Law at the university of california, berkeley. And your moderator for this evenings program. Im delighted to introduce my friend and colleague in the field of economics, doctor edmund phelps. He was the 2006 Nobel Laureate in economics and is the author of many books including a new one called mass flourishing how grassroots innovation created jobs, challenge, and change. This book examines modern economics and what makes nations prosper. And why the sources of that prosperity are under threat today. Net phelps teaches economics and is the director of the center on capitalism and society at columbia university. He has lost at the sources of Economic Growth in the causes of unemployment. On announcing his nobel prize, the committee specifically said his task breaking work on economics between inflation and unemployment and on the well being of current versus future generations. He is also known for the threat of this approach to economics drawing as does in this book on important contributions from philosophy, literature and the arts. I must say that few other economists can comfortably cite aristotle and lady gaga in the same chapter. Dr. Phelps was born near chicago, grew up in suburban new york and later studied at amherst and yale. Hes the recipient in addition to the nobel prize of Many International awards and honorary degrees. Please welcome our guest. [applause] thank you very much, professor. Pleasure to be here to speak to you about my book, mass flourishing. The book is about the modern economies as i call them that arose in a few nations in the 19th century. Britain and america are at 1820, later germany and france. Economies the remained well functioning through the middle of the 20th century. They were a marvel of the world. I wonder was not so much a high wages and wealth. There was rampant prosperity, material and nonmaterial. Mark twain spoke of the drive and push and rush and struggle of the regime, caring, booming 19th century. One kind of prosperity was classical. Modern economies were achieving growth of economic knowledge, thats growth of productivity. Wage rates and working conditions were constantly improving throughout the economy. A worker could just ride the rising tide, and nonmodern economies through trade and technological transfers could tap into that prosperity in order to catch up. Another kind of prosperity was modern, and of key importance. There were gains in ones earning power from ones new insights and skills, and gains in one satisfaction from the experiences in ones work. These gains, material and nonmaterial, our rewards of initiating and creating. They represent prospering. Nonmodern nations could not cap into that prosper. Never before have prospering been within reach of large and increasing numbers. Before the first modern economies, economic knowledge, productivity, was virtually stagnant even in economies that were the dual new mercantile capitalism such as spain and holland. The concept of Job Satisfaction was unknown. For me, the lone shepherd, isolated, symbolizes that system. The new mass prospering was brought by mass innovating. Though the historians brought only resources, insufficiencies and returned scale. In the stream of new methods and products, some found adoption by consumers or producers, changing the complexion of the economy. When britain and america especially, there was a well for of information, large and small, not just headline innovations. Abraham lincoln said of america that there was a perfect rage for the new. A rage that was right among makers of products i would judge as well as users, which lincoln was mostly talking about. Widget ideas for innovation come from . The German Historical School and the young austrian believed innovations originated from a succession of discoveries by scientists and engineers who were misogynist to the economy and the commercial applications of these discoveries by entrepreneurs. But the modern economy possessed the own dynamism, the desire, capacity and scope to innovate. This led to an outpouring of imagining, tinkering, testing and trying out. These economies were capable of indigenous innovation, not just the exogenous innovation. The system of dynamism was more effective the more open it was to contributors down to the grassroots. And the modern economies were rather open to the grassroots. Human resources of initiative and imagination were being devoted to innovating, not just producing and trading. Dynamism ran high through the middle of the 20th century. No wonder that was mass prosperity. Note the economy before drew on the imagination of such a wide range of the nations minds. This dynamism required entrepreneurs and financiers, just as the sporadic innovations of an exogenous sort in the mercantile period did. Their judgment and expertise was needed, yet dynamism required further required innovators. Innovators with the vision to dream up new products that might and out. Yet, the idea that Business Activity in a free market can always be depended upon to possess the dynamism for indigenous innovation is a mistake. The right stuff is required. Innovators often have to buck conventional system, or to break away from traditional ties to family and friends. Innovating also requires a social and Political Climate that is receptive to innovation, despite the disruptions they are apt to cause. Was the modern economy desirable . Modern economy yielded a sustained rise of material benefits, including rise in productivity and wages. Decreasing disease, decreasing poverty, and increasing inclusion. In the worst factories, workers had at least [inaudible] the more radical impact of the new economies was nonmaterial. They changed their nature of life and work where they took root. They were experiential rewards from working on new problems, gathering insights, imagining and creating novel things, testing them in the workplace and trying them out in the marketplace. There were existential rewards of selfdiscovery and personal growth from journeying into the unknown. The adventurous and exploratory stood of the modern economies, emerging in the 20th century city, cities, was reflected in also in the arts of the period. Of course