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"Business leaders must be prepared for congressional hearings more than competitive pressures and entrepreneurial aspirations increasingly require prior approval or must adhere to the scrutiny of external assessment bodies." ~ Kimberlee Josephson

By KIM BELLARD I was tempted to write about the work being done at Wharton that suggests that AI may already be better at being entrepreneurial than most of us, and ofContinue reading...

But if we ignore the need for elevators (which I'll get to below), high‐​rise buildings can deliver the same benefits, as is now being demonstrated by the founders of Flow and other entrepreneurial real estate developers.

The state of our societal perception of the future is a subject of deep importance. If we can't imagine a tomorrow worthy of the disruption inherent in entrepreneurial capitalism, those sacrifices won't be made today.
The post We Need a New Culture of Growth, ASAP appeared first on American Enterprise Institute - AEI.

Late July, The Wall Street Journal published five short pieces under the title, "Have We Ruined Sex?" Among the five pieces was one by Mary Harrington. In her contribution she argues that the sexual revolution has mainly benefitted the "entrepreneurial class." Since this appeared not in The Nation but WSJ, I was amused, so I decided to read her (2023) Feminism […]

The Gig Economy is increasingly seen to reward hustle, flexibility, autonomy, specialised skills, deep expertise, or in-demand experience and creative abilities along with entrepreneurial work formats that demand skills such as comfort with developing income streams, marketing and connecting yourself to gig offers. The gig economy offers both good and bad jobs and opens new … Continued

Mark Cuban is an entrepreneur, television personality, and owner of the Dallas Mavericks. He joins David to discuss the origins of his entrepreneurial spirit, what he learned from his early failures in business, his assessment of Donald Trump's presidency, and whether he sees politics in his own future. He also shares his reflections on this difficult moment in our country, what inspired him to join the protests in the wake of George Floyd's death, and how he is challenging himself to recognize his own privilege.
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It's often said that recessions clear the deadwood out of an economy.We're not exactly in recession in the UK (as Germany, unfortunately, is, and as around 20 EU economies were last winter). But things are pretty bad, with high interest rates, a severe monetary squeeze and business being (to put it mildly) less than great all round. So what does that bode for the clear-the-deadwood metaphor? Are all those deadwood companies, still upright thanks only to years of ultra-low interest rates, finally going to perish and give their ground to thrusting green-shoot enterprises?Unfortunately, I think the opposite may be true.What really makes unemployment peak in economic downturns is not so much the result of established firms sacking workers. Firms never like laying people off. It looks bad, and in countries like the UK and those of the EU, tightly regulated labour markets make it hard and expensive to sack employees. A much more important factor is that downturns make firms of all sorts more cautious, and more reluctant to take on new workers (especially, again, when employment regulation makes it hard to lay them off again if that proves necessary).The result of that is that people who do lose their jobs spend longer looking for new ones, and those entering the labour market for the first find themselves competing for fewer openings, so they too join the ranks of the unemployed.But it is younger, more entrepreneurial firms which are likely to contribute most to the unemployment, because they have not yet built up the confidence, the capital and the other resources needed for them to be sure they can survive a downturn, far less expand while one is in progress. In fact, precisely because they do lack that firm foundation, a greater number of new ventures fail during downturns than do established ones.Unfortunately, therefore, the mature, deep-rooted deadwood companies are more likely to be standing at the end of a downturn than are the new, green-shoot thrusting ones. It's the very opposite of what the 'forest fire' analogy predicts.What are the policy implications of that? First, if we want to speed recovery, we have to encourage newer, smaller entrepreneurial companies and start-ups. That means keeping entry barriers (like regulations) low, but most importantly, keeping taxes on businesses and on capital low. People who are starting or trying to grow businesses always cite taxation as their biggest obstacle: they are taking big risks, probably borrowing money from friends or mortgaging their homes to invest in their new venture, and the government's tax collectors cutting themselves in for a large slice of any possible future product raises that risk even more. There is even a case for having lower taxes and regulations on small firms and start-ups, just to even up the risks when economic times are hard.Second, we need a flexible labour market, free of employment regulation that makes firms reluctant to take on workers in the first place. A large part of that is making it easier and less costly for firms to scale back employment when market conditions dictate.Only such an enterprise-friendly approach, especially a new and growing enterprise-friendly approach, is likely to keep unemployment down, strengthen government and private-sector revenues, capture the innovative capacities of entrepreneurs, and create the new, sometimes revolutionary, businesses that will pull us out of a downturn.

It's a fairly standard assumption these days that more equality, less inequality, is better. We're not sure we share that idea but there we go. We're also insistent that inequality is very much lower than it is regularly measured as. But again, there we go.It is also a fairly regular assumption these days that everything must be regulated. We can't just leave things be, there must be rules over who can do what about which and to whom. There's a certain tension between these two: In the last several decades, despite widespread concerns about rising income inequality and increasing federal regulations in the United States, only a small group of researchers have tried exploring and understanding this relationship to date. Relevant empirical studies, overall, find regulations to exacerbate income distribution, thereby increasing income inequality within an economy. Recently, a similar association has been reported for the U.S. However, the existing analysis lacks evidence of a causal effect. Here, I unravel the causal impact of federal regulation of industries on income inequality across the U.S. states for the time span 1990–2013. The reasoning should be obvious enough. As with large companies positively lusting after their own industries being more highly regulated in order to defeat any market insurgencies. Regulation keeps those in privilege in privilege. The more normal turnover of economic position that results from changing technologies and entrepreneurial adventure becomes constrained by the regulation which, umm, constrains the both of them.Which leads to an interesting question. Which do you want? That regulatory state or a more equal one? Because you cannot have both. This is, of course, delightful for our side of the argument. Kill the regulatory state as we wish anyway and gain also what everyone says they want, more equality. But it is also a bit of a killer for the way we're actually governed, which is that all say they desire that less inequality while still passing regulations by the library-load.But it does all lead to the possibility of a plan. We can increase equality in Britain by burning half the legislation and firing half of the bureaucrats. Some would say that this faces a problem, which half of each? But here's what's really bad about the current position - we don't think it matters which half of either, things will still improve.

