On second hand cars, in 2002 or thereabouts, the Productivity Commission recommended that the prohibitive tariff on second hand cars remain, that we subsidise the industry – roughly as we now do – all in order to reduce tariffs down to 5% which will probably generate more costs than benefits. So much for economics. Over the fold is the PC’s explanation for why we should prohibit the import of second hand cars.

To prevent “undue disruption” (This is from memory, but I’m in a hurry. Hopefully someone can look up the specific words used.).

Writing these reports is frequently difficult, but Finkelstein and Ricketson have a particularly intriguing task. It’s more difficult because they clearly want to rein in a few of traditional media’s worst excesses – and they want to do it just at a time when that traditional media is shrinking in importance in the face of an Internet-driven explosion of information availability:

1. Finkelstein and Ricketson have to examine what the terms of reference call “the effectiveness of the current media codes of practice in Australia”. That’s tough enough on its own, because it’s hard to think of a more effective system which isn’t also more restrictive of freedom of speech. The head of Curtin University’s journalism department, Dr Joseph Fernandez, has made this point well – see the transcript of his evidence here. Fernandez perhaps understands these issues clearly because he spent 14 years editing newspapers in Malaysia, a country where editors face real experience of freedom-of-expression issues.
2. They must examine the codes of practice “in light of technological change that is leading to the migration of print media to digital and online platforms”. Their problem here is that technological change is leading to an explosion of content that undermines the case for even existing restrictions on publishers. This is a point that Ian Rogers and I have tried to make at length in WorkDay Media’s submission to the inquiry. Traditional media had a level of oligopoly power over information distribution. These days anyone can publish. There is no longer any such thing as “the media” – rather, there is a huge and messy range of information forms, sources and channels with different levels of reach, frequency, engagement, audience trust and motivation. This is great for citizens: the “marketplace of ideas” has never been closer to being fully realised. But it’s bad for traditional publishers – and for aspiring regulators.
3. They must assess “the impact of this technological change on the business model that has supported the investment by traditional media organisations in quality journalism and the production of news”.  For anyone who pulls the economics of media apart, the answer is pretty obvious: printed newspapers mostly won’t survive. They are losing advertisers and readers to a fundamentally more attractive and efficient Internet. The media analyst Roger Colman calculates that “all metropolitan newspapers in print editions will be unprofitable, definitely, by 2020″. But a surprising number of people don’t want to say this. And if Finkelstein and Ricketson do say it, they will instantly raise the question: “so why are we bothering about extra regulation of print media now?”.
4. They must figure out how investment in quality journalism ”can be supported, and diversity enhanced, in the changed media environment”. This is an interesting question. But as Ian Rogers and I have argued, the answer is less obvious than many people think. The media and those who analyse it are constantly in danger of over-estimating traditional print media journalism’s contribution to the world, and underestimating the benefits of the information availability explosion which the Internet is bringing us.
5. They must look at “ways of substantially strengthening the independence and effectiveness of the Australian Press Council, including in relation to online publications”. The ABC’s Jonathan Holmes has predicted that the inquiry will push from a stronger Press Council with more powers and a much broader remit. And that will bring us back to the inquiry’s fundamental problem: it seems to want a more activist government media body just at the time when technology is making traditional media of all sorts less dominant and undermining the case for media regulation.
6. They will feel pressure to come up with a solution that fits in with the interim report of the Convergence Review, which has decided the inconsistency of Australia media regulations should be addressed by a system of regulating equally all members of a vaguely-defined group called “content services enterprises”. These firms’ content would be subjected to a public-interest test. The firms covered would include television, radio, newspapers and online outlets – which means print and online journalism would face new restrictions. Finkelstein and Ricketson are at least awake to the freedom-of-expression minefield that such a law would sow. As Jonathan Holmes again points out,  the convergence review’s authors seem largely, weirdly, oblivious to the whole issue.

The Independent Media Inquiry could sensibly suggest that a voluntary body provide reputation indicators for online and offline media. That’s the solution recommended by Monash University’s Dr Johan Lidberg. (The Council could also make it easier for small online media organisations to join.)

But if the inquiry recommends the Press Council or a new media super-regulator starts regulating a much wider group of reporters and commenters, and government follows that recommendation, three things will happen. The council  will be quickly overwhelmed, it will be forced to make impossible judgments, and it will eventually become a joke.

[Update: An hour after first posting, I gave in to the impulse to properly honour Lewis Carroll by adding a sixth point, on the Convergence Review.]

One thing I think about whenever I sit in a tram waiting for cars that shouldn’t be holding up the tram to stop holding up the tram is that trams should have a video cam on them and drivers could have a button that either activates the cam or marks the spot at which it is running and if the car was breaking the road rules it gets a ticket. Improves efficiency and brings in a bit of revenue. What’s there not to like. Anyway, the same idea has been proposed various times in the past but has never managed to be implemented. I don’t know why. But as is so often the case, technology’s capacity to decentralise these decisions is leading the way – with bicycle cams as illustrated above. Handy in court cases.

But it’s not all one way. There’s at least one person who’s heading into the bureaucracy – the great Pia Waugh who has been the great Kate Lundy’s staffer for three years.

A bundle of optimism, positivity, equanimity, creativity and capability.

So public sector, I hope you know how lucky you are.

Tim O’Reilly proposed the slogan “Government as a platform” for his Government 2.0 activities which he’s heavily scaled back in favour of more lucrative opportunities. But there was always a problem. That problem was that it wasn’t so much that no-one had ever had the idea that government might be an enabling resource – a platform in the lingo of Web 2.0. The real problem is that government has no culture of this. Departments are proprietorial and secretive and that’s a tenacious culture which is prevented from evaporating by lots of expectations and structures.

But there is one part of government that has cultivated the culture of ‘Government as a platform’ since its inception around a century and a half or so ago:  The GLAM sector – that’s galleries, libraries, archives and museums. I couldn’t help noticing when doing the Government 2.0 Taskforce that the GLAM sector were up and at it long before anyone else. The National Library had its newspaper digitisation program and Seb Chan from the Sydney Powerhouse Museum was on our Taskforce and instrumental in getting us to run a mashup competition – and likely instrumental in getting the Powerhouse to become the first museum anywhere in the world to post its historic photos on Flikr and licence them Creative Commons. Seb’s unit built the mashup of baby names in NSW which is fascinating to play with.

I also learned about all the problems the national and state libraries were having getting rights to archive web content that were analogous to their rights as libraries of record to receive a copy of all publications in their jurisdiction from publishers. If they had such rights all they would need would be a robot to go and collect the material and Bob’s your uncle. In fact without this, much of their efforts involve sending people letters to ask their permission to archive their sites. I discussed with various people in libraries of record having such rights which certainly made sense to me.

Anyway, they still don’t have such rights.

Meanwhile . . . they are certainly keen on their rights to printed material as you will observe from this letter I received from the Victorian State Library this week (I might add that The Victorian State Library is a terrific organisation, which I am very fond of, but even terrific organisations do really silly things):

The State Library of Victoria tries to collect a copy of all books, videos, CD’s, CD-ROMs, pamphlets, periodicals, newspapers and any other items published in Victoria for permanent preservation in the Library.

To help us in this endeavour, legislation was passed in 1869 requiring publishers to deposit free of charge with the library a copy of every item published in Victoria. Current legislation is contained in section 49 of the Libraries Act 1988 (see enclosed leaflet).

Recently the following publication came to our notice.

The economic value of Australia’s investment in health and medical research: reinforcing the evidence for exceptional returns. 

We look forward to receiving a copy of this publications (sic), as well as any other publications you might not have previously sent us for legal deposit. Please follow the enclosed legal deposit instructions when forwarding publications.

