[Vision2020] OpinionJournal Article: Entrepreneurial Culture

Tue Sep 11 12:22:24 PDT 2007

Hi Jeff:

Good to have you back on the Vision.  Your GDP figures for Denmark must
be old.  According to The Economist, the 2007 the increase was 2.1 vs.
2.0 percent for the U.S. 

For economic comparisons between the U.S. and Europe, I’m going to stick
to The Economist’s handy weekly statistics and their study that placed 7
European welfare states with highly unionized work forces among the top
ten competitive economies.  Libertarian theory would predict that these
would be losers not winners.  This study and the following facts pretty
much refutes the pure free marketeers.

For percentage change in real GDP, the Euro Area’s average high for 2007
was an increase in 2.7 percent as opposed to 2 percent for the U.S.  
Spain and Sweden (not on the Euro) had the highest growth at 3.7 and 3.5
respectively. European inflation for 2007 was lower than the U.S. (2 vs.
2.7 percent). 

On September 8, 2007, the Economist reported that the percentage
unemployed in the Euro area was 6.9 percent with France (8.0) and
Germany (9.0) keeping the rate high, while Austria (3.6), Denmark (3.3),
Norway (2.5) have rates below our 4.6 percent.  The Danish government
has brought its rate down with a heavy investment in job retraining (4
percent of GDP), while the U.S. spends 1/20 of that amount on this key
program.

Jeff, you don't give a date for the Phelps article, but his arguments do
not square at all with these good economic figures from Europe.

Thanks for the dialogue,

Nick

----- Original Message -----
From: "Jeff Harkins via OpinionJournal.com" <jeffh at moscow.com>
Date: Monday, September 10, 2007 1:03 pm
Subject: [Vision2020] OpinionJournal Article: Entrepreneurial Culture
To: vision2020 at moscow.com

<head>
<title>OpinionJournal</title>
</head>

<nowrap><a href="http://www.wsj.com/?jopinemaowsj" target="1"><img
src="http://opinionjournal.com/images/ballogo.gif?jopinemaowsj"
alt="WSJ.com" width=86 height=91 hspace=0 vspace=0 border=0
align=left></a><a href="http://opinionjournal.com/" target="1"><img
src="http://opinionjournal.com/images/logo.gif?aowsjem"
alt="OpinionJournal" width=390 height=91 hspace=0 vspace=0 border=0
align="left"></a></nowrap> Your
friend Jeff Harkins thought you might be interested in this <a
href="http://www.opinionjournal.com/editorial/feature.html?id=110009657"
target="1">article</a> from <a href="http://opinionjournal.com"
target="1">OpinionJournal</a> and forwarded it to you.

<br />

			<br clear="all" />
Jeff Harkins included a message:
<blockquote>
Nick Geir's position is refutable
</blockquote>
<hr size=1 noshade />
<br />

