Guest Post: Response from Frank Convery

In this guest post, Frank Convery responds to the various comments made on this blog over the past few days and the initial post by Richard Tol:

Holbrooke Shields and others re Censorship

‘Is Comhar SDC practicing a form of censorship by not publishing Richard Tol’s comment

Response

Tol’s comment was received on Friday 20th at 11:47, and it was posted Monday 23 at 09:59, as were the comments by Holbrooke and Lucey which were submitted on Saturday 21st . The delay was a product of the fact all comments have to go through an administrator because a huge amount of spam comes through, and the office is not staffed over the week end.

Conclusion

Discussion is appreciated and welcome. Keep paranoia at bay if there is a delay in posting. We’ll check out the management of Irisheconomy.ie to see if turnaround can be improved.


Richard Tol
1. He takes issue with “much [of Palo Alto] will be submerged if sea levels rise significantly” On the basis that:
‘A quick check of the elevation of Palo Alto (e.g. http://www.topozone.com/map.asp?lon=-122.1875&lat=37.4375, or even http://en.wikipedia.org/wiki/Palo_Alto) would reveal that this is just not true’.
Response:
My information comes from the presentation of Patrick Burt, a man of substantial entrepreneurial endeavour and (with his wife Sally) business achievement, who lives in Palo Alto and now serves as its very successful mayor. He comes across as careful, serious, measured and modest in his analysis of data. Both the slides he used and a podcast of his talk in the Science Gallery TCD are available here,  in which he presents the implications of sea level rise in terms of submerged area and (especially) estimates of infrastructural damage.
Conclusion 1
It is possible that Tol is right and Burt is wrong, but I doubt it. I leave it to the reader to read both analyses and make up their own minds.
2. Even if sea level threatens submersion, Tol argues that ‘people there know how to build dikes and can pay for it too.’
Response
People will of course adapt, by some combination of moving and (individual and collective) protection measures. Notwithstanding the Dutch successes as regards keeping the North Sea at bay with dikes, there is a significant literature – typified by Pilkey and Young’s The Rising Sea, Island Press, 2009 – that mobilizes considerable evidence to demonstrate that letting nature take its course is nearly always the cost effective and environmentally responsible thing to do.
Conclusion 2
It is possible that dikes are the answer to rising sea levels, but – with the possible exception of the Netherlands – I seriously doubt it
3. ‘Projected Sea level rise by 2100 is less than one tenth of that (9 metres).’
Response
The most characteristic challenge of modern climate science, and modern climate economics , is how to handle extreme uncertainty, and specifically how to capture theoretically and empirically the implications of potentially catastrophic change. The economic perspective is addressed by Marty Weitzman of Harvard (See for example: Weitzman, Martin L. ‘Modeling and Interpreting the Economics of Catastrophic Climate Change’..Review of Economics and Statistics, 91 (1) 1-19 February 2009, and his working paper ‘GHG Targets as Insurance Against Catastrophic Climate Damages’, June 2010 and is the best thinking and writing in this area, for which work he is a credible candidate for the Nobel Prize in economic sciences. Projections of sea level rise by 2100 will be made, but the outcome could be dramatically high or low; we simply don’t know, and it is a conceit to imply otherwise.

Conclusion 3

I wish I was as certain of anything as Tol is of everything.

4. ‘Rigour and scrutiny, however, are not part of Convery’s vision’.

Conclusion 4

If this is true, I’m in good company.

Brian Lucey

‘The evidence on top down innovation fostering is v much that it doesn’t work so I’m not sure what use such would be’.

The evidence tells us a few things – a top down system where government decides what innovation is, and invests accordingly, will not work, or at least not indefinitely (there were some early successes in France and Japan, but most were not sustained).

But we do have a good sense as to the prerequisites that need to be in place if progress is to be made. As outlined in my Commentary, they include: finance provided by angel investors (often relatives), and by venture capitalists; a profusion of new ideas that could increase productivity in existing businesses and create new markets (these often come from universities and their graduates); legal expertise that helps compliance with the law and protects the new ideas (intellectual property); and entrepreneurs who are willing to take on the risk and commit themselves body and soul to making it happen. The role of the public sector is to provide low taxes on enterprise, correct for market failure in R&D and innovation (tax breaks for R&D and innovation) and venture capital funds, provide protection for intellectual property and support for relevant infrastructure (without Department of Defence funding of internet, Silicon Valley would be a pale shadow of what we see today). To which we should add attention to the market and what consumers want and area willing to pay for, and the expertise to convince them of same.

