Collaborative Governance

In The New Localism, Bruce Katz and Jeremy Nowak discuss the elements needed for cities to continue to grow as economic engines of modern economies. The United States currently has a handful of dynamic cities across the country which are powering the national economy. San Francisco (really the Bay Area as a whole and Silicon Valley) is powered by tech companies, Houston is powered by oil giants, Boston is driving medical and biotech engineering, and New York City continues to be a powerful financial hub. While each of these metro regions is a model for the resto the country, they must adapt to globalized economies moving forward and must find ways to embrace new innovations to keep diversify and strengthen their own economies.

 

Katz and Nowak write, “the critical element is collaborate governance across networks of public, private, civic, and university institutions and leadership. No one sector can alone power a city and metropolis forward in today’s complex and competitive economy.” A single sector is not enough to reliably and consistently sustain an entire city or region. New innovations in diverse fields that share common foundations is required for economic well-being today. In order for cities to diversify and develop new industries in new sectors, a confluence of public institutions, private businesses, involved philanthropies, and cutting edge research universities is key.

 

The public sector has to be able to adapt and adjust laws, rules, regulations, and oversight in a world where every competitive advantage matters. Government must continue to protect the public interest and safety, but needs to allow for the organization of structures that can make real decisions timely. Private sector leaders also need to be involved and commit to place-making, developing the cities where they are located and bringing something beyond “jobs” to a region. Civic organizations and groups can fill the gaps between these actors and help provide funding and leadership initiatives to related to place-making and oversight.

 

None of these efforts will succeed if an intelligent and motivated workforce is not available to connect with the agencies and organizations involved. Research universities play a role in new economies by connecting students with relevant research and helping to get innovation out of the lab and into the private sector. Connecting students with real companies that are taking real steps to make their communities better will build the energy and excitement necessary for an educated and motivated workforce to make economic growth, innovation, and development possible. Some of this I recognize is “pie in the sky” thinking, but it is necessary for future growth. Pushing companies to become Public Benefits Corporations and rewarding more civic minded and responsible organizations is a small and necessary step to move in the direction I described, otherwise, there is nothing to convince companies to make greater investments in place-making rather than just finding a nice place to move to.

When Disciplines Collide

One of the case studies presented by Bruce Katz and Jeremy Nowak in their book The New Localism is Pittsburgh, PA, which has merged academic research institutions with business industry and supportive public policy. Pittsburgh has two major research universities within a block of each other, The University of Pittsburgh and Carnegie Mellon University. Experiences from Carnegie Mellon in the past are fueling the city’s reinvention and powering new industry as research is getting out of the institutions and into new businesses to drive the economic engine of the city.

 

What Pittsburgh does so well, explained by Katz and Nowak, is merge diverse industries and fields to create new innovation. They write, “A convergence economy emerged: a fusion of academia and industry with electrical and mechanical engineering, computer science, and multiple other fields. When disciplines collide, magic happens.” The idea of a convergence economy is crucial to New Localism. Academic institutions have been learning valuable lessons by creating more crossover between their divisions and fields. Bringing together academics who would otherwise rarely communicate is driving fields that previously had stagnated. With two leading institutions in the city, Pittsburgh has taken this lesson out of the academic fields into private industry.

 

Academics on their own don’t have a lot of great business sense or experience, but do have a good sense of where innovation is heading and what might be possible with new technology. Combining their expertise and knowledge with people who understand business and have connections with funding agencies can help lead to scale and commercialization of innovations. This cannot happen without something that creates a convergence between disparate entities.

 

Hospitals today are creating incubator labs to help get new medical advances out of the research lab and into industry. Universities are beginning to merge with private industry to find ways to get innovation out of the academic hallways and journal articles into factories and business. Governments are helping back quasi-governmental networks to share the risk of new innovation and find new ways to fund local developments in technological innovation. Pittsburgh is leading in this field, and cities across the United States are following by finding new ways to engage their academic institutions and industries.

