inherent complexity of the world being studied.<o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal">For this precise reason, it turns out that those who most vociferously and naïvely advocate that we apply techniques from public health to economics (a group that does not include Esther Duflo) make a fundamental error. They fail to appreciate the fact that, when it comes to external validity, public health is the exception that proves the rule. Indeed, in aid-led development in general, of the few real historical successes, nearly all are in public health. Outside of public health, few of the large-scale, top-down development programs have in fact succeeded. <o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal">Why is this? Multiple conjectures are possible. But one persuasive one is this: when it comes to biophysical function, <i style="mso-bidi-font-style: normal;">people are people.</i> For this reason, a carefully developed medical protocol (read “<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1461801">recipes</a>”) proven to be effective for one population is highly likely to work for another population. The smallpox vaccine tested on one population tended to work on other populations; this made it possible to eradicate smallpox. Oral rehydration therapy tested on one group of children tended to work of other groups of children; millions of children have been spared preventable deaths because the technique has been adopted on a global basis. Indeed, medical protocols have such a high level of external validity that, in the United States alone, tens if not hundreds of thousands of lives could be saved every year through a more determined focus on adherence to their particulars.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Times New Roman'; font-size: 12pt; line-height: 200%;">[1]</span></span></span><o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal">These huge successes were achieved, and continue to be achievable, though bold action taken by public health officials. They are rightly celebrated and encouraged, but—outside of other public health applications—not easily replicated. Successes in medicine contrast sharply with failures in other domains. Decades of efforts to design and deploy improved cook-stoves—with the linked aims of reducing both deforestation and the illness and death due to indoor air pollution—have so far primarily yielded an accumulation of Western inventions maladapted to needs and realities in various parts of the world, along with locally developed innovations that cannot be expanded to meet the true scale of the challenge.<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Times New Roman'; font-size: 12pt; line-height: 200%;">[2]</span></span></span> For development programs in general, and RCTs in particular, public health is the exception that proves the rule. <o:p></o:p></div><div class="MsoNormal"><br />
</div><div class="MsoNormal">What does work in areas outside of public health? How is it possible to design, test, and implement effective solutions in environments where complexity and volatility are dominant? The general principle applies: Success requires adaptability as well as structure, flexibility as well as structure—a societal capacity to scale successful efforts combined with an ingrained practice of entrepreneurial exploration. As the uniquely insightful Mancur Olson wrote in his classic <i>Power and Prosperity </i>(pp. 188-189):</div><div class="MsoNormal"><o:p></o:p></div><blockquote>Because uncertainties are so pervasive and unfathomable, the most dynamic and prosperous societies are those that try many, many things. They are societies with countless thousands of entrepreneurs who have relatively good access to credit and venture capital.</blockquote><div class="MsoNormal" style="margin-left: .5in; text-indent: 0in;"><o:p></o:p></div><div class="MsoNormal" style="text-indent: 0in;">What works in development, according to Olsen, is <a href="http://socialcapitalmarkets.net/innovations/">entrepreneurial exploration</a>. Why? Because we don't know what works<b style="mso-bidi-font-weight: normal;">.</b></div><div class="MsoNormal" style="text-indent: 0in;"><b style="mso-bidi-font-weight: normal;"><br />
</b></div><div style="mso-element: footnote-list;"><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Times New Roman'; font-size: 12pt; line-height: 200%;">[1]</span></span></span> See Atul Gawande (2009), <i style="mso-bidi-font-style: normal;">Checklist Manifesto: How to Get Things Right. </i><st1:place w:st="on"><st1:state w:st="on">New York</st1:state></st1:place>: Metropolitan Books.<o:p></o:p></div></div><div id="ftn2" style="mso-element: footnote;"><div class="MsoFootnoteText"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Times New Roman'; font-size: 12pt; line-height: 200%;">[2]</span></span></span> Burkhard Bilger (2009), Hearth Surgery: The Quest for a Stove That Can Save the World. <i style="mso-bidi-font-style: normal;"><u>The New Yorker. </u></i>December 21.<o:p></o:p></div></div></div><div style="mso-element: endnote-list;"><br />
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</span> </div></div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com44tag:blogger.com,1999:blog-7051282878466274923.post-90109286306004985482011-09-06T07:47:00.000-07:002011-09-06T08:42:15.899-07:00The Myth of the MarketIn the beginning, there was usury.<br />
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In the deflationary, no-growth world of the early Middle Ages, lending was frequently predatory. More often than not, the predators were priests. The poor were not the only victims. Nobles also forfeited property—even entire estates—to rapacious moneylenders.<br />