Jack Solowey and Jennifer J. Schulp


Last Wednesday, July 12, an updated version of the Lummis‐​Gillibrand Responsible Financial Innovation Act (RFIA) became public. The updated RFIA, like its predecessor, looks to tackle crypto regulation comprehensively, covering in its 274 pages major topics including market structure, crypto exchanges, stablecoins, illicit finance, and taxation.
The proposal confronts the reality of longstanding legal uncertainty for American crypto market participants. Last week's highly anticipated order in the case of Securities and Exchange Commission v. Ripple Labs, Inc., along with both the RFIA in the Senate and ongoing efforts in the House, all demonstrate that there's still significant work to be done before the United States can credibly claim regulatory clarity for crypto.
The RFIA takes important steps toward providing more legal certainty to U.S. market participants, but on some of crypto policy's most nettlesome questions there remains room for improvement. We offer our initial thoughts on the RFIA's market structure, crypto exchange, and stablecoin components below. (Our colleague Nicholas Anthony will cover the illicit finance and taxation portions in additional posts.)
Market Structure
One of the most hotly contested issues in crypto policy is the seemingly endless debate over whether and when a crypto token is properly considered to be a security or a commodity under U.S. law. The RFIA takes a swing at this issue by seeking to establish the concept of a crypto token as an "ancillary asset." The idea is that while a crypto token may be sold pursuant to a type of securities transaction known as an investment contract, the token itself need not be considered a security.
Under the RFIA, the Commodity Futures Trading Commission (CFTC) would have exclusive jurisdiction over a crypto token that qualifies as an ancillary asset but not the "security that constitutes an investment contract." To qualify as an ancillary asset, the token must not offer the holder any financial rights in a business, such as to debt or equity, liquidation, or interest or dividend payments.
The Securities and Exchange Commission (SEC), however, would have a role to play: where the average daily aggregate value of transactions in the ancillary asset exceeds a certain threshold and where the issuer engaged in "entrepreneurial or managerial efforts that primarily determined the value of the ancillary asset," the issuer would be required to file detailed disclosures with the SEC. (Where the issuer certifies—and the SEC does not reject—that those efforts have ceased, disclosures are no longer required.) When the issuer complies with the disclosure requirement, ancillary assets owned by the issuer or affiliates will be "presumed" to be commodities and not securities. This presumption could be overturned by a court finding that an ancillary asset does confer a financial right.
Required disclosures to the SEC hinge on whether the issuer is engaged in relevant entrepreneurial or managerial efforts. This "efforts" language is familiar; the third prong of the Howey test for investment contracts asks whether the purchaser "is led to expect profits solely from the efforts of the promoter or a third party." This element is frequently key to thinking about whether a crypto token should be treated as a security. One reason is that crypto technology allows token projects to develop such that the issuer's efforts are no longer essential to the functioning or benefits of the project—in other words, projects can become decentralized.
The RFIA does not explicitly invoke decentralization when it comes to classifying crypto tokens as securities or commodities, but it implicitly grapples with the concept to some extent by incorporating the third prong of Howey. Perhaps for that reason, the RFIA's co‐​author Senator Kirsten Gillibrand (D‑NY) told Yahoo! Finance that, at least in general, decentralization is relevant in determining a token's legal character: "If it meets the Howey test, then it's a digital security. If it does not, and it is fully decentralized and has the hallmarks of a commodity, then it's a digital commodity."
One benefit of the "ancillary asset" approach is that it potentially streamlines the token classification process. Nonetheless, as the RFIA's effort to implement the approach demonstrates, it remains difficult in practice to avoid the "efforts of others" concept given the realities of existing (and convoluted) capital markets regulation and the characteristics of crypto. And in incorporating the idea of entrepreneurial or managerial efforts without further defining it—such as by more explicit reference to and definition of a decentralized token network—the current version of the RFIA leaves important questions unanswered.
Fortunately, one place to turn for such a definition—in addition to other proposals—would be the RFIA itself, which defines a decentralized crypto asset exchange (DEX). The RFIA largely defines DEXs as software where no person, or group of people agreeing to act together, can unilaterally control that protocol, including by altering transactions or functions. That's a sound place to begin defining a decentralized token network as well.
In addition, distinguishing the token from the investment contract "arrangement or scheme" through which the token is offered or sold can leave questions about the investment contract itself. As noted above, under the RFIA, the SEC would retain jurisdiction over the investment contract. Yet the bounds of that jurisdiction are not clearly circumscribed. For example, would SEC jurisdiction over the investment contract be strictly limited to primary market token sales between the issuer and the counterparty, or could the SEC also extend its investment contract jurisdiction to secondary market token sales on theories related to the overall arrangement or scheme? Nothing about the SEC's recent crypto enforcement activity suggests anything other than a willingness to aggressively assert, or expand, its jurisdiction. And the recent Ripple opinion, while containing important implications for secondary markets in crypto assets, expressly left open the question of whether secondary market token sales constituted offers and sales of investment contracts. If the RFIA envisions SEC crypto jurisdiction as covering only primary—not secondary—market token sales, it should say so unequivocally.
Exchanges
The RFIA contains provisions addressing both centralized and decentralized crypto asset exchanges. The bill requires any trading facility offering a market in crypto assets or stablecoins to register with the CFTC as a crypto asset exchange. Registered exchanges must both confirm that ancillary assets meet applicable disclosure requirements before they're listed, as well as comply with core exchange principles, including safeguarding systems and customer assets, monitoring trading to provide an efficient market and prevent manipulation, and providing price and trade volume information.
While making important strides to define decentralized exchanges, as described above, the RFIA leaves somewhat uncertain their ultimate regulatory obligations. On the one hand, some sections regulate DEXs only indirectly by imposing risk management requirements on the centralized institutions that interact with DEXs, not the DEXs themselves. That registered crypto asset exchanges are subject to specific requirements regarding their interactions with decentralized crypto asset exchanges also suggests that the former (registered exchanges) does not necessarily include the latter (DEXs). Similarly, the RFIA defines a crypto asset exchange to expressly include a "centralized or decentralized platform" only for purposes of a tax provision, implying that the term crypto asset exchange is not generally meant to cover both centralized and decentralized platforms when used elsewhere in the bill.
On the other hand, by amending the Commodity Exchange Act's definition of "trading facility," which excludes systems that allow for bilateral transactions, to clarify that decentralized crypto asset exchanges that allow for multiple bids and offers to interact are distinguishable from such excluded systems, the RFIA suggests that at least some DEXs could be considered trading facilities subject to crypto asset exchange registration requirements. How exactly a DEX that enables trading pairs of crypto assets would mesh with this provision is perhaps open to interpretation.
Given these questions, the RFIA should make more explicit that disintermediated crypto exchange protocols are not subject to inapt requirements designed for centralized intermediaries.
Stablecoins
The RFIA would only permit "depository institutions," such as banks, credit unions, and savings associations, to issue payment stablecoins (tokens redeemable on a 1‑to‑1 basis with instruments denominated in U.S. dollars). Notably, the RFIA would amend the definition of depository institution under the Federal Reserve Act to incorporate a category of "covered depository institutions" that includes non‐​banks exclusively engaged in issuing payment stablecoins and approved to operate by the Office of the Comptroller of the Currency (OCC) or a similar state authority. Under the RFIA, such OCC‐​authorized payment stablecoins would not be required to maintain federal deposit insurance.
It's welcome when a bill allows for the operation of stablecoin issuers beyond federally insured depository institutions. Nonetheless, in giving federal banking regulators discretion to reject applications of prospective stablecoin issuers on the basis of subjective and open‐​ended criteria beyond basic reserve and disclosure requirements, the RFIA risks further constraining future payment services competition.
Concluding Thoughts
Providing clarity to crypto entrepreneurs, developers, and users in the United States remains a work in progress. Even with important case law evolving in the courts, Congress ultimately must provide a stable and practical framework for U.S. crypto policy.

Jennifer Huddleston


Meta launched a new text‐​based social media app called Threads on July 5. The app—which is connected to Instagram—has been referenced by both the media and users alike as an alternative to Twitter. There is much excitement about the latest social media app and Threads tells us a lot about the dynamic nature of the social media marketplace and the potential impact of regulations aimed at leading technology companies.
Threads Illustrates Social Media Remains Dynamic
There has been much handwringing about whether today's social media giants are monopolies. Threads illustrates that there are new entrants into the market and, at a minimum, that there is continued competition between even the most successful tech companies.
Elon Musk's takeover of Twitter was met with applause by some, but left others searching for alternatives following his changes to the product, including the loss of certain features without paying for a monthly subscription to Twitter Blue and changes to content moderation policies. To at least some users, Threads appears to provide an alternative with a similar text‐​focused experience. Some may have avoided leaving for new social media apps out of concerns about a steep learning curve or a requirement to rebuild one's connections on a new app. Threads' connection to Instagram allows existing Instagram users to port over their connections from a platform that they are already comfortable with.
Still, Threads and Twitter are not the only text‐​based social media apps available to consumers. New competitors, including Blue Sky and Mastodon, continue to emerge as alternatives for those dissatisfied with current social media options. While Threads may be tied to an existing social media giant, it is only one of many alternative platforms that are competing for popularity in this format. These platforms all benefit from the United States' light touch approach to regulating social media platforms, giving way to innovative and entrepreneurial efforts toward launching new social media products. This latest launch shows that social media remains dynamic not only with new ideas, but with new products that build on the popularity of certain formats.
What Threads Shows about How Regulation Can Prevent New Entrants
Generally, the European Union (EU) has taken a more stringent regulatory approach to a variety of technology policy issues. These regulations can stand in the way of new entrants being able to enter the market. Though over 30 million users downloaded Threads within a day of its launch, a considerable swath of consumers did not have access to the app.
Regulatory concerns have prevented Threads from currently being available in the EU, unlike its United Kingdom and United States counterparts. The Digital Markets Act (DMA) looms large in this decision, as there remains much uncertainty around its future impact on big tech companies like Meta. DMA restricts how data can be shared between platforms, having an immediate effect on an application like Threads that imports user data from Instagram. The vagueness of the DMA produces extra hurdles to entry that Meta may not want to jump over until the company has more clarity around how to comply with this recently enacted act and whether their adherence is worth the effort.
Unfortunately, the United States has considered similar policies that would change the existing consumer focus from antitrust to something that allows far more government intervention in competitive markets including social media. For example, had the Ending Platform Monopolies Act (H.R. 3825) passed in the last Congress, it could have complicated Meta's U.S. launch of Threads by limiting its integration with the already popular Instagram platform—a feature that gave rise to the instant popularity of Threads.
The FTC's aggressive antitrust scrutiny of tech companies could also deter those companies from launching new products or force them to focus on ongoing litigation instead. For example, the antitrust scrutiny of Microsoft in the late 1990s and early 2000s was a deterrent in its development of a mobile operating system. Microsoft co‐​founder Bill Gates said in 2019, "There's no doubt the antitrust lawsuit was bad for Microsoft, and we would have been more focused on creating the phone operating system, and so instead of using Android today, you would be using Windows Mobile if it hadn't been for the antitrust case." With the FTC engaged in multiple actions against Threads' parent company Meta, it's a relief that the company was still willing to launch this new product in the United States. One can't help but wonder what other products or services from various innovative companies might be waiting or lost out of wariness or the need for direct resources to ongoing litigation instead.
Is Threads the Next Twitter?
For all the excitement and optimism around the Threads launch, some solid caution is also needed. Given the wide array of social media options out there, Threads will have to solidify an audience of users after the immediate novelty of a new platform wears off. It is unclear how its use may fully evolve within Instagram or if ultimately the platform may become an entirely separate form of social media.
While much of Threads is Twitter‐​like, the platform also has unique features, namely the ability to post videos up to five minutes long. In addition, unlike Twitter after the launch of Twitter Blue, all users have access to a longer character count of 500 characters. This may attract a distinct type of content and conversation that separates Threads from other sites. While connection to an existing common tech company may help, as the case of Google's failed social network or Twitter's defunct Vine illustrates, it does not guarantee a home run.
Threads does, however, show that new social media platforms can quickly gather public excitement and consumers are not locked in to only the existing options. The question of if Threads becomes the next big social media app should stay firmly in the hands of consumers and not government regulators.

