Thursday, November 27, 2014

The Mismeasure of Technology

CAMBRIDGE – There is nothing better than fuzzy language to wreak havoc – or facilitate consensus. Ludwig Wittgenstein argued that philosophical puzzles are really just a consequence of the misuse of language. By contrast, the art of diplomacy is to find language that can hide disagreement.

One idea about which economists agree almost unanimously is that, beyond mineral wealth, the bulk of the huge income difference between rich and poor countries is attributable to neither capital nor education, but rather to “technology.” So what is technology?

The answer explains the unusual consensus among economists, for “technology” is measured as a kind of “none of the above” category, a residual – Nobel laureate Robert Solow called it “total factor productivity” – that remains unexplained after accounting for other production inputs, such as physical and human capital. As Moses Abramovitz aptly noted in 1956, this residual is not much more than “a measure of our ignorance.”

So, while agreeing that technology underpins the wealth of nations sounds more meaningful than confessing our ignorance, it really is not. And it is our ignorance that we need to address.

In an important book, W. Brian Arthur defines technology as a collection of devices and engineering practices available to a culture. But devices can be put in a container and shipped around the world, while recipes, blueprints, and how-to manuals can be posted online, putting them just a few clicks away. So the Internet and free trade should make the ideas and devices that we call “technology” available everywhere.

In fact, much of modern growth theory, starting with Paul Romer’s research in the late 1980’s, sprang from the idea that output was driven higher by ideas that are hard to come by but easy to copy. That is why inventors have to be protected by patents and copyrights or subsidized by governments.

So, if ideas are easy to copy and devices are easy to ship, why do differences in “technology” persist between countries?

When something upsets a beneficent natural order, humans crave for stories featuring some malign force. For example, the argument in Daron Acemoglu and James Robinson’s book Why Nations Fail is essentially that technology does not diffuse because the ruling elite does not want it to. They impose extractive (bad) institutions, instead of adopting inclusive (good) institutions; and, because technology may upset their control over society, they choose to do without it.

As a Venezuelan who is seeing his country collapse at this very moment, I do not doubt that there have been many instances in human history during which those in power have prevented progress. But I am also struck by how often governments that embrace the goal of shared growth – post-apartheid South Africa is a good example – fail to achieve it.

Such governments promote schooling, free trade, property rights, social programs, and the Internet, and yet their countries’ economies remain stuck. If technology is just devices and ideas, what is holding them back?

The problem is that a key component of technology is knowhow, which is an ability to perform a task. And knowhow, unlike devices and ideas, neither involves nor can be acquired through comprehension.

The tennis champion Rafael Nadal does not really know what it is that he does when he successfully returns a serve. He just knows how to do it; putting it in words is impossible, and any effort to do so would not make the rest of us better players. As the scientist and philosopher Michael Polanyi would say of such tacit knowledge, we know more than we can tell.

So we do not need extractive elites or other evil forces to explain why technology does not diffuse. Technology has trouble diffusing because much of it requires knowhow, which is an ability to recognize patterns and respond with effective actions. It is a wiring in the brain that may require years of practice to achieve. This makes its diffusion very slow: As I have argued previously, knowhow moves to new areas when the brains that hold it move there. Once there, they can train others.

Moreover, now that knowhow is becoming increasingly collective, not individual, diffusion is becoming even slower. Collective knowhow refers to the ability to perform tasks that cannot be carried out by an individual, like playing a symphony or delivering the mail: neither a violinist nor a letter carrier can do it alone.

Likewise, a society cannot simply imitate the idea of Amazon or eBay unless many of its citizens already have access to the Internet, credit cards, and delivery services. In other words, new technologies require the previous diffusion of other technologies.

That is why cities, regions, and countries can absorb technology only gradually, generating growth through some recombination of the knowhow that is already in place, maybe with the addition of some component – a bassist to complete a string quartet. But they cannot move from a quartet to a philharmonic orchestra in one fell swoop, because it would require too many missing instruments – and, more important, too many musicians who know how to play them.

Progress happens by moving into what the theoretical biologist Stuart Kauffman calls the “adjacent possible,” which implies that the best way to find out what is likely to be feasible in a country is to consider what is already there. Politics may indeed impede technological diffusion; but, to a large extent, technology does not diffuse because of the nature of technology itself.

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    1. CommentedArmando Azpurua

      History, traditions, popular culture, idiosincracies, all determines how technology, particularly know-how, is accepted and difused. Earning money, in the U.S., is highly respected. In Venezuela, inheriting or stealing from the Government is more respectable. Who you know is more important than what you know. We are a rich country of poor people.

