When Work Is Challenging, Economies Thrive

September 1, 2013 Editor 0

“In economics, consumption is the sole end of production,” the late, great Swedish economist, politician, and social commentator Gunnar Myrdal wrote in 1930. “This is a stock phrase of all the textbooks since Adam Smith: Man works in order to live.” Myrdal, though, didn’t think that was right:

[T]here are many people who live in order to work, who consume in order to produce, if we like to use those terms. Most people who are reasonably well off derive more satisfaction in their capacity as producers than as consumers. Indeed, many would define the social ideal as a state in which as many people as possible can live in this way.

It’s fair to say that Myrdal’s argument hasn’t really won out. In economics, work is still mostly portrayed as just a prelude to consumption. But Edmund Phelps, the Columbia University economist who won a Nobel in 2006 “for his analysis of intertemporal tradeoffs in macroeconomic policy,” has been doing his best to change that. “The passage by Myrdal and a similar one by Marshall I have been using over and over again for years now,” he says, “and it always comes to people as something completely surprising.”

In Phelps’s telling, work is “an integral part of life itself.” It’s certainly an integral part of his life: At age 80, he’s a professor of political economy and director of the Center for Capitalism and Society at Columbia, and for the past three years he’s been dean of the New Huadu Business School at Minjiang University in southern China. He’s also just written a book, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change.

In Mass Flourishing, Phelps argues that the productivity revolution that began in the early 1800s in Great Britain and the U.S., and subsequently swept the world, was the result of a change in values and attitudes that led people to seek out novel products and challenging, uncertain work. And he makes the case that the productivity slowdown that subsequently hit Western nations at various times in the 20th century was the result of a backlash against this modernist ethos in the form of socialist and corporatist attempts to bring back stability, hierarchy, and stasis.

I talked to Phelps at his Columbia office just before a Labor Day weekend that he was planning to spend, in large part, getting to his other job in China. What follows are edited excerpts of our conversation:

In your book, you make a link between whether people feel like they’re achieving something at work and overall economic growth.

Well that throws me for a bit of loop. I sometimes say there are two kinds of prosperity, one is material prosperity and the other is a non-material part of prosperity — that’s the experiential benefits of having the stimulus, the challenge, the gratification of solving problems, surmounting obstacles and also the having the thrill of creating something new. Figuring out a new way to do something. Or, an even more rare thing, dreaming up a new product to produce.

I think economic growth is important, but it’s not why I wrote the book. I wrote the book on the conviction that innovation is important for having a healthy economy, for having an economy that will deliver prosperity.

In your telling, the novelty-seeking ethos arrived in our world in the early 1800s, initially in Great Britain.

Yes, that’s right. Everybody we know always thinks that these good things started with the Enlightenment, Sir William Harvey to David Hume. But as I was starting the book and beginning to look in earnest at some data from Angus Maddison which I didn’t remember looking at much before, I saw that wages actually went down in Britain between 1750 and 1800.

Yes there was a breakout in textiles in the second half of the 18th century, but in the aggregate data you just don’t see much happening. And then when the Napoleonic wars finally came to a halt [in 1815], it was just like the curtain was opened, and suddenly they had this amazing takeoff of productivity and wages.

So in your argument it’s this constellation of attitudes that suddenly came together to allow for a place where people were experimenting, taking risks, trying to sell new things, buying new things.

Voyaging into uncertainty, and embarking on new projects.

Yet a lot of people’s sense of the mid-19th century in England is not of this barrel-of-laughs place to be.

I just find it unbelievable, that this fabulous period of romanticism has been sort of taken away from us. We only find these dreary accounts of how tough it was to be poor in the 1830s. There’s such a naïvete about how things were before the 19th century. I mean, can you imagine if you had to spend all day tending sheep all by yourself? Nobody to talk to, no change going on. I mean, my God, it’s almost like a prison sentence. And then when people got to cities they could talk to people and have conversations and get involved in things.

What does the kind of workplace that delivers both non-material and material benefits look like?

It would probably be in a city where there are related businesses. You need some entrepreneurial people who get things done, but you also need some more cerebral, more dreamy types. You want a diversity of people in your company.

Just as the book was almost being snatched from my hands, the thing with Yahoo and Marissa Mayer came up.

She was worried about exactly what you’re talking about, plus there were issues where people who were never there weren’t as engaged.

