Edmund S. Phelps - Dynamism: The Values That Drive Innovation, Job Satisfaction, and Economic Growth

1. EDMUND PHELPS
2. RAICHO BOJILOV, GYLFI ZOEGA, AND HIAN TECK HOON
3. RAICHO BOJILOV
4. RAICHO BOJILOV
5. RAICHO BOJILOV
6. GYLFI ZOEGA
7. GYLFI ZOEGA
8. RAICHO BOJILOV
9. GYLFI ZOEGA
10. HIAN TECK HOON
11. HIAN TECK HOON
12. HIAN TECK HOON
13. EDMUND PHELPS

The existing body of economic theory, largely formed over the 20th century, has come to be an impressive machine for analysis. Yet there is now a feeling among many people that it has not fully grasped the forces and channels behind some of the important developments in the modern world. There is also a feeling in the profession that corrections to some of its mistakes are needed if it is to help society understand this world.

Several economists and noneconomists have pointedsome of them long agoto human desires and satisfactions missing from or intentionally excluded from standard economic theory: Nietzsche on overcoming obstacles, Bergson on vitality and personal growth, Veblen on the instinct called workmanship, Sen on developing our capabilities, Frydman on forecasting consistent with Knightian uncertainty, Robb on action that is for itself, and my work on the joy of creating.

Yet the economic models used to address public issues or theoretical questions continue to overlook these desires and satisfactions right up to the present time. Two premises of the standard theory are striking in their disregard of those desires and satisfactions, and both premises have to do with what goes on in the workplace.

One of these premises is the supposition that the reward of work is solely pay. But there is an abundance of evidence against that. In America, it is very clear that work is central to a meaningful lifeas shown gloriously in the film Shane. The American Dream, held by many, is best interpreted as the hope of succeeding at something in that lifea hope realized in A Star Is Born and dashed in On the Waterfront.

In such an economy, conceiving a new thing or new method, imagining an unseen possibility, and exploring the unknown are apt to be the most deeply rewarding sort of work experience. When many of these experiences disappear from some jobs over much of the country, there is a sense of deprivation: some of the meaningfulness of work is lost.

The few attitudinal surveys stretching over a long span provide evidence of the meaningfulness that work has held for a great many people. Asked by Ipsos-Reid whether they enjoy their work so much they have a hard time putting it aside, 51 percent of interviewees said yes in its earliest survey, conducted in 1955. Asked by Roper whether work is the most important thing or is it leisure? 48 percent said work in its earliest year, 1975. Asked by Gallup whether they are satisfied or dissatisfied with their job or the work they do, 86 percent said satisfied in its earliest year, 1966. These data say something about who Americans were in those times and who they are today.

Lamentably, the subsequent surveys show a steep decline in job satisfaction starting in the 1970s and continuing to the last surveys around 2000. (The General Social Survey reports that life satisfaction has trended down since 1990this in spite of a rise in household income.) This must be explained. Conceivably that decline is explainedin part, at any rateby a substantial contraction of annual aggregate innovation. But what is the main force driving innovation? That brings us to the other problematic omission in the standard theory.

The other premise is the supposition that the source of innovation is solely scientists. In that view, economic advance is the insightful and fortunate commercial applications of scientific discoveriesapplications seen as chosen by knowledgeable entrepreneurs. This would mean that the phenomenon of sustained economic growth, which sprang up early in the 19th century and had spread through most of the West by the centurys end, and the subsequent slowdown of this economic growth, which started around 1970 and has since spread through the West, are simply a result of a rise and fall in the rate of scientific advance.

It is true that corporations in some industries of an economy may have R&D departments seeking to identify commercial applications that seem promising enough to be worth designing and marketingthus helping the firm decide new products and methods to launch on the market. But these departments are not the origin of sustained economic advance any more than capital investment is the origin of sustained growth.

It is also true that Silicon Valley has created high-flying start-ups that rely on technological advances in computing and telecommunications. But apart from a brief episode in the late 1990s, the contribution of these companies to the economy as a whole has been minor, their mighty propaganda machines notwithstanding.

With Mass Flourishing, which appeared around six years ago, a competing hypothesis on innovation has arisen. There are nations in which ordinary people from the grass roots on up, having backgrounds in various businesses and having acquired insights into the businesses where they work, come to possess the capability to use their acquired know-how to conceive better methods and new things. Further, if such a nation possesses the necessary modern values, these people will have the desire to develop those methods and thingsthus, market forces permitting, to generate indigenous innovation. That is dynamismthe desire and capacity to generate indigenous innovation. And being engaged in this innovative activity is at the core of modern life. High job satisfaction, the exhilaration of new possibilities, and consequently economic progress are the fruit.