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by
Tim Harford
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November 11 - November 12, 2018
But perhaps the most striking coup took place in the late 1960s, when Malcom McLean sold the idea of container shipping to perhaps the world’s most powerful customer: the U.S. military. Faced with a logistical nightmare in trying to ship equipment to Vietnam to supply American troops, the military signed a contract with McLean, relying on his expertise and his container ships to sort things out.
But then Ubico was overthrown. An idealistic young soldier, Jacobo Árbenz, later rose to power. And he called El Polpo’s bluff. If the land was worth so little, he argued, the state would buy it and let peasants farm it. The United Fruit Company didn’t like this idea. The company lobbied the U.S. government, employing a PR agency to portray Árbenz as a dangerous communist. The CIA got involved. In 1954, Árbenz was ousted in a coup, stripped to his underwear, and bundled onto a flight to peripatetic exile.
Now comes the elegant part. The stick would be split in half, down its length from one end to the other. The debtor would retain half, called the “foil.” The creditor would retain the other half, called the “stock”—even today, British bankers use the word “stocks” to refer to debts of the British government. Because willow has a natural and distinctive grain, the two halves would match only each other. Of course, the English Treasury could simply have kept a record of these transactions in a ledger. But the tally stick system enabled something radical to occur. If you had a tally stick showing
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On Monday, May 4, 1970, the Irish Independent, Ireland’s leading newspaper, published a matter-of-fact notice with a straightforward title: “Closure of Banks.”
You might think that such news—in what was one of the world’s more advanced economies—would inspire utter panic. But the Irish remained calm. They’d been expecting trouble, so many people had been stockpiling reserves of cash. But what kept the Irish economy going was something else. The Irish wrote each other checks.
Those tally sticks, by the way, met an unfortunate end. The tally stick system was finally abolished and replaced by paper ledgers in 1834 after decades of attempts to modernize. To celebrate, it was decided to burn the sticks—six centuries of irreplaceable monetary records—in a coal-fired stove in the House of Lords, rather than let parliamentary staff take them home for firewood. Burning a cartload or two of tally sticks in a coal-fired stove, it turns out, is a wonderful way to start a raging chimney fire. So it was that the House of Lords, then the House of Commons, and almost the entire
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When the highest reaches of a six- or seven-story building were reached only by an arduous climb, they used to be the servant’s quarters, the attic for mad aunts, or the garret for struggling artists. After the invention of the elevator, the attic became the loft apartment. The garret became the penthouse.
The Stanford researchers were interested in whether encryption could be asymmetrical. Might there be a way to send an encrypted message to someone you’d never met before, someone you didn’t even know—and be confident that they, and only they, would be able to decode it? It sounds impossible, and before 1976 most experts would have said it was.3 Then came the publication of a breakthrough paper by Whitfield Diffie and Martin Hellman; it was Hellman who, a year later, would defy the threat of prosecution by presenting his students’ paper. That same year, three researchers at MIT—Ron Rivest, Adi
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But today Luca Pacioli is celebrated as the most famous accountant who ever lived. Pacioli is often called the father of double-entry bookkeeping, but he did not invent it. The double-entry system—known in the day as bookkeeping alla veneziana, in the Venetian style—was being used two centuries earlier, at about 1300.4
But what was that system? In essence, Pacioli’s system has two key elements. First, he describes a method for taking an inventory and then keeping on top of day-to-day transactions using two books—a rough memorandum and a tidier, more organized journal. Second, he uses a third book—the ledger—as the foundation of the system, the double entries themselves. Every transaction was recorded twice in the ledger: if you sell cloth for a ducat, say, you must account for both the cloth and the ducat. The double-entry system helps catch errors, because every entry should be balanced by a counterpart.
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Nicholas Murray Butler was one of the thinkers of his age: a philosopher, Nobel Peace Prize winner, and president of Columbia University. In 1911, someone asked Butler to name the most important invention of the industrial
The limited liability corporation.
Among many provisions, this legislation made it compulsory for investment banks to commission independent financial research into the deals they were brokering; fearing conflicts of interest, Glass-Steagall forbade law firms, accounting firms, and the banks themselves from conducting this work. In effect, the Glass-Steagall Act made it a legal requirement for banks to hire management consultants.11
Here’s another argument for employing management consultants: ideas on management evolve all the time, so maybe it’s worth getting outsiders in periodically for a burst of fresh thinking? Clearly that can work. But often it doesn’t. Instead, the consultants endlessly find new problems to justify their continued employment—like leeches, attaching themselves and never letting go. It’s a strategy known as “land and expand.”
His influential business partner, Matthew Boulton, even got the patent extended by lobbying Parliament.5 Boulton and Watt used it to extract licensing fees and crush rivals—among them Jonathan Hornblower, who made a superior steam engine yet found himself ruined and imprisoned. The details may have been grubby, but surely Watt’s famous invention was worth it? Maybe not. The economists Michele Boldrin and David Levine argue that what truly unleashed steam-powered industry was the expiration of the patent, in 1800, as rival inventors revealed the ideas they had been sitting on for years.
What began to make that possible was an early kind of computer program called a “compiler.” And the story of the compiler starts with an American woman named Grace Hopper.
