The Future of the Post-industrial Society: Individualism, Creativity and Entrepreneurship (Palgrave Studies in Classical Liberalism) 3031460499, 9783031460494

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The Future of the Post-industrial Society Individualism, Creativity and Entrepreneurship

David Emanuel Andersson

Palgrave Studies in Classical Liberalism

Series Editors David F. Hardwick, Department of Pathology and Laboratory Medicine, The University of British Columbia, Vancouver, BC, Canada Leslie Marsh, Department of Economics, Philosophy and Political Science, The University of British Columbia, Okanagan, BC, Canada

This series offers a forum to writers concerned that the central presuppositions of the liberal tradition have been severely corroded, neglected, or misappropriated by overly rationalistic and constructivist approaches. The hardest-won achievement of the liberal tradition has been the wrestling of epistemic independence from overwhelming concentrations of power, monopolies and capricious zealotries. The very precondition of knowledge is the exploitation of the epistemic virtues accorded by society’s situated and distributed manifold of spontaneous orders, the DNA of the modern civil condition. With the confluence of interest in situated and distributed liberalism emanating from the Scottish tradition, Austrian and behavioral economics, non-Cartesian philosophy and moral psychology, the editors are soliciting proposals that speak to this multidisciplinary constituency. Sole or joint authorship submissions are welcome as are edited collections, broadly theoretical or topical in nature.

David Emanuel Andersson

The Future of the Post-industrial Society Individualism, Creativity and Entrepreneurship

David Emanuel Andersson National Sun Yat-sen University Kaohsiung, Taiwan

ISSN 2662-6470 ISSN 2662-6489 (electronic) Palgrave Studies in Classical Liberalism ISBN 978-3-031-46049-4 ISBN 978-3-031-46050-0 (eBook) https://doi.org/10.1007/978-3-031-46050-0 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: © Melisa Hasan This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Paper in this product is recyclable.

Also by David Emanuel Andersson TIME, SPACE AND CAPITAL (with Å. E. Andersson, 2017 ) CITIES AND PRIVATE PLANNING: Property Rights, Entrepreneurship and Transaction Costs (edited with S. Moroni, 2014) THE SPATIAL MARKET PROCESS (edited, 2012) HANDBOOK OF CREATIVE CITIES (edited with Å. E. Andersson and C. Mellander, 2011) PROPERTY RIGHTS, CONSUMPTION AND THE MARKET PROCESS (2008) THE ECONOMICS OF EXPERIENCES, THE ARTS AND ENTERTAINMENT (with Å. E. Andersson, 2006) ASIA-PACIFIC TRANSITIONS (edited with J. P. H. Poon, 2001) GATEWAYS TO THE GLOBAL ECONOMY (edited with Å. E. Andersson, 2000)

Contents

1

Introduction: The Emergence of the Creative Society 1.1 The New Creative Society 1.2 Logistical Revolutions and Socio-economic Restructuring 1.2.1 New Values 1.2.2 Science 1.2.3 Institutions 1.3 The Urban Dimension 1.4 Conclusion: A Multidimensional Transformation References

1 2 4 6 7 9 11 13 16

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The 2.1 2.2 2.3

19 20 20

Creative Individual Background Information, Knowledge, and Creativity The Foundations of Human Creativity: Seven Functions of the Human Mind 2.3.1 Heuristics 2.3.2 Memory 2.3.3 Deep Structure 2.3.4 Ambiguity and Diversity 2.3.5 Paradoxes and Surprises 2.3.6 Equilibria and Disequilibria 2.3.7 Fundamental Uncertainty 2.4 Why Are We Creative? 2.4.1 Individual Motivations

23 24 27 28 30 32 34 36 38 38 vii

viii

3

4

5

CONTENTS

2.4.2 Social Motivations 2.5 Conclusions References

40 42 43

The 3.1 3.2 3.3 3.4 3.5

Entrepreneurial Individual What is Entrepreneurship? Who Gets What? A cul-de-sac in Economics: Utility Maximization Risk and Uncertainty The Entrepreneurial Individual: A Hypothetical Example 3.6 Entrepreneurship in the Creative Society 3.7 System Constraints 3.8 The Market Process 3.9 Conclusions References

47 48 49 51 54

Cultural Individualism 4.1 Introduction 4.2 The Rise of Cultural Individualism from Collectivist Beginnings 4.3 Stability and Change 4.4 Measuring Culture 4.4.1 Levels of Aggregation 4.4.2 Hofstede’s Static Measure of Individualism 4.4.3 Combining Hofstede and Inglehart: Beugelsdijk & Welzel 4.5 Development and Culture 4.6 Individualism and the Creative Society 4.7 Conclusion References

69 70

82 86 89 100 104

Political Individualism 5.1 Introduction 5.2 Sources of Political Individualism 5.2.1 Religion and Law 5.2.2 Spontaneous Order 5.2.3 Interjurisdictional Competition 5.3 Political Individualism: Empirical Findings 5.3.1 Institutional Competitiveness

107 108 109 109 115 118 120 120

55 56 58 61 63 66

72 76 79 79 81

CONTENTS

Agglomeration Economies and the Institutional System Constraint 5.3.3 Freedom and Agglomeration as Attractors of People 5.4 Political Individualism and the Subsidiarity Principle 5.5 Conclusion References

ix

5.3.2

122 125 129 131 136

The 6.1 6.2 6.3

139 140 141 144 144 145 147 149 153

Afterword

157

Appendix

159

References

161

Author Index

173

Subject Index

177

6

Future of the Creative Society Introduction Western Collectivism Three Key Policy Areas in the Creative Society 6.3.1 Decentralization 6.3.2 Education 6.3.3 Migration 6.4 Conclusion References

List of Figures

Fig. Fig. Fig. Fig. Fig.

2.1 2.2 2.3 2.4 2.5

Fig. 2.6 Fig. 2.7 Fig. 2.8

Building blocks of the Creative Society A classic location problem The solution to the location problem Surprise The structural instability of perception (Source: Fisher [1967]) Visual paradox Necker cube Origami as a creative decision tree (Source: Andersson and Andersson [2017, p. 67])

23 25 27 29 31 33 37 38

xi

List of Tables

Table 1.1 Table 1.2 Table 1.3 Table 4.1 Table 4.2 Table 4.3 Table 4.4

Table 4.5

Table 5.1 Table 5.2 Table A.1

Subdivision of processes according to time scale and scope of effects Top 40 science countries, 1996–2021 The transition from the Industrial Society to the Creative Society Cultural values and development stages Beugelsdijk & Welzel Collectivism-Individualism, 1981–2014, 100 countries Overview of analysed dependent and independent variables Scopus citations per capita (2021–2022) and Scopus publications per capita (2021) as a function of cultural values (1981–2014), formal institutions, and population size The Global Creativity Index (2015) and the KOF Globalization Index (2020) as a function of cultural values (1981–2014), formal institutions, and population size Systemic attributes of three spontaneous orders State rankings on the State Creativity Index (SCI) and the Mercatus Overall Freedom Index (MOFI), 2006 Overall Individualism Index (OII), early twenty-first century, 100 countries (United States = 100)

5 9 14 77 85 90

95

96 117 124 160

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CHAPTER 1

Introduction: The Emergence of the Creative Society

Abstract Creative individuals have left their mark on the world for thousands of years, but a society in which creative work is widespread is a new phenomenon. The society that is emerging as a consequence of post-industrialization is such a society. Thus, it is appropriate to refer to it as the Creative Society. As a society, it is the outcome of the Fourth Logistical Revolution, which refers to how new information and communications technologies caused a dramatic expansion of markets. The emergence of the Creative Society involved several parallel phase transitions, ranging from new occupational structures over new cultural values to the integration of local into global markets. Large metropolitan areas with relatively high levels of cultural and political individualism have been at the forefront of these parallel processes of change. Keywords Creative Society · Post-industrial · Logistical revolution · Phase transition · ICT · Cultural individualism · Political individualism · Tolerance · Trust

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0_1

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1.1

The New Creative Society

Creativity is not a new phenomenon. The philosophers of classical Athens and the painters of Renaissance Florence illustrate this. What is new is the emergence of a society in which creativity has become a mass phenomenon. Therefore, we call the type of society that emerged in the 1960s and 1970s in a handful of creative nodes such as New York and San Francisco the Creative Society. This new society is gradually replacing the industrial society that preceded it within an expanding network of cities and regions. As I conceive of it in this book, creativity comprises economic and non-economic phenomena. The novelties that artists, scientists, inventors, and designers offer us may initially be instances of pure creativity outside market relationships. But there is also economic creativity. In the economy, innovators of new products such as the personal computer, the smartphone, or the electric car transform pure creativity into phenomena that influence most people’s lives, even in societies with little creative work. Entrepreneurial innovators introduce new products and methods of production in the pursuit of profit. Invention precedes innovation, and only some innovations are impactful for society. But both phenomena are creative in that they aim at changing or disrupting previous habits of thought or action by combining ideas or resources in new ways. There is an unavoidable tension between the demands of the Creative Society and the human yearning for a stable and predictable life. Creative activities are intrinsically dynamic. Institutions and habits may slow the effects of creative disruptions, but in the end, these disruptions will affect every nook and cranny of the nonautarkic world. We must learn to live with them, whether we like them or not. My argument in this book is that the creative society will be less threatening to those who adopt the values and institutions that cultivate competitive creative success. In later chapters, I will discuss these values and institutions in more detail, but the operative catchword is individualism. Individualism is an ambiguous term. My definition is inclusive. It includes cultural individualism, which refers to valuing individual autonomy in the context of families, organizations, and societies. It also includes political individualism, which refers to the classical liberal tradition of protected civil liberties and property rights within a general, stable, and non-discriminatory legal framework. My most controversial

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contention is that individualism has become more critical over time. While it is conducive to development in an industrial society, it remains possible to industrialize with only a moderate dose of cultural and politico-economic individualism. China is a case in point. In contrast, a thriving creative society is only possible with substantial cultural and political individualism. The individualism I propose is not as extreme as the visions of libertarian purists. Sufficient individualism implies a high level but not maximization. In the individualist creative society, we can still care for our families, and our taxes may still fund our children’s education. But nationalist or socialist ideas such as top-down planning, paternalism, protectionism, and political correctness are even more detrimental to development than during the preceding industrial stage. In Schumpeter’s classic Theory of Economic Development, the creative innovations that entrepreneurs introduce to markets are outside the firms that organize production.1 Curiosity without economic considerations drives the inventors forward. Most inventors may have been unconnected to markets in the early twentieth-century Austro-Hungarian Empire, but it does not describe twenty-first-century conditions. Industrial research and development (R&D) account for a more significant share of the economy in Asia, Europe, and North America than university research.2 Inventions are now part of the production plans of most knowledge-intensive firms. It is also noteworthy that the art, entertainment, and design industries are expanding at a faster pace than the economy as a whole. These are industries where invention comprises the means and ends of production. A related development is an increasing demand for workers with creative skills, ranging from artists to software engineers. One estimate is that the share of the workforce in creative occupations grew from less than three per cent of all North American and Western European workers in 1900 to more than 30 per cent in 2000.3 The transition from an industrial to a creative society has not been uniform in a spatial sense. The share of creative workers is greater than 50 per cent in some regions and smaller than ten per cent in others. Processes of change favoured certain regions. But to understand what has happened, we must take a step back and consider the underlying causes of structural transformations. One way of thinking about this is in terms of fast and slow processes of change and “logistical revolutions.”4

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1.2 Logistical Revolutions and Socio-economic Restructuring A logistical revolution fundamentally transforms society’s economic, political, and cultural infrastructure. Such transformations occur in different places at different times. It is a drawn-out process whereby the most socio-economically advanced regions restructure ahead of more peripheral regions. Knowledge-intensive metropolitan areas such as Boston, San Francisco, and New York underwent the latest transformation earlier than other parts of the world. In formal models, the restructuring amounts to a phase transition around a “bifurcation point.”5 The critical driving forces behind the phase transition are infrastructural. The infrastructure can be material or non-material. The infrastructure has two distinguishing attributes: 1. It is shared or collective, meaning numerous firms and households can use it simultaneously. 2. It is durable and changes at a slow pace. The material infrastructure comprises networks for transmitting energy and information or transporting people and goods. Accessible knowledge, shared values, and institutions comprise the non-material infrastructure. Institutions may be formal or informal. English common law is an example of a formal institution, while a norm such as a handshake to seal a deal is an example of an informal institution. Table 1.1 presents the analytical framework for long-term cultural, economic, and political development, with a two-way subdivision of factors: fast versus slow and public versus private. The arrows denote the main causal pathways. The basic idea here is that the primary influence on regular interactions, whether economic, social, or political, is the slowly changing infrastructure, which retains a stable “stage-like” character for long periods. When we think about the long-term development of a society, it is helpful to focus on infrastructural rather than proximate (shortterm) causes. Examples of infrastructural causes are the predominant value system, cultural norms, legal and political systems, and the size and scope of various networks that shape the convenience with which people can access one another.

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Table 1.1 Subdivision of processes according to time scale and scope of effects Scope of effects Individual (private)

Time scale (speed of change) Fast Ordinary interpersonal exchange: Markets for goods and services Normal social interaction

Collective (public) Information and communication: News Marketing and propaganda Market prices Product diffusion

Slow Private capital: Physical capital (machines & real estate) Human capital Soft and Hard Infrastructure: Basic science and other public knowledge Cultural values Formal and informal institutions Transport, communication, and utility networks

While infrastructural factors remain stable most of the time, there are exceptional, transformative periods near bifurcation points, as mentioned earlier. What it means in practice is that minor infrastructural changes cause major social effects. One example is a critical link—one may visualize it as a bridge—that connects two or more previously separated networks. Another example is a critical technology that increases interconnectivity to a new and higher level. The most well-known historical example is the Industrial Revolution and the new technologies and transport links that made it possible.6 The radical restructuring that started in North America and Western Europe in the late 1960s or early 1970s is similar and was ultimately caused by the new space-bridging links that new information and communication networks made possible. The present transformation is creating a new type of society. There is no agreed-upon name. Some call it the “information society,” others the “knowledge society” or the “post-industrial society.”7 I prefer to call it the Creative Society. New technological innovations enabled the creation of the networks that made this society possible and, perhaps, inevitable. The Wright brothers invented the aeroplane in the early twentieth century, but a mass market for air transport services was only feasible in the 1950s. The system for information dissemination is even more recent. It only happened in conjunction with the decision of the National Science Foundation to create the Computer Science Network in 1981, which adapted the military Arpanet network to civilian uses. Non-military actors’ adoption of the new technology was slow at first.

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But in the 1990s, the combination of affordable personal computers and network subscriptions made it possible for ordinary businesses to use the technology—renamed “the internet”—in profitable ways. The latest revolution, which I and some others call the Fourth Logistical Revolution, is closely linked to globalization.8 An illustration of this link is the divergence of the growth rate of international trade from the general economic growth rate during the transition. Cross-border trade grew faster than the world economy every year in the 25 years from 1984 to 2008, except for 2001. What, then, is this new creative society all about, apart from airports, the internet, and global trade? It is also about many other things that lowcost transport and zero-cost information dissemination make possible. One oft-noted effect has been the outsourcing of manufacturing. Multinational corporations have combined this with establishing global supply chains, taking advantage of low-cost sources of labour in industrializing developing countries such as China, India, and Mexico. The resulting loss of manufacturing jobs in the most economically advanced regions of the world provided incentives for creating a new occupational structure. The restructured labour markets have disproportionately favoured those with creative and other cognitive skills. We may call this broad category of workers “knowledge handlers” or “cognitive workers.”9 Richard Florida refers to them as the new “creative class.”10 Whatever the preferred terminology, it is evident that hiring workers to develop new ideas, solutions, designs, or compositions has become much more common than in the past. While a network transformation is necessary for an economic restructuring—a logistical revolution—it may not be enough. The new material network infrastructure depends on parallel changes in the non-material infrastructure of values, science, and institutions. 1.2.1

New Values

Parallel with the rise of new technologies, networks, and occupational structures has been the rise of a new value structure that is more supportive of societies that depend on being creative. The political scientist Ronald Inglehart was the first scholar to observe and analyse the widespread change in values systematically. In his 1977 book, The Silent Revolution, he claimed that the value priorities of the generations born in North America and Western Europe after World War II differed from

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older cohorts.11 He used the terms “postmaterialism” and “postmodernism” as alternate shorthands for an assemblage of values that tend to occur in combination and which reflect a different approach to life than previously dominant “materialist” or “modernist” values. Among other things, the new values focused on quality of life and self-expression rather than on material and physical security. Central to Inglehart’s theory of value change is the empirical observation that individuals form their worldviews during childhood and adolescence and that they retain them after that. Inglehart hypothesized that people who perceive themselves as being materially insecure in the first two decades of their lives tend to develop scarcity values. In contrast, an affluent childhood should lead to a focus on well-being values. People with well-being values tend to prioritize “soft values,” such as freedom of expression, as opposed to traditional scarcity values, such as the accumulation of money. Inglehart’s empirical findings use the World Values Survey, which includes an increasing number of countries since its inception in the 1970s.12 One subcategory within the cluster of postmodern values is greater tolerance of individuals who deviate in one way or another from traditional lifestyles. Richard Florida focused on this aspect of the new value structure in his “3 Ts” of creative city regions (the three Ts refer to talent, technology, and tolerance).13 Among Florida’s widely reported observations is the association between agglomerations of creative workers and same-sex households, which he explained as generalized tolerance across different domains: those tolerant of same-sex households are likely also tolerant of new ideas. We shall return to the question of values in Chapter 4, where I will argue that we can subsume Inglehart’s “postmodern values” and Florida’s “tolerant values” under the rubric of individualism, which is in keeping with more recent work by one of Inglehart’s frequent co-authors.14 1.2.2

Science

Basic science is infrastructural. It is freely accessible and evolves at an extraordinarily slow pace. The relationship between basic science, other types of less durable knowledge, and economic development proceeds according to the following causal structure15 :

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Basic science → technological R&D → innovations (new products and production processes) → new trade → economic development → increasing real income and employment in creative regions.

The long periods that have to elapse before investments in basic science yield commercial applications and new employment opportunities are one reason politicians are reluctant to fund scientific research. The structurally uncertain gains are another reason. Yet private and governmental decision-makers in some countries are more willing to expend funds on research and development (R&D) than elsewhere. For example, Finnish corporations, foundations, and governments at all levels spend more than eight times as much on R&D as their Greek counterparts, or six times as much relative to the size of the economy.16 Although most official statistics on R&D refer to the national level, less than ten per cent of all metropolitan areas account for more than ninety per cent of science output. The largest urban regions with the best universities are the centres of scientific creativity. We can measure scientific activity in a variety of ways. A popular input measure is R&D spending as a share of the gross domestic product. But not all organizations that allocate resources to science do so effectively. Ineffectiveness is sometimes an incentive problem. It is always a knowledge problem. Knowing which research projects will generate the most significant insights and useful applications is impossible, especially for basic science with long time horizons. A better—although still imperfect—measure is scientific output such as journal papers and scholarly monographs. The serviceability of this measure depends on the randomness of the quality of the publications. If we can assume that high-quality output constitutes a small but constant share of total science production, then the total output becomes a meaningful yardstick for comparing units. However, available data suggest that countries with high per capita publication counts tend to have more citations per publication and produce more scientific breakthroughs. In contrast, lower-output countries generally have less impactful publications. The notable exception is the United States, which ranked twentyfirst in per capita publications from 1996 to 2021 but is the most over-represented source of references in the top percentile of the most highly cited journal articles, edging out Switzerland.17 Table 1.2 lists the

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Table 1.2 Top 40 science countries, 1996–2021 Per-capita Scopus-indexed Publications (*106 ) 1996–2022 Switzerland

4,462

2,666

3,524 3,476 3,426 3,307 3,161 3,082 3,016 2,755

United Kingdom Canada Israel Ireland Belgium Slovenia Austria Luxembourg Qatar

Iceland Denmark Sweden Norway Australia Singapore Finland New Zealand Netherlands

1,804

Croatia

1,138

2,465 2,435 2,417 2,416 2,282 2,278 2,196 1,964

United States Germany Spain Estonia Czechia France Portugal Italy Greece

1,712 1,643 1,579 1,555 1,514 1,456 1,454 1,400

South Korea Malta Slovakia Japan Hungary Poland Lithuania U. A. E.

1,110 1,085 999 966 914 836 728 698

2,739

Cyprus

1,883

Taiwan

1,322

Brunei

662

Source: https://www.scimagojr.com/countryrank.php

40 countries with the highest per capita output of Scopus-indexed publications. Scopus encompasses more than 30,000 peer-reviewed journals and book series. It is evident from the table that countries in northwestern Europe have the highest per capita output figures and that the most prolific large countries are Australia, the United Kingdom, and Canada. However, the table is more informative for small than for large countries. The United States comprises a patchwork of states, ranging from high-tech Massachusetts to economically obsolescent West Virginia. It was the first Western country to reach the creative-society destination with all its associated cultural values and occupational structures and the last to leave the preceding industrial stage behind. 1.2.3

Institutions

From a global perspective, it is not only information and communications technology (ICT) infrastructure, individualistic values, and scientific capacity that enable a society to become creative. Formal institutions are also important, although many social scientists disregard them due to the common practice of limiting empirical studies to the most developed parts of the world. Although US states are diverse in their laws and regulations, with predictable effects on domestic interstate migration, such

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institutional differences are still minor.18 Differences between adjacent countries can be much more significant. The institutional framework is the most critical factor when comparing neighbours such as the United States and Mexico or Israel and Egypt. While manufacturing jobs have been outsourced to countries with cheap labour, it is only for low-valueadded production that such outsourcing makes business sense. Creative activities remain disproportionately located in jurisdictions that offer reliable protection of property rights. As a rule of thumb, such locations tend to have high wages and expensive real estate. Even if the Mexican or Egyptian government were to make the creation of a top-class university in Mexico City or Cairo their top priority, we should not expect either of these cities to attain the creative edge of, say, New York or Tel Aviv. The institutional preconditions are not yet present. What are these institutional preconditions? From the standpoint of individuals and organizations specializing in creative or entrepreneurial activities, they are those that safeguard freedom of expression and render laws transparent, property rights protected, and innovation profitable. According to most measures of institutional quality, such institutions encompass two regions: northwestern Europe and North America, as well as a few other places that derive their institutions and values from Europe’s northwestern quadrant, notably Australia and New Zealand. Whether we look at the geography of science, patents, art, or design, there is a systematic over-representation of creative output in nations that share these institutional features. However, within countries, creativity clusters in the densest and most diverse regions.19 In the literature on economic development, there is a focus on interpersonal trust and its influence on market transaction costs.20 Institutions that make exchanges of goods and services more reliable and business partners more trustworthy were an essential precondition for industrialization. In countries transitioning to the Creative Society, a sufficient level of institutional and interpersonal trust is invariably present. The new differentiating factor is social tolerance, which links to the dynamic transaction costs accompanying entrepreneurial innovation. Societies with high social tolerance tend to be more accepting of the experimentation and frequent failures that go hand in hand with creativity and innovation. We then arrive at the following three informal and formal institutional factors that affect creative and innovative activities:

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1. Institutional and interpersonal trust 2. Social tolerance 3. Laws and regulations that support creative and innovative projects As it happens, a small subset of nations is simultaneously trusting and tolerant and offers reasonably attractive legal systems, laws, and regulations. According to the World Values Survey, Sweden, Denmark, and the Netherlands have the most individualistic, tolerant values.21 As for formal institutions that support creativity and market entrepreneurship, Switzerland, New Zealand, and Denmark were the three top-ranked countries in 2021, according to the Human Freedom Index of the Fraser Institute.22 All five countries, along with Australia, Canada, Finland, Norway, and Iceland, do well on relevant institutional indicators. There is a fortunate confluence of creativity-enhancing features in these ten countries, which is also—albeit to a lesser extent—true of the United Kingdom and the United States. In general, people in these societies give others the benefit of the doubt, are tolerant of unusual lifestyles, and organize their economic activities with the help of relatively transparent and non-discriminatory legal systems. It is no coincidence that the same ten countries rank at or near the top in their per capita science output and even in the number of population-weighted Nobel laureates. According to institutional economists such as Ronald Coase and Douglass North, these informal and formal institutions are the ultimate causes of more rapidly evolving behaviours.23 We shall return to institutions in chapters four and five.

1.3

The Urban Dimension

The transition from the industrial to the Creative Society has a spatial dimension, even within small countries. Specific locations have proven more adept at effecting a rapid occupational restructuring than others. Most of the leading regions are large cities with research universities, and most of these cities are in Western Europe or North America. Urban economists and economic geographers have explained the existence of cities by referring to the catch-all phrase “agglomeration economies.” Cities attract people because of the benefits they derive from pooled labour markets, shared infrastructure, and knowledge externalities.24 In cities that specialize in creating new knowledge, the main competitive advantage for the individuals and firms that locate there is

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instant access to new knowledge. Good availability of suitable workers and low distribution costs remain essential, but they take a back seat to the “buzz” associated with being at the centre of knowledge creation. In the Creative Society, spatial specialization is more of a limitation and less of an opportunity than previously. Formerly productive company towns have become symbols of depopulation and decline. If the goal is to transform existing knowledge to create novelties, then a consequence is that diverse cities gain attractiveness. Creativity is the result of combining pre-existing ideas or resources in new ways, which implies that the creative individual benefits from exposure to divergent ideas and worldviews. Combining ideas or building blocks from different sources is more likely to yield a creative breakthrough than combining them from proximate sources. The latter combinations also deliver creative results, but they are more mundane. For scientific creativity, we may call this ordinary type of creativity “normal science.”25 In business, it is common to refer to it as incremental innovation or product development. The urbanist Jane Jacobs drew attention to the role of diversity in stimulating creative activities that sometimes result in profitable innovations.26 She argued that diversity is more productive in a dynamic sense than specialization. What was unusual about Jacobs’s version of this argument was how she linked it to urban planning principles. She argued that a city with a diverse knowledge base would benefit from spaces encouraging individuals with different specializations to mix and share their knowledge. Thus, the most creative cities have a diverse population and embody four design principles that encourage serendipitous encounters.27 The location of creative activities in the arts and sciences is more concentrated in space than production in general. Large cities in a handful of countries produce most of the world’s patents, scientific publications, music, and films. A study of the spatial distribution of scientific publications in the European Union showed that large cities and university towns in the northwestern quadrant of the continent accounted for most of the creative output. Two significant factors that were associated with high levels of science output were interregional accessibility to other European regions and the institutional learning processes that old universities embody.28 Spatial concentration is even more significant in many of the arts and other knowledge-intensive industries.29 Novelists are over-represented in specific boroughs such as Brooklyn in New York and Hackney in London. The dominant nodes in the global music industry are London,

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Los Angeles, Nashville, and New York, each specializing in different genres. The use of science for technological innovations at the frontier of knowledge is synonymous with Silicon Valley in the popular imagination, perhaps because ICT innovations have reshaped our lives the most. But even if we consider other industries, the world of path-breaking innovations is even spikier than the world of science. It is mainly the preserve of leading metropolitan areas in the United States and a handful of structurally similar cities in northwestern Europe.

1.4 Conclusion: A Multidimensional Transformation The creative society resulted from a logistical revolution that radically expanded interaction opportunities. It is the direct result of the ICT revolution and the reduced time and monetary costs of long-distance air transport. But many other changes have occurred in parallel. The transformation is multidimensional. It has transformed space-bridging networks, occupational structures, the role of science, and the softer infrastructures of values and institutions. Table 1.3 offers an overview of these parallel transformations. Certain regions of the world have been better able to accommodate these changes since some preconditions were already present during the previous development stage. A quick look at relevant quantitative indicators reveals that most such regions are in northwestern Europe or the Anglophone New World. Cultural and institutional starting points are important. For example, out of the twenty twenty-first-century countries that score highest on cultural individualism, we find fifteen and a half of the seventeen countries that were democracies in 1937.30 It is also noteworthy that the religious heritage of these 20 countries is predominately Protestant in thirteen and Roman Catholic in seven cases.31 The most individualistic country with a religious heritage that is neither Protestant nor Catholic is Japan, which ranks 26th in cultural individualism out of 100 countries. Other indicators paint a similar picture. Nine of the ten countries with the highest per capita science output were democracies in 1937. They also share a Protestant heritage. The ten countries with the most liberal institutions—in the classical sense—include eight historically Protestant countries and nine that were democracies in 1937.

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Table 1.3 The transition from the Industrial Society to the Creative Society Industrial Society

Creative Society

Transport networks Small capacity Sparse and rigid Large vehicles (trains, ships) Monopolistic markets

Large capacity Dense and multi-layered Small vehicles (cars, airplanes) Competitive markets

Communication networks Small capacity National hierarchical structure Mostly material transmission National monopolies

Large capacity Global polycentric structure Mostly dematerialized transmission Global competition

Science External to the production process Small university-educated minority Cultural values

Part of the production process University-educated majority

Moderate individualism Duty/materialism Dominant religion or ideology Growth Productivity (allocation of given resources)

High individualism Joy/postmaterialism Self-selected religion or ideology Sustainability Creativity (creation of new resources)

Institutions National One-size-fits-all Trust focus (low static transaction costs)

Multi-layered Inter-jurisdictional competition Openness focus (low dynamic transaction costs)

The implication of these lingering effects of democratic and religious heritage is that some societies may experience the transition from an industrial to a creative society as less convulsive than elsewhere. In some cases, the cultural and political transition costs may prove prohibitive, and these societies are more likely to evolve into permanent manufacturing bases for the creative world. An example of a pattern prediction involving cultural and political factors is that it is more likely that Uruguay will become a genuine creative society within the foreseeable future than it is for Venezuela to accomplish that same feat.

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Notes 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

12. 13.

14.

15. 16. 17. 18.

19. 20. 21.

Schumpeter (1934). Andersson & Andersson (2015). Andersson & Andersson (2006). See Andersson & Andersson (2019) for a formal synergetic phase transition model. Ibid. Ibid. Bell (1973) first introduced the term “post-industrial society.” Andersson (1986) was the first to use this term. See Andersson (1986), Bacolod et al. (2009), and Johansson & Klaesson (2011). Richard Florida introduced the idea of a “creative class” with similar occupations, values, and priorities in Florida (2002). Ronald Inglehart introduced his theoretical framework in Inglehart (1977). Inglehart (1997) further developed these ideas with the help of more empirical data from the World Values Survey. World Values Survey data are available in the form of a downloadable Excel file at worldvaluessurvey.org. Florida (2002) uses the 3T framework to rank-order American metropolitan statistical areas (MSAs). San Francisco scored the highest on this indicator. A dynamic measure of individualism that employs observations from multiple waves of the World Values Survey is presented in Beugelsdijk & Welzel (2018). This causal structure is first presented in Andersson & Andersson (2015). OECD Science and Technology Indicators (2012). Bornmann et al. (2018). Andersson & Taylor (2012) show that low-tax states with a low regulatory burden are most attractive to domestic interstate migrants, except for young migrants with advanced degrees. Individuals in the latter group tend to favour states that score high on Florida’s 3T index, with economic freedom as a secondary consideration (see Chapter 5). Florida (2002). See North (1990), Redding (1990), and Fukuyama (1995). Beugelsdijk & Welzel (2018).

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22. See Vásquez et al. (2021). 23. See North (1990). 24. The original account of agglomeration economies in the form of industrial districts or “clusters” is in Marshall (1920). 25. Thomas Kuhn introduced the concepts of “paradigm” and “normal science” in Kuhn (1962). 26. Jacobs (1961). 27. Jacobs (ibid.). Jacobs’s four design principles are high density, mixed primary uses, short blocks, and a mixture of new and old buildings. 28. Andersson et al. (2020). The spatial unit of analysis is the European NUTS2 region, and the output variable is the number of fractionalized Web of Science publications from 2001 to 2012. Andersson and Le (2023) present similar results for a greater number of NUTS2 regions. 29. See Andersson & Andersson (2006). 30. Huntington (1991). 31. Huntington (ibid., p. 13) notes that “historically, there has been a strong correlation between Western Christianity and democracy. By the early 1970s, most of the Protestant countries in the world had already become democratic. The third wave of the 1980s and 1990s was overwhelmingly a Catholic wave.”

References Andersson, Å. E. (1986). The four logistical revolutions. Papers in Regional Science, 59(1), 1–12. https://doi.org/10.1111/j.1435-5597.1986. tb00978.x Andersson, Å. E., & Andersson, D. E. (2006). The economics of experiences, the arts and entertainment. Edward Elgar. Andersson, Å. E., & Andersson, D. E. (2015). Creative cities and the new global hierarchy. Applied Spatial Analysis and Policy, 8(3), 181–198. https://doi. org/10.1007/s12061-015-9141-7 Andersson, Å. E., & Andersson, D. E. (2017). Time, space and capital. Edward Elgar. https://doi.org/10.4337/9781783470884 Andersson, D. E., & Andersson, Å. E. (2019). Phase transitions as a cause of economic development. Environment and Planning A, 51(3), 670–686. https://doi.org/10.1177/0308518X18803112

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Andersson, D. E., & Le, T. H. (2023). Agglomeration, diversity, and tradition: An analysis of fractionalized Web of Science publications in EU regions. Urban, Planning and Transport Research. Article 2220573. https://doi.org/ 10.1080/21650020.2023.2220573 Andersson, D. E., & Taylor, J. A. (2012). Institutions, agglomeration economies, and interstate migration. In D. E. Andersson (Ed.), The spatial market process (pp. 233–263). Emerald. https://doi.org/10.1108/S1529-2134(2012)000 0016012 Andersson, D. E., Andersson, Å. E., Hårsman, B., & Yang, X. (2020). The geography of science in 12 European countries: A NUTS2-level analysis. Scientometrics, 124(2), 1099–1125. https://doi.org/10.1007/s11192-02003510-9 Bacolod, M., Blum, B. S., & Strange, W. C. (2009). Skills in the city. Journal of Urban Economics, 65(2), 136–153. https://doi.org/10.1016/j.jue.2008. 09.003 Bell, D. (1973). The coming of post-industrial society: A venture in social forecasting. Basic Books. Beugelsdijk, S., & Welzel, C. (2018). Dimensions and dynamics of national culture: Synthesizing Hofstede with Inglehart. Journal of Cross-Cultural Psychology, 49(10), 1469–1505. https://doi.org/10.1177/002202211879 8505 Bornmann, L., Wagner, C., & Leydesdorff, L. (2018). The geography of references in elite articles: Which countries contribute to the archives of knowledge? PloS one, 13(3), article e0194805. https://doi.org/10.1371/jou rnal.pone.0194805 Florida, R. (2002). The rise of the creative class. Basic Books. Fukuyama, F. (1995). Trust: The social virtues and the creation of prosperity. Free Press. Huntington, S. P. (1991). Democracy’s third wave. Journal of Democracy, 2(2), 12–34. Inglehart, R. (1977). The silent revolution: Changing values and political styles among Western publics. Princeton University Press. Inglehart, R. (1997). Modernization and postmodernization: Cultural, political, and economic change in 43 societies. Princeton University Press. Jacobs, J. (1961). The death and life of great American cities. Random House. Johansson, B., & Klaesson, J. (2011). Creative milieus in Stockholm. In D. E. Andersson, Å. E. Andersson & C. Mellander (Eds.), Handbook of creative cities (pp. 456–481). Edward Elgar. https://doi.org/10.4337/978085793 6394.00032 Kuhn, T. S. (1962). The structure of scientific revolutions. University of Chicago Press. Marshall, A. (1920). Principles of economics. Macmillan.

