Reflections on Mass Flourishing: 10 Years Later

I’m honored to be here at the University of Texas, Austin and to deliver the luncheon speech at today’s Symposium. I want to thank Ryan Streeter, Executive Director of the Civitas Institute for inviting me to speak on dynamism – a topic I’ve been working on for the last two decades or so.

A New Theory of the Rise of Innovation

Seven years after my book Mass Flourishing (2013) introduced a new theory of innovation, I published with a team of researchers the sequel Dynamism (2020) which went on to test that theory. My new theory was that a key part of the widespread innovation found in several nations in the West derives from the outpouring of fresh ideas springing from the imagination and creativity of people working in these nation’s businesses – most of them ordinary people, as I like to say.¹ (In familiar parlance, the supply of innovation per working person is a function of these people’s expression of their creativity.) This theory of the supply of indigenous innovation is in sharp contrast to the theory advanced by the German Historical School, which held that innovations derived from discoveries made outside the economy and its businesses.

The theory of indigenous innovating introduced here does not throw away the force of exogenous discoveries, which are present in the Solow-Swan model (and could be injected into the Keynes-Hicks model). The new theory injects another force into such macro models.

These new ideas pouring out of society came from a range of people, most of them having no experience experimenting in laboratories or exploring the great beyond. The renowned British historian Paul Johnson in his chronicle, The Birth of the Modern (1991), portrays many of the people whose inventiveness and determination produced the many innovations in Britain in the 15 years from the end of the Napoleonic Wars in 1815 to 1830.² The noted Harvard economist Frank Taussig famously attributed the explosion of innovation in New England that he was studying to “Yankee ingenuity,” not to scientists or explorers.³ Many people in all walks of life were drawn in the firms where they worked to take part in the transformation going on. A romantic desire to join in these ground-breaking activities is conveyed in the film version of Wuthering Heights when Cathy cries out, “Go, Heathcliff. Bring back the world.”

Yet what accounts, it might be asked, for the emergence of aspirations and visions leading to the flow of new methods and products? Of course, there had to be companies and sole proprietorships having a sense of opportunities in their industries for developing new methods and products. There had to be some sense of the size of the commercial demand for products. These desires and expectations determine the demand for innovation. (There are uses for this entrepreneurship, on which Schumpeter was so very focused.)

But what accounts for a society’s supply of its new ideas? Evidently, the bubbling-up of these new ideas, which began in one nation after another over the 19th century, was fueled by newfound desires of people to create new ways and new things. Yet, it might be asked, why did such indigenous innovation, with its job satisfactions for many people and widespread productivity gains in most industries, arise in these nations while not in the other nations?

In the theory of this widespread innovating set out in Mass Flourishing, the wellspring of innovation was the desire to conceive new methods and new products. This reflected a newfound character among the people (or a great many of them): a character that had been evolving and developing in much of the West over two centuries and had spread widely among nationals by the middle of the 19th century. There was a willingness and desire to create new ways and new things.

Of course, such a development would not have been possible had there not been a rising number of people over the 17th and 18th centuries who grasped the Renaissance idea (introduced by Pico della Mirandola at the end of the 16th century) that people are born with some creativity.⁴ Thus, ordinary people came to understand that creating things was possible and might not be uncommon. But what stimulated many people working in the economy to make use of this creativity they (and others) had? What drove such a desire?

In this thesis of mine, the force driving people to conceive innovations was the rise and spread of certain modern values – individualism, vitalism, and a desire for self-expression. Individualism (not to be confused with selfishness) is the desire to have some independence – to make one’s own way. Vitalism is the notion we feel alive when we are “acting on the world” (to use Hegel’s term), when we take a chance and journey into the unknown. Self-expression is the gratification that comes from making use of our imagination and creativity– voicing one’s thoughts or showing one’s talents. In being inspired to imagine and create a new way or new thing people may reveal a part of who they are.

