New Ideas are the Key to Economic Development

By Art Carden

Arthur Diamond’s Openness to Creative Destruction: Sustaining Innovative Dynamism joins a growing pile of books that seek to explain what the economic historian Deirdre McCloskey calls the Great Fact: the mind-boggling increases in per capita income in the last two and a half centuries that started in Northwestern Europe and spread around the world. Diamond joins very good company: McCloskey, for example, as well as Joel Mokyr (A Culture of Growth, 2016), Steven Pinker (Enlightenment Now, 2018), Hans Rosling (Factfulness, 2018), Calestous Juma (Innovation and Its Enemies, 2016), David Rose (Why Culture Matters Most, 2019). And that’s just to name a few.

It’s a story we don’t really appreciate: Dennis, the constitutionally enlightened peasant from Arthurian Britain, would have found much with which he was familiar if he were transported to the ancient Roman Empire or anywhere else in medieval Europe. He would find our world bewildering, but perhaps more than anything, he would be surprised at how we just expect everything to get better. This year’s cars and cell phones are nice and all, but we just expect next year’s models to be even better. We embrace — or at least side-hug — creative destruction.

“Creative destruction” is a term popularized by the mid-20th-century economist Joseph Schumpeter. Economic progress, Schumpeter argues, happens when we substitute new ways of doing things — the creative part — for old ways of doing things (the destruction part). Diamond follows the aforementioned authors and adds new evidence and illustrations to the larger thesis that a wider embrace of creatively destroying innovation explains how we went from a world in which nearly everyone was poor to a world in which even those of modest means struggle with first-world problems like too many calories and too much stuff (parenthetically, his book also provides a nice source for my forthcoming book with McCloskey, provisionally titled Leave Me Alone and I’ll Make You Rich: How the Bourgeois Deal Enriched the World — you can download a short version here).

Diamond makes a compelling case for what a lot of commentators call “capitalism” but which he would rather call “creative destruction” or “innovative dynamism,” as what we really want to describe has very little to do with capital or capitalists as such. For all the talk about how capitalism (a word that will probably stick, unfortunately) or creative destruction or innovative dynamism leaves us unrooted, unmoored, alienated, and demoralized, people overwhelmingly vote with their feet for civilization and prosperity when given the chance.

Diamond cites the example of the Nukak people of Colombia, who “have settled near civilization and apparently have no plans to return to the jungle” (p. 37). By our (admittedly constrained) choices, we have revealed a preference for the fruits of modernity — and this is even in the face of things like the so-called “paradox of choice,” which holds that we are made worse off by the surfeit of choices with which the wealthy modern world confronts us day in and day out. Apparently, Diamond argues, people tend to prefer (and choose) variety over time (p. 73).

Over the course of a relatively short book — the main text is under 200 pages — Diamond helps readers understand where new ideas come from, how they diffuse, and importantly, how they can be throttled by regulators, special interests, and even cultural commentators.

Diamond will likely take the most heat from libertarian critics for his defense of patents and intellectual property; this was certainly a point of contention at a panel discussion of his manuscript at the 2018 Association of Private Enterprise Education conference in which I had the good fortune to participate. Diamond meets challenges from scholars like Michele Boldrin and David Levine, authors of the 2008 book Against Intellectual Monopoly. He argues that criticisms of so-called “patent trolls” might be misplaced because a lot of people might be good at inventing things but not good at commercializing them, and patent revenue is one way to finance further innovation (pp. 143ff.).

I agree with Diamond that innovative ideas should be front and center in any attempt to explain long-term economic progress. I am as yet not persuaded that intellectual property rules are necessary or sufficient to increase their supply, in part due to the very problem he points out in chapter 12 related to regulation, where government regulators can’t keep up with innovative businesses. I’m willing to be persuaded, though, and I plan to explore this particular aspect of Diamond’s argument with my students soon.

It is particularly in the “destruction” part of creative destruction that economics, culture, and politics come together. This is the part that is bound to be resisted by those with a special interest in the status quo. This interest need not be material. Calestous Juma points out the special interests who opposed things like margarine, coffee, and recorded music. Diamond complements Juma’s work in noting how a lot of things we take for granted, like lightning rods, greenhouses, stored ice for cool summer drinks, and air conditioning were at various times challenged as affronts to God’s design (p. 130). The challengers won a lot of battles, but fortunately, they lost enough that we were able to get sustained economic growth.

For all our progress, it is important to remember that critics and regulators have still won a lot of battles. They could win more. It is easy to chuckle at the idea that air conditioning is an affront to almighty God, but many in the environmental movement would say that air conditioning is an affront to the environment. People used to criticize efforts to fly (and flight itself) by claiming that “if God had intended for man to fly, he would have given us wings.” The modern conviction that air travel is a sin against the climate is simply a secularized version of the theological argument.

I am glad to see Openness to Creative Destruction appear in print. It strikes a fine balance between detail and a big-picture perspective that, I think, can be read profitably by specialists and students alike. Anyone who wants to understand how the world grew rich and, importantly, what will sustain our enrichment would do well to have this book on the shelf.

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Image credit: Pixabay

Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama.

This article was sourced from AIER.org