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North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge University Press. OECD. (2012). OECD science and technology indicators. OECD. https://www. oecd.org/sti/msti.htm Redding, S. G. (1990). The spirit of Chinese capitalism. de Gruyter. Schumpeter, J. A. (1934). The theory of economic development. Harvard University Press. Vásquez, I., McMahon, F., Murphy, R., & Sutter Schneider, G. (2021). The Human Freedom Index 2021: A global measurement of personal, civil, and economic freedom. Cato Institute and Fraser Institute. https://www.cato.org/ sites/cato.org/files/2022-03/human-freedom-index-2021-updated.pdf

CHAPTER 2

The Creative Individual

Abstract Creative individuals introduce new compositions, designs, practices, and theories. In this chapter, we look at seven functions of the human mind that reflect the creative imagination: heuristics; memory; deep structure; ambiguity and diversity; paradox and surprise; equilibria and disequilibria; and fundamental uncertainty. We provide examples of the operation of these functions from science, music, and the visual arts. While creativity is present in all human populations, certain personality traits and social structures are associated with creative performance. Child-rearing, educational, and workplace practices that stress individual autonomy, face-to-face interaction, and diversifying experiences cultivate creativity, particularly among individuals with personality traits that predispose them to creative pursuits. Keywords Creativity · Heuristics · Memory · Deep structure · Ambiguity · Paradox · Equilibria · Fundamental uncertainty · Personality traits · Diversifying experiences

Åke E. Andersson (1936–2021) co-authored “The Creative Individual” with David Emanuel Andersson. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0_2

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2.1

Background

Over many centuries, cities have grown in parallel with an increasingly fine-grained division of labour. With each new phase of development, there has been an increase in the number of new cities and the size of pre-existing ones. Logistical transformations, creativity, and urban growth have gone hand in hand over several centuries. Improved telecommunications have made it possible to coordinate routine production over great distances. Advances in information technology have facilitated the coordination of transactions, distribution, and production of ever greater complexity. However, more than information and communication technology (ICT) is needed for the ongoing structural transformation. ICT can create new output and employment only in conjunction with a creative expansion of ideas. Many parts of the world have experienced creative expansions of economic opportunities, due in part to more widespread educational opportunities. The institutional structure of the early twenty-first century is, however, primarily adapted to the specialized labour and standardized routines that characterize industrial societies. Even at the individual level, it has yet to be conducive to creative applications of knowledge. This and later chapters analyse the structure of the Creative Society and its individual, cultural, and institutional aspects. In this chapter, we focus on the creativity of individuals.

2.2

Information, Knowledge, and Creativity

Many books and journal articles address the role of knowledge in development. But the simple concepts that most social scientists use are of limited use. In order for us to understand the structure of the Creative Society we need a deeper discussion of creativity as a phenomenon that is both individual and social. Information is the most fundamental building block. Information— transmittable symbols—directs biological development processes. The letters of the alphabet, numerical digits, and the digital symbols that computers use are examples of information. The meaningful combination of several information units creates data. Examples are words, statistical averages, straight lines, and simple geometrical figures.

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Groups of data may create structures or forms for which we may use the more abstract notion of patterns. Recognizing previously perceived patterns is a precondition for survival, even in a stationary world. Discovering new patterns makes survival possible in a changing world. Three-dimensional patterns embody forms. Concepts are the basic abstract level of thinking. Concepts are patterns of patterns. A “human being” is a concept that includes all humans regardless of ethnicity, sex, weight, age, or nationality. In mathematics, concept analysis consists of all operations involving marginal values. The recognition and development of concepts require a great deal of thought. Knowledge, which implies recognition and insight, is at a higher hierarchical level. It encompasses all the dimensions of thought mentioned above. Competence means skill, capability, or ability. It also alludes to comparisons or competition. A competent person is compared and evaluated relative to others or according to specific interpersonal criteria. Knowledge is a necessary but insufficient condition for competence because the latter presupposes the ability to use knowledge. Competence also assumes the capability to use knowledge with the help of a tool, other people, or the social or natural environment. We may consider competence as “embodied knowledge.” It is possible to distinguish among different types of competence, although these types are not mutually exclusive, and the boundaries that separate them are somewhat fuzzy. Since competence requires knowledge and connections to other people, tools, or environments, it is reasonable to conclude that competence often implies practical experience. Tool-specific competence expresses that the connection between knowledge and tools is essential. A race car driver, typist, or pianist embodies this competence. Sometimes it makes sense to think in terms of sectorspecific competence. Because of the division of labour, many industries have become specialized. Public administration makes use of sector-specific planning. Research and education comprise hundreds of narrowly defined disciplines and subdisciplines. Sector-specific competence refers to competence that employs knowledge about connections among components within clearly defined sectoral boundaries. Location-specific competence is more spatial and environmental. It may refer to more or less inextricable connections between individual competence and specific local or regional natural resources or other environmental factors. Prominent examples are in industries such as forestry, textiles, and aquaculture. The best examples are not in large-scale mass

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production but within small-scale artisanal sectors requiring high craftsmanship. Physical and material resources are often intertwined, and location-specific competence often emerges from the interplay between workers and their local environments. But there are also successful examples of people with location-specific competence migrating to locations with similar natural resources. Creativity is the final concept we need to understand in knowledgebased societies. It encompasses all the other concepts but differs in that it requires change. All the others can be either static or dynamic. Creativity denotes the ability to combine knowledge and competence in a novel way. Arthur Koestler provided an excellent example of combining toolspecific, sector-specific, and location-specific competencies and knowledge as parts of a creative process.1 His example is the printing press. In the early fifteenth century, Johannes Gutenberg wrestled with the problem of publishing books in a faster way than with woodblock printing. The standard method at this time was to use unique hand-carved blocks. The goal was to find a new technique that would make it possible to move letters around. Gutenberg invented a new way of book printing by observing a traditional wine press and adapting some elements of wine-making to traditional book printing. He thus created the movable-type printing press that dramatically increased the number of pages one could print in one day compared with hand-printing. Gutenberg foresaw the impact of his invention on the speed of knowledge dissemination when he observed that religious truth is captive in a small number of little manuscripts which guard the common treasures, instead of expanding them. Let us break the seal that binds these holy things; let us give wings to truths that it may fly with the Word, no longer prepared at vast expanse, but multitudes everlastingly by a machine which never wearies to every soul that enters life.2

Gutenberg had previously used all his printing-specific knowledge and competence but had little success. One sector-specific competence was not enough. When he combined lead-block printing with the high pressure of a traditional wine press, it became possible to create a new printing technique. The creative process manifests dynamic synergy between competencies and knowledge of various kinds. Synergy implies cooperation and entails a

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EFFECTIVE TRANSMISSION ICT

TYPE Information Data Patterns/forms Concepts Knowledge Function Face-to-face Competencies (embodied communication knowledge)

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CHANGE

Creativity = change of

Fig. 2.1 Building blocks of the Creative Society

situation where the effects of the whole exceed the sum of the effects of its constituent parts. In biology and medicine, it is common to use the term “synergy” when the combined effect of several substances is substantially greater than the sum of the individual effects of each one. There are good reasons for using the notion of synergy when analysing systems of knowledge, competence, and all the lower-level concepts we have introduced in this section. Renewal and change may be more likely when one combines information through more or less random linkages into complex patterns. Figure 2.1 summarizes the relationships among concepts such as information, knowledge, and creativity. From this perspective, it is easy to understand why one needs more than easy access to information for creativity development. In Fig. 2.1 there is one type—function—that we have not discussed. We have earlier referred to competence as embodied knowledge. A “function” occupies an intermediate position in this typology and is an attribute of the tools or environments of specific competencies. But functions may also develop more abstractly as parts of a creative process, which only later requires competence development.

2.3

The Foundations of Human Creativity: Seven Functions of the Human Mind

Our understanding of the Creative Society also requires rudimentary knowledge of the creative process at the microlevel, or, in other words, the individual human being. It is impossible to thoroughly analyse all the functions of the human mind as it manifests itself during the dynamic

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process that comprises human creativity. Many of the mechanisms that direct an active process of thinking remain unknown. To the extent that they are known, it is still the case that identical initial conditions may result in different outcomes, which we shall discuss later in this chapter. Therefore, we limit our presentation to seven interesting functions of the human mind. Together these functions help explain the complicated structure of human creativity. 2.3.1

Heuristics

The Greek fourth-century mathematician Pappus of Alexandria was one of the first scholars to study human cognition. In the seventh volume of his Collectiones, Pappus discusses the problem of solving problems, or heuristics .3 Pappus was not only interested in mathematical problemsolving but also in cognition in a more general sense. The mathematician George Pólya offered a reinterpretation of Pappus’s original text: [Heuristics] is the work of three men, Euclid, the author of the elements, Apollonius of Perga, and Aristaeus the elder. It teaches the procedures of analysis and synthesis. In analysis, we start from what is required, we take it for granted, and we draw consequences from it, and consequences from the consequences, till we reach a point that we can use as starting point in synthesis. For in analysis we assume what is required to be done as already done (what is sought is already found, what we have to prove as true). We inquire from what antecedent the desired result could be derived; then we inquire again what could be the antecedent of that antecedent, and so on, until passing from antecedent to antecedent, we come eventually upon something already known or admittedly true. This procedure we call analysis, or solution backwards, or regressive reasoning. But in synthesis, reversing the process, we start from the point which we reached last of all in the analysis, from the thing already known or admittedly true. We derive from it what preceded it in the analysis, and go on making derivations until, retracing our steps, we finally succeed in arriving at what is required. This procedure we call synthesis, or constructive solution, or progressive reasoning. Now analysis is of two kinds; the one is the analysis of the ‘problems to prove’ and aims at establishing true theorems; the other is the analysis of the ‘problems to find’ and aims at finding the unknown. If we have a ‘problem to prove’ we are required to prove or disprove a clearly stated theorem A. We do not know yet whether A is true or false;

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but we derive from theorem A another theorem B, from B another C, and so on, until we come upon a last theorem L about which we have definite knowledge. If L is true, A will be also true, provided that all our derivations are convertible. From L we prove the theorem K which preceded L in the analysis and, proceeding in the same way, we retrace our steps; from C we can prove B; from B we prove A, and so we attain our aim. If, however, L is false, we have proved A false. If we have a ‘problem to find’ we are required to find a certain unknown x satisfying a clearly stated condition. We do not know yet whether a thing satisfying such a condition is possible or not; but assuming that there is an x satisfying the condition imposed we derive from it another unknown y which has to satisfy a related condition; then we link y to still another unknown, and so on, until we come upon a last unknown z which we can find by some known method. If there is actually a z satisfying the conditions imposed upon it, there will be also an x satisfying the original condition, provided that all our derivations are convertible.4

We can now provide an example of the use of Pappus’s principles. Assume that two villages, village A and village B, are located—relative to a new railway track—as indicated in Fig. 2.2. The area is uninhabited, apart from the residents of two densely populated villages. Your task is now to locate a railway station and connecting roads in a way that serves these two villages in the best possible way. To Village B

Village A

Fig. 2.2 A classic location problem

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simplify matters, we assume that both villages have the same total demand for railway services. The objective of the analysis is well-specified. It is to find the location that would minimize the sum of the distances from the station to each village. Since the station has to be shared, this is the same as saying that we want to find the shortest possible route from village A via a point on the given line (the station) to village B. We can easily show that this problem is a classic “Weber problem,” but we have reformulated it in a specific fashion.5 It is, of course, possible to use a computer and, with the help of differential calculus—which consists of incremental relocations of the station, denoted by α—calculate the distance from village A to α, and from village B to α, respectively, so that the total length is as short as possible. On the other hand, we know from Euclidean geometry that an axiom states that the shortest route between two points is a straight line. If we could reformulate our problem in a way that makes it possible to apply this axiom, then it may be the case that we have found an easier way to solve the problem without relying on computers. Polya recommends that we make use of analogies to support our analyses: “analogy pervades all our thinking, our everyday speech and our trivial conclusions as well as our ways of expression and the highest scientific achievements.”6 An analogous point of view would be that village A is on the other side of the railway track. In other words, village A is a mirror image of its original location on the other side of the track. It then becomes evident that the shortest route between this mirror image and village B passes through point β in Fig. 2.3. With the help of Euclid’s congruence theorem for triangles, it is easy to prove that the straight-line distance from the mirror image of A to β is identical to the straight-line distance from A to β. Point β yields the station’s location and is the exact solution to the problem. In Pappus’s terminology, we have thus solved the analytical problem of where to locate a railway station, given the population distribution in the surrounding area. It became necessary to take a detour via analogies with known proofs to solve this analytical problem. The synthesis would be the implementation of the project. According to Pappus’s and Pólya’s terminology, analyses involve thoughts while syntheses cause actions. Problem-solving consists of heuristics based on manipulations of the definitions and other fundamental elements of the problem, varying combinations of these elements, changes to the definitions and elements, generalizations, specializations, and the systematic use of analogies. In

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Fig. 2.3 The solution to the location problem

the spirit of Pólya, Hofstadter goes so far as to define creativity as variation and change.7 But that definition is too narrow. Creativity is not only problem-solving. It is also ideation, problem formulation, perception, and discovery. 2.3.2

Memory

The traditional view of memory is that it is a relatively static phenomenon with a function that resembles a warehouse. This warehouse stores information that the person in possession of memory can retrieve and use when solving problems. More dynamic theories have replaced this static view of memory. Psychologists such as Lars-Göran Nilsson contend that memory is an integrated part of the perceptual and cognitive systems of the human brain.8 The focus is on “remembering” rather than “memory.”

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Remembering then becomes a way of analytically reconstructing a situation. Memory’s functionality is then nothing but a measure of the ability to associate and reconstruct situations. Remembering is akin to solving different classes of structural problems. Individuals remember what they can use. Individuals store basic patterns and concepts in their long-term memory. Remembering detailed data requires that the recipient of an inflow of perceptual impressions can order these as meaningful structures with the help of the concepts, theories, and models that constitute her knowledge. More general types of knowledge imply a greater capacity to remember things. Therefore, invariant knowledge is more important than knowledge of facts of the sort with which contestants in trivia game shows impress their audience. 2.3.3

Deep Structure

Most artistic, scientific, and intellectual creations consist of multi-layered structures. In The Unanswered Question, Leonard Bernstein offered examples of how several structures co-exist in music and language.9 Literature, music, and the visual arts use the same dynamic rules of composition. Such rules include permutations of basic elements (words, tones, and other symbols), deletions, and contractions that conceal several concurrent structures: the underlying message, its explicit counterparts—for example, prose—and its transformed implicit counterparts, such as poetry. An example of this is the opening sentence in one of Shakespeare’s sonnets: Tired with all this, for restful death I cry.10

The underlying prosaic message is perhaps something like this paragraph: I’m tired. A lot of things that are happening to me make me tired. I cry a lot, and I complain a lot. I’m longing for death because death means that I can rest. If I died, it would mean I could escape from my miserable life.

Even if the prosaic paragraph better reflects the underlying message, we may still perceive the poetic contraction with its pauses and rhythms

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as a better reflection of the emotional state that gave rise to both the poetic and prosaic accounts. Moving among such different structures involves a partly conscious and partly unconscious dynamic process that often takes considerable time. The discovery of an underlying deep structure is frequently sudden and surprising. Figure 2.4 provides a simple illustration of this. At first sight, Fig. 2.4 resembles a stylized and abstract rendition of a woman’s face. A few moments later, an underlying cartoonish drawing of a saxophonist becomes visible. Multiple structures are common in music but are often more challenging to discover than the saxophonist in Fig. 2.4. Bernstein illustrated this reasoning by identifying multiple structures in Beethoven’s symphonies.11 In art and science, there is a recognition that several interconnected structures may co-exist and shape one another and that this is something that the human mind can handle. Much of mathematics, Freudian

Fig. 2.4 Surprise

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psychology, and a vast swath of the social sciences encompass multiple structures that may include explicit or concealed assumptions. It is also evident that discovering a deeper structure than the immediately perceived one needs time and tends to elicit surprise. The suddenness of the discovery—the aha experience—implies that we may represent the mind as a non-linear dynamic system. Learning does not proceed according to a simple extrapolation of prior trend lines. 2.3.4

Ambiguity and Diversity

Creative phenomena such as art and science rest on several foundations. It is not only a question of discovery, although discovery does play a part in creative processes. Ian Stewart and Peter Peregoy conducted experiments to study how humans handle ambiguity in perceptual contexts.12 Figure 2.5 is ambiguous, which becomes especially apparent when a person views each image sequentially from left to right or vice versa. Viewed from the left in the upper row, we are looking at a man’s face in the first five images, while the sixth (the second image from the left in the bottom row) may suddenly transition into a sitting woman. On the other hand, if we start our observation from the right-hand side of the second row, the image of a sitting woman anchors our perception, and only when we reach the second image from the right in the top row do we perceive a man’s head. This “hysteresis” or asymmetry in perception presupposes that the underlying psychological processes are non-linear. Stewart conducted numerous experiments with these ambiguous images and concluded that most subjects reacted in the way that we described above.13 But he also found differences in how people discover ambiguity among subjects with different backgrounds. Apart from the anchoring effect, which is related to the temporal sequencing of images, there is also social anchoring. These results imply that situations, concepts, or patterns were easier to discover in groups with heterogeneous knowledge and social structures than by individuals in isolation. In the creative process, it is possible to use ambiguity to attain a higher-quality final product. Even the common words we use in everyday speech are ambiguous, which is raised to another level when we consider a sentence consisting of several ambiguous words. Bernstein claimed that ambiguity is an intrinsic feature of language and music and primarily serves an emotional and expressive function.14 We may then consider the emergence of romanticism in literature, music, and the visual arts as an

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Fig. 2.5 The structural instability of perception (Source: Fisher [1967])

“ambiguity revolution,” by which creative artists took advantage of the ambiguity of words, musical phrases, or colourations to elicit emotionally charged meanings. This interpretation would imply that structural clarity conflicts with emotional quality. Functionalist buildings then contradict sensibility as an architectural principle. Only if the ambiguity involves using a single pattern at multiple levels is it possible to avoid the conflict between expressiveness and clarity. A musical genre that combines clarity and ambiguity is the baroque fugue. Finding clear-cut examples in other creative domains, such as architecture, is more difficult. Perhaps buildings become ambiguous if the relative importance of each of its functions varies with the time of the day, week, and year. Scaling up to a more aggregate level, the idea of a liveable city may contradict the functionalist demand for unambiguous transparency in planning.15

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2.3.5

Paradoxes and Surprises

In Principia Mathematica, two leading rationalists—Alfred North Whitehead and Bertrand Russell—attempted to lay down the foundation of mathematics in a way that did away with paradoxes—that is, surprising unreasonableness—as part of science.16 Russell himself had discovered a paradox in set theory, which consisted of whether the set of all sets was a normal set or whether it was, to quote Hofstadter, a “self-swallowing set.”17 If the answer is that the set of all sets is neither a normal set nor self-swallowing, then that would imply a paradox. Russel’s paradox harks back to the paradoxes that animated the philosophers of ancient Greece. One particularly famous one is attributed to Epimenides of Crete: “Cretans, always liars.”18 A somewhat longer example of a similar paradoxical statement is: The following sentence is false. The preceding sentence is true. Such linguistic paradoxes are not only unreasonable. They are also amusing. In science, there are some seemingly paradoxical statements. But they are only paradoxes when perceived superficially. They lose their paradoxical character when analysed at a deeper level. One example is the “paradox of saving” in economic theory, which claims that if an individual expects a recession, it is prudent to save money. But suppose that all individuals decide to save at the same time. In that case, increased savings will likely lead to a depression that is more serious than the recession for which the individuals prepared themselves. The paradoxical conclusion is that if sufficiently many individuals expect a recession, cultural norms that encourage consumption may be beneficial.19 This example from economics is not genuinely paradoxical. Deepening the argumentation makes it possible to discard the “paradox.” One achieves this by transforming the seeming paradox into a more extended sequence of explicit interdependencies. Hofstadter’s example of “self-swallowing sets” mentioned above is genuinely paradoxical. Such paradoxes are also common in the arts. Oscar Reutersvärd’s impossible figures (Fig. 2.6 is an example) offer pure examples of visual paradoxes. Other artists have used similar methods to awaken our interest. Manfred Escher went further down this road in his creation of detailed depictions of impossible worlds.

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Fig. 2.6 Visual paradox

All actual or irreducible paradoxes tend to form when possible parts are joined together into an impossible whole. The paradoxes of science are generally different. They often depend on the suppression of elements and associations among variables. But even within science, some theorems are both unprovable and irrefutable. Reducible and irreducible paradoxes thus play significant roles in art and science. Hofstadter offered an elegant explanation of why paradoxes reflect a trade-off between beauty and provability: The drive to eliminate paradoxes at any cost, especially when it requires the articulation of highly artificial formalisms, puts too much stress on bland consistency, and too little on the quirky and bizarre, which makes life and

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mathematics interesting. It is of course important to maintain consistency, but when this effort forces you into a stupendously ugly theory, you know something is wrong.20

In science, it makes sense to reduce paradoxes to a minimum unless the objective is to direct attention to a significant problem. The situation is different in art and design. Since we need surprises and often appreciate paradoxes in everyday life, such features are indispensable in art, design, and our built and natural environments. Exaggerated rationalism is both unnecessary and harmful. 2.3.6

Equilibria and Disequilibria

A basic cognitive principle is that each system tends towards a natural equilibrium. This principle has also been a part of human creativity since antiquity. The first notable instance of equilibrium as an ideal is in Platonian aesthetics.21 Plato thought nothing in the sensory world could attain an ideal equilibrium. Even the most skilfully drawn circle could never achieve the perfection of the perfect ring in our minds, which represents absolute equilibrium among all its elements. All design then aims to join perfectly equilibrated elements into a seamless and balanced whole. All natural objects are then, at best, approximations of perfect ideals. Thus, platonic design principles imply that every design in the material world represents an attempt to approach metaphysical perfection gradually. The human designer attempts a stepwise reduction of disequilibria until she attains as balanced a result as humanly possible. Most instrumentalists in classical music approach their interpretations of compositions in a way that reflects Platonian aesthetics. A pianist imagines a perfect reproduction of a sonata and then tries to get as close as possible to this ideal, subject to side constraints such as individual skill, the quality of the instrument, and the acoustics of the concert hall or recording studio. The practice regime of the classical musician entails an iterative process where she repeatedly reduces deviations from the imagined equilibrium. Architects and planners often adopt a similar approach from an original sketch to a detailed blueprint or plan. The same approach characterizes control theory in engineering. The simplest example is that of a centrifugal regulator (governor) that controls the operation of a steam engine.22 This regulation occurs by letting

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a steam vent open or close with the help of two revolving balls. The centrifugal force and speed of the engine determine its rate of rotation and height. A steam engine with a greater than desired speed causes the balls to rise due to the centrifugal force. The higher position of the balls causes the vents to close, thereby reducing the speed. When the speed has decreased to a lower level than desired, the ball will fall to a lower position, which opens the vent. The open vent makes the engine accelerate. Thus, every disequilibrium triggers a counter-reaction in the form of negative feedback, so the system always approaches its predetermined equilibrium. In psychology, it is common to understand human behaviour as reactions to imbalances, which implies that one perceives humans as equilibrating mechanisms. According to this view, deviations from a biochemically balanced state trigger hormonal and other changes. Disequilibrating changes in the biochemical system would then cause equilibrating reactions. Some psychologists have even attempted to explain complicated creative endeavours as homeostatic reactions.23 But note that a classical pianist playing a sonata or an engineer installing a centrifugal regulator are examples of competence rather than creativity. Classical music employs a division of labour between the creative (and competent) composer and the competent instrumentalist. In engineering, there is a similar division between the inventor of a new tool and the technician who makes minor adjustments and instals it. What characterizes the genuinely creative is their ability to handle the tension between equilibria and disequilibria by alternating between them in words, sounds, or images. Jazz musicians are, for this reason, more creative—although not necessarily more competent in a tool-specific sense—than those who play classical music. The theme of a jazz tune is a state of rest, which is a type of equilibrium. The improvised solos that follow the theme are often full of dissonances and progressions of notes that sometimes may seem almost random. But towards the end of the solo, there is typically a gradual return to the state of rest, often a repeated rendition of the initial theme. For this reason, the jazz historian Ted Gioia claimed that “imperfection” is desirable.24 Jazz is also an art form that uses the creative functions of ambiguity and surprise, which implies that the worst solo is a repeated one. Some of the most creative minds in science adopt a similar approach. In Schumpeterian theory, the entrepreneur administers a disequilibrating shock to a pre-existing “circular flow” or equilibrium. Other economic

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actors then either imitate the entrepreneur or adjust to the consequences of her actions. The result is the attainment of a new equilibrium that has absorbed new knowledge and thus occurs at a higher level of development.25 As these examples illustrate, humans tend to orient themselves towards or away from imaginary or real equilibria. The equilibrium can be the starting point, the destination, or both. In temporal compositions such as literature or music, the creative process often involves an interplay of a state of rest and disequilibrating departures from that state. In spatial designs such as architecture or painting, the tension between equilibria and disequilibria may instead involve different levels of resolution. 2.3.7

Fundamental Uncertainty

There are many examples of the role of structural instability or fundamental uncertainty in the development of new solutions. One such example is the development of the aeroplane. Toward the end of the nineteenth century, many engineers tried to solve the problem of creating a manoeuvrable, motorized aeroplane heavier than air. Despite considerable knowledge of aerodynamics and other scientific theories embodied in the design of gliders, most early attempts were unsuccessful. The primary objective was to create an aircraft that combined manoeuvrability with equilibrium and aerodynamic stability. The Wright brothers—consciously or unconsciously—designed an unstable aeroplane. Surprisingly, their design was manoeuvrable, even if it required considerable flying skills. This successful unbalanced design provided the starting point for the rapid development of the airline industry and the aeroplane as a military and commercial mode of transport. The Wright brothers showed that destabilization was a necessary condition for manoeuvrability. Uncertainty became an asset. The visual arts and architecture have a long tradition of using structural instability as a precondition for good design. Stable equilibrium patterns only emerge in the final stage of the creative process. The initial stages entail a search for fertile ideas, which have the potential to show the way towards a multitude of possible end-state equilibria. Figure 2.7 shows an unstable so-called “Necker cube.” Two focal points exchange positions with increasing frequency the longer one looks at the cube. The perceived distance to each focal point sometimes seems close and sometimes far away from the observer. The human mind

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embarks on a cyclical perceptual journey, and the cyclical changes accelerate as a function of observation time. Such unstable designs have intrinsic design potential. Different slight modifications to the design result in different stable outcomes. The transition from instability to stability involves an uncertain result. The analysed systems are far from equilibrium in so-called “dissipative systems” in thermodynamics. Macroscopic regularities may occur, even though lower-level components exhibit drastic fluctuations. There is somehow order in the face of disorder. One consequence is that experiments do not result in identical outcomes even under controlled laboratory conditions. The outcomes and reactions may differ according to different temporal patterns. The development of the system is more similar to a process usually associated with tree diagrams. Structural instabilities at deep levels of the system imply that marginal environmental changes may cause a bifurcation of the system, which means entirely different development trajectories. To understand how creative processes depend on instability and dissipative structures, we may consider the Japanese art form of folding paper, origami. Figure 2.8 shows several objects that an origami artist can attain by folding a square sheet of paper. In this example, all objects share the same initial folds. In Fig. 2.8, every outcome—whether a seagull, a hat, a box, or something else—has a structurally stable composition of forms and folds. The

Fig. 2.7 Necker cube

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Fig. 2.8 Origami as a creative decision tree (Source: Andersson and Andersson [2017, p. 67])

development trajectory from an unfolded piece of paper to the final design includes several bifurcation points. At five folds, out of twelve or nine, respectively, one has to decide whether to make a hat or a box. The vase and the tulip are the most complicated designs. Each step before the final determinative bifurcation is thus intrinsically uncertain and structurally unstable. Higher-dimensional pattern creation of a more complex nature in domains such as architecture and urban planning include similar but even more unstable and uncertain dissipative structural problems. These are the types of problems that provide creative opportunities for competent and imaginative individuals.

2.4

Why Are We Creative?

2.4.1

Individual Motivations

The psychological literature on factors contributing to individual creativity is extensive, albeit sometimes contradictory. Environmental explanations have oscillated between simple reward and need arguments.

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Even if external stimuli may speed up or slow down a creative process, most behavioural scientists nowadays agree that processes that are internal to each individual are better at explaining creativity. A group of researchers at the University of Lund, under the direction of Gudmund Smith, conducted a series of experiments and interview surveys in the final decades of the twentieth century that provided some clues regarding the individual motivations to engage in creative processes.26 The analysed individuals comprised scientists, students, artists, and children. In the studies on scientists, the main finding was that it was possible to divide them into several groups, of which two met the criteria for professional success. The members of one of these two groups approached research as an everyday activity and considered research similar to other types of high-skilled work. These scientists only generated a few novel ideas, even though they published many papers in peer-reviewed journals. Their success tended to depend on external impulses, and they were not particularly emotional or anxious about their work. They did not have any deep personal engagement with their research projects. The other successful group consisted of scientists whom colleagues or supervisors described as thoughtful, original, independent, and astute. They were, in short, more creative. The interviews revealed that these scientists were deeply engaged in their projects and viewed creativity as stemming from some subjective dimension. They feared losing their ability to develop new ideas. They sought complications and problems. For these scientists, creativity and intelligence went hand in hand. Experiments and interviews revealed some recurring personality attributes in these creatives. Many engaged in aesthetic activities, related emotionally to their research projects, and had sensual childhood memories. They were also more likely to be interested in their dreams and often speculated about their meanings and functions. In addition, their dreams were colourful and, more often than not, involved early childhood experiences. Their creative work combined an almost childlike interest in unconventional trains of thought with the disciplined use of analytical models and theories. The Lund psychologists also studied the prevalence of anxiety. The most creative group was also different from the other groups in this dimension. Smith and his co-authors argued that anxiety is associated with creativity. Consequently, an increase in anxiety can make individuals more attentive to creative opportunities. Many of the creative individuals the

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Lund group studied said they accepted anxiety and unease as necessary parts of their creative endeavours. Among potentially creative individuals, it seems as if anxiety can serve as a wake-up call to initiate a creative process. Thus, both debilitating anxiety and complacency may choke the creative process. Somewhat paradoxically, the studies also showed that children who grow up in an unfavourable home environment seem better placed to develop into creative problem-solvers than more privileged children, who often display greater fear of failure. The Harvard psychiatrist Albert Rothenberg studied creative individuals in various fields.27 He concluded that “Janusian thinking” is a typical trait in creative people. Janusian thinking means that every thought is followed by a contradictory thought. As soon as the creative individual finds an explanation, she tries to find some mirror image. This type of dualistic thinking is quite common in mathematics and physics. But Rothenberg contended that he was referring to a deeper creative approach. Poetry, the visual arts, and music contain paradigmatic examples of Janusian thinking. Rothenberg also claimed that the creative individual embodies “homeospatial” thinking, which implies an above-average propensity to connect seemingly incompatible elements. In the visual arts, surrealism is a prime example of a genre that focuses on homeospatial creativity. Homeospatiality creates the possibility of synergy, rearranging elements into new and unexpected non-additive structures. Combining the inherent playfulness of Janusian thinking, homeospatiality, and competence is typical of creative artists and scientists. There are individuals with creative personalities all over the world. But potentially creative individuals often face social obstacles such as excessive demands for discipline and organization in families, schools, and workplaces. 2.4.2

Social Motivations

There is a great deal of research on the social forces that stimulate creativity in individuals. Teresa Amabile and Rogers Hollingsworth made particularly relevant contributions to our understanding of the social aspects of creativity. Their studies have partly focused on the role of childhood experiences and education and partly on broader social forces. Amabile focused on experimental approaches, while Hollingsworth

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looked at social factors associated with scientific breakthroughs in the past.28 Amabile’s results offer more direct practical advice on how to design child-rearing, school, and workplace practices in a way that cultivates creativity in individuals. She identified five key practices that cultivate creativity, either in children or adults. First, child-rearing cultivates creative skills if it highlights the value of children as individuals and avoids a primary focus on socialization and adaptation to a prescribed adult role. Second, schools cultivate creativity if they offer substantial face-to-face interaction between one student and one teacher. The typical relationship between music teachers and their students is an example. Third, higher education is conducive to creativity if individual supervision is a regular part of the curriculum. Many creative researchers report that informal contact with older scholars during their period of formal education was necessary for their later creative development. Fourth, formal education is, in general, beneficial for creativity. But a high degree of specialization may reduce the future creative potential of a student. Depth should not be at the expense of breadth. Finally, work environments that cultivate creativity decentralize decision-making, avoid employee surveillance, and tolerate failed attempts at creating something new. The historian and sociologist Rogers Hollingsworth analysed organization-level social structures associated with creative breakthroughs in the biomedical sciences, a field of research dealing with complex systems. Hollingsworth wrote that “high cognitive complexity is the capacity to observe and understand in novel ways the relationships among complex phenomena, the capacity to see relationships among disparate fields of knowledge. And it is that capacity which greatly increases the potential for making a major discovery.”29 Hollingsworth’s field research made him distinguish between two kinds of laboratories. His starting point was the following question: “what were the characteristics of the culture and the structure of the laboratory where the [creative breakthrough] research occurred?”30 Hollingsworth found that most laboratories never had any creative scientific breakthroughs, but the minority that did shared several attributes. The more creative laboratories had greater discipline diversity, more diversified network connectivity, better access to funding for highly uncertain research, and a more uncertainty-loving and cognitively complex research

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leader. In addition, leaders associated with creative breakthroughs were more interested in integrating disparate streams of research. In other words, creative scientific organizations benefit from multidisciplinarity, interdisciplinarity, and fundamental uncertainty.