Mass Flourishing argues that a great many people, fueled by their innate creativity and driven by their modern values, were able and eager to engage in projects to create new ways or new things to make and sell – and many succeeded in their efforts. Consumers too were excited by the new goods. (In America, where innovation began exploding in the late 1850s, Abraham Lincoln, after his tour of the nation (prior to campaigning for the Presidency), was struck at people’s enthusiasm to see innovations sprouting up in stores and shops, and exclaimed that these people “have a passion – a perfect rage – for the new.”⁵)

By the 1880s in Britain and America, Germany, France and soon several more nations, a huge number of new products and methods were emerging from the business sector: indigenous innovations largely born of the new ideas hit upon by a wide number of participants in the business sector of the economy – not mainly the fruit of exogenous discoveries made by scientists and explorers. This huge outpouring of indigenous innovation conceived by modern people came to dwarf the exogenous innovation deriving from the discoveries of scientists and explorers.

In this new epoch with its modern spirit, ordinary people from the grassroots on up– not just scientists and explorers – had original ideas, a great many of which were conceived for commercial use. This was not altogether unprecedented. Human beings have been found to possess as long ago as the stone age the ability to create objects for use – and apparently the need to express their creativity.⁶ (Of course, the desire or urge to engage in this activity – and the opportunity to do so – differed from country to country and from epoch to epoch.)

In the nations fueled by this new spirit, a modern economy formed: The typical industry had workers, managers, or other employees who, using their creativity, hit upon new ideas at one time or another. With this creativity, these nations had sufficient dynamism – the power and desire to innovate – and sufficient population – to generate a large flow of indigenous innovation.

Evidence for the New Theory of Innovation

Is there evidence for this theory of indigenous innovation? The book Dynamism published in 2020, which Raicho Bojilov, Hian Teck Hoon, Gylfi Zoega and I wrote, tests the new theory.

It first presents a set of data from 1890 to 1910 on the steep rise of cumulative indigenous innovation that began in the UK, the US, France, Germany and Italy -- and then a set of data on the resumption of indigenous innovation in the U.S., France, and Italy from 1950 to 1972.⁷ (The surge of U.S. innovation from 1995 to 2004 mostly occurred in Silicon Valley.)

What explains these 20 year explosions? Conceivably, this high innovation was a result of outpouring of scientific discoveries in the world, as Cassel and Spiethoff would have thought, or was the result of a heightened willingness among entrepreneurs to undertake the development of new ideas, as Schumpeter might have thought. But that theory does not explain at all well some striking data.

Calculations of data by Raicho Bojilov reveal that, for about a century, innovation was consistently impressive in some countries – and consistently meager in some others.⁸ Over the postwar period of high innovation (comparable to the historic period from the 1870s to World War I), indigenous innovation rates were strikingly high in the US (1.02), UK (0.76) and Finland (0.55) while indigenous innovation was strikingly low in Germany (0.42), Italy (0, 40) and France (0.32). From the perspective of Schumpeter’s theory, the latter nations must have had too few entrepreneurs. From the perspective of the new, modern theory, however, it can be seen as striking evidence of huge differences – even among G7 nations – in the dynamism of the people at work!

An analysis of data calculated by Gylfi Zoega shows that among people in the 20 OECD countries those possessing high-strength doses of the modern values – the US, Ireland, Australia, Denmark – less so Switzerland, Austria, UK, Finland and Italy – have relatively high rates of indigenous innovation, as the new theory of innovation predicts.⁹ (Those with the least modern values – Japan, Norway and Greece – had the lowest indigenous innovation.)

Another dimension of society’s gain from having modern values is its job satisfaction. Zoega’s analysis shows that the countries most endowed with the “right values” tended also to have the most job satisfaction.¹⁰

In another analysis, Bojilov shows the estimated time-path of “Schumpeterian innovation,” 1890-2012, to be well below the estimated time-path of indigenous innovation in every one of the innovative nations of that time – the US, France and UK, also Italy and Germany.¹¹ On the whole, Schumpeterian innovation is not estimated to be at all important.

These four studies give telling evidence of the existence and power of a people’s dynamism and an exciting test of the greater power of indigenous innovation over the power of exogenous innovation. The dynamism of the people won. The existing investigations of economic performance have attributed them to differences in institutions – thus paying little or no attention to values.¹²

These findings are hugely important. Where there is much dynamism, there is also an abundance of its fruits: achieving, succeeding, prospering, and flourishing! Where it is lacking, there is a joyless society.