Dynamic Economies

A lot of work from both the Brookings Institute and from the Mercatus Center at George Mason University comes across my radar. Oftentimes the perspectives of the two think-tank centers differ quite a bit, but one area where they align is on local economies. Brookings (a center-left think tank) and Mercatus (a Libertarian leaning academic quasi-think tank) both agree that local economies depend on dynamic innovation and thriving centers where people actually want to be. Both agree that attracting competitive companies and driving innovation requires investments in placemaking, not just tax breaks and financial incentives for firms.

Bruce Katz and Jeremy Nowak (both from Brookings) write, “A globally dynamic economy requires that any locality that wants to thrive must invest in the qualities of place that attract and retain residents and firms, in human capital, and in an enterprise environment that enables innovation and business growth.” Mercatus also suggests that places focus on infrastructure and development to attract firms and encourage people to move to them. Mercatus is likely to encourage this growth in an organic invisible hand manner, while Brookings is more encouraging of using the state to intentionally develop infrastructure and systems for growth and network development.

The important lesson is that economic growth and development require meaningful investments in infrastructure. Human capital is the heart of networks and the key to innovation and growth. In order to attract people and to attract companies that can compete in a globalized world, cities need to make themselves livable and attractive to young and dynamic people. Tax incentives are not enough to attract companies for the long term. A company that is willing to move for a simple tax break, is not a company that is in it for the long run. Stable companies that want to grow and develop in one place will want places that are interesting and offer the amenities needed for a thriving 21st century lifestyle. Companies that are looking to make long-term and winning investments need human capital, and in order to attract human capital they need dynamic places where people want to live and set roots.

Markets & Civil Society Organization

I tend to be a bit hard on the idea of free markets. I grew up learning about the invisible hand and in a family that started a business and did well. I (mostly because of my family’s business) appreciated the idea that setting up a market and running a business was a good thing from the standpoint of finding an efficient point at which to price a product or service. Today however, perhaps as a result of my healthcare interests, I see numerous examples of markets falling short of the goal we establish in our minds based on the idea of the invisible hand.

 

Rather than seeing markets find an efficient point where competition drives efficiency and provides everyone with better products at better prices, I see too many externalities from free markets and unfettered competition. We are producing a lot of greenhouse gasses that harm life on the planet. CEOs are getting better (maybe deservedly so) at capturing greater salaries from their companies, driving economic inequality, and straining social stability. Private health insurance markets seem to drive overall healthcare costs up at every turn, and no one seems to be able to understand how health insurance actually works. The free market, and open competition, does not appear to function as clearly and organize as succinctly as my simple understanding from high school would have suggested.

 

What is missing is something that ties markets and capitalism back into civil society. Bruce Katz and Jeremy Nowak, in their book The New Localism, suggest that shifting political power and decision making back to local contexts within cities and metropolitan regions can help correct these problems. They write, “New Localism is a mechanism for converting the self-organizing power of markets and civil society into structured fiscal and financial resources, and ultimately, political power.”

 

National and multinational sized corporations often have a responsibility to maximize profits for shareholders or top executives. Their huge scale means that any local or regional place is less important for them, since there are always markets in other countries and other states. However, when local governments exert more control over such companies, the local contexts begin to matter more. When CEOs and executives from these companies are invited in to help shape policy beginning at the local level, and are held accountable to the local individuals in the places where their markets are strong or where their employees actually live, the business motives that encourage negative externalities are shifted. The dynamic becomes one where civil responsibility is elevated, and ultimately political power is shifted in a way to help organize business in a more responsible manner in relation to the local context.

 

The lesson that Katz and Nowak share is that businesses on their own are encouraged to organize themselves in a way that maximizes profit at the expense of the local communities in which they operate. By giving localities more power and better networked governance structures, big businesses can instead be a cooperative part of the political and social structure, re-organizing themselves within society in a way that helps make Adam Smith’s invisible hand dream a little more plausible. The Invisible hand in this model is not so invisible, but more of a structured handshake creating a commitment to more than just profits.

