How is it that the US is a leading economy?

There are plenty of answers to this question that involve regional and international economics. The US developed along with the industrial revolution. There were no cities to tear up and rebuild- they grew with the factories. The US has lots of land, some of the world’s greatest farmland, long seashores for ports, lots of navigable rivers (at least in the east and Midwest), and has large quantities of natural resources- coal, oil, gold, trees, and many other minerals. Land was there to be taken. There were no long histories of civil law or procedures or tribal law or religious requirements. Everything had to be adapted to the new world from somewhere else or made up to fit the new situation. Everything was designed to be practical for the time. The oceans protected the US from some involvement in foreign problems. There was no history of a ruling class or aristocracy. Unions were independent of government and of the business, and could work to protect workers and try to raise their pay and working conditions. Because of free speech protections in the constitution, government schools and universities were free to ask whatever questions they wanted, and answer them any way they wanted, as long as the answers met the standards of reason. There were many ways to make a living, people could choose to do what they wished, and for many people this led to getting rich or at least getting to be middle class. There was no one who could say no to an idea that someone wanted to pursue. It is in this way that freedom and capitalism work together.

A lot of that is now history. We still have rivers and coal, but the US economy is no longer factor driven or investment driven- maybe not even innovation driven. But even a wealth driven economy like the US can still do some innovation. What makes that so easy in the US?

Americans move a lot- across the street, across the town, across the country. One of the reasons we do that is so we can start over. Starting over is very easy in the US. People find life too hard in one place, and they move, thinking that things will be better somewhere else. Sometimes, that is true. Maybe the move gives people more energy, or they need to work harder to find a job and start a new life somewhere else. Bankruptcy laws do not take everything a person owns when they go bankrupt. People are allowed to keep their house (if it is not claimed by the bank in a foreclosure) and personal items. The social shame of going bankrupt certainly exists, but everyone deserves a new chance. Failure is not an opinion about someone’s life- it is only an experiment that didn’t work. Failure is not a collective loss, either. One of the benefits of being an American is that one does not have to feel responsible for actions of the government or actions of one’s business. There is a cost to that- we don’t have much loyalty to the government or to a business or to each other- but America is much more about “I” than about “we.”

The ease of starting over extends to the ease of starting a business- we talked about this in class. Credit is not hard to find. Everyone wants to help someone start a business. Partnerships and corporations are very easy to start. Laws permit partnerships and corporations to isolate their liability in classes of ownership, so that investors can feel free to invest while limiting potential losses. Even small and startup businesses can get credit, even if it is only from their credit cards or from a loan against the value of their house. It is easy to hire people, and easy to fire them or lay them off if work declines. Our strong sense of private property is very important. This means that when someone creates some value, they get to claim the value as their property.

Risk-taking is supported at every step by government policies and by the culture. This doesn’t mean that the government provides money, but that laws and regulations support taking risk by being able to isolate risk, making it easy to fail, easy to start up again, easy to move, easy to obtain credit, easy to fill out the paperwork to start a business, and easy to locate where one wishes.

For businesses and for government, the sense of new ideas and information and change and success flowing from the bottom up rather than from the top down has been essential to innovation. The further down the hierarchy we can push the authority and responsibility, the more ideas there are, the more minds there are to work on a problem. The less respect for authority, the more possibilities for change.

My friend Bob Yovovich interviewed a man holding the most patents in the US at the time- more than two hundred individually held patents. Bob asked him what it took to innovate- what is the source of inspiration. The answer was not that his family inspired him, or his company, or solving world problems. He said that the source of innovation was to be easily annoyed. Now maybe that does not work for everyone, but it fits with what my own experience has been. People who are easily annoyed with the problems they see in their company can simply leave the company and start their own business. People who are free to work on what they wish are more interested in the outcome than people who work on what they are told to work on. People who can see the possibility of making money from some innovation are inclined to work harder. This suggests the importance of small institutions- small businesses- which can be more flexible, more innovative because they don’t have the burden of layers of management or an extensive network of suppliers and customers to satisfy. Bigger is clearly not always better. Sometimes the US can innovate because it has a very large market, and the markets can be very diverse. Products have to be designed to meet the needs of different types of people with different needs. This is not to say that the markets in the US are always the most sophisticated- they are not. But designing for different customs and patterns of use make for more thinking about how people use things, and this is the ultimate pragmatism. “What works” is often quicker, faster, or smarter than trying to figure out “what is the single best solution.” It is the difference between Microsoft and Apple Computer. Microsoft has never been an innovator. It tries to figure out what will appeal to the most people, and comes up with one solution. Apple has always been known as an innovator. It tries to find out how people use things.

We tend not to honor teachers in the US. We think teachers can and should help students learn, but we don’t think the teacher is always right (except for certain professors in certain PA courses at IIT). American pragmatism is always the trump card in any discussion- “If you’re so smart, why aren’t you rich?” is a way of saying, if your idea is really better, then prove it. Everyone gets to conduct experiments every day, and sometimes we find one that works.

This even extends to governments- we refer to state and local governments as “laboratories of democracy,” suggesting that we let state and local governments experiment with policies and programs and when something seems to work, others can adopt it and do the same thing. America tends to not have philosophical movements- the twentieth century movement of existentialism, positivism, and communism never really developed big support in the US, because people didn’t see how talking would help doing. The only really American philosophy is pragmatism, which broadly speaking, simply says, “try things, and do what works.”

That is my answer, in the time I have allowed myself. I am no expert in these matters, but I have some experience, so maybe this will be useful. If it is not, you are free to say so, because I respect your ideas and the only way I can do better is if you show me how what I am doing is incorrect. Feel free to disagree or correct me or improve on the ideas.