    2. CommentedMaría Eugenia Sáez

      Chávez presided over the great transfer of High Tech knowledge to the people of Venezuela, taking the monopoly away from the international banking elite. Venezuelan children were the biggest beneficiaries —they receive a free laptop in public school—, and the country has achieved the top rate in interconnectivity in Latin America —this recognized by even the most reactionary sources. Hausman works in tandem with Moses Naim, another Venezuelan banking expert. Very Harvard, Ricardo, but no, you won't Wittgenstein this Venezuelan!

    3. CommentedFernando Ferreira

      "If technology is just devices and ideas, what is holding them back?..."
      Interesting piece to check with the observable catching up process since WW II fueled by globalization in spite of traditional obstacles like physical geography, geopolitics, cultural barriers, ....

    4. CommentedRonald Havelock

      The Nadal example fails to serve its point. His serve is not magic. It can be filmed and analyzed from any angle and then replicated by another player who absorbs that knowledge. That is the very nature of problem-solving as it moves from mystery to careful observation and then to discovery and advanced science-based know-how. This is the sure way to progress in any field including politics. For example, it is very important to carefully study what happened in Venezuela to descend from a fairly successful , if excessively petroleum-based-state with a seemingly vibrant middle class to the failed state that it is now. This is an alarming phenomenon which deserves the most careful and exhaustive empirical study before we can settle on what might be the appropriate countermeasures. "Tacit knowledge" is just ignorance, or, if you prefer, statistical error. Economists must find a way to incorporate the advancement of scientific knowledge and its resulting spread of economy-expanding technologies into their theories or they will continue to fail.

    5. CommentedRonald Havelock

      The missing element might be "connection." Successful development seems always to be connected to having useable and safe trade routes, be they a good road network, or a merchant fleet, or nowadays an electric grid, and tele-connectiveness of all kinds, internet, telephone, microwave, radio, etc. Connectedness builds and diffuses knowledge which spurs new technologies which create wealth and disperse wealth.

    6. CommentedKlaus Jaffe

      Ricardo certainly presents an interesting view on a fundamental question. I agree completely with him that in often “power have prevented progress”. I see however more complex relationships based on this truth. For example, I believe that it was Ricardo's excessive arrogance as minister of a Venezuelan government with a total disregard of the fate of the common citizen, that opened the door to Chavismo and lead to the present economic collapse of Venezuela's economy. Arrogance hinders economic progress whereas an attitude based on scientific humility promotes it. See

    7. CommentedJose araujo

      Hausmann reveals again to be a master of fallacy and demagogy, he starts by a simple apparent unquestionable claim, almost stating the obvious fact.

      “economists agree almost unanimously is that, beyond mineral wealth, the bulk of the huge income difference between rich and poor countries is attributable to neither capital nor education, but rather to “technology.” “

      I’m an economic scientist, and I don’t quite remember from the top of my mind any economist that has ever made a serious effort to explain the difference between rich and poor countries, and from those the ones advocating for technology has the difference between the wealth of nations.

      We, all economists, and general public should know that wealth of nations is very hard to explain, and that no model or argument has ever been built to explain it. The economic science is still trying to move from static to dynamic equilibrium, asking it to explain why a country is rich and other country is poor is asking too much.

      But Hausmann states it has obvious and unanimous, and then moves from that to say that we don’t know what technology is and that we should address our ignorance, an proposes the concept of tacit knowledge to help us.

      Well, one other poster pointed to the obvious, by showing that we were just replacing one form of ignorance, the technology concept, by other, the tacit knowledge concept. I’m not going into that discussion because most important is why is Haussmann using tacit knowledge and know-how to explain the difference in the wealth of nations.

      After setting up the stage, Haussmann leads to the reader to draw the obvious conclusions, that progress and wealth are incremental steps and another little step would be requires to conclude that progress should be built upon the existing tacit knowledge of a country, which is naturally help by the elite of the country, since it is tacit knowledge that explains wealth, rich people should be the holders of this knowledge.

