A Fun Book for Everyone - unbiased, straightforward
/What a breath of fresh air! A book in 2018 that has no political bent and no ax to grind. Fifty Inventions that Shaped the Modern Economy by Tim Harford doesn’t even claim these are the fifty most important inventions. He just treats us to a delightful history of fifty inventions and shows the undeniable impact each has had on today’s economy. Even if you’re not a student of the economy, it’s a fun read with no hidden agenda and no allegiance to any political party. And it’s a fresh and intriguing way to look at our contemporary global society, fashioned by the most delightful bits of human history and sociology. I enthusiastically recommend this book to all readers of all ages, all political persuasions and all national origins.
Beginning with one of the least likely “inventions” one might attach to the economy of the twenty-first century – the plow – Harford delivers one surprise after another. He organizes the fifty inventions into seven categories:
Winners and Losers
Reinventing How We Live
Inventing New Systems
Ideas about Ideas
Where do Inventions Come From?
The Visible Hand
Inventing the Wheel
I highly recommend this light-hearted (but long) book by an award-winning journalist, economist and broadcaster. But, if you’re mired in other reading and just don’t have time for this one, fear not! I liked it so much that I’m going to serve up Harford’s fifty inventions, in their seven categories, in brief fashion. As is my custom, I will use the author’s own language as much as possible. Please be aware that what I offer here is not even an iota of the fascinating story Harford has produced, nor is it authorized by Mr. Harford. Now, if you’re really short on time, you can scroll through and just pick out your favorites. On the other hand, if you are up for a deep dive into fascinating history from a thoroughly new perspective, do read the entire book. Here we go.
1. The Plow: Assuming you are “surrounded by the wreckage of modernity, without access to the lifeblood of modern technology, where do you start again? What do you need to keep yourself – and the embers of civilization – alive? ... a plow... When farming was well established – two thousand years ago in Imperial Rome, nine hundred years ago in Song Dynasty China – these farmers were five or six times more productive than the foragers they had replaced... [making it] possible for a fifth of a society’s population to grow enough food to feed everyone. But... agricultural abundance ... enables the rise of kings and soldiers, bureaucrats and priests.
“The moldboard plow was developed – first in China more than two thousand years ago, and much later in Europe... Thanks to this new plow-based prosperity, cities of Northern Europe emerged and started to flourish... The dry-soil scratch plow needed only two animals to pull it, and it worked best with a crisscross plowing in simple, square fields... But the wet clay moldboard plow required a team of eight oxen – or better, horses – and who had that sort of wealth? ...farming became more of a community practice... The moldboard plow helped usher in the manorial system in Northern Europe.
“The plow... changed everything... providing the underpinnings of civilization, it seems to have enabled the rise of misogyny and tyranny... The food surplus enabled larger populations and societies with specialists.”
Introduction: “The global economic system that delivers these products [like mongongo nut oil] and services is vast and impossibly complex. It links almost every one of the planet’s 7.5 billion people... [and] puts tremendous strains on the planet’s ecosystem.
“Each of these inventions tells a story, not just about human ingenuity, but about the invisible systems that surround us: of global supply chains, of ubiquitous information, of money and ideas... For instance, what’s the connection between Elton John and the promise of the paperless office? ...Which product was launched in 1976 and flopped immediately, yet was lauded by the Nobel laureate economist Paul Samuelson alongside wine, the alphabet and the wheel? What does Federal Reserve chair Janet Yellen have in common with the great Mongolian-Chinese emperor Kublai Khan?
“Some of these fifty inventions... are absurdly simple. Others...astonishingly sophisticated. Some of them are stodgily solid... abstract... insanely profitable... initially commercial disasters... This book isn’t an attempt to identify the fifty most economically significant inventions... New ideas often shift the balance of economic power, creating both new winners and new losers... an invention like the plow opens up the possibility of further inventions.
“What are the best ways to encourage new ideas? And how can we think clearly about what the effects of those ideas might be, and act with foresight to maximize the good effects and mitigate the bad ones? It’s all too easy to have a crude view of inventions – to see them simply as solutions to problems... Inventions shape our lives in unpredictable ways – and while they’re solving a problem for someone, they’re often creating a problem for someone else.”
WINNERS AND LOSERS
2. The Gramophone: “... In the 1870s... the electric telegraph... connected America, Britain, India, even Australia... [Alfred Marshall wrote] men ‘who have once attained a commanding position, are enabled to apply their constructive or speculative genius to undertakings vaster, and extending over a wide area, than ever before.’ The world’s top industrialists were getting richer faster... Two years after Alfred Marshall wrote those words – in 1877... Thomas Edison applied for a patent for the phonograph... Soon enough... one could record the best singers in the world, copy the recordings, and sell them.
“Then came radio and film... new technologies meant wider fame and more money. But for the journeymen singers, it was a disaster... a winner-take-all dynamic... The very best performers went from earning like [the very good but not “best”] Mrs. Billington to earning like Elton John. Meanwhile, the only-slightly-less-good went from making a comfortable living to struggling to pay their bills... Satellite television, for example, has been to athletes what the gramophone was to musicians, or the telegraph to nineteenth-century industrialists.
“As the market size for soccer expanded, so has the gap in pay between the very best and the merely good... Now average wages in the Premier League are twenty-five time those earned by players two divisions down... Technological shifts can dramatically change who makes money... Inequality remains alive and well – the top one percent of musical artists take more than five times more money from concerts than the bottom 95 percent put together.”
3. Barbed Wire: “‘The Greatest Discovery of the Age,’ patented by J.F. Glidden of De Kalb, Illinois... ‘Lighter than air, stronger than whiskey, cheaper than dust.’ We simply call it barbed wire.
“... barbed wire wreaked huge changes on the American West... In 1862, President Abraham Lincoln had signed the Homestead Act... cowboys roamed free, herding cattle over boundless plains... settlers needed fences, not least to keep those free-roaming cattle from trampling their crops. And there wasn’t a lot of wood – certainly none to spare for fencing... it would be impossible to settle the American West.
“Barbed wire changed what the Homestead Act could not... Private ownership of land wasn’t common because it wasn’t feasible. So barbed wire spread because it solved one of the biggest problems the settlers faced... Other cowmen adopted barbed wire, using it to fence off private ranches... Once upon a time, nobody owned anything; land was a gift of nature or of God.
“Private property gives people an incentive to invest and improve in what they own... It’s a powerful argument – and it was ruthlessly deployed by those who wanted to argue that Native Americans didn’t really have a right to their own territory, because they weren’t actively developing it. The year that Glidden secured his barbed wire patent, thirty-two miles of wire were produced. Six years later, in 1880, the factory in DeKalb turned out 263,000 miles of wire, enough to circle the world ten times over.”
4. Seller Feedback: “To see what’s going on, we have to understand a phenomenon that’s spawned many buzzwords: ‘crowd-based capitalism,’ ‘collaborative consumption,’ ‘the sharing economy,’ ‘the trust economy’... Suppose I’m about to drive myself from downtown Shanghai to the airport. I occupy only one seat in my car... Why don’t I give you a lift? You could pay me a modest sum... this might not happen... neither of us knows the other exists... You’d love to earn a few bucks by walking my dog, and I’d love to pay you. How do we find each other? We don’t.
“Matching people who have coincidental wants is... reshaping the economy. Traditional markets... [are] less useful when the goods or services are urgent or obscure... I’ve no idea who you are... You might doubt my motives... Trust is an essential component of markets... brands, money-back guarantees, and of course repeat transactions with a seller who can be easily located.
“In 1997 eBay introduced a feature that helped solve the problem: Seller Feedback... both parties rating each other after a transaction... the ‘reputation capital’ we build on such websites will eventually become more important than credit scores... they help people overcome natural caution... hosts on Airbnb can choose to turn you down as a guest after seeing not just your feedback but your photos... It also enables people to act on their personal prejudices, consciously or otherwise... it’s a potentially huge business, especially in emerging markets.”
5. Google Search: “Evidently it’s possible for children to grow up with the impression that Google knows everything... It took just two decades for Google to reach this cultural ubiquity, from its humble beginnings as a student project at Stanford University... [by] Larry Page and Sergey Brin... If they could find a way to analyze all the links on the Web, they could rank the credibility of each webpage in any given subject... Page and Brin attracted investors, and Google went from student project to private company.
“It was 2001 when Google found its viability...: pay-per-click advertising... That’s much more efficient than paying to advertise in a newspaper; even if its readership matched your target demographic, inevitably most people who see your advertisement won’t be interested in what you’re selling... the invention of functional search technology has created value in many ways... [including] time savings... [and] price transparency...
“Online shopping with a search that works means customers with specific desires are likelier to find exactly what they want... But there are problems... AdWords scam. Fly-by-night companies will pay Google handsomely to appear next to certain kinds of searches; they’ll gladly take your money and provide little or no service in return.
“Google handles close to 90 percent of searches worldwide... Google may have an entrenched monopoly... Google has far more... data than anyone else.”
6. Passports: “For most of our history, passports were neither so ubiquitous nor so routinely used [as they are today]. They were, essentially, a threat: a letter from a powerful person requesting anyone a traveler met to let the traveler pass unmolested – or else... protection was a privilege, not a right... a tool of social and economic control...
“... the railways and the steamships made travel faster and cheaper. Passports were unpopular... Napoleon III... abolished French passports in 1860... More and more countries either formally abandoned passport requirements or stopped bothering to enforce them, at least in peacetime... by the turn of the twentieth century, only a handful of countries were still insisting on passports to enter or leave.