Values are subject to change, however. The “modern values” that reached a critical mass in the 19th century (though initially articulated in much earlier epochs) were not strong enough at first to overcome other values, such as traditional ones like conformism, material rather than experiential goals, and fear of the unknown. Now it may be wondered whether some of the values that once fueled the dynamism in the West have weakened and whether some competing values have strengthened.

The Decline of Innovation and Its Causes: The Policy Section

With the roots of once-high innovation in the West understood, we can address the problem that arose by the 1970s: innovating had diminished severely – first in Germany, then Britain, later Italy, and lastly America and France. (Total factor productivity growth, which by historical standards had been rapid in the period 1950 – 1970 in America – Robert Gordon in his book locates this period as 1933-1972¹³ – and extraordinarily rapid in France and Italy, fell to very slow rates in all four countries over the years 1970–1990, then partially recovered in America and Britain while slowing further in France and Italy.) Now, in America and Germany, and especially France and Italy, the growth rates of total factor productivity since 2005 have fallen to grave levels.¹⁴

The economic costs to the West caused by the loss of innovation are serious. The resulting near-stagnation of wage rates is deeply disturbing to workers who had grown up believing that their wages would be rising enough to provide them a standard of living markedly better than they saw when growing up. As capital investments were running into “diminishing returns,” no longer offset by impressive “technical progress,” much capital formation has been discouraged. As real interest rates sunk to lower levels, the price of many assets, such as houses, rose inexorably from around 1973 to 2019, so fewer than ever can afford to live in them. (The post-Covid years still resemble that portrait, though new sources of uncertainty are changing things).

The social costs are also serious. The loss of indigenous innovation may have brought a serious decline of the meaningful work that once engaged employees and brought them considerable job satisfaction. Those who had been engaged in the conception and development of new products and methods must have felt deprived of those deeply-felt rewards.

What are the causes of all this? Some observers, including adherents of the neoclassical school, might attribute the large loss of innovation to an unexplained fall-off in the rate at which scientists are making discoveries. Others who have stressed the importance of institutions, such as Daron Acemoglu, have argued that the corruption that has arisen in many corporations (and a few banks too) has surely weakened the interest that most firms in most industries had in innovating.¹⁵ Still others, such as Thomas Philippon, have argued that the monopoly power of the new corporations arising with the new information technologies have been able to keep out any further start-ups.

In Mass Flourishing, I point to a rise in America of the corporatism that first arose in Hungary, Portugal and Italy in the Interwar years – a term introduced by Mussolini meaning a national economic system in which the important corporations are largely directed by the state. Certainly, the sense in a company that a new venture might not have the support of the nation’s leadership – that a Duce or Fuhrer who might be keen on guiding the economy in another direction – would dampen incentives to develop new concepts and discourage people from dreaming up new concepts.

However, I would argue that the decline of innovation (and thus the decline of its rewards) is attributable in large part to a deterioration of key values that fuel the dynamism of the people. There is much evidence of that deterioration. A chapter of Mass Flourishing, “Understanding the Post-1960s Decline,” considers that the horrific rise of the “money culture,” in John Dewey’s term, may weaken a nation’s dynamism.”¹⁶ Now, the later book The Decadent Society (2020) by Ross Douthat describes over a wide canvas the deterioration of the new character of Americans in recent years.¹⁷

But I sense now the problem is bigger than that. There may be a kind of “multiplier” at work. A contraction in the supply of modern values decreases the amount of economic growth supplied, and a demoralizing loss of growth may induce a further loss of values.

Although we do not have broad data on empirical measures of the decline in values that I have argued here are crucial to broad innovation conceived by large numbers in the population, it does appear that all or at any rate the bulk of values that are required for widespread innovating throughout society have declined appreciably since the brilliant years of the West’s past.

Now Western societies, some more than others, are in a crisis. Data from the GSS household survey show that reported job satisfaction in America has been on a downhill slide since 1972. Pew Research Center surveys from the early 1970s to recent years show a downward trend in the reported degree of life satisfaction. Anne Case and Angus Deaton in Deaths of Despair show data on the outbreak of despair in America linking it to economic developments there.¹⁸ Now, dissatisfaction and despair are widespread.

