Why Can't We Innovate Our Way Out of Poverty?

Can governments do anything to make their people more innovative? And, if they cannot, are we saying that those middle-income countries who fail to climb the technological ladder are "trapped"?
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It is one of those unproven-but-probably-true facts that developing countries have an easier time getting out of poverty than getting into prosperity. They go from "low-" to "middle-income" level relatively fast, but rarely make it to "high-income" status. [A country is considered middle-income if its average citizen makes between $1,200 and $12,000 a year, give or take a few dollars]. Somehow, they get stuck in a dreaded middle-income "trap". For them, the typical development story goes like this. They get an initial boost by reforming their agriculture or exploiting their oil and minerals. This releases the labor and the money needed to build industries that can use basic technology to produce cheaply the kind of goods that consumers in rich countries want to buy. Think of Brazil, China, Indonesia, Mexico, Russia, South Africa, or Turkey -- chances are that your T-shirt, tool-box, tea-pot, and TV set were manufactured or assembled in a middle-income country like these. But when those countries try to climb up the technological ladder, sell more valuable stuff, be more productive, and create better-paying jobs, things get complicated. Then the game is no longer to sell cheap but to sell new, not just to be efficient but to be innovative.

Economists more or less agree on what a country has to do to be efficient -- open the economy, keep inflation low, treat investors fairly, regulate smartly, spend on education, build good infrastructure, and so on. But when it comes to making a country more innovative, the playbook is thin. You may hear words like "matching grants," "industrial clusters," "patent protection," "venture capital," and "incubators" -- all techniques to put creative people together and give them the cash to do new things, or to do old things in better ways. This is where your mind is suddenly filled with images of whiz kids trying cool ideas and becoming zillionaires. How on earth can governments promote that!?

A new book called Mass Flourishing, written by Edmund Phelps, says they can't. Or, rather, it says that they need cultural change. [Disclaimer: when this book was presented in Washington, D.C., I chaired the event.] Being innovative is in a society's DNA -- or it isn't. Either we have an appetite for innovation -- in his words, we are "modern" -- or we don't -- we are "traditionalists." Either our people are for intrinsic, imaginative, individual self-expression, or they are not. Either they want to live "the good life," or they don't. This is not only or mainly about bright scientists in a lab or rich businessmen in a factory. This is also about the poor, the uneducated, and the daring, ordinary folk bent on changing the world for the heck of it -- a "mass flourishing" that makes countries more productive and, eventually, richer.

I know what you are thinking. Hold that thought. Mr. Phelps is not your average economist. He won the Nobel Prize -- and just about every other prize the profession has to offer. You can't really get a Ph.D. in Economics without reading his mind-freeing papers. So, how does someone that credible come to the conclusion that innovation is rooted -- or not -- in culture? Simple: he looks at history. That is, the whole of history. His book is actually a review of the human experience from Jericho in 7,500 BC to the White House today. Every civilization, event, leader, philosopher, technology, economist, war, army, thinker, city, inventor, banker, politician, crook, saint, empire, government, corporation, religion, painting, musician, and even movie director that mattered to history is named and placed in a chronological chain of events. Everything and everyone is in there, aligned, explained, and dimensioned. [NB: the World Bank and the IMF get one mention each.]

And sure enough, when looking at the grand tableau of history, Professor Phelps finds only a few places where "mass flourishing" and real prosperity ever happened: Britain, France, Germany, and the U.S. at various points between about 1820 and 1960. Thereafter, it has all been downhill. Even today, for all the might of the internet, genetics, and satellites, he does not see a culture that nurtures innovation. But, wait, what about Steve Jobs? A one in a billion character. Twitter? Just a trendy way to conform. Silicon Valley? A rat race within the system. Fracking? A desperate technique in the hands of an old industry. Bitcoins? Funny money existed many times before. Mega corporations? They only care about their mutual-fund shareholders. China? More of the same, just cheaper. And so it goes. When compared with history, our inventiveness is in decline. We no longer live in societies where breaking the mold is the norm for most people -- the "mass" in "mass flourishing." We are too dependent of government, community, and tradition. Collectively, we are not modern enough, in the right sense of the word.

All of this is, of course, impossible to prove beyond reasonable doubt. We simply don't have enough data. But it begs the question: if cultures are so important for the creative spark behind economic development, can they be changed through public policy? Can governments do anything to make their people more innovative? And, if they cannot, are we saying that those middle-income countries who fail to climb the technological ladder are "trapped" forever? These are difficult questions. As it happens, we may be one step closer to answering them.

A team led by Dr. Jason Rentfrow of Cambridge University recently managed to measure the distribution of personality traits across an entire nation -- its "non-cognitive skills." That nation is the U.S., no less. They measured things like people's openness to new ideas, how conscientious they are in what they do, how they relate to others, or how stable their emotions are. Lo and behold, they found major differences across regions and states within the U.S. -- yes, as it turns out, Californians are pretty innovative. A similar effort for developing countries is underway at the World Bank. [Another disclaimer: this writer is a regular commentator in that effort].

Presumably, one day soon we will be able not just to know who is more creative -- across countries, regions, generations, backgrounds, and so on -- but also what effect, if any, government policies and programs have on our capacity to create. From public education campaigns, to tax breaks for inventors, to cheap credit for "start-ups," we may discover that our attitudes can be changed. Think about it: thirty years ago, did you know or care much about the environment? It took a long time and lots of communication, but most of us finally came around to the idea that polluting is bad and recycling is good. Our cultural values do change. Maybe the key to the mass innovation needed for material progress is still within us, waiting to be turned.