34 thoughts on “Guest Post: Response from Frank Convery”

  1. I agree with Holbrook that it is good to see a response.

    0. Comments were up, then down, then up again.

    1. The Digital Elevation Model (DEM) shows impacts on houses north of what I would consider the centre of Palo Alto (say, the Apple Store). It may well be that that part of the world is still called Palo Alto. If so, then still only a fraction of the Palo Alto area is threatened. The debate revolves around the definition of “Palo Alto” (where I happily concede to its Mayor) and the interpretation of “much”.

    DEMs were pioneered in the 1970s for sea level rise impact analysis by the late Steve Schneider. More recent studies tend to use more reliable methods.

    2. Dikes are cheap and simple when build along an inland bay like San Francisco Bay. The rich communities of Silicon Valley can certainly afford them. Convery may be right that perhaps they will choose to let nature have its way. In that case, they make a conscious choice to give up their houses. That’s not what we would normally refer to as “vulnerable”.

    3. Sea levels will rise because of thermal expansion, ice melt, and ice displacement. There are physical limits on all three processes. Massive sea level rise, the sort that would put water into the Apple Store in Palo Alto, requires that Greenland melts and the West-Antarctic Ice Sheet slides into sea. That cannot happen in the 21st century without breaking the laws of physics.

    It may happen later in the millennium, but not this century. By the way, Weitzman (who once was a physicist) is concerned about different things than massive and rapid sea level rise.

    4. I know that Convery wrote about other things, and that I singled out one sentence. However, I am worried about the tendency of people to slip “facts” about climate change into a largely unrelated discussion — particularly as those “facts” tend to be unsupported and unsupportable, as in this case.

    Here, a consultant did a rough and ready job with a DEM; a politician shows the results; and a professor emeritus cites them as fact in state-subsidized outlet.

  2. It’s hilarious to see Richard Tol getting up on his high horse about people who ‘slip “facts” about climate change into a largely unrelated discussion — particularly as those “facts” tend to be unsupported and unsupportable, as in this case.’ That goes beyond breathtaking hypocrisy and into the realm of Tol simply not being remotely self-aware. He’s spent so many long nights cuddled up with Lomborg and Michael Crichton that he has simple come to accept their ideologically-backed flummery as fact and himself as some sort of bright-eyed Ayn Rand character riding to the rescue.

    If this blog wants to allow itself to become a laughing stock, sacrificed to the obsessions of one crank, and abandoning its raison d’etre in favor of indulging disingenuous, anti-scientific, denialist nonsense, then this is how you’d do it.

  3. Good to see a comment back from Frank. “correct for market failure in R&D and innovation” – is there prima facia a market failure if people dont invest in such here?

  4. @Brian
    Knowledge leaks, so that the social returns to R&D are greater than the private returns. The answer is well-enforced intellectual property rights. Tax breaks on R&D are an input subsidy which primarily distorts the market but does little to correct the externality.

  5. Perhaps we can move on now to consider the more substantive issues regarding innovation generally and innovation in the renewable energy sector specifically.

    Is there not a case for securing licences to apply and developing the competence to apply innovations developed in other countries? Some of the most important innovations have built on an original path-breaking innovation and developed it and applied it new markets and contexts.

    I also found Prof. Covery’s afterthought on markets and where it is located in his listing of prerequisites..
    “To which we should add attention to the market and what consumers want and are willing to pay for, and the expertise to convince them of same.”…
    very enlightening. In Ireland, the final consumer – who pays for everything – always comes last.

  6. @Paul Hunt
    “Is there not a case for securing licences to apply and developing the competence to apply innovations developed in other countries? Some of the most important innovations have built on an original path-breaking innovation and developed it and applied it new markets and contexts.”

