The following is an interview conducted by Archbridge President and CEO Gonzalo Schwarz with Nobel Prize-winning economist Edmund Phelps. We discuss his book, Mass Flourishing, and how dynamism, culture, agency, and justice relate to “the good life.” This interview is part of our ongoing series on the economics of human flourishing.
Gonzalo Schwarz: How would you define the “economics of flourishing”?
Edmund Phelps: The economics of human flourishing is about understanding how economic structures, markets, and institutions impact the potential of individuals to live fulfilling lives. It’s the study of how interactions among people, organizations, and culture can foster an environment for using creativity and gaining personal growth are abundant for all.
Gonzalo: What is the main message of your book Mass Flourishing? When do you think mass flourishing began in the world?
Edmund: Mass Flourishing presents my theory of indigenous innovation—that is innovation springing up from the imagination and creativity of “ordinary people” working in the economy.
This is in direct contrast with theories of innovation that came before, mainly the neoclassical theory of the German Historical School put forth by the Austrian Joseph Schumpeter, who proposed in his 1911 book, The Theory of Economic Development, that innovations are exogenous to the economy, deriving from the discoveries of scientists and explorers. The neoclassical theory fails to explain the remarkable surge in innovation, economic growth, and mass flourishing that began around 1890 in several Western nations—first the UK, then the US, later France and Germany.
My thesis, developed in Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change (2013) and tested in its sequel, Dynamism: The Values That Drive Innovation, Job Satisfaction, and Economic Growth (2020), is that the well-performing nations acquired higher levels of dynamism—the desire and capabilities of the nation’s people to innovate.
This widespread desire to conceive new methods and new products reflected a newfound character among the people (or a great many of them). Such a development would not have been possible had there not been a rising number of people over the 17th and 18th centuries who grasped the Renaissance idea (introduced by Pico della Mirandola at the end of the 16th century) that people are born with some creativity. The voice of some other figures stirred people to use their creativity—the ambition of Cellini, the individualism of Luther, the vitalism of Cervantes, and the personal growth of Montaigne and, later, the need for imagination in Hume and the acceptance of the unknown in Kierkegaard. Some 19th-century philosophers, such as Charles Peirce, William James, Friedrich Nietzsche, and Henri Bergson embraced uncertainty and relished the new.
In my view, the force driving dynamism was the rise and spread of certain modern values: individualism, vitalism, and a desire for self-expression. Individualism (not to be confused with selfishness) is the desire to have some independence—to make one’s own way. Vitalism is the notion we feel alive when we are “acting on the world” (to use Hegel’s term), when we take a chance and journey into the unknown. Self-expression is the gratification that comes from making use of our imagination and creativity—voicing one’s thoughts or showing one’s talents. In being inspired to imagine and create a new way or new thing people may reveal a part of who they are.
In the nations fueled by this new spirit, a modern economy formed: The typical industry had workers, managers, or other employees who hit upon new ideas at one time or another and used their creativity to develop them into viable products or methods. A great many people started their own firms in order to promote the adoption of the new thing they were offering. People were prospering, succeeding in their work: a craftsman’s gratification at seeing his hard-earned mastery result in better terms for the work he does, a merchant’s satisfaction seeing “his ships come in,” or a scholar’s sense of validation from being awarded an honorary degree. People were also flourishing on a widescale: gaining satisfaction from journeying into the unknown, experiencing the thrill of uncertainty and excitement in “acting on the world.” These nonmaterial rewards often leading to one’s personal growth are what made work meaningful and allowed many to experience what I call “the good life.”
Gonzalo: How does corporatism or crony capitalism negatively impact human flourishing?
Edmund: Corporatist economies first cropped up under the totalitarian regimes of Mussolini, Franco, and Hitler. Such economies are “protectionist,” or organized to permit only a limited number of dominant companies to bargain with state agencies and trade unions over public resources. Under corporatism, bankrupt companies are routinely bailed out by the state; competition and the formation of new enterprises are discouraged.
This is detrimental to human flourishing as it creates an environment where innovation is stifled by favoritism and obstacles to competition. Such systems concentrate power and resources, dampen incentives to develop new concepts, and discourage people from dreaming up new concepts.
A corporatist economy is antithetical to the modern economy which is vital for widespread innovation. When opportunities are not accessible to all, it curtails the potential for widespread participation in economic life, ultimately undermining social mobility and the ability for individuals to flourish.
Gonzalo: Besides creating economic benefits, how do economic dynamism and entrepreneurship lead to more opportunities for flourishing?
Edmund: The radical significance of the modern economy, or an economy sufficient in dynamism, lies in the nonmaterial benefits of meaningful work. The modern economy makes it possible for participants to rack up achievements, experience personal growth, and use their own judgment. Such satisfactions were out of reach of all but a tiny minority in traditional economies, including the mercantile economies of the commercial age, since not much out of the ordinary was achieved—other than swapping goods at greater and greater distances. People cannot flourish on material rewards alone, though they are also important.
When work is meaningful it provides people with a sense of purpose. The Swedish economist Gunnar Myrdal once said, “Man works in order to live. But there are many who live in order to work… Most people who are reasonably well off derive more satisfaction as producers than as consumers… Many would define the social ideal as a state in which as many people as possible can live in this way.”
I would say that the condition for sufficient economic dynamism is not enough to cultivate mass flourishing. Institutional cooperation and support is also needed to make the broad availability of meaningful work a reality.
