Brett Hutley's Blog » Economics

Developers as Capital

brett — Tue, 06 Dec 2011 14:43:01 +0000

I've just been reading this Forbes article called "The Rise of Developeronomics". The author argues that because increasingly software is the core value proposition that differentiates companies from each other, that software developers are more and more becoming the wealth creators in society. The author recommends investing in software developers as a way of leveraging your own capital. This article builds on an earlier article by David Kirpatick called "Now Every Company is a Software Company".

The article is making the point that programmers are becoming a core economic factor for successful companies, so much so that large companies are buying smaller companies purely for their programming teams. He points out that companies such as Google nurture young programming talent as a strategic investment.

Of course the message is hugely appealing to me as a software developer. My own opinion is that technology is exponentially increasing the potential "value space" for possible investment. For example, consider the introduction of Facebook. With that particular advance in social networking, it opened up all sorts of opportunities for individuals and companies to promote themselves and establish new kinds of dialogues with their clients. With this advance, a large number of opportunities were created, which in turn leads to more specialised development that wasn't possible before the large-scale take up of social networking. Thereby creating a lot more potential work for a larger number of programmers.

If companies don't keep up with the introduction of new technologies, they run the risk of falling behind their competitors. Not only those competitors who are able to utilise technology to make their workers more productive, but also those competitors that make better use of social networks and internet search to gain new customers and retain older ones, and data modeling and analysis to determine new markets and optimise existing ones. It seems to me that not only are developers the creators of wealth, but we are currently living in a technological arms race.

Were the Luddites Right?

brett — Mon, 07 Nov 2011 13:36:14 +0000

The Luddites were a 19th century anti-industrialisation movement (and militia), who believed that their jobs were at risk because of the industrialisation of manufacturing. They proceeded to try and destroy mechanical looms in a vain attempt to turn back the rising tide of industrialisation. These days anyone seen as a "Luddite" is perceived to be backward and anti-technology.

But were the Luddites right about the consequences of technological progress? The Luddite Fallacy states that the argument that technological progress decreases the amount of jobs is fallacious, because increases in productivity does not mean that employers will keep their production constant. Rather, employers will increase their production to suit available demand.

The Economist has a post that points out that the Luddite Fallacy is only a fallacy as long as new technology increases capital, without reducing the need for human labour. But what happens if technology increases the capital and replaces the need for unskilled human labour?

The Luddites may have been a revolution or two short of the mark, springing from the industrial rather than the computer revolution, but maybe they weren't wrong about the long-term consequences of technological progress, believing that it would destroy jobs, and cause greater income inequality. Smashing the looms is obviously not a solution to the socio-economic problems of the structural changes to our society, but neither is burying our heads in the sand.

Race Against The Machine

brett — Sun, 06 Nov 2011 15:52:11 +0000

I just finished reading the Kindle book Race Against The Machine, a book I thoroughly recommend. This was the driver of the NPR article I blogged about recently.
The book is mostly oriented towards the US, although the issues they discuss seem to be prevalent across all major economies. The authors make the case that technological improvements are severely impacting every job market except those for highly-skilled individuals.

They argue, as I have argued, that the current employment crisis is caused by structural factors such as increased productivity due to technology, rather than cyclical or stagnation factors. We are simply living in a world where the educated and skilled are able to contribute to the economy in a disproportionate way, and the less educated/skilled are forced to compete for the fewer and fewer jobs that are currently too expensive to automate. This leads to money flowing from the workers to the owners of the business, which is an unsustainable situation for the long term.

The authors point out that to a large extent, we operate in a "winner take all" society. Technology enables the best and fastest-moving in the business to capture the bulk of a market. That in turn provides a strong incentive for those with capital to further invest in technology, creating a self-perpetuating cycle. Not only is this situation self-perpetuating, but increased capital allows winners a disproportionate advantage in the race to take advantage of another business opportunity.

The positive news is that as we use technology to expand the frontiers of innovation, this will in turn create an exponential increase in the possibilities for further innovation.

GDP per Square Kilometre

brett — Wed, 02 Nov 2011 13:41:46 +0000

Over at EconBrowser, James talks about Geography and Income. He talks about the question of how much economic activity is dependent on geographic location. When you look at a map of GDP density - GDP per square kilometre - it's fairly obvious that the bulk of economic activity in densely populated areas which are near coastal regions.