... the name of the country on our passport determines where we can travel and work – legally... it’s a relatively recent historical development... access to a passport is, broadly speaking, determined by where you were born and the identity of your parents... the passport is a tool designed to ensure that a certain kind of discrimination takes place... on the grounds of nationality... migrant controls are back in fashion... the assumption being that someone who isn’t fleeing persecution – someone who simply wants a better job, a better life – should not be let in.
“Politically, the logic of restrictions on migration is increasingly hard to dispute... in the wealthiest countries, by one estimate, five in six of the existing population are made better off by the arrival of immigrants. So why does this not translate into popular support for open borders? ... the losses tend to be more visible than the gains... The economic logic of migration often seems more compelling when it doesn’t involve crossing national borders.
“… how much might global economic output rise if anyone could get on their bikes to work anywhere? Some economists have calculated it would double... our world would now be much richer if passports had died out in the early twentieth century. There’s one simple reason they didn’t: World War I intervened. With security concerns trumping ease of travel, governments around the world imposed strict new controls on movement... In 1920 the newly formed League of Nations convened an international Conference on Passports, Customs, Formalities and Through Tickets, and that effectively invented the passport as we know it.”
7. Robots: “... In Amazon’s depots, the company’s Kiva robots scurry around... By saving the time workers would otherwise spend trudging up and down aisles, Kiva robots can improve efficiency up to fourfold... Factories have had robots for decades, of course; since 1961, when General Motors installed the first Unimate, a one-armed robot resembling a small tank that was used for tasks such as welding. But until recently, they were strictly segregated from the human workers... Historically, industrial robots needed specialist programming... as of 2016, sales of industrial robots grew about 13 percent a year... the robot ‘birth rate’ is almost doubling every five years.
“For years there’s been a trend to ‘offshore’ manufacturing...now, the trend is to ‘reshore,’ bringing it back again, and robots are part of that... progress is partly thanks to robot hardware... In human terms, that’s like improving a robot’s eyes, the touch of its fingertips, or its inner ear – its sense of balance... ‘narrow AI’ – algorithms that can do one task very well... That capacity for self-improvement causes some thinkers like Bostrom to worry what will happen if and when we create artificial general intelligence – a system that could apply itself to any problem, as humans can. Will it rapidly turn itself into a super-intelligence? How would we keep it under control?
“Technology has always, eventually, created new jobs to replace the ones it destroyed. Those new jobs have tended to be better jobs... but they haven’t always been better, either for the workers or for society as a whole... Technology seems to be making more progress at thinking than doing: robots’ brains are improving faster than their bodies... robots can land airplanes and trade shares on Wall Street, but they still can’t clean toilets.”
8. The Welfare State: “Frances Perkins... tried to remind men of their mothers... All parents want to shield their children from serious harm; and Perkins believed governments should do the same for their citizens. She became President Franklin Roosevelt’s secretary of labor... Perkins helped drive through Congress the reforms that became known as the New Deal, including a minimum wage, benefits for the unemployed, and pensions for the elderly.
The “basic idea [of the welfare state]: the ultimate responsibility for ensuring that people don’t starve on the street should lie not with family, or charity, or private insurers, but with government... But it’s also plausible to think that welfare states can improve economic productivity... unemployment benefits... give you time to find a new position that makes the best use of your skills. Entrepreneurs might take more risks when they know that a bankruptcy won’t be catastrophic.
“In general, healthy, educated workers tend to be more productive... In South Africa, girls grew up healthier after their grandmothers started receiving state pensions: money became less of a family worry... The positive and negative effects balance out. Welfare states don’t make the pie bigger or smaller. But they do change the size of each individual’s slice. And that helps keep a lid on inequality... And welfare states are creaking under the weight of a rapidly changing world... people are living longer after retirement... entitlement programs often date from an era when most women relied on male breadwinners and most jobs were full-time and long-lasting... Employers were more geographically rooted than today’s footloose multinationals... Mobility of labor creates headaches too.
“Bismarck hoped his welfare provisions would be just generous enough to keep the public quiescent... When the roman emperor Trajan distributed free grain, the poet Juvenal famously grumbled that citizens could be bought off by ‘bread and circuses.’... The New Deal was attacked as much from the left as it was from the right... digital technologies are... widening the gap between the top 0.1 percent and the rest of us.
“People who instinctively feel that society should take care of its poorest members often feel very differently if those poorest members are migrants... the welfare state and passport control – go hand in hand... We need to design our welfare states to fit snugly with our border controls, buy we usually don’t.
“… Thomas More’s 1516 book Utopia: a universal basic income... From 1974 to 1979... a small Canadian town, Dauphin, in Manitoba. For five years, thousands of Dauphin’s poorest residents got monthly checks... Fewer teenagers dropped out of school. Fewer people were hospitalized with mental health problems. And hardly anyone gave up work.
“In the 1920s, not a single U.S. state offered old-age pensions; by 1935, Frances Perkins had rolled out Social Security across the nation.”
REINVENTING HOW WE LIVE
“Innovations are products that you can buy – or cheaper, better versions of things you’ve been buying all along... The plow... ushered in an utterly new way of life... And it didn’t help everyone in the same way... Real innovations... shape our world whether we buy them or not.”
9. Infant Formula: “In the German town of Darmstadt... Justus von Liebig... a chemist... was driven by making discoveries that might help prevent hunger... [He undertook] research into fertilizers... pioneered nutritional science – the analysis of food in terms of fats, proteins, and carbohydrates. He invented beef extract.
“Launched in 1865, Liebig’s Soluble Food for Babies was... the first commercial substitute for breast milk... before modern medicine, about one in one hundred childbirths killed the mother... in the early 1800s, only two in three babies who weren’t breastfed lived to see their first birthday... The appeal of formula quickly spread beyond women who couldn’t breastfeed... [It] democratized a lifestyle choice that had previously been open only to the well-to-do... new mothers who want or need to get back to work.
“Women took time off, and employers paid them less in response. Ironically, the men were more likely than the women to have children. They just didn’t change their working patterns... And formula milk makes it much easier for Dad to take over... studies show that the less time mothers have off work, the less likely they are to persevere with breastfeeding.
“There’s just one problem. Formula’s not all that good for babies... Formula-fed infants get sick more often... increased breastfeeding rates could save 800,000 children’s lives worldwide each year... breastfed babies grow up with slightly higher IQs... linked to greater productivity and lifetime earnings... You don’t want to do anything that will hold back gender equality in the workplace, but you do want a smarter, healthier population... Formula is arguably more addictive than tobacco or alcohol... meanwhile, pediatricians were starting to notice higher rates of scurvy and rickets.
“...in 1974...War on Want ... accused Nestle of marketing its infant formula in Africa without enough concern about whether mothers would be able to afford it after their breast milk stopped or use safe, clean water while preparing it... What if there was a way to get the best of all worlds, equal career breaks for moms and dads and breast milk for infants? ... In Utah... Ambrosia Labs... pays mothers in Cambodia to express breast milk, screens it for quality, and sells it on to American mothers.”
10. TV Dinners: “[In] 1965... many American women – even those with excellent educations – spent large chunks of their day catering for their families... Time-use surveys [were] conducted around the world... for educated women, the way time is spent in the United States and other rich countries has changed radically over the past half-century. Women in the United states now spend about forty-five minutes a day in total on cooking and cleaning up... men... spend just fifteen minutes a day.
“... the introduction, in 1954, of the TV dinner... developed by a bacteriologist named Betty Cronin... for the Swanson food-processing company... women... were expected to cook for their husbands yet were busy trying to develop their own careers... changes in food processing [included] the freezer, the microwave, preservatives... food preparation has increasingly been industrialized... spending on food is changing... In the 1960s, only a quarter of food spending was on food prepared and eaten outside the home... in 2015... Americans spent more on food and drink consumed outside the home than on food and beverages purchased at grocery stores... the British passed that particular milestone more than a decade earlier... chopped salad in bags; meatballs or kebab sticks doused in sauce and ready to grill; pre-grated cheese; jars of pasta sauce; tea that comes packaged in individual permeable bags; chicken that comes plucked, gutted, and full of sage and onion stuffing mix... sliced bread.
“...cumulatively, pre-prepared food saves many hours a week... Households were buying pre-milled flour in the early nineteenth century, rather than having to take their own grains to a mill or pound them into flour at home... Condensed milk was patented in 1856... Heinz ... precooked canned macaroni in the 1880s... compared time-use diaries in the United States between the 1920s and the 1960s... found an astonishing stability... women... married to farmers or highly educated and married to urban professionals, they still spend a similar amount of time on housework, and that time did not change much for fifty years... in the 1960s... industrialization of food really started to have a noticeable impact on the amount of housework that women did.
“... emancipating women wasn’t the frozen pizza but the washing machine? The idea is widely believed, and it’s appealing... But the revolution wasn’t in the lives of women. It was how lemon-fresh we all started to smell... the washing machine didn’t save a lot of time... before... we didn’t wash clothes very often...people would use replaceable collars and cuffs or dark outer layers to hide the grime... But we cannot skip many meals in the way that we can skip the laundry... we were willing to stink, but we weren’t willing to starve.
“Obesity rates rose sharply... Between 1977 and 1995, American potato consumption increased by a third, and almost all of those extra potatoes were fried... In the United States, calorie intake among adults rose by about 10 percent between the 1970s and the 1990s... all from snacking... we make very different decisions about what we eat depending on how far away the meal is... when we make more impulsive decisions, our snacks are more likely to be junk food... the TV dinner [and industrialized food in general] changed our economy in two important ways. It freed women... but... making empty calories ever more convenient.”
