Rappaport Institute horizontal images

Protestors Ignore American Love of Entrepreneurs

Originally published in Bloomberg News

November 21, 2011
Edward Glaeser (Glimp Professor of Economics, Harvard University)

The Occupy Wall Street movement is fighting an almost unwinnable battle against the ghost of Steve Jobs.

America’s love affair with entrepreneurship complicates any attempt to mount an effective European-style war of have-nots against haves. To be successful, the new economic populists must connect their message with the American embrace of those, like Jobs, who become rich by improving our economy and the world. To be wise, the advocates of free markets should worry more about ensuring economic opportunity for all.

The Occupiers appear angry that President Barack Obama didn’t do more to eliminate the inequities of American life, even though, by the standards of U.S. politics, he did much that should have pleased the left.

Obama shepherded a $787 billion stimulus package, and briefly nationalized two of the Big Three U.S. automakers. He pushed a huge expansion of health-care coverage in the teeth of a recession. He ended “don’t ask, don’t tell” and is withdrawing forces from Iraq. Yet to his critics on the left, including those now living in Occupy Wall Street encampments, this is far too little, and these actions have been compromised by the president’s support for the bailout of the banks and a troop surge in Afghanistan.

Their expectations seem built, not on America’s generally limited government, but rather on the far more expansive view of state intervention embraced in continental Europe. Their hopes ignore the profound historical forces that have limited social democracy and redistribution in the U.S.

American Exception

Seven years ago, Alberto Alesina and I wrote a book, "Fighting Poverty in the U.S. and Europe: A World of Difference," which argued that two factors were paramount in explaining the limits of the U.S. welfare state: our conservative political institutions and our nation’s remarkable heterogeneity.

The Founding Fathers fretted about the excesses of popular democracy, and they enabled a bevy of counterforces, including the Senate, the Supreme Court, heavy local control and majoritarianism, that have frequently stymied leftward tilts.

The Senate’s long terms, overrepresentation of conservative agricultural states and rules of debate have often made it a bulwark against progressive change, as it was during the 1930s. The power of the one-person filibuster was ended in 1975, but the need for 60 senators to close debate still can thwart legislation, as it did even during the first half of Obama’s term.

The Supreme Court moves slowly, and empowers the judicial choices of past administrations. During the 1930s, the court checked the New Deal; its recent opposition to campaign-finance reforms irks today’s left. Federalism devolves power to the states, the laboratories of democracy, and those states often attract enterprise by offering more economic freedom.

Our first-past-the-post majoritarian system empowers the political middle, while European systems of proportional representation have often given voice to voters on the far left. Alesina and I showed the powerful correlation between proportional representation and social welfare spending across wealthier countries.

In 1900, U.S. political institutions weren’t more conservative that those of Europe, where kings and courts still dotted the continent. Over the course of the 20th century, wars and revolutions toppled those autocratic regimes, and constitutions were generally rewritten by the victorious left. As a result, the U.S. has a political system that would have been completely recognizable to Teddy Roosevelt, if not Alexander Hamilton, while Bismarck and Napoleon III would be completely at sea in contemporary German and French politics.

Ethnic Divisions


European change came out of 20th century chaos, but the rise of the left was also helped by mostly cohesive national identities on the continent. Around the world, areas with ethnic divisions are likely to have less government spending.

The extreme homogeneity of the Scandinavian countries, for example, made it easier to create support for a generous welfare state. Before the system was reformed, the U.S. states with larger black populations typically had less generous welfare benefits, holding state income constant. The work of the economist Erzo Luttmer finds that Americans are less likely to support redistribution if they live near poorer people of a different race.

The victory of the left in Europe, and its far more limited success in the U.S., have led to powerful differences in worldviews. In our book, we reported that 60 percent of Americans believe that the poor are lazy, a view shared by only 26 percent of Europeans. Hard facts don’t explain this difference in beliefs, for the American poor typically work harder than their European counterparts, though they tend to work shorter hours than more prosperous Americans.

We reported that only 30 percent of Americans believed that luck determines income, and 54 percent of Europeans had that opinion. Those numbers still largely hold up: A recent Pew Research Center report finds that only 36 percent of Americans agree that “success in life is determined by forces outside our control,” and 62 percent disagree. By contrast, 72 percent of Germans and 57 percent of the French take the view that outside forces determine success.

Surely, these opinions help explain why 58 percent of Americans, but only 36 percent of Germans, believe that "freedom to pursue life’s goals without state interference" is more important than that the "state guarantees nobody is in need."

These views are shaped in part by decades of left-wing political success in Europe that have led to promulgation of views that support the welfare state. Paradoxically, American children are taught that they live in a land of opportunity despite the fact that economic mobility is actually higher in Germany than in the U.S.

Entrepreneurial Model

I also believe that the case for economic freedom in the U.S. has been helped by the visible example of our most successful entrepreneurs, from Andrew Carnegie to Steve Jobs.

The dominance of the European aristocracy provided the old European left with convenient villains, people whose great wealth and power were guaranteed by birth and who seemed to do little to justify their luxuries.

By contrast, Carnegie and Jobs earned their billions with ingenuity and effort. The recent biography of Jobs by Walter Isaacson reminds us that he was no saint, but he certainly provided plenty of joy in return for his billions. Every American playing “Angry Birds” on an iPhone or downloading Lady Gaga on an iPod or watching Pixar’s “Toy Story 3” on an iPad owes something to Jobs. To most of us, he’s far more hero than villain.

My Harvard colleague Elizabeth Warren, who is running for a Massachusetts Senate seat, recently reminded us that "there is nobody in this country who got rich on his own." I espoused similar ideas in my book "Triumph of the City," when I discussed the magic that occurs when people learn from one another in urban clusters.

Jobs’ own success was built on collaboration with Steve Wozniak, Mike Markkula and John Lasseter. But the collaborative nature of creativity only makes innovation more delicate and unpredictable and more likely to be damaged by an overly aggressive federal government.

Jobs himself seems to have been only rarely motivated by money. It seems quite possible that higher taxes would have done little to deter his invention. But is that true about Markkula, who was already quite comfortable when he came out of semiretirement to become Apple Computer’s first investor? What about the thousands of others responsible for Apple’s success, including vast numbers of investors? Can we be certain that their willingness to risk so much on a hazardous new venture would have been unaffected by the higher marginal tax rates the Occupiers seem to be demanding?

I have discussed the vital role of entrepreneurship in a recent City Journal article, and I will return to this theme in two weeks. I certainly believe that we are suffering today both because we have too few entrepreneurs and because our entrepreneurship spreads its benefits too unevenly.

Yet I also fear that a radically more redistributive state, resembling the one championed by the Occupy Wall Street movement, would damage the entrepreneurial spirit that has, for so long, been such an exceptional American strength.

Print print | Email email
South Boston Waterfront