With one-of-a-kinds like the Harvard Mark I, software was hardware: no pattern of switches on the Mark I would also work on some other machine, which would be wired completely differently. But if a computer can run a compiler, it can also run any program that uses it.
The economist Mariana Mazzucato has made a list of twelve key technologies that make smartphones work. One: tiny microprocessors. Two: memory chips. Three: solid state hard drives. Four: liquid crystal displays. Five: lithium-based batteries. That’s the hardware. Then there are the networks and the software. Continuing the count: Six: fast-Fourier-transform algorithms. These are clever bits of math that make it possible to swiftly turn analog signals such as sound, visible light, and radio waves into digital signals that a computer can handle. Seven—and you might have heard of this one: the
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The foundational figure in the development of the iPhone wasn’t Steve Jobs. It was Uncle Sam. Every single one of these twelve key technologies was supported in significant ways by governments—often the American government.
A city of half a million people might have 100,000 horses, and each one liberally coated the streets with thirty-five pounds of manure and a gallon of urine every day. An affordable, reliable, small-scale engine that could replace the horse would be a godsend.3
Gasoline engines work by compressing a mixture of fuel and air, then igniting it using a spark plug. But compress the mixture too much and it can prematurely self-ignite, which causes destabilizing engine knock. Diesel’s invention avoids that problem by compressing only the air, and more so, making it hot enough to ignite the fuel when it’s injected. This allows the engine to be more efficient: the higher the compression, the less fuel is needed.
In the air, nitrogen consists of two atoms locked tightly together. Plants need those atoms “fixed,” or compounded with some other element: ammonium oxalate, for example, as found in guano, also known as bird poo, or potassium nitrate, also known as saltpeter and a main ingredient of gunpowder. Reserves of both guano and saltpeter were found in South America, mined, shipped around the world, and dug into soil. But by the century’s end, experts were fretting about what would happen when these reserves ran out.
Imagine the heat of a wood-fired pizza oven, with the pressure you’d experience more than a mile under the sea. To create those conditions on a scale sufficient to produce 160 million tons of ammonia a year—the majority of which is used for fertilizer—the Haber-Bosch process today consumes more than 1 percent of all the world’s energy.5 That’s a lot of carbon emissions, and it’s far from the only ecological concern. Only some of the nitrogen in fertilizer makes its way via crops into human stomachs—perhaps as little as 15 percent.6 Most of it ends up in the air or water. This is a problem for
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When the Nazis took power in the 1930s, however, none of these contributions outweighed his Jewish roots. Stripped of his job and kicked out of the country, Haber died, in a Swiss hotel, a broken man.
Then Winston Churchill took power and decided that desperate times called for desperate measures: Britain would simply tell the Americans what they had and ask for help. So it was that in August 1940 a Welsh physicist named Eddie Bowen endured a nerve-racking journey with a black metal chest containing a dozen prototype magnetrons.
On June 30, 1956, two passenger flights departed Los Angeles airport, three minutes apart: one was bound for Kansas City, one for Chicago.
The world makes so much plastic, it consumes about 8 percent of oil production—half for raw material that goes into the plastic itself, half for the energy required to make it.5
Only about a seventh of plastic packaging is recycled—far less than for paper or steel; for other products, that rate is lower still.14 Improving that rate requires some smart thinking. You may have seen little triangles on plastic, with numbers from 1 to 7; these are Resin Identification Codes, and they are one initiative of the industry’s trade association.
One success story is Taipei. It has changed its culture of waste by making it easy for citizens to recycle, with frequent collections and text-message reminders. It also fines them if they don’t comply. As a result, Taipei recycles two-thirds of its waste—almost double the rate in the United States.18
The chapel is Temple Church, consecrated in 1185 as the London home of the Knights Templar, a religious order. But Temple Church is not just an important architectural, historical, and religious site. It is also London’s first bank.
Few regulators have been as ardent as Philip IV of France. He owed money to the Templars, and they refused to forgive his debts. So in 1307, on the site of what is now the Temple stop on the Paris Métro, King Philip launched a raid on the Paris Temple—the first of a series of attacks across Europe. Templars were tortured and forced to confess to any sin the Inquisition could imagine. The order of the Templars was disbanded by Pope Clement V. The London Temple was rented out to lawyers. And the last grandmaster of the Templars, Jacques de Molay, was brought to the center of Paris and publicly
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Would you like to pay less tax? One way is to make a sandwich: specifically, a “double Irish with a Dutch sandwich.” Suppose you’re American. You set up a company in Bermuda and sell it the right to use your intellectual property, such as a brand name or a patent. Then that company sets up a subsidiary in Ireland. Now set up another company in Ireland. The second company finds a reason to bill your European operations for amounts resembling their profits. Now start a company in the Netherlands. Have your second Irish company send money to your Dutch company, which immediately sends it back to
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But tax havens haven’t always had such a bad image. Sometimes they’ve functioned like any other safe haven, allowing persecuted minorities to escape the oppressive rules of home. Jews in Nazi Germany, for instance, were able to ask secretive Swiss bankers to hide their money. Unfortunately, secretive Swiss bankers soon undid the good this did their reputation by proving just as happy to help the Nazis hide the gold they managed to steal and reluctant to give it back to the people they stole it from.