11. The Pill: “Infant formula changed what it meant to be a mother, and TV dinners changed what it meant to be a housewife. But the contraceptive pill changed both – and more besides... Margaret Sanger, the birth-control activist... urged scientists to develop it... The pill wasn’t just socially revolutionary. It also sparked an economic revolution... consider what the pill offered to women... it worked... the failure rate of the pill is just 6 percent... And responsibility for using the pill perfectly was the woman’s... the decision to use it was private and a woman’s own... first approved ... in 1960... in just five years, almost half of married women on birth control were using the pill.
“But the real revolution would come when unmarriedwomen could use oral contraceptives... In 1970, men earned more than 90 percent of the medical degrees awarded that year. Law and business degree classes were more than 95 percent male. Dentistry degree classes were 99 percent male... by 1980 they [women] were often a third of that class... by giving women control over their fertility, the pill allowed them to invest in their careers... it [the decision to use the pill] was also about finding a husband... it also changed the whole pattern of marriage. People – particularly people with college degrees – started to marry later... the pill must have played a major role in allowing women to delay marriage, delay motherhood, and invest in their own careers... if a woman in her twenties was able to delay motherhood by one year, her lifetime earnings would rise by 10 percent.”
12. Video Games: “At the beginning of the 1960s, at MIT, new computers were being installed in a more relaxed environment... students were allowed to mess around with them... the term ‘hacker’ was born... MIT ordered a new kind of computer... it communicated... through ... a video display... Slug Russell [and his friends developed] Spacewar, a two-player game that pitted starship captains against each other in a photon-torpedo-powered duel to the death.
“Beyond the money we spend on them, games affect the economy in a couple ways... [they] can create real jobs... Before long, ‘virtual sweatshops’ sprang up from China to India, where teenagers ground away on the tedious parts of certain games, acquiring digital shortcuts to sell to more prosperous players who wanted to get straight to the good stuff... some people are making tens of thousands of dollars a month on auction sites in Japan just selling virtual game characters... By 2011 the game scholar Jane McGonigal estimated that more than half a billion people worldwide were spending serious amounts of time – almost two hours a day, on average – playing computer games.
“In 2016... the economy was growing strongly, unemployment rates were low, and yet a surprisingly large number of able-bodied young men were either working part-time or not working at all... the happiness of these young men was rising... they were living at home, sponging off their parents, and playing video games.”
13. Market Research: “Charles Coolidge Parlin [is] widely recognized as the world’s first professional market researcher... Parlin was instructed to take the pulse of the U.S. automobile market... no car makers employed market researchers. Parlin had been hired by a magazine publisher... The magazine depended on advertising revenue. The company’s founder thought he’d be able to sell more advertising space if advertising was perceived as more effective... [Parlin was] a thirty-nine-year-old high school principal from Wisconsin... immersing himself in agricultural machinery; then he tackled department stores... an early step in a broader shift from a ‘producer-led’ to ‘consumer-led’ approach to business...
“Few companies nowadays would simply produce what’s convenient and then hope to sell it... by the late 1910s... U.S. advertising budgets nearly doubled... In the 1930s, George Gallup pioneered opinion polls; the first focus group was conducted in 1941... But systematically investigating consumer preferences was only part of the story; marketers also realized it was possible to systematically change them... The nature of advertising was changing: no longer just providing information, but trying to manufacture desire... Edward Bernays... helped the American Tobacco Company in 1929 persuade women that smoking in public was an act of female liberation. Cigarettes, he said, were ‘torches of freedom.’ ... Today: Where Ford offered cars in a single shade of black, Google famously tested the effect on click-through rates of forty-one slightly different shades of blue.”
14. Air-Conditioning: “[Now] we can control the weather inside... it has had some far-reaching and unexpected effects... Air-conditioning as we know it began in 1902, and it had nothing to do with human comfort... workers... were frustrated with varying humidity levels when trying to print in color... if it could devise a system to control humidity... a year out of Cornell University, Willis Carrier was earning $10 a week... But he figured out a solution: circulating air over coils that were chilled by compressed ammonia maintained the humidity at a constant 55 percent... wherever humidity posed problems: from textiles to flour mills to the Gillette Company, where excessive moisture rusted its razor blades.
“Carrier saw an opportunity. By 1906 he was already talking up the potential for ‘comfort’ applications in theaters and other public buildings... The burgeoning movie theaters of the 1920s were where the general public first experienced air-conditioning... The enduring and profitable Hollywood tradition of the summer blockbuster traces directly back to Carrier. So does the rise of the shopping mall.
“But air conditioning has become more than a mere convenience. Computers fail if they get too hot... Air-conditioning has transformed architecture... Air-conditioning has changed demographics too. Without it, it’s hard to imagine the rise of cities such as Houston, Phoenix, or Atlanta, as well as Dubai or Singapore... population boomed in the Sun Belt... [as] retirees in particular moved from north to south, they also changed the nation’s political balance.
“Air-conditioning lowers the death rate during heat waves... In prisons... pays for itself by reducing fights... when the temperature exceeds the low seventies, students start to score lower on math tests... air-conditioned offices enabled U.S. government typists to do 24 percent more work... the hotter the average temperature, the less productive people could be... human productivity peaks when the temperature is between 65 and 72 degrees Fahrenheit.
“But there’s an inconvenient truth: You can make it cooler inside only by making it warmer outside. Air-conditioning units pump hot air out of buildings... [it] increased city’s night-time temperature by two degrees... and the coolants air conditioners use, many of which are powerful greenhouse gases when they leak... there will still be an eightfold increase in energy consumption by 2050.”
15. Department Stores: “The year was 1888... what set Selfridge’s apart was attitude. Harry Gordon Selfridge was introducing Londoners to a whole new shopping experience... Selfridge swept away the previous shopkeepers’ custom of stashing the merchandise... open-aisle displays are now taken for granted... Selfridge compared the ‘pleasures of shopping’ to those of ‘sight-seeing.’... he appealed to the working classes by dreaming up the concept of the ‘bargain basement.’ ... Alexander Turney Stewart... introduced to New Yorkers in the mid-nineteenth century the shocking concept of not hassling customers the moment they walked through the door...’clearance sale’... Stewart offered no-quibble refunds. He made customers pay in cash or settle their bills quickly... he explained ‘Although I realize only a small profit on each sale, the enlarged area of business makes possible a large accumulation of capital.’... By the time Stewart died, over five decades later, he was one of the richest men in New York...
“Corvin in Budapest installed an elevator that became such an attraction in its own right that the store began to charge for using it. In 1898, Harrods in London installed a moving staircase that carried as many as four thousand people an hour. In such shops... there were picture galleries, smoking rooms, tea rooms, concerts.
“One of his [Selfridge’s] quietly revolutionary moves: Selfridge’s featured a ladies’ lavatory... a facility London’s shopkeepers had hitherto neglected to provide.”
INVENTING NEW SYSTEMS
16. The Dynamo: “In the 1980s... technology seemed to be booming, but productivity was almost stagnant... the ‘productivity paradox.’ What might explain it? For a hint, rewind a hundred years... corporations were investing in electric dynamos and motors and installing them in workplaces. Yet the surge in productivity would not come. The potential for electricity seemed clear... Yet by 1900, less than 5 percent of mechanical drive power in American factories was coming from electric motors. Most factories were still in the age of steam.
“[In] a steam-powered factory... the engine turned a central steel driveshaft that ran along the length of the factory... As electric motors became widely available... they kept installing more... [but] entrepreneurs... opted for good old-fashioned steam. Why? ... To take advantage of electricity, factory owners had to think in a very different way... electric motors could do so much more [than steam engines] ... Power wasn’t transmitted through a single, massive spinning driveshaft but through wires... In the old factories, the steam engine set the pace. In the new factories, workers could set the pace.
“You needed to change everything: the architecture, the production process, how the workers were used... In the late 1910s and the 1920s... the passport [had a resurgence]... [It] limited immigration... labor was in short supply... wages... soared. Hiring... became more about quality and less about quantity... The passport helped kick-start the dynamo... new ideas about manufacturing spread... productivity in American manufacturing soared... manufacturers finally figured out how to use technology that was nearly half a century old. They had to change an entire system.
“By 2000... many companies had invested in computers for little or no reward, but others had reaped big profits... What mattered, they argued, was whether the companies had also been willing to reorganize as they installed the new computers, taking advantage of their potential... decentralizing decisions, streamlining supply chains, and offering more choice to customers... you needed to change the whole system.”
17. The Shipping Container: “In the early 1960s, world merchandise trade was less than 20 percent of world GDP. Now, it’s about 50 percent... the anxieties of ordinary people are so in conflict with the near unanimous approval of economists...the biggest enabler of globalization... a simple invention: a corrugated steel box, eight feet wide, eight and a half feet high, and forty feet long.
“The real challenge was physically loading ships... [Workers] would pile barrels... and boxes... carry or cart each item... shifted with muscle power... someone would be killed every few weeks... [It took] ten days to load and unload... was costly, chancy, and immensely time-consuming... the shipping container had already been tried in various forms for decades... The real challenge was overcoming the social obstacles... [they] couldn’t agree on a standard... powerful dockworkers’ unions...red tape.
