The populist turn of the American right over the past decade has created a policy affinity, if not an ideological one, between nationalist conservatives and mainstream progressives. Both camps are energized by a moral narrative about the injustices of corporate greed and the failures of the elite, which expresses itself through support for industrial policy, worker protections, family allowances, trust-busting, and redistributing wealth to bolster working-class wages and living conditions.
This turn has resulted in a groundswell of support for a kind of benevolent statism. Its rationale usually involves a critique of the disruption wrought by dynamism in an unfettered free market. Understood in large part as Schumpeterian creative destruction, dynamism is considered by nationalist conservatives to be the culprit behind insecurity for workers and stagnation for communities. Their desire to improve protections for workers is usually accompanied by serious skepticism of the entrepreneurial ethic, or at least the unqualified celebration of that ethic.
The right’s pivot to populism occurred because conservatives overlearned the lessons of the 2012 presidential election, when “makers” were prioritized over “takers.” In the years that followed, many conservatives rediscovered wage earners. Though this shift in attention is laudable, blaming dynamism for what ails the American working class is not. In fact, the trouble facing America’s heartland is more likely the result of a lack of dynamism than an excess of it. To see why, we must think through what dynamism really means, in theory and in practice.
BEING AND BECOMING
To an extraordinary degree, political life in the United States over the past half-century has played out along the fault lines set by philosophers John Rawls and Robert Nozick in their famous debates over the state’s obligation to provide social and economic security. Nozick’s critique of Rawls’s difference principle — the assertion that inequality can only be considered just if it benefits the least advantaged more so than would strict equality — has typically represented the stance of American conservatives, who argue that state action should be evaluated not based on its propensity to deliver socio-economic security, but on its regard for individual liberty.
What began on the right as a criticism of the excesses of Rawlsianism has evolved in our time into the opposite view — that of Rawls himself. Meanwhile, respect for individual liberty as an economic concept has withered.
But the liberty-security dichotomy, framed as it is with regard to economic concepts like income, is not the only continuum along which Western political economy stretches. Its predominance in public debates masks a related duality that defines much of the struggle for social and economic progress: that of dynamism versus stasis — or, as philosophers of old would call it, “becoming versus being.” The process contained within this duality — that of fulfilling one’s potential, or working toward one’s own betterment — is a vital element of human happiness and well-being.
The dynamism framework, though absent from current policy debates, has been crucial to Western political thought and practice since at least ancient Greece. Aristotle, like other Greek philosophers, was obsessed with the idea of potentiality — of “becoming” — in both the natural world and in metaphysics. (“Potentiality” is the nearest translation of the Greek word dunamis, from which the term “dynamism” derives.) In Aristotle’s moral philosophy, the idea of happiness is the process of perfecting — or fulfilling the potential of — our most distinctive characteristics, such as thinking and living in society. Similarly, during the late medieval period, the Renaissance, and early modernity, the notion of virtue was frequently viewed as the exercise of our faculties to move us closer to the ideal understanding of the good person.
It was during the Enlightenment, at the dawn of the Industrial Era, that the notions of potentiality and fulfillment took on an especially commercial hue. The Scottish philosophers David Hume and Adam Smith argued that it was not only civic virtue (conceived in mostly martial terms by their contemporary, Adam Ferguson) that was good for society; it was the engagement in productive activities with an eye to the future — a future marked by betterment, self-improvement, and yes, greater wealth.
Though Hume, Smith, and their peers may not have had terms like “self-improvement” or “fulfillment” in their lexicons, the concepts are prevalent in their writing. Smith understood occupational self-fulfillment to be the most important development in the shift from the feudal to the commercial age, when “the liberty and security of individuals” became possible through productive economic activity in ways unachievable in earlier times of war and servility. Similarly, Hume argued that “when industry and the arts flourish, men are kept in perpetual occupation, and enjoy, as their reward, the occupation itself, as well as those pleasures which are the fruit of their labour.” When America’s founders signed the Declaration of Independence during that same era, the “pursuit of Happiness” was understood to be about more than material gain or emotional well-being; it was imbued with the notion of living well in accordance with virtue — a never-ending project of moral improvement, of fulfilling one’s potential.
In the 1830s, when Alexis de Tocqueville arrived in America, he noted that Americans were not only fond of associational life, but also marked by a restive love of gain. To Tocqueville, American civil society was not a good in itself, as some commentators treat it, but an associational environment that could help communities improve themselves and provide a needed check on avarice. “Restlessness,” he observed, “which harrows our European societies, seems to abet the prosperity of [America]. Wealth is the common lure, and a thousand roads lead to it.”