This is really silly. In fact Lateral Economics is not the publisher of this ‘book’.  Our client was Research Australia which published it on their website (pdf). It’s true they distributed a few copies to the conference where the report was launched. But it’s not a ‘book’ and it wasn’t ‘published’.  And it would be a lot cheaper and a lot safer as far as preservation goes if the State Library downloaded the ‘book’ from the website where it reposes and archived it rather than spending a lot of money sending silly letters to people.

I got a similar letter from The Australian National Library about a number of other Lateral Economics studies all of which are freely downloadable on the internet.

What became of it? Nothing much in a policy sense. But the states did band together in a political exercise to resist John Howard’s soft climate change denialism and it was politically successful, and was a good stroke of policy because it meant that, coming into national government they were about six months ahead of the pace with the Garnaut process.

Otherwise, I don’t think anything much happened, though I’d be happy to be corrected below.

Meanwhile the newly Liberal Governments of NSW and Victoria have announced a reform partnership.  The public material is full of fine sounding intentions, though I expect it’s too early to see what comes out of it. But the fact that they occupy 57 percent of the Australia economy is significant.  Whatever they can agree to harmonise between themselves, and this seems a major focus of the activity, would create quite a strong ‘attractor’ for others to copy. And it does seem that they got the idea of doing something together a little quicker than their ALP counterparts.

Some time ago the PC tried a bit of online engagement, but it had all the usual ‘run by the IT department’ problems and didn’t go anywhere. I discovered with some excitement the unit in the Victorian Bureaucracy which was built in the mould of the PC and which I think is doing a pretty good job was getting into the same game.

Alas VCEConnect is the usual disaster.

VCEC’s original discussion starter on state reform – consists of a single unsigned question asking whether people agree on the three priorities in the draft report.  There’s one comment.

Then there’s a thread on another inquiry into education reform. It asks “In your view, what are the key areas the Victorian Government should focus on? And, more specifically, what actions should the Government take in these areas?” There are two comments.

That’s it. Both posts were put up in November.

If I were asked what I think of VCEConnect I would borrow from Mahatma Ghandi when he was asked what he thought of Western civilisation.

I think it would be a good idea.

The paper argues this.

We may look down on other animals, perceiving that they have a biased and limited understanding of the world, but somehow assume that we don’t have analogous biases or limitations that we cannot somehow overcome. Surely this is merely another example of anthropocentric arrogance. That we have had some notable successes at understanding our world and even a systematic set of approaches that has been shown to be useful is not sufficient evidence to assume a lack of limitations and biases.

This astonishing assumption takes many forms in philosophy and discussions about the scientific method. One such is that somehow simplicity is a guide to truth. That is, that simplicity in a model or theory has advantages other than the obvious pragmatic ones (pragmatic virtues are such as: being able to analyze/solve it; being able to have good analogies with which to think about it; needing less data in order to parameterize it; and being able to compute it).

Another version is that everything somehow must be simple if only we can find the right way of looking at it, or formalizing it. It is true that frameworks such as Newtonian Physics are relatively simple (though I doubt many in Newton’s time would have thought so), and using this, many useful models and reliable predictions can be obtained. . . .

I am not going to spend time arguing the above points here. Rather I will consider the case under the anti-anthropocentric assumption, that much of the world around us is organized in a way that is beyond adequate modeling in a sufficiently simple and general manner for us to cope with. . . . Under this, admittedly pessimistic, view the phenomena that are simple enough for us to understand in a scientific manner are the exception – the exception to be sought and struggled for. Under this view, we should make the greatest use of the strengths we have, and seek to acknowledge and mitigate our limitations. Under this view a “Science of Complexity” makes no more sense than a “Science of Non-Red Things”, since both red objects and simple systems are the exception rather than the rule.

Why is it that we can see political benefits from the hyper-connected world produced by Web 2.0 in undemocratic countries but no big apparent improvements in democratic countries?

One reason I think is that the low hanging fruit of democracy is all conceptually simple – or relatively simple. It may be politically impossible (and the politics of emerging democracy may be very conceptually difficult), but conceptually the building blocks of moving from autocracy to greater liberality and democracy are straightforward. One needs to build the rule of law and strengthen people’s rights to expression and political power.

So if you’re in a highly corrupt autocracy it’s pretty easy to figure out what needs to be done. And the new technologies help you express your need and, with luck, meet it through political action of various kinds.

In the West we’ve got all that. There would be plenty of ways for the new technologies to help us figure out what to do in various situations, but all the simple (liberalising) rules are already well represented in the debate.  Indeed one might argue that the our preoccupation with the ‘free market’ v ‘intervention’ dichotomy is that the former pole is one of the only simple and general principles we know about government, and we’re not so confident of our ability to successfully know what to do when we intervene with policy.

In any event one response to this dilemma is Hayek’s which is to set out some set of rules intended to define an end state – which is implicitly good for all time in politics. Another (more empirical, conservative and less ‘rationalist’ and what a Marxist would call a less ‘idealist’) approach is to accept the existing political settlements and the principles that emerge from them – which will contain their share of the same kinds of principles (like “don’t interfere with people’s liberty without good reason”). But then one would expect that over time one can build institutions (I meant this word in its broadest sense) to finesse the way those principles are applied in different circumstances.

But for that to happen, you need some system of aggregating experience and learning from people with good judgement and knowledge on the scene. That’s difficult enough at the best of times, but a lot more difficult when one’s system of deliberation like ours which is oriented towards entertainment, the expression of grievance and the cultivation of a sense of entitlement from all and sundry. I’m not, by the way suggesting I have any bright ideas as to how one might reconstruct our culture of deliberation. I’m just trying to articulate a problem. I’m grizzling :)

Anyway I recently sought to track down the results of Obama’s less than spectacularly successful community brainstorming on open government when he came into office. (The top two suggestions for promoting open government were legalising marijuana. The other big thing was releasing Obama’s birth certificate.) Anyway I emailed an American friend who’d been in the White House at the relevant time – now back in academia – asking for any write up of the program and she told me there was one in a 2009 annual review of operations.  But it’s gone from the website and no-one has been able to find it in a couple of weeks. This is 2009!

For another project I was also looking up the old Power of Information Taskforce in the UK.  Here’s Tom Steinberg’s blog entry announcing its release.

I’m delighted to announce that the review I’ve been working on with Ed Mayo and the Cabinet Office has launched today. You can get the official PDF version here or my friend Sam Smith’s annotatable version that he just threw together.

I clicked on the first link and it went through to here.

http://webarchive.nationalarchives.gov.uk/+/http://www.cabinetoffice.gov.uk/publications/reports/power_information/power_information.pdf

Which was promising. It said this.

Object moved to here.

Alas, it wasn’t there either and I was diverted to a Cabinet Office Page Not found signal – as you can see for yourself if you want to click on the link.

Meanwhile one of the things that the Power of Information Taskforce and Review did was to publish using commercial blogging platforms. And everything using that remains safe and sound. “Sam Smith’s annotatable version” that Steinberg says Sam “threw together” refers to on his blog is still there, safe and sound. Likewise the Government 2.0 Taskforce published to its own url using Wordpress software, and it’s still there too, it’s cost to government would be the same as the cost of Troppo to those of us who run it – the cost of the domain name registration, which is about $30 a year or something, though the cost to government of maintaining the UK’s Power of Information review, which is a sub-domain of wordpress.com is exactly zero.

So it still eludes me why, with all the resources to hand, governments make it quite so difficult for themselves.

What a load of old sensationalist nonsense. I’m seriously starting to worry about Giz. If I want to search anonymously there is a thing called an anonymous tab. And I don’t log into my Google account outside work because why would I? – My phone is logged in.

That’s how the first commenter responded to this piece in Gizmodo accusing Google of being evil because it – wait for it – shares identity information between functions. That’s right, Gmail can now share information with Google search with Google + and on it goes.

This is supposed to be some attack on our privacy. Well there are very nasty things Google can do to harm my privacy. Those things would be telling other people things it knows about me that it could reasonably expect that I might not want them to tell them.