	<font face="Garamond, Times" size=5><b>CONTINENTAL
DRIFT</b></br></font><br />
	<font face="Garamond, Times" size=5>Entrepreneurial Culture </font><br
/><br /><font face="Verdana, Times" size=2>Why European economies lag
behind the U.S.</font><br /><br /><font face="Verdana, Times"
size=2><b>BY EDMUND S. 
PHELPS </b></font><br /><br /><font face="Verdana, Times" size=2>The
nations of Continental Western Europe, in the reforms they make to try
to raise their economic performance, may prove to be a testing ground
for the view that culture matters for a society's economic results.<p>
As is increasingly admitted, the economic performance in nearly every
Continental country is generally poor compared to the U.S. 
and a few other countries that share the U.S.'s characteristics. 
Productivity in the Continental Big Three--Germany, France and
Italy--stopped gaining ground on the U.S. 
in the early 1990s, then lost ground as a result of recent slowdowns and
the U.S. 
speed-up. 
Unemployment rates are generally far higher than those in the U.S.,
U.K., Canada and Ireland. 
And labor force participation rates have been lower for decades. 
Relatedly, the employee engagement and job satisfaction reported in
surveys are mostly lower, too. 
<p>
It is reasonable to infer that the economic systems on the Continent are
not well structured for high performance. 
In my view, the Continental economies began to be underperformers in the
interwar period, and have remained so--with corrective steps here and
further missteps there--from the postwar decades onward. 
There was no sense of a structural deficiency during the "glorious
years" from the mid-'50s through the '70s when the low-hanging fruit of
unexploited technologies overseas and Europeans' drive to regain the
wealth they had lost in the war powered rapid growth and high employment. 
Today, there is the sense that a problem exists.<p>
What could be the origins of such underperformance? It may be that the
relatively poor job satisfaction and employee engagement on the
Continent are a proximate cause--though not the underlying cause --of
the poorer participation and unemployment rates. 
And high unemployment could lead to a mismatch of worker to job, causing
job dissatisfaction and employee disengagement. 
The task is to find the underlying cause, or causes, of the entire
syndrome of poorer employment, productivity, employee engagement and job
satisfaction.<p>
Many economists attribute the Continent's higher unemployment and lower
participation, if not also its lower productivity, to the Continent's
social model--in particular, the plethora of social insurance
entitlements and the taxes to pay for them. 
The standard argument is fallacious, though. 
The consequent reduction of after-tax wage rates is unlikely to be an
enduring disincentive to work, for reduced earnings will bring reduced
saving; and once private wealth has fallen to its former ratio to
after-tax wages, people will be as motivated to work as before. 
<p>
An indictment of entitlements has to focus on the huge "social wealth"
that the welfare state creates at the stroke of the pen. 
Yet statistical tests of the effects of welfare spending on employment
yield erratic results. 
In any case, it is hard to see that scaling down entitlements would be
transformative for economic performance. 
(Indeed, some economists see increased wealth, social plus private, as
raising the population's willingness to weather market shocks and
helping entrepreneurs to finance innovation. 
I am skeptical.) <p>
<p align=center><img
src="http://opinionjournal.com/images/storyend_dingbat.gif" alt=""
width=88 height=6 hspace=0 vspace=0 border=0 align=center /><p> </p>
In my thesis, the Continental economies' root problem is a dearth of
economic dynamism--loosely, the rate of commercially successful innovation. 
A country's dynamism, being slow to change, is not measured by the
growth rate over any short- or medium-length span. 
The level of dynamism is a matter of how fertile the country is in
coming up with innovative ideas having prospects of profitability, how
adept it is at identifying and nourishing the ideas with the best
prospects, and how prepared it is in evaluating and trying out the new
products and methods that are launched onto the market.<p>
There is evidence of such a dearth. 
Germany, Italy and France appear to possess less dynamism than do the U.S. 
and the others. 
Far fewer firms break into the top ranks in the former, and fewer
employees are reported to have jobs with extensive freedom in
decision-making--which is essential at companies engaged in novel, and
thus creative, activity.<p>
Further, I argue that the cause of that dearth of dynamism lies in the
sort of "economic model" found in most, if not all, of the Continental
countries. 
A country's economic model determines its economic dynamism. 
The dynamism that the economic model possesses is in turn a crucial
determinant of the country's economic performance: Where there is more
entrepreneurial activity--and thus more innovation, as well as all the
financial and managerial activity it leads to-- there are more jobs to
fill, and those added jobs are relatively engaging and fulfilling. 
Participation rises accordingly and productivity climbs to a higher path. 
Thus I see the sort of economic model operating in the Continental
countries to be a major cause-- perhaps the largest cause--of their
lackluster performance characteristics.<p>
<img src="http://opinionjournal.com/editorial/021207bulb.jpg"
align="left">There are two dimensions to a country's economic model. 
One part consists of its economic institutions. 
These institutions on the Continent do not look to be good for dynamism. 
They typically exhibit a Balkanized/segmented financial sector favoring
insiders, myriad impediments and penalties placed before outsider
entrepreneurs, a consumer sector not venturesome about new products or
short of the needed education, union voting (not just advice) in
management decisions, and state interventionism. 
Some studies of mine on what attributes determine which of the advanced
economies are the least vibrant--or the least responsive to the stimulus
of a technological revolution--pointed to the strength in the less
