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be unimaginable today.
Money has become the metric
for assessing a person’s success and main satisfactions:
Parents and spouse urge a young person to opt for high
pay and job security rather than to embrace uncertain-
ty and to journey into the unknown. Pathological ma-
terialism leads to rampant short-termism in business
and finance. No wonder people who grew up hoping to
embark on a career of challenge and adventure forget
this dream and drift into a lesser life.
Questions can be raised about whether, in recent
decades, young people throughout American society
have possessed the intellectual equipment – the capac-
ity – required for innovating. In general, an innovator
had to have insights into whether the newly conceived
product would succeed in the market –
insights typ-
ically born of business experience as well as “talent.”
The baby boom generation brought into the labor force
many people who were much less familiar with the
world of business than the people of the previous gen-
eration and much less interested. The new generation
may be different.
Societies must give aspiring innovators wide latitude
if innovation is to be widespread. Yet huge blocks to
innovation have been erected in America. Vested inter-
ests, such as established companies –
their owners, the
management and the work force – feel entitled to be
defended against the competition that new innovators
would bring and to bailouts in the event they suffer
losses of market share to new competitors. Politicians,
for their part, feel entitled to curry the favor of inter-
est groups. This is the culture of social protection. A
result is that any aspiring innovator contemplating
an attempt to bring a new product or method to an
established industry will
realize that he or she would
be doomed to failure because the state will protect the
incumbent companies from losing their market share.
In the past couple of years, some young giants in the
so-called technology fields, such as Google, have begun
to invade traditional industries.
The prospect for the foreseeable future, therefore, is
a near-stagnation of productivity and wages, a deficien-
cy of engaging work, and weak employment – similar
to Europe, but not as severe as long as new industries,
with their new products or methods,
are conceived, de-
veloped and some are successful.
Now, in early 2015, America has achieved the sem-
blance of a recovery. A rough recovery from a crisis
is a natural result of a bulging shelf of new ideas still
unexploited and the accumulation of retained profits
waiting to be invested. Recent data put the unemploy-
ment rate at about the level of 1995-96 – after the re-
cent recession and before the internet boom. We could
even go as far as to say that a boom is going on – in the
midst of long-term stagnation –
thanks to the innova-
tion called “fracking” and to the flight of capital from
Europe and elsewhere, which has made it easier for
investing and innovating to obtain finance. Yet labor
force participation has plumbed new depths, growth of
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real wage and productivity remains meager and no rise
in job satisfaction has been reported.
Much ink has been spilled over the Keynesian thesis
that it was a rejection of “fiscal austerity” that enabled
the American economy to “recover” while Europe did
not. But there has not been much in the way of per-
manent increases in government expenditure in the
aftermath of the financial crisis, only a welter of tempo-
rary spending measures now generally expired; and no
permanent tax cuts. Quite the contrary, many
tax rates
were increased and huge numbers of government em-
ployees were terminated until the public payrolls were
leaner than before. Furthermore, it is quite possible
that we shall see the boom peter out – that the boom
will end in a year or two, just as all booms do.
China’s economy
We all know that China through a combination of
trade, investment, relocation of labor and “transfers”
of technology from abroad
has achieved a stunning
wage growth, better jobs and higher employment. But
it should be clear that these avenues for continued eco-
nomic growth go only so far. Efforts along these lines
are running into diminishing returns.
The economy will have to offer much broader oppor-
tunity for work that is stimulating and fascinating – for
mass flourishing!
For both these reasons, China will soon be in the
same situation as Europe and America are. It must
begin to find ways to expand its indigenous innovation
from the elites in the tech industries to all kinds of in-
dustries and all sorts of people down to the grassroots
of society – just as Europe
and America must do if they
are to regain wide prosperity and mass flourishing.
What is required? Boost the enablers of innovation
such as education. Boost the dynamism for innovation
by removing the inhibitors created by traditional cul-
tures. And remove the blocks like social protection and
smothering regulations.
It is clear that the Chinese want to aim for precisely
that – for grassroots innovation and what they call
“self-development.” Most Americans do too. We will
have to see what the Europeans want.
Edmund Phelps
The 2006 Nobel Laureate in Economics; Director,
Center on
Capitalism and Society, Columbia University; Dean, New Huadu
Business School; Author of
Rewarding Work (1997) and Mass
Flourishing (2013)
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