Book Reviews

Browse books referenced in World Class R&D articles. Click the image of a bookcover to view the full entry for each book. Many books include short reviews written by the Editors of the World Class R&D website.

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Title: Structure and change in economic history
Author(s): Douglass Cecil North
Publisher: New York : Norton
Pages: 228
Date: 1981

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The book professes to be a new approach to the study of economic history (written by a Nobel prize-winning economist). It reads instead like Rousseau's description of the natural man – full of half-baked speculations and rampant over-generalizations. The gist of the argument:

  • Population pressures drove humanity away from communal resources (e.g., common hunting grounds) toward exclusive resources (e.g., farm plots, domestication).
  • Exclusive resources required weapons to keep others out, and agreement on the distribution of the exclusive resources to members of the community.
  • Accelerating population growth and better weapons led to the growth of larger communities and greater specialization (e.g., weapon making, planting, harvesting)
  • Labor was ‘decoupled' from its output. Each laborer provided only a part of the final product. Innovation in reward structures for labor for their partial contributions were integral to ever larger and more specialized production processes, and to greater economic prosperity.
  • Labor came to identify itself more with co-workers than with the consumer, and developed political ideologies consistent with their new identity.
  • Property rights both expanded to include the patenting of ideas and were constrained to change the distribution of production output back toward laborers.

In general, the book looks to equate economic history with the evolution of property rights, as reflected in the government policies, rules, regulations and practices of these rights.

Apart from the rampant speculation, with which I share a sympathy, the book has two fundamental flaws:

  • It is biased toward a Phase 2 view of industry – it views economic history as a drive to reduce transaction costs (e.g., costs for contract compliance) for industrial processes and products that have magically appeared with little mention for how new products and industries arise.
  • It is biased toward the removal of constraints on ideas and not on the founts of new ideas.

The book is essentially a history of property rights, with a sidenote on the importance of innovations in management that allowed for the decoupling of labor from the final consumer product.

North emphasizes the critical importance of ideology. Build love of institution and you greatly reduce the costs of ensuring compliance of labor to the intent of management. Our compliance needs are much more intransigent: with creative endeavors there are no overt measures of compliance. Individuals must reach into themselves as the only source of compliance. North's discussion of ideology reveals a few organizational design features we can use to improve compliance without overt mechanisms:

  • Always have competitive alternatives – do not allow yourself to be held hostage+ to any one creative individual or team
  • Use personal transactions – economic transactions between colleagues are much more resistant to deliberate distortion
  • Ensure transactions between colleagues are frequent and repeated – fool me once shame on you, fool me twice …
  • Work deliberately and persistently to ensure both parties to the transaction share a sense of fairness for the transaction – neither party is tempted to take advantage due to a sense of feeling cheated.

Investments into building love of institution, a sense of community and fairness are very expensive (in time and effort) but in the end are the only sure way to align the interests of labor (researchers) with those of management (funding agents).

In the spirit of rampant speculation, spanning thousands of years, I offer an alternate view of economic history to that given by North. New ideas and new products (e.g., economic advancement) spring from a child-like fascination with things novel. The individual child, either from reading a science-fiction novel, experiencing a personal tragedy or simply overcoming the taunting challenge of friends that something "can't be done" experiences the thrill and delight of having his or her imagination piqued and then satisfied. Economic history advances as more and more of these children are free to pursue their imagination into adulthood, through the elimination of poverty and with the support and backing of fellow dreamers (and family).

Rights to economic output are secondary to braggin' rights: witness those involved in the scaling of Everest, the Apollo moon landing, and undoubtedly those who oversaw the building of the vast network of Egyptian irrigation canals.

I'm not talking about publicity, Bob. It's the glory you carry inside you the rest of your life knowing you've done something, something that made a difference. Benjamin Bratt as Lt. Colonel Mucci, from the fact-based movie “The Great Raid

Those bribed or conscripted into helping others realize their dreams also deserve to have their story built into the economic narrative. But for our purposes we focus on the dreamers without whom the rest of the story would be mundane, boring and cyclical.

