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Hm, nice idea that. But somebody's already doing it less well

So you can push off and take your economic growth with you

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We know there's massive amounts of invention going on. Innovations are popping up all over the place. And while this should be increasing economic growth, none of this invention and innovation is being reflected in our economies. My own diagnosis: when it comes to the "creative destruction" that capitalism is supposed to be good at, the creation stuff is working just fine, but the destruction part? Not so much. And it's holding back that most creative of current sectors: technology.

Yes, sure, we're in a recession, but that's not it at all: in the developed economies, we've been seeing a slowing of growth for several decades now. And it's really not supposed to be that way, not when we've got those invention and innovation things happening. For they are, at heart, what growth actually is. So if they're happening but growth isn't, then WTF is going on around here?

A brief divergence into economics: we're not talking about macroeconomics here. That's the interest rates, unemployment, exchange rates stuff, all the things we see economists getting wildly wrong on the news. Rather, when we're talking about decades we have to be talking about microeconomics: prices, institutions, incentives, these sorts of things. Macro is the short term (thus Keynes' “In the long run we're all dead”) and micro is the underlying structure: if you've a long term problem then it will lie in micro.

Our problem is that growth rates have fallen. It varies a bit across countries, but all of the advanced countries grew faster in the 1950-1980 period than they have done since. This is taking out the effects of booms and busts, that macroeconomics part. The puzzling thing is why. Sure, we could go off and blame the neoliberal capitalist bastards like myself. We might blame globalisation... or inequality... or anything that comes to mind in fact. If you wish to do so, please do: but I want to draw attention to just one thing that is having some effect. Quite how much effect is going to be a matter of judgment (or prejudice - your choice). That is: the increasing difficulty of actually deploying a new invention or innovation.

Some within economics make the distinction between invention (creating a new whizzy thing or method) and innovation (actually using the new whizzy to do new things, or old things in a different way). My contention is that the rules and regulations make it too difficult to do those old things in new ways. There's just too much protection given to the incumbents if you like.

This isn't a new idea in economics at all: Adam Smith complained bitterly about how the guilds were able to prevent or delay the adoptions of new technologies.

I don't think anyone's going to complain much about there being no new inventions at present: the world's in a ferment as the internet and then the mobile revolutions continue. But that second part is most certainly having a huge effect in the undeveloped countries. Several studies have shown that an extra 10 per cent of the population with a mobile adds 0.5 per cent to GDP each and every year. That specific one doesn't work for most of the developed world as it already has landline phone systems and so is not leaping from no communications to mobile.

Protectionism

But if we've got these inventions all coming along then why aren't we having the subsequent innovations that increase economic growth? The standard assumption is that what this capitalism/ markets mix provides is creative destruction. The new ways come along and destroy the older, less efficient ways. My argument is that the creative part is humming along just fine: it's the protections given to people already doing things that makes the destruction so hard.

As an example, take Twitter. It does something that no one had thought of doing before. So there's no one trying to protect their interests by stopping tweets. Great, so growth happens without constraint and we've yet another set of overblown egos in California. But let's look at Uber by contrast. It's not really all that different: it's an innovation feeding off that invention of the mobile phone, or perhaps smartphone, network. It's really just a new way of hailing a cab.

Six weeks after its debut inside yellow cabs roiled New York’s taxi industry, a cab-hailing app company said Tuesday that it would shut down the service, citing “obstacles and roadblocks” placed before it by the city.

The company, Uber, whose technology helps drivers and would-be passengers find one another, began operating the service last month in more than 100 taxis amid questions about whether the app violated the city’s guidelines, which prohibit prearranged rides in yellow taxis.

Well ain't that a bitch? Or:

That’s not good enough for the D.C. Taxicab Commission, which has proposed new occupational licensing requirements arbitrarily targeting each of Uber’s innovative ideas. Addressing the independence of Uber’s drivers, one measure mandates that each driver contracts through a sedan company that owns at least 20 vehicles. Another requires that each sedan come equipped with a device capable of providing a “detailed written receipt.”

Maybe:

“We got a love letter from the TLC,” Uber CEO Travis Kalanick just told Betabeat over the phone. He was referring, sarcastically, to a statement issued today by the Taxi and Limousine Commission to “remind” medallion yellow cab drivers and owners that the TLC “has NOT authorized any electronic hailing or payment applications (‘apps’) for use in New York City taxicabs.”

A few months later we get:

Despite copious quantities of bickering between the New York City taxi commission and Uber (amongst others), it looks as if said entity is going to give this whole "21st century" thing a whirl. Skift is reporting that the commission voted just moments ago to allow a one- year trial of taxi-hailing apps, with seven members voting "yes" and two abstaining. It's a huge, huge victory for apps like Lyft, Hailo and Uber, and it could very well set the stage for the first major leap in how the cab-hailing process works in a very long while.

In order to get something as simple as a method of getting a cab out to market, you've got to fight through layer upon layer of bureaucracy. Indeed, these companies seem to be having exactly the same fight in every city whose market they attempt to enter.

Your standard issue microeconomist would be able to tell you what is happening too. It's generally known as regulatory capture. Sure, we need some regulations to protect consumers: but what tends to happen is that those regulators get captured by the producers being regulated. They are, after all, the people with the most interest, the most money to make or lose, dependent upon what the regulations are. So, at the very least, they pay more attention. As a result, regulation tends to develop into a cosy little cartel of the current suppliers. And the regulations themselves as a way of keeping out those pesky upstarts with their innovative ideas.

This isn't, of course, restricted to the cab industry:

Netflix has spent over a million dollars on lobbying in Washington, DC, some of which went to pushing through legislation that will allow its users to share their video watching habits on Facebook.

A million on lawyers just so people can share their movie listings on Facebook? That is a bit of a drag on innovation, isn't it?

Or Ikea in India:

Ten Ikea stores are planned over a decade, to be followed by 15 more, as part of a bigger push to enter emerging markets. However, last month officials told Ikea it was only allowed to sell furniture products, and that selling food and drink would infringe on regulations.

Or even whether US companies should be allowed to export all that shale gas.

We've ended up with a world where if you're doing something new then there are few barriers to your being able to do it. But if you've got a better way of doing something old then there's quite an array of regulators and regulations sitting there trying to stop you from subverting the established order of things. At which point it doesn't surprise me all that much that economic growth is slowing down. For it isn't just about new things to do, it's also very much about better ways of doing old things.

Yes, agreed, some regulation is indeed necessary to protect people. But we've managed to create so much of it that we're in danger of returning to a system remarkably similar to those medieval guilds which Smith so vehemently protested against. It's a system where you're allowed to do all the creation you like but don't you dare try doing any of that destruction: and that rather obviates the point of a lot of innovation.

And as a piece of advice to inventors and innovators in the tech space: you'll find it a lot, lot, easier to try and do something entirely new than to roll out a better way of doing old things. A Twittertrap is easier than a mousetrap: the former doesn't have the guild of humane mousetrap manufacturers guarding the marketplace. ®

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