Abraham Lincoln’s regard for material progress was fueled by an even deeper regard for the values on which it depends: independence and entrepreneurial drive. In an 1861 address to Congress, he called it an error to divide the world into labor and capital alone; as he observed, many workers who once served as hired labor had ventured out to create their own enterprises — the result of a “just and generous and prosperous system which opens the way to all, gives hope to all, and consequent energy and progress and improvement of condition to all.” A common theme of this era — reflected in a wide range of philosophy, literature, and the arts, sometimes for good and sometimes for ill — was that however much individuals may value the goal toward which they work, it is the activity along the way that provides the greatest reward.
Research in the 20th century tended to confirm these earlier views of self-improvement and fulfillment as forces for good. From self-determination theory, which is rooted in the observation that autonomy and self-efficacy lead to happiness, to research on the ways a sense of achievement and making a difference contribute to life satisfaction, it has become clear that too much emphasis on security, stability, and risk aversion, whether in one’s personal life or in public policy, can lead to decadence, unhappiness, and stagnation.
The struggles of individuals and communities to realize their potential — to pursue betterment for its own sake — have long been important parts of Western political economies. The aspirational nature of such drive is often countered by the stasis resulting from distractions that lead to boredom, repetition, failure, or worse — barriers that make striving for improvement too difficult. Considered in this framework, rather than in terms of liberty and security, much of the predicament that today’s political leaders seek to address has less to do with the inequities of free-market capitalism than it does with the suppression of dynamism.
If one believes the stagnation of working-class communities is among today’s biggest policy challenges — as many on the left and right have argued — it’s worth asking whether their current dilemma stems from too much dynamism or too little. Both the left and the populist right point to dynamism as the source of disruption that leads to stagnation and anxiety. But what if dynamism is exactly what an unhappy and stagnating society needs? And what if the pursuit of stability and security contributes to the stagnation that we are now hurrying to address with even more stability and security?
GETTING DYNAMISM RIGHT
Perhaps the most important contemporary work on dynamism is that of Nobel laureate Edmund Phelps, who has shown that what he calls the “vast imaginarium” of 19th-century Western societies was as much a cultural as it was an economic phenomenon.
In Phelps’s conception of dynamism, indigenous innovation plays a central role. Indigenous innovation, as economist Gylfi Zoega puts it, is “the continuous creation of new ideas” within a nation that spreads throughout many aspects of that nation’s economic and social life. According to Phelps, such innovation became both pervasive and inclusive in the United States during the 19th century — ”pervasive” in the sense that it was widespread, and “inclusive” in the sense that it was produced not only in the well-financed, elite spheres of society, but among the grassroots as well. “[P]articipants in the economy,” Phelps notes, “were able for the first time on a mass scale to conceive and look for new ways of producing and new products to produce, thus to make new careers.” Vocation as a form of individual self-expression and self-fulfillment, once the reserve of royalty and the well-situated, was made available to everyone.
Small-scale proprietorships and home-based inventors proliferated at the time not only because these endeavors provided economic opportunity, but because the values of discovery and self-fulfillment that had taken hold during the Enlightenment encouraged them to do so. As economic historians Joel Mokyr and Deirdre McCloskey have shown, Western democratic capitalism broke with the past by institutionalizing ways of developing and promoting new ideas and things. This, too, was not merely an economic phenomenon; it was cultural as well. Throughout the 19th and into the early 20th century, Western societies were marked by a ferment of inventiveness, creativity, risk-taking, adventurism, and experimentation — all of which emerged as societal values with support from the institutions that developed to cultivate them.
The economic progress of this period cannot be explained by scientific breakthroughs and an urbanizing industrialism alone, as many commentators have argued. It was also (perhaps even primarily) the result of a cultural embrace of innovations both big and small — a new fascination with the idea that we really can improve our lives, individually and collectively. As economist Raicho Bojilov has found, there exists a strong relationship “between economic performance, in particular economic innovation, and a broader set of beliefs, attitudes, and norms that reflect the economic culture of a country.” And as Phelps’s research indicates, economic performance is significantly improved by how interesting people find their jobs, their willingness to accept new ideas, and their desire to take initiative — all of which are fundamentally cultural phenomena.