Norbert Michel and Jai Kedia


A few weeks ago, American Compass released Rebuilding American Capitalism, A Handbook for Conservative Policymakers. This Forbes column (American Compass Points To Myths Not Facts) provided a very brief critique of the handbook's "Financialization" chapter, and Oren Cass, American Compass's Executive Director, released a response titled Yes, Financialization Is Real.
Today's Cato at Liberty post is the second in a series that expands on the original criticisms outlined in the Forbes column. (The first in the series is available here.) This post deals with American Compass's claim that the financial sector has siphoned off "top business talent" to the detriment of the rest of the economy.
The evidence does not support American Compass's claims. The post also points out the inconsistency between American Compass's complaints about (allegedly) stagnant American income and an influx of people working in higher‐​paying fields.
To recap, American Compass's handbook states the following:
American finance has metastasized, claiming a disproportionate share of the nation's top business talent and the economy's profits, even as actual investment has declined." [Emphasis added.]

The original critique was that American Compass failed to provide supporting evidence for these claims, and that such supporting evidence doesn't exist. It also pointed out the number of people employed in the Finance and Insurance industry, as a share of total nonfarm employees, has barely budged from 4.5 percent since 1990.
To provide evidence that the nation is, in fact, losing its top business talent to the financial industry, Cass's response pointed to two paragraphs in a separate report that Cass wrote, Confronting Coin‐​Flip Capitalism. Our critique assumes that "coin‐​flip capitalism" is the same phenomenon as "financialization." The first of the two paragraphs is reproduced here:
Graduates of America's top business schools provide a useful proxy for the attraction of various industries and, from 2015 to 2019, nearly 30% of graduates from Harvard, Stanford, Wharton, Booth, Kellogg, Columbia, and Sloan went into finance. In 2020, the finance industry was the most popular and offered the most generous compensation packages for graduates of the MBA programs at both Harvard and Stanford. [See also, our Guide to Private Equity.]

This first paragraph does not provide evidence that finance has claimed a disproportionate share of the nation's top business talent. It merely refers to several years of placement data from some of America's top business schools, not a systematic study. The paragraph provides evidence that a large portion of top business school graduates choose to work in finance. That fact is hardly surprising, and it is not evidence that the proportion has changed or that businesses have been harmed.
The second paragraph is reproduced here:
Engineers have likewise flocked to Wall Street, as compensation at equivalent education levels surged in finance as compared to engineering after 1980. The probability of an engineer switching to a finance career increased more than four‐​fold from the 1980s to the 2010s; the share of "STEM" jobs in finance doubled over that period while the share in manufacturing fell by half. Lest one think these are the engineers who couldn't hack it in engineering, Nandini Gupta and Isaac Hacamo of Indiana University's Kelley School of Business find that "financial sector growth attracts exceptionally talented engineers from other sectors to finance."

Citing three research papers, American Compass bemoans the finding that "Engineers have likewise flocked to Wall Street." Our critique assumes that engineers should be included in the category of "top business talent."
First, even if business majors and engineers do choose finance versus other fields, that fact alone says nothing about why they make such choices, much less whether such choices cause harm to the nation's economy. Such choices could simply reflect that people tend to seek opportunities to earn higher compensation, and the outcome could be beneficial to the economy. And, in fact, between 1968 and 2022,[1] average annual real wage and salary growth was higher in finance than in several other sectors, including engineering. (See Figure 1.)









Figure 1: Real U.S. Annual Wage Growth Statistics by Sector, 1968 to 2022
Average annual real wage and salary growth is 1.73 percent in finance since 1968, but 1.26 percent in engineering and 1.36 percent in computer services. Thus, even though wages in finance are lower than in computer sciences or engineering (see Figure 2), their higher growth rate could help explain why many people would choose finance jobs relative to other fields.









Figure 2: Annual Wages in the U.S. by Sector, 1968 to 2022, inflation adjusted with Personal Consumption Expenditures (PCE)​
None of these facts are indicative of an economic problem. If American Compass believes that people earning so much more in the computer field harms Americans, they should say so. Similarly, if American Compass believes that a 0.47 percentage point difference in average income growth between the financial and engineering sectors reveals businesses have been harmed, they should state their hypothesis clearly and make an empirical case.
Surely, though, an organization such as American Compass, one that constantly complains about stagnant income, would not begrudge Americans for choosing to work in a higher paying field. (Figure 1 and Figure 2 also demonstrate that Americans' income is not stagnant. Real wage and salary growth has been positive across almost all sectors and time periods, with cumulative growth of 71 percent even in the manufacturing sector. We'll return to this issue in a future post.)
Of course, even this compensation growth data tells us very little about why the different rates of growth occurred in the various sectors. However, one of the academic research papers Cass cites in his response does provide an explanation for this difference. Specifically, we're referring to the paper by Thomas Philippon and Ariell Reshef, titled "Wages and Human Capital in the U.S. Finance Industry: 1909–2006," which was published in the prestigious Quarterly Journal of Economics in 2012.
In that paper, the authors show that the labor market in finance was artificially suppressed between 1940 and 1980 due to an over‐​bearing regulatory environment. In other words, overall wages and employment in finance would have been much higher without the heavy regulation in that sector. Consequently, the uptick in wages and employment after 1980 are likely due to the finance labor market reverting back to its non‐​suppressed state (similar to pre‐​1940) after the regulatory environment changed (precisely what economics would predict). Here's a quote from page 1552:
We find a tight link between deregulation and the flow of human capital in and out of the finance industry. In the wake of Depression‐​era regulations, highly skilled labor leaves the finance industry and it flows back precisely when these regulations are removed in the 1980s and 1990s. This link holds for finance as a whole, as well as for sub‐​sectors within finance. Our interpretation is that tight regulation inhibits the creativity of skilled workers.

So, this paper does not support American Compass's position that anything bad has happened; instead, it argues that any employment increase seen in finance is essentially a reversion to a state where skilled workers' creativity is no longer inhibited.
Another of the three papers is a Kelley School of Business working paper from 2022 by Nandini Gupta and Isaac Hacamo. This paper is an even stranger choice for American Compass to cite as proof of some kind of harm caused by financialization (or coin‐​flip capitalism). It shows that the net effects of people working in finance boost entrepreneurship. Here is the relevant language (from two separate paragraphs on page 4 of the paper):
Our results show that the finance wage premium increases overall entrepreneurship. This may occur because engineer‐​financiers are more likely to become entrepreneurs. Or, because talented engineers in finance facilitate entrepreneurship by others. We find that engineers who take finance jobs are less likely to subsequently start firms. Therefore, we study a potential peer effects mechanism where engineer‐​financiers may help their classmates become entrepreneurs.
…
We find the following results: First, we show that top engineers exposed to a higher finance wage premium at graduation are more likely to take jobs in entrepreneurial finance (EF) jobs in venture capital, private equity, and investment banking. Second, we show that engineers who don't take finance jobs are more likely to become transformational entrepreneurs the more classmates from the same school‐​major‐​graduation year who are in venture capital, private equity, and investment banking firms. For example, an engineer with 5 classmates in entrepreneurial finance jobs is 9% more likely to become an entrepreneur and 18% more likely to create a transformational firm that issues patents, employs workers, and has a successful exit, relative to the mean.

