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Innovative dynamism allows all to flourish

The poor who lack jobs often suffer from substance abuse, violence, and unstable families. As the suffering persists for many of these outsiders to our system, scholars and politicians on both the left and right ask how to reform or overturn our current economic system so that all can flourish.

The Great Fact of economic history is that after at least 40,000 years of mostly “poor, nasty, brutish, and short” lives, humans in the last 250 years have started to live substantially longer and better lives. The economic system that has achieved the Great Fact has been called “entrepreneurial capitalism” or “creative destruction.” But these labels are misleading because they put too much emphasis on capital and destruction. A better label is “innovative dynamism” in which entrepreneurs engage in leapfrog competition to bring us innovative new goods and processes. The innovative new goods help us to achieve a wide variety of life plans, especially life plans that include the pursuit of challenging, engaging, and rewarding projects. The innovative new processes improve the quality, variety, availability, and especially lower the prices of both new and old goods.

The primary agent of innovative dynamism is the innovative project entrepreneur, often aided by a breakthrough inventor. (An “innovative entrepreneur” is his own boss as he does something new. A “free-agent entrepreneur” is his own boss as he does what has been done before.) Project entrepreneurs, who are mainly motivated by wanting to bring their project into the world, are more likely to succeed than entrepreneurs with other motives, because project entrepreneurs are less likely to sell out.

Wilbur and Orville Wright were project entrepreneurs, investing the profits from their bicycle firm into their project to master controlled flight. Cyrus Field was a project entrepreneur, investing the profits from his paper firm, into his project to lay a telegraph cable across the Atlantic. Walt Disney was a project entrepreneur, investing profits from animated shorts into animated movies, and investing profits from animated movies into Disneyland. Elon Musk is a project entrepreneur today, investing profits from Tesla’s sports cars into more affordable cars and, if all goes as hoped, investing the profits from affordable cars into SpaceX’s project of reaching Mars.

Innovative project entrepreneurs often think differently. At the crucial early stage, innovations, and especially breakthrough innovations, almost always need to be self-funded, since they are difficult to explain, and seem unlikely to succeed. Innovative entrepreneurship often requires courage and perseverance in making use of serendipitous events, initially inchoate slow hunches, and nimble trial-and-error experimentation.

Innovative dynamism creates more jobs than it destroys, and the new jobs are mainly better jobs, involving less danger and routine, and more thought and creativity. John Haltiwanger, in several papers with several co-authors, has found that the new jobs are mostly created by the “gazelles“: young, entrepreneurial, fast-growing firms, which have been declining in number and health in the United States in recent years.

When workers who lose one job can fairly quickly and easily find another that is about as good, they are participating in a robustly redundant labor market. Such markets exist where gazelles are allowed to flourish. The justice, and widespread acceptance, of a system of innovative dynamism depends on the flourishing of a robustly redundant labor market.

An alternative to finding another job is for a worker to be self-employed as a free-agent entrepreneur. Free-agent entrepreneurs often report a greater sense of control over their work lives, and hence also greater happiness.

Innovative dynamism improves the environment; increases the funding and diversity of culture; and increases mobility, philanthropy, good will, and tolerance. Robots and Artificial Intelligence are more complements, than substitutes, for human labor. Intensity in the pursuit of breakthrough innovations can bring fulfillment that partly offsets lost work-life balance, for both entrepreneurs and workers. The world remains rich in opportunities for creative entrepreneurial innovation.

To enable innovation, taxes need to be low and regulations few. Low taxes enable innovative entrepreneurs to self-fund at the crucial, fragile early stages. Regulatory restraint allows the nimble trial-and-error experimentation that is the bedrock of many breakthrough innovations. Regulations tend to protect insiders from the leapfrog innovations of outsider gazelles, more than they protect consumers and workers from harm. Robust protection of property rights, including a reformed patent system, also enable entrepreneurship and invention.

Innovative dynamism has made life much better for many, and it has the potential to make life better for all, if we adopt enlightened policy reforms. If we allow gazelles to create a lot of new jobs, and also allow everyone to create his own work as a free-agent entrepreneur, the persistently poor can achieve the American dream of a better life.

Featured image credit: Image by Mohamed Hassan from Pixabay

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