A culture rooted in a taste for discovery and betterment can shape — indeed, has shaped — our institutions and policies, from how we structure patents to how we tax capital investments. Conversely, policies and institutions that discourage change can reshape the contours of a culture over time — which is the cautionary tale Phelps tells. After all, progressives’ wide-scale adoption of redistributive policy agendas in the 20th century did little to reduce inequality, especially compared to what boosting earnings would do. Likewise, conservatives’ supply-side activity in the later decades of that century did less to stimulate dynamism and a more inclusive economy than they claim. Both sides are overlooking the core importance of dynamism to the modern capitalist economy.
As the social-insurance model of domestic stability took hold in countries like France and Germany throughout the 20th century, their dynamism faded. The same pattern followed in Britain. The United States began showing signs of slowing dynamism in the final third of the 20th century. However much countries’ experimentation with socialism — both explicit and implicit — contributed to these developments, the bigger threat to dynamism has been corporatism, the main aims of which are “state-led investment, industrial peace, and social responsibility.”
One of the most counterintuitive implications of Phelps’s work is that 20th-century efforts to improve workers’ security have led to widespread dissatisfaction and stagnation. According to Phelps, greater dynamism produces more satisfying jobs for more hourly workers, while a loss of dynamism leads to stagnation — the very stagnation many popular accounts blame dynamism for causing. Arguments like those put forth in Tyler Cowen’s The Complacent Class and Ross Douthat’s The Decadent Society can be read as analyses of this decades-long shift away from the fundamentals of dynamism toward security. Settling into reliable and predictable habits can bring a sense of contentment for a while, but in the long run, repetition and the rejection of adventure bring unhappiness and unrest.
If Phelps is right, the present effort to double down on nationalist and populist workplace goals will only make the experience of work less satisfying and future unrest more intense. Today’s economic progressives and populists focus on the dollars and cents of various policies when talking about bringing dignity back to work. But dignity might just come from somewhere else.
THREE CORE FEATURES
To better understand what dynamism implies for American culture and policy, it helps to look at three of dynamism’s distinguishing precepts.
The first is that becoming — or fulfilling potential — is essential to happiness, especially when such becoming occurs through one’s vocation. The notion of agency, which often takes a back seat in our debates about economic security, is critical here. When we speak of people’s aspirations, we are talking about more than wishful thinking; we are referring to goals that require a journey, which is itself meaningful because of the sense of achievement and fulfillment gained along the way. The very idea of a calling at the root of our word “vocation” captures the concept of being drawn to a kind of work that is not just a means to a paycheck, but an expression of who a person is.
Research has found that people prefer the procedural aspect of work to achieving the outcome of the work. One longitudinal survey of nascent entrepreneurs found that non-pecuniary motivations were primary drivers among those starting businesses; the pursuit of wealth was secondary. Likewise, those who were self-employed reported greater happiness than employees, even while working longer hours. These findings complement another study of entrepreneurs’ incomes, which showed that entrepreneurs have both lower initial earnings and lower earnings growth than they would as employees. These differences were not explained by low-ability employees moving into self-employment; instead, researchers found that those who chose self-employment often sought self-fulfillment, a sense of accomplishment, and the satisfaction that comes from charting one’s own path, even if it came at the expense of lower earnings. Additional studies have found that the need for achievement is a common trait among entrepreneurs. Take away the ability to achieve, and not only will we end up with fewer new businesses every year, we will also have a larger pool of dissatisfied workers.
For their part, working-class people are more likely to exhibit optimism — which is key to a sense of fulfillment — than the popular media narrative would have us believe. Surveys by the American Enterprise Institute show that working-class whites are more likely than the national average to believe anyone can start a successful business. Meanwhile, black and Latino working-class Americans are nearly as optimistic about the American Dream as anyone else, and are more likely than affluent whites to believe America’s best days are ahead of it. Working-class minorities are also more likely than affluent whites to say they will be better off in a year than they are today. And while more than a quarter of affluent whites are “very dissatisfied” with the direction of the country, just 14% of working-class whites say the same. These data are not conclusive, but they do suggest that the world so many in the political class want to create for the working class is not a world they aspire to live in.
Another important element in fulfillment is individualism. As a modern ideal, individualism, when properly understood, has helped us become a better society. There is a difference between individualism as vocational self-expression and individualism as self-indulgent expression, and although today’s traditionalists often conflate the two, it is difficult to explain the growth of opportunity without the former. One study of 62 countries found that most measures of individualism have a strong and positive impact on innovation. Another study found that individualism has a significant cultural effect on long-run national growth. A dynamic society depends on giving people an opportunity to carve out a niche, pursue rewarding work, and even make a name for themselves. Indeed, one of the great achievements of the post-Enlightenment era is the fact that massive numbers of people without wealth or lineage can pursue a career that is uniquely suited to them, one that becomes just as important to their identity as their hometown or family.