But it doesn’t do that. It is just using all the data it has to further improve improve the adds and other services it provides me. WTNTLAT? *

My point is, as I said here, privacy law, and privacy activism should be focused wherever practicable on stopping conduct that actually threatens privacy – ie where that information is provided to agents other than the one that has the information in the first place. It always pissses me off when I have to wait to be read some stupid thing which tells me my voice is going to be recorded “for quality purposes”. If it’s for training purposes they can protect my privacy by making sure the recordings don’t get leaked and by destroying them after the couple of weeks it was necessary to hold them to use them for the entirely benign purposes of quality control.

And remember, although Google is probably mostly thinking of optimising advertising here . . .

1. making advertising relevant is a source of considerable value to the world and
2. there are lots of other ways that the data might be able to be used to simply provide improved services to people – such as search, prompting connections with others, or with information of relevance to users, task management and all the other things that I can’t think of.

So broadly speaking, and with the caveat that I’ve not researched all this in great depth, I submit these views to you O Troppodores and Troppodillians.

* “Define: WTNTLAT” doesn’t generate any answers in Google, so we’re on the ground floor here Troppodores. This could be Troppo’s big break – our own little footnote in the English language, our own corner of the universe.

As he was wheeled around on the emergency ward trolleys, Kristian filmed the whole experience with the video camera he had concealed under his clothing. Who is Kristian and what (on earth) was he doing? He’s a designer from the top global design consultancy Ideo. And the video camera? It goes pretty much everywhere Kristian goes on assignment.

Welcome to the new world of service design. If you haven’t heard, design is on the crest of a wave. Apple teeters on being the most valuable company in history because of its mastery over design – not technology, at which it is unremarkable. And the world’s largest business services firm, Deloitte, wants ”design thinking” at the centre of its operations – from consulting to audit.

So what is design and why is it important? We economists tend to think that once ”incentives” are sorted, for instance once competition forces producers to compete for customers, that everything will be hunky dory. But in a complex world what if the seller doesn’t understand what the buyer wants?

Before the Apple Macintosh was designed, no one understood how important user friendliness was to computer users – certainly not IBM and Microsoft. Some people think of design as an aesthetic overlay on products. But as Steve Jobs insisted, good design isn’t about how something looks, but rather how it works.

The driving force of design is looking at things from every angle. And usually the producer’s angle is already dominant. That’s where Kristian’s ”patient’s eye” video cam came in. Playing back the video, what did it feature? The ceiling. The patient on the trolley or in the bed spends all their time looking at the ceiling. Who knew? And who had thought of making the ceiling a more interesting, less alienating vista? Not the doctors or nurses. They look down, not up. The soulless ceiling was just one of literally hundreds of thoughtless aspects of the patient experience that Kristian and his design team documented, and then worked with hospital staff to address, so that at every turn the patient would be informed and reassured rather than disoriented and alienated if not alarmed.

Seen in this way, design is a kind of counter-narrative to the gravitational pull of producers and service providers – the way they suit themselves without even knowing that that’s what they’re doing. Also, by being consciously and counter-culturally cross-disciplinary, design seeks a larger view than is dreamt of in the narrow philosophies of professional disciplines. Where the practitioners of economics, accountancy marketing, communications, HR and IT pursue their objectives with such single mindedness that it can unbalance and tyrannise our lives, ”design thinking” seeks a more holistic perspective built from an attempt to empathise with all involved.

As an economist, these thoughts remind me of Friedrich Hayek’s critique of the hubris of ”scientism”. “Scientific knowledge, occupies now so prominent a place in public imagination that we tend to forget that it is not the only kind that is relevant,” he said. Hayek’s immediate point was that centrally planned economies engineer out of the economy the vital local knowledge of the trader. But this insistence on the need to capture and integrate different forms of knowledge – both professional or scientific knowledge and local knowledge from the ”lifeworld” – is the ”design thinking” aspiration.

The Australian Centre for Social Innovation (TACSI) is taking design thinking further still. Seeking to reduce the incidence of families in crisis, like Kristian in the emergency ward, our Radical Redesign team embraced ”ethnographic methods” – an exotic name for an ordinary process that (astonishingly enough) nevertheless remains rare in social welfare policy. Translation: they hung out with the families they were trying to help – radical, eh?

Our team and the families they were hanging out with together designed, prototyped, trialled and refined a new social program – Family by Family. It’s a hybrid melding a behaviour change program with peer support or mentoring. ”Sharing” families, who’ve been through difficult times but come through, are coached to mentor ”seeking” families, who may be at risk of falling into crisis.

Where in traditional programs social workers might work directly with clients, Family by Family recasts the role of each of the players.

The seeking family members don’t get ”counselling” from a social worker but from another family. And the ”sharing family” gets assistance from a specially trained coach who may, but need not be, a qualified social worker.

Whatever their background, the family coaches are trained to keep a balance between informality and engagement with sharing families in goal setting and monitoring progress towards those goals.

The real excitement began when families realised they really were co-designing their own program. Though it’s early days, families have been hugely enthusiastic, with some saying the program was life changing. As fellow TACSI board member, Martin Stewart Weeks, puts it: “Instead of assuming people, in this case families, need a service in the traditional sense, Family by Family suggests that they are the service. The real subversion of the design method is that it assumes the best way to learn is to look and listen. Family by Family for all its simplicity and old-fashioned ordinariness is far removed from the rigid and contrived rhythms of ‘consultation’ that consume the professionals.”

Some politicians and senior officials I’ve spoken to imagine our achievement springs from some singular feature and toy with setting up their own versions. But every aspect of Family by Family is painstakingly designed, prototyped, tested, and optimised with the families. There are 150 specifically designed ”touchpoints” like brochures, games, activities, events and timetables. And in each location in which the program is rolled out, the team hangs out and works with families to tweak the program. That’s part of the design!

And Family by Family’s other defining characteristic is its focus on change. Where Steve Jobs had the uncanny knack of divining what people had not yet realised they wanted, Family by Family helps participants understand and articulate the change they want in their lives and then help them realise it.

If we’re successful, we’ll have shown how we can design better lives.

oooOOOooo

Nicholas Gruen is CEO of Lateral Economics and Chair of The Australian Centre for Social Innovation. Ross Gittins is on leave

Our own household savings performance has been pretty woeful up till the GFC, as we reduced our household savings nearly as fast as the compulsory super system forced us to increase them. But the GFC has put paid to all that with our savings rate shooting up to around 10%. Banking Day reports as follows on an OECD study.

An OECD ranking of household savings rates puts Australia fifth among the 23 countries surveyed, with 10.4 per cent of household disposable income going into savings in 2011.

Switzerland is top of the table, with a savings rate of 12.1 per cent in 2011, followed by Sweden (11.7 per cent), Germany (11.3 per cent) and Belgium (10.7 per cent).

Back in 2006, before the financial crisis brought the country’s borrowing binge to an end, Australia’s household savings rate was 2.1 per cent. Its OECD ranking that year was 16th.

OECD economists are forecasting that Australian households will maintain their high savings rate. The forecast for the current year is 10.3 per cent and for 2013 the expected rate is 10.5 per cent.

Among the weaker savers last year were New Zealand, with 0.6 per cent of disposable household income going into savings, Denmark (negative 1.7 per cent), the Netherlands (2.3 per cent), the Slovak Republic (3.1 per cent) and the United States (4.6 per cent).

I’d love to buy an Amazon Kindle Fire and subscribe to Amazon Prime. But there’s not much point doing the former from Australia (It’s actually difficult to buy the Fire on line from Australia) as one can’t do the latter.

I’ve managed to jump the moat of fortress Australia by subscribing as an American to Amazon books, (I didn’t even use a US credit card) but I suspect it will be harder for Prime and also for downloading movies where I expect the system will detect me downloading from an Australian server and refuse to help – as Apple did recently when I tried to hire a movie at US prices given that Australian prices for the same thing were about 40% (40%!!) higher.