      Adds to the fact, that not even wealthy people can explain why they are rich, for Haussmann it’s like Nadal returning a serve, its some kind of god given talent that makes them rich, and the rest of the people poor. Forget about replacing institutions and promoting sound economic reforms and regulations in order to promote wealth, it’s all about technology and tacit knowledge, and incremental spread of technology within the group of people anointed with the godly talent of tacit knowledge

    8. CommentedNitin Pandit

      On the dialogue between Jonathan Perraton and Ricardo Hausmann... I would follow good ol' Aristotilian syllogism to guide us in what is individual tacit knowledge for a start. Deductive reasoning is the easily codified part. Inductive reasoning is that which comes from experience and is still codifiable. What is the risky part is the abductive reasoning... where one needs to take a leap of faith in some sense... That is what Rafa Nadal does when he adapts to serves that vary slightly every time... and only he knows how. I would call that tacit.
      But beyond that, the bigger issue is what is tacit knowledge when it comes to collective reasoning. Perhaps like tennis players, we should just let societies do it, i.e., adopt technologies the best they can/will. Some will do it better than others... just as there is only one Rafa, and one Roger, and one Djoker. In that sense, I suppose in the world of the internet, it is more useful for innovators to drop their minimalist patents and focus on socialising their technologies. And about patents... another time...

    9. CommentedDallas Weaver, Ph.D.

      Many decades ago, I noted as a new scientist/engineer in So. California that every decade or so aerospace fired about half their workforce. This was hell for the individuals, but I noticed that it forced these scientists/engineers into new area where thermodynamics and heat transfer theory from rocket engines could be applied to silk screen T shirt production. Control system theory for fighter jets could be applied to automated manufacturing, etc.

      This was horrible for the individual families but excellent for the whole area creating whole new business areas to the point where we no longer depend upon aerospace.

      Blocking knowhow manifestation is much easier that increasing knowhow diffusion. Existing interests can/will block innovation that can harm them. Regulators want to expand control over innovations to increase their power. Being innovative is not socially cool and you will be shunned by the women. Envious people and members of the political class don't want change.

      Look at the forces that limit knowhow diffusion may be more productive. In particular rigging the system to protect the existing politically connected is very dangerous.

      Like real physical diffusion, speeding up knowhow diffusion may require upping the temperature by cutting benefits, subsidies, incentives, etc. to the existing politically connected. That may mean junking everything from sugar subsidies to the Import/Export bank. This would up the temperature and create innovation.

      The concept of punctuated equilibrium in evolutionary theory may be relevant, where you get fast change and adaption when the system was upset and then it slowly evolves until the next upset. Upsets can be created to drive the process and innovation, but many existing dominant groups will no longer remain dominant.

    10. CommentedJonathan Perraton

      Interesting, but I am not sure the tacit knowledge route helps much here. There's problems with plausibility - it sounds reasonable but an awful lot of things are somehow assumed to be tacit, with no obvious evidence or justification. More fundamentally, it's the same problem recurring - calling something tacit knowledge essentially amounts to providing a label for ignorance. Jonathan Perraton and Iona Tarrant, 'What does tacit knowledge actually explain?', Journal of Economic Methodology, 2007

        Portrait of Ricardo Hausmann

        CommentedRicardo Hausmann

        Hi Jonathan: Nice piece. Thanks for referring me to it. You argue that too many things are assumed to be tacit when they are not (meaning that they are codifiable instead). I don't believe that these two concepts refer to similar ontologies. Knowhow is a wiring in the brain which is fundamentally an induction machine as argued by Jeff Hawkins. You unconsciously see patterns as similar to patterns in memory and respond through actions accordingly. Most of this process does not involve awareness. Codes have a completely different ontology. They may exist on paper, on screen, etc. Codifiable knowledge may facilitate the transfer of knowhow to a brain but as a kind of trick. Like when you learn a second language by trying to memorize the grammar rules of that language. It may make your learning initially easier, but once your induction machine becomes wires your brain never uses the trick again, except when in doubt. So I think that knowhow and codifiable knowledge are just two very different kinds of things and calling both knowledge facilitates the blurring of the fundamental distinction.

    11. CommentedMarc Laventurier

      Took me a while, but I think I finally get it: technology = capitalist culture, measured by conventional economic metrics, represented as 'growth' and 'progress' (which, by the by, might contradict Kauffman's neopantheism.)

      So Maylaysia's Bumiputra laws insulating the majority native ethnic group from being overwhelmed by the traditional commercial orientation and skills a of a sizable and 'invasive' Chinese culture are perverse and self defeating. (Could be - I found Malaysia a pretty strange place when I traveled there in the '70s - a weird psychological alloy of authoritarianism and superstition, like the American south, or Harvard...)

      Perhaps the classic case would be Palestine, where skills honed through centuries of adversity were concentrated against an indigenous population in a modern context, such that no legal, political, technological or other strategy or manipulation was ethically out of bounds. But they 'let the desert bloom', and isn't that what it's all about?