Immigration and City Rebuilding

I find myself in an interesting position when I think about immigration in the United States. I don’t have incredibly strong or fully informed views on immigration, and I find myself ending up at intersections where competing values push in opposing directions. From an economic perspective I agree with researchers who say that immigration is crucial for our national, and even global economy. From a human rights perspective, it feels imperative that we allow people languishing in terrible situations in foreign countries to have the opportunity to move to the US where their living standards will automatically increase substantially. However, I understand people’s hesitation to change and their fear of outsiders. I don’t want to accept these hesitations and fears, but I know they are real and I see how forcing change and immigration upon reluctant people can have disastrous consequences for society as a whole. I’m not sure how much we should restrict immigration to avoid this backlash, or whether we should just push forward with the immigration our economy needs.

 

What is clear to me is that the United States is not prepared to have this discussion in a reasonable and rational manner at the Federal level. It is my sense that there are more people aligned with the Democrats who are willing to be moderate (as I am) and are willing to compromise on important values such as human fairness, flourishing, and lifting the global poor for what feels like the psychological well being of xenophobic members of the Republican party. I don’t feel the same mindset from people within the Republican party, although this could just be a bias due to my media bubble. My sense is that a feeling of fear has taken root within the Republican party and derailed any reasonable national level discussion around immigration.

 

However, on smaller scales, I think the parties have more parity. In The New Localism authors Bruce Katz and Jeremy Nowak write, “American cities could not have revived as they have in the absence of large-scale immigration. Moreover, dramatic levels of immigrant entrepreneurship in cities as diverse as Houston, Miami, Philadelphia, and Minneapolis are powerful reminders of how cities were built and rebuilt over generations.”

 

On the local level, the individuals who form the parties and drive government, part committees, local businesses, non-profits, and foundations can align on topics such as immigration even though on a national level the same individuals cannot agree. Within the city rebuilding is a continuous process, and compromises don’t have to be absolute and binding forever. At this level, immigration is personal and not abstract, and those who immigrate from outside can bring new ideas, exciting energy, and in some ways a fearless attitude that can help stakeholders align and connect, regardless of their political beliefs. Cities are not static, and this evolving nature allows for a moderate and reasonable discussion around immigration which is helping to fuel the revival of cities and metropolitan areas across the nation. My hope is that  this local level action can percolate upward and help us to have more informed and reasonable discussions on immigration at the highest levels of government in the United States. Sound local governance surrounding immigration with cities and metropolitan regions leading the way can hopefully be a federalist spark to tackle the thorny issue of immigration nationally.

Five Factors To Consider Regarding Our Donation Behavior

In The Elephant in the Brain, Kevin simler and Robin Hanson ask just how much of our behavior is influenced by our self-interest. As an explanation for why we do what we do, simply saying that we did something because we gained some material good, gained more social status, or received some type of pleasurable outcome is generally accepted, but ignored. It is clear that we have self-interest in doing things that we benefit from, but in many ways, we like to ignore self-interest and we prefer to explain our behaviors with more complex rationalizations for why we do what we do. This motivated reasoning, however, creates models that account for many factors without acknowledging the main factor that we would all rather ignore, the elephant in the room (brain), our self-interest.

 

Simler and Hanson investigate charitable donations in the framework of self-interest and consider the warm glow feeling that we get when we make charitable donations, help the person on the street, and generally do good things for others. They look beyond simply “we do things because it makes us feel good” and ask questions to get to a deeper level understanding of human behavior:

 

“The much more interesting and important question is why it feels good when we donate to charity. Digging beneath the shallow psychological motive (pursuing happiness), what deeper incentives are we responding to?