So can anyone offer instructions as to how I might be able to do this. Can one access these services via proxy server which doesn’t give the game away? If so, please feel free to offer detailed instructions in comments.

Restructuring and productivity growth in uk manufacturing

We analyse productivity growth in UK manufacturing 1980-92 using the newly available ARD panel of establishments drawn from the Census of Production. We examine the contribution to productivity growth of ‘internal’ restructuring (such as new technology and organisational change among survivors) and ‘external’ restructuring (exit, entry and market share change). We find that (a) ‘external restructuring’ accounts for 50% of establishment labour productivity growth and 80-90% of establishment “TFP” growth; (b) much of the external restructuring effect comes from multi-establishment firms closing down poorly-performing plants and opening high-performing new ones, and (c) external competition is an important determinant of internal restructuring.

Read the whole paper here (pdf) if you want. HT Chris Dillow.

From Bloomberg View.

Academic economists have recently become the unaccustomed subjects of intense scrutiny. The 2010 documentary “Inside Job” drew public attention to the board seats, consulting gigs and sponsored research that tie many of them to Wall Street. They often failed to disclose such conflicts of interest in their research papers and public comments on topics such as financial reform — omissions that could influence decisions affecting the lives and livelihoods of millions of people.

. . . Even the best-intentioned economists — and particularly those in the area of finance — face a litany of influences pushing them toward a rosier view of the industries they study. In a yet-to-be-published paper, Luigi Zingales, a finance professor at the University of Chicago’s Booth School of Business, likens the pressure to regulatory capture. A pro-business attitude, he notes, can increase an economist’s chances of landing lucrative consulting, expert-witness and research contracts, and can facilitate publication in academic journals whose editors are themselves captured. (Zingales is a contributor to Bloomberg View’s Business Class blog and has accepted money for speeches to Dimensional Fund Advisors, a hedge fund, and Banca Intermobiliare, an Italian private bank, among others.)

As a small test, Zingales looked at the 150 most-downloaded papers that had been done on executive pay — a subject he reasoned could legitimately be argued either way. He found that papers supporting high pay for top executives were 55 percent more likely to be published in prestigious economic journals, suggesting that the editors, also academic economists, have a bias.

. . .  [I]n 2010, as regulators were working out how to shore up the banking system, two members of the group — Anil Kashyap of the Booth School of Business and Harvard economistJeremy Stein – co-wrote a paper on the potential economic costs of bank capital. The sponsor of their research: the Clearing House Association, a trade group that represents JPMorgan Chase & Co., Bank of America Corp. and other major financial institutions. Theirs is just one of many examples in which widely respected economists have done research funded by interested parties. . . .

Follow the link for the full article. 

This paper analyzes the linkages among group incentive methods of compensation, labor practices, worker assessments of workplace culture, turnover, and firm performance in a non-representative sample of companies: firms that applied to the “100 Best Companies to Work For in America” competition from 2005 to 2007. Although employers with good labor practices self- select into the 100 Best Companies firms sample, which should bias the analysis against finding strong associations among modes of compensation, labor policies, and outcomes, we find that in the firms that make more extensive use of group incentive pay employees participate more in decisions, have greater information sharing, trust supervisors more, and report a more positive workplace culture than in other companies. The combination of group incentive pay with policies that empower employees and create a positive workplace culture reduces voluntary turnover and increases employee intent to stay and raises return on equity. Finding these effects in the non-representative “100 Best Companies” sample strengthens the likelihood that the policies have a causal impact on employee well-being and firm performance.

By Douglas L. Kruse, Joseph R. Blasi, Richard B. Freeman

Late last year I attended lengthy meetings with economic agencies that were looking at the broad sweep of economic reform – the Victorian Competition and Efficiency Commission (VCEC) and a visiting OECD delegation.

We’ve come a long way, with few sectors remaining untouched by reform. But somehow I was struck by what reformers left out of their vision as much as what they left in.

Both bodies were exercised about labour market flexibility. That’s as it should be. It’s a major issue. If we want to improve our lives by maximising our productivity, we should sweep away arbitrary restrictions on the way we work. And collective bargaining industry by industry – or ”pattern bargaining” – imposes the kind of economic rigidities that helped produce three crippling recessions in a decade-and-a-half from the mid-’70s on.

But neither the Organisation for Economic Co-operation and Development nor VCEC had anything to say about other crucial rigidities and absurdities of our labour market. You see, gentle reader, unions of blue collar and clerical workers aren’t the only ones seeking to prey upon consumers and the community by monopolising their labour and imposing arbitrary restrictions on what people can and cannot be asked to do. Ask the Royal College of Surgeons or the Law Society.

Imagine the Maritime Union of Australia – the wharfies union – deciding who was ”qualified” to work on the docks. Yet that has been the model by which we have regulated professional labour in the highest status professions – particularly medicine and law – since they first ”professionalised” in the 19th century. After a generation of reform, a little has changed, but it is precious little.

Lawyers used to enjoy a monopoly over property conveyancing. This entitled them to impose their own (hefty) profit margins on the cost of the clerical assistants doing the work. Today, despite the past objections and dire predictions of law societies, you can choose between a lawyer and a specialist conveyancing firm charging about half the price.

That is pretty much where liberalisation stopped with the law. Yet the formula we followed with conveyancers could be adopted much more widely. Why shouldn’t an experienced social worker be able to qualify as a family lawyer by completing a special family law diploma and articles in a family law practice? Or, to take an example Lindsay Tanner suggested to me, why not let a retired policeman with the inclination undergo a similar transition and then defend and mentor juveniles accused of wrongdoing?

There’s more than a whiff of class snobbery in this. The kind of career path I have suggested is essentially how economic reform has restructured training for tradespeople and some less well paid, lower status professions. Thus Certificates I, II, III and IV break down the ”competencies” required to become a fully qualified tradesperson and so let people work their way up towards full, generalised qualifications – for instance a carpenter or electrician – by learning and demonstrating their mastery of the various competencies and practising them on the job.

And in the caring professions such as nursing and early childcare a similar structure lets people qualify to assist in activities such as cancer, wound care, palliative care, etc. as one works one’s way to higher, more general qualifications. We’re making some – though limited – progress in teaching with Teach for Australia reconfiguring teacher training to encourage the best and brightest university graduates to spend a few years teaching.

But while we anathematise arbitrary demarcation of jobs on the shop floor and waterfront and put huge effort into making training more flexible and competency-based, we leave those at the top of the most prestigious professions to largely regulate themselves and determine who is qualified to compete with them. After all, they’re sound chaps.

And the result? Exactly what you would expect. There is next to no innovation. They just cannot see the urgency. The training they had never did them any harm. And so, just as women complain about the glass ceiling, so there is a platinum ceiling keeping out the riff raff, and preventing flexible career transitions to the top of the high-status professions. A palliative care nurse will not get much credit for their learning and experience if they want to become a palliative care doctor.

Of course an economist like me is supposed to be attracted to the way more felicitous training paths can cut costs and increase efficiency. Avoiding the need to teach advanced company law to a family lawyer would ”free up resources for more highly valued uses” (as we say in the trade). But that’s not really what excites me about these proposals. A policeman with a policing perspective and desire to help young offenders, or a social worker keen to practise family law would be more use to their clients than a lawyer wondering if corporate law might net them another grand or two a day. Those practitioners would be happier people as well if the new pathway let them follow their passion.

Once economic reform involved simply sweeping away the detritus of a century’s economic populism and ad hoc political favouritism. So we removed restrictions on shopping hours and entry into industries and we tore down our tariff walls, doing our economy the world of good. But apart from some smaller fry – such as taxis and pharmacies where we still restrict entry for no sensible reason – that kind of stroke of the pen reform is largely behind us.

