When the disciplines of economics and sociology were being invented in Britain 250 years ago, their progenitors such Adam Smith, David Hume, Adam Ferguson and others were preoccupied with how vibrant commercial activity and human behavior were related. Economic dynamism was not only about economic growth, money and the division of labour, though it was that, too. It was about how and why individuals make commerce succeed.
The father of modern economics, Adam Smith, memorably wrote in his 1776 ‘Wealth of Nations’ that merchants made much better land developers than the landed gentry. Their ‘habits… of order, economy, and attention,’ cultivated in urban markets, formed the bedrock on which their profit and successful projects were built.
The languid posture of the aristocrat, in Smith’s telling, is a good picture of stagnation. Satisfied with the status quo and unable to envision how their land could produce a profit, they live uncreatively and do not recognise innovation.
Stagnation is everywhere in the news now. And with good reason. Slowing productivity, aging infrastructure, fiscal imbalances, less innovation – these and related trends make dynamism in the UK seem more like a thing of the past than the future.
It is tempting to see stagnation and dynamism purely as matters of economic policy, but we do ourselves a disservice if we begin there. To truly understand what a dynamic economy requires, we would do well to recover that 18th-century sensibility and understand dynamism as a social and cultural phenomenon as much as an economic one. Putting it simply, if we want to live in a society where more people in more places are making and creating a greater number of good things, what kind of people and communities do we need? Approaching economic dynamism through regulatory changes, tax rates and innovation policy gets us part of the way there, but not all the way.
Nobel laureate Edmund Phelps and co-authors have shown convincingly that societies with higher rates of business creation, entrepreneurship and invention also promote and embrace openness, experimentation, risk-taking, even adventurism. Contrary to conventional wisdom, dynamic societies also record higher rates of job satisfaction among working-class people. The idea that disruptive and innovative economies create economic anxiety among working people is one of the more empirically dubious beliefs that is commonly accepted as fact. More companies trying out new technologies means more jobs and more opportunity – working people benefit from these as much as those in professional jobs. Surveys show that job dissatisfaction and unhappiness more generally are prevalent in places with higher levels of risk aversion, close-mindedness and lower levels of recorded innovation.
So instead of wondering whether this or that regulatory change will result in this or that small percentage increase in GDP, perhaps we should start by asking ourselves what types of behaviour and activity at the individual level we wish were more prevalent.
Modern social science has found that those early economists and sociologists 250 years ago were on to something, so perhaps we should start there. Certain types of traits emerge in the economic and social psychology literature that echo what Adam Smith and his contemporaries wrote about and correlate with upward mobility, entrepreneurial activity and creativity – i.e., those types of things a dynamic society requires and encourages.
First, an exploratory mindset is the habit of learning that comes from building on that reward we feel when we learn something new. It is investigatory and the opposite of treating all questions as settled. Second, and related, is the Big Five personality trait, openness, which is especially useful in ambiguous circumstances where it correlates with creativity. Being open for its own sake can get you in trouble, but as a general posture of being willing to consider new ideas, embracing new experiences and feeling comfortable with difference, it is essential in an innovative society. Third, embracing challenges rather than taking the easy path corresponds with higher levels of achievement. Challenging coursework predicts success among students, as does the belief that hard work will pay off. Coddling young people in the name of safety can backfire.
A fourth important trait is conscientiousness, another Big Five trait, that is one of the best predictors of lifetime earnings. The combination of reliability, organisation and thoughtfulness is essential to upward mobility. Developing ‘weak ties’ in personal and professional relationships is an important fifth trait. ‘Who you know’ helps open up opportunity, but counterintuitively, it usually does not come from close friends and family as much as the wider network, so those who do well at relationship cultivation are more successful when they have new ideas or are ambitious. Lastly, non-pecuniary motivations such as building something new or creating great teams are more prevalent traits among entrepreneurs than making a lot of money.
These traits can all be cultivated, but they are not hardwired into our DNA. Thinking creatively about how to cultivate and promote them is an important step to recovering a vibrant economy of opportunity.
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