    Yes, of course there is. The issue is who should do it?
    Private entrepreneurs – risking what ever resources they can molibilise, without recourse to anybody and bearing the consequences of failure as a reciprocal of becoming wealthy should they succeed?

    State bodies – with implied recourse to the citizens via the state and no individual bearing the consequences of failure, but equally not becoming independently wealthy?

    As you point out, the issue is what kinds of entities are going to arise depends on how the markets are “structured”? It is well documented that Intel’s only customers in the early years was the US Dept of Defence.

    See TCD’s William Kingston’s thoughts on innovation here
    http://people.tcd.ie/wkngston

  7. The role of the public sector is to provide low taxes on enterprise, correct for market failure in R&D and innovation (tax breaks for R&D and innovation) and venture capital funds, provide protection for intellectual property and support for relevant infrastructure (without Department of Defence funding of internet, Silicon Valley would be a pale shadow of what we see today).

    In effect in Ireland this means even larger subsidies to multinationals who already enjoy substantive benefits over and above what they can obtain elsewhere. The argument from ‘market failure’ can be used to justify just about any degree of state interference. The old Soviet system tried its hand at this repeatedly. The whole idea that one can plan innovation in a rational and prescriptive manner gives me the creeps. It smacks of technocratic elitism that denies development opportunities for those outside chosen (state) sectors. This may be very digestible policy in the ether dominated by bureaucratically tuned elites but they let in a Bill Dyson for example? Ireland will soon have more experts on innovation than actual marketable innovations but that’s par for the course unfortunately.

  8. but they let in a Bill Dyson for example?
    Should read: but would they let in a Bill Dyson for example?

  9. @ Alchemist
    You need to bear in mind that the only successful industrial policy this country has ever delivered on is FDI. Everything else has failed. Those who are part of a state apparatus dedicated to defining and facilitating high potential innovation domains in the face of an alleged “market failure in R&D and innovation” have no personal stake in seeing this dismantled, no matter how great the costs and how poor the returns.

    Billy Kingston summarises what he calls ‘negative evolution’ quite effectively in his publications for example here: http://www.tara.tcd.ie/jspui/bitstream/2262/29206/1/Studies09March.pdf

    His opinion appears to be that the national innovation system, like an engine running on its own oil, is out of control and the damage it is doing to the operation of entrepreneurship will only stop with the forcible intervention of the IMF.

    The public sector with its duty to protect the public purse from risk, bureaucratic decision-making, and the ethical need to prevent its servants from being significantly touched by the success or failure of state-backed enterprises is effectively incapable of addressing an alleged ‘market failure’ directly. Reward only comes about through risk-taking, superior work rate and commitment and the construction of knowledge differentials. None of these aspects tend to be encouraged or found in public service.

  10. @Tony Owens
    Thanks for the reference and your thoughtful reply. Schumpeter made an argument that social policies which increased cohorts of academics (in his terms ‘intellectuals’) would bring about direct conflict with entrepreneurship (innovation). The educated elite have a very strong sense of entitlement (influence on Schumpeter of Nietzsche) to material comfort and in acquiring and maintaining the wherewithal for this material comfort, the elite interferes with the activities of entrepreneurs by bureaucratizing creativity and introducing (theories of) criteria for success, etc. The criteria tend to reflect the elite’s own non-market experiences. This is my potted version. Doubtless a scholar will correct me. But when one looks at the creation of national competence centres, national systems of innovation, national this that and the other, all funded by the tax payer to aid a tiny few pieces of research make it to market (in this case into the arms of multinationals) one has to ask have many very intelligent decent people gone mad, or been numbed into self doubt by brazen displays of conflicts of interest?

  11. I think there’s a bit of an artificial divide between the concept of “government” and the concept of “the market”. There may be an inherent conflict of interest in the body that makes the rules for the market interfering with the market, but only insofar as you believe the government is some sort of disconnected alien entity. This is clearly not the case in representative democracies, therefore I don’t see that there should be an embargo on the government directly influencing innovation by means of providing funds and/or helping to direct innovation into valuable areas.