If we are to keep up the momentum on reform it will be by extending our gaze towards those parts of our economy and society we have imagined to be given – and above it all. And beyond stroke of the pen reform, successful policy will not just lower costs. It will improve the quality of our lives by making our social and economic institutions more fit for their purpose. More and more economic reform will not just be about making us richer, but also about directly improving our lives.

Mitt Romney takes a tough line on welfare. In 2008 Republicans cheered when he said that America’s culture was threatened by welfare payments to poor people. Asked how tax reform plan would help Americans on low incomes he said his plan was "primarily based on trying to create jobs, not handing out cash to individuals."

But while Romney opposes cash handouts to individuals, he seems relaxed about cash handouts to business. In the early 1990s his private equity firm Bain Capital helped finance a company called Steel Dynamics. According to a report in the Los Angeles Times:

Bain Capital began looking at investing in the steel start-up in late 1993. At the time, Steel Dynamics was weighing where to locate its first plant, based in part on which region offered the best tax incentives. In June 1994, Bain put $18.2 million into Steel Dynamics, making it the largest domestic equity holder. It sold its stake five years later for $104 million, a return of more than $85 million.

As Bain made its investment, the state and county pledged $37 million in subsidies and grants for the $385-million plant project. The county also levied a new income tax to finance infrastructure improvements to benefit the steel mill over the heated objections of some county residents.

"I’m very pro-business, but I’m not pro-business-welfare," said DeKalb County resident Suzanne Beaman, 58, who fought the incentives. Steel Dynamics "would have done fine without our tax dollars, I have no doubt."

Another steel company in which Bain invested, GS Industries, went bankrupt in 2001, causing more than 700 workers to lose their jobs, health insurance and a part of their pensions. Before going under, the company paid large dividends to Bain partners and expanded its Kansas City plant with the help of tax subsidies. It also sought a $50-million federal loan guarantee.

Is this what Romney meant when he spoke about providing "incentives to help companies to be creating new jobs"?

According to Kenneth Thomas, the author of Investment Incentives and the Global Competition for Capital: "investment incentives tend to be economically inefficient and make income distributions more unequal (by transferring funds from average taxpayers to owners of capital)."

Thomas argues that cutting subsidies to business would help state and local governments reduce deficits and avoid making cuts in areas such as health and education. He estimates that state and local governments hand out almost $50 billion in tax incentives and other subsidies. In most cases, state subsidies "are enacted in order to compete with other states, and they largely offset each other without having much effect on the national distribution of investment."

Next week governments with an interest in Australia’s auto industry – from Victoria, South Australia and Canberra close in on Detroit, cap in hand, wallets open begging Ford and GM to keep manufacturing in Australia.

They should look around. Having once housed nearly 2 million souls, Detroit is now down to about 700,000. Large parts of Detroit remain like Mad Max sets come to life. Criminal homicides are down to just 300 a year, a big improvement on the past, but still over 3 times America’s average levels and 20 times Australia’s!

Just as Rome’s invaders and then its inhabitants feasted on the eternal city – scavenging marble and bronze from its buildings, smashing statues for souvenir cameos – today Detroit’s gangs squat in long deserted buildings scavenging the very materials from which they’re built. Barring a fatal fall, or knife fight over the spoils, a day’s work stripping copper from a tenth floor roof gable might reward its new owner with a few hundred dollars on the scrap markets.

Custodians of the industry that built Detroit’s great wealth and transformed our world have been feasting on that industry’s body – now carcase – for generations. Top executives got huge salaries, private jets and internal promotion over outsiders despite continuously disastrous results.

Having bid their workers’ wages and conditions to uncompetitive levels, the aristocracy of the American labour movement, the United Auto Workers (UAW) used their industrial muscle to ameliorate the niggardly American safety net – at least for their own workers. And so their great automotive benefactors remain weighed down with crippling pension obligations.

As surging Japanese imports illustrated their new-found uncompetitiveness in the early 1980s, Detroit’s ‘leaders’ got Washington to pass their costs onto American consumers by capping Japanese imports. So the Japanese continued their onslaught from new plants in America. Having once copied Ford, they’d taken Henry Ford’s ideas about mass production and eliminating of waste much further.

They’d fashioned a production system which endlessly optimised the vast complexity of car manufacture by cultivating high morale, high skill and highly co-operative relationships among everyone in the process. Rather than bark orders at isolated and insecure workers who were under surveillance to prevent shirking, they arranged workers into teams, gave them more autonomy, security and (literally) ten times the training the Americans provided and helped them measure and so optimise their own collective performance.

Likewise with their suppliers. Where American firms immediately sought lower prices from suppliers to reflect any cost reductions they’d achieved, the Japanese involved their suppliers more intimately in new product design – encouraging their unique expertise – and helped them improve quality and cut costs and let them keep their gains for several years until the next major price negotiation. This encouraged trust and co-operation and strengthened their incentives to keep investing and improving.

Normally specialised industrial cities just keep growing as competitor cities can’t match their scale and expertise. But those feasting on the body of the Great Wealth Making Machine of Detroit had so gorged themselves that the new Japanese auto plants headed elsewhere, particularly to the South where ‘right to work’ anti-strike legislation broke union power.

Detroit declined apace. It eventually had some success copying Japanese production methods. As an iconic American advisor to the Japanese, Edwards Deming, put it, the Americans kept trying to copy the Japanese, but they didn’t know what to copy. They’d imitate tokens of the system, but not the whole system or its ethos – the relentless elimination of waste and respect for all those in the production system, workers and suppliers, as collaborators.

Our own industry has often resembled the American one, though mostly without the extremes of abuse. And it’s had particular Australian characteristics. Since the 1940s it’s housed strong pockets of competitive strength in large car design and manufacture, but foreign owners never cultivated those strengths as integral to their global strategy.

A tenacious industrial cringe arose from a coalescence of three very different ideologies and interests. Manufacturers and unions’ lobbied to continue their comfortable life behind import protection. Then they battled each other in wage negotiations that determined how they shared the spoils.  And even when economists belled the cat on this racket from the ‘70s on, they focused on smoothing the pillow of the most uncompetitive activities (like assembling others vehicles) rather than playing to our strengths.[1]

In fact we were the perfect complement to Japan’s car industry during its rise. But only one prominent local economist – Peter Drysdale – turned his mind to crafting trade policy options to permit our respective industries to specialise with Japan exporting smaller cars to us whilst importing our larger cars and limousines. And in the absence of the requisite intellectual leadership we retreated into blocking imports and encouraging local assembly at sub-economic scale.

Today we have one more – probably our last – chance to get this right. Ford or GM’s Australian assets would strongly bolster the design and engineering capability of China or India’s emerging auto giants. So if such firms had a stake in our auto assets they’d have the incentive to invest and find a valued place for them in their global supply chain. Right now those firms are cranking up their export of small and medium sized cars for global markets, making Australia hard to beat as a source of larger cars to fill out their global offering.

Our automotive assets can never aspire to more than back office status whilst owned by the American auto companies. Personally I’d rather the industry closed than limp along devouring billions of our dollars in assistance, with our politicians begging and bribing the clapped out, cash strapped, bailed out auto manufacturers of a once great – indeed still great – power now bent on its own decline for a stay of execution.

Instead, we could have a ‘beauty contest’ in which access to those billions would only be available to those that could demonstrate an investment plan and ownership structure that gave Australia a worthwhile place in their global division of automotive labour. That wouldn’t be possible for the American firms without joint venturing with, or selling out to the rising Asian giants. At least that way our billions just might buy us a seat at the grown ups’ table.

More superannuation, it is argued, will increase intergenerational equity, relieve fiscal stress on governments and compensate for the myopia suffered by individuals when saving for their future retirement. Even though the superannuation guarantee is paid by employers, it is generally agreed by analysts that the cost of the employer contribution ultimately falls on wage earners via reductions in wage increases. This means that, while superannuation saving addresses one important issue of lifecycle resource transfer (low incomes in retirement), it exacerbates another. Uniform rates of contribution increase the financial stresses faced by families during the household formation stage of life.

