Edmund S. Phelps - Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change

MASS FLOURISHING

OTHER BOOKS BY EDMUND PHELPS

Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise

Enterprise and Inclusion in Italy

Seven Schools of Macroeconomic Thought: The Arne Ryde Memorial Lectures

Structural Slumps:
The Modern Equilibrium Theory of Unemployment, Interest, and Assets

Political Economy: An Introductory Text

Studies in Macroeconomic Theory (2 volumes)

Economic Justice (editor)

Inflation Policy and Unemployment Theory

Microeconomic Foundations of Employment and Inflation Theory (with others)

Fiscal Neutrality toward Economic Growth

Copyright 2013 Edmund S. Phelps

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Willa Cather epigraph courtesy Knopf/Random House.

Jackie Wullschlager epigraph from Financial Times

The Financial Times Limited 2013. All rights reserved.

Hunter S. Thompson epigraph reprinted with the permission of Simon & Schuster, Inc. from Songs of the Doomed. Copyright 1990 Hunter S. Thompson.

John Rawls epigraph reprinted by permission of the publisher, from A Theory of Justice: Revised Edition, p. 4, Cambridge, MA: The Belknap Press of Harvard University Press, Copyright 1971, 1999 by the President and Fellows of Harvard College.

All Rights Reserved

ISBN 978-0-691-15898-3

Library of Congress Control Number: 2013936720

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CONTENTS

PREFACE

When I first saw Los Angeles I realized that no one had ever painted what it looked like.

DAVID HOCKNEY

W HAT HAPPENED IN THE 19TH CENTURY that caused people in some countries to havefor the first time in human historyunbounded growth of their wages, expansion of employment in the market economy, and widespread satisfaction with their work? And what happened to cause many of these nationsby now, all of them, or so it would appearto lose all that in the 20th century? This book aims to understand how this rare prosperity was gained and how it was lost.

I set out in this book a new perspective on what the prosperity of nations is. Flourishing is the heart of prosperingengagement, meeting challenges, self-expression, and personal growth. Receiving income may lead to flourishing but is not itself a form of flourishing. A persons flourishing comes from the experience of the new: new situations, new problems, new insights, and new ideas to develop and share. Similarly, prosperity on a national scalemass flourishingcomes from broad involvement of people in the processes of innovation: the conception, development, and spread of new methods and productsindigenous innovation down to the grassroots. This dynamism may be narrowed or weakened by institutions arising from imperfect understanding or competing objectives. But institutions alone cannot create it. Broad dynamism must be fueled by the right values and not too diluted by other values.

The recognition by a people that their prosperity depends on the breadth and depth of their innovative activity is of huge importance. Nations unaware of how their prosperity is generated may take steps that cost them much of their dynamism. America, judging by available evidence, does not produce now the rate of innovation and high job satisfaction it did up to the 1970s. And participants have a right not to see their prospects of prosperingof self-realization, as John Rawls termed itsquandered. In the past century, governments sought to move the unemployed into jobs so they could prosper again. Now there is a larger task: to reverse losses of prosperity among the employed. That will require legislative and regulatory initiatives having nothing to do with boosting either demand or supply. It will require initiatives based on an understanding of the mechanisms and mindsets on which high innovation depends. Yet surely governments can do it. Some began clearing paths for innovation two centuries ago. These thoughts were on my mind when I conceived this book. I believed the sole problem was the terrible unawareness.

Eventually I began to sense another kind of problem: a resistance to modern values and modern life. The values that supported high prosperity ran up against other values that impeded and devalued flourishing. Prosperity has paid a heavy toll. Questions are being asked about the sort of life it would be best to have and thus the sort of society and economy to have. There are calls in America for traditionalist goals long familiar in Europe, like greater social protection, social harmony, and public initiatives in the national interest. These were the values that have led much of Europe to viewing the state in traditional, medieval termsthrough the lens of corporatism. There are calls too for more attention to community and family values. There is little awareness of how valuable modern life, with its flourishing, was. There is no longer in America or in Europe a sense of what mass flourishing was like. Nations with brilliant societies a century back, say, France in the Roaring Twenties, or even a half-century ago, say, America in the early sixties, have no living memory of wide flourishing. Increasingly, the processes of a nations innovationthe topsy-turvy of creation, the frenzy of development, and painful closings when the new things fail to take holdare seen as a pain that upstart materialist societies were willing to endure to increase their national income and national power, but that we are unwilling to endure any longer. The processes are not seen as the stuff of flourishingthe change, challenge, and lifelong quest for originality, discovery, and making a difference.

This book is my response to these developments: It is an appreciation of the flourishing that was the humanistic treasure of the modern era. It is also a plea to restore what has been lost and not to reject out of hand the modern values that inspired the broad prosperity of modern societies.

I first set out a narrative of prosperity in the Westwhere and how it was won and how to varying degrees it has been lost in one nation after another. After all, much of our understanding of the present comes from trying to put together some pieces of our past. But I also study cross-country evidence of the present day.

At the core of the narrative is the prosperity that broke out in the 19th century, firing imaginations and transforming working lives. Widescale flourishing from engaging, challenging work came to Britain and America, later to Germany and France. The step-by-step emancipation of women there and, in America, the eventual abolition of slavery, widened the flourishing. The making of new methods and products that was part of this flourishing was also the major part of the economic growth that coincided with it. Then, in the 20th century, flourishing ultimately narrowed, and growth slipped away.