    There have been many countries which have taken this route with tremendous success, Denmark with wind turbines, German heavy industry, South Korea with shipbuilding and more recently software innovation, MITI in Japan, the list goes on. Top down influence on the direction of innovation can be very beneficial. None of these countries had their version of SFI mind you, with billions going in and nothing coming out, although I think Russia tried something similar.

    We have some of the brightest and most motivated people on earth here in Ireland, for such a tiny country our global footprint has been impressive, and we are favourably situated environmentally. The state represents the people, if it doesn’t it ultimately becomes a self correcting problem, and the resources of the state should be put towards providing a direction for innovation and industry.

  12. @Ronan Burke
    There are both evidential and analytical arguments about why the state should not be “providing funds and/or helping to direct innovation into valuable areas”.

    The evidential argument is clear enough – look around you at the industrial landscape in Ireland where a grant-aid culture has prevailed for over 20 years and the SSTI has operated through SFI and other agencies for more than 10 years. There is less indigenous innovation-active business in Ireland today than for many years. This is not a recent phenomenon.

    The international examples you quote are more complicated than they at first appear and cannot be compared directly with an Anglo-American state such as Ireland. All of them are cohesive cultures which prize stability and sustainability. Some of them place a high value on technical virtuosity, craftsmanship and quality in ways that Anglo-Americans do not. None of them have a quick bucks mindset. In the case of Japan the early benefits of post WW2 government-influenced re-industrialisation for export may not prove to be sustainable – Japan is not an innovation leader in the way it once was. In the case of Germany its real strength is not and perhaps never was innovation-led heavy industry. It is the continued thriving of its committed ‘mittelstand’ light engineering sector which feed innovative solutions both to larger enterprises (automotive and aerospace) and to the export market. The survival and strategic oversight of these firms is based almost entirely on their own efforts – not on the wisdom or grant support of government agencies.

    “We have some of the brightest and most motivated people on earth here in Ireland..” I think to be honest this is trite. How many states around the world could not make this claim? It would also question the correlation between being bright and either personal or business success.

    I agree with you about the wisdom of tapping into the Irish diaspora. That is one of fairly few areas where the state can indirectly foster innovation and enterprise – for example by granting citizenship to second generation Irish outside the State on request and by making a concerted effort to woo the high nett worth retired of Irish extraction to spend part of their year living in Ireland.

    As for the analytical arguments – Kingston makes those far more succinctly and persuasively than I can. I refer you to his essays on the development of Irish governance, economic policy and legal frameworks: http://people.tcd.ie/wkngston

  13. @ Tony Owens
    We as a nation are still trying to find our identity after an extended period of occupation – this is a factual statement. Whether or not that identity survives and thrives with its proximity to the Anglo-American sphere remains to be seen. I would extend this to the succession of ineffectual governments which have descended from the PR STV system set up originally – these governments are representative of a bad system, not a bad people, to which I would directly attribute the environment which has led to the SFI and related debacles.

    Your argument against the reality that this process has been applied successfully in many diverse cultures falls flat by dint of the fact that these cultures are in fact extremely diverse, and frankly smacks of a “they are naturally better than us” sentiment. Entire corporate empires have been founded on the principle that what one man can do, another can do, an example of which can be found in the race to the bottom as far as outsourcing goes.

    As for bright and motivated, far from being trite, during the boom years long term unemployment hovered around the 1% mark, and that’s with near on a half million eastern european economic migrants joining the workforce, so yes, I feel very justified in making that claim. Irish poets, musicians, and more technically minded people have made a serious impact globally, otherwise that diaspora you refer to wouldn’t be up to much.

    There is no reason why we could not achieve the same effect as these other countries by shifting the focus from some ephemeral knowledge economy to something more tangible. Thats not to downplay the value of the IT sector, this should definetely be encouraged, but we need to do a lot more if we are to recover from the self inflicted wounds of the property bubble.

    Just because previous governments made a haymes of it doesn’t mean that all future endeavours in this direction must neccessarily fail. Its very easy to wave the hand and say “ara shure”, but that doesn’t create jobs or deal with problems we all face today.

  14. @Ronan Burke:
    “We as a nation are still trying to find our identity after an extended period of occupation – this is a factual statement.”

