The fruits of fieldwork
Aug 15th 2002
From The Economist print edition
Might visiting a pin factory provide insights official statistics cannot?
ECONOMISTS, the worldly philosophers, do not on the whole live up to that tag.
They are familiar enough with the economy as it exists in equations and official
statistics, but are fair strangers to the economy as it exists behind cash tills and on
assembly lines. It was not always so. Adam Smith opens “The Wealth of Nations”
with a finely observed account of a visit to a pin factory, from which he goes on to
demonstrate the benefits of the division of labour.
Surprisingly few economists visit the pin factories of today. An exception is Alan
Blinder of Princeton University. For his 1998 book, “Asking About Prices”, Mr Blinder
and his graduate students visited 200 American companies, to find out why
managers are slow to raise and lower prices. America's National Bureau of Economic
Research (NBER) went a step further. It launched its own “pin-factory initiative”,
dispatching scores of economists to car makers, razorblade manufacturers and gene
splicers, in a hunt for the source of America's productivity growth. Even so, most
economists still consider fieldwork—“learning by asking”, as Mr Blinder puts it—a
doubtful activity, one reserved for the lowest orders, such as reporters and
sociologists.
Should economists get out more? The desk-bound point to over 10m business
establishments in America: what can a handful of visits tell you about the economy
as a whole? Statistical research has rigorous, agreed-upon standards for generating
a sample and inferring beyond it. Fieldwork, they aver, does not.
Neither objection is fatal. Visiting can be just as rigorous as counting. After all, data
is just the plural of anecdote—as long as the anecdotes are scrupulously and
systematically chosen.
Nor can the official statistics measure everything that economists consider
important. Mr Blinder wanted to know why prices are less flexible than they
theoretically should be. Yet no government bureau compiles statistics on what prices
should be, only on what they are.
The official statistics are not much better at measuring productivity. Back in 1987,
the year he became a Nobel laureate, Robert Solow complained of a “productivity
paradox”: the computer age was to be seen everywhere except in the productivity
statistics. By the late 1990s, the statistics finally seemed to get it, apparently
confirming a productivity miracle thanks to information technology. Since then,
however, downward revisions have put the miracle in doubt. Paradox, miracle, or
mirage? Little wonder some economists want to go out and check for themselves.
Learning by asking
Can managers in the field explain what the data cannot? Another Nobel prizewinner,
Milton Friedman, has long doubted it. For Mr Friedman, economic behaviour owes as
much to “market selection” as it does to express intention. Firms maximise profits
because, if they did not, they would no longer be in business. Thus a firm's
managers may be successful without being very good at explaining the principles
underlying their success. A successful manager, in Mr Friedman's eyes, is like an
expert billiard player. He can make the cue ball do his bidding, but he cannot explain
the physics behind a cannon or a kiss.
So did Mr Blinder or the pin-factory economists learn anything new? After hundreds
of interviews, Mr Blinder was still unable to declare an outright winner among the
competing theories of inflexible prices—though he did narrow the field somewhat.
Some of his interviewees were only too reminiscent of Mr Friedman's billiard player,
failing to grasp fundamental concepts like the difference between average costs (the
cost per unit produced) and marginal costs (the additional cost of producing one
more unit).
The NBER team also failed to pinpoint the source of the rise in American productivity
in the 1990s. At the Ford car plant in Ohio, for example, productivity gains came
from simple automation, replacing men with machines. At Toyota's plant in
Kentucky, gains came from ergonomics, fitting the machine to the man. One of the
more striking impressions was also faintly ironic. Much of the new economy, Robert
Gordon of Northwestern University observed, takes place in front of computer
screens, in workplaces indistinguishable from the university offices he and his
colleagues had escaped from.
Still, the economists all felt better for their day out. Edward Lazear of Stanford
University was glad of his visit to Safelite Auto Glass. The company's switch from
time-rates of pay to piece-rates gave Mr Lazear tangible examples of the link
between pay and motivation, examples that stuck in readers' minds long after they
had forgotten his statistics. It is, he says, one of his most-cited papers.
Maybe these visits are not so different from Adam Smith's. As it happened, he did
not discover the division of labour at his pin factory: the concept was already
understood by his teacher, Francis Hutcheson. Even his painstaking description of
the “18 distinct operations” of pin making was probably cribbed from Diderot's
encyclopedia. In short, Smith might well have written his famous passage from his
ivory tower at Glasgow University. Yet, as Mr Lazear discovered, even if fieldwork
fails to inspire a hypothesis or prove a truth, it can help to sell ideas. The pin factory
certainly helped Adam Smith rack up a few citations over the years.