At the very least, the paper's results are consistent with the literature on peer‐​effects "whereby engineers in investment banking type jobs help their classmates start transformational firms." Obviously, it's very odd to cite this paper as evidence that financialization is some kind of blight on capitalism. It implies the opposite: the overall labor market trend is good for the economy.
The third paper is a 2022 working paper by Giovanni Marin and Francesco Vona, and the evidence it provides does not show that finance is now claiming a disproportionate share of STEM talent. For instance, the authors show that the probability a STEM graduate starts working in finance rose between 1980 and 2019, from 4 percent to 6.8 percent. However, they also report a substantial increase for non‐​STEM graduates – it rose from 6.5 percent in 1980 to 8.2 percent in 2019. (See page 9.)
The authors of this third paper also report (see pages 3 and 4) that they "observe a pronounced task reorientation towards math in finance and business occupations, which is associated with a change in the types of education required in these occupations." (Emphasis added.) In other words, they observe a change in education requirements for multiple occupations, one that (especially in finance) is "more pronounced among experienced workers."[2] Additionally, the paper corroborates that the drift of STEM graduates to finance is simply a result of people finding the best match of talent and innovation:
These empirical patterns are associated with profound technological changes affecting the financial industry more than the rest of the economy. Finance is an information‐​intensive industry that benefited from improvements in information and communication technologies (ICT) more than other industries did. The STEM biasedness in the demand of college graduates is consistent with the complementarity between ICT technologies and STEM graduates.

Finally, Marin and Vona report (see graph B on page 10) the share of hours worked by college graduates in the finance industry for both STEM and non‐​STEM graduates between 1980 and 2020. Both STEM and non‐​STEM groups display an increasing trend, and the share for non‐​STEM graduates remains roughly two percentage points higher than for STEM graduates for the full period. Though not quite as damning as the previous two papers, this one, too, fails to support the idea that finance has started claiming a disproportionate share of talent.
So, on balance, none of this evidence – especially not the papers cited by American Compass – supports the idea that finance is responsible for robbing the nation's businesses of talent. Nor, as American Compass argues in Confronting Coin‐​Flip Capitalism, does any of this evidence support that finance is robbing talent "from the real economy" and "further discouraging productive investment."
On page 102 of his book, Cass supports the "tracking of less academically talented students toward vocational training," so he may have some optimal employment arrangement in mind for the financial sector. Perhaps someone else at American Compass has some idea what the optimal quantity of workers should be in the financial sector, but the "Financialization" chapter does not mention it.
In the next post, we will discuss claims involving financialization's alleged effect on profits.


[1] Figure 1 and Figure 2 report annual average growth rates and actual amounts, respectively, for real annual pre‐​tax wage and salary income, by sector, from 1968 to 2022, using the IPUMS-CPS, University of Minnesota, www​.ipums​.org.


[2] Figure VI (on p. 1571) from Philippon and Reshef (2012) also confirms this finding. Finance jobs dramatically increased in complexity while tasks in the rest of the labor market became substantially less complex.

NDI's Chris Fomunyoh is once again joined by Ambassador Johnnie Carson as they discuss the steps that can be taken to strengthen democracy. They continue their conversation with their thoughts on the key challenges and opportunities facing Africa this year.
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Johnnie Carson: When female voices are not heard, the conversation is crippled, the policy is crippled, the institutions are crippled and the results are crippled.
Chris Fomunyoh: I'm Chris Fomunyoh, senior associate and regional director for Central and West Africa at the National Democratic Institute for International Affairs, NDI. Welcome to this edition of DemWorks.

Again we're joined by Ambassador Johnnie Carson, a proud member of the board of directors of The National Democratic Institute, NDI with a 37 year career in the U.S. Foreign Service focus on Africa. In our previous episode, you spoke about the risk of back sliding. So for this episode, we will focus on the steps that can be taken to strengthen democracy in Africa.

I'd like us to pivot a little bit to the Sahel because in Tanzania we see the back sliding that's coming from political actors themselves, but there's something happening in the Sahel, which is a region in which we see a lot of political commitment to democratic governance, whether it's from the leaders and activists in Niger Republic, in Burkina Faso and in Mali, but at the same time these countries are coming under tremendous pressure from violent extremists who are coming across the desert and destabilizing what would be an emerging democracy and what concerns do you have and how do you think organizations like NDI, like USIP and others that have the self-power expertise, so to speak can contribute to the efforts to counter violent extremism like Sahel and also the whole of Africa?

JC: Chris you're absolutely right and we should all be concerned about outside forces that can come in and destabilize a country, its politics, its economy and its society and across the Sahel we in fact see this happening. The challenges to stability, to democracy to holding free and transparent and creditable elections and having democratic systems that work, are not only challenged by sometimes authoritarian leaders seeking to maintain power and control, we also can see this emerging as a result of exogenous forces coming in from outside, and here we see non-state actors undermining stability across the Sahel, which is creating tension for democracies and tensions for states.

I think one of the things that is absolutely critical in addressing the problems with the Sahel is for government to reconnect with their citizens, to put in place the kinds of services that citizens are looking for and are demanding and expecting. They need to be responsive to the needs that they, citizens believe are not there and they have to have these connections in order to build up resilience, to build up strength against the ideologies and to the negative forces that are brought in by extremist groups.

It is extremists groups across the Sahel are taking advantage of the absence of good services and good connectivity between government and citizens and one of the things that must accompany the security response is in fact a development and government response. Security alone cannot end the problems in the Sahel. It's an important ingredient but the most important ingredient is government going in and establishing responsible connections, providing services, education, healthcare, sanitation, water cattle feeding stations and services that citizens require and are being deprived of.

So one of the things that must be hand in hand and be out front is not the military response and the security response but the governance response, the social service response and if that is absent, the security response will be deficient and will not work.

CF: In fact, I'm so thankful you say that, because I know that you and other members of our board, Secretary Albright, in particular the chair of our board, you've been emphasizing reinforcing this message about democracy and development component as part of the toolkit in conquering violent extremism and in fact, that's the approach that NDI is taking to its work in the Sahel because we currently have ongoing programs in Niger, Mali and Burkina Faso, and our focus, the main focus of that piece of work is on people, processes and the politics and trying to create platforms where governments can reconnect with citizens at a grassroots level.

So in a number of cases we've set up platforms where civil society with legislatures and members of the executive branch, including representatives of the security services get together regularly to figure out what the challenges are in various communities and how to foster inter-communal dialogue and better relationships between the security services and the populations that they seek to serve, because you may remember there was a UN study that said that in many of the cases where violent extremism persist, that 70% of the people who join extremist organizations, are reacting to poor performance by security services and you have paid a lot of attention to Nigerian and the whole Boko Haram phenomenon.

I don't know how this would fit into our conversation with regards to the Sahel as well.


JC: I think it also very pertinent for Nigeria, and I too have seen studies of some very distinguished organizations, Mercy Corps and others that talk about why people are recruited and indeed, the authoritarian sometimes brutal nature of security forces towards communities that they should be protecting drives individuals away from the government and into the hands of Boko Haram.

Even the origin of the current violence in Northern Nigeria has its origins in the brutal extrajudicial killing of Boko Haram's first leader in 2009. His apprehension, his questioning, his interrogation, torture and mistreatment were all recorded on someone's cellphone and became widely seen throughout the country and throughout the north. Two years later, after that event in 2009 we saw and upsurge in 2011 and the activities of Boko Haram and indeed people continued to say that the brutal nature in which the security forces sought to root out Boko Haram, in fact generated more recruits for Boko Haram than it did for support for the government's efforts.

It is absolutely critical, it's absolutely critical that security forces recognize that they have a responsibility to protect the civil liberties and the human rights of the citizens of the state that they are protecting and that the way they treat the individuals in areas that they go into, may have an impact on their ability to ultimately win the conflict, but one thinks of Nigeria and particularly of the North East and there again weak institutions of corruption of lack of social services are all playing a major part in why the conflict in that region continues.