“The man who navigated this maze... was an American, Malcolm McLean... a trucking entrepreneur... [with] ambition, vision, daring... What made him different was his political savvy and his daring... McLean managed to gain control of both a shipping company and a trucking company at the same time... McLean was also a savvy political operator... [He] sold the idea of container shipping to perhaps the worlds’ most powerful customer: the U.S. military... trying to ship equipment to Vietnam... an integrated logistical system.
“The colossal ballet of engineering is choreographed by computers... The crane... will grasp another before swinging back over the ship, which is being emptied and refilled simultaneously... Goods can now be shipped reliably, swiftly, and cheaply: rather than the $420 (in today’s money)... to ship a ton of goods across the Atlantic in 1954, you might now pay less than $50 a ton... The consumer... enjoys the greatest possible range of the cheapest possible products.”
18. The Bar Code: “In 1948 Joseph Woodland [sought an effort to] speed up the process of checking out in... stores by automating the tedious process of recording transactions... Just as Morse code used dots and dashes to convey a message, he could use thin lines and thick lines to encode information... The striped-scan system was independently rediscovered... in the 1950s... David Collins put thin and thick lines on railway cars so that they could be read automatically by a trackside scanner. In the early 1970s... George Laurer... developed a system that used lasers and computers that were so quick they could process labeled beanbags being hurled over the scanner system.
“The U.S. grocery industry agreed upon a standard for the Universal Product Code, or UPC... In June 1974... a ten-pack of fifty sticks of Wrigley’s Juicy Fruit chewing gum... automatically register[ed] the price of 67 cents. The gum was sold. The bar code had been born... But... the bar code doesn’t work unless it’s integrated into a system. [And it] didn’t really work without a critical mass of adopters... But big-box supermarkets could spread the cost of the scanners across many more sales... in America, bar codes let supermarkets change the price of products by sticking a new price tag on the shelf rather than on each item.
“As the bar code spread across retailing in the 1970s and 1980s, big-box retailers also expanded. The scanner data underpinned customer databases and loyalty cards... and... made just-in-time deliveries more attractive... supermarkets in particular started to generalize – selling flowers, clothes, and electronic products. Running a huge, diversified, logistically complex operation was all so much easier in the world of the bar code.
“In 1988... Walmart decided to start selling food. It is now the largest grocery chain in America... Walmart was an early adopter of the bar code... But the bar code isn’t just a way to do business more efficiently; it also changes what kind of business can be efficient.”
19. The Cold Chain: “There’s a name for poor countries with crazy dictators propped up by cynical foreign money: banana republics... One of the cofounders of the United Fruit Company... was a man named Lorenzo Dow Baker... his boat sprang a leak... so he docked in Jamaica for repairs... so he bought bananas, backing himself to get them home before they spoiled... He managed it for a healthy profit, and went back for more.
“Bananas were a risky business... If only you could keep them cool en route, they would ripen more slowly and could reach a bigger market... [Bananas were not] the only foodstuff prompting interest in refrigerating ships... Argentina’s... beef... In 1876, Charles Tellier... fitted up a ship... with a refrigeration system, packed it with meat, and... after 105 days at sea, the meat arrived still fit to eat... By 1902 there were 460 refrigerated ships.
“‘Reefers’ refrigeration units couldn’t cope with the vibrations of road travel... A young African American boy... Frederick McKinley Jones... His new vibration-proof refrigeration unit... eventually called Thermo King... became the last link in the cold chain... The cold chain now is how vaccines get around... widened our choice of food... enabled the rise of the supermarket... Fewer shopping trips means housewives face fewer obstacles to becoming career women.
“The cold chain is one of the pillars of the global trading system... the shipping container made long-distance commerce cheaper, quicker and more predictable. The bar code helped huge diverse retailers keep track... The diesel engine made... ships... efficient. The cold chain took all these other inventions and extended their reach to perishables... this kind of shipping can make both economic and environmental sense.”
20. Tradable Debt and the Tally Stick: “... most money isn’t in the form of coins at all... In fact, in 1834, the British government decided to destroy six hundred years’ worth of precious monetary artifacts... [with] unfortunate consequences... humble sticks of willow, about eight inches long, called Exchequer tallies... a way of recording debts... a record of the debt [was] carved into the wood... The stick would be split in half, down its length... [Due to its] distinctive grain, the two halves would match only each other... the tally stick itself was worth close to five pounds in its own right... [to] buy something... the seller would... accept the tally stick as a safe and convenient form of payment... [This] shows us clearly what money really is: it’s debt.
“Similar debts were traded... in China... [In Ireland and other countries] checks were passed around without ever being cashed... checks... like the tally sticks – had become a form of private money... the checks were the system of money with the underlying mechanism laid bare... a system of trust and exchange which ultimately is what modern money is.
21. The Billy Bookcase: “It’s the archetypal IKEA product. It was dreamed up in 1978 by an IKEA designer... Now there are sixty-odd million in the world... Every three seconds another Billy bookcase rolls off the production line... employees never actually touch a bookshelf – their job is to tend the machines... In goes particleboard by the truckload, six hundred tons a day…
“The company’s founder, Ingvar Kamprad, was just seventeen when he started the business... [He] hadn’t yet hit on the idea of flat packing. That came a few years later... one way to keep prices low is to sell furniture in pieces rather than pay laborers to assemble it... even bigger savings come from ... transport.
“It doesn’t look as if it’s changed much since 1978, but it does cost 30 percent less... due to constant, tiny tweaks in both product and production method... also... economies of scale... compared with the 1980s, it’s making 37 times as many bookcases, yet its number of employees has only doubled... robots... both cheap and acceptably good... relentlessly finding ways to cut costs and prices without reducing the quality of its products... boringly efficient systems
“the innovations are about working within the limits of production and logistics, finding tiny ways to shave more off the cost, all while producing something that looks inoffensive and does the job.”
22. The Elevator: “We don’t tend to think of elevators as mass transportation systems, but they are... China alone is installing 700,000 elevators a year... the safetyelevator. Elevators themselves have existed for a long time... haul on a rope... draft animals... steam power.. what was crucial was designing an elevator that was... demonstrably and consistently safe... Elisha Otis. At the 1853 World’s Fair in New York... invented not the elevator but the elevator brake...
“the highest reaches used to be the servant’s quarters, the attic for mad aunts, or the garret for struggling artists... Without the air conditioner, modern glass skyscrapers would be uninhabitable. Without either steel or reinforced concrete, they would be unbuildable. And without the elevator, they would be inaccessible.”
“Another crucial element of that system was mass public transportation... elevators and subways are symbiotic... high-rise cities across the planet... tend to be highly desirable places to live... They’re creative... rich... with low rates of energy use per person and low consumption of gasoline... wealth, creativity, and vitality in a modest environmental footprint... elevators... are... ten times safer than escalators... one of the most environmentally friendly technologies... a green mode of transport that moves billions of people every year.”
IDEAS ABOUT IDEAS
“When someone develops an idea that allows other ideas to emerge… Thomas Edison... inventing a process for inventing things... the invention of the factory itself pales beside some of the other ‘meta-ideas’ that have been developed... the oldest idea about ideas is almost as old as the plow itself.”
23. Cuneiform: “why ancient civilizations developed writing was a mystery for a long time. Was it for religious or artistic reasons? To send messages to distant armies?
“[Consider the] tablets... from Uruk... one of the world’s first true cities... this great city had produced writing... [and]ruins... littered with little clay objects, some conical, some spherical, some cylindrical... Denise Schmandt-Besserat in the 1970s... catalogued... pieces... Some of them were nine thousand years old... [those] shaped like jars could be used to count jars. Correspondence counting... look at two quantities and verify that they are the same.
“Uruk tokens took things further, because they were... used both to add and to subtract... Those abstract marks on the cuneiform tablets? They matched the tokens! ... The tablets had been used to record the back-and-forth of the tokens, which themselves were recording the back-and-forth of the sheep, the grain, and the jars of honey... ancient accountants realized it might be simpler to make the marks with a stylus. So cuneiform writing was a stylized picture of an impression... used to create the world’s first accounts... first written contracts too.
“... the numerical system was powerful enough to express large quantities – hundreds, even thousands. One demand for war reparations, 4,400 years old, is for 4.5 trillion liters of barley grain... It was also the world’s first written evidence of compound interest... not only the first accounts and the first contracts, but the first mathematics and even the first writing.”
24. Public-Key Cryptography: “It was 1977. If the government agency [“a shadow agency of the United States government”] had been successful in its attempts to silence academic cryptographers, it might have prevented the Internet as we know it... The World Wide Web was years away... cryptography... was of practical use only for spies and criminals... the development of cryptography has indeed been driven by conflict.
“...symmetricalencryption... The Stanford researchers were interested in whether encryption could be asymmetrical... It’s as if you could distribute open padlocks for the use of anyone who wants to send you a message – padlocks only you can then unlock... you... demonstrate it every time you send a confidential work e-mail, or buy something online, or use a banking app, or visit any website that stars with ‘https.’ Without public-key cryptography anyone at all would be less able to read your messages, see your passwords, and copy your credit card details.
“If we can’t restrict encryption only to the good guys, what powers should the state have to snoop – and with what safeguards? Meanwhile, another technology threatens to make public-key cryptography altogether useless. That technology is quantum computing.
