Old blaggers & secular stagnation

There���s a link between the Hatton Garden blag and one of the big issues of our time ��� secular stagnation.

The blaggers were all old men. Having learned the trade of robbing in the 70s, they stuck with it even though technical change has made their trade more difficult:

a decade or two ago, there was not the ANPR [automatic number plate recognition] or CCTV coverage there is now, and they would have had a better chance of getting away with it.

Most of us, though, are like the Hatton Garden gang. We���re one-trick ponies. Footballers and soldiers struggle to adapt when their careers are over just as cons find it difficult to go straight. Even those of us who do change careers ��� such as me when I moved from banking to journalism - do usually do so by redirecting our skills rather than learning new ones from scratch. You can���t teach an old dog new tricks.  

Human capital is a putty-clay technology: it might be malleable in our youth, but it���s more fixed when we���re older. Our skills, like many things, are path-dependent.

It���s not just people of whom this is true. It���s also true for companies. They too are stuck with the ���core competences��� they inherited from the past. As Jovanovic and Rousseau say, they have specific vintages of organizational capital. In fact, this might be even more true of firms than individuals: some key workers or managers have vested interests in doing things the old familiar and easy ways, and corporate groupthink breeds the ���not invented here��� syndrome.  

This traps them into particular technologies, which means that they find it hard to adopt new ones.  IBM, for example, was the dominant computer company in the 1970s, but it didn���t succeed in developing successful operating systems: that took a new company ��� Microsoft. Microsoft then didn���t develop a great search engine ��� but a new company, Google, did. And Google didn���t develop social media, but new companies Twitter and Facebook did.

The more ���disruptive��� new technologies are, the more likely it is to be that they���ll be implemented by new companies rather than incumbents: as David Audretsch has shown, this has been the case in recent years.  

It���s this that gives us creative destruction: if incumbents could easily adopt new technologies they���d survive and thrive during technical change. Sometimes, though, they don���t ��� and in fact, as Ormerod and Rosewell have shown, firms are often unable to foresee their demise.

All this helps explain three of the big questions of our time, which are tied up with secular stagnation:

 - Why are firms not investing much despite talk about the potential of robots and AI? One reason could be that they lack core competences in the new technologies. Worse still, they fear that future new firms, using even cheaper technology and greater skill, will undercut them.

 - Why are firms holding so much cash? One reason (of many) is that they know that they don���t know much about future technologies, but hope to acquire new small firms that do.

 - Why are share prices so low despite techno-optimism? One reason is that future technologies will be embodied by firms that don���t yet exist, whilst today���s incumbents might be the victims of disruptive change. Jovanovic and Greenwood have argued that one reason for low share prices in the 70s was that investors anticipated the stock market revolution. Even if you���d had perfect foresight of technical change in the 70s, you couldn���t have bought shares in Microsoft, Google, Apple or Amazon but you would have shied away from existing firms then for fear that they'd give way.  

Perhaps, therefore, today���s big firms have much in common with the Hatton Garden blaggers. They are sad old men used to ripping people off who find themselves trapped on the wrong side of technical change.