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One optimistic observation in economics is that poor countries should be able to catch up with the richer ones, since it’s easier to grow from a low level of GDP to a higher one. This observation was made by Nobel-winner Robert Solow in 1956, and is based on the idea that low income countries are poor because their workers have access to less capital. This capital shortage (i.e. insufficient infrastructure) implies that the return on investment should be high, so capital should flow from rich countries to poor ones, leading the two worlds to converge on similar levels of productivity and income.
Furthermore, in this theory, growth in rich countries is driven by new technology which, once developed, could be adopted by poorer economies too. Indeed, the poor could potentially learn from the mistakes made by the rich, and leapfrog directly to more productive ways of doing things.
And so it seemed. From the late 1990s to 2008, poor countries were catching up fast. But that catch up seems to have slowed down (see chart above).read more...»
This west African health crisis is a tragedy. It could be an issue that stimulates an economics discussion. According to James Surowiecki in The New Yorker there are no real tools to stop the deadly Ebola outbreak in West Africa. The lack of treatment is disturbing. But given the way drug development is funded, it’s also predictable.read more...»
Does inequality in the output of scientists matter? Inequality is a fashionable topic these days, and evidence for its existence is keenly sought in all sorts of places. John Ioannidis, a health policy researcher at Stanford, and his colleagues have found it in the research outputs of their fellow academics. In a paper published in the prestigious journal PLoS ONE, they searched the entire published scientific literature in academic journals over the period 1996-2011.read more...»
This is a super report from BBC Newsnight on the issue of our throwaway society and the externalities of waste. How can the link between consumption and the discarding of unwanted and broken products be weakened? What role can innovation play - for example the rise of modular phones where parts can be replaced when broken. The fundamental problem is that traditional manufacturing business models are based on mass production and sales. How are increasing world commodity prices affecting this model?read more...»
According to some sources, Dropbox was the 37th online storage solution to be developed for the web - but despite early failures and late entry it has emerged as the cloud storage product of choice for over 300 million people. The firm is now estimated to be worth about £5.9bn.
This BBC article looks at the background to the story. Article can be found here: http://www.bbc.co.uk/news/business-27579790read more...»
Here is your starter for ten. What do the Uber app and David Ricardo have in common? Ricardo, I hear you ask. Scarcely known outside academic economics, he ranks equal with Adam Smith and Keynes as the greatest ever British economist. His classic Principles of Political Economy was published in 1816. He made millions of pounds on the stock market, at a time when a million was a vast amount of money.read more...»
Technology always disrupts markets. It provides dynamic efficiency improvements, creates new markets, destroys old ones, and in some cases destroys monopolies and in others, creates new monopolies.read more...»
Here is a short report on the impact that the widespread uptake of mobile banking is having on Kenyan farmers. Kenya's Mobile banking system M-PESA is widely cited as an example of how mobile money transfer systems can act as a catalyst for growth and development. At least two-thirds of Kenyans use their mobile phones to pay bills, transfer money, pay salaries and now to get loans. The availability of a reliable mobile -payments platform has also spawned a host of mobile phone start-ups helping thousands who don't have bank accounts.read more...»
Here’s a good example of overlaps between market failure, government failure and the problem of asymmetric information contributing to these problems. The UK government spent £500m stockpiling the drug Tamiflu in the hope that it would help prevent serious side-effects from a feared flu epidemic. It turns out the drug would probably be no more helpful than paracetamol. But the bigger scandal is that Roche (who make the drug) broke no law by withholding vital information on how well its drug works (or doesn’t).read more...»
Here’s a great topic for an economics debate. National income is still lower than before the financial crash. We have a ‘cost of living crisis’. Yet it’s possible to argue that life is better now than it was in 2005. How can that point be made without being laughed out of the room?read more...»
So farewell, then, Facebook! That is the conclusion of a highly technical paper by two Princeton researchers, John Cannarella and Joshua Spechler, which received a lot of publicity in the press last week. The authors conclude that “Facebook will undergo a rapid decline in the coming years, losing 80 per cent of its peak user base between 2015 and 2017”.read more...»
We have been discussing the economics of innovation in class in the last few days. I came across this short talk given by David Rowan, editor of Wired magazine. What sets disruptive entrepreneurs and innovators apart from the rest? In his INK talk, David Rowan, editor of Wired UK, asserts it’s a “healthy disregard for the impossible” and offers nine tips for cultivating that mindset.read more...»