25. Double-Entry Bookkeeping: “Luca Pacioli... a renaissance man – educated for a life in commerce ... also a conjuror, a master of chess, a lover of puzzles, a Franciscan friar, and a professor of mathematics... called the father of double-entry bookkeeping, but he did not invent it... Francesco di Marco Datini, a merchant from Prato near Florence... kept accounts for nearly half a century, from 1366 to 1410... in 1394 Datini orders wool from Mallorca... twenty-nine sacks of wool arrive... coiled into thirty-nine bales... to a customer... to Datini’s warehouse... the final product, six long cloths... the last cloth is sold in 1398, nearly four years after Datini originally ordered the wool. No wonder Datini was so anxious and insistent on absolute clarity about inventory... a decade before ordering the wool he began using the state-of-the-art system of bookkeeping alla veneziana.
“... what... did... Luca Pacioli add? ... in 1494 he wrote the book: Summa de arithmetica, geometria, proportioni et proportionalita... [a] survey of everything ... known about mathematics – 615 large and densely typeset pages... included twenty-seven pages that are regarded by many as the most influential work in the history of capitalism. It was the first description of double-entry bookkeeping to be set out clearly, in detail, and with plenty of examples.
“... the system used across the world today is essentially the one that Pacioli described... [including] two key elements... First... taking inventory... using two books – a rough memorandum and a tidier, more organized journal. Second... a third book – the ledger – as the foundation of the system, the double entries themselves... if you sell cloth for a ducat, say, you must account for both the cloth and the ducat... every entry should be balanced by a counterpart.
“... during the industrial revolution... Josiah Wedgwood, the pottery entrepreneur... [was] flush with success... But in 1772... a severe recession... [left him with] unsold stock; his workers stood idle... Wedgwood turned to double-entry bookkeeping to understand which elements of his business were profitable and how to develop them... use of accounts as an aid to decision-making, and the discipline of ‘management accounting’ was born.... ensuring that shareholders in a business receive a fair share of corporate profits – when only the accountants can say what those profits really are... It underpins... taxation, debt and equity markets, and modern management all rely on it. Yet it does not protect us from outright fraud.”
26. Limited Liability Companies: “In the law’s eyes, a corporation is something different from the people who own it, or run it, or work for it... the direct ancestor of today’s corporations was born in England, on New Year’s Eve, in 1600. Back then... you needed a royal charter... The legal body created that New Year’s Eve was charged with handling all of England’s shipping trade east of the Cape of Good Hope, near the southern tip of Africa. Its shareholders were 218 merchants. Crucially, and unusually, the charter granted those merchants limited liabilityfor the company’s actions... otherwise, investors were personally liable for everything the business did.
“The way we invest today – buying shares in companies whose managers we will never meet – would be unthinkable without limited liability. And that would severely limit the amount of capital a business venture could raise...The corporation Queen Elizabeth created was called the East India Company... In 1811, New York State introduced it... for any manufacturing company... [Of course] the limited liability corporation has its problems... Some argue that companies have grown too big, too influential... So there’s plenty to worry about... let’s also remember what the limited liability company has done for us. By helping investors pool their capital without taking unacceptable risks, it enabled big industrial projects, stock markets, and index funds. It played a foundational role in creating the modern economy.
27. Management Consulting: “A textile plant near Mumbai, India... 2008... piles of flammable junk... uncovered containers of chemicals... inventory is scattered... Researchers from Stanford University and the World Bank... [are] going to send in a team of management consultants to tidy up some of these companies, but not others... then... track what happens... Are management consultants worth their fees?
“The industry battles a stereotype of charging exorbitant fees for advice that, on close inspection, turns out to be either meaningless or common sense...Globally, consulting firms charge their clients a total of about $125 billion... In the late nineteenth century, the U.S. economy was expanding fast... an unprecedented wave of mergers and consolidations... Some employed more than 100,000 people... nobody had ever tried to manage such vast organizations before... using accounts to actually manage a large corporation would require a new approach...
“James McKinsey... published... in 1922... Budgetary Control... McKinsey proposed drawing up accounts for an imaginary corporate future... [his] method helped managers take control, setting out a vision for the future rather than simply reviewing the past... Why don’t company owners simply employ managers who’ve studied those scientific approaches themselves?... why [have] companies like McKinsey gained such a foothold in the economy?... The Banking Act of 1933, known as Glass-Steagall... made it compulsory for investment banks to commission independent financial research into the deals they were brokering... Glass-Steagall forbade law firms, accounting firms and the banks themselves from conducting this work.
“In 1956 the justice Department banned the emerging computer giant IBM from providing advice about how to install or use computers. Another business opportunity for the management consultants... the consultants endlessly find new problems to justify their continued employment.
“... the global consulting firm Accenture... put some structure into these mumbled Mumbai textile factories... Productivity jumped by 17 percent.”
28. Intellectual Property: “Intellectual property reflects an economic tradeoff... but it has always been colored by politics... American newspapers filled their pages with brazenly stolen copy... The modern form of intellectual property originated, like so many things, in fifteenth-century Venice... [but] these are all very modern ideas. And they soon created very modern problems... what truly unleashed steam-powered industry was the expirationof the patent, in 1800, as rival inventors revealed the ideas they had been sitting on for years.
“Copyright terms are growing ever longer... In 2014, the electric car company Tesla opened up access to its patent archive in an effort to expand the industry as a whole, calculating that Tesla would benefit from that.”
29. The Compiler: “Microsoft Windows... takes up twenty gigabytes of space on my hard drive. That’s 170 billion ones and zeroes. Print them out and the stack of paper would be almost two and a half miles high... If it took a second to flip each switch, installing Windows would take five thousand years.
“Early computers really did have to be programmed rather like this. Consider the Automatic Sequence Controlled Calculator, later known as the Harvard Mark I. It was a concatenation of wheels and shafts and gears and switches, measuring fifty-one feet long by eight feet high by two feet deep. It contained 530 miles of wires.
“It’s... unthinkable that computers could do what they do if programmers couldn’t write software such as Windows in human-like language and have it translated into ones and zeroes, the currents or not-currents, that ultimately do the work... An early kind of computer program called the ‘compiler’ [made that possible]... the story... starts with... Grace Hopper.
“Grace Hopper’s compiler evolved into one of the first programming languages, COBOL... More and more layers of abstraction [have freed] up programmer brain power to think about concepts and algorithms, not switches and wires... Hopper thought anyone should be able to program. Now anyone can. And computers are far more useful because of it.”
WHERE DO INVENTIONS COME FROM?
“This book doesn’t focus on the question of how inventions come into being – it is more interested in the question of what inventions do to the social and economic structures that surround us... the demand-driven invention [the plow]... the supply-push invention [the TV dinner]... invention by analogy [Google Search and the bar code]... even for a single invention, it’s hard to pin down a single person who was responsible.”
30. The iPhone: “... a product that was to become the most profitable in history... twelve key technologies that make smartphones work... The foundational figure in the development of the iPhone wasn’t Steve Jobs. It was Uncle Sam. Every single one of these twelve key technologies was supported in significant ways by governments – often the American government... it was government funding and government risk taking that made all these things possible.”
31. The Diesel Engine: Rudolf Diesel... traveling from Belgium across the English Channel... was thinking about his heavy debts and the interest payments that would soon come due... Diesel had gathered what cash he could and stuffed it into a bag, together with documents laying bare the financial mess he was in. He gave the bag to his wife, telling her not to open it until a week had passed... and then he jumped. Or did he?... Conspiracy theorists have speculated that Diesel was assisted overboard... conspiracy theories... help us understand the economic significance of the engine Diesel invented in 1892... Diesel’s invention quite literally, is the engine of global trade.”
32. Clocks: “In fact, there’s no such thing as ‘the correct time.’ Like the value of money, it’s a convention that derives its usefulness from the widespread acceptance of others. But there is such a thing as accurate timekeeping. That dates from 1656, and a Dutchman named Christian Huygens... there was one increasingly important area of life where the inability to keep accurate time was of huge economic significance: sailing.
“Huygens’s pendulum clock was sixty times more accurate than any previous device: but even fifteen seconds a day soon mounts up on long, seafaring voyages, and pendulums don’t swing neatly on the deck of a lurching ship... It was a subsequent prize offered by the British government that led to a sufficiently accurate device being painstakingly refined, in the 1700s, by an Englishman named John Harrison.
“… [Now] the whole world has agreed on what to regard as ‘the correct time’ – coordinated universal time, or UTC… based on atomic clocks, which measure oscillations in the energy levels of electrons… The output of all this sophistication is accurate to within a second every three hundred million years.
“For more than a century… members of the Belville family made a living in London by collecting the time from Greenwich every morning and selling it around the city, for a modest fee… [for clients, it was] a matter of professional pride. But there are places where milliseconds now matter… perhaps the most significant impact of the atomic clock – as it was first with ships, and then with trains – has been on travel… We have the GPS. The most basic of smartphones can locate you by picking up signals from a network of satellites; because we know where each of those satellites should be in the sky at any given moment, triangulating their signals can tell you where you are on earth… But it works only if those satellites agree on the time.
“Meanwhile, clocks continue to advance: scientists have recently developed one, based on an element called ytterbium, that won’t have lost more than a hundredth of a second by the time the sun dies and swallows up the Earth, in about five billion years.”
33. Chemical Fertilizer: “… a breakthrough that some now consider to be the most significant invention of the twentieth century. Without it, close to half the world’s population would not be alive today. The Haber-Bosch process uses nitrogen from the air to make ammonia, which can then be used to make fertilizers… Manure has nitrogen. So does compost… 78 percent of the air is nitrogen, but not in a form plants can use… Plants need those atoms ‘fixed,’ or compounded with some other element… If only it were possible to convert nitrogen from the air into a form plants could use.