Secretive Swiss banking really took off in the 1920s, as many European nations hiked taxes to repay their debts from World War I—and many rich Europeans looked for ways to hide their money. Recognizing how much this was boosting their economy, in 1934 the Swiss doubled down on the credibility of their promise of banking secrecy by making it a criminal offense for bankers to disclose financial information.6
But the real explanation for the rise of the offshore haven is historical: the dismantling of European empires in the decades after World War II. Unwilling to prop up Bermuda or the British Virgin Islands with explicit subsidies, the United Kingdom instead encouraged them to develop financial expertise, plugged into the City of London.
The economist Gabriel Zucman came up with an ingenious way to estimate the wealth hidden in the offshore banking system. In theory, if you add up the assets and liabilities reported by every global financial center, the books should balance—but they don’t. Each individual center tends to report more liabilities than assets. Zucman crunched the numbers and found that globally, total liabilities were 8 percent higher than total assets. That suggests at least 8 percent of the world’s wealth is illegally unreported.
Still, Zucman estimates that 55 percent of U.S.-based companies’ profits are routed through some unlikely-looking jurisdiction such as Luxembourg or Bermuda, costing the U.S. government $130 billion a year.
Scientists urged the U.S. government to investigate, and researchers did—with funding provided by General Motors, on the condition the company got to approve the findings.5
In the other corner: Dr. Alice Hamilton, the country’s foremost authority on lead. She argued that leaded gasoline was a chance not worth taking: “Where there is lead,” she said, “some case of lead poisoning sooner or later develops, even under the strictest supervision.”
Half a century later, the government changed its mind: the Clean Air Act of 1970 began a process of gradually weaning cars of lead. And a couple of decades after that, the economist Jessica Reyes noticed something interesting: Rates of violent crime were starting to go down. There are many reasons this might have happened, but Reyes wondered: children’s brains are especially susceptible to chronic lead poisoning. Is it possible that kids who didn’t breathe leaded gasoline fumes grew up to commit less violent crime? Different U.S. states had phased out leaded gasoline at different times. So
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How did the United States get this so wrong for so long? It’s the same story of disputed science and delayed regulation you could tell about asbestos,15 or tobacco,16 or many other products that slowly kill us. The government did, in the 1920s, call for continued research. And for the next four decades, those studies were conducted by scientists funded by the Ethyl Corporation and General Motors.17 It was only in the 1960s that American universities developed policies on conflicts of interest in research.
His second major contribution to civilization was the chlorofluorocarbon, or CFC. It improved refrigerators, but destroyed the ozone layer. In middle age, afflicted by polio, Midgley applied his inventor’s mind to lifting his weakened body out of bed. He devised an ingenious system of pulleys and strings. One day they tangled around his neck and killed him.
The story of antibiotics starts with a healthy dose of serendipity. A young man named Alexander Fleming was earning a wage through a boring job in shipping when his uncle died, leaving him enough money to quit and to enroll in 1903 at St. Mary’s Hospital Medical School in London instead. There he became a valued member of the rifle club. The captain of the shooting team didn’t want to lose Fleming when his studies were over, so he lined up a job for him. That’s how Fleming became a bacteriologist.9
But two more benefits could be even more profound. The first was discovered by those Afghan policemen—tackling corruption. In Kenya, similarly, drivers soon realized that the policemen who pulled them over wouldn’t take bribes in M-Pesa: it would be linked to their phone number and could be used as evidence.
That’s the other big promise of mobile money: broadening the tax base by formalizing the gray economy. From corrupt police commanders to tax-dodging taxi drivers, mobile money could eventually lead to profound changes in culture.
Collective farming left farmers in desperate, gnawing poverty. In the village of Xiaogang in 1978, a group of farmers secretly met and agreed to abandon collective farming, divide up the land, and each keep whatever surplus they produced after meeting collective quotas. It was a treasonous agreement in Communist eyes, so the secret contract was hidden from officials. But the farmers were eventually found out: the giveaway was that their farms had produced more in one year than in the previous five years combined.
Perhaps the first recognizably modern property registry was in Napoleonic France. Napoleon needed to tax things to fund his incessant wars, and property was a good target for taxation. So he decreed that all French properties would be carefully mapped and their ownership would be registered. Such a property map is called a cadastre, and Napoleon proudly proclaimed that “a good cadastre of the parcels will be the complement of my civil code.”
De Soto found that in Egypt, legally registering property involved 77 procedures, 31 different agencies, and took between five and thirteen years. In the Philippines, everything was twice as complicated: 168 procedures, 53 agencies, and a thirteen-to-twenty-five-year waiting list.
An architect named Tina Hovsepian makes “Cardborigami” buildings—origami-inspired weatherproof cardboard structures that can be folded up, transported, then reassembled within an hour on the site of a humanitarian emergency.6
By 1702, paper was so cheap it was used to make a product explicitly designed to be thrown away after just twenty-four hours: The Daily Courant, Britain’s and the world’s first daily newspaper.9