The mis-match between superannuation contribution patterns and financial stress across the life course is illustrated in the figure below.

The red line shows the percentage of households where people report being not able to pay utility bills on time over the previous year (people were interviewed across the 2009-10 financial year). These results are grouped by the age of the highest income earner in the household (using the ABS ‘household reference person’ gives very similar results). This measure of financial stress is highest for those aged under 45, then declines steeply, even past retirement. Measures of financial stress such as this are an imprecise indicator. They might reflect changes in resources relative to needs over the life course, but could also reflect other factors such as improvements in financial management skills, increases in aversion to the risk of utility disconnection, or more modest consumption preferences due to the lower income of one’s own age cohort.

A more direct measure is the ‘saving rate’ shown as a blue line in the figure. This is the excess of disposable income over expenditure (as a percentage of disposable income). This is imprecise because of measurement error in both income and expenditure and also because it omits key components of wealth accumulation such as capital gains. Nonetheless, it is a useful indicator of how saving capacity varies across the lifecycle. (The saving amount shown here is in addition to that due to existing employer super contributions and home purchase). Those aged under 30 are high savers, but this drops dramatically when people reach their 30s and start taking time off work to care for children, purchase goods for children and purchase housing. This is despite the substantial cash and service transfers that governments make to people with children in their household. Using this saving measure, saving capacity only increases again once people reach their 50s. Even in retirement, it is not as low as in the 30s and 40s.

Now, most people paying attention to superannuation are probably aged above 50. For the average pre-retirement person aged over 50, a larger contribution to super probably makes sense (unless they have some other preferred form of saving). But younger families might start to pay attention when they find a reduced growth in their pay packet.  Are the early adult years really the best time to be saving additional money for retirement – particularly when they are already saving via home purchase? How can we rescue the young from superannuation?

Within the current system, it is not practical to simply reduce the contribution rate for the young (or any other demographic group). Since employer contributions are effectively incorporated into wages, this would mean different wage rates for different employees. However, there are a range of secondary mechanisms that could be employed.

One that is often mentioned is to allow people to access superannuation balances for house purchase. This has been criticised as undermining the life course saving objective of superannuation, but can also be seen as a mechanism to redress a key flaw in the superannuation saving model. However, while this might make sense in the context of our current housing markets, housing is not the best means of saving for retirement. It is hard to liquidate and increases the amount of wealth passing to the next generation rather than being used for consumption in old age (see papers on my website).

If we don’t want to encourage housing investment, there are nonetheless other potential strategies. We could allow access to super for other life course-related expenditures such as childcare fees or to supplement paid parental leave. Finally, one could simply allow super funds to pay out some funds to people under certain ages. (In turn, decisions would have to made on whether and how to claw back the tax concessions associated with the initial super contributions).

The plan to increase the super guarantee to 12 per cent now makes the task of addressing these life course implications more important than ever.

In 2009, I chaired the federal government’s Government 2.0 Taskforce. We sketched out how government might be transformed by the open zeitgeist and tools of Web 2.0 – like Wikipedia, Facebook, Twitter and Google.

Web 2.0 massively scales up our capacity to communicate – with possibilities both trivial and earth-shaking. And it scales up simple improvisation. Whether you’re organising a party or a working bee, just hop on to Facebook or Twitter and Bob’s your uncle.

Two hours after the Christchurch earthquake, work commenced on a map on the net on which could be plotted emerging developments on the ground. The information, such as the address of pharmacies that still had insulin, was parsed from 300,000 tweets bearing hashtags like #eqnz.

If you think this was a job for official emergency services on the ground, think again. Tim McNamara wasn’t with the government, but spearheaded the initiative from the North Island capital Wellington. The people who parsed the tweets were further away still, a band of humanitarian ”Crisis Commons” volunteers spanning every continent.

Many government agencies did their best. Others ticked boxes. One complained that the information on Tim’s site wasn’t ”official”. Another used his data, but refused his requests to meet to improve their co-operation.

As the Taskforce knew, it takes time for large organisations, both public and private, to understand the potential of the new openness.

In March last year, I received an email from James Kliemt’s private email address. An enthusiastic public servant within the Queensland Police Service, he had spent months assembling a social media website for the police. There were huge potential benefits. “But,” he explained “the challenge is getting them to really understand that.”

Though there were excellent police websites around the world ”not one of them really fully gets the concept as a whole. Incredibly inspiring because I can see the enormous untapped potential, deeply frustrating because I know how difficult it will be to achieve even a small part of it.”

Strange and sad, isn’t it, how doing something new ends up cloaked in dark secrecy for fear that your colleagues think you’re not a ”team player”? But James persevered. By May that year, the Queensland Police had trial Facebook, Twitter and YouTube sites.

They were following our Taskforce’s recommendation: learning by doing from umpteen small failures and successes, rather than getting bogged down in endless planning and permission seeking up the line.

So when the deluge came to Queensland last summer, the police were ready. They have shown me two pictures of a field in Queensland’s Lockyer Valley. One shows sodden ground with puddles. The next a four-metre torrent of biblical proportions sweeping away everything in its path. The time between the two snaps? Twenty-two minutes.

The hero of the Battle of Trafalgar, Lord Nelson, had a mind to circumstances not dissimilar when he said: “I am of the opinion that the boldest measures are the safest.” The Queensland Police clearance processes were streamlined so that staff were trusted to use their judgment and publish whatever they thought appropriate on Facebook – instantly.

Using the Twitter hashtag #mythbuster, the police killed untrue rumours before they metastasised into factoids. The day after the 22 minutes in the Lockyer Valley saw 39 million hits on their Facebook page from around the world and the Queensland Police went from having 20,000 to 100,000 ”fans”, with another 70,000 the next day. A normal public service website would have crashed at the first whiff of this kind of interest. For Facebook and Twitter, it was all in a day’s work.

With each new ”fan” we got a new pair of eyes, a new potential ”reporter on the ground” who might report some vital fact so others can act on it, or someone from outside the disaster zone who might offer to help.

I nominated the Queensland Police for the Prime Minister’s Awards for Excellence in Public Sector Management. They were unsuccessful. The police, which has received lots of other awards for its social media efforts, accepts this. And I have no knowledge that, and am not suggesting, it was hard done by.

However, the way the awards work stacked things against the kind of innovation the Taskforce recommended. As the awards correspondence puts it, entrants were assessed against “both the awards selection criteria and the ADRI assessment methodology featured in the Australian Business Excellence Framework”.

It’s understandable that the judges favoured projects which could straightforwardly measure their beneficial outcomes. But as the awards correspondence conceded, this methodology “benefits the more mature programs”.

There were also 14 pages of elaboration with a column for ”strengths” about which the judges were generous and another column marked ”opportunities”. (The accompanying correspondence stressed this meant “opportunities for improvement” and were not criticisms – I wonder where the weaknesses were recorded?) This column was likewise liberally populated. Here’s one ”opportunity”.

Documentation demonstrating the planning and governance arrangements would have provided evidence of the planning undertaken to develop the trial and formal implementation of the social media package. Such documentation could have included, for example, a business case, project plan, risk assessment, budget or meeting minutes recording relevant decisions.

I once had the privilege of a long talk with two of Google’s top brass. This is the company that does great things, but builds many of them upon the improvisations of the Tim McNamaras and James Kliemts of the world.

Rather than requiring their enthusiasms to run the gauntlet of approvals up the line, it encourages them, allowing Google staff to work one day in five on projects entirely of their choosing or initiation. As one said to me: “How come crowds can be so wise and committees can be so dumb?”