 

To figure this out, we’re going to examine five factors that influence our charitable behavior:
  1. Visibility. We give more when we’re being watched.
  2. Peer pressure. Our giving responds strongly to social influences.
  3. Proximity. We prefer to help people locally rather than globally.
  4. Relatability. We give more when the people we help are identifiable (via faces and/or stories) and give less in response to numbers and facts.
  5. Mating Motive. We’re more generous when primed with a mating motive.
This list is far from comprehensive, but taken together, these factors help explain why we donate so inefficiently, and also why we feel that warm glow when we donate.”

 

I have been writing a lot recently about charitable giving. Part of the reason why is because I see great potential in the resources at the disposal of the average American. We have a lot of wealth relative to the rest of the world, a lot of time relative to previous generations, and a lot of information available to us. However, rather than using our wealth, our time, and the information available to us to maximize our lives, make the world a better place, and solve pressing problems, most people waste their resources. I have continually been thinking about what I consider The Stupid Economy where we feel pressured to buy things we don’t really want to keep up with and impress people we don’t really care much about, and use our resources in pointless and meaningless ways.

 

Our world today has incredibly bright people working at meaningless jobs. We use a lot of our human potential, our creative energy and brain power, and our money to get people to drink sugary water. We invest massive amounts of attention in celebrity news and we celebrate technological inventions like iPhones without applying our hunger for technological improvement to other problems that could potentially save more lives or do more to protect the planet from human caused problems – like trash in our oceans.

 

I want to encourage society to move in a direction that is more considerate and careful with our resource use. I want to be part of something that builds toward a society that has a smart economy, where instead of complaining about the diminishing purchasing power of our society while simultaneously buying $100 jeans we celebrate the resources we have and put them toward real use to create sustainable development. If we are going to set out to do good in the world, we have to understand what Simler and Hanson describe in the quote above. We have to understand how our rationality is derailed, and we need to understand why it is important to be truly effective when we try to do good with what we have.

Curious Conversations

In The Elephant in the Brain authors Kevin Simler and Robin Hanson investigate human communication and ask why we are so quick to speak, communicate, and share information we have acquired, even if we acquired that information at great personal costs. Humans communicate a lot, and we generally like to be the one talking and expressing something about ourselves and our experiences. The problem however, is that it would make more sense for us to do all the listening, and only talk when absolutely necessary or when we were getting a reward.

 

If I spend a lot of time reading a book and learning something interesting and useful, I should desire a reward for the cost of learning the information I know. Before I write a blog post about interesting information, pontificate at the water cooler, or tell my family something I find fascinating, I should ask to be compensated. Instead, what we usually see, is that we can’t wait to tell people about the interesting thing we have learned. We expend a lot of effort in learning new information, and then we give that information away as quick as we can to anyone.

 

We also don’t do a great job listening. Rather than spending a lot of time absorbing what the other is saying, we prepare ourselves for what we are going to say next, missing the entire thing that is actually being said as we mentally prepare for our turn to talk. From an economic standpoint, this does not make sense.

 

“We aren’t lazy, greedy listeners. Instead we’re both intensely curious and  happy to share the fruits of our curiosity with others.” Write Simler and Hanson, “In order to explain why we speak, then, we have to find some benefit large enough to offset the cost of acquiring information and devaluing it by sharing. If speakers are giving away little informational ‘gifts’ in every conversation, what are they getting in return?”

 

I’ll explore this idea a little more in coming posts, but the authors argue that conversation is not really (at least not solely or even primarily) about conveying information. We do a lot of group and alliance signaling in our conversation. We show how creative and insightful we are. We demonstrate to others that we are willing to go learn new and useful information that can benefit the whole group and we show how altruistic we are by sharing this information which we acquired at a great cost. These are important but often unrecognized or unacknowledged parts of our communication. When we speak and when we share information, we are doing much more than just telling people what is inside our head.

