Tuesday, April 06, 2010

Looking for Productivity In All the Wrong Places

As an economist, sometimes I ponder fundamentals where others just move on. In today's NY Times, David Brooks writes that the U.S. spends about one third of the world total on R&D, which is why American workers are so much more productive than their Chinese counterparts. For whatever reason, I found this assertion not assuring at all. So I started to wonder if there is substantial "measurement error" to what Brooks reports, not on the spending, but on the eventual value of the spending.

I was disposed to thinking this way by the outcomes in this year's NCAA Men's Basketball Tournament, The success of Butler, the mid-major par excellence, might have in itself gotten others to consider the issue. Butler's budget for Men's Basketball is roughly one tenth of the budget here at Illinois and at other higher profile programs. Yet Butler achieved more success this year than any Big Ten program. Was it a statistical fluke? Or is there something more going on? There were three other mid-major school's that made the round of sixteen: Cornell, Saint Mary's, and Northern Iowa. With not quite half the entrants into the field of 65, the Power Six conferences, which produced all the number 1 and 2 seeds and three out of four of the number 3 seeds (Butler was a 5 seed), produced easily in excess of 80% and probably closer to 90% of the budget for Men's Basketball among those schools that made the tournament. But in terms of results, what do they have to show for all that spending? Let me get back to that in a bit.

First we'll make a detour via Clay Shirky's blog, where he talks about the collapse of the complex business model. Shirky is talking about TV programming in the era of YouTube. What if viewers actually prefer the less produced, innocent and to the point YouTube videos to the overly scripted TV programming? Can the TV channels compete? Does their mechanism for developing content even allow them to compete?

Now I'm going to make a second detour. My day job is information technology, specifically technology in support of teaching and learning. Is complexity making the cost of what we do so over the top? There's a perception that this is the case. On parts of this, I share in that perception. Technology in the live classroom clearly has increased complexity – for the instructors to master, for the students to keep up, and for folks like me and those who work for me to support. Many have argued that the teaching and learning is worse because the technology promotes content push and blocks discussion. Now we're seeing an extra layer with that – classroom capture – adding cost, certainly, while creating benefit, less obviously. School X is doing it so we must do it too. Shirky doesn't use the term rat race, but it seems to fit right in with his explanation. We have to look for ways to attract faculty and students, don't we?

Now let's get back to college basketball. There are three possible explanations for why a team becomes really good – the players, the coach, or the system. (More than one of these can be in effect and they can interact in a virtuous cycle.) None of Butler's players made ESPNU's to 100 for the class of 2008. (That's high school class. These guys are finishing their sophomore year now.) But Butler has two players in that graduating class who played on the U.S.A under 19 team that competed in Melbourne last year and won the gold medal – Shelvin Mack and Gordon Hayward, Butler's two stars. How can that be? Hayward appears to have been a late bloomer, and quite possibly he is still blooming. At age 17 he was too skinny and with few accomplishments on the basketball court. Now aged 20, he's projected as a lottery pick. Mack seems a bit of a different story. He grew up in Lexington Kentucky and wanted to play at UK. He appears to have been pretty highly regarded. But with the coaching changes there, he fell through the cracks recruiting-wise and ended up at a smaller school, Butler, instead of UK or some other big-time program. I don't know this for a fact, but one wonders if the ratings of the College prospects, such as the one at ESPNU, are influenced by which programs have recruited the players as much or more so than how they've produced playing summer ball. A bit of endogeneity with that, don't you think? And might that be with R&D investment too?

Let's turn to coaches. I believe that Brad Stevens, the Butler Coach, a veritable babe in the woods at 33, has impressed everyone that he knows how to coach. During the game last night, the relatively level headed analyst for CBS, Greg Anthony, was literally gushing about Butler's game plan against Duke. Who do you suppose came up with that? And if you watched not just that play but the previous several rounds for Butler, especially its win over Syracuse, you'd have to be impressed with its physical play and intense defense. That's a consequence of coaching.

Coaching jobs at mid major schools can be stepping stones to higher paying jobs at schools with larger basketball budgets. The Cornell coach, Steven Donohue, has just taken the job at Boston College, a case in point. In this way of thinking, you can't identify the best young coaches a priori, so give them a chance in a lower stakes setting. If they do well, they can move up. This seems sensible and prudent. But it's an approach that seems to rule out identifying the really good coaches right out of the box. Moreover, if staying in the system tends to make you less of a risk taker, it means we get a regression to the mean effect for those coaches who make their way up. Perhaps that sort of thing is happening with R&D as well.

Finally, let's talk about the system. Butler has produced a run of successful coaches in a row who have moved on to bigger programs. That suggests they've come up with a formula that is transferable, at least within Butler. Perhaps this is a kind of master-apprentice thing going on. Assistant coaches don't get paid very much. Younger ones will endure it for the learning. Older ones will endure it because they don't expect to climb much higher. It's the head coaches who make the big bucks. But how does one really know the apprentice is ready to be the master? That's a gamble too. Butler seems to have gotten it right with Stevens. How many programs get it wrong? Placing your bets on the wrong horse or even placing them on the right horse but running the wrong race can be an issue with R&D too.

Do these issues with the composition of R&D spending get swamped by the overall spending level? I really don't know. In a country that can tolerate a remake of A Nightmare on Elm Street, I have my doubts.

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