The pharmaceutical (medicines) industry poses interesting questions for economists.read more...»
Peter Marsh, formerly the manufacturing editor of the Financial Times, has let me know of the imminent launch of an unusual and interesting photographic project linked to the world of manufacturing. It's an exhibition of pictures of UK manufacturing operations taken by some of the world's top photographers and which will tour Britain from the end of January to September next year.read more...»
This is an age-old debate - the extent to which emerging technologies built on robots will replace labour and scale down the number of jobs in previously labour-intensive industries. Are we still several years away from robotics eliminating millions of jobs or will the process arrive far faster than many expect? The Washington Post reports on eight ways that robots are changing labour markets: Click here
Click below for a short interview with the excellent Tom Standage from The Economist who discusses what types of robots we should be looking out for in 2014read more...»
The release of two major new iterations of games console including the PS4 is an opportune moment to take stock of the transformation of the oligopolistic computer gaming industry into one whose revenues now exceed films and where social gaming, connectivity and collaboration are features of an industry where dynamic efficiency is crucial. Paul Mason from Channel 4 news reports in this short clip.read more...»
Tim Harford explores the frustrations of using lifts. How much economics can you find in this BBC Newsnight report from November 2013?read more...»
This topic is of profound importance. It gets the heart of a fundamental economic issue: the distribution of income. When national income rises, does that extra income go into the pockets of workers or capitalists?
The answer is clear cut: labour is getting a smaller slice of the pie. How and why might that be happening, and what might be done? Here are links and summary of a couple of articles, plus a great Economist video clip.read more...»
Suyash Raj Bhandari considers some of the ways in which the rapid expansion and adoption of mobile technology in Africa can act as a spur to growth and development on the continent. We link also to some useful background video resources on this issue.read more...»
A huge reminder about the shifts in economic power arrived with the news about the development of Hinkley C nuclear power station.read more...»
Monetizing a product is essential for a business to survive and ultimately prosper. This BBC news article outlines in a clear way the revenue channels that Twitter is using - it is still losing more than $1 a week despite a surge in revenues. Can Twitter grow the top-line revenue without disturbing the experience of millions of users? Anyone out there planning to invest in some Twitter shares?read more...»
This is a cross-posting from the Business blog (written by Penny Brooks)
"The 20th Century was about dozens of markets of millions of consumers. The 21st Century is about millions of markets of dozens of consumers."
So said Joe Kraus, founder of a search engine called Excite in the middle of the 1990s. Never heard of it? That's not surprising; in 1999 it was a $6.7bn enterprise with hundreds of employees, but a year later the dot-com bubble burst and it disappeared from the market place. But this quote is one of in an article about Peter Day's Radio 4 Archive programme to be broadcast tonight, and already recommended by Michael Owen in his blog below; forgive me for this repetition, but this is such a brilliant article that it really merits a second look, and hopefully between us we will convince you of that!read more...»
This is a stunning article written by Peter Day, a good friend of Tutor2u over the years. If you want to understand the world of change in business, there is simply no better guide to take you through the process. Click here His archive on four programme would make for a superb podcast homework. Click here
Mobile phones have changed how we negotiate our relationships with family, spouses and close friends. Increased levels of mobile phone subscriptions are linked with improvements in education, gender equality and political participation, particularly in developing countries. They are also associated with higher economic growth.read more...»
AS economics student Ed Hardy offers his interpretation of this question: “Within a few years the common problems we associate with scarcity will be a thing of the past.” Do you agree?read more...»
In the whole of the 20th century, only a few countries managed to transform themselves and join the club of rich economies. Japan is the most prominent example. The key question for the first half of the 21st century is whether or not China will manage to do the same. It is a difficult and elusive feat, and the number of failures, of countries who nearly made it but then fell back, is as great as the successes.read more...»
Would Apple Inc have succeeded without a helping hand from the US government? Where are the European Googles? A new book focuses on the key roles that the state can fulfill as an agent of innovation and economic growth. Without the US government for example, there would be no iPhone, says economist Mariana Mazzucato in her new book 'The Entrepreneurial State'. The author of the book is featured here in an FT interview. Some of the examples discussed in the book are covered in this article from the Economist. Mazzucato argues that "“All the technologies which make the iPhone ‘smart’ are also state-funded ... the internet, wireless networks, the global positioning system, microelectronics, touchscreen displays and the latest voice-activated SIRI personal assistant.”read more...»