This map is from a paper by John Gallup, Jeffrey Sachs and Andrew Mellinger in the International Regional Science Review (1999), as linked to from EconBrowser.

Look at how densely an economic region Europe is, with lots of crinkly coastline to aid incoming cargo ships. Obviously one of the primary factors to economic activity is geographic location. What will be interesting is to see how much this changes with technology changes in the future. Will geography be such an important factor in the future?

No related posts.

Prison versus Princeton

brett — Wed, 02 Nov 2011 10:37:12 +0000

I saw this great info-graphic on The Atlantic comparing the costs of prison in the US with Princeton University.

Created by: Public Administration

Peak Stuff

brett — Tue, 01 Nov 2011 14:56:10 +0000

There was an interesting article in the Guardian yesterday about Peak Stuff: Why is our consumption falling?. The Office of National Statistics in the UK publishes statistics about how much stuff is used - the sheer weight of the materials we consume. Currently the UK consumes the equivalent of 30 tonnes for each individual in the country!

What's interesting is that since 2001 the figure has been falling - we have been consuming less stuff as a nation, despite an increasing population size. According to environment writer Chris Goodall; "In 2007, just before the crash, our total use of materials was almost the same as it was in 1989, despite the economy having tripled in size in the intervening years. And the peak in resource use appears to have been in 2001 – many years before the recession halted economic growth". I guess that this is a direct reflection of the increases in efficiency due to new technology. In 2002 the use of energy, heat and power, started to decline. In 2003, the amount of household waste produced as a nation started to fall.

Of Gaps and Grass-Eaters

brett — Wed, 11 Aug 2010 13:12:20 +0000

Are the American people obsolete? Salon argues that because of globalisation and technology there is now a increased separation between capital and labour. The activities that generate wealth have both been outsourced to cheaper shores, and become more efficient because of technology. As a consequence the social contract in Western society between rich and poor - the rich provide the capital while the poor provide the labour - is breaking down. The rich still have capital, but they can now move the production of goods to the East, creating a shortage of jobs in the West.

Philip Greenspun wonders if unemployed people are 21st Century equivalent of Draft Horses after the Industrial Revolution. Is it far more expensive to keep people in work, than automating their jobs, or outsourcing?

Finally; DailyFinance has a story of how the disappearance of the middle class and the increasing gap between rich and poor has affected Japan. Apparently those that have given up on ever breaching that economic chasm and who retreat from society are termed "Grass-Eaters" by the media. Is this a taste of what will happen in the West if this trend continues?

How the Market Cap of Financial Firms has changed

brett — Mon, 14 Sep 2009 16:23:33 +0000

The New York Times has a great interactive graphic on How the Giants of Finance Shrunk, then Grew, Under the Financial Crisis. It's really interesting seeing how, if the Market Capitalization of each firm is represented as an area, the each firm shrinks massively during the financial crisis, and now how the firms are rebounding.

Detroit – Ground Zero for Economic Collapse

brett — Mon, 11 May 2009 10:55:04 +0000

Here is a video showing how badly Detroit has been affected by the collapsing housing market. Towards the end of the video you can see some amazing mansions in the worst-hit areas of Detroit that you can supposedly buy at a massive discount.

Social Collapse – Best Practices

brett — Fri, 20 Feb 2009 18:20:03 +0000

Hmmm.... first I read this transcript from a speech by Dmitry Orlov entitled "Social Collapse - Best Practices", and then I saw on Boing Boing the post How are you coping with Collapse-Anxiety?

The first post describes what might happen if the US collapses in the same way economically as the USSR did in the 1990's. It then goes on to making recommendations about what to focus on - essentially food, transportation, shelter and security. I thought it was fascinating because although I have been thinking for a number of years that the economic situation was going to get bad, I didn't envision quite a collapse of that order of magnitude. As the crisis continues however, the possibility suddenly seems to become credible.

I found the comments interesting in the Boing Boing post. It seems as though quite a number of people were actually starting to find themselves in situations reminiscent of those described in the first post - primarily from posters in the US. Scary.