Wasteful Signals

One of the great things about competitive markets (in an economic sense) is that they reduce waste. If multiple firms are competing against each other to sell a good, each firm has an incentive to find a new way to produce their good that makes the process cheaper and quicker. This allows each firm to eliminate waste, and over time the efficiency of the market improves, costs come down, and we are able to produce a given thing using less energy and resources.

 

But when we look at living creatures and consider evolution, we don’t always see the same thing happening. “The problem with competitive struggles, however,” write Kevin Simler and Robin Hanson in their book The Elephant in the Brain, “is that they’re enormously wasteful.”

 

The simple view of evolution that I always held was that animal species evolve over time to become better. Survival of the fittest meant that smaller, slower, weaker animals in a population would die out, and we would be left with the best individuals and the best genes reproducing into the future. The resulting population would be smarter, faster, sleeker, and in some ways more efficient. But evolution, it turns out, is more complicated than this simple model, and survival of the fittest is not always the best way to describe how evolution works. There is still a lot of random chance, random accidents, and waste that can occur in evolution.

 

In an earlier post I shared Hanson and Simler’s story about redwood trees competing against themselves to become taller. The trees did not compete to live in as diverse an ecosystem as possible, and if they had, Simler and Hanson suggest the trees could have been much shorter and could have occupied more space. The trees are wasteful, driving toward new heights in a confined area rather than efficiently spreading out and remaining at a smaller size.

 

In many ways we do the same thing. Creating a beautiful painting is wonderful, but it is also a bit wasteful. One reason we may want to create art is to demonstrate that we can do something relatively difficult to impress other people. We deliberately create something that uses resources for no practical value as a way to demonstrate that we have extra resources to burn and extra time to spend practicing and creating art. It is an indirect way to say, look how impressive I am and look how many resources I have that I don’t have to spend my time accumulating more resources and can instead use them in any way I choose.

 

We create art and buy fancy sports cars to be wasteful with resources to show off and signal something about our suitability and desirability as a mate. There are other things happening here of course, but this is a key component. Animals develop expensive plumage to signal to mates. Some birds will build fancy nests with shiny objects in them to catch the eye of a potential mate, and others will battle among each other to show which animal is the most physically dominant. Shows of skill, strength, and suitability as a mate can be very expensive using energy, time, and resources that could otherwise go toward finding more food. Evolution has lead animals to be very wasteful in a way that we would not expect if evolution worked like an ideally functioning market. Evolution is not simply survival of the fittest, sometimes there are other elements that get us to waste a lot of resources in our signaling competitions to pass our genes along. Sometimes evolution is selecting for things that really don’t seem to demonstrate a lot of great fit in a direct sense for a species.

The Purchases We Make

In their book The Elephant in the Brain, Kevin Simler and Robin Hanson write about “conspicuous consumption,” a term coined by economist and sociologist Thorstein Veblen who lived about 100 years ago. Simler and Hanson write, “When consumers are asked why they bought an expensive watch or high-end handbag, they often cite material factors like comfort, aesthetics, and functionality. But Veblen argued that, in fact, the demand for luxury goods is driven largely by a social motive: flaunting one’s wealth.” The other pieces of the argument, the good performance of the item, the colors we were dying to have, and the durability of the product might be the true reason we made a purchase in some instances, and that allows us to make those excuses even though they only describe part of our behavior. A big part of Hanson and Simler’s book focuses on the idea that we use these types of excuses to justify our actions. Further, they argue that our behaviors often signal something about ourselves implicitly that we don’t want to say explicitly.

 

In the case of luxury goods the thing we are signaling is our wealth. Our wealth demonstrates our financial resources and can be used as a proxy for our social capital and human value. Our wealth may give others insights into our skills and abilities to do hard things, helping us stand out against a crowd. And, our wealth may reveal our deep social connections or our family’s high status, two social traits that certainly helped our ancestors pass their genes on in small political tribes.

