All Commentary
Friday, April 21, 2017

Have Americans Lost Their Entrepreneurial Spirit?

Are modern market innovations like Uber and Airbnb, representative of the country's entrepreneurial drive, or merely the exception to the rule?

Just this month, MR University completed their five-part video series: “Tyler Cowen on American Culture and Innovation.”

It’s an accessible—and insanely well-produced—half-hour summary of Cowen’s argument about The Complacent Class.

The argument, in a nutshell: Americans have lost their entrepreneurial spirit. As a result, a “great reset” is coming for which we are not be prepared.

Cowen’s argument builds off a cyclical view of history. This view is both oddly disconcerting and optimistic.

The New Segregation

Have we really lost our entrepreneurial spirit? Aren’t we seeing massive innovations in the communications industry? Aren’t companies like Uber and Airbnb disrupting old, complacent industries?

Cowen argues that these companies are the exception. The numbers for startup growth and startup success are on the decline. All around, he says, industry is solidifying into monolithic giants whose infrastructure is not well suited for dynamism and change.

Insulated experts frequently miss what it happening outside their bubble.

The blame largely falls on what he calls the “new segregation.” Thanks to technological progress, we now have algorithms automatically match us with what we like. Want a partner you’ll like? will help. Want to find a movie you’ll like? Netflix will recommend one for you.

This causes people to amass in like-minded groups. Employers are more effective at finding exactly the kinds of employees they want. Those like-minded employees flock to the same major cities to be near those employers. This jacks up rent and prices out other groups of people from those cities, reinforcing the growing segregation.

Cowen proposes the shock around Trump’s election as an example. It was so surprising because the insulated experts missed what was happening outside their bubble.

The cause of all this is people getting exactly what they want. The new segregation is what happens when people’s desires are fulfilled more effectively than ever before. People don’t necessarily want to be more segregated. But their wants, when fulfilled en masse, yield segregation.

Innovation often happens as a response to constraints.

What’s the Problem?

Why is this necessarily a problem? I offer an odd example from the film 2001: A Space Odyssey.

The film ends with a highly abstract and unforgettable sequence that strongly implies extraterrestrial intervention, although we never see the aliens. Anyone who has seen the film would likely agree that the atmospheric brilliance of the scene would be ruined by actually showing aliens.

Yet, that was exactly the plan. The filmmakers tried for years to develop realistic looking aliens for the finale of the film. It was only after many, many failed attempts that it was suggested that the aliens not be shown.

The lesson: innovation often happens as a response to constraints. The more effectively you remove constraints, the less innovation is necessary. Think of it this way: would Uber be around if the traditional taxi model wasn’t around to create the need for it?

The Great Reset

As innovation and diversity decrease, industries rigidify and become less able to respond to sudden crisis. Cowen identifies a number of harbingers of such a crisis. Whatever one may think of these signs, on a long enough timeline, crisis of some kind is inevitable. If we are indeed unable to handle it, then Cowen’s great reset will arrive in one form or another.

Cowen notes that Uber and Airbnb are highly visible, but not representative.

Cowen is pessimistic that we can avoid it—if we could, we’d already be avoiding its underlying causes, and we’re not. This makes sense. We could avoid the reset if many people embraced diversity and risk in their lives and businesses. But why would they do that, when it’s so easy to ensure security and comfort at the click of a button?

If there’s a way out, it’s through education and parenting. Let’s face it—generations turn out the way they do because of the way they are raised and socialized.

A shift toward embracing risk in the socialization of the next generation might turn things around. But then, the same question arises: if today’s generation does not embrace risk, why would we expect it to do so in the raising and educating of its children?

Perhaps, history isn’t quite cyclical but spiral.

One possible answer is culture. Cowen notes that Uber and Airbnb are highly visible, but not representative. Perhaps their visibility is itself a good sign. Even if little genuine disruption is going on, disruption is held up as a cultural value. That raises the likelihood that the next generation will be raised to actually carry it out in their lives.

If this does not happen, we may see the reset. Cowen is optimistic about the result of the reset: a regeneration of the American pioneer spirit. The reset will create a need for this regeneration.

We can now see all the steps of a historical cycle implied in this story. The entrepreneurial spirit leads to economic progress. Progress means more effectiveness in getting what we want. Getting exactly what we want kills the entrepreneurial spirit, which in turn kills the progress. Progress falls enough that we need the entrepreneurial spirit again. Repeat.

Is there any sense in hoping for economic progress then? What’s the point? Isn’t it just going to lead to its own downfall?

The hope—assuming this view is correct—is that history isn’t quite cyclical but spiral. That is, every time we pass through the cycle, we do so relative to higher standards of living than the previous go-around.

History suggests this is correct. If it is, then we have reason to be optimistic, even if the end of progress is built into its beginning.

  • The author of this essay requested to remain anonymous.