Gonzalo: What is the role of culture in promoting or hindering mass flourishing? On the flip side, how does dynamism impact culture?
Edmund: For an economy to work there has to be a supporting culture. In my account, the culture of modern values was the wellspring of the dynamism of the modern economies and indigenous innovation—mainly a culture protecting and inspiring individuality, imagination, understanding, and self-expression. In this way, culture can be a bedrock for mass flourishing when it’s made of “the right stuff.”
An analysis of data presented in Dynamism by my collaborator Gylfi Zoega provides evidence for this theory: among people in the 20 OECD countries, those possessing high-strength doses of the modern values—the US, Ireland, Australia, Denmark, less so Switzerland, Austria, UK, Finland, and Italy—did have relatively high rates of indigenous innovation. Another analysis by Zoega shows that the countries most endowed with the modern values tended also to have the most job satisfaction.
The problem is that values are subject to change. In a sense, the history of the world has been a seesaw battle between modernism and traditionalism. Traditionalist values include staying close physically to family and friends for fear of the unknown.
Many obstacles to mass flourishing have appeared over the last several decades. There has been a rise in what philosopher John Dewey called “money culture,” or an obsession with material gains. There has also been a lack of meaningful work opportunities—or jobs that provide people with nonmaterial rewards.
Another problem is businesses that are hierarchical in structure, meaning people at the bottom have little or no chance to share ideas they may have on how to improve a product or method with executives at the top.
We have also seen a rise in corporatist behaviors within government, as well as companies seeking ways to protect themselves from competition which has led to an unprecedented acceptance of monopoly power.
In his book, The Decadent Society, Ross Douthat describes the stagnation of economies, of culture, of institutions, and of politics that has become pervasive in wealthy societies that have once succeeded.
Anne Case and Angus Deaton, in their book Deaths of Despair, present evidence of a spike in suicide, drug overdose, and alcohol-related liver disease in America. They link these deaths to a combination of factors such as declining social and economic conditions, exploitative pharmaceutical companies, eroded social institutions, and a perceived loss of status.
Amidst all of this, America and many other Western countries have been experiencing stagnated productivity growth rates since about the 1970s; innovating has severely diminished, and life satisfaction has been on a downward trend. (Of course, this does not mean there have been no innovations since the 1970s—there have been breakthroughs in AI and EVs for example. However, these innovations are contained to Silicon Valley, which is just a small part of the economy.)
I argue that this slowdown can in part be explained by a loss of modern values. Without a culture that values creativity, resilience, and inclusivity, we cannot foster an environment where individuals feel empowered to contribute their ideas.
Gonzalo: How does the modern economy and mass flourishing enable “the good life”?
Edmund: The modern economy rests on the dynamism fueled by the peoples’ modern values. It is a vast imaginarium—a space for imagining new products and methods, imagining how they might be made, and imagining how they might be used. The process of indigenous innovation in this “imaginarium” draws on a set of human resources: the imaginativeness and the creativity to conceive things not conceived already that a firm could try to develop and market. The fuel on which this system operates is a mixture of material and nonmaterial motives. As I mentioned previously, nonmaterial rewards to work are at the core of my concept of “the good life.”
We economists have not recognized that, for several decades, people want—people in the West at least—rich lives. They need an economy in which jobs are interesting, engaging, and occasionally fun too. A new vision is required. I feel it may be necessary to reconceive the economy in which people devote their working lives. It is hugely important in my view that governments, both state and local, and thought-makers draw away from a focus bordering on obsession with material gains, hence a focus on income and wealth. I envision an economy that is, in large part, a sprawling space with myriad studios for creating new things—an economy full of people in the business of creating things.
Gonzalo: In Mass Flourishing, you write about economic justice. Broadly, what are your thoughts on this subject and the modern economy?
Edmund: The just economy has been a longstanding interest of mine, likely inspired by my friendship with John Rawls, whom I met when we were both fellows at Stanford’s Center for Advanced Studies in Behavioral Science during 1969-1970. My book Rewarding Work (1997) argues the following: Subsidizing companies’ employment of low-wage workers, by increasing their employment in business, would widen their involvement in society’s central project and open up a sense of the world of work in poor families and neighborhoods.
Economic justice is important for mass flourishing. It entails ensuring that all individuals have equitable access to opportunities, enabling them to engage in and benefit from economic growth. A modern economy that prioritizes justice allows for diverse voices to emerge, ultimately enriching both the economy and society as a whole.
Gonzalo: Why and how does agency matter for human flourishing?
Edmund: Agency is essential for human flourishing; it allows individuals to make choices and take control of their lives. Individuals’ freedoms to act (or not to act) on their unique knowledge, judgment, and intuition may be indispensable to people’s sense of self-sufficiency and thus self-worth. In this view, the freedom to take charge of one’s own heading and make one’s own mistakes is a primary good itself, one of huge importance.
Sociologist Richard Sennett has written about interviews with many Americans who want to feel embarked on a mission to “make a difference.” One example he gives is a nurse preferring to work in the emergency room of a city hospital as opposed to more lucrative work as a temporary or traveling nurse. He suggests people have a deep need for a “sense of agency.” I agree with this sentiment. When people perceive that they have agency, they are more likely to engage actively in the economy, take risks, and pursue innovation. This sense of control and ownership not only enhances personal fulfillment but also contributes to a vibrant, participatory society, essential for mass flourishing and the good life.