2.5

Conclusions

Humans have a remarkable ability to solve complicated problems. Even more impressive is the willingness and ability to create meaningful problems. In many ways, formulating solvable problems is more creative than solving them. Intuition implies an ability to formulate such problems. Insight, like perception, is often sudden and unexpected. Psychological studies show that the “aha experience” arises from structural instability. Our understanding of learning, perception, and other parts of creativity implies that our minds are structurally unstable dynamic systems. Perhaps surprisingly, creative individuals appreciate ambiguities and paradoxes. Meaningful creativity not only calls for accepting fundamental uncertainty but also for using it in the search for problems and their resolution. Experiments involving perception, problem-solving, and problem formulation show that each part of the creative process entails long maturation periods. Moreover, results tend to be sudden and unexpected rather than regular and predictable. Creative individuals often combine playfulness with discipline, knowledge, and competence. Social incentives such as prizes, grants, or academic degrees seldom elicit creativity. While external factors may cause a creative individual to choose a particular education or occupation, it is usually the case that innate and learned factors are the primary influences on her future creativity. Still, the social environment is a secondary influence, with numerous empirical studies demonstrating a positive relationship between diversifying experiences and individual creativity.31 The best way to cultivate creativity in a workplace, neighbourhood, or city is to create an open social environment where the celebration of individuality and eccentricity eclipses the desire for predictability and conformism.

Notes 1. Koestler (1964). 2. The quote is from the Gutenberg Bible (Gutenberg, 1454).

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3. The original was written in the fourth century. Commandino (1589) is the first translation into Latin. 4. Pólya (1945). 5. Weber (1909). 6. Pólya (1945). 7. Hofstadter (1979). 8. Nilsson et al. (1987). 9. Bernstein (1983). 10. This is the opening line of Sonnet 66 (Shakespeare, 1514). 11. Bernstein (1983). 12. Stewart and Peregoy (1983). 13. Stewart (2016) describes some of the results. 14. Bernstein (1983). 15. Ikeda (2017). 16. Whitehead and Russell (1910, 1912, 1913). 17. Hofstadter (1979). 18. See Hofstadter (ibid.). 19. Mandeville (1806) is the first statement of the “paradox of thrift.”. 20. Hofstadter (op. cit., pp. 22–23). 21. See Silverman (2022) for a more detailed summary of Plato’s theory of forms. 22. Thurston (1878). 23. See Flaherty (2018). 24. Gioia (1988). 25. Schumpeter (1934). 26. See Smith and Carlsson (1983a, 1983b, 1985, 1986). 27. Rothenberg (1996). 28. Amabile (1983), Hollingsworth (2007). 29. Hollingsworth (ibid., p. 129). 30. Hollingsworth and Hollingsworth (2000). 31. Damian and Simonton (2014).

References Amabile, T. (1983). The social psychology of creativity: A componential conceptualization. Journal of Personality and Social Psychology, 45(2), 357–365. https://doi.org/10.1037/0022-3514.45.2.357

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Andersson, Å. E., & Andersson, D. E. (2006). The economics of experiences, the arts and entertainment. Edward Elgar. Bernstein, L. (1983). The unanswered question: Six talks at Harvard. Harvard University Press. Commandino, F. (1589). Pappi Alexandrini mathematicae collectiones. Venetiis. https://archive.org/details/bub_gb_YTKUNyiY8sEC/page/n15/ mode/2up?view=theater Damian, R. I., & Simonton, D. K. (2014). Diversifying experiences in the development of genius and their impact on creative cognition. In D. K. Simonton (Ed.), The Wiley handbook of genius (pp. 375–393). Wiley. https://doi.org/ 10.1002/9781118367377.ch18 Fisher, G. H. (1967). Measuring ambiguity. American Journal of Psychology, 80(4), 541–547. Flaherty, A. W. (2018). Homeostasis and the control of creative drive. In R. E. Jung & O. Vartanian (Eds.), The Cambridge handbook of the neuroscience of creativity (pp. 19–49). Cambridge University Press. https://doi.org/10. 1017/9781316556238.003 Gioia, T. (1988). The imperfect art: Reflections on jazz and modern culture. Oxford University Press. Gutenberg, J. (1454). Biblia sacra latina. Johannes Gutenberg. Hofstadter, D. R. (1979). Gödel, Escher, Bach: An eternal golden braid. Basic Books. Hollingsworth, J. R. (2007). High cognitive complexity and the making of major scientific discoveries. In A. Sales & M. Fournier (Eds.), Knowledge, communication, and creativity (pp. 129–155). Sage. Hollingsworth, J. R., & Hollingsworth, E. J. (2000). Major discoveries and biomedical research organizations: Interdisciplinarity, nurturing leadership, and integrated structure and culture. In P. Weingart & N. Stehr (Eds.), Practising interdisciplinarity (pp. 215–244). University of Toronto Press. Ikeda, S. (2017). A city cannot be a work of art. Cosmos + Taxis, 4(2–3), 79–86. https://cosmosandtaxis.files.wordpress.com/2017/05/ikeda_article_ ct4_2_3.pdf Koestler, A. (1964). The act of creation. Macmillan. Mandeville, B. (1806). The fable of the bees. T. Ostell. Nilsson, L. G., Mäntylä, T., & Sandberg, K. (1987). A functionalistic approach to memory. Scandinavian Journal of Psychology, 28(3), 173–188. https://doi. org/10.1111/j.1467-9450.1987.tb00754.x Pólya, G. (1945). How to solve it. Princeton University Press. Rothenberg, A. (1996). The Janusian process in scientific creativity. Creativity Research Journal, 9(2–3), 207–231. https://doi.org/10.1080/10400419. 1996.9651173

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Schumpeter, J. A. (1934). The theory of economic development. Harvard University Press. Shakespeare, W. (1514). Sonnets. Neuer before imprinted. G. Eld. Silverman, A. (2022). Plato’s middle period metaphysics and epistemology. In E. N. Zalta (Ed.), The Stanford encyclopedia of philosophy. Metaphysics Research Lab, Stanford University. https://plato.stanford.edu/archives/fall2022/ent ries/plato-metaphysics/ Smith, G. J. W., & Carlsson, I. (1983a). Creativity in early and middle school years. International Journal of Behavioral Development, 6(2), 167–195. https://doi.org/10.1177/016502548300600204 Smith, G. J. W., & Carlsson, I. (1983b). Creativity and anxiety: An experimental study. Scandinavian Journal of Psychology, 24(1), 107–115. https://doi.org/ 10.1111/j.1467-9450.1983.tb00482.x Smith, G. J. W., & Carlsson, I. (1985). Creativity in middle and late school years. International Journal of Behavioral Development, 8(3), 329–343. https://doi. org/10.1177/016502548500800307 Smith, G. J. W., & Carlsson, I. (1986). Creativity and aggression. Psychoanalytic Psychology, 3(2), 159–172. https://doi.org/10.1037/0736-9735.3.2.159 Stewart, I. (2016). The mathematics of visual illusions. The Oxford Mathematics Christmas Lecture, Mathematical Institute, University of Oxford. https://www.maths.ox.ac.uk/system/files/attachments/WJ3356_OXF_Oxf ordMaths_A2_Poster_IanStewart_2_0.pdf Stewart, I., & Peregoy, P. L. (1983). Catastrophe theory modelling in psychology. Psychological Bulletin, 94(2), 336–362. https://doi.org/10. 1037/0033-2909.94.2.336 Thurston, R. H. (1878). A history of the growth of the steam-engine. D. Appleton. Weber, A. (1909). Reine Theorie des Standorts. J. C. B. Mohr (Paul Siebeck). Whitehead, A. N., & Russell, B. (1910, 1912, 1913). Principia mathematica (3 Vols.). Cambridge University Press.

CHAPTER 3

The Entrepreneurial Individual

Abstract Entrepreneurship refers to a type of creativity that involves individuals using their judgment to pursue profits in the face of an uncertain future. It often involves product or process innovation. The uncertainty entrepreneurs face is Knightian, which differs from risk (probabilistic uncertainty) in that it is not quantifiable, and it is thus impossible for entrepreneurs to maximize expected profits. However, entrepreneurial opportunities increase over time due to increasing product complexity. The increase in complexity reflects an increasing number of resources that innovators can combine in novel ways, as well as increasing differentiation and sophistication among consumers. Therefore, the Creative Society provides more opportunities for niche entrepreneurship than previous eras. Keywords Entrepreneurship · Innovation · Knightian uncertainty · System constraint · Connoisseurship · Consumption niche · Market process

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0_3

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3.1

What is Entrepreneurship?

Entrepreneurship is about individual action, which may result in major or minor systemic changes. The most influential theories of entrepreneurship are those of Frank Knight, Joseph Schumpeter, and Israel Kirzner.1 Knight’s theory derives from the idea that the entrepreneur is the economic actor who not only initiates changes to the economic system but also exercises judgement in the face of fundamental, or Knightian, uncertainty. Knightian uncertainty implies that there is no objective probability associated with a potential outcome of a person’s choice and that the number of such potential outcomes is not only unknown but also unknowable. Schumpeter and Kirzner skirt the question of uncertainty but pay greater attention to the relationship between entrepreneurship and market coordination. In Schumpeter’s theory, entrepreneurs combine resources in new ways, upsetting a pre-existing “circular flow.” The entrepreneur is thus the agent of disequilibrating change. The circular flow is a state of rest that reflects an economy’s knowledge level. In contrast, Kirzner’s entrepreneur is alert to differences in buying and selling prices. By acting on the resulting profit opportunity, she brings the market price closer to a hypothesized equilibrium of complete coordination of individuals’ plans. In this case, complete coordination corresponds to a perfect knowledge or “end-state” equilibrium. Thus, the Schumpeterian entrepreneur is an innovator, while the Kirznerian one is, in its pure form, an arbitrageur. However, Kirzner regards speculation and innovation as extensions of the arbitrage impulse of being alert to profit opportunities. Knight’s theory lacks an explicit connection to market coordination, but it is closest to how we understand entrepreneurship in the real world. However, if we link the Knightian understanding of entrepreneurship with the idea of a “system constraint,” it becomes possible to relate Knight’s theory to the notion of coordination.2 If the system constraint is “tight,” an entrepreneurial action will trigger imitative actions by others, causing the market to attain a more coordinated state. This state is a Schumpeterian circular flow rather than an end-state equilibrium. The combination of Knightian entrepreneurship and a tight system constraint has much in common with Schumpeter’s framework. Conversely, a “loose” system constraint implies that system-induced coordinating tendencies are weak, which in turn means that any prediction

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regarding outcomes requires a great deal of information about the motivations, interactions, and relative power of various actors, both inside and outside markets. In some cases, systemic patterns may seem random.3 I adopt a Knightian understanding of the entrepreneurial individual in this chapter, which requires that we also include the Knightian concepts of judgement and uncertainty, which we shall return to in the fourth section below. If we want to connect this to systemic outcomes, we also need to apply the notion of system constraints, which is the subject of the fifth section. The entrepreneurial individual does not necessarily exhibit all seven features associated with the creative individual (see Chapter 2). Nevertheless, there are some commonalities. Like the pure creator, the entrepreneur cannot escape from fundamental uncertainty. She also cannot avoid dealing with the tension between the equilibrium of a balanced state and the inclination to initiate a disequilibrating change. In some cases, entrepreneurship also involves an element of surprise, as when an innovator applies pre-existing technology to a new use. While the common understanding of entrepreneurship denotes actions in markets, the entrepreneurial impulse may be present even when markets are absent. It is to this question we turn next.

3.2

Who Gets What?

Many creative achievements, such as theories, designs, and compositions, are non-rival goods. The cost of providing a recipe to one more user is zero or negligible as soon as it becomes available. Entrepreneurs in markets, by contrast, aim to supply scarce goods. Scarce goods are, by necessity, rationed goods. One way of rationing is using market prices. There are other ways. Historically, violence, queueing, and central planning have been common non-market methods of rationing scarce resources. The violent method is standard among warring gangs, tribes, or states. The guiding principle is that might makes right. Violence is the worst technique for providing incentives for investments in resources other than weapons of war, and it does not disseminate reliable information about what consumers want. Queueing is a common way of rationing goods that someone provides for free or at a below-market price, giving rise to both an incentive and a knowledge problem. The supplier of a good allocated by queueing does

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not receive compensation proportional to its value since many consumers will pay in waiting time rather than money. The signalling of relative scarcities will be as total excess demand, which requires a time-consuming and unreliable estimation. Queueing is not a general principle of resource allocation in market economies. Still, it has become the predominant method in many systems of tax-funded health care, such as the National Health Service in the United Kingdom. The final alternative to markets is central planning,4 as practised on a large scale in the Soviet Union and its satellites. As a system, it reflects socialist ideology. Again, there is an incentive problem since the central planners have a different profit incentive than entrepreneurs in a market economy. Moreover, as Hayek pointed out, there is also a knowledge problem.5 There is no reliable way to communicate changes in the relative scarcity of a resource in the absence of decentralized and repeated exchanges of goods and money. For this reason, central planning often inadvertently results either in rationing by queueing or in unsold inventories. In addition, central planning has no method of identifying the most valuable innovations. The entrepreneurial predisposition will be present in war, subsidized, or centrally planned economies. However, the incentives are such that the consequences are different than in a market. For example, entrepreneurs in a “conquest economy” may hone their ability to destroy rather than create resources. In a centrally planned economy, the entrepreneurial impulse may guide individuals to cultivate connections to politically powerful people rather than to innovate valuable goods. The result is the production of goods that often lag decades behind comparable goods in market economies. An East German Trabant or Wartburg could never compete with a West German BMW or Mercedes Benz. In markets, the entrepreneurial impulse becomes most beneficial to the population. Entrepreneurial profits measure the social value of introducing innovations or integrating markets. The main reason for this is the subjectivity of individual preferences in conjunction with imperfect knowledge, which means that top-down planners can never know the best way to serve others. Socialists often skirt this problem by discussing “needs” rather than preferences. However, little agreement exists about what constitutes a human need beyond water, food, and sleep. The institutional economist Svetozar Pejovich explained what is at stake when choosing between different ways of allocating goods and services:

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Mandating choices fails to produce good economic results because of a huge gap between the preferences of those making allocative decisions … and those for whom decisions are made. Mandated choices are frequently justified by reference to general welfare or the public interest. The problem with those terms is that they assume that the social welfare function exists, that public decision-makers know it, and that they are unselfishly going to implement it. None of these three assumptions is derivable from scientific knowledge. … My doctor knows better the effects of pizza on my health but only I know how much risk I am willing to take in order to satisfy my desire for pizza. … The urge some people have to protect others from making a “wrong choice” takes away from individuals the right to make their own choice, including the choice of risk. Consequently, the people whom they try to “help to stay well” end up being worse off.6

Market entrepreneurship is the only type that serves people in general instead of serving a small clique with power over others. It is also the only kind that economizes each resource according to its relative scarcity, as communicated through its market price.

3.3

A cul-de-sac in Economics: Utility Maximization

One of the key arguments in this book is that people adopt their values during childhood and adolescence and then keep them for the rest of their lives. However, values do not equal consumer preferences, which is economists’ primary concern. Values are deep motivating forces, such as one’s religious faith or conviction that freedom of speech or democracy is fundamental to a good society. Preferences deal with mundane matters, such as one’s favourite pizza topping or preferred musical genre. Many economists assume that consumers’ preferences are as stable as their values. They typically also assume sufficient information to engage in “utility maximization,” which implies that consumers obtain the best possible combination of goods, given the money they have at their disposal (i.e., given their “budget constraint”). Other economists avoid this assumption by treating utility maximization as an analytical tool rather than as a description of human behaviour. Utility is, for them, not a tool to explain or predict anyone’s choices. Instead, it represents how constraints affect individuals in the aggregate, which they conceptualize as a “representative agent.” According to Marek Hudik,

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the representative agent does not necessarily reflect the behaviour of underlying individuals or the average individuals but rather all marginal individuals. Constraints represent observable variables assumed to affect aggregate behaviour while [utility] indifference curves embody all the unexplained effects (error term). The hypothesis that these unexplained effects average out on the aggregate translate into the assumption that the tastes of this fictitious representative agent are stable.7

However, if the assumption that an individual maximizes her utility contradicts normal human behaviour, and if, in addition, economists who are cognizant of this fact treat utility as akin to an “error term” in order to analyse how constraints affect behaviour—instead of analysing a broader and more heterogeneous range of behaviours in markets—it is questionable whether the concept of “utility” serves any useful purpose. I agree with Ronald Coase, who wrote that utility is “a non-existent entity which plays a part similar, I suspect, to that of ether in the old physics.”8 Coase goes on to argue that the vacuity of the concept of utility, in conjunction with most economists’ lack of interest in what should be their subject matter—human behaviour in markets—has made much of economics irrelevant to non-economists: One result of this divorce of the theory from its subject matter has been that the entities whose decisions economists are engaged in analyzing have not been made the subject of study and in consequence lack any substance. The consumer is not a human being but a consistent set of preferences. … Exchange takes place without any specification of its institutional setting. We have consumers without humanity, firms without organization, and even exchange without markets. The rational utility maximizer of economic theory bears no resemblance to the man on the Clapham bus or, indeed, to any man (or woman) on any bus.9

The psychologist Herbert Simon showed that cognitive limitations make it impossible for consumers to reach the best possible combination of goods compatible with a limited budget, even when they can access reliable information.10 The typical consumer is then, at best, a satisficing, “boundedly rational” individual rather than a maximizing “perfectly rational” one. She can get an acceptable mix of consumer goods but not the best possible one. But the mainstream economic model misses the boat for yet another reason. Consumers tend to learn or forget product attributes over

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time. Many goods and services are complex. They consist of interlinked attributes that all affect their performance and, therefore, usefulness. Sometimes, a consumer’s search for information may reveal options of which she was previously unaware. Such serendipitous discoveries may cause her to revise what she wants to buy and consume. The behavioural economist Peter Earl has drawn attention to consumers’ learning processes.11 A consumer may become aware of more relevant product attributes in repeated consumption of related products, a learning process that eventually results in connoisseurship. What a consumer initially perceives as one product (a summer vacation) may first divide into chunky components (beaches, food). Later these chunky components may subdivide into finer segments (diving, Indian restaurants). Eventually, the consumer may become an expert (diving related to depth, salinity, and temperature, or the spice combinations typical of Goan cuisine). Learning by consuming changes preferences, even if income and prices stay the same. Sometimes connoisseurship precedes opportunities, as when someone appreciates a vintage car that remains prohibitively expensive. Sometimes vicarious consumption—observing the consumption habits of others—yields new aspirations. In the real world, consumers satisfice. Moreover, satisficing decisions change over time as a result of processes of learning (or forgetting). Thus, consumers do not maximize anything. Neither do entrepreneurs. The mainstream counterpart to the utility-maximizing consumer on the production side is the profit-maximizing producer. But an entrepreneur cannot maximize due to the unforeseeable uncertainty of the future. A specific entrepreneur may innovate a product that may or may not be attractive enough to consumers to justify its production. It is not only the consumers that are unpredictable, however. Other producers may be more or less capable of imitating the innovation, and there may be unknown future innovations that may or may not impact its sales. It is a situation of fundamental, or Knightian, uncertainty. The entrepreneur neither maximizes nor satisfices anything. Following Knight, the entrepreneur exercises judgement while facing an uncertain future.

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3.4

Risk and Uncertainty

In Risk, Uncertainty, and Profit, Frank Knight laid out a theory distinguishing between risk and genuine uncertainty.12 Risk denotes a situation with more than one possible outcome. Still, it is a situation with known possible outcomes, each with a knowable probability. It is then straightforward to maximize the expected payoff. Theories popular among economists define rationality in a way that makes their use of the term “uncertainty” equivalent to Knightian risk. So-called “rational choice theories” imply that individuals maximize their expected utility as if they know the probabilities of all possible future states of the world. The Knightian view is different. Risk refers to situations where nature or people have imposed a structure. The game of roulette is an example. Many biological, medical, or technological processes have probabilistic risks since they occur without creative human interventions. Another example is the variability of rainfall in a location and its effect on the quantities and prices of various agricultural goods. In contrast, uncertainty refers to an open-ended set of possible future outcomes because there is no way we can know the number of outcomes in the set. It is unstructured. There is no objective probability associated with each outcome, even if it is an outcome that may seem likely. In a structured situation with a known set of outcomes, it is unnecessary to have access to objective probabilities for a maximizing action to occur. Without information about the actual probabilities, the choosing individual may assume equal or unequal subjective probabilities. It is different for an individual facing uncertainty. According to Knight, such a person exercises judgement rather than a maximizing or satisficing strategy. A decision-maker who judges rather than maximizes is an entrepreneur. The role of the entrepreneur in the economic system is thus to shoulder uncertainty. While most economists ignore Knight’s treatment of risk, uncertainty, and entrepreneurship, it has become more influential in the twenty-first century, particularly in the interdisciplinary field of entrepreneurship and some heterodox schools of economic thought.13 Yoram Barzel’s theory of property rights is especially conducive to integrating Knightian uncertainty and entrepreneurial judgement into a broader framework.14 Human and physical capital owners may rent out their capital in exchange for contractual remuneration. The capital owners satisfice their utility when they enter into a contractual relationship. However, they may also decide not to rent out their capital. If they

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choose to control the use of their capital, they will not receive a contractually guaranteed return. Instead, they reserve the right to direct the use of their resources, meaning they will exercise entrepreneurial judgement. They become “residual claimants” so that any ex-post deviation from the ex-ante market value of using their resources is an economic profit or loss.15 A resource owner must subtract an opportunity cost corresponding to the market rent or wage from accounting profits to estimate the entrepreneurial profit or loss. But entrepreneurship implies something more than this. It is about creating new capital if we understand capital in its Knightian sense of potentially encompassing all attributes of preexisting human or physical resources.16 For example, a hotel room may be “consumed,” but it may also assume the function of capital since a good night’s sleep may increase the hotel guest’s marginal value product the next day. A hypothetical illustrative example should clarify the relationship between entrepreneurship and market outcomes.

3.5 The Entrepreneurial Individual: A Hypothetical Example For ease of exposition, let us call the hypothetical entrepreneur Mary. Mary possesses property rights over her skills, meaning she has ultimate control over how to deploy those skills to productive or consumptive activities. The set of skills that Mary embodies comprises her human capital. This set is an open-ended set of attributes, each of which may command a market price. One of Mary’s attributes is her ability to teach English, while another is her ability to give speeches on becoming and staying vegan. Several schools appreciate Mary’s skills as an English teacher, and the highest-bidding school offers her $50 per hour, which is therefore Mary’s market wage. It is her opportunity cost since this is her best-paying contractual compensation. But Mary thinks she can earn more by giving speeches entitled “Veganism and the New Self” in auditoriums and lecture theatres worldwide. We assume that this is an attribute of her human capital that schools are unwilling to pay for, and thus she must become an entrepreneur to earn money from the speech. In effect, Mary judges that

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her potential employers—high schools and community colleges—underestimate her market value. By exercising her entrepreneurial judgement, Mary creates a new human capital attribute. She innovates a speech. Note that Mary cannot estimate her potential profit objectively in advance. She may become a celebrity (good for Mary). There are other possibilities, however. An unknown person may capture her market by offering what the affected consumers perceive as a superior imperfect substitute. Imitators may drive down the price by providing similar speeches at lower prices. A speech-induced opportunity to earn money in another capacity, such as a reality television host, may make the innovation result in previously unimaginable profits from an “innovation spin-off.” The range of possible earnings may be vast if the market for this type of speech gives rise to winner-takes-all effects. Someone may disseminate the speech beyond the confines of a live-audience venue, and it might go viral on the internet and attract advertisers or other sponsors. The list of potential outcomes resulting from the original entrepreneurial decision is long and open-ended. Mary’s entrepreneurial decision—whatever its eventual effects—is incompatible with economists’ equilibrium models. Each factor earns the same marginal return in such models, and no entrepreneurial profits exist. They are of little use in this context. Entrepreneurial action is a movement towards or away from some equilibrium, regardless of whether one invokes Knight, Schumpeter, or Kirzner. Entrepreneurship must refer to dynamic phenomena when the economy is not yet, or no longer, in equilibrium. Entrepreneurial actions have been vital to economic development throughout human history. Still, good reasons exist to believe they become more common and impactful with each economic development stage. It is to this question we turn next.

3.6

Entrepreneurship in the Creative Society

Two features of the Creative Society increase opportunities for entrepreneurial innovation. One is higher levels of education and specialization that reflect the new occupational structure. The other is increasing leisure time, which results from the income effect of higher real wages on the preferred working time and higher life expectancies. As people become more productive, they work shorter hours, and their life expectancies increase. In many of the most developed societies,

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the average person spends less than ten per cent of their lifetime in remunerative work.17 A higher income usually increases the demand for leisure and also increases the demand for investments in consumption capital which makes leisure more enjoyable. Thus, higher incomes result in investments in learning that yield greater consumer connoisseurship as their primary effect. Such learning requires time. Each consumer is subject to a time constraint. Connoisseurship in one domain means learning associated with other domains becomes more challenging.18 As the economy develops, consumers’ time endowments increase, and they can allocate more time to increase their connoisseurship within self-selected niches. Preference formation and differentiation result from investments in consumption capital. Preference diversification opens up opportunities for product innovation. New types of goods imply new product attributes. For example, a physical resource such as a recorded song may become a new attribute in the consumption of restaurant services (“musical ambience”). Greater product diversity generates more opportunities for entrepreneurial attribute creation. An entrepreneur may add more musical attributes to the dining product by using more sound reproduction technologies. Later, she may combine the new musical features with new food recipes, furniture types, and visual stimuli. With development comes an increasing number of entrepreneurial opportunities. These opportunities become profitable when there are corresponding changes in demand towards greater preference diversity. In addition, more product varieties may encourage further investments in connoisseurship. The process of product differentiation is self-reinforcing on both sides of the market. At the same time, increasing product diversity is a motivating factor for increasing preference differentiation, leading to a proliferation of consumption niches. This proliferation of niches limits opportunities for mass production and, therefore, also opportunities for exploiting scale economies. Nevertheless, scale economies continue to play a role because while consumers develop niche preferences, they also continue to consume some goods that are in general use. While globalization has integrated many niche markets, with somewhat greater opportunities for scale economies than otherwise, there are still many legal or social barriers that prevent the full realization of this process. These barriers often reflect social norms and formal

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institutions. Markets for adopting children, for human blood, semen or organs, or sexual services and erotic toys are associated with spatiotemporally differentiated legitimacy. Sometimes, markets exist in normative “zones of darkness” that make certain types of demand less visible.19 Markets for hard drugs and other illegal goods offer norm-transgressive entrepreneurs opportunities to earn extraordinary profits. These are highpayoff niche markets where informally enforced local monopolies may prevent integration. Local and social barriers change over time. Such changes are especially striking during periods of radical socioeconomic restructuring. The economic transformation that accompanied the shift from industrialism to the Creative Society triggered parallel taboo-related transformations that were as dramatic as the changes to the occupational structure, the differentiation of preferences or the globalization of markets. As in the case of product innovations, changes in social norms often reflect human creativity and subsequent entrepreneurial impulses. Inglehart presented empirical evidence of a restructuring of taboos that first emerged among “taboo entrepreneurs” born in the 1940s.20 Examples of markets that have transitioned towards greater legitimacy include markets for cannabis, gay matchmaking, and nudist beaches. A movement in the opposite direction—towards greater illegitimacy—occurred during the same period for other markets, such as those for bullfighting, gender-isolated education, and racially segregated entertainment. There are both preference-induced and institutional reasons why some markets remain local in the absence of high transport costs. We may refer to these reasons as transaction costs, but they are “fixed transaction costs” associated with norms and laws rather than conventional search or bargaining costs. These transaction costs are unlikely to disappear. As we shall see in the next chapter, substantial differences exist between the normative values associated with different societies, especially those with dissimilar socioeconomic structures or cultural origins.

3.7

System Constraints

The Knightian theory of entrepreneurship does not link entrepreneurs’ actions to the overall state of the economy. However, this does not mean linking the theory to equilibrating or disequilibrating tendencies is impossible. To address this question, we must consider how individuals form expectations.

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Production takes time, and individuals have imperfect knowledge. These two unavoidable aspects of the economy imply that a dynamic pricing problem arises from individuals’ subjective expectations while also giving rise to the question of whether any social factors make their expectations similar. Friedrich Hayek thought that expectations primarily reflect shared habits and norms.21 Another way of expressing this is that institutions may coordinate expectations. Cultural evolution causes institutional rules to emerge in human societies.22 It is thus not self-evident that the uncertainty of the future causes discoordination in markets. Institutions shape expectations and will therefore converge among individuals who share an institutional framework for interpreting market signals. In Hayek’s view of the market as an evolutionary process, a selection mechanism also weeds out unfit expectations while sustaining fit ones. In this context, “fit” means good enough rather than optimal. If stable institutions govern market interaction, there will then be a tendency for individuals to adopt similar expectations. Market interactions among individuals with similar expectations will generate feedback that results in better coordination of individual plans. Roger Koppl and Douglas Glen Whitman proposed that the tendency towards convergent expectations will only prevail if institutions are stable.23 Individuals’ expectations are less likely to converge if certain persons can change institutions unpredictably. In Big Players and the Economic Theory of Expectations, Koppl gave the example of a central banker with discretionary powers to set interest rates as an example of a Big Player with the ability to make coordination less likely.24 Koppl and Whitman introduced the notion of a “system constraint” as the key to understanding whether expectations tend to become more similar over time.25 If stable institutions regulate a market, and competition involves numerous buyers and sellers, the individual market participants face a tight system constraint. The hypothetical equilibrium state known as “perfect competition” implies the tightest possible constraint. If we have a real market that approaches the conditions that perfect competition describes, then expectations no longer matter for outcomes. The market process will select those participants who act as if they know all relevant factors. A “loose system constraint” exists if institutions are unstable or a monopolistic producer exists in a market with high entry barriers. Subjective expectations become important, and there is little reason to believe

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they will converge. Market outcomes become unpredictable. Koppl and Whitman argued that the only way to analyse markets with loose system constraints is to adopt the “hermeneutic” approach common in historical accounts of disruptive social events. The analyst must interpret each Big Player’s beliefs, values, opportunities, and objectives. The system constraint offers a clue to the role of entrepreneurs. Resource owners become entrepreneurs when they exercise judgement over how to deploy their resources instead of receiving contractual compensation for letting others decide. In a market setting, entrepreneurs are profit-seekers. Profit-seeking judgement aims at loosening the system constraint. A looser system constraint allows for greater profits. However, a loose system constraint does not guarantee that the entrepreneur will reach maximum profit. It allows her to pick any price-quantity combination between the two break-even points and maximum profit (the point where marginal revenue equals marginal cost). This indeterminacy arises because the market allows a producer to continue producing if the total revenue exceeds or equals the total cost. Profit maximization is optional. The entrepreneurial action is disequilibrating. The profit-earning entrepreneur causes the marginal products of the inputs to exceed their costs. If the cost of market entry is low, imitators will gradually bid up input prices and bid down output prices until the market reaches a new equilibrium. This imitative market process implies a gradual tightening of the system constraint. Sometimes entrepreneurs introduce products that are difficult to imitate. The system constraint may stay loose for a long time if high entry costs keep potential imitators away. For example, suppose a sufficient number of people perceive Mary’s inspirational speech about veganism to be uniquely attractive. In that case, she will benefit from repeated profits that arise because of the continuation of the loose system constraint associated with her innovation. In the ideal case, she can even scale up her performance and continue earning entrepreneurial profits for the rest of her life. Such a scenario is more plausible than it may seem. Some actors, musicians, and athletes have become more valued for who they are than for what they do. They may earn more money from endorsing seemingly unrelated products than from directly deploying their unique skills. The above examples implicitly assume stable institutions. The situation is different when institutions are unreliable. Unstable institutions imply that the discretionary actions of influential individuals become more important than consumers’ preferences. What then happens depends

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on the fancies and quirks of the powerful. Sometimes, a loose system constraint means a softer budget constraint for some than for others. For example, some influential Chinese government officials must, at some point in the past, have decided that it is a good idea to build millions of high-rise apartment buildings almost anywhere. According to one estimate, this idea resulted in at least 67 million vacant apartments in 2017.26 When political considerations control the approval of loan applications, and when influential people can force taxpayers to bail out unsuccessful business ventures, there is no guarantee that there will be a movement towards equilibrium in any market. Correct expectations about the whims of powerful government officials then become more critical for entrepreneurial profits than the ability to serve consumers. The dynamic productivity of entrepreneurs subject to the rule of law gives way to the value-destructive practices of the totalitarian state. As a general tendency, good market institutions support innovations and subsequent imitations. The result is a dynamic process where goods and services keep improving, and real prices keep decreasing. Good institutions are stable, simple, transparent, and non-discriminatory.27 Stable institutions make the uncertainty of the future more manageable. Adapting to new economic conditions is easier if institutions are simple, transparent, and non-discriminatory. These four desirable institutional attributes imply that entrepreneurs face lower entry barriers than otherwise.