In the north east of Nigeria particularly and the three most affected states, Borno, Yobe and Adamawa. Those three states have the lowest social indicators of any of Nigeria's 36 states, less access to education, to healthcare, to water resources and to jobs and access and this all plays out as well. Governments needs to be responsive to their citizens and while a security response is important, governance and providing social services and the needs to citizens to build resilience is critical as well.

CF: This seems like a good place to take a short break. For well over 35 years NDI has been honored to work side by side with courageous and committed pro-democracy activists and leaders around the world to help contribute to develop the institutions practices and skills necessary for democracy's success.

I realize it's many countries to cover but in the few minutes that are left, I just see if you have any parting words for four countries that we haven't really focused that much on and those are Ethiopia, Kenya, The Democratic Republic of Congo and we'll exit with Cameroon. What are your thoughts?

JC: My thoughts on Ethiopia. It is absolutely essential that those of us who support a democracy and democratic progress lend all of our efforts to those of the Ethiopian government to ensure that the democratic experiment that is underway is successful. Prime Minister Abiy won the Nobel Prize for bringing about peace with Eritrea but the more important thing is that we, outside step up our effort to help him ensure that his legislative elections, this year, are successful and that we do what we can to strengthen his country's democratic progress.

He has appointed and outstanding leader, Birtukan, former opposition leader, spent many years in jail as his country's election commissioner. We need on the outside to provide the kind of technical and financial and advocacy support that she might need to put in place the architecture for running the country's elections. It will in fact be the first real serious elections in that country since the collapse of the Derg in the early 1990s. So it's important that we help do this.

Ethiopia is Africa's second most populous country behind Nigeria and it's important that we help democracy there. It's also a key and strategic state in the region bordering a number of other countries that will look to the success of what happens here. So we need to support.

Kenya, will have elections next year. It is important that there be a continuation in the improvement of the country's electoral agencies. The shadow of the flawed and failed and controversial and violent elections of 2007 and 2008 continue to be a shadow. The controversies associated with the last elections and court decisions there continue to hang over. It is important to continue to support civil society, support the electoral commission and work with the Kenyan government to ensure an outcome.

It appears very clearly that President Kenyatta wants to leave a positive legacy of progress, economically, politically and electorally. This will be a challenge but we should support the process moving forward. The features are still there.

CF: In fact, I should say before end up with the last two countries that for listeners, Ethiopia has got a parliamentary system of government. That's why the parliamentary elections are extremely important, the national elections for Ethiopia and also with regards to Kenya, as you say, President Uhuru Kenyatta would like to leave a good legacy. He's coming to the end of his second term and NDI working with partners on the continent has been very strong on the issue constitutionalism, respect for rule of law. In fact, we had a continent wide conference in Niamey, Niger Republic last October on the whole question of presidential term limits and we'll be having a second conference in Botswana in June to discuss term limits with former African heads of states and various other partners on the continent.

Just to say that, as leaders relinquish power when their terms come to an end, they help consolidate and strengthen democratic practices and institutions. So, with the two remaining countries-

JC: I applaud President Kenyatta for saying very early on that he would adhere to the constitution, he would serve two terms and step down. This is an important message for the most important country in East Africa, especially looking at the neighboring states, particularly Burundi, Rwanda and Uganda where leaders there have found ways to extend themselves in office. He recognizes the importance of transition at the top and allowing the citizens of the country to select new leadership on a constitutional basis rather than trying to alter the constitution to eliminate term limits, age limits and perpetuate themselves in power.

So I hope others in the region are in fact looking at Kenya's model. One jumps across to West Africa and looks at President Paul Biya who's been in power for three decades, plus shows no desire whatsoever to leave office. Here is a man who has lost touch with his citizens and the communities of his country and because he has lost touch with his citizens, because there have been structural deficiencies and weaknesses and the institutions that he is responsible for, we now see a country that is suffering from three or four major political crisis, crisis with the English speaking portion of this country in the south west, the emergence of Boko Haram and radicalism across the border from Nigeria in the north west and problems of herders and farmers driven by drought and climate conditions.

President Biya has lost touch with the needs of his citizens and his government has not been responsive to anyone but himself and a small political elite. I think it is important for the international community to point out the failures and the flaws of his governance, the corruption that underpins it and to support those internally who are pushing for a constitution and political policies that fundamentally change the nature and structure of society, political architecture in society.

CF: You're so right, because that's one country that it's got tremendous potential but that it's not pulling its weight at all and because of its strategic location, invariably weakens other countries in the central Africa sub region, as well as in West Africa too and it's now taking full advantage of what could be real opportunities to improve the wellbeing of its citizens.

We'll be right back after this quick message.

And let's end with the country right in the heart of the continent, The Democratic Republic of Congo. I was in Kinshasa in October and met with political leaders and opinion leaders across the board, civil society, religious leaders who are very powerful in the Congo, very influential and I came away, I should say, a little more optimistic than I was going in. I was quite apprehensive given what has transpired in the 2018 presidential elections but after talking to the Congolese, I got a sense that a genuine attachment to reform.

Everybody wants some reforms of the political process or the electoral process and the key question is whether they are going to be able to set aside their personal agendas and actually get together to help this country, which has got tremendous resources and tremendous potential get back on its feet. I was very impressed by the fact that most of the leaders in Congo are pretty young. I know that you and I have talked about Congo for many, many times and when you were still in the administration you had to deal with some of their crisis.

I don't know what you take is on the present leadership and the present challenges but also the opportunities that present themselves in the Democratic Republic of Congo.

JC: Let me say that The Democratic Republic of the Congo has more unrealized potential than any other large state in Africa and that potential has continued to be in held in check and not realized because of the poor nature of the politics that have occurred there since the 1960s.

The 2018 elections were deeply flawed and irregular and not representative, I think, of the vote of the people. The one thing that one can say about the process that it did lead to President Kabila stepping down and a new younger president, Tshisekedi coming into power. There was immediately after the election a strong feeling that Tshisekedi was going to be instrument of Kabila going forward in that his leadership and his authority and his ability to do things would be substantially constrained. Tshisekedi has shown some degree of independence.

It is again important to recognize that there is little we can do to rerun that election or to reverse it but there is something that all of us can do going forward, and that to put pressure on President Tshisekedi to ensure that the electoral commission is strengthened, it has more independence, more technical capacity and more of an ability to deliver a more responsible, fair and transparent election going forward.

It is also important that he continue the fight against corruption, that he begin to put in place the kind of economic reforms that are going to unleash the potential of the Congo and to provide the people, The Democratic Republic of the Congo an opportunity to realize so many of the opportunities that they have been denied in the past. He has shown more independence than I thought but it is important that he not stop, that he continue to move forward, that he open up political space and continue to open it up for civil society, for the opposition, for the media, that he not constrain but unleash the country's potential and that he continue to show both in reality and fact his independence away from Kabila and those who were around him in the past.

He will be judged on the next four years very keenly, but it's important that the institutions of democracy to the extent that we can help civil society strengthen them, that they be nurtured and pushed forward. Elections and democracy...Democracy doesn't depend essentially, solely on elections. It is institutions that must be strengthened and we can help the DRC and civil society move those forward.

Again, working effectively with religions groups, Catholic Church, a very powerful instrument, working with women's groups, with working youth groups across the DRC and working with an emerging entrepreneurial class of young Congolese as well. We have to nurture and strengthen and push them forward. These next elections will be able to tell us whether there's been progress. President Tshisekedi needs to continue to move forward.

CF: Thank you very much Ambassador Johnnie Carson. It's really been an honor to have you do this tutor for us on the entire continent. Of course there still would always be ground to cover. As you were speaking, I thought about what late President John F Kennedy said about democracy as a never ending endeavor, and so NDI and similar organizations will continue to work side by side with our African partners to make sure that we can support them, give them the support and share experiences that they need so that we can all collectively, continue to work to strengthen and support democracy in countries like the DRC, Ethiopia, Sudan and across the entire continent.

Thank you also for being a member of our board of directors. We are extremely proud of that and extremely proud of the partnership that NDI has with USIP and hope that our two organizations would continue to work together to support the growth of democracy across Africa and to our listeners, can I just say thank you for sharing in this edition of DemWorks, to follow our next podcast. Please check us out on our website www.NDI.org.

