The Dynamism of Nations: Toward a Theory of Indigenous Innovation

• Date: 01 September 2018
• Published date: 01 September 2018
• Author: Edmund Phelps
• DOI: http://doi.org/10.1111/jacf.12306

IN THIS ISSUE:

Special Issue on

Growth and

Innovation

8e Dynamism of Nations: Toward a eory of Indigenous Innovation

Edmund Phelps, Columbia University

27 Management’s Key Responsibility

Bartley J. Madden, Independent

36 Funding Strategies in a Rising Interest Rate and a Flattening Yield

Curve Environment

Niso Abuaf, Clinical Professor of Financial Economics, Pace University;

and Chief Economist and Strategist, Samuel A. Ramirez and Co.

47 Financing Urban Revitalization: A Pro-Growth Template

Steve H. Hanke, The Johns Hopkins University and Stephen J.K. Walters,

Loyola University Maryland

55 A review of Buett’s commentary on accounting, governance, and

investing practices: does he “walk the talk”?

Robert M. Bowen, University of San Diego and the University of Washington; Shivaram Rajgopal,

Columbia Business School; and Mohan Venkatachalam, Duke University

VOLUME 30

NUMBER 3

SPECIAL ISSUE 2018

A P PLIED

COR P O R ATE FINANC E

Journal of

8Journal of Applied Corporate Finance • Volume 30 Number 3 Special Issue on Growth and Innovation 2018

 conomicsatitscoreisabouthumanlifeinhumaneconomies.Thedifcultyisthat

economies have continued to evolve and economics has lagged behind.

From the 16th to the 18th centuries, Western nations graduated from feudalistic economies

with limited markets to national economies of a classical character. But over the

19thcentury,wheneconomicswasstillacquiringanunderstandingoftheclassicalecon-

omy—trade-offs,exchanges,competition,equilibrium,efciency—theeconomiesinseveral

nationswereevolvingagain,bringinganotherradicalchangeinhumanexperience.

Economicshasbarelybeguntocatchup.1

byEdmundPhelps,ColumbiaUniversity*

e Dynamism of Nations:

Toward a eory of Indigenous Innovation

E

Economies Growing, People Prospering and

Flourishing

In the 19th century, economies of unprecedented brilliance

sprouted up—rst in Britain and America, later in Germany

and France. Cities mushroomed, myriad companies formed

and, with the emerging economies, masses of people showed a

new spirit: Going one’s own way, taking one’s chances, seizing

one’s opportunities. is spirit was reected in literature and

the arts—in “high culture.”2 As the novelist Charles Dickens

depicted and the historian Emma Grin has recently docu-

mented, people increasingly took control of their lives—many

of them having careers they could not have foreseen.3 (Dick-

ens himself led an enterprising, audacious life.) Where it grew

to be strong, the new spirit fueled a new kind of economy. e

*Phelps,Edmund(2017)“TheDynamismofNations:TowardaTheoryofIndigenous

Innovation,”Capitalism and Society:Vol.12:Iss.1,Article3.

1 KnightandKeynespioneeredtheintroductionintoeconomicsofoneaspectofthe

neweconomies—uncertaintyand resultingemploymentswings.My book,Mass Flour-

ishing(Princeton,2013),introducesanothersideoftheneweconomies—thecreativity

exercisedintheirbusinesssectorandtheresultinginnovation.Onecanndaconsider-

ationofsomeof theissuesaddressedtonon-economists inmyessay,“Whatis Wrong

withtheWest’sEconomies?”New York Review of Books,LXII,no.13,August13,2015,

54-56.Thispaperisintendedmoreforeconomiststhaneitherofthose.Itrestatesparts

ofthebook’sthesis,improvingonthe argumentattimesandtakingupnewquestions.

Itdoesnotaddtomynewworkofthepastyearorso.

2 ItakeupsuchevidenceinMass Flourishing(Princeton,2013),Chapter3.

3 GrifnndsevidenceofthenewattitudesinherrecentbookLiberty’s Dawn(Yale,

2013).Hermore recentfocus on19thcentury materialsis evenmorerevealing. One

worker,afterbeingpromotedtothepositionofriveter,exclaimedhowgratifyingitwasto

beabletousehis“creativity.”

historian Paul Johnson, documenting the beginning of this

phenomenon, dubbed it the “birth of the modern”

4

—modern

life in a modern economy.

Rewards of the modern economies. What was this modern

life like? A person at work might be thinking (if only in the

back of his or her mind) of a better method of production or

an improvement of the product. A businessman, believing

he saw a good opportunity, might be starting up his own

enterprise. More strikingly, a person might be engaged in

conceiving a wholly new product or attempting to build one

or trying one out. All this endeavor, or aspiration, was a far

cry from the regimentation in the past.

Participants in the modern economies felt rewarded in

ways that were rare, if present at all, in the traditional econo-

mies—economies built on feudalism or mercantile capitalism.

English men and women alike spoke of “getting on,” meaning

they were getting somewhere—perhaps getting ahead.

5

is

phrase expressed the rewards reaped from a sense of “human

agency”6having the space to exercise initiative, insight,

imagination, and creativity. ese deep rewards fall into two

or more categories.

4 PaulJohnson,The Birth of the Modern(HarperCollins,1991).

5 The terms“gettingon” and“taking charge”of one’slifeare notedin mybook

Mass Flourishing(Princeton,2013),p.66.

6 Theterm“agency”isusedinthismodernsenseasearlyasRichardSennett,The

Culture of the New Capitalism(NewHaven,YaleUniversityPress,2006).SeealsoMass

Flourishing(Princeton,2013)p.285.