3.8

The Market Process

Entrepreneurs who interact in markets give rise to a process that encourages better use of resources, more specialization, and a greater variety of goods. This process takes time. The market is a constantly evolving process that never ceases to invite the participation of new firms, technologies, and occupations. This understanding of the market differs from the one most students encounter in their economics classes. Hayek offered one of the best explanations of why we should think of the market as a process: [Price] adjustments are probably never “perfect” in the sense in which the economist conceives of them in his equilibrium analysis. But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made

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us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency. The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its product more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or “normal” level.28

The “marvel” that Hayek is referring to is the fact that markets exhibit an orderly structure, even though there has been no conscious plan to achieve this order. The market is self-organizing. The decentralized actions of millions of individuals ensure that market prices will emerge. These prices distil decentralized information about relative scarcities in numerous interconnected localities. The individual participants need not share any goals. They may have little in common, yet their exchanges cause a market price to emerge. The price then helps to coordinate the market participants’ actions. This price reflects local knowledge about relative scarcities in specific places at specific times. These scarcities depend on network interdependencies among numerous producers and consumers. Since no individual is omniscient, we cannot assume that producers use the best technology or that consumers can equalize opportunity costs at the margin. Even though everyone wants to improve their situation, adopting optimal production technologies or obtaining optimal “baskets” of consumer goods is impossible. Still, market prices nudge them towards greater efficiency, even if they never become efficient in an absolute sense. How does a well-functioning self-organizing market emerge? There are a few necessary conditions. First, there must be agreement among most people most of the time about resource ownership. Resource owners must feel secure about continuing their ownership of the resources they decide to keep rather than sell or give away, which implies that there must be well-defined property rights and a legal system that protects those rights. Market participants must know what they are trading and how long they can keep what they have bought. It is only then that reliable market prices can emerge. Market participants must therefore comply with the rules of property and contract, with rule violations being unusual rather than

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commonplace. Rule-following is then the predominant behaviour when people enter into contractual relationships. Second, there must be a systemic resource that individuals seek to accumulate. In markets, this resource is money. The accumulation of money is a measure of market success. Loss of money implies failure and repeated losses compel the loss-incurring individual or firm to exit the market. Bankruptcy laws are thus necessary for the functioning of markets. A self-organizing well-functioning market thus consists of a reliable legal system that protects property, enforces contracts, and regulates entry and exit, a stable currency that facilitates the emergence of reliable market prices, and a set of market participants who follow the rules of the game. Entrepreneurs can then enter the market and test their innovations in the pursuit of profit. Not all entrepreneurs are successful, however. Indeed, empirical studies show that entrepreneurs tend to predict greater market success than is warranted by their subsequent performance.29 But this over-confidence may be beneficial for development at the aggregate level. Greater over-confidence means that more entrepreneurial ventures see the light of day. Moreover, a cultural predisposition to see business failure as normal may encourage more people to act on their entrepreneurial visions. Thus, while reasonably good market institutions may be necessary for economic development, cultural values may speed up or slow down this development process.

3.9

Conclusions

To understand real-world markets, we must think of them as the playgrounds of innovative entrepreneurs rather than as static structures. A real market is an entrepreneurial and evolutionary process, not a snapshot or an end state. Individual entrepreneurs become the driving force of the market when we view people as they are rather than as some imaginary economic optimizers. The extent to which entrepreneurs can earn profits from satisfying consumers’ preferences depends on the institutions that structure their behaviour. Dynamically productive entrepreneurship is more likely to prevail in some institutional settings than others. The rule of law, which is shorthand for impartial and predictable protection and enforcement of property and contract, is the foundation for a process where entrepreneurs continually discover more valuable uses of the resources at their disposal. In the aggregate, the process in which

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entrepreneurs experiment with innovative ideas gives rise to an everexpanding network of resources and products. Therefore, the complexity of the economy increases as a consequence of economic development.30 An implication of the cumulative effects of successive waves of innovation is that there will be an increase in the number of inputs an entrepreneur can combine over time. Similar knowledge accumulation processes affect non-market creativity. The creative individual has many more ideas that she can build upon today than at any point in the past. Likewise, the entrepreneurial individual can envision many more new resource attributes today than in the past. The cumulative process is never-ending. We should thus expect greater aggregate creativity and innovation over time. New knowledge is always stored somewhere and remains retrievable. While this process is cumulative, it is not always smooth. Sometimes there is a sudden leap or, equivalently, a phase transition. One example is the Fourth Logistical Revolution, which improved information, communication, and transport technologies made possible. Our cumulative knowledge, the palette for creators and innovators, is now instantly accessible from almost anywhere. It is global rather than local. But the creative use of the palette still depends on one’s location. Specific cultural values are better at cultivating creativity and innovation. For entrepreneurial innovation, in particular, the legal framework is essential. It is sometimes possible to be a creative artist or scientist, even if the local institutions are dysfunctional. The effects of dysfunctional formal institutions on market entrepreneurship are more drastic. Top-down economic planning, endemic corruption, and arbitrary decrees from powerful Big Players are institutional features that may stymie the economic progress entrepreneurs would otherwise make possible.

Notes 1. See Knight (1921), Schumpeter (1934), and Kirzner (1973). 2. Koppl and Whitman (2004) introduce the “system constraint.” Andersson (2017) uses it in the context of Knightian entrepreneurship theory. 3. Lachmann (1957) and other “radical subjectivists” assume that no intrinsic tendency towards market coordination exists. 4. The infeasibility of central planning as a method for achieving economic outcomes that the central planners desire does not imply

3

5. 6. 7. 8. 9. 10. 11. 12. 13.

14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.

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that all forms of planning are ineffective. Coase (1937) explained that the efficacy of planning depends on the relative magnitudes of market transaction costs and organizational governance costs. When firms employ workers, they replace market coordination of activities with planned coordination for a specified time period, if they expect total transaction costs to exceed total governance costs for the duration of the relational contract. Hayek (1945). Pejovich (2008, p. 8). Hudik (2019, p. 470). Coase (1988, p. 2). ibid., pp. 3–4. Simon (1959). Earl (1983). Knight (1921). See, in particular, the Austrian and neo-institutional contributions of Langlois and Cosgel (1993), Foss et al. (2007), Andersson (2008), and Foss and Klein (2012). Barzel (1989). Andersson (2008) provides a detailed explanation of how entrepreneurship relates to ownership and residual claims. Andersson and Andersson (2017) develop a comprehensive theory of capital that uses the same Knightian approach as in this chapter. Andersson and Andersson (2006). Nimkulrat et al. (2015). Zelizer (2005, 2011). Inglehart (1997). Butos and Koppl (1997) discuss the Hayekian approach to the problem of subjective individual expectations. See Hayek (1952, 1979). Koppl and Whitman (op. cit.) Koppl (2002). Koppl and Whitman (op. cit.). Hudik and Bylund (2021) offer a similar distinction between tight and loose constraints as a criterion for deciding whether “pure theory,” “historicist approaches,” or intermediate “middle ways” are more appropriate in the analyses of various entrepreneurial phenomena. They (ibid., p. 951) explain that “in the case of loose constraints, idiosyncratic elements dominate; in the case of tight constraints, factors that are common to a

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26. 27. 28. 29. 30.

large group of situations dominate. As an illustration of the issues involved, consider a demand for a good as a function of prices, income, and tastes. If the prices and income explain relatively little and the tastes explain a lot, then consumers face loose constraints, and general demand theory is of little use. Batarags (2021). Hayek (1979) includes a detailed exposition of the characteristics of market-supporting institutions. Hayek (1945, p. 87). Koellinger et al. (2007). Koppl et al. (2023) use a combinatorial model to explain the increasing complexity of goods over a span of 2,000 years. They characterize the Industrial Revolution as a “combinatorial explosion.”

References Andersson, Å. E., & Andersson, D. E. (2006). The economics of experiences, the arts and entertainment. Edward Elgar. Andersson, Å. E., & Andersson, D. E. (2017). Time, space and capital. Edward Elgar. https://doi.org/10.4337/9781783470884 Andersson, D. E. (2008). Property rights, consumption and the market process. Edward Elgar. https://doi.org/10.4337/9781848444874 Andersson, D. E. (2017). In defense of Knightian entrepreneurship theory. International Review of Entrepreneurship, 15(4), 417–430. Barzel, Y. (1989). Economic analysis of property rights. Cambridge University Press. Batarags, L. (2021, October 14). China has at least 65 million empty homes. Business Insider. https://www.businessinsider.nl/china-has-at-least-65-mil lion-empty-homes-enough-to-house-the-entire-population-of-france-it-offersa-glimpse-into-the-countrys-massive-housing-market-problem/ Butos, W., & Koppl, R. (1997). The varieties of subjectivism: Keynes and Hayek on expectations. History of Political Economy, 29(2), 327–359. https://doi. org/10.1215/00182702-29-2-327 Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386–405. https://doi.org/10.1111/j.1468-0335.1937.tb00002.x Coase, R. H. (1988). The firm, the market, and the law. University of Chicago Press.

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Earl, P. E. (1983). The economic imagination: towards a behavioural theory of choice. Wheatsheaf. Foss, K., Foss, N. J., Klein, P. G., & Klein, S. K. (2007). The entrepreneurial organization of heterogeneous capital. Journal of Management Studies, 44(7), 1165–1186. https://doi.org/10.1111/j.1467-6486.2007.00724.x Foss, N. J., & Klein, P. G. (2012). Organizing entrepreneurial judgment: A new approach to the firm. Cambridge University Press. https://doi.org/10.1017/ CBO9781139021173 Hayek, F. A. (1945). The use of knowledge in society. American Economic Review, 35(4), 519–530. https://doi.org/10.1142/9789812701275_0025 Hayek, F. A. (1952). The sensory order. University of Chicago Press. Hayek, F. A. (1979). Law, legislation and liberty. University of Chicago Press. Hudik, M. (2019). Two interpretations of the rational choice theory and the relevance of behavioral critique. Rationality and Society, 31(4), 464–489. https://doi.org/10.1177/1043463119869007 Hudik, M., & Bylund, P. L. (2021). Let’s do it Frank’s Way: General principles and historical specificity in the study of entrepreneurship. Journal of Institutional Economics, 17 (6), 943–958. https://doi.org/10.1017/S17441374 21000205 Inglehart, R. (1997). Modernization and postmodernization: Cultural, political, and economic change in 43 societies. Princeton University Press. Kirzner, I. M. (1973). Competition and entrepreneurship. University of Chicago Press. Knight, F. H. (1921). Risk, uncertainty, and profit. Houghton and Mifflin. Koellinger, P., Minniti, M., & Schade, C. (2007). “I think I can, I think I can”: Overconfidence and entrepreneurial behavior. Journal of Economic Psychology, 28(4), 502–527. https://doi.org/10.1016/j.joep.2006.11.002 Koppl, R. (2002). Big players and the economic theory of expectations. Palgrave Macmillan. Koppl, R., & Whitman, D. G. (2004). Rational-choice hermeneutics. Journal of Economic Behavior and Organization, 55(3), 295–317. https://doi.org/10. 1016/j.jebo.2003.07.006 Koppl, R., Cazzolla Gatti, R., Devereaux, A., Fath, B. D., Herriott, D., Hordijk, W., Kauffman, S., Ulanowicz, R. E., & Valverde, S. (2023). Explaining technology. Cambridge University Press. Lachmann, L. M. (1957). Capital and its structure. Sheed Andrews and McMeel. Langlois, R. N., & Cosgel, M. M. (1993). Frank Knight on risk, uncertainty, and the firm: A new interpretation. Economic Inquiry, 31(3), 456–465. https:// doi.org/10.1111/j.1465-7295.1993.tb01305.x Nimkulrat, N., Niedderer, K., & Evans, M. A. (2015). On understanding expertise, connoisseurship, and experiential knowledge in professional practice. Journal of Research Practice, 11(2), 1–13.

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Pejovich, S. (2008). Law, informal rules and economic performance: The case for common law. Edward Elgar. Schumpeter, J. A. (1934). The theory of economic development. Harvard University Press. Simon, H. A. (1959). Theories of decision-making in economics and behavioral sciences. American Economic Review, 49(3), 253–283. Zelizer, V. A. (2005). The purchase of intimacy. Princeton University Press. Zelizer, V. A. (2011). Economic lives: How culture shapes the economy. Princeton University Press.

CHAPTER 4

Cultural Individualism

Abstract Cultural individualism denotes a culture where individuals regard themselves primarily as autonomous self-directed persons, rather than as members of in-groups pursuing shared aims. An individualistic culture first arose in Western Europe in the Middle Ages, as a result of certain policies of the medieval Western Church. This culture facilitated the division of labour and the growth of trade from the late Middle Ages onwards and created a distinctive Western culture. In the twentieth century, empirical researchers such as Geert Hofstede and Ronald Inglehart confirmed related cultural clusters of values such as “individualism” and “emancipative values.” Recent research indicates that cultural individualism is not a static phenomenon. It correlates with measures of economic development, such as GDP per capita. The normal way in which cultural values change over time is through cohort replacement. Though Western Europe, North America, and Australasia still exhibit the highest levels of individualism, other regions are catching up, notably some parts of East Asia, Eastern Europe, and Latin America. A new measure of cultural individualism exhibits a strong positive association with several Creative Society performance measures, notably scientific publications and citations per capita.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0_4

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Keywords Cultural individualism · Middle Ages · Roman Catholic Church · Western culture · Hofstede · Inglehart · Cohort replacement · Creative Society · Science · Globalization

4.1

Introduction

The social psychologist Teresa Amabile has suggested that parents are more likely to cultivate creativity in a child if they treat her as a unique individual rather than someone who should grow up to fill a predetermined social role.1 This recommendation alludes to cultural differences. An oft-noted contrast is between an individualist West and a collectivist East, although empirical research shows that this is an over-simplification. Still, it does point to a key source of cultural differentiation. The cross-cultural psychologist Harry Triandis referred to individualism and collectivism as “cultural syndromes.”2 A term such as individualism then becomes a shorthand summary of an interconnected set of related values and behaviours. There have been many attempts to classify and measure different aspects of culture at various levels of aggregation, ranging from small organizations to continental civilizations. Other scholars have been more concerned with a culture’s origin or its pace of change. In this chapter, I provide an overview of an unusually rigorous explanation of the origin of cultural differences before turning to three influential empirical frameworks for thinking about cultural differences and cultural change. I then apply one of these frameworks to an explorative empirical analysis of the relationship between cultural individualism and four quantitative indicators of the creative society. A recurrent theme in the literature on individualism and collectivism is how cultural values shape thoughts and language use. One of the symptoms is the contrast between the individualist’s preference for using the words “I,” “me,” “my,” and “mine” as contrasted with the collectivists’ preferred “we,” “us,” “our,” and “ours.” An individualist makes no clear distinction between her in-group (us) and out-group (them) beyond the minimal extent that refers to one’s nuclear family members. The individualist world is a world of more weak and fewer strong interpersonal links than that of the collectivist.

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According to Triandis, the most individualistic person is someone who sees herself as not only independent but also different from others. The opposite collectivist extreme would be the perception of one’s self as not only interdependent but also similar to others or, in other words, replaceable.3 These values and perceptions reflect numerous socio-economic and political phenomena, ranging from family structures to the role and legitimization of the nation-state. At the deepest level, culture—including cultural individualism— consists of the stable values and rules that motivate individuals and groups to act in pursuit of goals that seem important to them.4 Most of these values seem natural and obvious to those who embody them, and they have thus not consciously chosen them. Individualistic values are, with few exceptions, the result of cultural evolutionary processes that operate on a slow time scale. We can thus state that from an intergenerational time perspective, individualism results from a collective process. Values motivate people, and rules govern their behaviour. Cultural rules are a subset of cultural values in the interpersonal realm. But most of the time, people are unaware that they apply such rules. One’s culture is mostly tacit knowledge in the sense that Michael Polanyi used the term.5 We may know how to walk and speak one or more languages, but we do not know how we do it. Similarly, we know what thoughts and actions seem natural and appropriate in our familiar environment, but we do not know why this is so. Our mind can only explicitly think about a tiny fraction of what we do or the rules we apply. Friedrich Hayek explained how our behaviour depends more on unconscious than on conscious knowledge and that we have inherited much of this unconscious knowledge from cultural traditions and practices. In an essay entitled “Rules, Perception, and Intelligibility,” Hayek wrote that if everything we can express … is intelligible to others only because their mental structure is governed by the same rules as ours, it would seem that these rules themselves can never be communicated. This seems to imply that in one sense we always know not only more than we can deliberately state but also more than we can be aware of or deliberately test; and that much that we successfully do depends on presuppositions which are outside the range of what we can either state or reflect upon. This application to all conscious thought of what seems obviously true … seems to follow from the fact that such thought must … be directed by rules which in

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turn cannot be conscious—by a supra-conscious mechanism which operates upon the contents of consciousness but which cannot itself be conscious.6

The implications of taking the cognitive limitations of the human mind into account are far-reaching. While we can question specific ideas, rules, or habits, we can, at most, question a tiny subset of the totality while (unconsciously) continuing to practise the rest. The greater part of a culture hence spontaneously reinforces itself through the unreflective actions of the individuals who collectively constitute the culture. The cultural reproduction process occurs during childhood and adolescence, when parents, relatives, teachers, and classmates transfer cultural values, rules, and habits. Initially, children are even less able to reflect upon their newly discovered human world than adults. Deliberation therefore does not get in the way of skill acquisition. Cultural learning is akin to learning a language: it proceeds effortlessly in early childhood but is more difficult for adults. And language and culture are often intertwined. Language proficiency is a skill, but proficiency in a language and its associated culture is a complex set of interrelated skills.

4.2

The Rise of Cultural Individualism from Collectivist Beginnings

The anthropologist Joseph Henrich has described the culture of “individualistic pro-sociality” that defines much of Europe and North America as extreme and unusual from a global or historical perspective. He calls this culture WEIRD, an acronym for Western, educated, industrialized, rich, and democratic.7 Most earlier accounts of the rise of Western culture to its dominant position in the second millennium AD hypothesized that the key factors were climate, agricultural conditions, or proximity to waterways.8 Henrich, by contrast, identifies the Marriage and Family Program (MFP) of the medieval Western Church as the underlying cause of why Western culture became increasingly individualistic after the sixth century AD. The starting point is that almost all cultures we can observe are (or were) based on agriculture. The emergence of agriculture favoured larger groups than were common among hunter-gatherers. Larger groups could organize more complex production, benefit from the division of labour within the group, and defend their territorial claims against neighbours.

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Larger groups became more cohesive if they developed strong family ties, which anthropologists call “high kinship intensity.” Examples of factors that raise kinship intensity include cousin marriage, polygamy, households with extended families, and the organization of families into lineages. An agricultural village with high kinship intensity cultivates a dense, tight, and interdependent social network. Its culture will reflect the high embeddedness of the villagers. Such networks promote cultural traits such as in-group loyalty and solidarity, conformism, obedience to elders, holistic-relational awareness, nepotism, and contextual, relationship-specific morality. At the same time, they discourage traits such as individualism, independence, analytical thinking, impartiality, universal moral principles, and interpersonal trust that reaches beyond the in-group. In the fifth century AD, Europe had high kinship intensities and did not differ much from other continents. We may think of this culture as a suitable system of survival in a steady-state economy. However, it rebelled against the principles of the ascendant Church, which advocated universal ethical principles rooted in monotheism. The watershed event was the Synod of Agde in 506 AD, resulting in the first iteration of the MFP. This version prohibited second-cousin marriage, step-relative marriage, the marriage of in-laws, polygamy, and concubinage. It also encouraged marriage by choice and neolocal residence (nuclear family households) and treated descent as bilateral rather than patrilineal. The Church tightened enforcement of this policy over time, and the prohibitions extended to sixth-cousin marriage by the eleventh century. One effect was that many Western Europeans had to venture outside their home localities in search of an eligible spouse. Enforcement was rigorous in the Carolingian Empire, encompassing present-day France, western Germany, the Low Countries, Switzerland, and northern Italy. Henrich hypothesized that the MFP would not only weaken ties within extended families. It would also promote individualism, connections to non-relatives, and impersonal norms of behaviour. The proposed chain of causation is that the duration of ancestral exposure to the Roman Catholic Church from 500 to 1500 AD reduced kinship intensities, which had long-term repercussions on culture, such as a higher level of individualism, less conformism, and greater adherence to impartial norms. In a seminal article in Science from 2019, Henrich and his team presented a rigorous multi-level analysis of the effects of medieval Church

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exposure on pre-industrial kinship intensity and present-day measures of individualism and adherence to universal norms.9 They tested their hypotheses at the level of nation-states, European subnational regions, and individual second-generation immigrants in various European countries. For this, they used 24 measures of individualistic-impersonal culture such as Hofstede’s individualism dimension,10 measures of creativity, obedience, and trust from the World Values Survey11 , the Asch conformity measure12 , and the proportion of UN diplomats from different countries who pay their parking tickets in New York City.13 The results were striking. Fifteen of the seventeen country-level measures of individualism or pro-social impartiality correlated at a statistically significant level (p < 0.05) with ancestral exposure to the medieval Catholic Church. All correlations were positive, as expected. Similarly, strong correlations prevailed between the cultural measures, kinship intensities, and cousin marriage rates. On the other hand, the Eastern Church introduced similar marriage rules, but priests, for the most part, disregarded violations. The results were similar but weaker. The individualism of historically Orthodox populations is thus intermediate between the Catholic or Protestant West and the rest of the world. As a second step, Henrich’s team estimated regressions for the cultural variables, controlling for hypothesized explanatory geographical factors such as agricultural suitability, latitude, distance to waterways, and ruggedness. Ancestral exposure to the Western Church remained significant in all but one case. Additional subnational regional regressions revealed similar effects of Church exposure on the cultural variables. The analysis of second-generation immigrants to European countries again pointed towards the same conclusion. Those whose mothers hailed from countries with substantial ancestral exposure to the Western Church were more individualistic and pro-social. In this case, however, ancestral exposure to the Eastern Church had similarly significant effects. However, we should note that such effects are only partially inter-generationally transmitted within families. By the third generation, immigrants’ average values tend to converge towards the averages of the general population in the destination country.14 The effects of the medieval Western Church on kinship intensity and culture were not only statistically significant but also substantial. For example, increasing Church exposure by 500 years was associated with a 91-per cent decline in cousin marriage rates.

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The geography of these phenomena is surprisingly coherent. Maximum Western Church exposure (1000 years) at the level of modern nations is in Belgium, France, and Switzerland. The area with at least some ancestral exposure comprises all of Europe except the southern Balkans and Russia. It also encompasses most of the Americas and Oceania. Similarly, the areas with the lowest level of pre-industrial kinship intensity include all of Europe except for parts of the Balkans, Finland, and Ukraine. It also includes non-European areas with substantial European immigration. In Asia, three surprising examples that combine no medieval Church exposure with low pre-industrial kinship intensity are Japan, the Philippines, and Thailand. The rest of Africa and Asia exhibit medium or high kinship intensities, with the highest level in a contiguous area stretching west–east from Algeria to Afghanistan. In other words, the Islamic heartland has the highest levels of kinship intensity, including, in some cases, majority cousin marriage. The Roman Catholic Church became less strict about its MFP over time and has recognized the validity of second-cousin marriages since 1983. Following the Reformation, Protestant churches rejected most of the Catholic MFP as inconsistent with Biblical teaching. But this did not lead to a surge in cousin marriages in countries such as the Netherlands or Scotland. People continued to marry biologically distant partners. This empirical regularity reinforces the Hayekian point mentioned in the introduction to this chapter that most of one’s culture is tacit and not reflected upon. If it is already a cultural habit to interact with people from outside one’s extended family, and if there is no firm distinction between one’s in-group and out-group, it becomes unlikely that first or second cousins will marry. The absence of legal or religious impediments will have little effect. It has become a part of the tacit or deep-level culture to interact with others regardless of their family, clan, or lineage. But the transition from a society of cohesive extended families to one where it was common for non-relatives to interact was the prerequisite for the later development of WEIRD societies, according to Henrich. It later gave rise to towns with impersonal markets and facilitated the development of legal systems with individual property rights as their foundation. The break-up of kinship structures was the first step towards twenty-firstcentury cultural individualism based on universal norms and impartial legal institutions. The MFP gave Europeans and their descendants in other parts of the world an early advantage that facilitated economic development

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and restructuring during the First Logistical Revolution in the twelfth century.15 Still, the MFP is not a necessary condition for increasing individualism or economic development. While the 25 most culturally individualistic countries are all Western, Japan is close to the Estonian level. Taiwan and South Korea are culturally about as individualistic as Argentina, the Western Hemisphere country with the second highest ancestral exposure to the medieval Church.16 As I will show in the next section, cultural values change in response to economic development. A high level of political individualism can compensate for a low level of cultural individualism and vice versa. The stumbling block for wouldbe reformers in culturally collectivist societies is corruption in the legal and political systems, which is a natural behavioural propensity in cultures where the welfare of the extended family, clan, or tribe trumps the application of impartial universal ethics. Even so, some countries with a collectivist starting point have managed to reduce corruption even more than some Western countries. Japan and Singapore are prominent examples. It is difficult to reduce corruption, but not impossible. We will return to the topic of political individualism in the next chapter.

4.3

Stability and Change

Cultural values and practices are part of society’s soft or non-material infrastructure since they are relatively stable and have collective effects. As explained in the first chapter of this book, infrastructural factors shape long-term economic development. The infrastructure is not unchangeable but changes at a slower pace than the activities that it supports. But the question remains: how slow is slow? There are different viewpoints about the speed and frequency of cultural change. One school of thought views culture as stable, with Geert Hofstede and Robert Putnam as influential theorists. Hofstede, in his pioneering study of national cultures, conducted interview surveys of IBM employees in the late 1960s and early 1970s.17 Due to the stability of nation-level averages, he concluded that no more surveys were necessary and continued using these results in his research until his death in 2020. In his seminal comparative study of institutional performance in northern and southern Italy, Robert Putnam adopted a similar assumption.18 He argued that more efficient delivery of public services in northern Italy

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than in the south reflects the contrast between civic republicanism and feudalism that prevailed more than 500 years earlier. What such theorists have in common is that they believe that cultural change occurs but that it proceeds at such a slow pace that it is approximately static. Even if economic development causes an increase in cultural individualism, as Hofstede concedes, these changes are minor compared with the differences between national cultures. Hence, such differences remain roughly the same. The other school of thought views culture as stable for long periods. But cultural transformations occur during socioeconomic disruptions such as the Industrial Revolution. Ronald Inglehart and Richard Florida focused on cultural changes during the restructuring from an industrial to a knowledge-based economy in the developed West.19 Inglehart went one step further by also theorizing about the cultural changes that occurred during the Industrial Revolution. My view is consistent with Inglehart’s approach. However, given Henrich’s findings, we can observe not three but four cultural systems. Table 4.1 presents an overview of the relationship between them. Inglehart’s theory of value change rests on two hypotheses: the scarcity hypothesis and the socialization hypothesis. The scarcity hypothesis suggests that an individual’s priorities reflect the socioeconomic environment; one places the highest subjective value on attainable goods in short supply. The socialization hypothesis is that the relationship between socioeconomic background and value priorities is a process that takes time Table 4.1 Cultural values and development stages Economic system

Value orientation

Key institution

Key values

Steady-state Agricultural economy

Collectivism

Collective Property Rights

In-group Loyalty Obedience Individual Agency Universal Ethics Materialism Achievement Motivation Imagination Toleration of Non-conformists

Dynamic agricultural Basic economy with market Individualism towns Industrial economy Intermediate Individualism

Individual Physical Property Rights

Creative economy

Individual Intellectual Property Rights

Advanced Individualism

Limited Liability Institutions

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to adjust. A substantial time lag is involved because one’s cultural values reflect the conditions that prevailed during childhood and adolescence. Values remain stable after one reaches adulthood. Value shifts involve changes in priority rankings. More basic goods that are easier to attain are still valued, but most people take them for granted. The theory then combines the two hypotheses: priorities reflect subjectively perceived scarcities, which correlate imperfectly with objective scarcities. This perception, in turn, reflects lived experience during one’s formative years. An individual’s socialization reflects both objective scarcities and the cultural values of one’s in-group, which may include religious or ideological values. The implication is that cohort replacement drives value change. Inglehart’s first exploration of value change in Europe and North America focused on the materialist to postmaterialist transition.20 He found that postmaterialists—defined as those who selected “protecting freedom of speech” and “giving people more say in important government decisions” over “maintaining order in the nation” and ‘fighting rising prices” as political priorities—were more common among young than old survey respondents. Later studies showed that birth cohort rather than age was associated with postmaterialism and that the percentages remained relatively stable, controlling for year of birth.21 Inglehart later extended his study to more values, using factor analyses of responses to World Values Survey questions to identify sets of correlated values. The first version of this approach used “self-expression values” as shorthand for the new post-industrial value system. A later version with Chris Welzel as co-investigator employed the term “emancipative values.”22 The original four-item postmaterialism index from the 1970s is a component of both factors. From the perspective of Hofstede’s cultural dimensions, emancipative values correlate positively with individualism and indulgence at the country level and correlate negatively with power distance and uncertainty avoidance. Inglehart’s theory of value change posits two radical transformations. The first one, coinciding with the shift from agricultural to industrial society, is based on a factor that accounts for rational and legal authorities as the polar opposite of traditional and religious ones. The next shift, from industrial to post-industrial society, sees self-expression/ emancipative values as opposed to protective values. According to Inglehart, this second shift also made many people sceptical of the rational and legal authorities associated with industrialism.

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The graphical representation of country averages casts some doubt on the universality of this development sequence. Different cultural starting points cluster countries with the same religious tradition to a greater extent than their economic development levels imply. One example is that historically Catholic Latin American countries have more emancipative values than either Orthodox Eastern Europe or Confucian East Asia, controlling for economic development. Another example is that the Anglosphere embodies more traditional authority relations than northwestern Europe, which, in turn, is less “rational-legal” than East Asia. While agriculture-based countries cluster near the traditional pole and post-industrial ones cluster near the emancipative pole, much of the cultural variation has more to do with cultural heritage than economic development. Inglehart focused on cultural change, while Hofstede focused on cultural heritage. Each tells part of the story, but a new measure that integrates the insights of both theorists came later.

4.4 4.4.1

Measuring Culture Levels of Aggregation

When discussing cultural differences, cross-cultural psychologists and political scientists mostly use national rather than subnational or socioeconomic averages. The reason for this is evidential rather than deductive. A journal paper from 2021 with Chris Welzel as one of three coauthors showed that the national level explains most of the variability in cultural values. Cultural zones such as Latin America or Confucian East Asia offer the second-best level of aggregation.23 The authors viewed the nation-state as a gravitational field, where increasing individual deviations from average values lead to increasing tension and a greater probability of ostracism. Still, there was a great deal of individual variability, with the national level explaining 31.5 per cent of the variance in individual scores on emancipative values, one of the leading indicators of post-industrialization used by Inglehart and Welzel. Adding religion, language, and ethnicity resulted in no more than a 2.5 per cent improvement in predicting group averages. Eight additional individual-level socioeconomic variables—such as income, education, and settlement type—yielded 4.3 per cent of explanatory power. Thus, 61.8 per cent of the variation in individual emancipative values was due to individual deviations from the combined national and

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socio-economic mean. But the averages resembled centres of gravity with a distribution of individuals that steadily decreased in density with increases in the “value distance” from the centre. In this context, emancipative values make up a factor that is among the best at distinguishing development stages from one another. It includes 12 questions from the World Values Survey: whether independence and imagination are important traits to encourage in children whereas obedience is unimportant; whether women should have the same opportunities as men to pursue a career, leadership positions, or an education; whether society should tolerate abortion, homosexuality, and divorce; and whether freedom of speech and democratization at the national and local levels are priorities in political life. To study cross-national and intra-national variation in more detail, the authors looked at five large countries in different culture zones: Germany (Protestant Europe), the United States (Anglosphere), Brazil (Latin America), China (Confucian East Asia), and Nigeria (Sub-Saharan Africa). Using a two-dimensional chart that plots emancipative values against secular values (another multi-variable construct) for 12 withincountry demographic, socioeconomic or spatial decompositions resulted in almost no overlaps among the six countries. The exceptions were some minor overlaps between regions in Germany and the United States as well as in the United States and Brazil. The average emancipative value indices in Massachusetts and Colorado were within the margin of error of the German states of Sachsen-Anhalt and Brandenburg, respectively. Texas lay within the margin of error of the Brazilian state of Santa Catarina. Conversely, other decompositions made little difference. For example, white, black, and Hispanic Americans were roughly equally emancipative and secular on average. All three groups were, on average, distinctly less emancipative than Germans but more so than Brazilians. Income, education, age, sex, and political identification yielded within-country differences as slight as race and ethnicity relative to the cross-country effects. All groups of Brazilians were more emancipative than all Chinese groups. And all Chinese groups were more emancipative than all Nigerian groups. The only unifying feature among these five countries was that the non-religious scored higher on secular values than Roman Catholics, Protestants, or Muslims. On this dimension, religious believers from different countries were more similar to one another than they were to non-religious or atheist groups from the same country. However, this similarity does not extend to values that do not tap the religious-secular

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dimension. The overall evidence thus points towards studying national cultures or supranational culture zones.24 4.4.2

Hofstede’s Static Measure of Individualism

The social psychologist Geert Hofstede initiated the first consistent attempt to measure individualism at the national level in the late 1960s. The method was ingenious; he controlled for the effects of organizational values by only interviewing employees of IBM, which was known for its distinctive corporate culture. He conducted surveys between 1967 and 1973 and spent the rest of his life analysing the resulting database, which included 117,000 IBM employees in 72 countries. Hofstede’s method was inductive, using factor analysis to identify groups of correlated answers to predetermined questions. In his initial studies, Hofstede identified four cultural dimensions: individualism, power distance, uncertainty avoidance, and masculinity. In the 1980s and later, he extended the framework to two more dimensions: long-term orientation and indulgence.25 The questions focused on work-related issues, unlike other crosscultural surveys of values. Hofstede’s cultural dimensions have become popular in business schools, particularly in departments of human resource management. Individualism has become the most analysed dimension. It has the greatest predictive power as regards most socioeconomic development indicators.26 According to Hofstede, individualism refers to the power and extent of one’s in-group. In an individualistic society, individuals have weak ties to one another. They look after themselves and their nuclear family. Conversely, a collectivist society integrates individuals from birth into strong and cohesive in-groups. These in-groups protect their members in exchange for unquestioning loyalty. As with Henrich, the typical in-group is an extended family, a lineage-based community, or a small tribal settlement. Hofstede’s individualism factor consists of six work-related values. The individualist values (those with positive factor loadings) include prioritizing personal time, work autonomy, and a personal sense of accomplishment. The collectivist values are training programmes, the physical condition of the workplace, and the skill-task fit. According to Hofstede, the three individualist values aim at independence from the organization, while the collectivist ones aim at dependence. He contended that

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these values are good indicators of individualism or collectivism in other domains of life. In the IBM surveys, the United States, Australia, and Britain scored highest, with Panama, Ecuador, and Guatemala at the collectivist end of the spectrum. 4.4.3

Combining Hofstede and Inglehart: Beugelsdijk & Welzel

In a path-breaking article in the Journal of Cross-Cultural Psychology, Sjoerd Beugelsdijk and Chris Welzel combined the dimensional approach of Hofstede with dynamics based on cohort replacement as proposed by Inglehart.27 They criticized Hofstede for presuming an overly stable notion of culture and overestimating the number of dimensions. They also took issue with separating individualism and power distance into different dimensions. While Hofstede conceded that there tends to be a high negative empirical correlation between the two dimensions, he considered them conceptually distinct.28 A common counterargument is that extended families enable a more complex hierarchical structure than nuclear families, which tend to comprise two levels (parents and underage children). Therefore, the collectivist in-group socializes children into perceiving the social world as a complex hierarchical structure, which implies higher power distance and greater social inequality than otherwise.29 On the other hand, Beugelsdijk and Welzel criticized Inglehart for reducing culture to two misspecified dimensions, arguing that Inglehart did not follow the established practice of allowing statistical criteria to determine the number of factors. But they agreed with Inglehart’s cohort approach and divided their national samples into five birth cohorts from 1900 to 2000. Beugelsdijk and Welzel used conventional statistical criteria to isolate three cultural dimensions rather than Hofstede’s six or Inglehart’s two. They call them collectivism-individualism, duty-joy, and distrust-trust. In this framework, collectivism and duty are adaptive to existential pressures, while individualism and joy are adaptive to existential opportunities. Thus, subjective cultural values range from preventive closure, implying uniformity, discipline, hierarchy, and authority, to promotive openness, which implies diversity, creativity, liberty, and autonomy.