    What “nation” existed before the “occupation”?

    bjg

  15. @Brian J Goggin
    Are we going to get into a discussion about the definition of a nation here, or the varying extents of the occupations until recent times? I hope not because thats more than a little pedantic, among other things, and not the purpose of this site. That a unique cultural identity, language and image exists and has existed for a very long time among the people of Ireland is beyond dispute. The modern form of that is still finding its feet.

  16. @Ronan
    Interventionist government tends to fail. The examples you list are mixed successes, and there are many undisputed failures. Denmark was losing a lot of money on its wind power until the German subsidy bonanza; recently, the Danes have been outcompeted by the Americans and the Chinese.

    There is no rationale for industrial policy. The government should reward success in fundamental and pre-competitive research; and enforce intellectual property right for applied research. Anything else is likely to fall victim to favouritism, particularly in a country with weak democratic controls.

  17. @Ronan Burke: I accept that discussion of the topics of nationality and so on is inappropriate here, but I suggest that you should avoid saying things like “this is a factual statement” and “That a unique cultural identity, language and image exists and has existed for a very long time among the people of Ireland is beyond dispute” about matters that are contestable.

    That is all I have to say on the topic in this place.

    bjg

  18. I posted a comment and it has failed to appear, there were a couple of links in it which might have been the problem, so I’ll repost that again without the links…

    @Brian J Goggin
    Fair enough, but I have to say I’d find any alternative position fairly laughable.

    @Richard Tol
    I’m not sure where you are getting your information from, but the Danish wind industry is doing just fine and has been for a long time. With an aggregated export of DKK41.7 billion (> €5.6bn) in 2009 the Danish wind industry maintained the high export figures from record breaking 2008 despite the financial crisis.

    Whatever German subsidies are in place are almost guaranteed to be dwarfed by German subsidies on their coal industry, so swings and roundabouts really. Government intervention in national industrial direction has a mixed track record I’ll grant you, it can work out poorly, it can work out really well. This is definetely not a one-sided argument however. By taking the key elements from the success stories and overlaying it on an Irish template we should certainly be able to figure out some sort of decent roadmap to leverage the resources of the state for the benefit of the people of Ireland.

    I am not a free market uber alles type in case anyone missed it, our shambles of a government notwithstanding. Just because this government is bad, doesn’t mean all governments are bad.

  19. @Ronan
    The Danish are losing market share, Vestas is losing money.

    Coal subsidies are not the point. Wind subsidies are. Danish wind made money because Jurgen Trittin wrote them a big cheque.

  20. Heh, Vestas is hiring 3000 people this year, and they were doing just fine in 2008, exporting to a lot more countries than Germany. Yes they are making a loss this year but so are plenty of other companies. You’re saying that they are somehow “cheating” by convincing another government to pay for utility level power supplies from them, like eh, almost every other government out there? 😀

    At the end of the day if you deny that direct governmental intervention and direction has proven extremely beneficial in certain cases, perhaps even a lot of cases, you aren’t operating with the full set of tools you need to make an informed decision. I’m no big-government type either but I recognise a successful strategy when I see it.

    Hell, look at the Chinese economic growth, they went much further with government direction than even the Japanese MITI, and they seem to be doing fine out of it.

  21. @Ronan
    Two points.

    First, the Danes made money in wind power not because they came up with a market-beating technology, but because governments gave hefty subsidies. That’s good for the Danes, of course, but it is a difficult strategy to follow — because it was luck.

    Second, the Danes are rapidly losing their first mover advantage. There’s another lesson. It does not matter that you’re first. You should be there when the market gets big.

  22. @Richard
    We seem to be in a woods for the trees situation here – would you agree that government direction in industrial policy and investment can be a good thing? I appreciate scepticism on that front in the context of Ireland in particular, given the epic, textbook, blow by blow mishandling of the economy by the government over the last decade, but it can work really well if done right.

    As for the Danish, some might call it luck, some might call it foresight and well thought out strategies. As the saying goes, the more thinking they do the luckier they get. Speaking of foresight I would not be prepared to write off the multi billion euro Danish wind industry just yet, especially with those aggregated export figures.

