Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change.

• Author: Hemphill, Thomas A.
• Position: Book review

Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change

Edmund Phelps

Princeton, N.J.: Princeton University Press, 2013, 378 pp.

In his most recent tome, Edmund Phelps, the 2006 Nobel Laureate in Economic Science, addresses a topic crucial to successful national capitalist systems: the dynamics of the innovation process. Phelps develops his thesis around three main themes: In part one, he explains the development of the modern economies as they form the core of early-19th century societies in the West; in part two, he explores the lure of socialism and corporatism as competing systems to modern capitalism; and, in part three, he reviews post-1960s evidence of decline in dynamism in Western capitalist countries.

In the introduction, Phelps reviews available economic data on both output and real wages per worker in England during the era of "mercantile capitalism" (between 1500 and 1800), which emphasized the distribution of products to consumers. He concludes that "the mercantile economies brought strikingly few advances in economic knowledge." Yet, the 19th century, specifically between 1820 and 1870, saw spectacular growth in two major economic indicators--output per head and average real wages--in America, France, Germany, and Great Britain. Phelps argues that "the explosions of economic knowledge in the 19th century must be the effect of the emergence of an entirely new economy: a system for the generation of endogenous (or 'indigenous') innovation."

In part one, Phelps defines a modern economy as one with "a considerable degree of dynamism--that is, the will and the capacity and the aspiration to innovate." Yet the foundation of dynamism is innovation, even on an international scale, where conception and development can originate in one nation while pioneering adoption takes place in another. Phelps argues that the dominant Schumpeterian model of punctuated equilibrium theory prevented economic thinkers from seriously considering a model of a modern economy generating economic knowledge through its own indigenous talent and insight into the innovation process.

However, unlike the scientism and historicism that came to rule academia, the modern economy empowers financiers, manufacturers, and consumers, whose ideas and deep personal engagement create products and services and who have the responsibility to manage the innovation process from development to commercial adoption. This system fosters attitudes that attract innovators to novel opportunities and it generates the disruptive knowledge that gives the modern economy its dynamism. According to Phelps, the more an economy devotes itself to inventing and innovating, the more "modern" it is.

So how effective have modern economies been for their people? Phelps argues that the single most important economic indicator of material benefits is...