Reality and Fantasy in Economic Revolutions

Economic growth is terribly important. Small differences in growth rates eventually overwhelm most other considerations, so the clustering and innovation externalities that create growth differences deserve far more public attention. Unfortunately most people yawn at growth theory; they prefer stories about conflict, status, moral fiber, heroes, and epic changes.

Thank goodness Richard Florida has written a national bestseller on economic growth, calling attention to the crucial externalities. But curses, Florida has done this by telling people the kind of stories they want to hear. Florida tells us that one side in today’s culture wars is very right, while the other side is very wrong; our wealth, as well as our morality, is at stake in the culture wars.

While growth might once have come from boring stuff like raw materials, trade, giant factories, distribution networks, and organizational conformity, Florida says, an epic revolution over the last half century has put growth in the hands of bohemians with diverse and unusual dress, speech, hygiene, work hours, and sexual practices.

These “bizarre mavericks operating at the bohemian fringe” are now “at the very heart of the process of innovation,” fueling a core creative class “in science and engineering, architecture and design, education, arts, music, and entertainment,” and “creative professionals in business and finance, law, healthcare and related fields,” in all totaling one third of U.S. workers. Growth is thus strongest in bohemian cities, and we should worry that foreigners will steal our bohemians if we drift from good progressive policies like gay marriage or art and education subsidies.

How did Florida conclude that economic growth among millions of apparently conservative lawyers, doctors, and accountants is all really driven by a few wild bohemians? First, Florida learned that most economic growth comes from changes in how we do things, rather than the accumulation of physical objects. Second, Florida noticed that the dotcom boom favored cities harboring software folks and new-media artists, whose cultures had unusual dress, speech, hygiene, work hours, and sexual practices. Finally, Florida unified all this under a warm and fuzzy concept of “creativity.”

You see, growth comes from changing processes, and such changes can be called “creative.” So since bohemians are the most “creative” folks around, Florida concludes bohemians must drive economic growth. After all, creativity “is not something that can be kept in a box and trotted out when one arrives at the office.” The muses of creativity favor “individuality, self-expression, acceptance of difference, and the desire for rich multidimensional experiences” much more than “the homogeneity, conformity, and `fitting in’ that defined the organizational age.”

Florida concludes that the economy has been learning to foster bohemian free-spirits, to gain from the innovation they produce. In fact, conformity is so old-school that “it’s almost impossible to be a non-conformist today because conformity is no longer an issue.”

This is a Star Wars vision of creativity: “Feel the force, Luke; let go of your conscious self and act on instinct.” And it is just as much a fantasy, like the fantasy that artists and academics feel no conformity pressures.

The truth is that the artistic creations or intellectual insights we most admire for their striking “creativity” matter little for economic growth. Instead, most of the innovations that matter are the tiny changes we constantly make to the millions of procedures and methods we use. And changing these procedures does not require free-spirited self-expression. Instead, it is quite natural for people to constantly think about tiny changes to their procedures as they follow those procedures. In fact, we imagine far more such changes than we can afford to pursue.

What we lack is not more suggestions for change, but better ways to identify the most promising suggestions, and ways to encourage people to pass suggestions on to those who can best act on them. If the world has become more “creative,” it is mostly because our social institutions do better at these tasks; bohemian self-expression has little to do with it. For example, while I am often considered an especially “creative” scholar, that is not usually high praise, and to succeed in academia most of my graduate students and I have had to learn to be less creative than we were initially inclined to be.

We see a steady stream of people like Florida, each declaring that we are in the midst of yet another grand revolution where all the old rules have changed, each such revolution supposedly as big as the industrial revolution. I fear people have become desensitized by this stream; they know that life has not changed that much over the decades, and most people have adapted just fine while remaining completely ignorant of these supposed revolutions.

I fear this desensitization because (creative scholar that I am) I suspect that we will soon see a revolution that really is as big as the industrial revolution. Most people don’t realize just how huge the industrial revolution was—in fact, only two other changes in human history have been even remotely as big. People may need a lot of help adapting to a revolution this big.

A postcard summary of life, the universe, and everything could go as follows.

In a universe that was doubling in size about every ten billion years, life and animals appeared on Earth. The largest animal brains then doubled in size every thirty million years. About two million years ago humans achieved important brain innovations, and the number of humans then doubled every quarter million years. About ten thousand years ago we learned to farm instead of hunt, and the human sphere then doubled every thousand years. Finally the industrial revolution occurred, and the world economy has since been doubling every fifteen years.

Our history has thus been a sequence of steady exponential growth modes, with sudden transitions between them. Could yet another new mode appear soon, growing even faster?

Looking at the number of doublings each previous mode experienced before the next mode showed up suggests that a new mode should appear sometime in the twenty-first century. Since each mode grew over one hundred times faster than the previous mode, the next economic mode should double every week or two. And since each transition has taken less time than the previous doubling time, the next transition would take less than fifteen years.

We can even imagine what might cause such a dramatic transition: smart machines. Simple growth models suggest that an economy with intelligent machines could grow very rapidly indeed, and induce rapidly falling human wages. Clearly this scenario could involve enormous changes. If we foresee such changes and people listen to us, perhaps people could better adapt to those changes. Alas, given the steady stream of “revolutions” people hear about, such as Florida’s “creativity” revolution, people may well not listen when it really matters.

For more on this next revolution, see:

Robin Hanson is associate professor of economics at George Mason University.

Also from this issue

Lead Essay

  • In this month’s lead essay, Richard Florida, bestselling author of Rise of the Creative Class, argues that the old industrial era has given way to a new creative era. Science and technology, art and design, and culture and entertainment have superceded natural resources and industrial infrastructure as the key to economic success. Talent is now the key factor of production and winners in global economic competition will be those who can best deploy and attract it. However, the creative economy is a source of increasing inequality both within and between nations. Florida argues that the key to bridging the gap between the creative and service sectors is to harness the creativity of service sector workers to make their jobs both higher-paying and more satisfying.

Response Essays

  • In his reply to Florida’s lead essay, George Mason economist Robin Hanson argues that creativity matters less for economic growth and the future of work than Florida thinks. According to Hanson, Florida’s emphasis on creativity distracts us from the prospect of a truly revolutionary change to work and economy just over the horizon: rapidly exponential growth driven by smart machines. “An economy with intelligent machines could grow very rapidly indeed,” Hanson argues, “and induce rapidly falling human wages.” Will we be prepared if we’re busy making the Creative Class comfortable?

  • MIT economist Frank Levy agrees that creativity is more important than ever in a world where computers and foreign workers can do routine work less expensively than domestic workers. This shift, Levy says, requires better education in problem-solving. But education can only do so much. The gains from rising labor productivity are going largely to the wealthy, Levy argues. Unless policies and norms are reinstated that spread those gains more widely “all of the nation’s institutions will be at risk.”

  • While agreeing with much in Florida’s essay, UCLA economist Edward Leamer suggests that the key to understanding the future of work isn’t creativity, but talent. “Is a personal computer like a forklift or a microphone?” Leamer asks. Forklifts are forces for equality, washing out individual differences in ability. Microphones, on the other hand, amplify difference in ability and talent. If training cannot create talent, but can only enhance it, the gains to training will be highest for the talented, and it will not be possible to close the talent and wage gaps by offering more training to the less talented.