Scarcity: Why Having Too Little Means So Much by Sendhil Mullainathan and Eldar Shafir

In Scarcity, economist Sendhil Mullainathan and social psychologist Eldar Shafir introduce the study of scarcity as a ‘science in the making.’ One of their colleagues, perhaps a sceptic and certainly a joker, gibes: “There is already a science of scarcity. It’s called economics.” But the science of scarcity Mullainathan and Shafir have in mind is not familiar economics. Scarcity is much more the subjective experience (and hence a psychological phenomenon) occasioned by want. Scarcity, say Mullainathan and Shafir, ‘captures the mind.’

Scarcity is a condition that the authors easily recognize. They suffer the curse of the hyper-successful: they have insufficient time at hand to accomplish all they have committed to do. The lack of time preys on their minds (and promotes them to waste more time worrying and complaining about their lack of time) and sets off a cascade of real-life consequences: missed appointments, neglected family, unpaid bills. And perhaps more: a sense of helplessness, depression, despair. We wrote this book, the authors declare. "We were too busy not to."

And so the first scarcity -- the scarcity the authors experience -- is the shortage of time. But their field immediately widens to include debt and poverty, hunger and the dieter’s calorie-count, and loneliness. Scarcity collects these conditions and explores their dilemmas. While many will escape a particular form of scarcity (we are not all poor), all may experience some form of scarcity (as might a recipient of a MacArthur ‘genius grant,’ such as time-pressed Mullainathan). The authors assert the existence of essential commonalities across these states.

How Asia Works: Success and Failure in the World’s Most Dynamic Region by Joe Studwell

Pity Joe Studwell. He has written a very intelligent, very thoughtful book. You might not agree with much of it; I have my doubts about his recipe. But there is little doubt what the book is: an exercise in economic history, with a focus on a peculiar developmental pathway followed by a few highly successful (generally northern) east Asian countries and not followed by certain (largely southern) east Asian countries. And geography has nothing to do with these diverging outcomes.

So poor Studwell delivers this intelligent book to his editor - one imagines - who decides it needs a snazzy title. Regardless of whether the title describes Studwell’s book. Studwell writes about ‘How Certain Asian Countries Developed’ - not about ‘How Asia Works’. He has very little to say in How Asia Works about how any of Asia works today - again, he is an economic historian. And he makes no claim within the book’s pages that Asia is ‘the World’s most dynamic region.’ Poor Studwell.

He can take comfort from having written a provocative book, which challenges much of the prevailing orthodoxy in developmental economics. And he’s obviously willing to horrify both left and right - praising Robin Hood-esque land reform (but not agricultural collectivization), autocratic leaders who impose export discipline on their cronies, and the elegant effectiveness of capital controls.

Studwell examines the East Asian development successes (Japan, Korea, Taiwan, and China) and the laggards (Malaysia, Indonesia, Thailand, and the Philippines). The winning path, according to Studwell, involves three distinct phases (“one, two, three,” he calls these in his concluding chapter). These three phases are a recipe for developmental success, they form the “same stretch of the river” that poor countries must navigate.

The first stage requires equitable land distribution to absorb labor and capture the productivity gains associated with moving to garden-style agriculture by small family landowners. The magic here is that everyone works - and most start at the same base. Garden intensity agriculture yields very low returns on labor but enhanced returns on land - it permits the accumulation of small surpluses that can be used to fund imports of necessary technology.

The second phase is the development of export-oriented industrialization. And Studwell cannot emphasize enough the importance that industrialization be export-focused; import-substitution strategies are doomed to fail. Here we see the green thumb of the successful state. Prospering East Asian nations do not (generally) direct their economies; rather they provide incentives and protection to exporting firms (fertilizer?) and then apply discipline (weeding?). The state does not pick winners, but it does cull losers. Studwell traces the development of the export-oriented automotive industry in Korea. Several firms were launched, but in the end one survives: the Hyundai/Kia complex.

Studwell’s third phase involves a sheltering set of financial policies. The state must support its exporting firms financially - which necessarily involves allocating capital in directions that would not be justified by short-term returns. Left unguided, private banks chase quickly realizable returns from investments that may have little transformative effect (luxury hotels, anyone?) Savings must be captured and directed, and this involves exchange restrictions.

So what went wrong in the other East Asian countries? Why do not Malaysia, Indonesia, Thailand and the Philippines share in the prosperity? Here the answer is straight out of Tolstoy: each fails in its own way. For Studwell, this means each (at one or more critical junctions) fails to progress down the ‘same stretch of the river’. But this simplifies the error. There are many diverging pathways, many other policy choices that can be made. After all, there are no illuminated signs marking the certain pathway to developmental success. Studwell sees certain leaders as developmentally clear-headed (including MacArthur and Park Chung-hee) and others as muddled (Mahathir); Marcos of course was a thief.

It is not a question of following advice; Studwell makes clear that most advice given developing countries is positively wrong-headed. And while history may demonstrate (as Studwell argues) that the peculiar one-two-three recipe worked for Japan, Korea, Taiwan and China, it does not follow that it will work (or would have worked) for others.

The tone of How Asia Works is dry, to put it mildly. But I did enjoy Studwell’s occasional accounts of arriving in various Asian capitals and noting the correlation of personal service to the local Gini coefficient (a metric of wealth inequality within a particular country): Studwell instantly senses the passage from Gini coefficient 3.0 to 5.0. The northern East Asian countries Studwell studies not only ‘work’ in the sense of greater per capita wealth (China aside); they also have (somewhat) more equitable distributions of wealth.

How Asia Works is longlisted for the 2013 Financial Times and Goldman Sachs Business Book of the Year Award.

See my reviews of these other longlisted books for the 2013 FT/Goldman Sachs Award:
Ray Fisman and Tim Sullivan, The Org

• Neil Irwin, The Alchemists
• Viktor Mayer-Schönberger and Kenneth Cukier, Big Data
• Moisés Naím, The End of Power

The Org: The Underlying Logic of the Office by Ray Fisman and Tim Sullivan

It feels odd to be composing this review of Ray Fisman and Tim Sullivan’s The Org in the days following Ronald Coase’s passing. Coase was an unusually creative and influential thinker - one who identified some basic truths of organizational life that had not been generally recognized: the kind of simple things that, once pointed out, cannot fail to be seen.

Coase and the work that followed Coase form much of the subject matter of The Org, a book-length meditation by Ray Fisman and Tim Sullivan on the science of the organization. Indeed, Fisman and Sullivan launch the book with the story behind Coase’s posing of the grand question: “Why orgs?” Young Coase travels to Chicago, meets with managers, and reads the Chicago phone book. He is struck by the range of scale and activities pursued by the firms he finds. Why then, asks Coase (and ask Fisman and Sullivan), are some activities conducted within firms and others between firms (that is, via the market)? Coase’s answer (transaction costs) may or may not be correct (‘transaction costs’ always seemed to me to be a convenient label for a still elusive explanation, almost a tautology); what is important is the question.

Organizations are mysterious. We fit them on like suits of clothing - and instinctively know how to push and pull their levers. Fisman and Sullivan focus on what happens within the firm - how organizations compel human agents (because that’s what we are) to pursue organizational goals. The resort to organization is by and large a given. At this point, they collect the principal/agent mysteries that form much of the challenge to understanding how firms work. Fisman and Sullivan do not confine themselves to business organizations in The Org - indeed their best coverage involves organizations that are not business firms: the Baltimore police department, Methodist churches and the military.