vibrant economies of inhibiting institutions such as employment
protection legislation and red tape, and to the weakness of enabling
institutions, such as a well-functioning stock market and ample
liberal-arts education. 
<p>
The other part of the economic model consists of various elements of the
country's economic culture. 
Some cultural attributes in a country may have direct effects on
performance--on top of their indirect effects through the institutions
they foster. 
Values and attitudes are analogous to institutions--some impede, others
enable. 
They are as much a part of the "economy," and possibly as important for
how well it functions, as the institutions are. 
Clearly, any study of the sources of poor performance on the Continent
that omits that part of the system can yield results only of unknown
reliability.<p>
Of course, people may at bottom all want the same things. 
Yet not all people may have the instinct to demand and seek the things
that best serve their ultimate goals. 
There is evidence from University of Michigan "values surveys" that
working-age people in the Continent's Big Three differ somewhat from
those in the U.S. 
and the other comparator countries in the number of them expressing
various "values" in the workplace. 
<p>
The values that might impact dynamism are of special interest here. 
Relatively few in the Big Three report that they want jobs offering
opportunities for achievement (42% in France and 54% in Italy, versus an
average of 73% in Canada and the U.S.); chances for initiative in the
job (38% in France and 47% in Italy, as against an average of 53% in
Canada and the U.S.), and even interesting work (59% in France and
Italy, versus an average of 71.5% in Canada and the U.K). 
Relatively few are keen on taking responsibility, or freedom (57% in
Germany and 58% in France as against 61% in the U.S. 
and 65% in Canada), and relatively few are happy about taking orders
(Italy 1.03, of a possible 3.0, and Germany 1.13, as against 1.34 in
Canada and 1.47 in the U.S.). 
<p>
Perhaps many would be willing to take it for granted that the spirit of
stimulation, problem-solving, mastery and discovery has impacts on a
country's dynamism and thus on its economic performance. 
In countries where that spirit is weak, an entrepreneurial type
contemplating a start-up might be scared off by the prospect of having
employees with little zest for any of those experiences. 
And there might be few entrepreneurial types to begin with. 
As luck would have it, a study of 18 advanced countries I conducted last
summer found that inter-country differences in each of the performance
indicators are significantly explained by the intercountry differences
in the above cultural values. 
(Nearly all those values have significant influence on most of the
indicators.) <p>
The weakness of these values on the Continent is not the only impediment
to a revival of dynamism there. 
There is the solidarist aim of protecting the "social
partners"--communities and regions, business owners, organized labor and
the professions--from disruptive market forces. 
There is also the consensualist aim of blocking business initiatives
that lack the consent of the "stakeholders"--those, such as employees,
customers and rival companies, thought to have a stake besides the owners. 
There is an intellectual current elevating community and society over
individual engagement and personal growth, which springs from
antimaterialist and egalitarian strains in Western culture. 
There is also the "scientism" that holds that state-directed research is
the key to higher productivity. 
Equally, there is the tradition of hierarchical organization in
Continental countries. 
Lastly, there a strain of anti-commercialism. 
"A German would rather say he had inherited his fortune than say he made
it himself," the economist Hans-Werner Sinn once remarked to me. 
<p>
<p align=center><img
src="http://opinionjournal.com/images/storyend_dingbat.gif" alt=""
width=88 height=6 hspace=0 vspace=0 border=0 align=center /><p> </p>
In my earlier work, I had organized my thinking around some intellectual
currents--solidarism, consensualism, anti-commercialism and
conformism--that emerged as a reaction on the Continent to the
Enlightenment and to capitalism in the 19th century. 
It would be understandable if such a climate had a dispiriting effect on
potential entrepreneurs. 
But to be candid, I had not imagined that Continental Man might be less
entrepreneurial. 
It did not occur to me that he had less need for mental challenge,
problem-solving, initiative and responsibility. 
<p>
It may be that the Continentals finding, over the 19th and early 20th
century, that there was little opportunity or reward to exercise freedom
and responsibility, learned not to care much about those values. 
Similarly, it may be that Americans, having assimilated large doses of
freedom and initiative for generations, take those things for granted. 
That appears to be what Tocqueville thought: "The greater involvement of
Americans in governing themselves, their relatively broad education and
their wider equality of opportunity all encourage the emergence of the
'man of action' with the 'skill' to 'grasp the chance of the moment.'"<p>
The most basic point to carry away is that the empirical results related
here lend support to the Enlightenment theme that a nation's culture
ultimately makes a difference for the nation's economic performance in
all its aspects--productivity, prosperity and personal growth. 
<p>
It was a mistake of the Continental Europeans to think that they
expressed the right values--right for them. 
These values led them to evolve economic models bringing in train a
level of economic performance with which most working-age people are now
discontented. 
Perhaps the way out--to go from unsatisfactory performance to high
performance--will require not only reform of institutions but also a
cultural shift that returns Europe to the philosophical roots that put
it on the map to begin with. 
</font><br /><font face="Verdana, Times" size=2><i>Mr. 
Phelps, a professor at Columbia University, is the 2006 Nobel Laureate
in economics. 
</i></font><br />
<br /><br />
</span>
</span>