Title: What the Anti-Federalists were for
Author(s): Herbert J Storing; Murray Dry
Publisher: Chicago : University of Chicago Press
Pages: 111
Date: 1981

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The Federalists, those in favor of the constitution, wanted a very limited (and non-controverisal) set of first principles+. The Anti-Federalists were concerned about big government, and wanted protections for the individual written into the constitution.

The Federalists argued that anything not spelled out in the constitution would be reserved to the states and their laws. The Anti-Federalists were distrusting of big government and insisted on incorporation of the Bill of Rights into the constitution as items explicitly forbidden trespass by the Federal government.

The Anti-Federalists won. As a result, the Federal government became the protector of rights as enshrined in the Bill of Rights, and over the centuries of many more rights in many more amendments to the constitution. The Anti-Federalists paradoxically set the stage for the very large Federal government bureaucracy we see today (2011).

The more rules you write the more freedom you (eventually) give away.

Title: Educating the reflective practitioner
Author(s): Donald A Schön
Publisher: San Francisco : Jossey-Bass
Pages: 376
Date: 1987

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Wonderful book on how we should educate professionals (researchers) for work in unpredictable R&D+. This book will definitely be part of the curriculum for our compulsories+. This is reflective practice, where neither the teacher (Stage 2 researcher) nor the pupil (Stage 1 researcher) fully know the answer beforehand, and both contribute and learn in the development of the best answer. Both learn through practice, with the teacher learning both in the subject matter, and in the education of Stage 1 researchers+.

The book quotes from Carl Rogers (1952):

It seems to me that anything that can be taught to another is relatively inconsequential and has little or no influence on behavior

I realize increasingly that I am only interested in learnings which significantly influence behavior

I have come to feel that only learning which significantly influences behavior is self-discovered, self-appropriated learning ... which cannot be directly communicated to another.

Schön addresses these challenges in The Reflective Pratiticioner.

De Soto argues, based on surveys performed by his graduate students, that many trillions of dollars in 'latent capital' are tied up in the slum tenaments and properties of the poor of the world. These individuals, for example, are unable to take out a home improvement loan, or to get a credit card from Home Depot, because their property rights can only be established within the formal economy as a result of herculean efforts, and often these efforts can be counter-productive. De Soto argues that fundamental changes in property laws, and more importantly, to the institutions and formal practices that secure the rights of individuals to their newly-recognized property, are required to extract this capital, to the great benefit of the individuals and to the economies. 

De Soto's arguments very closely parallel our efforts to extract working capital+ from intellectual capital+. We need rules, regulations, accounting methods, and reputation that allows investors to view this property in a new light. Investors can purchase rights to  IC with confidence their understanding of these rights will be respected. Owners of intellectual capital can leverage their 'property' to obtain loans and credit, with assurance their property will be respected.

Title: The Economic Theory Of Risk And Insurance
Author(s): Allan H. Willett
Publisher: University Press Of The Pacific
Pages: 144
Date: 1901, 2002 (Reprint)

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The full text of this book (in .pdf) can be found here (archive copy).

Marvellous short book that talks about insurance in terms of its influence on capital growth in an economy. Insurance is "capital protecting capital" ... that is we apportion a bit of our national capital to an activity called risk reduction, and this activity is called insurance. In the absence of the institution of insurance, risk 'taints' all other capital, raises the cost of capital, and reduces national productivity. Individuals are mostly risk adverse: a dollar loss hurts much more than the satisfaction from a dollar gained. So we segregate out the losses from the gains in a society, and overall capital becomes productively more employed.

Also, certain individuals are better at managing risks, so we segregate these individuals out from the production of consumer goods and set them up as a separate economic activity, providing the risk-reduction services of the insurance industry.

Willett's arguments are important since we must insure against mismanagement, fraud, misrepresentation, negligence or/and breach of fiduciary duties in our funding agency+ (i.e., in the 'firm' that oversees Franchise Capital Management+).