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Applying Inglehart’s dynamic theory of value change, they predicted that economic development would encourage a shift towards greater individualism and joy. Echoing Hofstede, they hypothesized that a substantial portion of cross-cultural variation reflects the lasting effects of historically remote sources. To measure the extent to which their dimensions are stable over time, they—like Inglehart—used the World Values Survey (WVS), which encompassed 495,000 respondents in 110 countries from 1981 to 2014. The starting point of constructing a new measure of individualism that could substitute for both Hofstede’s individualism and power distance dimensions was to find WVS questions that correlate with Hofstede’s measures. Five WVS variables had substantial pairwise correlations with Hofstede’s individualism dimension, ranging from r = 0.57 to r = 0.66. The correlations between these variables and the power distance dimension ranged from r = −0.47 to r = −0.63, implying that the new individualism measure is also a measure of power distance. The new five-item measure is more general and not concerned with working conditions. It taps individualism and power distance both vis-à-vis the close circle of family and friends and social institutions. Higher individualism, therefore, implies higher values on the following five variables: 1. The share of respondents disagreeing with the statement, “one of the main goals in life is to make one’s parents proud.” 2. The extent to which respondents think that private ownership of business should increase. 3. The fraction of respondents who think that employers should not discriminate in favour of nationals over foreigners “when jobs are scarce.” 4. The degree to which respondents tolerate homosexuality. 5. The degree to which respondents tolerate abortion. The new measure captures several aspects of individualism, best understood as advocating individual over collective choice, which implies a more comprehensive private domain. The first variable captures family cohesion and measures to what extent adults consider themselves autonomous from their parents when choosing which education, career, or potential partner to pursue. The second and

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third variables capture economic individualism, reflecting the valuation of a private enterprise economy where people are hired based on merit rather than in-group membership. The fourth and fifth variables reflect sexual autonomy and, in these instances, also religion as an individual rather than collective choice. Most Roman Catholics and many Protestants view abortion as a sin, while Muslims take a particularly dim view of homosexuality. But for an individualist of whatever religious or non-religious persuasion, religious and sexual choices are individual.30 While correlated with Hofstede’s measure, the new individualism measure is thus broader and covers economic, family, religious, and sexual values. Table 4.2 ranks 100 countries according to Beugelsdijk-Welzel collectivism-individualism. The general ranking is similar but not identical to Hofstede’s ranking. Anglophone countries rank somewhat lower, while the Nordics rank a bit higher. The other countries in the top quartile comprise almost all of Western Europe, four historically Protestant or Catholic ex-socialist countries: Slovenia, Czechia, Estonia, and Latvia, and one South American country (Uruguay). Ireland and Poland score surprisingly low in light of Hofstede’s results. A possible reason is that religious—and therefore sexual—choices have been a defining feature of nationhood rather than an individual concern. The Roman Catholic Church has long symbolized opposition to Britain in Ireland, while in Poland, the Church played a crucial role in opposing Soviet communism. However, a detailed look at the data shows that individualism has been increasing in Ireland so that by 2020 it was similar to other Western European countries (abortion and homosexuality are not as controversial as in the early 1980s). In addition, Irish respondents are among the strongest proponents of private over public ownership, along with respondents from New Zealand, Switzerland, and the United States. The most striking difference, however, concerns the most economically advanced Asian countries. In 1970, Hofstede found that Japan was less collectivist than the rest of Asia. In the 1981–2014 period, the Four Asian Tiger economies of Hong Kong, Taiwan, South Korea, and Singapore had joined Japan as the only countries without a Western heritage that ranked higher than the median country. The Four Asian Tigers had among the lowest individualism scores in the world in Hofstede’s survey. The dramatic change is likely an effect of their rapid economic restructuring away from farming and blue-collar jobs towards higher levels of education and a more knowledge-intensive occupational structure. The relatively high level of individualism in Hong Kong may also explain

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Table 4.2 Beugelsdijk & Welzel Collectivism-Individualism, 1981–2014, 100 countries Q1

Q2

Q3

Q4

Rank Country

Rank Country

Rank Country

Rank Country

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

Japan Slovakia Bulgaria Hungary Croatia Belarus Portugal Serbia Russia Lithuania Hong Kong Ukraine Bosnia Argentina Taiwan N Macedonia

51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66

Poland China Mexico Moldova Armenia Dom. Rep. Brazil Zambia Chile Azerbaijan South Africa Georgia Kazakhstan Philippines India Ethiopia

76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91

Kyrgyzstan Burkina Faso Uganda Trinidad Ecuador Saudi Arabia Venezuela Iran Malta Zimbabwe Algeria Pakistan Tanzania Nigeria Yemen Ghana

42 43 44

South Korea Romania Albania

67 68 69

Mali Thailand Peru

92 93 94

Morocco Indonesia Bangladesh

45 46 47 48 49 50

Montenegro N Cyprus Cyprus Lebanon Singapore Ireland

70 71 72 73 74 75

Turkey Uzbekistan Vietnam Colombia Rwanda Malaysia

95 96 97 98 99 100

Tunisia Libya Egypt Iraq Qatar Jordan

17 18 19 20 21 22 23 24 25

Sweden Denmark Netherlands Norway Finland Luxembourg France Switzerland Iceland Australia New Zealand Slovenia Czechia Germany Canada United Kingdom Belgium Austria United States Spain Italy Greece Estonia Uruguay Latvia

Source Beugelsdijk and Welzel (2018b)

why such a large part of the population took part in the 2019 protests against the de facto Communist takeover of Hong Kong. (Table A.1 in the Appendix presents the Overall Individualism Index (OII), which is a ranking that combines the cultural individualism of Table 4.2 with political individualism as measured by the Human Freedom Index of the Fraser Institute. Most countries have similar rankings in Table A.1 and Table 4.2. There were two major discrepancies in and around the second

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decade of the twenty-first century: Russia ranked 34th out of 100 countries on cultural individualism, but 62nd on the OII. Similarly, China ranked 52nd on cultural individualism, but 80th on the OII. Conversely, Japan and the Four Asian Tigers all ranked higher on the OII than the cultural individualism index, with Taiwan advancing eleven positions from 40th to 29th place.) Some countries’ recent increases in cultural individualism hint at a cohort replacement effect. The data show a strong cohort effect in the “advanced post-industrial democracies,” mainly in Western Europe and North America. People born after 1960 in these two regions exhibit very high levels of individualism. They grew up during the transition period from industrialism to post-industrialism. Therefore, the environmental incentives to develop a thoroughly individualistic worldview were powerful. The levels of individualism are intermediate in the countries labelled “former Soviet satellites.” This label is somewhat of a misnomer since it only includes Soviet satellites that are historically Catholic or Protestant. Conversely, the “former Soviet Union” category consists of the traditionally Eastern Orthodox former satellites of Bulgaria, Montenegro, North Macedonia, Romania, and Serbia, as well as historically Muslim Albania and Bosnia & Herzegovina. As we can see, Orthodox or Muslim exsocialist countries have cultural individualism scores that are almost as low as in “developing societies” (for example, Brazil and China), although “low-income countries” have even lower scores (for example, Indonesia and Nigeria). The cohort effects in non-Western countries are smaller than in the West.

4.5

Development and Culture

Beugelsdijk and Welzel estimated functions that relate individualism, joy, and trust to economic development and cohort effects. Their individualism function showed that development—as measured by the per capita gross domestic product—positively affected individualism and that cohort effects were significant. However, the effects were strongest when comparing those born in 1940 or later to pre-war generations.31 The duty-joy factor had similar but stronger development and cohort effects. This construct includes five variables. More joyful individuals score higher on the four-item postmaterialism index, value leisure time more, consider thrift unimportant in children, report greater happiness, and

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experience greater freedom of choice. Joy aligns with Inglehart’s theory and has a straightforward economic interpretation. In affluent societies, acceptable levels of crime and price inflation tend to prevail, and most people assume that they can afford sufficient food and shelter. The focus thus shifts towards non-materialistic concerns that are perceived as having more valuable marginal effects on one’s overall life satisfaction. Hofstede’s “indulgence versus restraint” dimension consists of three of the five duty-joy variables.32 The final factor, distrust-trust, measures the extent to which the average person trusts other people as well as their confidence in the political and legal systems.33 In this case, there is no significant effect of development, and later birth cohorts tend to be less trusting than those born between 1900 and 1919. If we decompose these tendencies, WVS data from successive waves show that the share of people who believe that “most people can be trusted” is relatively stable within each country. Still, the post-war generations tend to have less confidence in politics and the justice system. Country averages on this factor correlate negatively with Hofstede’s uncertainty avoidance dimension. Economic development and the cohort structure explained about 50 per cent of the variability among nations in individualism and joy and slightly less of the variability in trust. Almost 50 per cent were due to country-fixed effects (the estimated models explained between 93 and 96 per cent of the total variability).34 Thus, the results are halfway between a purely economic development model of culture and a culture-as-destiny model à la Hofstede. Beugelsdijk and Welzel then investigate what they call the “remote drivers of history.”35 They do this by regressing country-fixed effects on numerous geographical, agricultural, genetic, demographic, and political variables. Here I will limit myself to discussing the cultural causes of individualism, which is my primary concern in this book. Their initial finding is that there are strong correlations (r > 0.80) between individualism and four variables: the start of decreasing fertility; a “cool water index;” school attendance in 1900; and a Western family pattern in 1850. They then regress individualism on three factors with more than 80 observations: the “cool water index,” school attendance, and distance from the first agrarian centre (Mesopotamia in the case of Europe). All are significant and jointly explain 78 per cent of the

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variability in individualism. The “cool water index” has the strongest individual effect of the three variables. Welzel has repeatedly argued that a cool climate with abundant rain provides the best conditions for dairy farming. In the long run, this increases water availability and promotes lactose tolerance. Lactose tolerance, in turn, leads to higher life expectancies and more individual opportunities due to consequences such as postponed parenthood and a habit of planning for the cold season during summers. Cool, rainy climates thereby encourage deferred gratification and capital accumulation.36 Consequently, Welzel argues that North Sea climates and agricultural practices are most conducive to individualism and that increasing deviations from a Dutch or English climate lead to a more collectivist culture in the long run. As a causal chain, this is possible, but it is anything but simple. There is, however, a less convoluted explanation that Beugelsdijk and Welzel fail to explore. First, some of the other variables correlate with individualism. The western family pattern (r = 0.81 with individualism) refers to neolocal household formation, two-generation families, self-selected spouses, and individual property rights extended to women. This variable is in line with Henrich’s characterization of low kinship intensity, which, as we have seen, is associated with the MFP of the medieval Church, controlling for various geographical and agricultural variables.37 But there is more. School attendance in 1900 (r = 0.83) refers to the average number of years of schooling per person. The start of the fertility decline (r = 0.86) denotes the year when birth rates started falling. These two variables are related. The strongest predictor of the fertility rate in a country is the level of education among women, whereby more educated women give birth to fewer children.38 Literacy also gives rise to a dramatic increase in opportunities for individual specialization and, thus, for the differentiation of individuals. Along with family structure, it is a contributing factor to individualism. An early increase in literacy occurred among Jews after the destruction of the Second Temple in 70 AD when rabbis elevated literacy to a religious obligation for Jewish men. Literacy made Jews over-represented in urban occupations in medieval urban Europe and the Middle East. But this was not scalable; the Jewish religion had high entry barriers.39 The Reformation had a much more significant impact on general literacy. According to Henrich:

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After bubbling up periodically in prior centuries, the belief that every person should read and interpret the Bible for themselves began to rapidly diffuse across Europe with the eruption of the Protestant reformation, marked in 1517 by Martin Luther’s delivery of his famous 95 theses. Protestants came to believe that both boys and girls had to study the Bible for themselves to better know their God. In the wake of the spread of Protestantism, the literacy rates in the newly reforming populations in Britain, Sweden, and the Netherlands surged past more cosmopolitan places like Italy and France. Motivated by eternal salvation, parents and leaders made sure the children learned to read.40

If Henrich’s interpretation of the emergence of individualism is correct, then long ancestral exposure to the medieval Catholic MFP and subsequent Protestantism should be associated with the highest levels of cultural individualism. The 21 countries with the highest individualism scores (see Table 4.3) all have at least some ancestral MFP exposure, and those with less MFP exposure in this group are historically Protestant. Most have also been exposed to cold rain and milk. It is up to the reader to decide which explanation is more persuasive.

4.6

Individualism and the Creative Society

From the 1970s onward, most parts of North America and Western Europe have been restructuring from an industrial to a post-industrial society, with an increasing share of people working in knowledge-intensive services. This period has also seen increasing globalization, with foreign direct investment and international trade growing faster than income. While science was primarily the domain of universities in industrial society, this is no longer true. Many of the most expansive industries, such as information and communications technology (ICT) and biotechnology, invest large sums of money in scientific research. Such industries account for over half of all R&D spending in the most advanced economies. The economy is more research-intensive than during earlier development stages. In his studies of American and Canadian cities, Richard Florida has drawn attention to the “3 Ts” of the creative society: talent, technology, and tolerance.41 He has shown that metropolitan areas with high levels of education, creative work, technology, and tolerance of out-groups such as immigrants and gays have been more successful at navigating the economic transition than manufacturing centres or rural areas.

Description

Number of citations (2021–2022) to Scopus-indexed articles published in 2021

Number of Scopus-indexed publications in 2021

A country-specific measure of Richard Florida’s 3 Ts of the creative society, using 2015 data from the Martin Prosperity Institute (Canada)

Scopus Citations

Scopus Publications

Global Creativity Index

Overview of analysed dependent and independent variables

Variable

Table 4.3

Total number of Scopus-indexed citations in 2021–2022 divided by population size (in millions) Total number of Scopus-indexed publications in 2021 divided by population size (in millions) 1. Enrolment in tertiary education (talent) 2. Share of the workforce in creative occupations (talent) 3. R&D spending as a share of GDP (technology) 4. Number of patent applications per million people (technology) 5. Good place for racial and ethnic minorities: agree (%) (tolerance) 6. Good place for gays and lesbians: agree (%) (tolerance)

Included Indicator(s)

90 D. E. ANDERSSON

Description

A country-specific index of 40 indicators of globalization in 6 categories from ETH (Switzerland)

An index of five variables from the World Values Survey (averages from 1981 to 2014)

An index of five variables from the World Values Survey (averages from 1981 to 2014)

An index of three variables from the World Values Survey (averages from 1981 to 2014)

Variable

KOF Globalization Index

Individualism

Joy

Trust

(continued)

Trade globalization (e.g., trade flows) Financial globalization (e.g., FDI) Interpersonal globalization (e.g., immigration) Informational globalization (e.g., international patents) Cultural globalization (e.g., trade in cultural goods) Political globalization (e.g., number of international NGOs) 1. Live to make parents proud (disagree) 2. Jobs scarce own nationals (disagree) 3. Private ownership (agree) 4. Homosexuality tolerated (agree) 5. Abortion tolerated (agree) 1. Postmaterialism (yes) 2. Thrift as a child quality (no) 3. Leisure time (important) 4. Happiness (high) 5. Freedom of choice and control (high) 1. People can be trusted (yes) 2. Confidence politics (high) 3. Confidence justice (high)

Included Indicator(s)

4 CULTURAL INDIVIDUALISM

91

Description

An index of eleven variables in three categories from the Property Rights Alliance (United States)

Property Rights

(continued)

Variable

Table 4.3

1. Judicial independence (legal and political) 2. Rule of law (legal and political) 3. Political stability (legal and political) 4. Control of corruption (legal and political) 5. Perception of physical property rights protection (physical property) 6. Registering process (physical property) 7. Access to financing (physical property) 8. Perception of IPR protection (intellectual property) 9. Patent protection (intellectual property) 10. Copyright protection (intellectual property) 11. Trademark protection (intellectual property)

Included Indicator(s)

92 D. E. ANDERSSON

Description

An index that measures freedom from government intervention in all areas beyond protection against force, theft, and fraud from the Fraser Institute (Canada)

Variable

Human Freedom

83 indicators in 12 categories: 1. Rule of law 2. Security and safety 3. Movement 4. Freedom of religion 5. Association, assembly, and civil society 6. Expression and information 7. Relationships 8. Size of government 9. Legal system and property rights 10. Sound money 11. Freedom to trade internationally 12. Regulation

Included Indicator(s)

4 CULTURAL INDIVIDUALISM

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But what does the rise of individualism have to do with the current transition towards a post-industrial creative society? To test whether cultural individualism increases creative-society characteristics, I estimated numerous functions, of which twelve are presented in Tables 4.4 and 4.5. Four quantifiable aspects of a creative society were regressed on the three Beugelsdijk-Welzel cultural factors in isolation or with one of two alternative measures of political individualism: the Property Rights Index of the Property Rights Alliance and the Human Freedom Index of the Fraser Institute. Table 4.3 presents the definition and components of each variable. The dependent variables are all descriptive of one or more characteristics that we can expect a post-industrial creative society to encompass. Scopus publications refer to the number of peer-reviewed articles, books, and book chapters in a specific country. Institutional affiliations determine the allocation of authors to countries. A Dutch academic publisher, Elsevier, maintains this index. In 2021, Switzerland, the Nordic countries, and Australia had the highest science publication intensity. The United Kingdom had the highest science intensity among countries with a population of more than 50 million. The number of Scopus citations is the same index but with countries weighted according to the average number of citations per article. It is a crude measure of the quality and the impact of scientific output. Both variables are divided by a country’s population in millions to derive estimates of science intensity. The ranking of countries by citation intensity is similar to publication intensity, although some countries—for example, Singapore—are closer to the top on this measure. The Global Creativity Index (GCI) is a measure that uses Richard Florida’s idea of the “3 Ts” of the creative society as the defining characteristics of post-industrialization. It is similar but not identical to Florida’s popular measure of creativity in American and Canadian metropolitan areas. The GCI is a broader measure of how the restructuring from an industrial to a creative society impacts people. The GCI reflects the transition towards a new occupational structure, the movement towards higher education for the masses rather than the elite, and the diversification of population characteristics. On this measure, four Anglophone countries in the New World edge out four Nordics in the top eight. A more indirect measure of creativity is the KOF Globalization Index, for which a research team at the Federal Institute of Technology (ETH) in Zurich is responsible. Economists have observed that knowledge-intensive economies are more trade-dependent, and development scholars such as

89 0.720

72.82*** (7.52) 22.58** (7.37) 52.24*** (10.78)

−3324.29 (465.61)

−0.0017* (0.0009) 89 0.764

56.76*** (16.88)

47.99*** (9.80) 16.32** (6.87) 36.79** (11.67)

−4607.24 (604.22)

89 0.739

–

444.64** (182.90)

55.44*** (10.22) 19.83** (7.07) 55.20*** (10.55)

−5896.83 (1150.96)

89 0.742

52.76*** (4.80) 13.22** (4.58) 29.54*** (6.89)

−1879.08 (297.52)

−0.0011* (0.0006) 89 0.799

45.52*** (10.35)

33.15*** (6.01) 8.40* (4.21) 16.60* (7.15)

−2925.66 (370.31)

Sources Beugelsdijk and Welzel (2018a), Fraser Institute (2022), Property Rights Alliance (2022), Scimago (2023) * p < 0.05; **p < 0.01; ***p < 0.001 (one-tailed)

N R2

Population Size Population Size

Human Freedom

Formal Institutions Property Rights

Trust

Joy

Cultural Values Individualism

Constant

Scopus publications

89 0.769

–

355.95** (114.51)

38.85*** (6.40) 11.02** (4.42) 31.91*** (6.61)

−3938.51 (720.59)

Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient (Standard Error) (Standard Error) (Standard Error) (Standard Error) (Standard Error) (Standard Error)

Scopus citations

Table 4.4 Scopus citations per capita (2021–2022) and Scopus publications per capita (2021) as a function of cultural values (1981–2014), formal institutions, and population size

4 CULTURAL INDIVIDUALISM

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D. E. ANDERSSON

Table 4.5 The Global Creativity Index (2015) and the KOF Globalization Index (2020) as a function of cultural values (1981–2014), formal institutions, and population size Global Creativity Index Coefficient (Standard Error) Constant 0.0972 (0.0353) Cultural Values Individualism 0.0077*** (0.0007) Joy 0.0030*** (0.0007) Trust – Formal Institutions Property Rights Human Freedom Population Size Population Size N 88 R2 0.723

KOF Globalization Index Coefficient (Standard Error) −0.1191 (0.0549)

Coefficient (Standard Error) −0.0979 (0.1002)

Coefficient (Standard Error) 56.4154 (2.6208)

0.0049*** (0.0009) 0.0022*** (0.0006) –

0.0064*** (0.0009) 0.0028*** (0.0007) –

0.4184*** 0.2745*** 0.2123*** (0.0491) (0.0383) (0.0456) – – – –

0.0065*** (0.0014)

Coefficient (Standard Error) 46.4928 (2.6279)

–

Coefficient (Standard Error) 28.2604 (5.2733)

–

0.2926*** (0.0612) 0.0353* (0.0017)

5.0126*** (0.8856)

–

–

–

–

–

88 0.782

88 0.736

90 0.575

90 0.664

90 0.690

Sources Beugelsdijk and Welzel (2018), Florida (2014), Property Rights Alliance (2022), ETH (2023), Fraser Institute (2022) * p < 0.05; **p < 0.01; ***p < 0.001 (one-tailed)

AnnaLee Saxenian have argued that cross-border interaction accelerates the pace of innovation, particularly in the high-tech sector.42 The KOF Globalization Index is a broader indicator than international trade or foreign direct investments since it also includes cultural and interpersonal measures of globalization. Among other things, it includes the percentage of foreign-born residents, the percentage of international students, and even the presence of IKEA stores. On this measure, Western Europe is the most globalized region of the world, with only two non-European countries—Canada and Singapore—among the top twenty.

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Apart from the three Beugelsdijk-Welzel cultural factors, I use two additional measures of formal institutions. These two measures are indicators of political individualism, which is the focus of the next chapter. The Property Rights Index is a measure of the scope and extent of the rule of law. It is based on the idea that a well-functioning market economy requires stable, general, non-discriminatory, and open-ended laws. In advanced societies, it is the most stable component of the set of formal institutions and thus the most infrastructural part. There are numerous indices of political individualism, but the most comprehensive one is the Human Freedom Index, the second measure of political individualism I use. It includes numerous indicators of government intervention, ranging from censorship over government spending to labour market regulations. There is considerable variability in how stable the different indicators that constitute the index are from year to year. The final variable is the population size, which controls for potential economies or diseconomies of scale in the production of public goods at the national level of government. Tables 4.4 and 4.5 present the results of the estimated functions. They include 88 to 90 countries, depending on data availability. The dependent variables correspond to the latest observations at the time of writing. However, the results of using other years, multi-year averages, or slightly different specifications were similar and yielded the same pattern predictions.43 Across all creative-society indicators, individualism emerges as the most decisive explanatory variable. Indeed, on its own, it accounts for about sixty per cent of the variation in scientific publications and citations. The second most important cultural indicator is trust. Remember that the individualism variable is a multidimensional measure in this context; it reflects individualism in families, the economy, religion, and sexuality. Likewise, trust is a measure of both interpersonal and institutional trust. Individualism and trust are two variables that amount to an empirically grounded way of measuring “individualistic pro-sociality,” to use Henrich’s term. Joy has a smaller but statistically significant impact (p < 0.01), alluding to the effects of playfulness in creative endeavours, including scientific research. Among the formal institutional variables, the Property Rights Index is a better predictor of science output than the Human Freedom Index. Its greater explanatory power may reflect the legal system’s more infrastructural nature as compared with individual laws or regulations. Durable

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institutions significantly impact the human propensity to engage in projects with a long time horizon, including most scientific and artistic projects. Other things being equal, there are no economies of scale in science at the national level, although there may be modest diseconomies of scale. Notably, two countries with populations of less than a million each— Iceland and Luxembourg—were among the ten countries with the most scientific publications per capita in 2021. The broader measure of a creative society that the Global Creativity Index (GCI) represents again shows that the level of individualism is the critical factor. However, trust no longer has a significant impact, although joy remains significant. The Property Rights Index again trumps the Human Freedom Index as an explanatory variable. One likely reason that trust is insignificant is that tolerance of out-groups is a feature of the GCI, whereas the trust variable is concerned chiefly with in-group trust. A noted regularity relevant in this context is the combination of high tolerance and low trust in most Latin American countries and the opposite tendency—high trust and low tolerance—in much of Asia. Only individualism remains a significant cultural factor for the KOF Globalization Index, which reflects multidimensional cross-border interactivity. In this case, the Human Freedom Index has a greater impact than the rule of law. One possible reason is that the KOF Globalization Index might denote phenomena that wax and wane faster than national scientific activity or the factors that make up the three Ts. In addition, many authoritarian political leaders take a dim view of their subjects’ interpersonal exchanges with people beyond their control; the Human Freedom Index has a stronger negative correlation with authoritarianism than the Property Rights Index. The general picture that emerges from these analyses of some of the Creative Society’s features is that cultural individualism and the rule of law are the most important. However, a joyful and trusting culture reinforces the social capacity to navigate the transformation from industrialism to the Creative Society. We know that cultural values and legal institutions are more stable and thus change at a slower pace than science output or flows of information, goods, or people. This is the justification for the causal specifications of these simple models. On the other hand, it is difficult to draw any firm conclusions regarding the relative importance of culture as opposed to legal or political factors. A society with a high relative level of cultural

4

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individualism may be more likely to adopt politically individualistic institutions than societies with a more collectivist culture. But it may also be the case that political individualism may promote economic development, which in turn may cause later cohorts to adopt values that are more individualistic. Some societies may adopt legal or political systems that are more individualistic than their cultures, as happened in many of the European colonial powers’ non-European colonies in the nineteenth century. Sometimes this may have accelerated development, while in other cases the mismatch between culture and institutions may have caused rampant corruption or even tribal warfare. Consequently, the quantitative estimates in Tables 4.2 and 4.3 do not offer any reliable generalizable information about the relative effects of cultural individualism as opposed to political individualism. But we can be quite confident that some combination of sufficient cultural and political individualism cultivates human behaviours that result in more creative activities than otherwise. Clear geographical patterns emerge if we look at combinations of individualism, joy, and trust. The cultural pattern that should be most conducive to Creative Society competitiveness should combine a high level of individualism with high levels of joy and trust. This combination exists in what I would like to call the Nordics Plus Three, which refers to all five Nordic countries plus the Netherlands, Switzerland, and Luxembourg. These eight countries are among the top 10 countries in the number of Scopus-indexed publications per capita. Seven of the ten countries are also among the top ten in the citation-weighted measure of publications, six are top-ten according to Florida’s Global Creativity Index, and five are among the ten most globalized according to the KOF Globalization Index. Five countries with individualism levels right behind the Nordics Plus Three combine high individualism, high joy, and a moderate level of trust. In international spy craft, these five countries are known as the Five Eyes : Australia, Canada, New Zealand, the United Kingdom, and the United States. The Five Eyes are the second-best group regarding cultural compatibility with the creative stage of economic development. They are just behind the Nordics Plus Three in science intensity and globalization but slightly ahead according to the GCI criteria. One more group instantiates high levels of cultural individualism, but in this case with intermediate scores on the joy and trust dimensions: the Western European Core of France, Germany, and some of their neighbours. These three groups comprise the countries most culturally compatible with the Creative Society.

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4.7

Conclusion

Sometimes when I teach cross-cultural management, I use maps to illustrate cultural zones based on empirical research. One such illustration involves the original IBM-based Hofstede dimensions and a simple classification of countries into “high” and “low” on each dimension. One combination is “high individualism,” “low power distance,” “low uncertainty avoidance,” and “low masculinity.” The map that emerges comprises the Nordic countries and the Netherlands. I then keep the same combination except that I switch the fourth dimension (masculinity) from “low” to “high.” The new map shows the British Isles, North America, Australia, and New Zealand, as well as South Africa. Then if I switch the third dimension from low to high uncertainty avoidance, I obtain a map with several continental European countries centred on Germany. Using the Beugelsdijk-Welzel factors yields similar results. Again, we get the Nordic zone, termed Nordics Plus Three, which adds Switzerland and Luxembourg to the Hofstede zone. And the Five Eyes are five of the seven countries in the relevant Hofstede zone: we must drop Ireland and South Africa. Overall, there is a great deal of overlap among different empirical measures of country-level cultures. We now have a causal chain of events that explains these cultural features, particularly the rise of individualistic psychology, which remains the key cultural factor. In the Middle Ages, the Western Catholic Church instituted a marriage and family programme (MFP) that radically reduced kinship intensity in almost all parts of Europe. The MFP gave rise to the centrality of the nuclear family in Western culture and more robust social connectivity among non-relatives. This new connectivity, in turn, facilitated the expansion of impersonal trade and associations based on shared interests rather than biological links, such as market towns and guilds, and the emergence of the first universities from the medieval cathedral schools. We can think of this as a shift from a collectivist “system of survival” for mostly autarkic extended families towards a “system of progress” for a trading economy encompassing agricultural villages and market towns. Long-distance trade became increasingly common, and an intellectual elite, many of whom were priests, engaged in sophisticated philosophical disputes. The MFP and the subsequent development of impersonal trade and associations thus gave birth to an extended market order based

4

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on individual (rather than collective) volition, subject to increasingly universal norms of behaviour. In some parts of Europe, the Reformation in the sixteenth century extended literacy from the elite to the masses. The reason for this was the Protestant insistence that everyone, not just priests, should read the Bible. The indirect effect was the dissemination of a transferable skill that was conducive to economic advancement. Literate people can read legal documents, practical instruction manuals, and financial statements. It also allowed many people to develop personal interests and opinions with the help of relevant texts, some of which may have originated in distant lands. Literacy thereby increased the potential for individual differentiation and the division of knowledge. Henrich called mass literacy individualism’s “booster shot.” We may then ask ourselves: which societies were subject to the MFP and medieval trade and learning before hosting Reformation-induced literacy campaigns before the introduction of public education in the nineteenth and twentieth centuries? It was in societies that later—that is, in the twenty-first century—exhibited unusually high levels of measurable cultural individualism and per capita science output, with Britain, Denmark, the Netherlands, and Sweden as exemplars.44 From a Creative Society perspective, northwestern Europe was exceptionally fortunate to develop cultural traits that diverged sharply from global or historical norms. In the eighteenth and nineteenth centuries, these cultural traits spread through migration to Anglophone areas of the New World. Most people in Northwestern Europe and its offshoots in North America and Australia are unaware that their seemingly spontaneous individualism emerged from their ancestors’ exposure to a combination of specific policies of the Roman Catholic Church in the Middle Ages and the Protestant Reformation from the sixteenth century onward. But cultural values and practices are, for the most part, unconscious. Yet they shape how people view the world and interact with one another. Cultural individualism or, as it is sometimes called, individualistic pro-sociality, is well-adapted to societies based on impersonal markets. It is, however, an inferior culture in economies that rely on tight in-group coordination amidst a hostile environment, such as hunting-gathering or subsistence agriculture in contested territories.

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Still, culture is only part of the story. Formal institutions matter, too. Traditional cultures often shape such institutions, but sometimes powerful people establish formal institutions that aim to destroy the cultural heritage, as happened in Maoist China or Stalinist Russia. Sometimes rulers adopt institutions that imitate more economically successful societies elsewhere, as in Meiji era Japan. It is to the question of political individualism and its manifestation in formal institutions that we turn next.

Notes 1. 2. 3. 4. 5. 6. 7. 8.

9. 10. 11. 12. 13.

14.

15.

Amabile (1983). Triandis (1993). Ibid. Hofstede et al. (2010). Polanyi (1966). Hayek (1963). Henrich (2020). Diamond (1997) is an influential example of a geographical explanation of development. But it deals with the earlier rise of complex agricultural practices rather than individualism and merges Europe and Asia as Eurasia, which forged ahead of Africa and the Americas due to its greater variety of domesticated animals and its east–west rather than north–south geographical orientation. Schulz et al. (2019). Hofstede et al. (op. cit.). The database can be downloaded from worldvaluessurvey.org. Asch (1951) presents the original Asch conformity experiment. Fisman and Miguel (2007) show that the proportion of diplomats’ unpaid parking tickets was an increasing function of the level of corruption in their home countries as long as diplomatic immunity protected UN diplomats from law enforcement. In 2017, 50 per cent of third-generation Hispanic Americans selfidentified as non-Hispanic, and 90 per cent spoke English at home, while 10 per cent were bilingual (Lopez 2017). Andersson and Andersson (2019) show that improvements in the transport infrastructure led to a dramatic increase in the number of market towns in the twelfth century. But the cultural change

4

16. 17. 18. 19. 20. 21. 22. 23. 24.

25. 26.

27. 28. 29. 30.

31. 32. 33.