We economists have not recognized that, for several decades, people want – people in the West at least – need rich lives. They need an economy in which jobs are interesting, engaging and occasionally fun too. A “good life” – a life of richness, as some humanists call it – means, for one thing, an occasional sense of succeeding – the feeling of prospering when your “ship comes in” or you gain recognition.¹⁹ The good life also means a kind of flourishing – using one’s imagination, exercising creativity, journeying into the unknown and acting on the world. A good economy holds out expectations of a good life. But a good life in much of society is more-and more an unmet need. We may wonder whether key values can be restored without a change of society.

A new vision is required. I feel it may be necessary to reconceive the economy in which people devote their working lives. It is hugely important in my view that governments, both state and local, and thought-makers draw away from a focus bordering on obsession with material gains, hence a focus on income and wealth. The main business of this economy would be creating the new.

I envision an economy that is, in large part, a sprawling space with myriad studios for creating new things – an economy full of people in the business of creating things. In this new world, work is very engaging; and retiring from such work would be like retiring from life.

People need to realize their talents and aspirations! We economists ought to design an economy organized to enable people to have such working lives.

Readers are asked to make allowances for what was originally an oral presentation delivered on May 8, 2024 at The Austin Symposium.

Edmund Phelps is the winner of the 2006 Nobel Prize in Economics and the Director of the Center on Capitalism and Society at Columbia University.

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1 | See Edmund Phelps, Mass Flourishing (Princeton, NJ: Princeton University Press,2013), also published in Chinese, French and Spanish; see also, Edmund Phelps with Raicho Bojilov, Hian Teck Hoon, and Gylfi Zoega Dynamism: The Values that Drive Innovation, Job Satisfaction and Economic Growth (Cambridge, MA: Harvard University Press, 2020).

2 | Paul Johnson, The Birth of the Modern 1815-1830 (New York: Harper-Collins, 1991).

3 | F. W. Taussig, The Tariff History of the United States (New York and London: G. P .Putnam and Son, 1892), 57-58.

4 | For centuries, Pico was one of two iconic figures at Oxford. He could be regarded thesaint of creativity. (I was honored with the Premio Pico della Mirandola Award in 2008.)

5 | Abraham Lincoln, “Second Lecture on Discoveries and Inventions,” Feb. 11, 1859.

6 | See Mass Flourishing, 1. See also Nicholas Conard, Maria Malina, and Susanne C. Münzel, “New Flutes Document the Earliest Musical Tradition in Southwestern Germany,” Nature, August 2009, 737–740.

7 | See Dynamism, Fig. 2.5, p. 64, and Fig. 3.3, p. 72.

8 | See Dynamism, Table 2.1, p. 58.

9 | See Dynamism, Fig. 5.2, p. 117.

10 | See Dynamism, Figure 5.3, p. 118.

11 | See Dynamism, Fig. 2.3, p. 61.

12 | Douglass North, Institutional Change and American Economic Growth (Cambridge: Cambridge University Press, 1971).

13 | Robert Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton, NJ: Princeton University Press, 2016).

14 | There was no revival of the growth rate of total factor productivity following the “IT revolution,” i.e. the emergence of “information technology,” despite all the anecdotal evidence that comes from industry-and microlevel studies. See Dynamism, 68-84.

15 | Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity and Poverty (New York: Currency, 2013). David Gelles, The Man Who Broke Capitalism (New York, Simon & Schuster, 2022).

16 | Mass Flourishing, 250.

17 | Ross Douthat, The Decadent Society: How We Became Victims of Our Own Success (New York: Simon and Schuster, 2020).

18 | Angus Deaton and Anne Case, Deaths of Despair and the Future of Capitalism (Princeton, NJ: Princeton University Press, 2021).

19 | See also David Ellwood and Nisha Patel, “Restoring the American Dream,” Report to the Malcolm Wiener Center for Social Policy. Jan. 2018. Malcolm Wiener commented tome via email, “Economic success is…fundamental. But having a sense of agency and a say over the trajectory of your life, and being valued in community – belonging – are as important” (January 24, 2018).