Thank you for listening.


Ambassador Johnnie Carson





Peace, Security and Democratic Resilience,

Loet Leydesdorff on the Triple Helix: How Synergies in University-Industry-Government Relations can Shape Innovation Systems





This is the sixth and last in a series of Talks dedicated to the technopolitics of International Relations, linked to the forthcoming double volume 'The Global Politics of Science and Technology' edited by Maximilian Mayer, Mariana Carpes, and Ruth Knoblich 







The relationship between technological innovation
processes and the nation state remains a challenge for the discipline of
International Relations. Non-linear and multi-directional
characteristics of knowledge production, and the diffusive nature of knowledge
itself, limit the general ability of governments to influence and steer
innovation processes. Loet Leydesdorff advances the framework of the "Triple
Helix" that disaggregates national innovation systems into
evolving university-industry-government eco-systems. In this Talk, amongst others, he shows that these eco-systems can be
expected to generate niches with synergy at all scales, and emphasizes that, though
politics are always involved, synergies develop unintentionally.




Print version of this Talk (pdf)




What is the most relevant aspect
of the dynamics of innovation for the discipline of International Relations?



The
main challenge is to endogenize the notions of technological progress and
technological development into theorizing about political economies and nation states.
The endogenization of technological innovation and technological development
was first placed on the research agenda of economics by evolutionary economists
like Nelson and Winter in the late 1970s and early 1980s. In this context, the
question was how to endogenize the dynamics of knowledge, organized knowledge,
science and technology into economic theorizing. However, one can equally well
formulate the problem of how to reflect on the global (sub)dynamics of
organized knowledge production in political theory and International Relations.



From
a longer-term perspective, one can consider that the nation states – the
national or political economies in Europe – were shaped in the 19th
century, somewhat later for Germany (after 1871), but for most countries it was
during the first half of the 19th century. This was after the French
and American Revolutions and in relation to industrialization. These nation
states were able to develop an institutional framework for organizing the
market as a wealth-generating mechanism, while the institutional framework
permitted them to retain wealth, to regulate market forces, and also to steer
them to a certain extent. However, the market is not only a local dynamics; it
is also a global phenomenon.



Nowadays,
another global dynamics is involved: science and technology add a dynamics different
from that of the market. The market is an equilibrium-seeking mechanism at each
moment of time. The evolutionary dynamics of science and technology nowadays
adds a non-equilibrium-seeking dynamics over time on top of that, and this puts
the nation state in a very different position. Combining an equilibrium-seeking
dynamics at each moment of time with a non-equilibrium seeking one over time
results in a complex adaptive dynamics, or an eco-dynamics, or however you want
to call it – these are different words for approximately the same thing.



For
the nation state, the question arises of how it relates to the global market
dynamics on the one side, and the global dynamics of knowledge and innovation on
the other. Thus, the nation state has to combine two tasks. I illustrated this
model of three subdynamics with a figure in my 2006 book entitled The Knowledge-Based Economy: Modeled,
measured, simulated (see image). The figure shows that first-order interactions
generate a knowledge-based economy as a next-order or global regime on top of
the localized trajectories of nation states and innovative firms. These complex
dynamics have first to be specified and then to be analyzed empirically.



For
example, the knowledge-based dynamics change the relation between government
and the economy; and they consequently change the position of the state in
relation to wealth-retaining mechanisms. How can the nation state be organized
in such a way as to retain wealth from knowledge locally, while knowledge (like
capital) tends to travel beyond boundaries? One can envisage the complex system
dynamics as a kind of cloud – a cloud
that touches the ground at certain places, as Harald Bathelt, for example,
formulated.



How
can national governments shape conditions for the cloud to touch and to remain
on the ground? The Triple Helix of University-Industry-Government Relations can
be considered as an eco-system of bi- and tri-lateral relations. The three
institutions and their interrelations can be expected to form a system carrying
the three functions of (i) novelty production, (ii) wealth generation, and
(iii) normative control. One tends to think of university-industry-government
relations first as neo-corporatist arrangements between these institutional
partners. However, I am interested in the ecosystem shaped through the tri- and
bilateral relationships.



This
ecosystem can be shaped at different levels. It can be a regional ecosystem or
a national ecosystem, for instance. One can ask whether there is a surplus of synergy
between the three (sub-)dynamics of university-industry-government relations
and where that synergy can generate wealth, knowledge, and control; in which
places, and along trajectories for which periods of time – that is, the same
synergy as meant by "a cloud touching the ground".



For
example, when studying Piedmont as a region in Northern Italy, it is
questionable whether the synergy in university-industry-government relations is
optimal at this regional level or should better be examined from a larger perspective
that includes Lombardy. On the one
hand, the administrative borders of nations and regions result from the
construction of political economies in the 19th century; but on the
other hand, the niches of synergy that can be expected in a knowledge-based
economy are bordered also; for example, in terms of metropolitan regions (e.g.,
Milan–Turin–Genoa).



Since
political dynamics are always involved, this has implications for International
Relations as a field of study. But the dynamic analysis is different from
comparative statics (that is, measurement at different moments of time). The
knowledge dynamics can travel and be "footloose" to use the words of Raymond
Vernon, although it leaves footprints behind. Grasping "wealth from knowledge"
(locally or regionally) requires taking a systems perspective. However, the
system is not "given"; the system remains under reconstruction and can thus be
articulated only as a theoretically informed hypothesis.



In
the social sciences, one can use the concept of a hypothesized system
heuristically. For example, when
analyzing the knowledge-based economy in Germany, one can ask whether more synergy
can be explained when looking at the level of the whole country (e.g., in terms
of the East-West or North-South divide) or at the level of Germany's Federal
States? What is the surplus of the nation or at the European level? How can one
provide political decision-making with the required variety to operate as a
control mechanism on the complex dynamics of these eco-systems?



A
complex system can be expected to generate niches with synergy at all scales,
but as unintended consequences. To what extent and for which time span can
these effects be anticipated and then perhaps be facilitated? At this point,
Luhmann's theory comes in because he has this notion of different codifications
of communication, which then, at a next-order level, begin to self-organize
when symbolically generalized.



Codes
are constructed bottom-up, but what is constructed bottom-up may thereafter
begin to control top-down. Thus, one should articulate reflexively the
selection mechanisms that are constructed from the bottom-up variation by
specifying the why as an hypothesis.
What are the selection mechanisms? Observable relations (such as
university-industry relations) are not neutral, but mean different things for
the economy and for the state; and this meaning of the observable relations can
be evaluated in terms of the codes of communication.



Against
Niklas Luhmann's model, I would argue that codes of communication can be
translated into one another since interhuman communications are not
operationally closed, as in the biological model of autopoiesis. One also needs a social-scientific perspective on the
fluidities ("overflows") and translations among functions, as emphasized, for
example, by French scholars such as Michel Callon and Bruno Latour. In
evolutionary economics, one distinguishes between market and non-market
selection environments, but not among selection environments that are
differently codified. Here, Luhmann's theory offers us a heuristic: The complex
system of communications tends to differentiate in terms of the symbolic
generalizations of codes of communication because this differentiation is
functional in allowing the system to process more complexity and thus to be
more innovative. The more orthogonal the codes, the more options for
translations among them. The synergy indicator measures these options as
redundancy. The selection environments, however, have to be specified historically
because these redundancies—other possibilities—are not given but rather constructed
over long periods of time.





How did you arrive where
you currently work on?


I
became interested in the relations between science, technology, and society as
an undergraduate (in biochemistry) which coincided with the time of the student
movement of the late 1960s. We began to study Jürgen Habermas in the framework
of the "critical university," and I decided to continue with a second degree in
philosophy. After the discussions between Luhmann and Habermas (1971), I
recognized the advantages of Luhmann's more empirically oriented systems approach
and I pursued my Ph.D. in the sociology of organization and labour.



In
the meantime, we got the opportunity to organize an interfaculty department for
Science and Technology Dynamics at the University of Amsterdam after a
competition for a large government grant. In the context of this department, I
became interested in methodology: how can one compare across case studies and
make inferences? Actually, my 1995 book The
Challenge of Scientometrics
had a kind of Triple-Helix model on the cover: How do cognitions, texts, and
authors exhibit different dynamics that influence one another?



