Edmund Phelps (2006 Nobel Prize recipient), recently released Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change (2014). This is a fantastic piece, touching on many facets of innovation. One of the main concepts introduced is ‘dynamism’, one Phelps has been working on for over 12 years.
Phelps begins with a question that is on the tip of many economists’ tongues: What happened in the 19th century that led to almost continual unbounded growth in output and wages? One of these factors, and the factor that separates post-modern with modern economies, is dynamism. While Schumpeter introduced entrepreneurs into classical economic models, Phelps argues that he missed this idea of dynamism. In the Schumpeterian world, “there is no genuine dynamism.”
So, what is it? While dynamism may be initially confused with growth, it is not the same. Dynamism is the “appetite and capacity for indigenous innovation.” Note – There’s two factors here (I will touch on this later). Phelps suggests it is this presence that separates out modern economies from the past. Those that have sustained economic growth for a long period have fostered the appetite and capacity inherent in dynamism. That is, it is crucial for sustained economic flourishing.
Dynamism can be seen as a set of intrinsic values, attitudes and beliefs, combined with the institutional structures to match. That is, “a culture protecting and inspiring individuality, imagination, understanding, and self-expression that drives a nation’s indigenous innovation” (p.ix). While countries can prosper for a period of time without dynamism, this is only due to trade and diffusion of foreign innovations. Therefore, we cannot use growth as a proxy.
So, how can we use this? Let’s move straight to the top – innovation policy. This can be loosely separated into two prescriptions: intellectual property and research and development subsidy. Private and the public solutions, respectively. While seeking to foster the values of innovative entrepreneurship, they fail to take into account both the incentives and the space to innovate.
Intellectual property (theoretically) creates incentives for innovation, focusing on the motivation of profit. Unfortunately, it significantly cuts the ability for future innovators to be creative (today, it is very expensive to “stand on the shoulders of giants”). This is the anti-commons, and it’s a serious issue. Intellectual property today cuts the creative space for innovators tomorrow.
While research and development subsidies provide the space to innovate, they don’t align incentives. Millions of dollars in grants for research sound good in theory, but there is no guarantee those researchers are interested. These projects may lack the self-expression and market-based knowledge that foster creativity. These subsidies also assume that the path to innovation is a specific one, yet, as Phelps professes “…virtually all innovations have an accidental or random element.” (p.33) Innovations can be see a trial-and-error process of chance, something that top-down directed, specifically-funded and deadline-laced, lab innovation lacks.
So, what is the solution? Innovation commons are an institutional solution that rest at the heart of dynamism. Participants are those who have the interest, market-knowledge, self-motivation and desire to create. These innovators combine the best of current market-knowledge with their forward-thinking desires to be creative. While current institutional structures inhibit the ‘ideas space’, the innovation commons breed the opposite. Through open-access and dynamic access to knowledge and ideas, the space becomes accessible and cheap. This allows the free cross-fertilisation of ideas in a trial-and-error, non-directed environment.