this transformation depended on the development of institutions that enable the dynamism, including various legal rights, laws governing corporations and financial institutions. The real crux though and one not giving enough weight until now is the rise of modern values, the spread of modern attitudes and beliefs. These modern values can be roughly grouped under the headings of individualism, thinking for oneself, working for oneself, willing to break from ones group. Vitalism, relishing challenges, overcoming articles, satisfying curiosity, competing, taking the initiatives, acting on the world. And finally selfexpression. Imagining and creating, demonstrating an insight by testing it, voyaging into the unknown and hopes of making a mark. The basic thesis of the book is these modern values finally achieve the Critical Mass necessary to what the desires in individuals to innovate. This burkett of those required to innovate and boost the willingness of society to give wide scope of innovation. The book documents the modern values from the onset of the modern era to its winding down, roughly from 14901940. Individualism begin with the humanism of the late renaissance, vitalism with the quests of the baroque era him and the curiosity of the enlightenment, and selfexpression with the romantic period. This Cultural Heritage belongs to the world, serving to all of the western nations, it is implicit in the book that some of the nations did not fully assimilate into their life. Into the values that on. Ultimately, severe reactions to the modern economies set in in some countries. The fluctuations and disparities of income, and even in prospects, typical of modern economies and the endemic unemployment led to socialists, some nations move part of the way to a socialist economy. Seeing more state ownership as a step towards stability, equality and better employment. Generally speaking a socialist spoke of Greater Development of equal capacity to produce, but showed no consideration or awareness of the deeper goals of individuals, the nonmaterial rewards deriving from a life of selfexpression such as exploration and creativity. Socialists neglected to provide for innovation. The social upheaval rockbottom on in economies led in the 1920s and 30s to a corporatist reaction invoking some traditional values found as far back as the middle ages and even in mercantile capitalism. The corporatist critique in italy, germany and france drew upon a set of traditional values. Corporatists held new enterprises invading towns, and hated new money upsetting traditional ways, wealth and status. So they hated the lack of societies control over the modern economy. The essence of the thought, i believe, was a revolt against individualism and selfexpression. For them, what mattered was the good of the nation, not the individual and the government has to decide what is good for the nation. The classic corporatist economy retained private ownership but rests little control to the owners. To place competition in the market with the apartheid tripartite system with labor unions, both with little power, and the state. Corporate institutions and policies aimed at social protection and solidarity. These economies were conspicuous with their patronage and lobbying, not to mention cronyism and nepotism. Mussolini, a leading corporatist, promised higher productivity through innovation without actually arranging it. Corporatists and socialists have continued to this day to claim that their systems boost economic performance, at least on their measures of good performance. The data from 1980s and 1990s do not support those claims. Indeed the more socialist economy did not excel unemployment in the 80s and 90s. The more corporatist economies did not excel a growth. Those economies have proved so woefully lacking in innovation, indigenous or even exogenous, think theyve been unable to realize their own goals. My book tests the thesis that highly prospering nations require high dynamism, and for that pair has to be high in modern values. To simplify the investigation, the book attests whether to be highly prospering, nations have to be high in modern values. That is done by using the prevalence of several attitudes reported in household surveys, preference for jobs that are interesting that involve initiatives that offer change and present challenges such as competition, to represent the prevalence of modern values. And using the prevalence of reported jobs, Job Satisfaction as a measure of the prevalence of prospering. Among 18 countries in the oecd, the six countries where Job Satisfaction was widespread were all above average in modern values. The more prevalent modern values are, more prevalent the Job Satisfaction is. By the way, the same thing is true of life satisfaction. Also the countries where traditional values are more prevalent 10 to report very low Job Satisfaction. To return to the books narrative come in the postwar years, germany and france enjoyed rapid growth again, and italy found new growth. But it was mostly through technological transfers. There was mounting evidence of less dynamism. In britain and germany, later france, the loss of indigenous innovation appears to have been considerable, though concealed by continuing technology transferred from america as long as the supply lasted. This is about the late 1990s. In america, the growth rate of productivity net of the part a tribute to the growth of capital to worker, that fell in the early 1970s rather abruptly to about one half of what it had been consistently in the period 19221972. And he remained there ever since. With the exception of the use of the internet build out in 1996 19962004. What has happened is that innovation has narrowed, diminishing in most established industries, rising in some. Predictably, the declines of innovation were followed by a major ballooning of unemployment in all four of the nations in the discussion. What are the root cause of all that . The book lays much of these declines, not all, these declines have dynamism, today rise of traditional and antimodern or antibusiness values since prewar times. When dynamism was still strong. Let me talk about america. There