For
example, when an author publishes a paper in a scholarly journal, this may add
to his reputation as an author, but the knowledge claimed in the text enters a
process of validation which can be much more global and anonymous. These
processes are mediated since they are based on communication. Thus, one can add
to the context of discovery (of authors) and the context of justification (of
knowledge contents) a context of mediation (in texts). The status of a journal,
for example, matters for the communication of the knowledge content in the article.
The contexts operate as selection environments upon one another.



In
evolutionary economics, one is used to distinguishing between market and
non-market selection environments, but not among more selection environments
that are differently codified. At this point, Luhmann's theory offers a new
perspective: The complex system of communications tends to differentiate in
terms of the symbolic generalization of codes of communication because this differentiation
among the codes of communication allows the system to process more complexity
and to be more innovative in terms of possible translations. The different
selection environments for communications, however, are not given but constructed
historically over long periods of time. The modern (standardized) format of the
citation, for example, was constructed at the end of the 19th
century, but it took until the 1950s before the idea of a citation index was
formulated (by Eugene Garfield). The use of citations in evaluative
bibliometrics is even more recent.



In
evolutionary economics, one distinguishes furthermore between (technological)
trajectories and regimes. Trajectories can result from "mutual shaping" between
two selection environments, for example, markets and technologies. Nations and
firms follow trajectories in a landscape. Regimes are global and require the
specification of three (or more) selection environments. When three (or more)
dynamics interact, symmetry can be broken and one can expect feed-forward and
feedback loops. Such a system can begin to flourish auto-catalytically when the
configuration is optimal.



From
such considerations, that is, a confluence of the neo-institutional program of
Henry Etzkowitz and my neo-evolutionary view, our Triple Helix model emerged in
1994: how do institutions and functions interrelate and change one another or,
in other words, provide options for innovation? Under what conditions
can university-industry-government relations lead to wealth generation and
organized knowledge production? The starting point was a workshop about Evolutionary Economics and Chaos Theory: New
directions for technology studies held in Amsterdam in 1993. Henry
suggested thereafter that we could collaborate further on university-industry
relations. I answered that I needed at least three (sub)dynamics from the
perspective of my research program, and then we agreed about "A Triple Helix of
University-Industry-Government Relations". Years later, however, we took our
two lines of research apart again, and in 2002 I began developing a
Triple-Helix indicator of synergy in a series of studies of national systems of
innovation.





What would you give as
advice to students who would like to get into the field of innovation and
global politics?



In
general, I would advise them to be both a specialist and broader than that.
Innovation involves crossing established borders. Learn at least two languages.
If your background is political science, then take a minor in science &
technology studies or in economics. One needs both the specialist profile and
the potential to reach out to other audiences by being aware of the need to
make translations between different frameworks. Learn to be reflexive about the
status of what one can say in one or the other framework.



For
example, I learned to avoid the formulation of grandiose statements such as
"modern economies are knowledge-based economies," and to say instead: "modern
economies can increasingly be considered as knowledge-based economies." The
latter formulation provides room for asking "to what extent," and thus one can
ask for further information, indicators, and results of the measurement.



In
the sociology of science, specialisms and paradigms are sometimes considered as
belief systems. It seems to me that by considering scholarly discourses as
systems of rationalized expectations one can make the distinction between
normative and cognitive learning. Normative learning (that is, in belief
systems) is slower than cognitive learning (in terms of theorized expectations)
because the cognitive mode provides us with more room for experimentation: One
can afford to make mistakes, since one's communication and knowledge claims
remain under discussion, and not one's status as a communicator. The cognitive
mode has advantages; it can be considered as the surplus that is further
developed during higher education. Normative learning is slower; it dominates
in the political sphere.





What
does the "Triple Helix" reveal about the fragmentation of "national innovation
systems"?



In
2003, colleagues from the Department of Economics and Management Studies at the
Erasmus University in Rotterdam offered me firm data from the Netherlands containing
these three dimensions: the economic, the geographical, and the technological dimensions
in data of more than a million Dutch firms. I presented the results at the
Schumpeter Society in Turin in 2004, and asked whether someone in the audience
had similar data for other countries. I expected Swedish or Israeli colleagues
to have this type of statistics, but someone from Germany stepped in, Michael
Fritsch, and so we did the analysis for Germany. These studies were first
published in Research Policy.
Thereafter, we did studies on Hungary, Norway, Sweden, and recently also China
and Russia.



Several
conclusions arise from these studies. Using entropy statistics, the data can be
decomposed along the three different dimensions. One can decompose national
systems geographically into regions, but one can also decompose them in terms
of the technologies involved (e.g., high-tech versus medium-tech). We were
mainly relying on national data. And of course, there are limitations to the
data collections. Actually, we now have international data, but this is
commercial data and therefore more difficult to use reliably than governmental
statistics.



For
the Netherlands, we obtained the picture that would more or less be expected:
Amsterdam, Rotterdam, and Eindhoven are the most knowledge-intensive and
knowledge-based regions. This is not surprising, although there was one surprise:
We know that in terms of knowledge bases, Amsterdam is connected to Utrecht and
then the geography goes a bit to the east in the direction of Wageningen. What
we did not know was that the niche also spreads to the north in the direction
of Zwolle. The highways to Amsterdam Airport (Schiphol) are probably the most
important.



In
the case of Germany, when we first analyzed the data at the level of the
"Laender" (Federal States), we could see the East-West divide still prevailing,
but when we repeated the analysis at the lower level of the "Regierungsbezirke"
we no longer found the East-West divide as dominant (using 2004 data). So, the
environment of Dresden for example was more synergetic in Triple-Helix terms
than that of Saarbruecken. And this was nice to see considering my idea that
the knowledge-based economy increasingly prevails since the fall of the Berlin
Wall and the demise of the Soviet Union. The discussion about two different
models for organizing the political economy—communism or liberal democracy—had
become obsolete after 1990.



After
studying Germany, I worked with Balázs Lengyel on Hungarian data. Originally,
we could not find any regularity in the Hungarian data, but then the idea arose
to analyze the Hungarian data as three different innovation systems: one around
Budapest, which is a metropolitan innovation system; one in the west of the
country, which has been incorporated into Western Europe; and one in the east
of the country, which has remained the old innovation system that is state-led
and dependent on subsidies. For the western part, one could say that Hungary
has been "europeanized" by Austria and Germany; it has become part of a
European system.



When
Hungary came into the position to create a national
innovation system, free from Russia and the Comecon, it was too late, as
Europeanization had already stepped in and national boundaries were no longer
as dominant. Accordingly, and this was a very nice result, assessing this
synergy indicator on Hungary as a nation, we did not find additional synergy at
the national (that is, above-regional) level. While we clearly found synergy at
the national level for the Netherlands and also found it in Germany, but at the
level of the Federal States, we could not find synergy at a national level for
Hungary. Hungary has probably developed too late to develop a nationally
controlled system of innovations.



A
similar phenomenon appeared when we studied Norway: my Norwegian colleague
(Øivind Strand) did most of our analysis there. To our surprise, the
knowledge-based economy was not generated where the universities are located (Oslo
and Trondheim), but on the West Coast, where the off-shore, marine and maritime
industries are most dominant. FDI (foreign direct investment) in the marine and
maritime industries leads to knowledge-based synergy in the regions on the West
Shore of Norway. Norway is still a national system, but the Norwegian
universities like Trondheim or Oslo are not so much involved in entrepreneurial
networks. These are traditional universities, which tend to keep their hands
off the economy.



Actually,
when we had discussions about these two cases, Norway and Hungary, which both
show that internationalization had become a major factor, either in the form of
Europeanization in the Hungarian case, or in the form of foreign-driven
investments (off-shore industry and oil companies) in the Norwegian case, I
became uncertain and asked myself whether we did not believe too much in our
indicators? Therefore, I proposed to Øivind to study Sweden, given the availability
of well-organized data of this national system.



We
expected to find synergy concentrated in the three regional systems of
Stockholm, Gothenburg, and Malmö/Lund. Indeed, 48.5 percent of the Swedish
synergy is created in these three regions. This is more than one would expect
on the basis of the literature. Some colleagues were upset, because they had
already started trying to work on new developments of the Triple Helix, for
example, in Linköping. But the Swedish economy is organized and centralized in
this geographical dimension. Perhaps that is why one talks so much about
"regionalization" in policy documents. Sweden is very much a national
innovation system, with additional synergy between the regions.