Good for her that she had the guts to act on that. It’ll be interesting to see what happens. Maybe the people who were brought back to the office were hopeless cases to begin with, and their minds are never going to be engaged by the work.

When I think about the story of the productivity revolution, the narrative I’m most familiar with, from Robert Gordon and others, is of waves of technological changes driving big productivity gains. In your telling, these technological changes are secondary to …

Yankee ingenuity?

Yeah, basically. The attitude of the society.

The great driver for me is the prevailing individual values in the society. I don’t believe that every change in values is of momentous importance, but by golly, the arrival of what Jacques Barzun called the modern era in 1500 right through to Kierkegaard and Nietsche and William James and Henri Bergson, that’s not unimportant, for Pete’s sake. What people think of as the normal way to conduct their lives is pretty powerful.

I had a little meeting with journalists yesterday afternoon. I thought it was a total disaster but everybody said it was fine. And the tendency was to talk about tax rates, and there was a ritual reference to regulation of course. I concluded the conversation by saying, Look, I think it took a momentous change in thinking, in attitudes and beliefs, to bring about the marvel of the productivity explosion in the 19th century. Likewise I don’t think you can find the roots of slowdown in what happened to tax rates or economic policy more generally, or globalization. I think that suspect No. 1 has got to be that there was another gradual change in the balance between modern values and traditional values, and the power that traditional values gained in politics.

When you talk about modern vs. traditional values in this context, it seems to be mostly it’s openness to risk and innovation vs. desire for security.

I would put it almost that way, but I wouldn’t use quite those words. It’s not as if people used to be afraid of those horrible risks and then they decided to gulp, like taking Castor oil, and swallow these risks and go ahead with their lives as best they could, these poor things. In my view they were drawn to it like a moth to fire. They were exhilarated by it, intrigued by it.

It’s not right to think about it in terms of risk. It’s exploration, it’s discovery, it’s voyaging into the unknown. And maybe that’s perishable. Maybe that’s part of the problem. Society can maintain this enthusiasm, maybe it can maintain it for a long time, but there’s simply no guarantee that that enthusiasm will last. We certainly don’t understand very well the dynamics of these attitudes and beliefs.

As somebody who spends a lot of time reading HBR and hbr.org, I see a lot of excitement about the new. And obviously out in Silicon Valley the enthusiasm for the new is pretty extreme right now.

They’re great, and they’re the best part of us. Unfortunately, they’re practically pushed out to the ocean. I certainly hope that there’s going to be a rebirth of this enthusiasm for the new, and I understand that it’s very much present on the West Coast. But I don’t think I see signs of a rebirth in the heartland of the country and in most parts of business. The way businesspeople talk, they talk about adaptation as if it were innovation.

[This led to a long discussion of the less-than-innovative ways in which economists have portrayed innovation through the years, and whether their depictions influenced business practice.]

The uncertainty that exists in an economy of dynamism got suppressed. If businesspeople needed a license to talk that way, they had it with the way economics was being discussed. I don’t have a very good sense of what it was like to be at Harvard Business School as a student in the 1950s or 1960s.

It feels like the focus at the time was very much on managing something that was there.

Yes, how do you manage the company so it will be a little more efficient than the other guys? And now of course the whole takeover business, private equity, they too are perceived as going in to eradicate the inefficiencies that became encrusted around the management. There’s nothing about innovation there.

So what are the policy recommendations? Can you conceive of any particular things that could be done to turn back what you see as this dangerous turn away from modernity?

We’ve got to do something about corporate governance in this country so that we don’t have CEOs with expected tenures of four or five years or something like that. That just is so disastrous, it creates such a tilt toward short termism. And maybe somebody can figure out a way to remove the financial pressures on CEOs to hit quarterly earnings targets.

And then at the policy level, I got really interested in, well, Nancy Pelosi. She was on television advocating something or other, and I was sort of waiting for her to give at least a hint of what her thinking was of why this would be good for the country. What she said was her constituents wanted it. That was kind of the last straw. I began to think that, my God, the whole country seems to be fixated on getting benefits, from state governments, local governments, the federal government. It’s not as if we’re spending a huge percentage of GDP on it, it’s not that. I think it’s just that it seems so enervating. We want young people to grow up and come back and give us the world. We don’t want them to think now life is going to be how much more in retirement benefits you can get from the city.

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Categories: HBR, Insights

Tags: Edmund Phelps, Gunnar Myrdal, Henri Bergson, productivity slowdown