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By Root 1616 0

now you might be asking what this all has to do with the climate change debate and GDP statistics. The point is that the new technologies are changing feasible pricing strategies in a number of industries. This is a broader point than the inability of big record companies to update their business model. The combination of high upfront costs and close to zero distribution costs characterizes all digital industries, causing upheaval in music, film, the media, and publishing, and many other industries too—software, for one, teaching perhaps, and other knowledge-intensive businesses such as pharmaceuticals. There is a challenge for all these businesses in finding ways to make prices correspond to the values consumers place on the goods and services they are providing. The pattern makes them much more like public services—more like a park, which costs a lot in salaries and materials to create and maintain in the first place but almost nothing to allow one more person to walk in the park.

In the jargon, a large and growing segment of the economy consists of expansible and nonexcludable products. Additional consumers can be served at low or no cost, and it often proves difficult to prevent consumers from paying a zero price for them. Yet how much are such services worth to their consumers? More than the zero they cost, at the margin, to provide? If so, why do businesses struggle to charge their customers anything? The technology in music, as in other industries, changes what’s valuable—or at least chargeable—by changing the pattern of costs and consumer demands.

Figure 13. Intangible and ephemeral.

In short, a large and growing share of the economy consists of activities with a lot of the economic features of public goods. This is an important phenomenon going to the heart of the question of what it is about the economy that matters.

VALUING INTANGIBLES

The underlying problem is not just a question of where the money will come from to pay for services with this central, inescapable element of personal effort. There is also a question about how to attach a value to work of this kind. How can we measure what it’s worth?

In the economy of the 1960s, much of the output consisted of manufactured goods, and the commanding heights of the economy were held by automakers, steel mills, and chemicals plants. Improvements in mechanization and management meant that over time the productivity of production workers increased steadily—that is, the number of items made by each worker on average. Productivity gains meant more profits, and higher wages as well as higher dividends for investors in manufacturing firms. It was relatively straightforward to make the link between input—work effort—and output. But how can the productivity of a nurse of teacher or policeman be measured? For one thing, quality is more of an issue. Which nurse is more productive—the one who looks after twenty patients a day or the one who looks after ten, spending more time with each, so they leave hospital sooner and happier? Should we even think about the productivity of nurses separately from the people’s health, for it would be better still if the number of sick people needing nursing care were to decline.

The more you think about it, the harder it is to understand what productivity means in great swaths of the economy. Is the worth of a trader in the financial markets best measured by his trading profits? A few years ago many people might have said yes, but there is some debate about that now. Is my productivity as an author and economist best measured by the number of words I write in books and reports, or by their innate quality, or just by how much I can persuade people to pay me? None of these seems right. Number of words ignores quality, as indeed does earnings per book or report, which depends more on what I can persuade people to pay. But using the innate quality would be hopeless for the purposes of measuring and analyzing the economy—we would have to use literary critics and other economists who could peer review my work in order to devise