“That’s exactly what Fritz Haber worked out how to do. He was driven partly by curiosity, partly by the patriotism that was later to lead him down the path to chemical warfare, and partly by the promise of a lucrative contract from the chemical company BASF. That company’s engineer, Carl Bosch managed to replicate Haber’s process on an industrial scale… The Haber-Bosch process is perhaps the most significant example of what economists call ‘technological substitution’: when we seem to have reached some basic physical limit, then find a workaroun
“… the Haber-Bosch process today consumes more than 1 percent of all the world’s energy… Compounds such as nitrous oxide are powerful greenhouse gases. They pollute drinking water. They create acid rain… demand for fertilizer is projected to double in the coming century… scientists still don’t fully understand the long-term impact on the environment… One result… is already clear: plenty of food for lots more people.”
34. Radar: “[the] story starts with the invention of the death ray. No, wait – it starts with an attemptto invent the death ray… in 1935… Skip Wilkins was no fool… the death ray was hopeless: it would take too much power… Wilkins pondered [alternative ways to spend the British Air Ministry’s research budget]: it might be possible, he suggested, to transmit radio waves and detect, from the echoes, the location of oncoming aircraft long before they could be seen.
“The Nazis, the Japanese, and the Americans all independently started work on it, too. But by 1940, it was the Brits who’d made a spectacular breakthrough: the resonant cavity magnetron, a radar transmitter far more powerful than its predecessors. Pounded by Nazi bombers, Britain’s factories would struggle to put the device into production. But American factories could…
“Winston Churchill… decided… Britain would simply tell the Americans what they had and ask for help… in August 1940 a Welsh physicist named Eddie Bowen [escorted a dozen prototype magnetrons to the US.] …The magnetron stunned the Americans; their research was years off the pace. President Roosevelt approved funds for a new laboratory at MIT – uniquely, for the American war effort, administered not by the military but by a civilian agency… Rad Lab…
“In 1945… U.S. domestic airlines carried 7 million passengers; by 1955, it was 38 million. And the busier the skies, the more useful radar would be at preventing collisions… On June 30, 1956, two passenger flights departed Los Angeles airport, three minutes apart: one was bound for Kansas City, one for Chicago. Their planned flight paths intersected above the Grand Canyon… the planes seem to have approached each other at a 25-degree angle, presumably through a cloud… One hundred twenty-eight people died… Collisions today are remarkably rare, no matter how cloudy the conditions. That’s due to many factors, but it’s largely thanks to radar.”
35. Batteries: “In 1780s Italy, [Luigi] Galvani had discovered that touching the severed legs of a dead frog with two different types of metal caused the legs to jerk. Galvani thought he had discovered ‘animal electricity’… Alessandro Volta… had a better intuition about what was going on. The important thing… wasn’t that the frog flesh was of animal origin; it was that it contained fluids that conducted electricity, allowing a charge to pass between the different types of metal… the circuit was complete, and a chemical reaction caused electrons to flow….
“In 1800, he showed that you could generate a constant, steady current by piling up sheets of zinc, copper, and brine-soaked cardboard. Volta had invented the battery… Volta gave us a word: volt… It was 1859 before we got the first rechargeable battery, made from lead, lead dioxide, and sulfuric acid... The first ‘dry’ cells, the familiar modern battery, came in 1886… In 1985, Akira Yoshino patented the lithium-ion battery.
“Where’s the battery that is light and cheap, recharges in seconds and never deteriorates with repeated use? We’re still waiting… in the coming decades, the truly revolutionary development in batteries may be not in the technology itself, but in its uses… We may soon see them as the thing that makes the grid work better.”
36. Plastic: “… Leo Baekeland… went to night school and won a scholarship to the University of Ghent; by the time he was twenty, he had a doctorate in chemistry. He married his tutor’s daughter, they moved to New York, and there Leo invented a new kind of photographic printing paper that made him a fortune – enough, at least, that he never needed to work again… he built a home laboratory, to indulge his love of tinkering with chemicals…
“In July 1907, he recorded that he was experimenting with phenol and formaldehyde… [Baekeland later wrote] ‘This is the 23rdanniversary of my Doctorship… How these twenty three years have gone fast… Now I am again a student, and a student I will remain until death calls me again to rest.’ …He made a second fortune. He became famous enough that in 1924 Timemagazine put his face on the cover without needing to mention his name – just the words ‘It will not burn. It will not melt.’ What Leo Baekeland invented that July was the first fully synthetic plastic. He called it Bakelite.
“Plastics now are everywhere… The world makes so much plastic, it consumes about 8 percent of oil production – half for raw material that goes into the plastic itself, half for the energy required to make it… Leo’s Bakelite Corporation… christened it ‘The Material of a Thousand Uses.’ …It was even used in the first atomic bomb… despite its image problem, plastic production has grown about twentyfold. Experts predict it will double again in the next twenty years… One estimate is that by 2050, all the plastic in the sea will weigh more than all the fish… latest techniques ‘upcycle’ plastic trash. One, for instance, turns old plastic bottles into a material resembling carbon fiber… mixing discarded plastic with other waste materials… promises to create new materials, with new properties. Leo Baekeland would have approved.”
THE VISIBLE HAND
“… The invisible hand does not always guide us: sometimes we need the visible hand of government too… Some of the most important inventions that shaped the modern economy weren’t just helped along the way by government, but were entirely the creation of the state – for example, the limited liability company, intellectual property, and, most obvious, the welfare state itself.”
37. The Bank: “… The [strange, circular chapel on Fleet Street] is Temple Church, consecrated in 1185 as the London home of the Knights Templar, a religious order. But Temple Church is not just an important architectural, historical, and religious site. It is also London’s first bank… The Templars dedicated themselves to the defense of Christian pilgrims to Jerusalem… a Christian pilgrim [needed to] fund months of food and transport… [and was] a target for robbers. Fortunately, the Templars had that covered. A pilgrim could deposit funds at Temple Church in London and withdraw them in Jerusalem. Instead of carrying a purse stuffed with money, he’d carry a letter of credit.
“Several centuries earlier, Tang dynasty China used feiquan– flying money, a two-part document allowing merchants to deposit profits in a regional office and reclaim their cash back in the capital. But that system was operated by the government…
“The Templars were eventually disbanded in 1312. But then who stepped into the banking vacuum? …[At] the great fair of Lyon in 1555… an Italian merchant… was making a fortune [with only] a desk and an inkstand… signing… pieces of paper and becoming very rich… he was buying and selling debt.
“Our financial system today still has a lot in common with this system. An Australian with a credit card can walk into a supermarket in, say, Lyon, and she can walk out with groceries… International banks are locked together in a web of mutual obligations that defies understanding or control… Governments keep searching for ways to hold them in check… Few regulators have been as ardent as Philip IV of France. He owed money to the Templars… Templars were tortured and forced to confess to any sin the Inquisition could imagine… the last grandmaster of the Templars, Jacques de Molay, was brought to the center of Paris and publicly burned to death.”
38. Razors and Blades: “… a book [was] written in 1894 by a man who had a vision that has ended up shaping how the modern economy works… His name was King Camp Gillette, and he invented the disposable razor blade… If you’ve ever bought replacement cartridges for an inkjet printer, you’ll likely have been annoyed to discover that they cost almost as much as you paid for the printer itself… But for a manufacturer, selling the printer cheaply and the ink expensively is a business model that makes sense… two-part pricing. It’s known as the ‘razor and blades’ model.
“Gillette realized that if he devised a clever holder for the blade, to keep it rigid, he could make the blade much thinner – and cheaper to produce. He didn’t immediately hit on the two-part pricing model though: initially, he made bothparts expensive… The model of cheap razors and expensive blades evolved only later, as Gillette’s patents expired and competitors got in on the act. Today two-part pricing is everywhere. Consider the PlayStation 4. Every time Sony sells one, it loses money: the retail price is less than it costs to manufacture and distribute.
“How about Nespresso? Nestle makes its money not from the machine, but from the coffee pods… Two-part pricing models work by imposing what economists call ‘switching costs.’… When they quietly raise their prices o make the terms and conditions less attractive, many customers won’t bother to change… Why don’t we reward companies that charge more for their printers and less for their ink, when that would work out cheaper overall? … many consumers get confused by two-part pricing. Either they don’t realize they’ll be exploited later, or they do realize but find it hard to pick the best deal out of a confusing menu of options.”
39. Tax Havens: “If two-part pricing sometimes confuses customers, it’s a model of simplicity compared with cross-border tax laws… Accounting techniques that make your brain hurt enable multinationals such as Google, eBay, and IKEA to minimize their tax bills – completely legally…
“Tax havens haven’t always had such a bad image. Sometimes they’ve functioned like any other safe haven, allowing persecuted minorities to escape the oppressive rules of home. Jews in Nazi Germany, for instance, were able to ask secretive Swiss bankers to hide their money… Nowadays, tax havens are controversial for two reasons: tax avoidance and tax evasion… at least 8 percent of the world’s wealth is illegally reported… That would build plenty of schools and hospitals…
“55 percent of U.S.-based companies’ profits are routed through some unlikely-looking jurisdiction such as Luxembourg or Bermuda, costing the U.S. government $130 billion a year… Perhaps the biggest problem is that tax havens mostly benefit financial elites, including some politicians and many of their donors.”
40. Leaded Gasoline: “Leaded gasoline was safe. Its inventor was sure of it… he might have mentioned that he’d recently spent several months in Florida recovering from lead poisoning… [Of the 49 people who worked in the Standard Oil plant in new Jersey where leaded gasoline was made in 1924, five died and 35 were hospitalized.]
