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Another story: why has India succeeded in creating a thriving software industry, when the Philippines have not? Both nations produce qualified, English-speaking engineers. Yet the Philippines’ software sector has sputtered along, while India’s is a roaring success story with $20 billion annual revenues (up from $15 million in the mid-1980s). Indian startups were greatly strengthened by the network of Indian expatriates living in the U.S. who became important brokers in connecting Indian providers and their American clients. The labor-intensive efforts to rewrite software code around “Y2K” dates were a huge boost to the sector, and Indian entrepreneurs successfully built on that.

Arora says that a third emerging idea is the role of effective legal protection of intellectual property rights, such as patents.

“Patent protection stimulates companies to invest in R&D, because they have confidence their investment will pay off for them, and they encourage markets for ideas and technology. Biotechnology and semiconductors are two industries where startups have relied heavily upon such markets to unlock the value of their innovative technology,” Arora says.

Building an effective patent system may be one of the only ways governments can really strengthen technology industries.

“I’m skeptical about the capacity of governments to do a great deal, particularly governments of developing countries, which face so many competing demands,” Arora says.

“Governments can slow industries down, but they are much less successful at building them up.”

Melvin Stephens, Jr.

Deciphering datasets

A two-foot stack of economic journals sits on the desk and two computer screens are blazing. Every square inch of the white board is filled with equations and u-shaped curves.

This is the office of Mel Stephens, the Raymond John Wean Career Development Professor of Economics at Heinz. Stephens uses large datasets to understand changes in economic decision making and how people alter their consumption behavior in response to change—as incomes fall or rise, as interest rates or gas prices fluctuate.

For example, he has studied how those who expect to lose their jobs change their expenditures (the surprising answer: not much). He has studied whether retirees spend more on the day they receive their Social Security check than they do on other days; economic theory says since they know when the check is coming each month, they will not spend more that day, but in practice—well, they splurge a little.

Like some of his Heinz School colleagues, Stephens is also interested in analysis of social changes; he is one of those who have done controversial work on the widespread social effects of legalizing abortion after 1973. Some studies have linked this to the drop in the crime rate in the early 1990s. Stephens and his colleague, Kerwin K. Charles of the University of Chicago, found a connection between legalized abortion and reduced drug use among adolescents. This is not an argument for or against abortion, Stephens emphasizes, but simply an attempt to understand the complex and unpredictable reverberations from a well-defined social change.

Another of Stephens’s interests is in improving the tools of research and economic analysis. At Heinz, he teaches the electives in econometrics, the most mathematical and data-focused branch of economics, and he gets students from all the Heinz master’s degree programs.

“Being able to interpret data is a skill that managers and policy analysts absolutely need, in government, in business, and in the nonprofit world,” Stephens says. “They must understand research and the strengths and limitations of various methods and tools—what a decision-maker can and cannot learn from observational study, or what statistical analyses they might choose to clarify certain issues.”

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Related Links:
Carnegie Mellon Heinz School
Jonathan Caulkins
Rand Corporation
Robert Wood Johnson Foundation Health Policy Fellowship
Ashish Arora
Adam Smith
The Wealth of Nation’s
Melvin Stephens, Jr.
Professor Stephens Research

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