On that Google doodle

If you use the main google page today you\’ll note that it\’s got a doodle on it.

\"googlebarcode\"

Yes, when you run the Google barcode back through a barcode reader, it does indeed say \”Google\”.

But having scribbled about it elsewhere I wanted to use it to make a deeper point for you economic sophisticates. It\’s the difference between invention and innovation.

William Baumol makes the distinction between invention (of, say, the barcode) and innovation (the use of the barcode across the society). There\’s no real difficulty with invention across different economic systems. The Soviets certainly invented some prety spiffy stuff. Rather, the difficulty is with innovation, getting people to use the blasted inventions.

The barcode was originally invented to be used on railway cars and didn\’t really seem to be doing all that much until supermarkets picked it up. Then it exploded. Being able to work out how much of what was in the supply chain was a huge game changer for the entire manufacturer to retailer chain. You knew how much was going out through the tills, where and even at what time of day. You could track the boxes of soap powder from the manufacturer all the way through regional warehouses and so on to the housewife (indeed, with loyalty cards you could work out who that housewife was and where she lived).

It was the mastery of the implications of all of this that led (at least, as some tell the tale) to the fortune Sam Walton made with WalMart. And of course it was the competitive pressures on all and any retailers who were not using it by those who were that made the use of the barcode near universal.

So far, so what? Retailers profits went up perhaps, but the world didn\’t really change, did it? Well, in fact it did, in two rather important ways. The first is the obvious one that with a more efficient retail chain we\’re all paying rather less for our consumption than we would be with a less efficient one. This makes us richer, by definition.

The second is more of a postulation, a kite flyer, rather than an established fact. There are those who would say that some recessions (I\’m very much of the view that not all recessions are the same and that not all have the same causes) come about because of the stock that\’s in that retail distribution chain. If in a boom people are too enthusiastic about what they can sell they over produce. This then sits rotting in warehouses until the mistake is realised: so they stop, put people out of work and we get a slump in the economy. That huge level of stock eventually gets sold, more things are needed to replace them and people get hired again and off we go with growth.

Yes, I know that\’s very back of the envelope and no, it doesn\’t explain all recessions, nor probably all about even any of them. But everyone\’s model does indeed include this stock problem as at least contributing to the severity, if not as a basic cause.

But if we have much better knowledge about the supply chain, if we know what\’s going out through the tills then we know more about what needs to go in. So, ceteris paribus, we should have fewer things in the stocking chain than otherwise. Which will mean that whatever the effect of overstocking and then curtailing production is upon recessions, will be less than it otherwise would be.

This really has been seriously put forward as an explanation as to why recessions seemed, post war, (WWII that is) to be much less violent than they were before it. Simply because we knew more about what was in the retail chain and thus the swings from high to low of production were dampened. My own mildly informed guess is that this is true: not true enough to explain everything, but certainly to explain why things haven\’t been worse: even now. For example, the ships bringing tchotke from China are not clogging up the Port of LA trying to unload things no one wants to buy. The factories didn\’t make them in the first place and the ships are sitting empty in the Pacific. It\’s still a recession, but we\’ve got fewer hundreds of thousands of tonnes (millions maybe?) of shite to burn through before we start making things that people want again.

So the humble barcode: no, it\’s not resonsible for all of this (computers help for example) but it is a part of it: making us richer and making the economy less volatile.

Which brings us back to Baumol\’s point about innovation. Invention\’s the easy part, it\’s getting everyone to use the bastard things which is difficult. And that\’s where this mixture of capitalism and free markets really works. Rolling out the inventions across the economy so that productivity, efficiency, rises in general and thus we all get richer.

If you want more on this try this book. Yes, I got mine as a freebie, but it\’s still a good book. This one is cheaper.

15 comments on “On that Google doodle

  1. There’s something in that.

    It corresponds with the observation that people with long lead times, traditionally high stock levels and/or a fixed rate of production (e.g. car manufacturers, house builders, factory workers in China) have been much harder hit than the opposite (i.e. supermarkets, cinemas).

  2. Newmania seems like a real know-it-all git that I am sure has a real habit of attempting to rain on everybody’s parades.
    I say he should be band from this site.

  3. Anyone who has had regular contact with newmania would be aware that he most certainly is not a ‘know it all’ (in fact, quite the opposite)… although he can sometimes be called a git with some accuracy.

  4. I was not suggesting that he knew it all, just that he is a “know it all” type of Git. The git part was my main point.

  5. When you take a four-pack of raspberry yoghurts to the checkout, along with a four-pack of cherry yoghurts, the lass may well scan just one of the packs and enter two packs of cherry yoghurt as your purchase, and that shows up on your bill. Bullshit baffles brains.

  6. Look harsh words and most unfair . In the office I went out on a limb when the anniversary of bar codes came up and decried a real know it all who claimed the first use was on gum trusting that Timmy knows best. I may have used words conveying contempt for the others intelligence and so on …
    He produced seemingly incontrovertible proof and I only wanted help

    Mr. Worstall has not let me down my supremacy is restored

  7. Perhaps we need bar codes on money as the supply of it is the main cause of this recession?

  8. Sef:

    You’re right about that. Of course, saying that is the same as saying “makes us richer’ or, “is an economic improvement; the only difference is in perspective.

  9. @tim – “Retailers profits went up perhaps” – some retailers profits will have risen during the adoption period, the slow adopters may have seen a fall in profits, but within a few years the supermarket market will have competed it’s way back to “equilibrium” profits.

    In general, the consumer is the final beneficiary of technology, not the firm.

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