The second principle of dynamism is the most familiar: grassroots entrepreneurship and innovation. A common criticism of policies supporting entrepreneurship and innovation is that only a few people will take the entrepreneurial leap, while most people will always be employees. Though this may be true, it is also largely irrelevant, even to the concerns of the critics. Having greater rather than less churn in new companies big and small, dispersed throughout towns and cities across the country, generates more jobs and more opportunities for the very Americans that pro-labor nationalists and populists want to help. And following from the first principle of dynamism — fulfillment and betterment — job-hopping is a well-established way of finding one’s path and fulfilling one’s potential.
Critics of entrepreneurial economies often err by conflating dynamism with economic shocks that result in mass unemployment. Concerns about new firms wrecking established businesses and destroying jobs have merit, of course. But workers’ experience of a vibrant marketplace is usually quite different than the prevailing narrative would suggest. As new opportunities arise, workers often take advantage of them before the ground collapses elsewhere. Moreover, a compelling body of research has shown that new jobs are disproportionately created by young companies, which benefits workers. When the churn of firm startups and deaths slows to a crawl, stagnation is more likely to follow in a given city or region, not less.
Entrepreneurial traits like the desire for achievement, novelty, moderate risk, and responsibility are a better index of success than wealth itself. Nations that welcome the concept of competition create a culture that rewards these traits, which in turn produces attitudes like the placement of a high value on work, a desire to show initiative, and the tendency to seek interesting jobs. Skeptics of entrepreneurial dynamism tend to focus on the perceived threat it poses to dominant sectors and firms; they often overlook the traits and expectations it produces that benefit entrepreneurs and employees alike.
Given the prevailing critiques of dynamism, its third principle is the most counterintuitive: job satisfaction. It turns out that people have the strongest attachment to their jobs and their employers in dynamic areas, where the potential for creative destruction is highest. Phelps’s work suggests that dynamic cultures embody “the modern ethic — a desire for self-expression through the exercise of imagination and creativity — and the modern morality — the right of individuals to pursue this search unchained from traditionalism.” These cultures create jobs that surveys show tend to be rewarding. Children, too, are happier when their parents’ job satisfaction is high.
Phelps, along with Bojilov, finds “that job satisfaction is higher [very likely because innovation is stronger or more widespread] in nations where more people think it is fair to pay more to the more productive, agree that the direction of firms is best left to the owners, and feel that new ideas may be worth developing and testing.” Analyses of World Values Survey data show that better economic performance is related to how interesting people find their jobs, how open they are to new ideas, and how willing they are to accept change. The ability to take initiative and to trust others, along with a strong work ethic, also raises job satisfaction. One study of U.S. federal agencies and another of manufacturing firms found significant relationships between job satisfaction and the adoption of innovative practices — important evidence that the stability people associate with jobs in traditionally non-innovative organizations is not as satisfying as one might think.
What happens when regulations aimed at providing more security for workers are enacted? As Phelps found:
Regulatory institutions appear to be a significant depressant on job satisfaction, particularly credit market regulations (such as interest rate controls) and goods market regulations. The institutions of collective bargaining and regulations on hiring and firing are also estimated to depress mean job satisfaction.
Stagnation in the American heartland is the result of innovation having slowed or died long ago, so it is not surprising that jobs in these places are also dissatisfying. If the good life — understood as encompassing satisfaction at work and outside of it — flows from an innovative environment, and that environment is the result of dynamism, then the high levels of dissatisfaction in the West today probably have more to do with a loss of dynamism than with slow-growing wages. The social breakdown we see in stagnating places may thus have more to do with the atomization resulting from the decay of creativity and imagination than the effect of those values on local economies.
DYNAMISM AND THE CORPORATISTS
The familiar debate between conservatives and liberals about capitalism and socialism, or free markets and welfare states, obscures the ways in which both sides have settled on a corporatism that neither side defends.
Historically, corporatism has consisted of a blend of industrial policy, state investments, worker solidarity, and regulatory partnerships between the state and leading industries. The corporatism of the 20th century introduced employment-protection laws and other measures to restrict the institutional infrastructure — capital markets, public listings, stock-market capitalization — that had fostered dynamism in the 19th century. Phelps identifies a “new corporatism” that has emerged in recent decades, one in which all sorts of industrial interests can claim state-backed protections in partnership with regulators. Instead of classical corporatism, where the state acts like a pilot who has pre-determined the destination of the passengers, today’s passengers are telling the pilot where to go.
