Whittaker Associates: Giving Information Meaning">Whittaker

by Dean Whittaker

Freakonomics is a well written look at why what we accept as “conventional wisdom” may be wrong because it is based upon factors that may correlate with our expectations rather than real causes. For example, the drop in the crime rate in the 90′s in New York was thought to be caused by better police methods, a new mayor, a new police chief, and stricter sentencing for crimes. While all of these have a correlation to the drop in crime, it is in fact the legalization of abortion in the 1970′s that is causal, since it lowered the number of individuals most likely to become criminals.

Levitt and Dubner have a central tenet about economics. “Economics is, at its root, the study of incentives: how people get what they want and need.” They go on to say that all incentives are economic, social or moral.

Levitt, an economics professor at the University of Chicago , studies crime and has come to the conclusion that just about everyone “cheats” at something if the stakes are right. He uses an example of a bagel distributor who uses an honor system to pay for bagels, which he delivers to office break rooms. Turns out that the workers on the higher floors (executive levels) were less likely to pay for their bagels than those on the lower floors (manager level).

Freakonomics will cause you to re-think some of your commonly held beliefs and will challenge your assumptions about others. The authors remind us that regression analysis (the statistic measure of correlation) is more of an art than a science.

by Dean Whittaker

In the movie “What the Bleep Do We Know?” many of today’s common beliefs are challenged through ideas from quantum physics. The movie points out that many of humankind’s firmly held beliefs were later found to be wrong. But at least one of those ideas, in an economic sense, anyway, appears to be enjoying a resurgence. Don’t you know the world really IS flat?

In Thomas L. Friedman’s new book, The World is Flat: A Brief History of the Twenty-First Century , he explains the implications of leveling the economic playing field and how it got to be that way. Technology has flattened the global economic playing field to the chagrin of some and the delight of others. Few books are a MUST read, but I think those who have read it would agree that this book is a “must read” for anyone engaged in any aspect of economic development.

What has brought about the seismic shift in wealth and power that Friedman recounts? One fundamental change has been in communication technology. The convergence of information technologies provides the tools to disaggregate the work flow into separate processes. Now, an order given at a McDonald’s drive-through may be taken by someone hundreds or thousands of miles away and communicated back to the on-site kitchen. Your airline reservation to Atlanta may be handled by a reservation specialist working from home in Utah (or India ). Just like in “What the Bleep ,” the economic time-space continuum has become frighteningly flexible.

On a recent flight to South Carolina to tour a former textile plant, I sat beside the owner of a company that supplies parts to a refrigerator manufacturer. His customer recently announced that they are moving their production from Michigan to Mexico . They have informed their suppliers that if they wish to continue as suppliers, that they, too, should consider relocating their operation in order to provide competitively priced parts. Previously, the assembler had paid shipping costs. However, in the new arrangement, shipping costs will be the suppliers’ responsibility. Therefore, a competitive supplier would need to produce parts near the assembly operation.

This scenario is being played out around the country. What can economic development practitioners do to mitigate the consequences and seize the opportunities that this continuous evolution of the global economy brings about? Many regions are focusing on innovation as their salvation, hoping that local firms will become centers of innovation within their respective fields. By producing the “new new thing,” domestic firms can remain competitive players in the global marketplace. For instance, could a local life sciences firm, by jumping ahead of new trends in genomics and bioinformatics, become your next economic driver?

Challenges? Sure, we’ve got a bunch. But what a great time to be alive. With change comes opportunity. We are experiencing some of the greatest opportunities our race has ever seen. It’s time to look carefully at our current assumptions and at old and new ways of doing things. Even outworn ideas–such as the world being flat–may be worth a second look!