“Leaded gasoline is banned now, almost everywhere. It’s among the many regulations that shape the modern economy. And yet ‘regulation’ has become a dirty word: politicians often promise to sweep them away; you rarely hear calls for more. It’s a trade-off between protecting people and imposing costs on business. And the invention of leaded gasoline marked one of the first times that trade-off sparked a fierce public controversy…
“Is it possible that kids who didn’t breathe leaded gasoline fumes grew up to commit less violent crimes? [One study] concluded that nationally over half the drop in crime – 56 percent – was because of cars switching to unleaded gas. That doesn’t, on its own, prove that the initial decision to allow leaded gasoline was morally wrong… the lead additive did solve a problem: it enabled engines to use higher compression ratios, which made them more efficient… Cynics might point out that any old farmer could distil ethyl alcohol from grain; it couldn’t be patented, or its distribution profitably controlled. Tetraethyl lead could…
“We’ve learned something about research and regulation-making from disasters like leaded gasoline, but you’d be optimistic to think the problem is solved completely… the scientist who first put lead in gasoline… Thomas Midgley was a genial man… But as an inventor, his inspirations seem to have been cursed. His second major contribution to civilization was the chlorofluorocarbon or CFC. It improved refrigerators, but destroyed the ozone layer.
“In middle age, afflicted by polio, Midgley applied his inventor’s mind to lifting his weakened body out of bed. He devised an ingenious system of pulleys and strings. One day they tangled around his neck and killed him.”
41. Antibiotics in Farming: “you don’t need a prescription [in China] to buy antibiotics. And anyway, vets are expensive. Antibiotics are cheap… antibiotics also fatten animals… across the world, more antibiotics are injected into healthy animals than sick humans. In the big emerging economies, where demand for meat is growing as incomes rise, use of agricultural antibiotics is set to double in twenty years…
“… bacteria don’t care who is to blame. They busily evolve resistance to these antibiotics, and public health experts fear we are entering a post-antibiotic age… You might think we’d be doing everything possible to preserve antibiotics’ life-saving power. You’d be wrong.
“…by 1945, penicillin – the first mass-produced antibiotic – was rolling off production lines… Nobel Prize [winner Alexander Fleming] took the opportunity to issue a warning. ‘It is not difficult… to make microbes resistant to penicillin in the laboratory by exposing them to concentrations not sufficient to kill them.’ Fleming worried that an ‘ignorant man’ might underdose himself, allowing drug-resistant bacteria to evolve… We know the risks, but face incentives to take them away
“… suppose I run a pig farm. Giving routine low doses of antibiotics to my pigs is the perfect way to breed antibiotic-resistant bacteria. But that’s not my concern. My only incentive is to care about whether dosing my pigs seems to increase my revenues by more than the cost of the drugs… individuals rationally pursuing their own interests ultimately create a collective disaster…
“Drug companies want to produce products that will be widely used. But what the world really needs is a new range of antibiotics that we put on the shelf and use only in the direst emergencies. But a product that doesn’t get used isn’t much of a money spinner for the drug companies.
“We’ll also need smarter regulations… recent studies suggest that when animals are kept in better conditions, routine low doses of antibiotics have very little impact on their growth… economic incentives to overuse them [is what]… ultimately needs to change.”
42. M-Pesa:“… Afganistan’s [pilot project] is among the developing country economies currently being shaped by mobile money – the ability to send payments by text message. The ubiquitous kiosks that sell prepaid mobile airtime effectively function like bank branches: you deposit cash, and the agent sends you a text message adding that amount to your balance; or you send the agent a text, and she gives you cash. And you can text some of your balance to anyone else… it first took off in Kenya… customers of African mobile networks were transferring prepaid airtime to one another as a sort of quasi-currency… [The initial idea] was about… microfinance, a hot topic in international development at the time. Hundreds of millions of would-be entrepreneurs were too poor for the banking system to bother with, so they couldn’t get loans. If only they could borrow a small amount – enough to buy a cow, perhaps, or a sewing machine, or a motorbike – they could start a thriving business…
“Pesameans ‘money’ in Kenya, as does paisain Afghanistan… using M-Pesa to avoid being robbed on the road, depositing money before a journey and withdrawing it on arrival. It’s the same need that the Templars met for pilgrims traveling to Jerusalem almost a thousand years ago… Just eight months after M-Pesa launched, a million Kenyans had signed up; as of 2017, that number is now about twenty million. Within two years, M-Pesa transfers amounted to 10 percent of Kenya’s GDP – that’s since become nearly half. Soon there were a hundred times as many M-Pesa kiosks in Kenya than ATMs.
“M-Pesa is a textbook ‘leapfrog’ technology: where an invention takes hold because the alternatives are poorly developed… Most of the poorest Kenyans – those earning less than $1.25 a day – had signed up to M-Pesa within a few years. By 2014, mobile money was in 60 percent of developing-country markets… what rural Kenyan households most like about M-Pesa is the convenience for family members sending money home. But two more benefits could be even more profound… tackling corruption… in Afghanistan, bribes amount to a quarter of GDP… when income is traceable, it is also taxable. That’s the other big promise of mobile money: broadening the tax base by formalizing the gray economy.”
43. Property Registers: “…If you don’t own anything, what incentive is there to work, to invest, to improve your land? … in 1978 [in China], a group of farmers secretly met and agreed to abandon collective farming, divide up the land, and each keep whatever surplus they produce after meeting collective quotas… [They were found out.] … their farms had produced more in one year than in the previous five years combined…The year 1978 was the beginning of China’s breakneck transformation from utter poverty to the largest economy on the planet. The experience in China shows that property rights are incredibly powerful ideas.
“The standard way that anyone raises a serious line of credit is to pledge property as collateral… But if I want to use my house as collateral… I need to prove that the house is really mine… Perhaps the first recognizably modern property registry was in Napoleonic France… In the mid-1800s, the idea of land registry spread quickly through the British Empire, too… most of the allocations were also confiscations from the indigenous people who had their own claims on the land… It was hardly justice. But it was profitable… these land-registry processes unlocked decades of investment and improvement…
“But get it right, and the results can be impressive…Around the globe, the World Bank has found, after controlling for income and economic growth, the countries with simpler, quicker property registries also had less corruption, less gray-market activity, more credit, and more private investment.”
INVENTING THE WHEEL
“… this book has been an attempt to identify fifty illuminating stories about how inventions have shaped the modern economy, and decidedly not an attempt to define the fifty most significant inventions in economic history.”
44. Paper: “… Paper was another Chinese idea, just over two thousand years ago… paper came to Germany just a few decades before Gutenberg’s press… Europeans just didn’t need the stuff. They had parchment, which is made of animal skin… a parchment Bible required the skins of 250 sheep… the existence of cheap paper made the economics of printing look attractive… in the 1870s, the same decade that produced the telephone and the lightbulb, the British Perforated Paper Company produced a kind of paper that was soft, strong, and absorbent – the world’s first dedicated toilet paper…
“Paper… is the quintessential industrial product… Initially, they made paper from pulped cotton… Over the years, the process saw innovation after innovation… By 1702, paper was so cheap it was used to make a product explicitly designed to be thrown away after just twenty-four hours: The Daily Courant, Britain’s and the world’s first daily newspaper.
“And then came an almost inevitable industrial crisis: Europe and America became so hungry for paper that they began to run out of rags. The situation became so desperate that scavengers combed battlefields after wars, stripping the dead of their blood-stained uniforms to sell to paper mills. There was an alternative source of cellulose for making paper: wood… wasps could make paper nests by chewing up wood, so why couldn’t humans? … It was the mid-nineteenth century before wood became a significant source for paper production in the West.
“Today, paper is increasingly made out of paper itself – often recycled… The process can be repeated six or seven times before the paper fibers themselves become too short to make strong card… the paperless office has been predicted since Thomas Edison in the late nineteenth century… Meanwhile, paper sales stubbornly continued to boom… The cost of digital distribution is now so much lower, we often go for the cheaper option. Finally, digital is doing to paper what paper did to parchment with the help of the Gutenberg press: outcompeting it, not on quality, but on price…
“Old technologies have a habit of enduring. We still use pencils and candles. The world still produces more bicycles than cars. Paper was never just a home for the beautiful typesetting of a Gutenberg Bible; it was everyday stuff. And for jottings, lists, and doodles, you still can’t beat the back of an envelope.”
45. Index Funds: “… Warren Buffet’s advice? … Pick the most mediocre investment you can imagine. Put almost everything into ‘a very low-cost S&P 500 index fund.’ Yes, an index fund. The idea of an index fund is to be mediocre by definition – to passively track the market as a whole by buying a little of everything, rather than to try to beat the market with clever stock picks…
“Index funds now seem completely natural – part of the very language of investing. But as recently as 1976, they didn’t exist. Before you can have an index fund, you need an index. In 1884, a financial journalist named Charles Dow had the bright idea that he could take the price of some famous company stocks and average them, then publish the average going up and down. He ended up founding not only the Dow Jones company, but also the Wall Street Journal…
“…in the autumn of 1974… Paul Samuelson… had revolutionized the way economics was practiced and taught, making it more mathematical – and more like engineering… His book Economicswas America’s best-selling textbook in any subject for almost thirty years… lots of people will buy a share that’s obviously a bargain, and then the price will rise and it won’t be an obvious bargain anymore. That idea has become known as the efficient-market hypothesis… Samuelson… found… that, indeed, in the long run most professional investors didn’t beat the market.