Together with a combination of other factors — from the collapse of Bretton Woods to the valorization of self-centeredness following the 1960s to the deepening of regulatory regimes — modern-day corporatism has contributed to a world in which incentives have moved in the direction of short-termism. At the same time, individualism understood as personal aspiration and self-fulfillment has given way to an individualism of avarice and self-promotion, while the goals of protecting interests and promoting acquisitiveness have upended the values of innovating and risk-taking. By forcing participants to gain permission to enter an industry, or even requiring them to curry favor to gain access to business, corporatism suppresses the individual pursuit of opportunity.
Ironically, this appears to lead to greater dissatisfaction among workers. Based on a study analyzing countries in the Organization for Economic Cooperation and Development, Phelps and Gylfi Zoega find that the “corporatist belief that core elements of human fulfillment would be lifted by making people more secure appears to be an illusion.” If we care about workers, the anti-dynamism in vogue today is the wrong path to pursue.
PATHS TO DYNAMISM
A society that values dynamism is one that celebrates future-oriented values that promote personal fulfillment. Saving money enables self-employment. Learning how to adapt facilitates upward mobility. Envisioning and creating things that do not yet exist provides ongoing satisfaction. Moving from one place to another forces one to deal with the unfamiliar. Openness to other perspectives tempers potentially bad courses of action and creates new opportunities. These kinds of habits promote dynamism; their opposites generate stasis.
There is no simple policy agenda for fostering such dynamism. But there are several areas where cultural and policy reformers intent on sparking and nurturing it should concentrate.
The first is in exchange and service programs. Semester- and summer-abroad programs should be a regular part of everyone’s experience, starting in high school and continuing through the post-secondary years. Experiencing other cultures and facing difference produces a kind of resilience that pays dividends throughout one’s life.
The second area is vocational development. For those who don’t graduate from college, it should be easier to determine which types of certifications and skills are highly valued in nearby locales. The technology necessary to relay this information to people exists, but it needs to be made part of our state-level workforce-development systems.
The third is geographic mobility. Moving has historically been the main driver of upward mobility and personal fulfillment. Public resources that target workforce development should be made more flexible so that they help people relocate to places of greater opportunity. This could be as simple as creating relocation vouchers for qualifying individuals.
Fourth, policymakers should focus on rooting out rent-seeking. We are too comfortable with protected interests at all levels; like fish in a fishbowl, we no longer see the water we swim in. A congressional commission that moves, one by one, through major sectors of the economy and makes recommendations for weakening the ability of regulators and industries to work together on shared interests would be an important first step toward building awareness and support for enhanced competitiveness in our political economy.
Fifth, we should emphasize goals-oriented reforms. As Philip Howard has written, the “post-1960s bureaucratic state is built on flawed assumptions about human accomplishment,” since there is no way to articulate in advance how to meet its standards. Allowing private actors to meet clear regulatory goals — as opposed to following detailed procedural rules — would free up enormous space for innovators to create, build, and improve. Goals-based governance could follow from the activities of the commission mentioned above, or separately.
Sixth, we should look to grassroots deregulation. Moving to new locales to pursue opportunity has become too expensive, largely due to the accrual of regulations on new housing construction and new workers in mainstream business sectors. It’s time for a national project to reward states and cities that reduce these kinds of barriers.
Seventh, we should pursue rational decertification efforts. Akin to efforts to impose sunset laws on regulations, we need a nationwide effort, led by the states, to move away from interest-based licensing and permitting regimes to rules-based environments that welcome newcomers to an industry or professional practice. Corporatism should be the common villain of the left and the right, but we need to identify it as such before the movement can succeed.
And finally, we should look to build talent funds. At the state level, the “smokestack chasing” mode of economic development could be replaced by directly funding and attracting talent. This would shift resources away from politically motivated — and usually poorly performing — investments in individual companies and toward individuals who are building and creating new ones.
RESTORING DYNAMISM
Nationalists and progressives often talk as if passing laws that subsidize wages and expand worker protections will restore dignity to work overnight. But the evidence suggests the contrary.
Restoring a dynamic society will take time, and will require us to pursue several ambitious projects at once. It is not something Congress can accomplish with a bill or the president can achieve with the stroke of a pen. Instead, it will require leadership, creativity, and a new (or renewed) way of thinking about how an aspirational society can grow again — block by block, from the ground up, with eyes on the future.
Ryan Streeter is the director of domestic-policy studies at the American Enterprise Institute.