The International Business Times is producing a series of short videos on life, work and enterprise inside Tech City - a fast-growing hub of digital start ups and established tech businesses centred around Old Street / Digital Roundabout. The clips reveal the energy of the start-up economy in this part of London and the importance of network effects, collaboration and attracting human capital in accelerating routes to market for lean start-ups. This series of short videos is worth a look if you are interested in this potentially significant catalyst for growth in the UK economy and to learn more about the factors that influence the emergence and success/failure of start ups.read more...»
The global smartphone market is brutally competitive as the executives at struggling phone company Blackberry are finding out. Sales of their phones have been hugely disappointing for some time and the re-launch of their devices seems to have done little for Blackberry as they compete against Apple and Samsung, the dominant players in the industry.read more...»
Environmentalists say we must change our behaviour to save the planet and pass on something to our children. They often pick symbolic targets designed to raise our awareness, even where they make an insignificant impact on the problem. The behaviour they favour is less materialistic, in that we are supposed to moderate our wants and live simpler, slower lives. Although many environmentalists ally with the Left against 'materialistic capitalism,' their prescription is profoundly conservative, disdaining the pace and complexity of the modern world.read more...»
MOOCs, massive open online courses, may change the university and college system for ever. How potentially disruptive are MOOC providers such as EdX, Coursera and others in the complex market for higher education?
MOOCs - threat or opportunity? (BBC Newsnight, July 2013)
IMF launches MOOC on finance (June 2013)
MOOCs - an education revolution (New Scientist)read more...»
BSkyB has announced record revenues and profits. Total revenue in the last year grew by 7% to reach £7,235m and operating profit was 9% higher at £1,330m. This gave the business an operating margin of 18.4% and helped the business to generate free cash flow of just over £1 billion. Revenue per subscriber increased by £29 to £577. BSkyB has 11.2 million customers.
Programming costs were 34% of sales revenue at £2,486m. Sky paid £59m in the last year for the right to offer live coverage of the Ryder Cup, the Lions Tour and Formula 1. It has also invested more than £55m this year in original comedy and drama.
The FT news video below provides a timely look at the UK battle between telecoms group BT and pay-TV operator BSkyB to provide both sports TV and broadband. BT Sport, with rights to some Premier League football matches, launches in August 2013. This is an excellent example to use of a contestable market with a dominant established player and a new entrant (BT) using their financial muscle to try to break into the live sports TV market. It is an expensive business - the average cost of each live game shown in the current auction period is now over £6 million.read more...»
This short video from the OECD looks at the importance of knowledge capital as a key driver of innovation and growth for businesses and economies across the world. Innovation -- building on human knowledge - is booming, changing the way business invests and grows. As coal drove the last industrial revolution, software, databases, research and development, designs, new business models and the skills people bring to an organisation are driving revolutionary changes today.read more...»
Arising from a recent visit to Sheffield, Peter Marsh, formerly the Manufacturing editor of the Financial Times, wrote an article on how Britain's steel city might benefit from the new industrial revolution - here is the link to follow
The Financial Times website has published a new special report on their selection of 50 Top Business Ideas. I am linking below to the supporting video content which might be of interest to teachers and students who want to explore which ideas have made it into the final choice!read more...»
My students loved watching Ben's human powered ferris wheel (particularly the acrobatics of the staff!) and this led to a class discussion about the whole manufacturing output up (or at least in the US)/manufacturing employment down debate.
Whereas labour in the developing world is relatively cheap hence our unique ferris wheel above, in the west staff costs still constitute the lion's share of firms' total costs - added to that developments in technology and we have a situation where employment in areas which require fewer skills and more "manual" tasks are now being performed by robots despite output actually increasing.
Looking for examples of this kind of factor substitution, some students came across the Kubota tractor factory opening somewhere in the US which neatly surmises the benefits to firms of such a move:read more...»
What if Africa were to become the hub for global science? This is a deeply optimistic piece which stresses the low base of higher education opportunities in Africa at the moment but which reveals the potential of cross country collaboration and the gains that will come from reversing the brain drain. A great example to use when discussing human capital and long-term development. More on the Square Kilometre Array
The success of small firms is crucial to hopes of a sustained recovery in the UK economy and the government is keen to promote innovation within small and medium sized enterprises with a range of tax incentives including the Patent Box. The Patent Box system allows companies to apply an effective 10 percent preferential rate of corporation tax to profits attributable to patents and is introduced from April 2013.