“[Samuelson’s] ‘Challenge to Judgment’… said that most professional investors should quit and do something useful instead, like plumbing… somebody should set up an index fund – a way for ordinary people to invest in the performance of the stock market as a whole, without paying a fortune in fees for fancy professional fund managers to try, and fail, to be clever…
“John bogle had just founded a company, Vanguard, whose mission was to provide simple mutual funds for ordinary investors – no fuss, no fancy stuff, low fees. What could be simpler and cheaper than an index fund – as recommended by the world’s most respected economist? … in August 1976, it flopped. Investors weren’t interested in a fund that was guaranteed to be mediocre… The super-cheap index funds looked, over time, to be a perfectly credible alternative to active funds – without all the costs. So slowly and surely, Bogle’s funds grew and spawned more and more imitators…
“Index investing is a symbol of the power of economists to change the world that they study… the index fund… already saved ordinary investors literally hundreds of billions of dollars.”
46. The S-Bend: “…As London’s population grew, the city’s system for disposing of human waste became woefully inadequate… the Thames became an open sewer… Cholera was rife… Alexander Cumming [was] a watchmaker in London a century before the Great Stink… [he] won renown for his mastery of intricate mechanics… But Cumming’s world-changing invention owed nothing to precision engineering. It was a bit of pipe with a curve in it. In 1775, Cumming patented the S-bend. This became the missing ingredient to create the flushing toilet… Water settles in the dip, stopping smells from coming up; flushing the toilet replenishes the water…
“At the time, it was wrongly believed that smell caused disease… There had been a great deal of progress [in getting ‘those who exercise power’ … to organize themselves]. According to the World Health Organization, the proportion of the world’s people who have access to what’s called ‘improved sanitation’ has increased to around two-thirds today. That’s a big step forward. Still, 2.5 billion people remain without improved sanitation… [that] ‘hygienically separates human excreta from human contact,’ but it doesn’t necessarily treat the sewage itself. Fewer than half the world’s people have access to sanitation systems that do that.
“The economic costs… are many and varied… countries that have made good use of the Cumming’s S-bend are now a whole lot richer for it… Toilets cost money, but defecating in the street is free. If I install a toilet, I bear all the costs, while the benefits of the cleaner street are felt by everyone…. positive externality – and goods that have positive externalities tend to be bought at a slower pace than society, as a whole, would prefer…
“… although the S-bend has been around for ten times as long as the mobile phone, many more people currently own a phone than a flushing toilet.”
47. Paper Money:“… Marco Polo… was one of the first Europeans to witness an invention that remains at the foundation of the modern economy: paper money… whatever these notes [from the bark of mulberry trees, bearing the seal of the Great Khan] were made of, their value didn’t come from the preciousness of the substance, as with a gold or silver coin. Instead, the value was created purely by the authority of the government… Mulberry money… had emerged nearly three centuries earlier [before Polo heard of it], around the year 1000 in Sichuan, China… jiaozi, or ‘exchange bills’ … were simply IOUs. Instead of carrying around a wagonload of iron coins…
“The money we use today all over the world is created by central banks and is backed by nothing in particular except the promises to replace old notes with fresh ones… the government’s IOUs circulate despite the fact they cannot be redeemed… Technology has changed, but what passes for money continues to astonish.”
48. Concrete: “About fifteen years ago [in Mexico] a social program called Piso Firme [covered the dirt floors of some poor families’ homes with concrete] … Concrete floors are much easier [than dirt] to keep clean: so the kids were healthier, they went to school more regularly, and their test scores improved… concrete often has a less wonderful reputation. It’s a byword for ecological carelessness… [it] takes a lot of energy to produce… releases carbon dioxide, a greenhouse gas… the world consumes absolutely vast quantities of concrete: five tons per person per year…
“That it’s a great building material, however, has been recognized for millennia… It was certainly being used more than eight thousand years ago by desert traders to make secret underground cisterns to store scarce water… One of the reasons it has survived for so long is because the solid concrete structure is absolutely useless for any other purpose. Bricks can be reused; concrete can’t. It can only be reduced to rubble…
“Reinforcing concrete with steel simply shouldn’t work, because different materials tend to expand by different amounts when they warm up… But by a splendid coincidence, concrete and steel expand in a similar way when they heat up; they’re a perfect pairing… Reinforced concrete is much stronger and more practical than the unreinforced stuff… But here’s the problem: if cheaply made, it will rot from the inside as water gradually seeps in through tiny cracks in the concrete and rusts the steel. This process is destroying infrastructure across the United States… Perhaps concrete serves us best when we use it simply.”
49. Insurance: “… in 1687, a coffeehouse opened on Tower Street, near the London docks… The regulars at this coffeehouse loved to gossip about the ships: what was sailing from where, with what cargo – and whether it would arrive safely or not… The patrons loved to bet… The proprietor saw that his customers were as thirsty for information to fuel their bets and gossip as they were for coffee, and so he began to assemble a network of informants and a newsletter… His name was Edward Lloyd. His newsletter became known as Lloyd’s List. Lloyd’s coffeehouse hosted ship auctions… sea captains … would share stories. And if someone wished to insure a ship… a contract would be drawn up, and the insurer would sign his name underneath – hence the term ‘underwriter.’
“… Eight decades after Lloyd had established his coffeehouse, a group of underwriters who hung out there formed the Society of Lloyd’s. Today, Lloyd’s of London is one of the most famous names in insurance…
“Another form of insurance developed… in the mountains… Alpine farmers organized mutual aid societies in the early sixteenth century, agreeing to look after one another if a cow – or perhaps a child – got sick. While the underwriters of Lloyd’s viewed risk as something to be analyzed and traded, the mutual assurance societies of the Alps viewed risk as something to be shared… Risk-sharing mutual aid societies are [now called] ‘governments.’ Governments initially got into the insurance business as a way of making money… Much of the welfare state, as we’ve seen, is really just a form of insurance…
“The evidence is growing that insurance doesn’t just provide peace of mind, but it is a vital element of a healthy economy.”
CONCLUSION: LOOKING FORWARD
“A century ago, global average life expectancy at birth was just thirty-five… recently it rose above seventy… The proportion of the world’s population living in the most extreme poverty has fallen from about 95 percent two centuries ago to about 60 percent fifty years ago to about 10 percent today… yet few of the stories we’ve had to tell about these inventions have been wholly positive… It’s reasonable to assume that future inventions will deliver a similar pattern… solve problems and make us richer and healthier, but the gains will be uneven…
“The more human inventiveness we encourage, the better that’s likely to work out for us… with any new invention, it makes sense to at least ask ourselves how we might maximize the benefits and mitigate the risks. What lessons have we learned… most of the inventors we’ve encountered have been male… Education matters too… if we want to encourage more good ideas, we can concentrate minds by offering prizes for problem solving… The promise of profit is a constant motivator, of course. And we’ve seen how intellectual property rights can add credibility to that promise by rewarding the successful inventor…
“… it’s not only premature or heavy-handed regulation that can undermine the development of an emerging technology – so, paradoxically, can a total lack of regulation.”
50: Epilogue: The Lightbulb: “The economist Timothy Taylor… asked his students: Would you rather be making $70,000 a year now or $70,000 a year in 1900? … that’s a no-brainer: $70,000 in the year 1900 is a much better deal. It’s worth about $2 million in today’s terms, after adjusting for inflation… Yet, of course… a dollar in 1900 buys much less than today… an international call on a portable phone, or a day’s worth of broadband Internet access – or a course of antibiotics. In 1900, none of that was available, not to the richest man in the world…
“Inflation statistics tell us that $70,000 today is worth much less than $70,000 in 1900. But people who’ve experienced modern technology don’t see things that way… we don’t really have a good way to quantify how much all the inventions described in this book have really expanded the choices available to us… Imagine a hard week’s work gathering and chopping wood, ten hours a day for six days. Those sixty hours of work would produce… the equivalent of one modern lightbulb shining for just fifty-four minutes.
“Thousands of years ago, better options came along – candles… and oil lamps… The light they provided was steadier and more controllable, but still prohibitively expensive… In… May 1743, the president of Harvard University… noted that his household had spent two days making seventy-eight pounds of tallow candles. Six months later he noted… ‘Candles all gone.’…tallow candles: stinking, smoking sticks of animal fat… you set aside one whole week a year to spend sixty hours devoted exclusively to making candles – or earning the money to buy them – that would enable you to burn a single candle for just two hours and twenty minutes every evening…
“George Washington calculated that burning a single spermaceti candle for five hours a night all year would cost him eight pounds – well over $1,000 in today’s money… By 1900, one of Thomas Edison’s carbon filament bulbs would provide you with ten days of bright, continuous illumination, a hundred times as bright as a candle, for the money you’d earn with our sixty-hour week of hard labor. By 1920, that same week of labor would pay for more than five months of continuous light from tungsten filament bulbs; by 1990, it was ten years… The labor that once produced the equivalent of fifty-four minutes of quality light now produced fifty-two years…
“But someone in a rich industrial economy today could earn the money to buy that illumination in a fraction of a second… over the centuries, humanity has developed innovation after innovation to utterly transform our access to light. Those innovations have transformed our society… we can work whenever we want to work, and read and sew or play whenever we want, regardless of how dark the night has become… Man-made light was once a thing that was too precious to use. Now it is too cheap to notice. If ever there was a reminder that progress is possible – that amid all the troubles and challenges of modern life, we have much to be grateful for – then this is it.”
Now, if you stayed with me all the way to the end, please leave a comment, and please do read Harford’s book. He tells the stories so much better than I do!