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that created and extended impersonal markets was a necessary precondition for these improvements. Schulz et al. (op. cit.). Hofstede et al. (op. cit.). Putnam (1993). Inglehart (1997) and Florida (2002) have been the most influential contributions. Inglehart (1977). Inglehart (1997). Welzel and Inglehart (2006). Akaliyski et al. (2021). However, for countries in the same culture zone, subnational or socioeconomic differences are often of more interest. For example, in my study of values among high school seniors in Denmark and Sweden the main differentiating factors were gender, socioeconomic background, and exposure to other cultures. The differences between the Danish and Swedish averages were negligible (Andersson et al. 2011). Beugelsdijk and Welzel (2018a) include a concise summary of the sources of Hofstede’s dimensions. Taras et al. (2010) surveyed 598 studies that employed one or more of Hofstede’s dimensions before concluding that individualism is the most widely used cultural dimension. Beugelsdijk and Welzel (op. cit.). Hofstede et al. (op. cit). Minkov et al. (2017). I once asked a Catholic priest who was a member of a classical liberal think tank whether abortion should be legal. Somewhat to my surprise, he supported the legalization of abortion despite his view that abortion is sinful. He argued that the state should not enforce the Catholic faith. Unfortunately, many priests have a less clearheaded view of the political implications of the separation of Church and state. See Beugelsdijk and Welzel (2018a), p. 1494. See ibid. p. 1480. The interpretation of “most people” varies among countries. Results from the World Values Survey show that in Western countries, respondents who trust “most people” also tend to be trusting

104

34. 35. 36. 37. 38. 39. 40. 41. 42. 43.

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of “people of another nationality.” Conversely, in many Asian countries, a much higher share of respondents say that they trust “most people” than say that they trust “foreign nationals.” A majority of Chinese in all waves of the WVS, for example, say that they trust most people, but less than 20 per cent trust foreigners at least somewhat. This points to differences in the radius of trust between people with a strong ethnolinguistic bias and others (Delhey et al. 2011). See Beugelsdijk and Welzel (2018a), p. 1494. Ibid. pp. 1495–1497. See Van de Vliert, Welzel, Shcherback, Fischer and Alexander (2018) and Silva et al. (forthcoming). Schulz et al. (op cit.). Martin (1995). Botticini and Eckstein (2012). Henrich (2021). Florida (op cit.). Saxenian (2007). I estimated scientific output functions for many more years than 2021 and 2022. There was very little year-to-year variability in the estimated effects. I also estimated functions with Hofstede individualism dimension: the effect was also positive and statistically significant, but it accounted for less of the variability in the dependent variables than Beugelsdijk-Welzel individualism. In addition, I estimated several functions for various disciplinary categories. The effect of cultural individualism was particularly strong for the arts and humanities, while it was comparatively weak for engineering. See Eskelson (2021) and Munck (2004).

References Akaliyski, P., Welzel, C., Bond, M. H., & Minkov, M. (2021). On “nationology”: The gravitational field of national culture. Journal of Cross-Cultural Psychology, 52(8–9), 771–793. https://doi.org/10.1177/00220221211044780 Amabile, T. (1983). The social psychology of creativity: A componential conceptualization. Journal of Personality and Social Psychology, 45(2), 357–365. https://doi.org/10.1037/0022-3514.45.2.357

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Andersson, D. E., & Andersson, Å. E. (2019). Phase transitions as a cause of economic development. Environment and Planning A, 51(3), 670–686. https://doi.org/10.1177/0308518X18803112 Andersson, D. E., Andersson, Å. E., & Holmberg, I. (2011). Öresundsregionen: en ungdomsgenerations värderingar. Sydsvenska industri- och handelskammaren. http://resources.mynewsdesk.com/image/upload/nsvffh hbl6qwtjwkueib.pdf Asch, S. E. (1951). Effects of group pressure on the modification and distortion of judgments. In H. Guetzkow (Ed.), Groups, leadership, and men: Research in human relations (pp. 177–190). Carnegie Press. Beugelsdijk, S., & Welzel, C. (2018a). Dimensions and dynamics of national culture: Synthesizing Hofstede with Inglehart. Journal of Cross-Cultural Psychology, 49(10), 1469–1505. https://doi.org/10.1177/002202211879 8505 Beugelsdijk, S., & Welzel, C. (2018b). Online appendix to article titled “Dimensions and dynamics of national culture: Synthesizing Hofstede with Inglehart.” Journal of Cross-cultural Psychology, 49(10), Appendix. https:// doi.org/10.1177/0022022118798505 Botticini, M., & Eckstein, Z. (2012). The chosen few: How education shaped Jewish history, 70–1492. Princeton University Press. https://doi.org/10. 1515/9781400842483 Delhey, J., Newton, K., & Welzel, C. (2011). How general is trust in “most people?” Solving the radius of trust problem. American Sociological Review, 76(5), 786–807. https://doi.org/10.1177/0003122411420817 Diamond, J. (1997). Guns, germs, and steel: The fates of human societies. Norton. Eskelson, T. C. (2021). States, institutions, and literacy rates in early-modern Western Europe. Journal of Education and Learning, 10(2), 109–123. https://files.eric.ed.gov/fulltext/EJ1290524.pdf Fisman, R., & Miguel, E. (2007). Corruption, norms, and legal enforcement: Evidence from diplomatic parking tickets. Journal of Political Economy, 115(6), 1020–1048. https://doi.org/10.1086/527495 Florida, R. (2002). The rise of the creative class. Basic Books. Hayek, F. A. (1963). Rules, perception and intelligibility. Proceedings of the British Academy (1962), 48, 321–344. https://www.thebritishacademy.ac.uk/ documents/4843/48p321.pdf Henrich, J. (2020). The WEIRDest people in the world: How the West became psychologically peculiar and particularly prosperous. Farrar. Henrich, J. (2021, February 17). Martin Luther rewired your brain. Nautilus. https://nautil.us/martin-luther-rewired-your-brain-238129/ Hofstede, G., Hofstede, G.-J., & Minkov, M. (2010). Culture and organizations: Software of the mind (3rd ed.). McGraw Hill.

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Inglehart, R. (1977). The silent revolution: Changing values and political styles among Western publics. Princeton University Press. Inglehart, R. (1997). Modernization and postmodernization: Cultural, political, and economic change in 43 societies. Princeton University Press. Lopez, M. H., Gonzalez-Barrera, A., & Lopez, G. (2017). Hispanic identity fades across generations as immigrant connections fall away. Pew Research Center. www.pewresearch.org/hispanic/2017/12/20/hispanic-ide ntity-fades-across-generations-as-immigrant-connections-fall-away/ Martin, T. C. (1995). Women’s education and fertility: Results from 26 demographic and health surveys. Studies in Family Planning, 26(4), 187–202. https://doi.org/10.2307/2137845 Minkov, M., Dutt, P., Schachner, M., Morales, O., Sanchez, C., Jandosova, J., Khassenbekov, Y., & Mudd, B. (2017). A revision of Hofstede’s individualismcollectivism dimension: A new national index from a 56-country study. Cross Cultural & Strategic Management, 24(3), 386–404. https://doi.org/10. 1108/CCSM-11-2016-0197 Munck, T. (2004). Literacy, educational reform, and the use of print in eighteenth-century Denmark. European History Quarterly, 34(3), 275–303. https://doi.org/10.1177/0265691404044140 Polanyi, M. (1966). The tacit dimension. Routledge & Kegan Paul. Putnam, R. D. (1993). Making democracy work: Civic traditions in modern Italy. Princeton University Press. Saxenian, A. (2007). The new argonauts: Regional advantage in a global economy. Harvard University Press. Schulz, J., Beauchamps, J., Bahrami-Rad, D., & Henrich, J. (2019). The church, intensive kinship, and global psychological variation. Science, 366(707), 1–12. https://doi.org/10.1126/science.aau5141 Silva, M. S., Alexander, A. C., Klasen, S., & Welzel, C. (2023). The roots of female emancipation: Initializing role of cool water. Journal of Comparative Economics, 51(1), 133–159. https://doi.org/10.1016/j.jce.2022.11.001 Taras, V., Kirkman, B. L., & Steel, P. (2010). Examining the impact of culture’s consequences: A three-decade, multilevel, meta-analytic review of Hofstede’s cultural value dimensions. Journal of Applied Psychology, 95(3), 405–439. https://doi.org/10.1037/a0020939 Triandis, H. C. (1993). Collectivism and individualism as cultural syndromes. Cross-Cultural Research, 27 (3–4), 155–180. https://doi.org/10.1177/106 939719302700301 Van de Vliert, E., Welzel, C., Shcherback, A., Fischer, R., & Alexander, A. C. (2018). Got milk? How freedom evolved from dairying climates. Journal of Cross-Cultural Psychology, 49(7), 1048–1065. https://doi.org/10.1177/002 2022118778336 Welzel, C., & Inglehart, R. (2006). Emancipative values and democracy: Response to Hadenius and Teorell. Studies in Comparative International Development, 41(3), 74–94. https://doi.org/10.1007/BF02686237

CHAPTER 5

Political Individualism

Abstract Political individualism refers to the protection of individual property rights, including those rights usually referred to as human rights. In the first part of this chapter, we trace the sources of political individualism, which include Justinian’s reforms of Roman law, the scholastic tradition in medieval universities, the writings of Enlightenment thinkers, and the role of interjurisdictional competition from the late Middle Ages onward. In the second part, we look at twenty-first century empirical evidence regarding the relationship between political individualism and institutional attractiveness, with a focus on domestic interstate migration in the United States. The chapter concludes by explaining how the consistent application of the subsidiarity principle advances political individualism. Keywords Political individualism · Scholasticism · Spontaneous order · Polycentric democracy · Interstate migration · Agglomeration · Subsidiarity

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0_5

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5.1

Introduction

A high degree of cultural individualism makes a society more likely to embrace political individualism, but it is not a sufficient condition. Political individualism is associated with the rule of law, which is shorthand for an extensive array of individual property rights and the principle of equality before the law. The emergence of politically individualist societies has two principal sources, the most important of which is the ethos that individuals have rights. The other source is the decentralization of political power. Both sources were originally Western European and had Judeo-Christian roots. The idea that each person possesses intrinsic dignity and is individually accountable for their thoughts and conduct is inextricably linked to these roots. John Locke was the most well-known proponent of individual rights. He wrote that individuals are “willing to join in society with others, who are already united, or have a mind to unite, for the mutual preservation of their lives, liberties, and estates, which I call by the general name, property.”1 Locke’s ideas had a significant influence on the American revolutionaries. Thus, the Declaration of Independence states “that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.”2 Locke did not formulate his political ideas on a blank slate. Other Western thinkers had paved the way. The idea that individuals have rights and should be equal before the law has Judeo-Christian roots. The parallel emergence of societies that supported impartial markets and capital accumulation depended on political fragmentation. European kings, even those—such as Louis XIV—claiming divine rights or viewing themselves as personifications of the state were not as absolute and certainly less autocratic than Chinese rulers, especially as the former dared not openly represent themselves to the world as above or beyond moral norms. The hallmark of political individualism is the parallel existence of multiple spontaneous orders . The market order for commercial exchange is one such order, as is democracy for civic exchange. However, in a unitary democracy, distributional coalitions tend to emerge over time. Such coalitions organize as interest groups and are often successful at lobbying for policies that redistribute resources to themselves. The primary remedy for

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this is polycentric democracy, which may support the further development of markets through interjurisdictional competition. A principle that supports interjurisdictional competition is subsidiarity,3 which is shorthand for the principle that the lowest adequate decisionmaking level should exercise governance. Often this lowest level is the individual household. Sometimes it is the local government. The national level is rarely the most effective, except for small city-states. The subsidiarity principle makes it a daunting task to advocate for supranational governance. The main exception is institutions facilitating the free flow of ideas, people, goods, and services. The combination of widespread individualist worldviews and interjurisdictional competition may offer a bulwark against creeping collectivism. Such collectivism comes in many flavours, but historically the most influential ones have been ethnolinguistic chauvinism and orthodox Marxism-Leninism. In the twenty-first century, neo-Marxist ideas promoting group-based privileges—as promoted by various academics in Western universities—may threaten political individualism more than old-fashioned nationalism or socialism.

5.2

Sources of Political Individualism 5.2.1

Religion and Law

The ideology of political individualism culminated in strong and extensive private property rights and their enforcement by legal systems built on the equality of individuals before the law as a consolidation of social, cultural, and religious traditions. However, this was not an instantaneous achievement. It required a long development of ideas that ran counter to most of human history, including those of the ancient Graeco-Roman and Eastern civilizations. Ancient Israel was the first culture to endorse ideas that could provide a foundation for formal equality before the law. Joshua Berman noted that [t]he hierarchical structure of ancient Near Eastern society was rejected on theological grounds. The equality of the members of the Israelite polity stems from their collective covenantal relationship with God, in which each member is endowed with the status of subordinate king before the sovereign King of Kings. This is the metaphysical basis on which the notion of equality is founded.4

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Early converts to Christianity retained the Jewish belief in equality before God, as the Apostle Paul made clear when he wrote that “there is no longer Jew or Greek, there is no longer slave or free, there is no longer male and female, for all of you are one in Christ Jesus.”5 Peter Hill has argued that the next stage of this social egalitarianism was the practice of letting anyone take the vows of a monastic order, regardless of family background or social status.6 In Byzantium, Christian emperors such as Justinian took it upon themselves to reform the inheritance of Roman law in a more egalitarian direction. Harold Berman explained that the Roman law of the post-classical period reformed family law, giving the wife a position of equality before the law, requiring the mutual consent of both spouses for the validity of marriage, making divorce more rigorous, abolishing the father’s power of life or death over his children; reformed the law of slavery, giving the slave the right to appeal to a magistrate if his master abused his powers and even, in some cases, the right to freedom if the master exercised cruelty, multiplying modes of manumission of slaves, and permitting slaves to acquire rights by kinship with freemen; and introduced a concept of equity into legal rights and duties generally, thereby tempering the strictness of general prescriptions.7

The Eastern Church systematized the law in the sixth century AD. As the above quotation clarifies, there was a legal movement away from traditional power relations. In the Western Church, this movement was even more potent but came later. A unique feature in late medieval Western Europe was the separation of powers between a unified Church and geographically fragmented secular authorities. Before the eleventh century, Western Europe still relied on the customary laws of its ethnolinguistic groups, and it shared many practices with other parts of the world that relied on subsistence agriculture. Harold Berman noted that the early folklaw in Europe had much in common with Eastern legal traditions. In the tradition of Chinese and of other peoples who have lived under the strong influence of Buddhist and Confucian thought, social control was not to be found primarily in the allocation of rights and duties through a system of general norms but rather in the maintaining of right relationships among family members, among families within lordship units, and among family and lordship units within local communities and under

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the emperor. Social harmony was more important than “giving to each his due.”8

Two movements within the Western Church led to a gradual erosion of customary practices; both related to the Gregorian Reforms of the late eleventh century. One was the establishment of cathedral schools, which evolved into universities. The other was the unification of 1,450 monasteries under the abbot of Cluny in the tenth century. Cluny initiated a program of moral reform by attacking the trade in Church offices (simony) and the involvement of the Church in secular politics. It was Cluny that inspired Pope Gregory VII to reorganize the Roman Catholic Church.9 The first university was established in Bologna in 1088, and it became a centre for disseminating and developing Justinian law into a coherent system of canon and civil law, which reflected the new division of powers between ecclesiastical and secular authorities that was a consequence of the Gregorian Reforms. From the beginning of the twelfth century, thousands of students arrived from all over Europe to study law at Bologna. For the first time, scholars taught law as a discipline separate from politics or theology. Bologna gave rise to the scholastic method of legal scholarship. Scholasticism involved analyses and syntheses of authoritative texts as well as methods of identifying contradictions and criteria for resolving contradictions based on lexicographic priority rankings. Bologna served as the model for new universities in the following centuries. As late as 1477, Pope Sixtus IV issued a papal bull that authorized the establishment of Uppsala University. It stated that Uppsala should have the same privileges and liberties as the University of Bologna. The medieval universities established a transnational approach to the study of law, and graduates could move anywhere in Europe to practise ecclesiastical or secular law. The Gregorian Reforms established the Church as a visible legal structure that mirrored the visible legal structures of secular authorities. The canon law of the Church had exclusive jurisdiction over family and inheritance law and concurrent jurisdiction with secular courts over contracts if the parties pledged faith in God. Secular courts were authoritative regarding breaches of the peace, property relations not involving the Church, and mercantile transactions. There were thus distinct roles for the parallel legal systems, but they also partly overlapped. In many cases, merchants could choose whether a contract should be subject to ecclesiastical or secular law.10 At the Champagne fairs in

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the twelfth century, ecclesiastical and secular courts competed for the merchants’ custom, and both types enforced the contractual rights of individual merchants regardless of whether they hailed from Champagne or not.11 For the first 1000 years AD, Europe had a stagnant economy. However, in the late Middle Ages, the continent evolved from a loose system of autarkic regions into a networked economy with mercantile nodes stretching from Lübeck in the north to Genoa in the south. Henri Pirenne argued that this resulted from the development of a new transport network of safe, navigable waterways and better ships such as the cog.12 According to one calculation, the period between 1100 and 1400 saw the emergence of about 20,000 new European towns.13 The lowered transaction costs associated with convergent legal systems in different parts of Europe also must have stimulated trade. According to David Knowles, For three hundred years, from 1050 to 1350 … the whole of educated Western Europe formed a single undifferentiated cultural unit. In the lands between Edinburgh and Palermo, Mainz or Lund and Toledo, a man of any city or village might go for education to any school, and become a prelate or an official in any church, court or university … from north to south, from east to west. … In this period a high proportion of the most celebrated writers, thinkers, and administrators gained greatest fame and accomplished the most significant part of their life’s work far from the land of their birth and boyhood. Moreover, there is not a single characteristic of language, style or thought to tell us whence they sprang.14

While there was a division of power between a multitude of secular rulers, and between secular and ecclesiastical authorities in each jurisdiction, there was also a unified system of learning, including jurisprudence. Over time, the scholastic method reached beyond law, philosophy, and theology to include political economy. The University of Salamanca hosted a remarkable group of scholastics in the sixteenth century. They were the first to explain regularities in market interactions. In 1544, the priest Luis Saravia de la Calle explained why the labour theory of value—as expounded by Karl Marx more than 300 years later—is erroneous: Those who measure the just price by the labour, costs, and risks incurred by the person who deals in the merchandise or produces it, or by the cost of transport or the expense of travelling to and from the fair, or by what

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he has to pay the factors for their industry, risk, and labour, are greatly in error, and still more so are those who allow a certain profit of a fifth or a tenth. For the just price arises from the abundance or scarcity of goods, merchants, and money, as has been said, and not from costs, labour, and risk. … Why should a book written out by hand be worth more than one that is printed, when the latter is better though it costs less to produce? Finally, why, when the type of Toulouse is best, should it be cheaper than the vile type of Paris? The just price is found not by counting the cost but by common estimation.15

The scholastic method not only lent itself to rigorous argumentation. It also encouraged critical thinking. In 1599, the Jesuit priest Juan de Mariana attacked the tyranny of kings in De Rege et regis institutione: [The tyrant] seizes the property of individuals and squanders it, impelled as he is by the unkingly vices of lust, avarice, cruelty, and fraud … [Tyrants] build huge works at the expense and the suffering of the citizens. Whence the pyramids of Egypt were born. … The tyrant necessarily fears that those whom he terrorizes and holds as slaves will attempt to overthrow him. … Thus he forbids the citizens to congregate together, to meet in assemblies, and to discuss the commonwealth altogether, taking from them by secretpolice methods the opportunity of free speaking and freely listening so that they are not even allowed to complain freely.16

It is against this background that we should understand the scientific revolution of the seventeenth century, with Isaac Newton as a central figure, and the Age of Enlightenment. The Royal Society of London was founded in 1662 as a continuation of the activities of an informal scientific network centred on Gresham College that began about twenty years earlier. Its members abandoned scholastic approaches in favour of the new hypothetico-deductive paradigm as the basis for experimental hypothesis testing in the natural sciences. But we can only understand the emergence of this new approach against the background of the culture of critical thinking that the scholastic method encouraged. Likewise, Enlightenment critics of religion, such as David Hume, owe their critical mindsets to an intellectual culture of individual inquiry that originated in the medieval Western Church or even earlier. In the eighteenth century, the Lutheran priest Anders Chydenius offered the most systematic defence of a host of liberal principles. He was instrumental in sponsoring the Swedish Freedom of the Press Act of

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1766, the first time a legislature enacted a law that abolished censorship and guaranteed freedom of information. Chydenius wrote that no evidence should be needed that a certain freedom of writing and printing is one of the strongest bulwarks of a free organization of the state, as without it, the estates would not have sufficient information for the drafting of good laws, and those dispensing justice would not be monitored, nor would the subjects know the requirements of the law, the limits of the rights of government, and their own responsibilities. Education and good conduct would be crushed; coarseness in thought, speech, and manners would prevail, and dimness would darken the entire sky of our freedom in a few years.17

Chydenius was unusual in that he not only valued liberty in the most obvious instances, such as freedom of speech; he also had a sophisticated understanding of the beneficial effects of free markets. In his 1765 treatise, The National Gain, he anticipated many of the arguments that Adam Smith made in The Wealth of Nations 18 eleven years later: This conception of the national gain, however hard it may seem to be on our new enterprises, is nevertheless the simplest and easiest in itself. It gives liberty to all lawful trades, though not at the expense of others. It protects the poorest business and encourages diligence and free trade. It weights everybody on the same scales, and gain is the right measure that shows who should have the preference. It relieves the government from thousands of uneasy worries, statutes and supervisions, when private and national gain merge into one interest, and the harmful selfishness, which always tries to cloak itself beneath the statutes, can then most surely be controlled by natural competition. It allows a Swede to exercise the dearest and greatest right in nature the Almighty has given him as a man, i.e. to support himself in the sweat of his brow in whatever way he thinks best. It snatches away the pillow of laziness from the arms of those who, thanks to their privileges, can now safely sleep away two-thirds of their time. All expedients to live without work will be removed and none but the diligent can become well-off. It makes a desirable reduction in our lawsuits. The numerous statutes, their explanations, exceptions and applications, which fetter trades in one way or another, will then be unnecessary and grow silent, and when the law is annulled, its breach will amount to nothing.19

Chydenius, along with Smith, anticipated why political individualism— the principles of protected individual property rights and free trade—is

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conducive to innovation-driven economic development. Nevertheless, it was only in the twentieth century that Friedrich Hayek and Michael Polanyi developed a full-fledged theory of spontaneous order, although Hayek made it explicit that it was the writings of seventeenth-century classical liberals that provided the building blocks. 5.2.2

Spontaneous Order

The term spontaneous order refers to undesigned social structures that emerge as a result of human interaction. Such orders have no overriding aim. Instead, they coordinate the actions of individuals or organizations, some of which may have contradictory aims. All spontaneous orders rely on the operation of a “systemic resource,” which informs participants about their success in using an order for their own purposes. Success equals systemic resource accumulation, which also functions as a signalling device. The most important spontaneous order is the market, a system of property rights in which the rules of participation consist of the rights and liabilities associated with the protection and exchange of goods, services, entitlements, or obligations. The systemic resource is money, which provides incentives for the accumulation of money and disseminates exchange ratios—market prices—that reflect relative scarcities within interconnected networks of traders. The political scientist Gus diZerega has argued that liberal democracy—in the sense of a unitary democracy—is a spontaneous order.20 According to this view, it is a rule-governed method reconciling conflicts over the funding and organization of jointly consumed goods. Democracies resemble markets in that it is difficult to predict the long-run outcomes of the interactions of order participants that pursue goals that sometimes contradict one another. In addition, the producers of public policies assess their performance in a way that resembles profit-seeking firms. In the former case, vote tallies are critical; in the latter, it is economic profit. Despite these similarities, a democracy is not a market. There are systemic problems that are intrinsic in democracies but not in markets. We can divide these problems into two categories. The first category consists of the incentive problems that arise due to the rules of the democratic game. The second category comprises the inevitable knowledge problems

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whenever participants signal their preferences as one choice per voter and where the producer’s response is a single bundle of public policies. Theories of political behaviour within the school of thought called “public choice” focus on incentive problems. The baseline assumption is that voters face incentives that encourage them to remain ignorant about the effects of public policies. The expected payoff from being well-informed is approximately zero since any single voter is unlikely to sway election outcomes. However, there are people with incentives to get involved, such as small and organized interest groups offering financial and other support for politicians in exchange for policies that serve the groups’ interests. Combining an ignorant populace with selectively informed interest groups yields a set of policies with concentrated benefits and dispersed costs as the likeliest outcome.21 The aggregate policy bundle that benefits various interest groups may become quite costly. The total cost may even be a net loss to those disproportionately benefiting from one or more policies. The public choice economist Mancur Olson claimed that we should expect stable democracies to produce an ever greater number of “distributional coalitions,” with economic decline as the inevitable consequence.22 Knowledge problems are not incentive problems. They remain even if politicians act in the public interest and voters acquire information about political programs. Two types of knowledge problems derive from the structure of democratic decision-making. The first type derives from the indivisibility of the vote, implying that a vote is a blunter signalling device than a monetary unit. The second type is the preference aggregation problem. Consider the case when the government funds health care. In the unlikely case where spending on physicians, medical equipment, and emergency services corresponds to the preferences of the median voter, there will still be a homogenization of consumption that deviates from individual preferences as long as different individuals have different trade-offs between health care and other goods or different views on various policy aspects such as the desired relative accessibility of primary, secondary, and tertiary care. The incentive and knowledge problems imply an inefficient resource allocation compared with markets. They make democracies seem rather unattractive. But in the best-functioning democracies, the outcome is less dismal than expected. The main reason is that we do not live in an autarkic

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democracy or have a world government. There are numerous democracies. More importantly, their borders are not airtight. Citizens vote, and interest groups lobby governments for favours. But those are not the only signals that influence politicians. There is also the exit option, implying the co-existence of two parallel political spontaneous orders. The second spontaneous order is polycentric democracy, in which individuals may signal their dissent by relocating themselves or their capital to jurisdictions that offer more attractive conditions. Jurisdiction-specific accumulation of individuals and capital then becomes a systemic resource that performs a function similar to votes among the non-movers. The overall effect of the actual or potential exercise of the exit option is that there is a limit to politicians’ willingness to accept the inducements of interest groups. Table 5.1 compares the systemic features of markets, monocentric democracy, and polycentric democracy. The table shows that polycentric democracy is intermediate. It falls between the market and a monocentric democracy regarding individuals’ ability to signal their preferences. While the choice of residence is Table 5.1 Systemic attributes of three spontaneous orders Attribute

Market

Monocentric Democracy

Polycentric Democracy

Systemic resource

Money

Votes

Systemic resource distribution

Roughly equal to highly skewed

Equal for insiders

Signalling

Money prices

Vote tallies

Aggregation of preferences

No (individual choice)

Yes (one size fits all)

System constraint

Tight or intermediate

Loose

Votes, mobile capital, mobile people Roughly equal to highly skewed Vote tallies; net inflows of resources Intermediate (different jurisdictional bundles) Intermediate

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as discrete as the choice of whom to vote for, individuals and organizations can allocate their physical and human capital to various jurisdictions in a manner akin to a portfolio approach to equity investments. There is no longer a unique policy bundle that every citizen must consume. Instead, there is a choice among several policy bundles, whereby the feasible choice set increases with the number of jurisdictions, assuming constant transaction costs associated with relocation. Table 5.1 implies that markets are better at allocating resources than governments. Nevertheless, there are exceptions. In The Calculus of Consent, James Buchanan and Gordon Tullock showed that markets provide an insufficient supply of goods with high transaction costs compared with their expected value.23 The implication is that tax-funded goods become increasingly justifiable with increasing numbers of affected individuals. The number of affected people increases with the enlargements of the area affected by a good, other things being equal. In practice, this implies that the most robust justification for tax-funded as opposed to market provision is for jointly consumed goods with high exclusion costs that affect numerous people. Military defence and large-area transport infrastructures are examples of such goods. 5.2.3

Interjurisdictional Competition

Hayek never investigated the spontaneous order characteristics of democracies, but his conclusions regarding political decentralization are consistent with the implications of Table 5.1: There are strong reasons why actions by local authorities generally offer the next-best alternative where private initiative cannot be relied upon to provide certain services and where some sort of collective action is therefore needed; for it has many of the advantages of private enterprise and fewer of the dangers of the coercive action of government. Competition between local authorities or between larger units within an area where there is freedom of movement provides in a large measure that opportunity for experimentation with alternative methods which will secure most of the advantages of free growth. Though the majority of individuals may never contemplate a change of residence, there will usually be enough people, especially among the young and enterprising, to make it necessary for the local authorities to provide as good services at as reasonable costs as their competitors.24

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Interjurisdictional competition is also a reason, along with a more individualistic culture and the emergence of the rule of law that Europe progressed faster than Asia in the second millennium AD. In The European Miracle, Eric Jones argued that the political fragmentation of Europe as compared with China or India caused Europe’s superior economic performance: How did Europeans escape crippling exploitation by their rulers? … The rulers of the relatively small European states learned that by supplying the services of order and adjudication they could attract and retain the most and best-paying constituents. … European kings were never as absolute as they wished. The power dispersed among the great proprietors was a check on them, as was the rising power of the market.25

The rulers of medieval Europe may have been more exploitative than modern democratic governments. Still, it remains true that the exit option is the most effective way of escaping governments that provide substandard governance. Distributional coalitions were influential in post-war Britain, one of the world’s oldest and most stable democracies. As a result of accumulating rent-extracting legislation, Britain almost ground to a halt in the 1970s. Despite a strong legal tradition, empirical data show that Britain’s institutions and public policies in 1980 were similar to those of Croatia or Mexico in 2020.26 Faced with brain drain and capital flight, Margaret Thatcher’s Conservative government initiated pro-market reforms in the 1980s. An ever more mobile world and the resultant tightening of the system constraint made her successors in power (the governments of John Major and Tony Blair) continue policies that attracted more investments and labour than they repelled. What is important to note is that the transaction costs of relocation matter. Rent-seekers in stable post-war democracies such as Britain, Australia, and Sweden were successful because of the high cost of the exit option. Reductions in transport and communication costs and liberalized immigration and investment rules in attractive destination countries made it impossible to ignore the consequences of dysfunctional governance from the 1980s onward. Interjurisdictional competition works best when exit-related transaction costs are low, and the number of jurisdictional options is large.

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The closest approximations of genuine polycentric democracy are the fifty American states and the twenty-six Swiss cantons.

