Tag Archives: technological innovation

How to effectively compensate labor facing technological innovation

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Many social and economics changes generate net benefits, but often there are big losers. The advent and adoption of automobiles led to the demise of horse stables and carriage makers as one example. Most of those workers were able to shift to other jobs, such as at car manufacturers, so everyone largely benefited. But that’s not necessarily true today. Automation is displacing manufacturing employment (much more so than imports [link]) and new well paying jobs are not being created that are accessible to those who lost those jobs. How could we compensate these workers for their lost opportunities?

We protect owners of intellectual property rights such as patents and copyrights from intrusion into their markets with similar products and services. If someone wants to invent a new communication device that uses the existing cell phone network, they almost certainly have to pay Qualcomm a licensing fee for chips that rely in part on the underlying technology invented by Qualcomm. This protects investors from outright appropriation of the economic value that an investor in Qualcomm has created. It also allows Qualcomm investors to share in the economic gains by another company so Qualcomm is much less likely to oppose such innovations.

We could create a similar labor property right that protects the current economic value of workers by giving them a share of the economic gains created by a new innovation. Amazon could pay a portion of its profits as a “licensing” fee to workers displaced by online ordering and deliveries, or Ford workers could receive payouts based on the added profits created by using robots for car assembly. These fees would better align the interests of existing labor with beneficial innovation rather than putting them in opposition.

This proposal also would address the problem of a growing income gap as greater returns accrue to investors. Displaced workers would share in growing wealth rather than being sidelined in search for a job that that they are less likely to be qualified for. In addition, this would reduce the downward pressure on wages created by automation.

The program could be established as a form of universal basic income (UBI) to pay those who are not yet retired a share of society’s wealth creation. Certainly capitalism is greased by creative destruction, but there are many who do not want and are not prepared for the extreme risks that go with rapid innovation. We do not need to give risk-taking investors all of the economic gains to incentivize innovation, and we would likely lessen political opposition to such changes.

Commentary on the “The Road from Serfdom”

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Danielle Allen writes eloquently in the December issue of the Atlantic Monthly in the “The Road from Serfdom” about how too many Americans rightfully feel disenfranchised today and many of the reasons why they feel that way. Her description of how we got here is well worth the read. However, she misattributes the roles of economists (and lawyers) and errors in their recent prognostications on how economic progress would unfold.

Allen blames much of the current economic woes on the rise of economists in policymaking. She talks about how economists superseded lawyers in that role, implying that lawyers were somehow better connected to society. The real transformation happened several decades earlier when lawyers took over from the broader set of general citizenry. Just as she identifies how economists (of which I am one) are trained to think in one fashion, lawyers are similarly taught to think in another way that tends to focus on identifying constraints and relying on precedent. Lawyers are also taught that the available solutions require directives through laws and contentious conflict resolution. Lawyers are rarely instructed in how actual institutions work, contrary to Allen’s assertion–lawyers usually learn that as on-the-job training. In fact, it is economists who developed institutional economics that studies the role of such organizations. Economists arrived to propose solutions that could work through incentives and choice and negotiated solutions. So we traded one set of technocrats for another set. Perhaps we have not done well by either set, but we also should not ignore why we chose those professions guide us.

The mistakes that economists made were not as simplistic as Allen describes. She points to a claim that economists did not understand how disruption would impact specific communities and what two decades of disruption would look like in those communities. As contrary examples, I wrote here about how climate change will impact communities, and about how we need to compensate coal mining communities as part of our reductions in greenhouse gas emissions, and even the shaky foundations of benefit-cost analysis.  Instead economists did not foresee two important transformations since the 1970s. (Economists made a similar mistake after the fall of the Berlin Wall, failing to acknowledge that markets need well functioning institutions and laws to facilitate beneficial transactions.)  The first was that agglomeration of knowledge industries (technological and financial) would be so geographically intensive and that these industries would accrue so much wealth. The second was that Americans would become so much less mobile, both geographically and socially. There are many social and policy factors that have led to these trends, but these stories are much more complex than Allen describes. No one could have foreseen these unprecedented changes that have shattered the lives of too many people that have remained behind in communities emptied of economic purpose.

That said, identifying the rise of the ideologies of Nobel Prize winners Friedrich Hayek and Milton Friedman (who were economists) as a key source of our conundrum is accurate. Allen does not discuss the parallel rise of the fantasies of Ayn Rand that fueled the mythologies of Hayek and Friedman. Rand’s work was a surprising path for spreading those ideologies, particularly given how bad her writing was. We now have a core of elites who believe that they somehow are “self made” with no outside help and even overcoming the “parasites” of society. That will be a difficult self image to overcome.

Technology and a running breakthrough

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On one weekend in October, Kip Kipchoge ran the first sub-two hour marathon, and Brigid Kosgei broke the women’s record. These races, and a spate of others, were won with versions of the Nike Vaporfly that apparently adds at least a carbon fiber plate and returns 4% to 5% more energy to a runner’s stride. (I have a particular interest in this sport, having set a some school records and trained with an Olympic medalist.) The media reaction has generally been to call for some sort of limitation on the use or development of the shoes.

I view these shoes as just another technological innovation on the continuum in track & field that stretches back to the first spiked shoes to starting blocks in the 1930s (Jesse Owens dug holes in the track) to fiberglass poles (that work much like these shoes) to synthetic tracks (which catalyzed the world record onslaught in Mexico City). We can’t imagine the sport today without these innovations. Of course, there also has been the unwelcome use of performance enhancing drugs (PEDs – think steroids) that threaten athletes’ health. The question is how should we decide what innovations are acceptable and which go to far or give an unfair advantage.