Will this fresh supply-side fiscal policy prompt a significant boost to patent applications from UK firms? The evidence so far is mixed. The number of patent applications to the UK Intellectual Property Office from within the UK was just 15,370 in 2012, almost equal to the 2011 figure of 15,343. (Source: Independent, March 2013). But there has been a large rise in the number of patent applications made in the UK by foreign businesses especially in the pharmaceutical sector.
The reality is that most small businesses are too busy reinvesting their revenues back into growing their businesses rather than going through the lengthy, uncertain and often costly process of making multiple patent bids on their new product and process ideas. In a recent blog from the Wall Street Journal it was claimed that "it is almost impossible to defend software or business process innovation patents in the UK." Others are more optimistic - read this short piece from the Scotsman which claims that the Patent Box fits well with the ambition of the Scottish government to attract inward investment from high-knowledge businesses.read more...»
Indian e-commerce lags behind countries such as China and a growing number of African nations. A new report in the economist looks at the future for the Indian mobile technology sector - can the adoption of cheap smartphones and adoption of 3G and 4G phone networks create new competitive advantages for the Indian economy? Who will investto build the telecoms capacity infrastructure? To what extent is the industry held back by hugely complex laws and endemic corruption? India is expected to have close to 165 million mobile Internet users by March 2014, up from 87.1 million in December 2012 - the potential is vast.
Lots of companies are battling for third place in the market for smartphone operating systems. Apple's iOS and Google's Android dominate, how much scope is there for more rivals targeting mid and low-tier mobile devices. Mozilla, Microsoft and Blackberry are featured.read more...»
The winning bids for the 4G licences in the UK have been announced. Paying for a licence is an entry barrier into this market - but the total value of the bids was a small fraction of the £22bn gifted to the government in 2000 when the 3G licences spectrums were sold - the latter was an example of the winners' curse in action.In 2013 the telecoms businesses were more savvy - freeing up money to invest infrastructure and capacity. Will this be a kick-start to growth that the UK government expects?
Students taking their Business Economics unit exam this week might like to use online file-storage as an example of a contestable market. This comes during the week of an announcement by the colourfully-named internet tycoon Kim Dotcom of a re-launch of his file-sharing cloud-site Mega - which offers up to 50 Gb of free file storage and out-trumps its big and more established competitors at Dropbox, Microsoft and Google. According to Mr Dotcom he already has a quarter of a million registered users and over a million hits on his website within the first day.read more...»
I am linking here to a lecture given recently at the Royal Society of Engineering by Tom Standage from the Economist.read more...»
Here is a superb blog from the Economist magazine into a digital business built around the Freemium pricing model and where network effects are strong. Also good for understanding market contestability and the impact of new entrants on profit margins. Dropbox is my preferred file sharing system, I am pretty much locked in and wouldn't change!
Freemium is a business model in which some basic services are provided for free, with the aim of enticing users to pay for additional, premium features or content
Peter Marsh's talk at our Global economy conference in London on Monday challenged us to think in fresh terms about what manufacturing is and the opportunities for British businesses to make successful headway in premium and precision manufactured products in a fast-changing global environment. Here are the slides from his presentation. The FT special reprot - Making the Future is well worth tapping into - here is the link. We have also linked to some of his recent video pieces for the Financial Timesread more...»
This new short video from the Financial Times looks at what drives innovative activity in small technology businesses. Openness, agility and collaboration are highlighted as ingredients for innovation in twenty-first century businesses in technology spaces. We visit the home of the Mozilla Foundation and the UK web start up Moonfruitread more...»
I'll start off straight away by saying this post is not a link to a specific resource for you to use - this is more about reminding you about how important the job you are doing in the classroom is for the future employability of your students. Whilst doing some research into the classroom of the future I came across an article which reminded me of a statistic I had already heard - according to the Department of Labor in the United States 65% of current school children will end up in jobs that haven't been created yet.read more...»
The dramatic crash in Google’s share price and the temporary suspension of trading in the company’s shares made headline news. The event was triggered by the 20 per cent year-on-year fall in profits in the third quarter of this year.
As usual, there was no shortage of explanations of why this happened – after the event! A simple search of Yahoo! Finance of more than 40 brokers shows that in the previous three months, all had recommended ‘strong buy’, ‘buy’ or ‘hold’. Not a single one classed the stock as ‘under-perform’ or ‘sell’. Indeed, over the entire previous year, Google’s share price had risen more or less continuously. The total increase had been around 30 per cent.read more...»