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The Church was powerful, but ultimately it could not resist pressure to curb abusive practices within its ranks. In 1049, Pope Leo IX outlawed interest-bearing loans, declaring at the Council of Reims that “No cleric or layman should be a usurer.”<br />
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At that point, a surprising thing happened: the trade in interest-bearing loans—officially outlawed by the Church—took off. With the usurious energies of the clergy becalmed, if not entirely dissipated, a new market space opened up in which the medieval “private sector” could provide loans. At the center of this transformation was a financial innovation known as the bill of exchange, predecessor to today’s garden variety bank check. Bills of exchange were important not only because they enabled commerce to occur over long distances, which facilitated trade, but also—and importantly—because they created a loophole in the papal ban on interest-bearing loans. By carefully designing their terms, the earliest merchant bankers could employ bills of exchange as a way to extend short-term loans.<br />
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As financial institutions developed around bills of exchange and other innovations, they changed the social function of banking. “What made the new banking different from the old,” says Robert Lopez, a pioneering scholar of early financial institutions, “was its shift from an agrarian to a commercial orientation and from an antagonistic to a collaborative attitude of borrowers and lenders.” Where the old banking was fundamentally extractive, the new banking had the potential to be creative. Alongside lending, a new and deeply disruptive financial form took shape: private investment.<br />
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The <a href="http://www.amazon.com/Impacting-Investing-Innovations-Journal-ebook/dp/B005KE90UM/">special edition of <i>Innovations</i> journal</a> being released today at the <a href="http://socialcapitalmarkets.net/">2011 Social Capital Markets conference at Fort Mason, in San Francisco</a>, is a report from the evolutionary frontier of capital, and of capitalism. The authors of the essays, case narratives, and analytic papers published in these pages are a veritable Who’s Who in the linked domains of blended value and impact investing.<br />
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In this brief essay I will reinforce a simple point also made by Antony Bugg-Levine and Jed Emerson in their contribution to this issue: The nascent world of “impact investing” is not entirely new and unprecedented, nor is it simply an incremental tweak to a now nearly perfected “market system.” Instead, the development of impact investing and of new approaches to assessing value represents the latest stage in the invention, and reinvention, of the concept of economic self-interest and the reality of market-based capitalism over the period of centuries.<br />
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In other words, the movement described in the pages that follow is not a fad. It is the next step in a historical progression that dates back to the 11th century. Consequently, there is good reason to think that the transformations suggested by contributors to this special edition are just getting started.<br />
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<i>The full text of my into to the special edition of </i>Innovations<i> for SOCAP11 is <a href="http://socialcapitalmarkets.net/wp-content/uploads/2011/09/INNOVATIONS-SOCAP11_Auerswald.pdf">here</a>.</i>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com1tag:blogger.com,1999:blog-7051282878466274923.post-20895021784003912692011-09-05T15:53:00.000-07:002011-09-06T08:43:30.400-07:00Money + Meaning = Huh?<div><br />
SOCAP11 is getting going today at Fort Mason in San Francisco. I'm not going to be there. So why should I care?<br />
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Well, there's one obvious reason that I, personally, should care: <i><a href="http://www.mitpressjournals.org/innovations">Innovations</a></i> journal (which I co-edit with Iqbal Quadir) has partnered with Kevin Doyle Jones and the Social Capital Markets team to produce a special issue on impact investing that is being released at SOCAP11 this week. The issue was proposed and guest edited by Paul Hudnut (@BOPreneur), Rob Katz (@robertkatz), and Patrick Maloney (@pemaloney). Anyone who's not going to be attending the opening session of SOCAP11 tomorrow can get the special edition as an <a href="http://www.amazon.com/dp/B005KE90UM">eBook on Amazon</a>.<br />
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In my next post I'll summarize the content; there's also more <a href="http://socialcapitalmarkets.net/innovations/">here</a> at the SOCAP11 site. But I'll tell you this up front: If you don't get "impact investing" now, you will by the time you're done reading through the great contributions to this special edition. Wayne Silby, Elizabeth Littlefield, Jed Emerson, Anthony Bugg-Levine, Mirjam Schöning, Mario Morino, Christine Eibs Singer, and other great contributors to this special edition... these are the pathfinders. Where they have been is where finance is going--if it is going anywhere at all, that is.<br />
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So... is the release of this special edition the only reason that I'm excited about what's going to be happening at Fort Mason this week? No. If there wasn't another reason, we at <i>Innovations</i> wouldn't have jumped at the chance to partner with SOCAP on an impact investing special edition in the first place.<br />