For all I know, the judges chose the most meritorious public sector projects of this year. But the box ticking pedantry of their appraisal of the ”opportunities” for Queensland Police to lift their game makes me glad a different spirit animated the police in those days when things suddenly got serious in our lucky land; when the heavens opened and lives were lost or saved depending on what could be done in the space of 22 minutes.

Inducement Prizes and Innovation.
Date: 2011-12-15
By: Brunt, Liam (Dept. of Economics, Norwegian School of Economics and Business Administration)
Lerner, Josh (Harvard Business School)
Nicholas, Tom (Harvard Business School)

http://d.repec.org/n?u=RePEc:hhs:nhheco:2011_025&r=ino

We examine the effect of prizes on innovation using data on awards for technological development offered by the Royal Agricultural Society of England at annual competitions between 1839 and 1939. We find large effects of the prizes on competitive entry and we also detect an impact of the prizes on the quality of contemporaneous patents, especially when prize categories were set by a strict rotation scheme, thereby mitigating the potentially confounding effect that they targeted only “hot” technology sectors. Prizes encouraged competition and medals were more important than monetary awards. The boost to innovation we observe cannot be explained by the re-direction of existing inventive activity.

And I read today a quote that might have been a good complement to the quote appearing at the head of the article – immediately below.

Not only was he [Edward Land - inventor of 'instant cameras' and founder of Polaroid] one of the great inventors of our time but, more important, he saw the intersection of art and science and business and built an organization to reflect that.

Designing better lives: An economist’s appreciation of design

Design is often described as making things not only useable but useful and desirable/delightful. We’d agree this is important – but what is even more fundamental (and rare) is making things that prompt change. – Sarah Schulman and Chris Vanstone [2]

       I.

Design is on the march. Apple teeters on being the most highly valued company in the world – its core competitive strength lying in design and systems integration, not technology. ‘Design thinking’ is becoming increasingly prominent not only in the development of products and processes, but also in the delivery of services. So much so that Deloitte has recently begun investing heavily in its own ability to provide its clients with design knowhow as a crucial engine of its innovation and competitiveness. As I write this, a prominent article on Australia’s Deloitte Online’s homepage [3] is titled “Design thinking demystified”. So what is the core contribution of design and what is behind its rise?

Adam Smith’s invocation of the benefits of self-interest – or as he called it self-love – is famously encapsulated in this aphorism:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

Smith’s point is not that self-interest is good in itself, but that the self-interest of one person in a market brings them into relation with others’ self-interest. Note that Smith’s injunction (implicitly to both parties) is for each to seek their own interest by addressing themselves to the other’sinterest. Since Smith founded it, the discipline of economics has focused on the incentives facing each of the parties to a bargain and on their relative bargaining strength.

But there are more things in heaven and earth. For the butchers, bakers and brewers of Smith’s time there was no great mystery as to what constituted the customer’s wants or needs. Today’s world is much more complex. If you’re making computers or even cars, customers have specific wants that are not so easily divined by producers. Thus, part of Japan’s auto-producers’ recipe for competitive success was meticulous attention to consumer needs.[4]

This process has now gone much further. A great transformation occurred at the outset of the personal computer era when the Apple Macintosh showed that consumers didn’t just want more technical capability from their software and hardware – something that could be captured well enough in standard disclosures of those technical capabilities. They wanted user-friendliness – a very different thing and something inherently difficult to ‘disclose’ in specifications.

It turns out you can’t really make a car or a computer useable without a lot of work, almost invariably involving the users themselves. And indeed there is a discipline that has grown up under our noses which has been all but ignored by economists and policy makers but which nevertheless addresses itself to this issue. That discipline is design.

        II.

Design is often thought of as an essentially aesthetic overlay on products. We know it contributes to usefulness – indeed, particularly since functionalism, usefulness is part of the aesthetic. Yet, as Steve Jobs is famous for insisting, good design is not fundamentally about how something looks but rather how it works. Intriguingly, Adam Smith would have agreed. He quoted his friend and fellow philosopher David Hume to the effect that utility was one of the principal sources of the beauty of things. Indeed, Smith went further, arguing that people were often more strongly motivated by the beauty of all the complex parts of some mechanical or social artefact working felicitously together than they were by the utility to which it gave rise.[5]

Smith was particularly proud of this gloss on Hume, and I suspect it explains much of Steve Jobs’ commercial success too. Jobs’ genius also helps illustrate something else of great significance in modern design. Consumers may not have sufficient information or expertise to know what they themselves want. In such circumstances good design often requires creative leaps beyond simple functionality. Jobs was celebrated for his intuitive leaps in anticipating the way new technology might be used to make new kinds of products before consumers could tell market researchers how much they might like them.

These developments have been a source of great renewal within the discipline of design and have underpinned the increased attention and prestige it is receiving. The revolution Apple started with the ‘user-friendliness’ of the graphical user interface has morphed into a preoccupation with actively designing ‘user-experience’ – or UX among the cognoscenti – to the point that, for Web 2.0, useability (including the pleasure of use) has become a precondition of competitive success.

      III.

And, as I learned on taking up the chairmanship of the Australian Centre for Social Innovation (TACSI) in late 2010, in some places these ideas are being taken further still. If design principles matter when considering the interface between humans and their increasingly indispensible gadgets, or when considering the design of bank branches and airport executive departure lounges, how much more important might they be when considering the interactions within more complex social institutions in health, education and social support?

TACSI established a Radical Redesign team to explore and extend these ideas. We recruited Sarah Schulman, a social scientist, and Chris Vanstone, a designer, who together form a professional partnership from the UK with some exciting projects behind them, and Carolyn Curtis, an Australian social worker on secondment from the South Australian Department of Families and Communities (now renamed Communities and Social Inclusion). The cross-disciplinary nature of the team draws attention to another critical feature of design. Despite endless exhortations for academics and professionals to be more cross-disciplinary, a variety of institutional imperatives in most disciplines appear to push towards ever-increasing specialisation. (Again, it was Smith, the apostle of the division of labour who warned us of its capacity to so narrow our focus as to dehumanise workers in a factory.) Yet the usual practice early in any design project is the search for insights from any number of divergent perspectives. To achieve this, design is usually built around small, cross-disciplinary teams. If there is a discipline of the cross-disciplinary, it is design.

The brief of Radical Redesign’s cross-disciplinary team was to find a way to reduce the likelihood of families falling into crisis and so requiring the services of the state. It began by consulting various relevant literatures. It also embraced ‘ethnographic methods’ – an exotic name for a very ordinary process that is nevertheless (astonishingly enough) rare in social welfare agencies. The team visited families but with purposes different to the ones social workers might have had. The team spent time with them in order get to know them, their environment, values, routines and aspirations. Its objective was not to advise, instruct or assess in accordance with agency procedures, but to engage the families in a search for what might improve their lives.

The result, after a substantial period of prototyping, trial, error and refinement, was the Family-by-Family program. It is a hybrid between a mentoring or peer support and a behaviour change program. In traditional programs, social workers might work directly with individuals or (unusually) with families on specific issues. In Family by Family, ‘sharing’ families, who have been through difficult times but who seem to have made their way through them, are paired with ‘seeking’ families, who are seeking something better in their lives and may be at risk of falling into crisis. As my colleague on the TACSI board, Martin Stewart Weeks, puts it:

Instead of assuming people, in this case families, need a service in the traditional sense, it suggests that to a large extent they are the service. The real subversion of the design method is that it assumes the best way to learn is to look and listen. Hard, for a long time, with some humility and always from the perspective of the people who want to improve their lives, thrive or whatever other positive outcome they yearn for. For all its obsession with focus groups and customer surveys, this is something the public sector often finds extraordinarily hard. This is why people always react so positively to Family by Family for all its simplicity and old-fashioned ordinariness. It’s so far removed from the often rigid and contrived rhythms of ‘consultation’ and ‘co-production’ that consume the professionals.[6]

     IV.