has been a spread of the much discussed money culture. Fewer people prefer years of austerity trying to innovate with a doubtful tale, only the nonmaterial board, to working in jobs that are paying very well. In many people, the desire to make money has grown into what is usually called a survey of financial people found that about half of the respondents would engage in Insider Trading if there is no risk of being caught. This widespread desperation for money must lead to a lot of self dealings by managers in large firms, mutual funds and banks. In america at least there is a much common rise of an adolescent culture. Low on concentration and selfdiscipline. Relatedly, its striking the valuation of achievement, witness the denigration of greater figures. Tighter traditional values time many a young person to their families circle of friends over communities. Few say anymore go west, young man, go west. A new culture of entitlement brings pressure on companies to allow employees to meet family needs by working at home your which makes innovation a little bit more difficult. A precept of the new corporatism, the right for social protection from the market, has led to pervasive patronage from politicians to the public, and Campaign Contributions from corporations and labor unions to the politicians. Went established, corporations are protected through special interest legislation such as the evergreen in of old patents, they become less interested in innovation than in rent seeking your aunt after the corporations have got their carveout and the special interest Tax Deductions, outsiders with potentially innovative ideas are unable to enter. They cannot innovate, and the insiders can drop their defense of innovation. They dont need to innovate anymore. Because they are no longer under threat of industry. The nexus between private and public and education, medical care and pharmaceuticals is impeding innovation in those industries. The state, the idea of the state is need to set important directions for the economy leaves to government playing a larger role in the nations attempts at innovating, and the ordinary people doing grassroots innovation a small role. And it is the latter people, people doing grassroots innovation, who have the vantage of being up front and having a sense of where to go. Yet another of new corporatist precepts, almost move in lockstep. Invites a government in aiding laggard companies, removing companies incentives to try to pull themselves up and to avoid falling behind to begin with. America has strayed pretty far from the pioneer spirit captured by willa cather in the movie shane. And the new values, much of the modern economies dynamism. Notches cause of notches cause the loss of efficiency which is the focus. The conclusion from this is clear. Modern values if they are predominant sparked the engine of human imagination that drives innovation that is central to the modern economy. In contrast, some traditional our antimodern values directly inhibit attempts to innovate, and some traditional values come if they prevailed over modern values, foster elements of a corporatist economy that impede or even block innovation. Well, what sort of an economy on we attain for now . What is the goods . Que . Que x censors people have suggested we should say goodbye to growth. Well, that the aggrieved that it is especially the nonmaterial rewards that were the great gifts with modern economies. But now prominent economists and commentators are proposing to say goodbye to dynamism and prospering. They are abdicating a focus on the quality of life, and many these like sports stadiums, comforts like clean sheets and security. A wellknown report from the oecd views wealth and leisure as the highest goods. My book argues to be a good economy must be structured to offer participants prospects of the good life. It would be an injustice to deprive people of prospects of the good life. Further, the book sees the booklet as a conception developed across six centuries in the modern era by a succession of philosophers and humanists. And by of exploration and discovery. The modern concession, the rise [inaudible] philosophers use the word flourishing to characterize this sort of life. Its apparent that prospering became is a splendid example of the philosophers flourishing. Moreover, ordinary people have no other source of this flourishing. Where are they going to go except to embrace the challenges and opportunities of the Business World . So the modern economies were offering the good life to a large number of participants all the way to the grassroots. And economy both good and just most he geared to those with the poorest prospects of the good life, with the poorest prospects of a good life, the greatest prospects possible. And if some people are not oriented for the conception of the good life, a jealous to society will allow them to operate their own sorts of economies. This ranks i guess with deceptive. Both the left and the right and the corporatists overlook the world of creation with its imagining inventions come and the resulting personal growth in favor of materialistic criteria such as leisure and wealth. But their quality of life is no substitute for the good life. The good life is a wild ride through an economy with an open future, and becoming offering an imagined rewards, a life of kierkegaard industry, nietzsche and challenge and brookstone in the coming. That i submit is what we must hope to regain. Let me just make one tiny suggestion. I would say that it would be necessary to broaden the whole economy, the spirit of grassroots innovation that rose especially in california in garages, music business, the Film Industry and in several sparkling companies. And nation must aim for a more just but tory economy for a sort of grassroots revolution. Thank you very much. [applause] and thank you very much. This is the Commonwealth Club of california program, and our guest is edmund phelps, nobel prizewinning economist and author of a new book called mass flourishing how grassroots innovation created jobs, challenge, and change. Im alan auerbach, your moderator. You can your Commonwealth Club programs on the radio an