5.3

Political Individualism: Empirical Findings 5.3.1

Institutional Competitiveness

We know from Tables 4.4 and 4.5 that cultural factors account for between 58 and 74 per cent of the variability in various creative output measures at the national level. For political institutions, as measured by the International Property Rights Index, there is a broader range of estimates, ranging from 49 per cent for biotech innovation to 76 per cent for the Global Innovation Index.27 In combination, cultural and political individualism explains up to 80 per cent of the variability in creative performance at the national level. The results indicate that high levels of cultural and political individualism are associated with high levels of creativity and innovation. In addition, high levels of cultural individualism can compensate for moderate political individualism to some extent and vice versa. The ranking of countries in the International Property Rights Index implies that the countries’ legal origins, such as English common law or French civil law, shed little light on current practice. An analysis of contemporary legal practices by the legal scholar Mathias Sims showed that the origin of the legal system is a blunt tool for identifying similarities in the twenty-first century.28 Using network analysis and a set of 15 institutional variables, Sims identified four clusters offering a more informative taxonomy of legal systems. The first cluster is labelled “European Legal Culture.” It comprises most of Europe, Old Commonwealth common law countries, and four countries in Asia or South America. The countries in this group share a solid commitment to the rule of law, voluntary submission to supranational constraints, judicial independence, and criminal law with moderate punishments. Countries in the European Legal Cluster have the highest average scores on the International Property Rights Index. The second cluster is called “Mixed Legal Systems.” It consists of a variety of countries at different levels of development that mostly share common law roots but differ from Old Commonwealth countries by having harsher criminal laws and by being more reluctant to participate in international commercial law or international courts. Some

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high-performing countries, notably Israel, Singapore, Taiwan, and the United States, are in this group. “Rule by Law” is Sims’s label for the third cluster. These are countries with low scores on the rule of law and democracy indices, frequent violations of human rights, and harsh punishments. Most countries in this cluster are in Africa or Asia, with China as the most extreme case. The fourth cluster, labelled “Weak Law in Transition,” also scores low on rule-of-law indicators. However, member countries tend to have more independent judiciaries, more lenient punishments, fewer human rights violations, and a greater willingness to subject court decisions to international scrutiny. Most of Latin America, Indonesia, and parts of Africa belong to this fourth group. The European Legal Culture and the Mixed System are compatible with strong property rights protections, whereas Rule by Law and Weak Law in Transition are not. However, according to Sims, it is possible to envision a path towards the European Legal Culture for countries in the Weak Law in Transition cluster, noting that Chile, Croatia, Serbia, and Uruguay have accomplished this feat in the recent past. The outlook for Rule by Law countries is dire; the autocrats who rule those countries tend to be unwilling to relinquish their discretionary powers. A prominent example is the Chinese Communist Party, which subverted the legal system in its de facto colony of Hong Kong instead of viewing English common law—as previously applied in Hong Kong—as a model for much-needed legal reform in China. The combined effects of cultural factors and institutions that enforce contracts and protect property rights would likely have been even stronger if creators and innovators could relocate without the impediments of long geographical distances, political barriers, and linguistic dissimilarities. The flows of people between nations that erect obstacles to migration or speak different languages are, therefore, smaller than they would otherwise be. Conversely, flows of people between regions in the same country are more substantial due to the absence of such barriers. Domestic flows between regions with institutional differences may therefore offer better indications of how variability in political individualism affects a jurisdiction’s attractiveness. In 2012, James Taylor and I published a paper examining three ways of measuring state-level political individualism and their effects on domestic interstate migration in the United States.29 There are three relevant measures of relative state-level performance: the Mercatus

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Overall Freedom Index (MOFI), the Mercatus Economic Freedom Index (MEFI), and the Fraser Economic Freedom Index (FEFI).30 MOFI is the most comprehensive index of state-level interventionism, from occupational licencing to gambling laws. MEFI excludes paternalistically motivated laws, such as gambling laws. FEFI is a narrower measure that includes the size of government, taxation, and labour market regulations. US states do not operate on a level playing field where everything is the same apart from the laws and regulations each state imposes on its residents. The climate is one such differentiating factor. Some states are warm, while others are cold. More importantly, however, states differ in the amount and quality of human and physical capital that residents benefit from in their roles as producers and consumers. These agglomeration economies substantially impact the feasibility of various policies, and we shall therefore dwell a bit on how agglomeration economies affect political decision-making before discussing the empirical evidence. 5.3.2

Agglomeration Economies and the Institutional System Constraint

Economists interested in urban and regional development often focus on agglomeration economies as a source of competitiveness. More than 100 years ago, Alfred Marshall described the benefits that firms in the same industry receive from locating near one another.31 Benefits include specialized suppliers of intermediate goods, joint labour markets, and knowledge spillovers among firms. Jane Jacobs later extended the concept of agglomeration economies by examining the benefits of economic diversity on creativity and innovation.32 Traditional migration models assume that the location of jobs is the key factor influencing relocation decisions. In contrast, Richard Florida and others have argued that other factors may be more critical.33 In Florida’s view, individuals in the so-called “creative class” are attracted by cities with high levels of creativity. Accordingly, people in creative occupations seek locations with “abundant high-quality amenities and experiences, an openness to diversity of all kinds, and above all else the opportunity to validate their identity as creative people.”34 Florida introduced his well-known Creativity Index in his 2002 book, The Rise of the Creative Class.35 It includes the “3Ts” of talent, technology, and tolerance. The talent measure includes the share of the workforce in creative occupations and the share of the population with

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a college education. Technology includes the Milken Industry Techpole Index and patents per capita. Tolerance comprises the share of samesex households, the share of foreign-born residents, and the share of the workforce in artistic occupations. While most discussions of the Creativity Index revolve around metropolitan areas, measurements at the state level have also been made available, albeit less frequently. One of the contentions in this book is that political individualism— sometimes referred to as strong property rights or high levels of economic or human freedom—increases the attractiveness and competitiveness of cities and nations. Florida’s contention is, in effect, that it is creativityrelated agglomeration economies that attract people and make cities competitive. For 2006, there are state-level measurements of both overall freedom and creativity. Table 5.2 presents the relationship between the two indices, with state rankings on both measures divided into quintiles. It shows a negative but imperfect correlation between the freedom and creativity indices.36 The most south-westerly cell in the table shows that six states are simultaneously among the ten most creative and the ten highest taxed and most regulated. In Chapter 3, we encountered the notion of a “system constraint,” whereby a competitive market is associated with a tighter system constraint than a monopolistic one. The system constraint in an isolated (monocentric) democracy would be even looser than for a monopolist within the market order. The viability of a government in such a democracy would only depend on its ability to offer a policy bundle that a majority of voters perceive to be somewhat more attractive than that of the opposition, without any guarantee that voters’ perceptions correspond to reality. The preferred policy mix need not be attractive to voters in an absolute sense as long as the policy mix of the alternative seems worse. The consequence of this less-than-ideal situation is that it becomes difficult to predict government policies. A loosely constrained actor is an unshackled and potentially capricious one. Citizens must then base their predictions of future policy on the personal attributes of decision-makers, such as their responsiveness to lobbying, their personal goals, and their personal beliefs about the consequences of their decisions. A monocentric democratic government is only slightly less constrained than dictators hiding behind an iron or bamboo curtain. In a polycentric democracy, the system constraint is tighter. Apart from the infrequent challenge of defeating the opposition in elections,

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Table 5.2 State rankings on the State Creativity Index (SCI) and the Mercatus Overall Freedom Index (MOFI), 2006 MOFI Rank

1–10

SCI Rank 1–10

11–20

21–30

31–40

41–50

Colorado Virginia

Idaho New Hampshire Texas Georgia Michigan

Arizona

Missouri Tennessee

Kansas Pennsylvania Utah Delaware Nevada North Carolina Maine New Mexico Ohio

Indiana Iowa Oklahoma Alabama Nebraska

North Dakota South Dakota Montana Wyoming

11–20

21–30

Oregon

Florida

31–40

Minnesota

Vermont

41–50

California Connecticut Maryland Massachusetts New York Washington

Illinois New Jersey Rhode Island

Alaska Wisconsin

Arkansas Mississippi South Carolina Kentucky Louisiana West Virginia

Hawaii

Source Andersson and Taylor (2012)

the decision-makers face interjurisdictional competition. Different jurisdictions then compete for mobile people and capital. Nevertheless, even in a polycentric democracy, agglomeration economies such as those associated with high scores on the State Creativity Index offer politicians opportunities to implement valuedestructive policies that are beyond the reach of those in remoter locations. Attractive natural features such as a mild climate or white sand beaches also loosen the system constraint. Hawaii, which many people perceive as having the world’s best climate, offers the least competitive combination of taxes, regulations, and agglomeration economies among the 50 states. Conversely, the most constrained governments are in regions that are inaccessible, sparsely populated, flat, bleak, and cold. Thus, governments in a polycentric democracy do not all face the same system constraint. In some places, the constraint is looser than in others.

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On the one hand, well-endowed places offer more rent-seeking opportunities for policies such as targeted subsidies or monopoly licences. On the other, they also offer the opportunity to pursue value-destructive policies that are ideologically motivated. A typical example is when politicians, rather than markets, determine the price of rental housing. Planning rules such as growth boundaries, building height restrictions, or minimum lot sizes are even more common. Increases in the mobility of production factors or consumers make the system constraint tighter, including for regions with substantial agglomeration economies or attractive natural features. Substandard policies then become more likely to reduce the tax base. An example of a city that lost an initial agglomeration advantage is the city of Detroit. More than half of its population moved away between 1970 and 2010, a predictable consequence of unusually high levels of rent-seeking in the American automotive industry, both among executives and unionized workers.37 At the beginning of the twentieth century, America’s Big Three automakers were among the most entrepreneurial enterprises anywhere. A hundred years later, they had become a byword for bailout culture. When a polycentric democracy functions as it should, the subsidies and bailouts associated with a city such as Detroit would eventually become a thing of the past, as out-migration hollows out the tax base. In Detroit’s case, federal and state governments slowed the process by providing subsidies. In a well-functioning polycentric democracy, each level of government has to raise its revenue locally without the possibility of obtaining tax-funded subsidies from other governments at the same or higher levels. 5.3.3

Freedom and Agglomeration as Attractors of People

In the 2012 study, we looked at three groups of interstate migrants: all domestic interstate migrants, those between the ages of 22 and 39, and holders of postgraduate degrees between 22 and 39. We then regressed these variables consecutively on each of the three different freedom indices, together with the State Creativity Index and three controls (i.e., heating degree days, the homicide rate, and a dummy for Alaska or Hawaii). For migrants of all age groups, the Mercatus Overall Freedom Index had the most significant effect on net in-migration at the state level. Migrants tended to move towards states with smaller governments, lower

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taxes, and lighter regulatory burdens. As expected, features such as mild winters and low crime also attracted migrants. The inaccessible states of Alaska and Hawaii received fewer in-migrants than expected based on their other characteristics. The State Creativity Index did not have a significant impact on overall migration. Hence states such as Arizona and Texas were attractive in terms of the factors that mattered most to the average domestic migrant in the studied period. Freedom was also a crucial attractor for the 22–39 age group, which roughly corresponds to the age when people make their first self-selected migration decisions that do not relate to education. However, economic freedom (MEFI) provided a better fit than overall freedom (MOFI). One plausible interpretation is that young adults were more concerned with work than consumption opportunities. In this case, the effect of the State Creativity Index was about as strong as the effect of economic freedom. Hence states that combined high scores on the economic freedom index with substantial agglomeration economies were most attractive. Colorado and New Hampshire were two examples of such states in the analyzed period. Mild winters and low homicide rates remained attractive for this group. Young migrants with advanced degrees differed from the general population of young migrants in three ways. First, agglomeration economies outweighed any of the freedom measures. The freedom effects were positive but moderate. Second, the least comprehensive index—the Fraser Economic Freedom Index (FEFI)—was a better proxy for these migrants’ (explicit or implicit) institutional criteria than the Mercatus indices. Third, the effect of homicide rates on net migration flows was insignificant. The implication is that sparsely populated states without major metropolitan areas were less attractive to the most educated young migrants than other groups, even if they were institutionally competitive. To the extent that a less interventionist government attracted this group, it was mainly limited to the fiscal components of taxes and expenditures. The model predicted that Colorado and Texas were the most attractive overall. There is a difference, however, between the spatial domains of institutions and agglomeration economies. State borders delimit the effects of the institutions that determine a state’s score on the three freedom indices. On the other hand, agglomeration economies roughly coincide with metropolitan statistical areas (MSAs) in the United States, which approximate the spatial extent of integrated labour and real estate markets. Considering the relevant variables and the variables’ spatial

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domains simultaneously, the most attractive metro area to the highly educated group of young migrants, according to our estimation results, was the Austin-Round Rock-Georgetown MSA (Austin). Austin had the third-highest overall population growth rate among large MSAs from 2000 to 2010 and the highest rate from 2010 to 2020. Imran Arif and his research group analyzed domestic migration flows in more detail.38 They looked at flows between origin and destination MSAs from 1993 to 2014, using a disaggregated version of FEFI, which accounted for differences in per capita local government expenditures and taxation of the constituent local and state governments within each MSA.39 In an estimated function that controlled for the distance and the per capita income gap between source and destination MSAs, the key result was that a ten per cent increase in the MSA-level economic freedom score in a destination MSA relative to an origin MSA was associated with a 27 per cent increase in the net number of migrants from the origin to the destination. Notably, the economic freedom gap affected migration flows more than the income gap. Arif’s analyses also included a model distinguishing push and pull factors. The results showed that a ten per cent increase in the economic freedom index was associated with an increase in in-migration of 5.5 per cent and a 6.1 per cent decrease in out-migration. MSA-to-MSA geographical distance remained significant, but income levels did not significantly affect migration flows. All estimates implied that a greater role for individual as opposed to collective choice made it easier for cities and states to attract and retain residents, other things being equal. According to this index, the freest MSA among the 52 largest ones was the Houston—The Woodlands—Sugar Land MSA (Houston), which is interesting since the FEFI only accounts for government spending, tax rates, and labour market regulations. Houston is, however, also the only large American city without zoning regulations. According to Randall O’Toole, this has made housing more affordable and less volatile than in comparable metro areas: In economic terms, Houston’s housing market is highly elastic. With a rapid permitting process and dozens of master-planned communities underway at any given time, an increase in demand for housing simply leads homebuilders to increase their pace of home construction, resulting in little or no increase in prices. Growth-management planning restricts

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supply, making housing supplies inelastic. Increasing demand in such areas mainly results in higher prices. … In particular, growth management not only makes housing more expensive, it makes housing prices more volatile. Since housing supplies are inelastic, a small increase in demand can result in large price increases. … Thus, inflation-adjusted housing prices in some Californian urban areas grew by more than 150 per cent between 2000 and the bubble’s peak, then fell by more than 60 per cent. Over the same period, Houston’s prices grew by 20 per cent and then fell by 7 per cent.40

In 2012, a four-bedroom, two-bathroom house commanded a price of about US$179,000 in Houston, compared with US$420,000 in Oakland, US$570,000 in San Jose, and US$578,000 in Seattle.41 A lessregulated real estate market, resulting in greater affordability, is arguably another reason, apart from low taxes, that made Houston the fastestgrowing metro area in absolute numbers between 2010 and 2020, with a population growth of more than a million people. There is not only a great deal of institutional diversity across US states. Even within states, political individualism can differ dramatically between neighbouring counties. McAllen-Edinburg-Mission, the most interventionist MSA in Texas, scored lower on economic freedom than the highest-scoring MSA in California, San Jose-Sunnyvale-Santa Clara.42 In 2012, the average local share of combined local and state expenditures was about 52 per cent. The MSA with the least interventionist local and state governments in 2012 was Naples-Immokalee-Marco Island in Florida, while the most intrusive one was El Centro in California.43 The variability in economic freedom helps explain why many American cities and states remain more internationally competitive than the US average. While the United States remains the freest country with a population of more than 100 million, its economic freedom relative to the rest of the world slipped from second best in 1980 and 1990 to seventh in 2020. The broader Human Freedom Index—which additionally includes factors such as freedom of expression—declined even more in relative terms after 2000, plunging from sixth best in 2000 to 23rd place in 2020.44 These results allude to the importance of political decentralization for preserving political individualism in a world of uncertain future policy choices. The primary method for countering political collectivism is subsidiarity.

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5.4 Political Individualism and the Subsidiarity Principle The first advocate for the subsidiarity principle in politics was Johannes Althusius, a Calvinist legal scholar and political philosopher who was the syndic of the East Frisian city of Emden from 1604 to 1638. The primary motivation for Althusius was to preserve the autonomy of Calvinist Emden against a Lutheran provincial lord and a Catholic emperor.45 He aimed at safeguarding the independence of pre-existing local religious communities against encroachment from higher levels of government. However, he did not address the problem of preserving the autonomy of individuals. In the eighteenth century, American confederalists,46 such as Samuel Adams and George Mason, represented a second approach to safeguarding local jurisdictions from central government usurpation. Theirs was a proscriptive version of subsidiarity, where lower levels of government can veto central government initiatives. The idea is that higher-level governments represent voluntary cooperation among members to attain specific policies that are infeasible at a lower level. The economic case for subsidiarity is most evident in the Tiebout hypothesis of “voting with the feet.”47 It contends that competition among jurisdictions in the supply of local public goods is akin to competition in supplying private goods. Individuals with heterogeneous preferences select different bundles of public goods, each of which most closely corresponds to a specific group’s preferences, resulting in a better match between supply and demand than with central government provision. Catholic social teaching, as first expressed in the 1891 encyclical Rerum Novarum, has been the most influential application of subsidiarity to governance.48 The Catholic notion of subsidiarity focuses on justice rather than autonomy or efficiency. Still, unlike Althusius or the American confederalists, it does recognize the individual as the lowest level of organization. In Quadragesimo Anno, Pope Pius XI wrote: As history abundantly proves, it is true that on account of changed conditions many things that were done by small associations in former times cannot be done now save by large associations. Still, that most weighty principle, which cannot be set aside or changed, remains fixed and unshaken in social philosophy: Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry

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and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do.49

These four approaches to subsidiarity all have different concerns: the protection of a local religious community, the protection of local against central political power, the matching of public goods and individual preferences, and the protection of the individual and civil society against state interventionism. While all four arguments are both relevant and defensible, I would like to add two more arguments favouring the subsidiarity principle. First, decentralization constrains government at all levels, making it more difficult for politicians to fall prey to rentseeking interest groups or value-destructive ideologies such as nationalism, socialism, or, indeed, national socialism. Second, the increasing complexity of economies, values, and preferences increases the relative performance of subsidiarity compared with other modes of political decision-making. I explained earlier how polycentric democracy leads to a tighter system constraint than the top-down version that imposes the same policies everywhere. The latter is the ideal breeding ground for the distributional coalitions that make governments lead nations along the path of economic decline. The incentive structure privileges such paths wherever and whenever politicians face a loose system constraint. It is the easy way out. The first argument was, is, and will be the same, irrespective of the level of development. In contrast, the second argument becomes more salient with increases in economic complexity. Robert Sirico is one of the few thinkers who is explicit about the relationship between complexity (or, equivalently, diversity) and subsidiarity. He wrote that the more diverse a society is in terms of its demographic, religious, and normative makeup, the more its functions must be devolved to the lower orders where problems can be understood and dealt with on their own terms. A centralized authority lacks the information necessary to [prescribe] solutions for a diverse society; it must of necessity treat citizens and community as relatively homogeneous. Let’s ask this question, for example: if a single society is composed of communities of very different religious orientations, is a central religious authority emanating from the state more or less viable than it would be in a society composed of members of a single faith? The answer should be obvious: diversity in religion

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requires freedom of religious practice, and the conflicts that arise between groups should be solved at the lowest possible level (that is, if we value freedom over forced conformity). So it is with other aspects of a nation’s life, whether familial or economic. The more heterogeneous the society’s makeup, the more the subsidiarity principle needs to be recognized and practiced.50

I would go a step further than Sirico. It is not only demography, religion, and normative values that become more diverse with economic development. As discussed in Chapter 3, people also become more diverse in their preferences because of the increase in the division of knowledge that occurs when an economy becomes more complex. Not only do people have an increasing variety of skills; they also occupy an increasing number of consumption niches. Polycentric democracy may offer the best hope for political individualism, since most constitutions have been less effective than their designers intended. Jurists with an interventionist bent have viewed constitutions as malleable rather than as bulwarks against government interference.

5.5

Conclusion

Political individualism denotes political and legal systems that protect individual property rights predicated on equal human dignity and moral freedom. Property rights include but are not limited to human rights such as freedom of expression and information, since human beings require material goods and ways to exchange them in order to survive and, if possible, flourish. In contemporary societies, political individualism implies protecting and enforcing an expansive private domain, encompassing physical and intellectual property and the freedom to trade with self-selected others. Notions of individual rights stem from the Judeo-Christian tradition and were strengthened after the creation of the first universities in the late Middle Ages. The political fragmentation of medieval Europe also made individual creativity and entrepreneurship more feasible than elsewhere, since disgruntled people could vote with their feet and search for more hospitable locales than their place of birth. This set the stage for interjurisdictional competition, whereby kings and princes had incentives to attract as many potential taxpayers as possible.

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Markets based on the exchange of individual property emerged. Legal systems with impartial enforcement of contracts supported the most successful ones. Different courts often competed by offering legal services for a fee. Sometimes trading systems spawned the creation of new legal practices for long-distance trade, as happened with the lex mercatoria of the Hanseatic League. The universities of Europe were instrumental in formulating laws and in using the scholastic method to render laws more consistent with one another over time. The University of Bologna pioneered legal scholarship in the twelfth century, spawning many imitators in all parts of Europe. The most creative cities from the thirteenth to the nineteenth century were all European. However, the centre of gravity shifted from the northern Mediterranean in the thirteenth and fourteenth centuries to northwestern Europe in the eighteenth and nineteenth. Four legal systems emerged in Europe: English common law and French, Germanic, and Nordic civil law. In the twentieth century, many features of these legal traditions converged so that we may now speak of a European Legal System. The global system of interconnected markets relies on laws that derive from European legal traditions. The empirical evidence suggests that the quality of the legal system is the most important institutional factor supporting economic development, including industrialization and the ongoing transition towards the Creative Society. The International Property Rights Index correlates with various measures of creativity and innovation even more strongly than alternative measures, such as more comprehensive indices of economic freedom or democracy. A threshold level of rule-of-law attributes amounts to a necessary condition for participation in the post-industrial creative economy. However, other factors matter, too. We saw in Chapter 4 that a high level of cultural individualism supports creativity and innovation. Cultural individualism and political individualism are mutually reinforcing. They co-evolve. Both are relatively stable societal features, and we may view them as jointly responsible for high levels of creativity. Moreover, a high level of cultural individualism may compensate for moderate political individualism and vice versa. Culture and institutions are not the only spatially heterogeneous factors that help explain variability in creativity and innovation. Agglomeration economies matter, too. Large agglomerations with substantial accumulations of relevant knowledge are at an advantage relative to

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smaller and more isolated locations. London, Paris, and New York are cities that have benefited from accumulation processes that span centuries. At the same time, these advantages imply that governments can engage in more wasteful and value-destructive policies than elsewhere. They are less constrained because agglomeration economies may compensate for substandard institutions, at least initially. Studies of American metropolitan areas and states show that this is indeed the case. Historically favoured states such as California and New York are near the bottom of the economic freedom rankings.51 While the legal system is relatively uniform across America, popular but value-destructive policies such as urban growth boundaries, occupational licencing, and high sales taxes have been introduced at an ever-increasing pace in many of the states that are traditionally associated with high incomes and large agglomerations of innovative capacity. In cities such as New York City and Los Angeles, these taxes and regulations are even more onerous than the statewide averages. Empirical studies of domestic interstate migration in the United States show a substantial and statistically significant shift away from cities and states with low economic freedom towards locations with better opportunities for profit-seeking entrepreneurship. Existing agglomeration economies matter to some extent, but the level of economic freedom matters more. Lightly regulated metropolitan areas such as Austin and Houston have been the primary beneficiaries of individual location choices in the twenty-first century. It remains to be seen whether such cities, most of which are in the American sunbelt, will replace traditional centres of creativity such as San Francisco. It is more challenging to draw institutional conclusions from migration flows in other parts of the world due to linguistic barriers in Europe and immigration restrictions almost everywhere. Still, it is noteworthy that the world’s highest per capita output of scientific publications, whether citation-weighted or not, is in Switzerland. In a network analysis, Geneva-Lausanne emerged as one of five global science nodes.52 Another Swiss metro area, Zurich, hosts the best-ranked university in continental Europe,53 with 65 per cent of its professors being foreign nationals.54 Switzerland ranked first on the Human Freedom Index in 2022,55 and third on the International Property Rights Index 2022.56 The main attraction of political individualism may be that it sets people free. Another attraction is that it provides fertile soil for post-industrial development.

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Notes 1. Locke (1690). 2. Declaration of Independence (1776). 3. An unusually clear explanation of what “subsidiarity” means was included in the Catechism of the Catholic Church in 1883 as part of Book 3, Section 1, Chapter 2, Article 1: “Socialization also presents dangers. Excessive intervention by the state can threaten personal freedom and initiative. The teaching of the Church has elaborated the principle of subsidiarity, according to which ‘a community of a higher order should not interfere in the internal life or a community of a lower order, depriving the latter of its functions, but rather should support it in case of need and help to co-ordinate its activity with the activities of the rest of society, always with a view to the common good.’ … The principle of subsidiarity is opposed to all forms of collectivism. It sets limits for state intervention. It aims at harmonizing the relationships between individuals and societies. It tends toward the establishment of a true international order” (italics in original). See http://www.scb orromeo.org/ccc/p3s1c2a1.htm#1883 4. J. A. Berman (2008, p. 169). 5. Galatians, chapter 3, verse 28 (New Revised Standard Version). 6. Hill (2017). 7. H. J. Berman (1959, p. 91). 8. H. J. Berman (2000, p. 49). 9. H. J. Berman (1975). 10. Edwards and Ogilvie (2012). 11. Ibid. 12. Pirenne (1969). 13. Braudel (1979). 14. Knowles (1962, p. 80). 15. Sarravia de la Calle (1544), quoted in Grace-Hutchinson (1952, pp. 81–82). 16. Mariana (1598/1854). 17. Chydenius (1766). 18. Smith (1776). 19. Chydenius (1765, §31). 20. diZerega (1989). 21. Olson (1965).

5

22. 23. 24. 25. 26. 27. 28. 29. 30.

31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46.

47. 48. 49. 50. 51. 52. 53.

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Olson (1982). Buchanan and Tullock (1961). Hayek (1960, p. 263). Jones (1981, p. 233). Vásquez et al. (2021). Levy-Carciente & Montanari (2022). Sims (2016). Andersson and Taylor (2012). Ruger and Sorens (2009) and Karabegovi´c and McMahon (2008) are the sources for the Mercatus Center and Fraser Institute indices, respectively, in Andersson and Taylor (2012). Marshall (1920). Jacobs (1969). Florida (2002). Ibid., p. 218. Ibid. r =−0.314 (Andersson and Taylor, 2012). Holcombe (2012). Arif et al. (2020). Stansel (2019). O’Toole (2014). Ibid. U.S. Census. Stansel (2019). Vásquez et al. (2021). Føllesdal (2014). The confederalists are sometimes referred to as the “antifederalists,” but that is a misleading label. What they aimed for was a confederation of states. In the twenty-first century, the term “federalist” is used to refer to those who desire a more decentralized government in a unitary nation state, or who wish to preserve subnational autonomy in a federation. Tiebout (1956). Leo XIII (1891). Pius XI (1931). Sirico (2014, p. 558). Stansel et al. (2022). Matthiessen et al. (2011). The QS ranking of world universities, 2023.

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54. ETH Zürich (2021). 55. Vásquez et al. (2021). 56. Levy-Carciente and Montanari (2022).

References Andersson, D. E., & Taylor, J. A. (2012). Institutions, agglomeration economies, and interstate migration. In D. E. Andersson (Ed.), The spatial market process (pp. 233–263). Emerald. https://doi.org/10.1108/S1529-2134(2012)000 0016012 Arif, I., Hoffer, A., Stansel, D., & Lacombe, D. (2020). Economic freedom and migration: A metro area-level analysis. Southern Economic Journal, 87 (1), 170–190. https://doi.org/10.1002/soej.12437 Berman, H. J. (1959). The influence of Christianity upon the development of law. Oklahoma Law Review, 12(1), 86–101. Berman, H. J. (1975). The religious foundations of Western law. Catholic University Law Review, 24(3), 490–508. https://scholarship.law.edu/cgi/vie wcontent.cgi?referer=&httpsredir=1&article=2541&context=lawreview Berman, H. J. (2000). Faith and order: The reconciliation of law and religion. Eerdmans Publishing Company. Berman, J. A. (2008). Created equal: How the Bible broke with ancient political thought. Oxford University Press. Braudel, F. (1979). Civilisation matérielle, économie et capitalisme, XVe–XVIIIe siècle. Armand Colin. Buchanan, J. M., & Tullock, G. (1961). The calculus of consent: Logical foundations of constitutional democracy. University of Michigan Press. Chydenius, A. (1765). The national gain. https://chydenius.kootutteokset.fi/ en/kirjoitukset/den-nationella-vinsten-%c2%a7-31/ Chydenius, A. (1766). Additional report of the Third Committee of the Grand Joint Committee of the honourable estates on the freedom of printing, submitted at the Diet in Stockholm on 21 April 1766. https://chydenius.kootutteokset. fi/en/kirjoituksia/betankande-om-tryckfriheten-1766/ Declaration of Independence. (1776). Declaration of independence: A transcription. National Archives. https://www.archives.gov/founding-docs/declar ation-transcript diZerega, G. (1989). Democracy as a spontaneous order. Critical Review, 3(2), 206–240. https://doi.org/10.1080/08913818908459563 Edwards, J., & Ogilvie, S. (2012). What lessons from economic development can we draw from the Champagne fairs. Explorations in Economic History, 49(2), 131–148. https://doi.org/10.1016/j.eeh.2011.12.00

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ETH Zürich. (2021). ETH in figures. ETH Zürich. https://ethz.ch/en/theeth-zurich/portrait/value-creation-model.html Florida, R. (2002). The rise of the creative class. Basic Books. Føllesdal, A. (2014). Competing conceptions of subsidiarity. In J. E. Fleming & J. T. Levy (Eds), Federalism and subsidiarity (pp. 214–230). New York University Press. https://follesdal.net/ms/Follesdal-2014-nomos-subsidiar ity.pdf Grace-Hutchinson. (1952). The School of Salamanca: readings in Spanish monetary theory, 1544–1605. Clarendon Press. Hayek, F. A. (1979). Law, legislation and liberty. University of Chicago Press. Hill, P. J. (2017). Judeo-Christian thought, classical liberals, and modern egalitarianism. Independent Review, 22(1), 49–58. https://www.independent.org/ pdf/tir/tir_22_1_05_hill.pdf Holcombe, R. (2012). The rise and fall of agglomeration economies. In D. E. Andersson (Ed.), The spatial market process (pp. 211–232). Emerald. https:// doi.org/10.1108/S1529-2134(2012)0000016011 Jacobs, J. (1969). The economy of cities. Random House. Jones, E. (1981). The European miracle. Cambridge University Press. Karabegovi´c, A., & McMahon, F. (2008). Economic freedom of North America. Fraser Inst. https://doi.org/www.fraserinstitute.org/sites/default/files/Eco nomicFreedomNorthAmerica2008USed.pdf Knowles, D. (1962). The evolution of medieval thought. Vintage. Leo XIII. (1891). Rerum Novarum. The Vatican. https://www.vatican.va/con tent/leo-xiii/en/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-nov arum.html Levy-Carciente, S., & Montanari, L. (2022). International Property Rights Index. Property Rights Alliance. https://www.internationalpropertyrightsindex.org/ Locke, J. (1690). Second treatise of government. Project Gutenberg. https:// www.gutenberg.org/files/7370/7370-h/7370-h.htm Mariana, J. de. (1981). La dignidad real y la educación de rey. Centro de Estudios Constitucionales. (Original work published 1598) Marshall, A. (1920). Principles of economics. Macmillan. Matthiessen, C. W., Schwarz, A. W., & Find, S. (2011). Research nodes and networks. In D. E. Andersson, Å. E. Andersson, & C. Mellander (Eds), Handbook of creative cities (pp. 211–228). Edward Elgar. https://doi.org/ 10.4337/9780857936394.00018 O’Toole, R. (2014). Houston’s land-use regime: A model for the nation. In D. E. Andersson & S. Moroni (Eds.), Cities and private planning: Property rights, entrepreneurship and transaction costs (pp. 174–198). Edward Elgar. https://doi.org/10.4337/9781783475063.00017 Olson, M. J., Jr (1965). The logic of collective action: Public goods and the theory of groups. Harvard University Press.

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Olson, M. J., Jr. (1982). The rise and decline of nations: Economic growth, stagflation, and social rigidities. Yale University Press. Pirenne, H. (1969). Medieval cities: Their origins and the revival of trade. Princeton University Press. Pius XI. (1931). Quadragesimo Anno. The Vatican. https://www.vatican.va/ content/pius-xi/en/encyclicals/documents/hf_p-xi_enc_19310515_quadra gesimo-anno.html Ruger, W. P., & Sorens, J. (2009). Freedom in the 50 states: An index of personal and economic freedom. Mercatus Center. Sarravia de la Calle, L. (1952). Instructions for merchants (1544). In M. Grice-Hutchinson (Ed.), Readings in Spanish monetary theory, 1544–1605. Clarendon Press. (Original work published 1544) Sims, M. M. (2016). Varieties of legal systems: Towards a new global taxonomy. Journal of Institutional Economics, 12(3), 579–602. https://doi.org/10. 1017/S1744137415000545 Sirico, R. A. (2014). Subsidiarity, society, and entitlements: Understanding and application. Notre Dame Journal of Law, Ethics & Public Policy, 11(2), 549– 579. Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations. W. Strahan and T. Cadell. Stansel, D. (2019). Economic freedom in U.S. metropolitan areas. Journal of Regional Analysis and Policy, 49(1), 40–48. Stansel, D., Torra, J., McMahon, F., & Carrión-Tavárez, Á. (2022). Economic freedom of North America 2022. Fraser Institute. https://www.fraserinstit ute.org/sites/default/files/economic-freedom-of-north-america-2022-us-edi tion.pdf Tiebout, C. (1956). A pure theory of local expenditures. Journal of Political Economy, 64(5), 416–424. https://doi.org/10.1086/257839 Vásquez, I., McMahon, F., Murphy, R., & Sutter Schneider, G. (2021). The Human Freedom Index 2021: A global measurement of personal, civil, and economic freedom. Cato Institute and Fraser Institute. https://www.cato.org/ sites/cato.org/files/2022-03/human-freedom-index-2021-updated.pdf

CHAPTER 6

The Future of the Creative Society

Abstract Cultural individualism, the rule of law, and large agglomerations of people are three key factors that support creativity and innovation. Both cultural individualism and the rule of law are associated with the West, but, paradoxically, the most extreme collectivist ideologies, Marxism and neo-Marxism, are also of Western origin. Whether the future centre of gravity of the emerging Creative Society will be Western or located elsewhere depends on whether the dominant individualistic tradition or Western collectivist alternatives will prove more influential in Europe and North America. Traditional non-Western varieties of collectivism tend to reflect cultural traditions rather than extreme political ideologies, and are thus better able to accommodate spontaneous orders than ideologies rooted in Marxism. Apart from the three factors generally conducive to economic development, regional competitiveness in the Creative Society will likely depend on the degree of political decentralization, education practices, and migration policies. Keywords Individualism · Rule of law · Agglomeration · Western collectivism · Marxism · Decentralization · Education · Migration

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0_6

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6.1

Introduction

In the preceding chapters, we have outlined some factors associated with high levels of creative output. Chapter 2 focused on individual variability, while Chapter 3 distinguished the economic creativity of entrepreneurship from extra-economic creativity. In Chapter 4, we looked at the emergence of cultural individualism and its relationship to outcomes such as scientific research and overall creativity. Chapter 5 focused on political aspects of individualism, noting, in particular, the importance of a legal system based on the rule of law and personal dignity in coordinating the spontaneous order of the market. Our discussion of interstate migration flows in the United States pinpointed the agglomeration economies associated with large cities, which enable some governments to engage in more interventionist policies than others. Most individualistic propensities associated with creativity, innovation, and development have Western sources. In particular, we noted the role of the family and marriage policy of the medieval Western Church, the emergence of universities and scholastic legal scholarship in the late Middle Ages, and the division of political powers among small European principalities and the simultaneous division between the powers of each principality and the Roman Catholic Church. In addition, the convention of settling disputes by treaty often put an end to hostilities.1 These four features facilitated a more innovative market economy than elsewhere, which made a larger agricultural surplus possible and thus also supported urban development and eventually laid the groundwork for the explosive innovation-driven growth of the Industrial Revolution. However, cultural and political origins do not determine the destiny of a society. Several non-European societies have established political institutions that are more individualistic than parts of the cultural West, and economic development in some of these societies has engendered a gradual shift towards greater cultural individualism. The most obvious example is Japan, but many others have also transitioned from an agricultural to an industrial society. Taking a long-term perspective makes it clear that even some societies that score in the lowest decile on the cultural individualism measure presented in Chapter 4 exhibit characteristics typical of industrialization. For example, the fertility rate in Bangladesh fell from 6.78 in 1960 to 2.00 in 2020,2 while agricultural employment fell from 78.5% of total employment in 1973 to 37.8% in 2020.3 The literacy rate rose from 18% in 1961 to 75% in 2022. In 2020,

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Bangladesh was the world’s 3rd largest exporter of clothing. Though Bangladesh is not yet one of the creative centres of the world, it is unambiguously an industrializing country that shares many socio-economic features with the West of the mid-twentieth century.4 In earlier chapters, I have focused on various features that cultivated cultural and political individualism in the West. Nevertheless, there were also countervailing forces. The nationalist principles of mercantilism first appeared in the late Renaissance. Mercantilism became influential in the trade policies of seventeenth-century France, where the First Minister of State, Jean Baptiste Colbert, introduced tariffs and promoted French colonialism to ensure a steady supply of raw materials for French industry. The protectionist idea that exports are good since they result in an accumulation of gold and silver, but that imports are bad (as gold and silver reserves are depleted) did not disappear with the French Revolution, but were reiterated through the Continental System of Napoleon Bonaparte. Mercantilism remains an influential collectivist interpretation of economic life among politicians worldwide and is almost universal among twenty-first-century populist nationalists. It is entirely at odds with methodological individualism as applied to economic reasoning: the gains from trade associated with voluntary exchange imply that free markets continually reallocate resources towards higher-valued uses. Nevertheless, mercantilism is still a relatively mild form of collectivism if we compare it with one of the most successful ideological exports of the West: the ideology of Marxism. Much of the history of the twentieth century involved the establishment and revolutionary activities of communist parties in various parts of the world.