These thoughts conjure up one of Friedrick Hayek’s central motivating ideas. In a series of essays in the 1940s, Hayek critiqued the way in which the intelligentsia increasingly privileged some kinds of knowledge over others. They were privileging their own kind of knowledge – of systematic inquiry and knowhow such as engineering. By contrast, unsystematic knowledge of the everyday – knowledge pertaining to some local time, place or context, or to the idiosyncratic preferences of individuals – was given short shrift.

When applied outside its proper sphere – for instance to government – this mindset spelled hubris. It failed to appreciate the extent to which the governed would make their own decisions. Indeed, one of the central motifs of Hayek’s denunciation of Soviet-style central planning is its under-appreciation of the local (unsystematic) knowledge of those on the ground. For the “marvel” of the price system was that it acted as “a system of telecommunications” to distribute the sum of information about local trading conditions and opportunities throughout the economy.

Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is . . . a body of very important but unorganized knowledge: . . . the knowledge of the particular circumstances of time and place. [In this] respect . . . practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances.[7]

Hayek’s concern here was knowledge of market conditions, and so he juxtaposed the knowledge of scientists and engineers with the knowledge of traders. It is unfortunate that Hayek’s preoccupation with prosecuting his case – now thankfully won – against central planning so comprehensively diverted him from exploring the wider relevance of his ideas. In this context those ideas enable us to better understand the potential of design and ‘design thinking’. For the ‘scientific’ knowledge from systematic inquiries into psychology, sociology and even economics give us far less purchase on the human world than the disciplines of natural science and engineering give us over the natural world. Moreover, the point of any social action is to influence the experience of those ‘on the ground’.

Introducing design thinking on the homepage of Australia’s Deloitte Online website, Zaana Howard extracts the following “generally agreed upon” characteristics of design thinking:

Empathy: development of a deep understanding of the needs of people for whom the solution is being designed; seeing and ‘feeling’ the world through their lens in order to develop a rich understanding of the problem context.

Human centredness: design thinking considers the needs of all people affected by the problem – customers, employees, business partners, suppliers – and solutions are designed accordingly.

Holistic view: it locates the problem within its wider context and understands its interrelationships and interdependencies with other systems.

Collaboration: collaborating with people from multidisciplinary backgrounds enables radical innovation through the bringing together of diverse skills, knowledge and experiences.

Design doing: despite its cognitive connotations, design thinking is action oriented, valuing doing and making things over thinking and meeting.

Visualisation: visualisation may take many forms – sketches, prototypes, mind maps or stories – all of which allow for interaction with ideas and solutions, and act as conversation starters to develop shared understanding and iterative design.

Future orientation: design thinking is focused on creating better results for the future, not just on resolving problems for short term gain.[8]

In contrast to scientific knowledge, the elements of ‘design thinking’ as expounded here are from the lifeworld.[9] Thus described, design thinking stands as a counter-narrative or foil to systematic and scientific knowledge offering an antidote to the hubris that Hayek warned us against so presciently.

One might even go so far as to argue that the current dominance of scientific over local, contextual knowledge of life as experienced, of theory over practical wisdom,is precisely the wrong way around. Of course systematic, scientific knowledge is of great importance – and is a central reason for our species’ progress in recent centuries. Yet, if the preeminent value of science is its contribution to our lives, the skills of practical wisdom should surely guide our appreciation and application of systematic knowledge. In Family by Family, organised disciplinary knowledge is consulted wherever useful in designing the program and rolling it out to families. But it remains in the background, mediated by and subordinated to the practical commonsense of those on the ground. The professional knowledge of the social worker is reintroduced and recast.

       V.

With the model having completed its initial proving up and now being rolled out to other suburbs, the program is receiving some media attention. Presenters on the 7 pm project commented on how old-fashioned it was – like neighbourhoods of old with people helping one another out. These observations point to the essential simplicity of Family by Family and its goals. And they illustrate something else. As with much good design, it is unobtrusive to the point of invisibility.[10] Yet, despite its informal ‘feel’ and mode of operation, the program has been painstakingly designed from the ground up. Throughout the program a range of routines, events and materials have been scrupulously co-designed by the team and the users through endless prototyping, testing, feedback and iteration. Here are Schulman and Vanstone on the design input to the program:

The Family by Family Blueprint runs to nearly 100 ‘scenes’ each scene being ‘designed’ and each scene calling on at least one designed ‘touchpoint’ (e.g. a brochure or work book or manual) that is itself designed.  We estimate the documentation of this to run to over 200 pages and the number of designed ‘touchpoints’ to exceed 150. We’ve detailed to this level because we’re designing for scale.[11]

Specific designed aspects of the program include:

• recruitment materials;
• events;
• training camps;
• the professional ‘coach’ role;
• websites;
• promotional materials;
• the visual identity of Family by Family;
• measurement systems and
• backend systems such as customer relationship management systems.

     VI.

Unlike most design, Family by Family seeks not to facilitate some end state, but to facilitate change. But where Steve Jobs might have had the uncanny knack of divining what people had not yet realised they wanted, Family by Family is built to assist its participants to come to understand and articulate the change they want and to help them realise it. Thus, at the outset and throughout the program, coaches take families through a process of reflecting on and refining their goals and then working to achieve them.

This is not just a program in which families mentor other families. It recasts the role of each of the players. The family members are no longer simply getting ‘counselling’ from a social worker – they’re much more active in the process. And the external influence on the seeking families is not a social worker but rather sharing families, who are coached by outsiders. The training of the coaches is an integral part of the design of the program only now being fully worked out as the program is being scaled up. Those coaches may, but need not, be qualified social workers, but their training shows them how to maintain a balance between being informal and focusing families on setting goals and monitoring their progress towards them.

I think of all this when I’m discussing the program with politicians and administrators who often assume that replicating our achievements will be straightforward. If only! We know only one means to effect the requisite transformations in these multiple social roles – Family by Family.

It is too early to pronounce the program a success as there is insufficient data to evaluate it rigorously. However, the signs are extremely positive. Virtually everyone associated with the program has been very enthusiastic, from its sponsors in government and the third sector to the families themselves, many of whom describe their involvement with the program with great excitement.[12]

   VII.

Family by Family is at the forefront of contemporary experimentation with social forms. But it is built upon the kind of perennial insight that somehow became marginalised in many of the workings of modern government and society. Within a community, our own health and happiness is ultimately bound up with the health and happiness of others’ lives. That was something that Adam Smith pondered deeply. His 1759 book Theory of Moral Sentiments sought to delineate the social preconditions of a healthy society and economy. It begins: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it”.[13] In fact in most cases, as Smith understood only too well, we gain more than the pleasure of seeing others’ happiness. But given that human freedom and human happiness is found within a social context, Family by Family tries for a new synthesis of local and generalised professional knowledge.

Anxiously observing the French Revolution at the end of his life in 1790, Smith looked with foreboding on the emerging triumph of what today we would call ideology, and what Hayek called the hubris of ‘scientistism’. That was the conceit that those with sufficient expertise can (and therefore ought to) make better decisions about people’s lives than they can make themselves. In the last, revised edition of the Theory of Moral Sentiments he warned against “the man of system” enraptured with the beauty of some ideal for government.

He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess–board. He does not consider that the pieces upon the chess–board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess–board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.

Smith went on to point out that if those two principles oppose each other, “the game will go on miserably.” Certainly it has for some families in crisis. By contrast, as Smith puts it:

If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful.

Family by Family deploys the discipline of design in an attempt to bring that integration about – intellectually between systematic knowledge and the lifeworld of families, and in practice between the world of state-funded services and the intended beneficiaries of those services.

Time will tell how successful we have been.

A cool graphic curtesy of McKinsey

Hard to believe we have a share of the global film industry revenue which is about a fifth of the revenue of the US industry. Anyway, it’s a cute graphic.