Can governments alter
historical trajectories of national, regional or local innovation systems?



Let
me mention the empirical results for China in order to illustrate the
implications of empirical conclusions for policy options. We had no Chinese
data set, but we obtained access to the database Orbis of the Bureau van Dijk
(an international company, which is Wall Street oriented, assembling data about
companies) that contains industry indicators such as names, addresses,
NACE-codes, types of technology, the sizes of each enterprise, etc. However,
this data can be very incomplete. Using this incomplete data for China, we said
that we were just going to show how one could do the analysis  if one had full data. We guess that the
National Bureau of Statistics of China has complete data.
I did the analysis with Ping Zhou, Professor at Zhejiang University.



We
analyzed China first at the provincial level, and as expected, the East Coast
emerged as much more knowledge intense than the rest of the country. After
that, we also looked at the next-lower level of the 339 prefectures of China.
From this analysis, four of them popped up as far more synergetic than the
others. These four municipalities were: Beijing, Shanghai, Tianjin, and
Chongqing.



These
four municipalities became clearly visible as an order of magnitude more
synergetic than other regions. The special characteristic about them is that –as
against the others – these four municipalities are administered by the central
government. Actually, it came out of my data and I did not understand it; but
my Chinese colleague said that this result was very nice and specified this
relationship.



The
Chinese case thus illustrates that government control can make a difference. It
shows – and that is not surprising, as China runs on a different model – that
the government is able to organize the four municipalities in such a way as to
increase synergy. Of course, I do not know what is happening on the ground. We
know that the Chinese system is more complex than these three dimensions
suggest. I guess the government agencies may wish to consider the option of
extending the success of this development model, to Guangdong for example or to
other parts of China. Isn't it worrisome that all the other and less controlled
districts have not been as successful in generating synergy?



Referring
more generally to innovation policies, I would advise as a heuristics that
political discourse is able to signal a problem, but policy questions do not
enable us to analyze the issues. Regional development, for example, is an issue
in Sweden because the system is very centralized, more than in Norway, for
example. But there is nothing in our data that supports the claim that the
Swedish government is successful in decentralizing the knowledge-based economy
beyond the three metropolitan regions. We may be able to reach conclusions like
these serving as policy advice. One develops policies on the basis of intuitive
assumptions which a researcher is sometimes able to test.



As
noted, one can expect a complex system continuously to produce unintended
consequences, and thus it needs monitoring. The dynamics of the system are
different from the sum of the sub-dynamics because of the interaction effects
and feedback loops. Metaphors such as a Triple Helix, Mode-2, or the Risk
Society can be stimulating for the discourse, but these metaphors tend to develop
their own dynamics of proliferating discourses.



The
Triple Helix, for example, can first be considered as a call for collaboration
in networks of institutions. However, in an ecosystem of bi-lateral and
tri-lateral relations, one has a trade-off between local integration
(collaboration) and global differentiation (competition). The markets and the
sciences develop at the global level, above the level of specific relations. A
principal agent such as government may be locked into a suboptimum. Institutional
reform that frees the other two dynamics (markets and sciences) requires
translation of political legitimation into other codes of communication. Translations
among codes of communication provide the innovation engine.





Is there a connection
between infrastructures and the success of innovation processes?



One
of the conclusions, which pervades throughout all advanced economies, is that
knowledge intensive services (KIS) are
not synergetic locally because they can be disconnected – uncoupled – from the
location. For example, if one offers a knowledge-intensive service in Munich
and receives a phone call from Hamburg, the next step is to take a plane to
Hamburg, or to catch a train inside Germany perhaps. Thus, it does not matter
whether one is located in Munich or Hamburg as knowledge-intensive services
uncouple from the local economy. The main point is proximity to an airport or
train station.



This
is also the case for high-tech knowledge-based manufacturing. But it is
different for medium-tech manufacturing, because in this case the dynamics are
more embedded in the other parts of the economy. If one looks at Russia, the
knowledge-intensive services operate differently from the Western European
model, where the phenomenon of uncoupling takes place. In Russia, KIS
contribute to coupling, as knowledge-intensive services are related to state
apparatuses.



In
the Russian case, the knowledge-based economy is heavily concentrated in Moscow
and St. Petersburg. So, if one aims –as the Russian government proclaims – to create
not "wealth from knowledge" but "knowledge from wealth" – that is, oil revenues
–it might be wise to uncouple the knowledge-intensive services from the state
apparatuses. Of course, this is not easy to do in the Russian model because
traditionally, the center (Moscow) has never done this. Uncoupling
knowledge-intensive services, however, might give them a degree of freedom to
move around, from Tomsk to Minsk or vice
versa, steered by economic forces more than they currently are (via institutions
in Moscow).





Final question. What does path-dependency mean in the context of
innovation dynamics?



In
The Challenge of Scientometrics. The development, measurement, and
self-organization of scientific communications (1995), I used Shannon-type information theory to study
scientometric problems, as this methodology combines both static and dynamic
analyses. Connected to this theory I developed a measurement method for
path-dependency and critical transitions.



In
the case of a radio transmission, for example, you have a sender and a
receiver, and in between you may have an auxiliary station. For instance, the
sender is in New York and the receiver is in Bonn and the auxiliary station is
in Iceland. The signal emerges in New York and travels to Bonn, but it may be possible
to improve the reception by assuming the signal is from Iceland instead of
listening to New York. When Iceland provides a better signal, it is possible to
forget the history of the signal before it arrived in Island. It no longer
matters whether Iceland obtained the signal originally from New York or Boston.
One takes the signal from Iceland and the pre-history of the signal does not
matter anymore for a receiver.



Such
a configuration provides a path-dependency (on Iceland) in
information-theoretical terms, measurable in terms of bits of information. In a
certain sense you get negative bits of information, since the shortest path in
the normal triangle would be from New York to Bonn, and in this case the
shortest path is from New York via Iceland to Bonn. I called this at the time a
critical transition. In a scientific text for instance, a new terminology can
come up and if it overwrites the old terminology to the extent that one does
not have to listen to the old terminology anymore, one has a critical
transition that frees one from the path-dependencies at a previous moment of
time.



Thus,
my example is about radical and knowledge-based changes. As long as one has to
listen to the past, one does not make a critical transition. The knowledge-based
approach is always about creative destruction and about moving ahead,
incorporating possible new options in the future. The hypothesized future
states become more important than the past. The challenge, in my opinion, is to
make the notion of options operational and to bring these ideas into
measurement. The Triple-Helix indicator measures the number of possible options
as additional redundancy. This measurement has the additional advantage that one
becomes sensitive to uncertainty in the prediction.





Loet Leydesdorff is Professor Emeritus at the Amsterdam School of Communications Research (ASCoR) of the University of Amsterdam. He is Honorary Professor of the Science and Technology Policy Research Unit (SPRU) of the University of Sussex, Visiting Professor at the School of Management, Birkbeck, University of London, Visiting Professor of the Institute of Scientific and Technical Information of China (ISTIC) in Beijing, and Guest Professor at Zhejiang University in Hangzhou. He has published extensively in systems theory, social network analysis, scientometrics, and the sociology of innovation (see at http://www.leydesdorff.net/list.htm). With Henry Etzkowitz, he initiated a series of workshops, conferences, and special issues about the Triple Helix of University-Industry-Government Relations. He received the Derek de Solla Price Award for Scientometrics and Informetrics in 2003 and held "The City of Lausanne" Honor Chair at the School of Economics, Université de Lausanne, in 2005. In 2007, he was Vice-President of the 8th International Conference on Computing Anticipatory Systems (CASYS'07, Liège). In 2014, he was listed as a highly-cited author by Thomson Reuters. 





Literature and Related
links:



Science & Technology Dynamics,
University of Amsterdam / Amsterdam School of Communications
Research (ASCoR) 


Leydesdorff,
L. (2006). The Knowledge-Based Economy: Modeled, Measured, Simulated. Universal Publishers, Boca Raton, FL.


Leydesdorff, L. (2001). A Sociological Theory of Communication: The Self-Organization of the
Knowledge-Based Society. Universal Publishers, Boca Raton, FL.


Leydesdorff,
L. (1995). The Challenge of Scientometrics . The development, measurement, and
self-organization of scientific communications. Leiden, DSWO Press, Leiden University.


http://www.leydesdorff.net/





Print version of this Talk (pdf)



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