I propose that we use two criteria (which are consistent with the IAAF’s current rule):

  1. Is the innovation widely available at an affordable cost? While some of the past innovations had limited availability, that usually was for a short period. Most were available to all competitors as a specific competition and spread from there.
  2. Can the innovation create physical harm, either immediately or at a future date? PEDs are the most salient example of an innovation that fails this test. In the case of PEDs, that certain individuals decide to take on the health risk forces other athletes to take on the same risks if they want to be competitive.

Swimming faced a similar existential question when the LZR suits a decade ago. FINA effectively banned that innovation, on the basis that the suits added undue buoyancy.

The Vaporfly doesn’t appear to add any outside aid–it just makes the shoe more effective at returning the energy put into it. It’s just a step further in the long trail of new tracks and shoes that have made runners faster. At the heart of improving athletic performance is new technology, sometimes in new products and sometimes in new training methods. So on that basis the new shoe should be allowed.

But the other key question remains–will the technology be widely available at a reasonable cost? Nike holds the patent and has not announced whether it will license it to other manufacturers. If Nike decides that it will only allow runners that sign agreements with the company can wear the shoes, then the shoes should not be allowed. Such exclusivity clauses can lead to damaging the sport in other ways, such as narrowing the sponsorship base.

This issue highlights a larger problem in our world economy–the rise of the dominance by intellectual property owners. Patent and copyright laws are a core cause of the undue accumulation of wealth that has characterized the last four decades. It’s not clear why Walt Disney’s great grandchildren should still be benefiting from Fantasia 80 years later. Drug patents block important innovations, and may even be suppressing research and development. Does such longevity really incent innovation?

Nike’s control of this new running technology, while in a seemingly frivolous pursuit, highlights this issue as a society-wide problem.

Two parts to these questions: First, do you think that this technology breakthrough should be barred from running competition, and why? Second, do you think that current intellectual property protections are too strict and lead to undue accumulations of wealth? Let us know your thoughts and add any useful references.

 

 

Misunderstanding the Green New Deal

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The media and the public appears to have confused the Green Party’s platform calling for 100% renewable energy by 2030 with the goals in the Joint Resolution for a Green New Deal introduced by Senator Edward Markey (D-MA) and Representative Alexandria Ocasio-Cortez (D-NY). The Joint Resolution calls for a “10-year national mobilization,” but contains no deadlines other than zero greenhouse-gas emissions by 2050, which is 30+ years from now. Given that we went from horse and buggies and wood stoves to widespread automobile use and electrification in 30 years at the beginning of the twentieth century, such a transformation doesn’t seem imposing.

Mismatch in job openings and the unemployed

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Evidence of how job training is lagging behind job needs. The U.S. Labor Department reported 7.3 million openings, but only 6.3 million people were actively seeking jobs and unemployed. Employers are not able to find the technically-trained individuals that they need for the changing economy. Only a small portion of this shortfall can be met through training in our standard educational institutions. We should be looking for other retraining solutions such as those in Europe.

Comment on “Renewables May Become the Netflix of the Energy Sector” | Greentech Media

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The analogy to Netflix is fascinating. As GTM points out, Netflix started out competing with Blockbuster in video DVDs, but then spilled over into video streaming (BTW, a market that Enron famously thought it could corner in the last 1990s.) So Netflix is now competing with both cable and broadcast companies. One can see how renewables could jump out of just electric service to building space conditioning and water heating, and vehicle fueling. Tesla is already developing those options.

Source: Renewables May Become the Netflix of the Energy Sector | Greentech Media

Clean energy too big to be shut down by Trump – San Francisco Chronicle

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I’ve been struck by the lack of panic in the energy industry about President Trump’s decision. This article goes into that underlying confidence that the momentum appears unstoppable.

WASHINGTON — President Trump’s decision to abandon the Paris Accord will slow the battle against climate change in the U.S., but there’s too much momentum in the nation’s clean-energy economy to shut it down, energy experts say.

Source: Clean energy too big to be shut down by Trump – San Francisco Chronicle

Problems with “Residential storage can undercut benefits of rooftop solar, says new study” | (A response to a Utility Dive article)

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A new study in Nature Energy finds storing rooftop solar can increase emissions and energy consumption.

My thoughts: Here’s the key statement for the finding in this report: “based on today’s Texas grid mix, which is primarily made up of fossil fuels.” If the either the marginal generation on the grid is low or no GHG (e.g., renewables overgeneration which is an increasing problem in California) or the connection to the grid is cut or restricted (e.g., in a microgrid), then this premise doesn’t hold.

This study relies on fossil fueled generation being the marginal energy source. It also focuses solely on operational changes with existing resources. The appropriate frame is looking at the change in generation investment with and without storage, so for example more renewables become cost effective with storage so the overall generation mix changes.

The second problem is that most of the production cost models are yet incapable of capturing reduction in flexible capacity use. That’s why the California Energy Commission has had DNV and LBNL working on modeling those resources. So the emission savings are underestimated.

The third problem is that savings in residual unit commitment (RUC) is underestimated in the models. These are gas units running on standby with no-load, to be available the next day for ramping, load following or reliability. Storage reduces the need for these resources as well. NREL recently released a study on the value of storage that captures this benefit.

If these findings are valid, then the existing Helms pumped storage plant is also increasing GHG emissions. One could go so far as to say that the value of pondage hydropower storage may be so diminished that relicensing conditions that require run of river operations may have little effect on costs and GHG emissions.

Source: Residential storage can undercut benefits of rooftop solar, says new study | Utility Dive