    Besides which why would a government create subsidies or otherwise invest in a technology if it was not in the best interests of that government and hence that country? Its not because they were feeling charitable towards Denmark, thats for sure.

  23. @Richard
    But you’re discounting the actual, real life examples I have provided as if they didn’t exist. They do exist, eppur si muove.

    I would be greatly disappointed to find that a well reputed scholar such as yourself would be prepared to discount valuable options for formulating economic policy on a dogmatic basis.

  24. @Ronan
    You offered a couple of anecdotes. That’s not evidence. I picked apart one of your anecdotes, and I know that the others have been picked apart too. The statistical evidence is that industrial policy does more harm than good, and their is solid theory to explain why. This is not dogma. It is the result of decades of research by many people.

  25. Eh the “anecdote” you picked apart is currently employing over thirty thousand people and doing over five billion in exports, so maybe we have differing definitions of “picked apart”.

    I attempted to link to evidential documents but this website apparently does not allow that, however all of the information supplied is readily verifiable at any time, so it could hardly be called anecdotal.

    Also I wonder would the industrial powerhouses of China, Korea and Japan have anything to say about those decades of research and all the many people who wasted their time doing it? I mean what, the greatest enablers of the global economy, computers and the internet, are a direct result of government direction and intervention. See for example who Intel’s primary customers were from the start, never mind the basic research that wasn’t going to get done by private industry.

    The excuses are wearing thin at this stage, I’m afraid.

  26. @Ronan
    There are excellent growth decomposition studies for South Korea, for instance. You may want to read up on that.

    The 30,000 jobs are all subsidised. Denmark benefits from a substantial transfer of income. No value is added, however.

  27. The most significant factor in rapid industrialisation of South Korea was the adoption of an outward-looking strategy in the early 1960s by its government. This strategy was particularly well suited to that time because of South Korea’s poor natural resource endowment, low savings rate, and tiny domestic market (sound familiar?). The strategy promoted economic growth through labor-intensive manufactured exports, in which South Korea could develop a competitive advantage. Government initiatives played a key role in this process.

    I honestly have no idea where you are getting no value added from in the case of Denmark – five and a half billion annually sounds like quite a lot of value added to me. Are Danish taxpayers putting that money into their wind industry?

  28. South Korea’s successful economic growth model was based on strong central government trade, industrial and technology policies – Robert Hassink – visiting research fellow at the Science & Technology Policy Institute (STEPI), Seoul, South Korea, 1999. That inefficiencies later crept in and were corrected does not take away from the original idea which worked very well.

    I take it then that you have no response to the value added argument regarding Denmark. I had expected better, sadly.

  29. Income transfer from what? German taxpayers to Danish businesses? These are two discrete economies, you can’t treat them as the same entity and energy supply plant counts as capital infrastructural investment anyway, which is what governments are meant to do in many cases.

    Our viewpoints probably have more in common than might be immediately apparent here, I also am a big fan of the sink or swim philosophy when it comes to enterprise, and I’ve proposed and successfully argued with Irish health professionals about privatising the Irish health sector. If you’ve ever had a sit down with some of the more extreme elements among them you’d appreciate what that means.

    However I also recognise that national industrial policy is a very powerful tool in getting things started, possibly the most powerful tool an economy possesses, and it would be criminal to neglect that potential advantage. Ultimately these enterprises must stand on their own two feet, but a great many major industries got their start due to national level public initiatives.

    Surely you can see that it has worked in many places, and can work here too if applied with caution and foresight? I mean we’re verging on arguing the colour of the sky at this stage (its blue).

  30. Tsunami are far more likely than most expect. Storm surges even more so.

    Burma was urged to move its capital inland from Rangoon. By China. Brasilia became the capital of Brazil after US underwater event in Alaska. Denver is a mile high and is receiving hush hush skeleton organizations and info from DC and other coastal and vulnerable centres.

    Clathrates may multiply explosive effect in ways that are difficult to calculate. They gather wherever there is a river or regular flooding. Having infrastructure, even if of the nebulous economic kind, necessitates security “from the ground up”.

    Good luck everyone, living below 100 metres!

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