 

The problem today, however, is that we don’t admit this is what we are doing with our purchases, and as a result we face major negative externalities from our consumptive habits. We spend a lot of money on unnecessary luxury goods, and many people go deeply into debt to signal that they are the type of person who would own a certain type of luxury good. Our unyielding desire in the United States for ever further and greater consumption leads us to buy larger houses that we have to heat, faster cars that use more energy, and to own more clothes that will take millions of years to break down thanks to the new synthetic fibers we use to make them. Our consumption and our drive to continuously signal our wealth and social value, some would argue, is poisoning and heating our planet to dangerous levels.

 

Simler and Hanson don’t focus on the externalities of our signaling behavior in their book, but they do acknowledge that they are there. The authors simply make an argument that most of us would rather ignore. That we do things for selfish motives and reasons we don’t want to talk about. This is important if you are an economics, sociology, or policy researcher because you need to understand what people are really doing when they rally politically or make economic decisions.  For the rest of us, in our daily lives, we can take a lesson from Hanson and Simler that stems from an awareness of our self-centered behavior. We can think about our signaling behaviors and ask if conspicuous consumption is really worthwhile. We can step back and ask if the ways we signal our wealth help or hurt the planet, and we can start to make decisions with positive externalities and attempt to avoid the negative externalities I mentioned above.

Slavery in the American Constitution

In his book The Quartet, Joseph Ellis examines the debates leading up to the adoption of the current United States Constitution and the actions of four men in particular to drive the nation toward true nationhood and the adoption of the Constitution. George Washington, Alexander Hamilton, James Madison, and John Jay all played crucial roles in advocating for a constitution that gave strong power to a centralized national government that could bring unity and cohesion among the former British Colonies. A central tension and challenge in uniting the colonies existed around slavery and today, as we look back at the founding of our nation and at our Constitution, we cannot help but think about the role that slavery played in the founding of our nation and about the meaning of its inclusion in our Constitution. Regarding slavery, Ellis writes, “Whether this was a failure of moral leadership or a realistic recognition of the politically possible can be debated until the end of time.” Our views of our nations founding and the role that slavery played is hard to think through and is something worth evaluating on a deeper level. Precisely why it was included in the Constitution and the role it played at the nation’s birth is challenging and the meaning attached to it changes as you shift the perspective through which you understand the Revolutionary War and America at the time of the Constitutional Convention.

 

The quartet in Ellis’ book wanted to bring together the North and the South in a single nation, but the economies of both were moving in different directions, with the South becoming increasingly reliant on slaves for economic production (as a side note: a recent comment to my blog suggested that the North enabled slavery by purchasing slave produced products from the South – something I don’t know about but certainly seems likely). To have truly put an end to slavery in the newly independent America would have required a monarch (or tyrant) who could have stamped out the practice by force (something the colonies had just revolted against). Manumission, the process for freeing slaves was also expensive, often requiring that freed slaves be provisioned with enough resources to sustain themselves once free. It is no wonder that the forces of economic self-interest and a fear of tyranny forced an impasse between abolitionists and those whose future and society relied on slavery. A compromise on the issue appears to be absolutely necessary in order to bring the former Colonies together under a single government.

 

At the time our constitution was written, many delegates to the Constitutional Convention recognized the abhorrent evils of slavery. Ellis includes a notebook entry from John Dickinson, a delegate from Delaware who wrote about the compromise written into the new Constitution, “Acting before the World, what will be said of this new principle of founding a Right to govern Freemen on a power derived from Slaves. … The omitting of the WORD will be regarded as an Endeavor to conceal a principle of which we are ashamed.” The fact that slavery cut against Jefferson’s words in the Declaration of Independence was not lost on all of our founding fathers. Dickinson and others were aware of the contradiction between the words and principles of our revolution and the structure we built into the Constitution. The political dynamic that united our nation allowed for such evil to continue, but at the same time also provided a way for it to be dismantled. The unending debate in the United States will continue to grow as we debate the best way to interpret the inclusion of slavery in our constitution.