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Kevin Doyle Jones and the SOCAP11 team are framing this year's meeting with the following Twitter-friendly koan:<br />
<blockquote>$ + <3 = ?</blockquote>I read this as: Can money (markets) and meaning (purpose) co-exist? Can they be separated?<br />
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The facile answer to this question is well known: "Markets are impersonal. They have to do with exchange and they have to do with value. But they have nothing to do with the creation of 'meaning' or the pursuit of 'purpose.'"<br />
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The facile answer is--as facile answers tend to be--wrong. The incomparable Matthew Bishop (@mattbish) offered one take on how markets and meaning connect in <a href="http://www.mitpressjournals.org/userimages/ContentEditor/1265819288419/INNOV-TECH4SOCIETY_025-033_bishop_12-29-09.pdf">a piece he wrote for <i>Innovations</i> last year</a>. I made my own first attempt at answering this question in <a href="http://www.clintonglobalinitiative.org/ourmeetings/2010/pdf/2009SP_Feature_Auerswald.pdf">a piece I wrote in 2009</a> for the <i>Stanford Social Innovation Review</i>.<br />
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But the most compelling answer isn't to be found any any single essay, narrative, or line of argument--amazingly, even my own or Matthew's. The best answer is to be found in the mosaic of insights and experiences of the people who have spent their careers exploring the shared space between money (markets) and meaning (purpose). People like Ben & Jerry's co-founder Ben Cohen, who wrote about "The Meaning of Business" <a href="http://www.mitpressjournals.org/doi/abs/10.1162/INOV_a_00066">in the Spring issue of <i>Innovations</i></a>. People like <a href="http://www.invest2innovate.com/about/team/index.html">Kalsoom Lakhani</a>, <a href="http://www.youtube.com/watch?v=zzq6eX1-jrw">Eden Full</a>, <a href="http://www.huskpowersystems.com/management_bio.php?bID=4">Manoj Sinha</a>, and <a href="http://www.bagsforbliss.org/team">Saba Gul</a>, who will be among the hundreds of entrepreneurs seeking to connect markets and meaning at Fort Mason this year. And it's to be found in the words of the <a href="http://socialcapitalmarkets.net/innovations/">remarkable people</a> who took time away from their daily <i>doing</i> to get their thoughts into words and their words into bits so that you could read them <a href="http://www.amazon.com/dp/B005KE90UM">here</a>.<br />
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</div>Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0tag:blogger.com,1999:blog-7051282878466274923.post-41467631291795331172011-08-27T09:51:00.000-07:002011-08-27T10:00:45.331-07:00RepurposeThe wealth that was lost in the crash of 2008 never actually existed. That's why the crash fundamentally doesn't matter.<br />
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The U.S. isn't recovering from the bust, it's recovering from the boom. Fear-mongers and ponzi-schemers joined forces to distract a nation for a debilitating decade.<br />
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Remember the Black Friday financial panic of 1869? Happened the same year the Transcontinental Railroad was completed. Which do we remember? There's a reason.<br />
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There is no Left. There is no Right. There's backward, and there's forward. That's it.<br />
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There is not a single institution more than a decade old in the United States of America that is not ready to be repurposed.<br />
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Go.Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com5tag:blogger.com,1999:blog-7051282878466274923.post-27795329777104591632011-04-21T06:33:00.000-07:002011-04-23T06:12:03.855-07:00The Real StoryIf you're interested in education, Pakistan, entrepreneurship, or just the experience of being an engaged, compassionate human being, do yourself a favor and listen to Seema Aziz describe how she built one of the <a href="http://www.bareeze.com/">most successful textile companies </a>in Pakistan ...<br />
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</div><embed allowfullscreen="true" allowscriptaccess="always" height="100" src="http://www.box.net/embed/8t0peocul16h095.swf" type="application/x-shockwave-flash" width="466" wmode="opaque"></embed><br />
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[<a href="http://www.box.net/shared/static/zr2xdevx1l.mp3">direct link to MP3</a>]<br />
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... <i>at the same time </i>that she built <a href="http://www.carepakistan.org/">an organization</a> that today educates one out of every 200 of Pakistan's children:<br />
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<embed allowfullscreen="true" allowscriptaccess="always" height="100" src="http://www.box.net/embed/inm8pdo8q0oytb5.swf" type="application/x-shockwave-flash" width="466" wmode="opaque"></embed><br />
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[<a href="http://www.box.net/shared/static/nuo7bz7qgs.mp3">direct link to MP3</a>]<br />
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When you're done, check out <a href="http://www.beaconhouse.edu.pk/bssgroup/index.php">Beacon House</a> and <a href="http://www.thecitizensfoundation.org/">The Citizen's Foundation</a> and learn more about their work, and their founders.<br />
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This is the real story.Philhttp://www.blogger.com/profile/08672584102059164653noreply@blogger.com0