6.2

Western Collectivism

Because of various features of Western Christianity, Europe developed a more individualistic culture and legal system than other parts of the world. Inadvertently, the openness to thought experiments that individualism cultivates resulted in the creation of the most collectivist social theory ever attempted: the dialectical materialism of Karl Marx and Friedrich Engels. It rests on a few misleading premises, such as the labour theory of value, ubiquitous scale economies in production, a division of the population into two classes—the bourgeoisie and the proletariat—that engage in an inevitable win-lose struggle during the capitalist stage of development, and a belief in inexorable laws of historical destiny.5

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As early as 1871, Carl Menger conclusively demonstrated the errors of the labour theory of value in his Principles of Economics.6 A few years later, Eugen von Böhm-Bawerk showed how Marx’s rate of profit contradicts his theory of value.7 But it was not only Marx’s understanding of the capitalist economic system that proved erroneous; his proposed replacement—collective ownership of the means of production—would necessarily forgo several desirable characteristics that arise as byproducts of market exchange. Ludwig von Mises showed that it is impossible to calculate exchange ratios in an economy where the state owns the means of production. Another Austrian economist, Friedrich Hayek, showed how central planning is incapable of disseminating the economic knowledge that decentralized decision-making and formation of prices make possible.8 Thus, the early Austrian economists demonstrated that Marx’s economic theory used erroneous assumptions and a self-contradictory theory to criticize capitalism, while proposing an alternative that did not consider the decentralized nature of economic knowledge or the heterogeneity of individuals’ preferences. In addition, many other economists were at pains to point out that incentives are essential motivating forces in any system of production and that Marx’s theory ignores their role in encouraging innovativeness and productivity. Nevertheless, Marxism proved popular with political agitators, union organizers, and large swaths of Europe’s population in the first half of the twentieth century. With Vladimir Lenin’s addition of some principles of political organization, it became—politically speaking—the most successful revolutionary ideology of the twentieth century, providing the ideological justification for overthrowing governments, first in Russia in 1917 and in Mongolia in 1921, and then in numerous other countries in different parts of the world. In addition, the Soviet Union imposed Marxist-Leninist regimes on several central and eastern European countries after World War II. On the other hand, Marxist socialism was arguably the least successful large-scale economic experiment ever, leading at best to stagnation followed by economic collapse and at worst to the death of millions by starvation or execution whenever and wherever socialist governments implemented a centrally planned economy.9 The Marxist version of socialism arose among intellectuals in two of the world’s most individualistic countries with freedom of expression and the rule of law, Germany and England. This Western origin had no freedom-preserving effects under “actually existing socialism.” When put into practice, Marxist revolutionaries invariably suppressed civil liberties

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and instituted a system of rule by law at the discretion of either a dictator or a self-selected revolutionary vanguard. When comparing Western and other cultures, there is general agreement among scholars that the West is more individualistic than the rest. However, non-Western cultures are nowhere near as collectivist as Marxism. Traditional Buddhism, Confucianism, Hinduism, and Islam all accept the legitimacy of private property and trade in goods and services. Marxism, as an extreme political ideology rather than as a set of inherited traditions, does not. Non-Western collectivism, for the most part, is centred on extended families and local communities, not on an allpowerful state that regulates people as if they were the soldiers of an army. From this perspective, the West gave rise to the extreme ideas, while traditional Africa and Asia occupied the middle ground. Indeed, this observation implies that we can be more hopeful about the prospects for creative post-industrial societies beyond the West and that we should be more sceptical about the prospects in the West. Paradoxically, many people, particularly in the West, are attracted to collectivisms that are purer—and thus more inimical to individual creativity and entrepreneurship—than traditional non-Western varieties. Most of these new Western collectivisms bear the imprint of Marxism.10 Predictions of conditions favourable to creativity in the West thus come with two caveats. The first caveat is that its leading politicians steer clear of protectionist practices associated with the two Western ideological frameworks of mercantilism and socialism. The second is that they refrain from sector-specific central planning in sectors such as education that play an outsize role in cultivating creativity. If Western governments can avoid protectionism and top-down planning, cultural and political individualism may enable the West to stay ahead by hosting the centres of human creativity. On the other hand, if they succumb to a political collectivism that resembles previous Western experiences with mercantilism, socialism, or fascism, it is far more likely that the centre of creativity will move to currently less developed mega-cities that have steered clear of the political collectivist creations of Western ideologues. It would then be anyone’s guess which cities can assume the role that London or New York have played in past centuries. However, given the influence of ideology, Beijing or Shanghai is unlikely to take on this role. Let us turn to some of the factors that are likely to increase the competitiveness of cities and nations in the creative economy. In previous chapters, we have identified cultural individualism, the rule of law, and

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agglomeration economies as crucial in various creative pursuits, ranging from scientific discoveries to entrepreneurial innovation. Combining spontaneous order reasoning with findings from the psychology of creativity allows us to pinpoint three policy areas where reforms may be particularly effective at increasing the competitiveness of a city, region, or nation. The policy areas are decentralization, education, and migration.

6.3 Three Key Policy Areas in the Creative Society 6.3.1

Decentralization

In Chapter 5, we have seen that governments operating within a polycentric structure with free movement of people and (physical) capital are more constrained in their policy choices than governments in environments with high transaction costs associated with mobility. There are stronger checks on rent-seeking in a polity where it is easier for individuals and organizations to escape exploitative rules and regulations, regardless of whether interest groups or politicians are the main rentseekers. Consequently, the incentives for value-creating entrepreneurship and other positive-sum creative activities tend to become stronger when politicians are more constrained by constituents who are able and willing to exercise the exit option when facing less attractive policies than elsewhere. The tightness of the mobility-induced system constraint not only reflects the institutional rules governing the migration of people or goods. It is also the effect of the geographical and cultural distance between jurisdictions, since geographical closeness and cultural similarity facilitate relocation. Historiometric research on creativity in the arts and sciences shows that political fragmentation correlates with creativity. The definition of fragmentation in the first such study by Alphonse de Candolle was that a “country was situated among other highly civilized countries and tended to be a small independent country or a country that entailed the union of several independent states, as opposed to being subordinate to a large empire.”11 Candolle calculated the prevalence of creative individuals, controlling for population size, and found that in the nineteenth century, Switzerland had the highest prevalence. He argued that fragmentation was conducive to creativity, along with freedom of expression and freedom to travel. In a much later study of “Big-C Creativity” (i.e.,

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disruptive as opposed to incremental creativity) in the arts and sciences, Dean Simonton also found that political fragmentation positively correlated with creativity. Simonton’s study encompassed 5,000 individuals from 700 BC to 1839 AD.12 Results from political economy and social psychology point in the same direction: a polycentric polity of small states is better at cultivating creativity than a large unitary state. However, there is also a related aspect where the two approaches contradict each other. Voting with the feet becomes more effective when different states share a language and culture. However, psychological research on creativity shows that linguistic and cultural diversity have positive effects on creativity since diversifying experiences influence individuals’ cognitive development in creativity-enhancing ways.13 The idea of polycentric democracy is thus wholly consistent with development in the Creative Society. However, jurisdictional diversity beyond formal institutions— for example, in language, religion, or economic specialization—may outweigh the low transaction costs of exit within a shared culture as we move from an industrial to a post-industrial society. In other words, the greater creative potential of dissimilar cultures in adjacent states may offer greater overall benefits than the costs associated with the friction that may arise due to these cultural dissimilarities. 6.3.2

Education

There is a positive relationship between education and creativity, although it is not uniform across various artistic, scientific, and economic domains. The robust relationship between science and education stems from high domain-specific expertise and tight constraints on acceptable practice. The relationship is weaker for expressive art forms such as poetry and abstract painting. For many creative genres, psychologists have found an inverted U-shaped relationship between formal training and creativity.14 While creativity-focused individuals benefit from studying under the direction of a personal mentor, artists benefit more than scientists from having multiple mentors.15 Some studies have compared the relationship between learning processes and three categories of individuals: artists, creative scientists, and uncreative scientists. A general finding is that uncreative scientists perform best in conventional education settings and are best at applying established rules when solving problems. Most education systems

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reward this uncreative group more than those who later become creative artists or scientists. In contrast, creative artists and scientists frequently develop their potential by accumulating knowledge that goes beyond and is often unrelated to their formal training. Sometimes they engage in side activities that do not count for anything according to conventional academic criteria.16 Another common strategy for self-directed learning among individuals with the highest levels of later creative performance is voracious and wide-ranging reading habits.17 A predisposition to read whatever is available is a cost-effective way of obtaining diversifying experiences since such readers are likelier to encounter a more diverse set of ideologies and genres than others.18 Individuals exhibiting extraordinary levels of creativity are also more likely to have been educated in more than one country.19 Learning processes with positive effects on creativity development have little in common with any widespread education policy. Such policies tend to disregard the value of diversifying experiences. The idea that teachers should instruct all pupils in primary and secondary education according to national curricula and subject them to standardized tests is common. Such imposed uniformity makes little sense if the goal is to improve students’ ability to perform creative rather than repetitive tasks. Much of what passes for education policy reflects a mindset more suitable for assembly-line manufacturing than the creative problem-solving typical of work in post-industrial economies. One way forward would be to decentralize education policy, which should facilitate the introduction of a greater variety of approaches to learning. Such a strategy would conform to the idea of a polycentric democracy based on the subsidiarity principle, which is also desirable for many other reasons. Another strategy that could complement the first one is abolishing all policies that standardize educational routines, assessments, or outcomes. Curriculum autonomy for individual schools and policies that do not penalize innovative schools in the private sector could be two components of a strategy that increases each student’s probability of developing a high level of cognitive freedom and flexibility. In some European countries, it is controversial for schools to include religious content as a core part of the curriculum, particularly if that content is Islamic. However, religious diversity is one type of diversity that makes diversifying experiences more likely, and which thus cultivates creativity.

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Migration

An oft-noted regularity in the literature on creativity is that immigrants and small but culturally distinctive ethnic or religious minorities are overrepresented in creative achievement, ranging from the arts to science to business.20 Despite being a historically less open society than many Western nations, Japan illustrates how foreign contacts and immigration coincide with creative flourishing. Dean Simonton analyzed the relationship between 13 domains of creative endeavour and foreign influence over 850 years. He measured foreign influence as direct foreign influence (studies abroad or under foreign teachers), foreign travel, and the total number of eminent immigrants in Japan. He found that the “golden ages” of Japanese creative achievement coincided with or followed greater exposure to foreign ideas. These ideas were primarily Chinese or Korean, but also American or European in later periods. The greatest positive effects were in creative domains where Japanese culture lagged behind other parts of the world, such as fiction and non-fiction writing. At the same time, it was negligible in areas where it had developed advanced indigenous capabilities, such as in blade-smithing. According to Simonton, the most provocative discovery was that the influx of foreign ideas or peoples may indeed stimulate national creativity after a delay of two generations [i.e., 40 years]. … Individuals who are exposed to a wide variety of perspectives are more likely to realize the arbitrary nature of any particular cultural norms or values, whether intellectual or aesthetic, and thereby impose fewer restrictions on the scope of their creative imagination. Moreover, a pluralistic cultural milieu will more likely infuse a developing talent with the capacity to conceive new combinations of concepts and techniques that will support historically important innovations. Finally, certain external influences, such as traveling abroad and studying under foreign masters, may encourage the growth of bilingualism, an attribute that is often associated with creativity and other intellectual skills.21

Japan is unusual, but it is instructive because of the alteration of open and closed periods over more than a millennium of recorded history. The United States offers a more recent example of foreign-born creative achievement. About 13% of its population were born outside the United States in 2020. Meanwhile, the share of foreign-born Nobel Laureates was 25%, the share of patents granted to first-generation immigrants was

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30%, and the share of billion-dollar startups with immigrant founders was as high as 55%.22 Another notable aspect of the American experience is that some of the most over-represented origins of creative individuals are among the most culturally dissimilar. An early study of Silicon Valley entrepreneurs showed that Taiwan and India were the two most common countries of birth, apart from the United States.23 Sometimes migration patterns and cultural values mix to create a perfect storm of creativity that extends beyond the first or second generation of immigrants. That has been the history of Jewish culture, first in Europe and the Middle East and later in America. David Brooks provided a succinct explanation when he noted that “the theory of why Jews are so accomplished has to do with them living in what one historian calls ‘verges’—spots where different cultures come together, whether it’s Jerusalem, Istanbul, Baghdad or New York, places with a lot of traders, a lot of coming or going, where ideas are clashing.”24 Jewish creative success has been a combination of frequent biculturalism, the simultaneous cultivation of education and inquisitiveness in Jewish culture, and a tendency to settle in centres of commerce. The over-representation of Jews in various domains of creative achievement dwarfs the overrepresentation of immigrants in general, with a share of Nobel Prizes that is about 110 times greater than the world’s Jewish population share. Similarly, the cumulative number of US Jewish Nobel Laureates had reached 132 out of 406 Americans in 2022, or 32.5%. The Jewish population share in the United States in 2020 was 2.3% if we include both religious and non-religious Jews.25 The ups and downs of Japanese creativity, the more significant creative achievements among foreign-born than native-born Americans, and the creative accomplishments of Jews in many different countries point to one commonality: the value of diversifying experiences. Population heterogeneity, which may manifest as different cultures, languages, or religions, has positively correlated with numerous measures of creativity for centuries. A permissive immigration policy not only advances human freedom; it also helps cultivate the traits that make creative societies competitive.

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Conclusion

The theme of this book is that the fundamental values and formal rules associated with individualism of the type that respects the equal dignity of all human beings are conducive to development and, additionally, that for each stage of development, individualism yields greater economic benefits. I conceive of economic history as a series of development stages where sudden and unexpected phase transitions interrupt long periods with relatively stable cultures, institutions, and networks. The latest such phase transition could first be discerned in Silicon Valley in the late 1960s or early 1970s and has gradually spread to an increasing number of regions elsewhere. The critical source of the latest transition was new information and communication technologies. Even so, it comprises several parallel processes involving factors such as the transport infrastructure, trade flows, the division of labour, occupational structures, cultural values, and new political conflicts. The emerging new society reflects a more significant role for creative and other knowledge-intensive goods and services. I call it the Creative Society. There is general and economic creativity. General creativity includes discoveries, designs, and prototypes. Economic creativity is closely related to innovation, which is shorthand for new marketable products and production processes. Both types of creativity are more common in the Creative Society than previously. It has become common to talk about “constant innovation” in business models, particularly in high-tech firms. Both general and economic creativity involve decision-making in the face of structural uncertainty. Not only do the creators not know the outcomes of their decisions, they often do not know what they do not know. Individualism denotes a set of values and rules that give priority to bottom-up coordination of autonomous individuals and voluntarily formed organizations over top-down collectivist coordination that relies on coercion and denial of negative liberties. Such values and rules cultivate creativity and novel market interactions, and they have become more consequential with an increase in the number of people engaging in creative activities. We need only remember the description of an industrial economy as Schumpeter envisaged it.26 It seemed obvious to him that innovation involved a small subset of the population that was unusually willing to do things differently from the great majority of habitual imitators. This division of the population into a small group of heroic innovators and a majority devoid of original ideas may or may not have

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made sense in the early twentieth century. It certainly does not offer an adequate understanding of the Creative Society. We should note, however, that when discussing the relative cultural individualism of a country, we are referring to a distribution rather than a homogenous point of identical values. Individual differences account for more than 60% of the variability, while inter-group differences account for less than 40%. Thus, even in the most collectivist countries, as reported in Chapter 4, there will be a substantial number of people who score high on individualism and vice versa. I did not report the country-level individualism scores in Table 4.2 because these scores are misleading. A score of 100 represents the highest observed country-level average between 1980 and 2014 rather than the highest possible score. For example, Sweden’s high individualism score was partly due to the 70% who disagreed with the statement that “employers should give priority to nationals over immigrants when jobs are scarce.” However, this is not the maximum score: 24% of Swedish respondents in that survey explicitly indicated a nationalist preference in hiring decisions. Nevertheless, this was a low level of parochialism by global standards. The corresponding percentages for pure meritocracy over nationalist hiring preferences in the late 1990s were, for example, 31% in the United States, 12% in China, and one percent in Brazil.27 The most suitable questions for assessing relative cultural individualism will likely change over time. In earlier eras, it may have been more informative to ask whether it is acceptable for a son to have a different occupation than his father or whether love marriages are legitimate. The goalposts for high relative individualism are likely to change with economic development. Still, it is my contention in this book that cultural individualism is conducive to economic development, particularly in the Creative Society. Political individualism refers to formal institutions that protect individual property rights, including use, income, transfer, and exclusion rights. The empirical evidence suggests that institutions associated with the rule of law are foundational. The high correlations between the International Property Rights Index and various measures of creative outcomes were not coincidental (see Chapter 4). Other rules and regulations, such as tax rates, only become important differentiating factors once a society has attained an acceptable legal system. Such factors thus come to the fore within polities that share a legal system. Hence, we can observe migration flows in the direction of subnational jurisdictions with less interventionist

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regional and local governments. The institutions of less interventionist subnational states, provinces, or cantons such as, say, New Hampshire, Alberta, or Zug have attracted people and capital at the expense of heavy-handed entities such as New York, Québec, or Neuchâtel. In this chapter, I have also argued that certain policies have become more important as drivers of competitiveness than during previous eras, particularly political decentralization, deregulation of education, and liberalization of immigration laws. A large corpus of empirical findings shows that creative activities cluster in cities due to agglomeration economies, particularly the knowledge spillovers that tend to occur where large numbers of people congregate. Studies of urban scaling show that while the scaling relation for employment is close to 1.00 (a relation of 1.00 implies the same per capita employment regardless of population size), the corresponding estimates for creativity-related outcomes imply increasing returns to scale: they are 1.15 for “supercreative jobs,” 1.19 for R&D employment, and as high as 1.27 for new patents.28 We should therefore expect the further growth of large metropolitan areas as a natural consequence of development in the Creative Society. The Creative Society is a new type of society. Large cities embodying cultural and political individualism will likely be the most competitive locations for creative activities. However, there is also continuity as we move from industrialism to the next stage. A seductive but destructive slogan that was and remains the greatest obstacle to development— if people take it seriously—is “from each according to ability, to each according to need.”29 The first half of this slogan ignores the role of incentives, while the second half ignores the subjectivity of knowledge. The entire phrase implies a central decision-making authority that allocates resources to eligible citizens. A more individualistic slogan that could serve as a more fecund guidepost in the Creative Society might be “from each as they choose, to each as they are chosen.”30

Notes 1. An early version of the rules-based international order in Christendom persisted from the fall of the Roman Empire to the rise of the extreme nationalism or socialism associated with Hitler and Lenin in the early twentieth century. 2. World Bank data.

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3. Alauddin and Tisdell (1995) and World Bank data. 4. This analogy was inspired by Rosling et al. (2018). 5. The classic statement is in Marx (1867, 1885, 1894). For a critique of Marx’s historicism, see Popper (1957). 6. Menger (1871). 7. von Böhm-Bawerk (1896). 8. See von Mises (1951) and Hayek (1935). 9. Yugoslavia had somewhat better economic outcomes because it implemented a form of market socialism, with worker cooperatives competing against one another. Twentieth-century China does not practise classic central planning; the most appropriate characterization of its politico-economic system is party-state monopoly capitalism with the party state organized according to Leninist principles. 10. Critical Theory, Critical Legal Studies, and Critical Race Theory are prominent examples of neo-Marxism. According to Butcher and Gonzalez (2020, p. 12), these theories, as applied to conditions in the United States, imply that “America is no longer a country where the individual is the central agent in society, who, because of his very existence possesses individual rights. Instead, membership in the official categories [of race, ethnicity, gender, and sexual orientation] becomes the identity that matters when it comes to rights …, responsibilities, and everything else.” 11. Candolle (1873). 12. Simonton (1975). 13. See Leung and Chiu (2008). Leung and Chiu found that individuals who become more creative due to their exposure to cultural diversity also tend to score high on Openness to Experience according to the Big 5 model. 14. Schaefer and Anastasi (1968). 15. Simonton (1992). 16. Simonton (2004). 17. McCurdy (1960). 18. Simonton (1984). 19. Simonton (2004). 20. Damian and Simonton (2014). 21. Simonton (1997, p. 92). 22. See Becker and Lee LLP (2018) and Anderson (2018). 23. Saxenian (1999).

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24. 25. 26. 27. 28.

Breger et al. (2013). Jewish Virtual Library (2023) and Pew Research Center (2021). Schumpeter (1934). See worldvaluessurvey.org/WVSOnline.jsp. See Bettencourt (2013). The scaling estimates refer to metropolitan statistical areas in the United States from 1987 to 2002. 29. Marx (1875/1938, p. 21). 30. This slogan is from Nozick (1974, p. 160).

References Alauddin, M., & Tisdell, C. (1995). Labor absorption and agricultural development: Bangladesh’s experience and predicament. World Development, 23(2), 281–297. https://doi.org/10.1016/0305-750X(94)00117-H Anderson, S. (2018, October 25). 55% of America’s billion-dollar startups have an immigrant founder. Forbes. https://www.forbes.com/sites/stuartand erson/2018/10/25/55-of-americas-billion-dollar-startups-have-immigrantfounder/?sh=376da6b748ee Becker & Lee LLP (2018). 52% of startups in Silicon Valley founded by at least one immigrant. Becker & Lee LLP. https://www.blimmigration.com/52-sta rtups-silicon-valley-founded-least-one-immigrant/ Bettencourt, L. M. A. (2013). The origins of scaling in cities. Science, 340(6139), 1438–1441. https://doi.org/10.1126/science.1235823 Breger, S., Epstein, N., Kandil, C. Y., Levin, S., & Schwartz, A. E. (2013, May 21). Moment talks with artists, scientists and scholars to illuminate the source of human creativity. Moment Magazine. https://momentmag.com/sympos ium-the-origins-of-jewish-creativity/ Butcher, J., & Gonzalez, M. (2020). Critical race theory, the new intolerance, and its grip on America. The Heritage Foundation. https://www.heritage. org/sites/default/files/2020-12/BG3567.pdf Candolle, A. de (1873). Histoire des sciences et des savants depuis deux siècles. Georg. Damian, R. I., & Simonton, D. K. (2014). Diversifying experiences in the development of genius and their impact on creative cognition. In D. K. Simonton (Ed.), The Wiley handbook of genius (pp. 375–393). Wiley. https://doi.org/ 10.1002/9781118367377.ch18 Hayek, F. A. (Ed.) (1935). Collectivist economic planning. Routledge.

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Jewish Virtual Library. (2023). Jewish Nobel Prize Laureates (1901–2020). American-Israeli Cooperative Enterprise. https://www.jewishvirtuallibrary. org/jewish-nobel-prize-laureates Leung, A., & Chiu, C. (2008). Interactive effects of multicultural experiences and openness to experience on creative potential. Creativity Research Journal, 20(4), 376–382. https://doi.org/10.1080/10400410802391371 Marx, K. (1867, 1885, 1894). Das Kapital. Kritik der politischen Oekonomie (3 Vols.). Verlag von Otto Meissner. Marx, K. (1875/1938). Critique of the Gotha program: With appendices by Marx, Engels and Lenin. International Publishers. McCurdy, H. D. (1960). The childhood pattern of genius. Horizon, 2, 33–38. Menger, C. (1871). Grundsätze der Volkswirtschaftslehre. Wilhelm Braumüller. Nozick, R. (1974). Anarchy, state, and utopia. Basic Books. Pew Research Center. (2021). Jewish Americans in 2020. Pew Research Center. https://www.pewresearch.org/religion/2021/05/11/jewish-americ ans-in-2020/ Popper, K. (1957). The poverty of historicism. Beacon Press. Rosling, H., Rosling Rönnlund, A., & Rosling, O. (2018). Factfulness: Ten reasons we’re wrong about the world—And why things are better than you think. Flatiron Books. Saxenian, A. (1999). Silicon Valley’s new immigrant entrepreneurs. Public Policy Institute of California. Schaefer, C., & Anastasi, A. (1968). A biographical inventory for identifying creativity in adolescent boys. Journal of Applied Psychology, 52(1), 42–48. https://doi.org/10.1037/h0025328 Schumpeter, J. A. (1934). The theory of economic development. Harvard University Press. Simonton, D. K. (1975). Sociocultural context of individual creativity: A transhistorical time-series analysis. Journal of Personality and Social Psychology, 32(6), 1119–1133. https://doi.org/10.1037/0022-3514.32.6.1119 Simonton, D. K. (1984). Genius, creativity, and leadership: Historiometric inquiries. Harvard University Press. Simonton, D. K. (1992). The social context of career success and course for 2,026 scientists and inventors. Personality and Social Psychology Bulletin, 18(4), 452–463. https://doi.org/10.1177/0146167292184009 Simonton, D. K. (1997). Foreign influence and national achievement: The impact of open milieus on Japanese civilization. Journal of Personality and Social Psychology, 72(1), 86–94. https://doi.org/10.1037/0022-3514.72. 1.86 Simonton, D. K. (2004). Creativity in science: Chance, logic, genius, and zeitgeist. Cambridge University Press.

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von Böhm-Bawerk, E. (1896). Zum Abschluss des Marxschen Systems.” In O. von Boenigk (Ed.), Staatswissenschaftlische Arbeiten: Festgaben für Karl Knaus zur fünfundsiebzigsten Wiederkehr seines Geburtstages (pp. 87–205). O. Haering. https://www.marxists.org/deutsch/referenz/boehm/1896/xx/ index.htm von Mises, L. (1951). Socialism: An economic and sociological analysis. Yale University Press.

Afterword

A long-standing interest in political individualism, which is my preferred term for a type of liberalism that focuses on protecting the autonomy and dignity of each individual, was something I had long wanted to explore in my writings. However, my experience teaching an MBA course in crosscultural management from 2019 onwards had made me curious about conceptualizations of cultural values such as those associated with Geert Hofstede or Ronald Inglehart. After spending time reading some of the literature on individualism and other cultural constructs, I was keen to explore the connections between the political and cultural spheres of life. The transition from industrialism to the Creative Society is something I have written on extensively in the past, for example in Time, Space and Capital (Andersson & Andersson, 2017) and in a number of journal articles (e.g., Andersson & Andersson, 2008, 2019). The main influence on my thinking as regards such transitions between different development stages has been my father and frequent co-author, Åke E. Andersson, who pioneered creativity-based approaches to regional development with a series of books and articles in the 1980s (e.g., Andersson, 1985a; 1985b). In the summer of 2021, I visited him at his home in Falkenberg, Sweden, and he was enthusiastic about the prospect of contributing to a book on the future of the Creative Society. A starting point would be “the seven creative functions” of the human mind, which he had first written about in Swedish in the 1980s (Andersson, 1985a). Sadly, he © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0

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was in bad health, and passed away after a stroke in August, 2021. Åke co-authored Chapter 2, which in part is based on his earlier writings in Swedish and English (see Andersson, 1985a; Andersson & Andersson, 2017). I dedicate this book to the memory of my father. Thanks are due to a number of people with whom I had interesting discussions or who provided valuable comments, especially regarding classical and other types of liberalism, cultural evolution, and theories of entrepreneurship. Frequent discussions with the editor of this book series, Leslie Marsh, and with Gus diZerega and Charles Ramey deepened my understanding of political philosophy and multidisciplinary approaches to spontaneous orders. I am particularly grateful to Marek Hudik and Lawrence Wai-Chung Lai. Marek commented in detail, thereby allowing me to benefit from his unusually deep knowledge of the history of economic thought. Apart from his urban planning expertise, Lawrence is also an expert on the history of both China and the Roman Catholic Church. His detailed comments on several chapters were constructive and helpful. Alfian Banjaransari, Peter Boettke, Dieter Bögenhold, and Laurent Dobuzinskis also read and commented on selected chapters. Sections 3.6 and 3.7 in Chapter 3 present the same ideas as two earlier journal articles (Andersson, 2017; Andersson et al., 2022). I have had the privilege of interacting with students from all six continents in my role as a teacher of MBA courses in cross-cultural management and international trade at National Sun Yat-sen University. Discussions with students about the topics in this book often resulted in new insights into cultural values and entrepreneurial practices in different parts of the world. In addition, I presented some of the chapters as a participant in the Innovation Summit Southeast Asia 2023 in Kuala Lumpur, Malaysia and as a guest lecturer at four universities in Taiwan: National Taiwan University, National Tsinghua University, the National Yunlin University of Science and Technology, and Taipei Tech. The National Science and Technology Council (Taiwan) gave me financial support for writing this book. National Sun Yat-sen University in Kaohsiung and my Taiwanese family in Tainan provided me with a supportive environment that enabled me to focus on reading and writing for a protracted period. Thank you.

Appendix

See Table A.1.

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0

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APPENDIX

Table A.1 Overall Individualism Index (OII),1 early twenty-first century, 100 countries (United States = 100) Q1

Q2

Q3

Q4

Country

Index Country

Index Country

Index Country

Index

Sweden Denmark Netherlands Norway Finland Switzerland Luxembourg New Zealand Australia Iceland Germany Canada Czech Republic France United Kingdom Slovenia Belgium United States Austria

134 132 119 119 116 115 113 113

Portugal Lithuania Slovakia Taiwan Bulgaria Ireland Croatia Hong Kong

91 89 89 88 87 87 86 85

Argentina Moldova Malta Peru Belarus Ukraine Brazil South Africa

70 68 68 66 66 63 61 60

Azerbaijan Mali Rwanda Uganda China Ethiopia Tanzania Jordan

45 45 43 42 41 41 39 39

111 110 107 106 106

Greece South Korea Romania N. Cyprus Cyprus

85 83 82 82 81

Trinidad Mexico Lebanon Russia Ecuador

60 59 58 57 56

Vietnam Turkey Nigeria Tunisia Qatar

38 37 37 36 30

105 103

Hungary Albania

81 79

Zambia Philippines

55 53

Zimbabwe Morocco

29 29

102 101 100

Chile Serbia Montenegro

77 75 75

Kyrgyzstan Malaysia Thailand

53 53 53

Pakistan Bangladesh Algeria

28 26 23

100

N.

75

Kazakhstan

53

Saudi Arabia 23

99 96 96 96 94 92

Macedonia Armenia Singapore Poland Georgia Bosnia Dom. Rep.

75 74 74 72 72 70

Ghana Colombia Uzbekistan Burkina Faso India Indonesia

52 52 51 49 47 45

Libya Iraq Iran Venezuela Egypt Yemen

Estonia Japan Spain Latvia Italy Uruguay

16 15 15 9 8 6

Sources Collectivism-Individualism (Beugelsdijk & Welzel, 2018b) and the Human Freedom Index (Vásquez et al., 2021)

1 Both constituent indices have been coded with the same range of values (0–100), and each has a weighting of 50%. For Collectivism-Individualism, the extreme cases are Jordan (0) and Sweden (100), while for the Human Freedom Index they are Venezuela (0) and Switzerland (100).

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Author Index

A Akaliyski, P., 103 Alauddin, M., 152 Alexander, A.C., 104 Amabile, T., 40, 41, 43, 70, 102 Anastasi, A., 152 Anderson, S., 152 Andersson, Å.E., 15, 16, 38, 65, 102, 157 Andersson, D.E., 15, 16, 38, 65, 102, 157 Arif, I., 127, 135 Asch, S.E., 74, 102

B Bacolod, M., 15 Bahrami-Rad, D., 102 Barzel, Y., 54, 65 Batarags, L., 66 Beauchamps, J., 102 Bell, D., 15 Berman, H.J., 134

Berman, J.A., 134 Bernstein, L., 28–30, 43 Bettencourt, L.M.A., 153 Beugelsdijk, S., 15, 82, 84–88, 94–97, 100, 103, 104, 160 Blum, B.S., 15 Bögenhold, D., 158 Bond, M.H., 103 Bornmann, L., 15 Botticini, M., 104 Braudel, F., 134 Breger, S., 153 Brooks, D., 148 Buchanan, J.M., 118, 135 Butcher, J., 152 Butos, W., 65 Bylund, P.L., 65

C Candolle, A. de, 144, 152 Carlsson, I., 43 Carrión-Tavárez, Á., 135

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0

173

174

AUTHOR INDEX

Cazzolla Gatti, R., 66 Chiu, C., 152 Chydenius, A., 113, 114, 134 Coase, R.H., 11, 52, 65 Commandino, F., 43 Cosgel, M.M., 65 D Damian, R.I., 43, 152 Delhey, J., 104 Devereaux, A., 66 Diamond, J., 102 diZerega, G., 115, 134, 158 Dutt, P., 103 E Earl, P.E., 53, 65 Eckstein, Z., 104 Edwards, J., 134 Epstein, N., 153 Eskelson, T.C., 104 Evans, M.A., 65 F Fath, B.D., 66 Find, S., 135 Fischer, R., 104 Fisher, G.H., 31 Fisman, R., 102 Flaherty, A.W., 43 Florida, R., 6, 7, 15, 77, 89, 90, 94, 96, 99, 103, 104, 122–124, 128, 135 Føllesdal, A., 135 Foss, K., 65 Foss, N.J., 65 Fukuyama, F., 15 G Gioia, T., 35, 43

Gonzalez-Barrera, A., 102 Gonzalez, M., 152 Gutenberg, J., 22, 42

H Hårsman, B., 16 Hayek, F.A., 50, 59, 61, 62, 65, 66, 71, 102, 115, 118, 135, 142, 152 Henrich, J., 72–75, 77, 81, 88, 89, 97, 101, 102, 104 Herriott, D., 66 Hill, P.J., 110, 134 Hoffer, A., 135 Hofstadter, D.R., 27, 32, 33, 43 Hofstede, G., 74, 76–79, 81–84, 87, 100, 102–104, 157 Hofstede, G.-J., 102 Holcombe, R., 135 Hollingsworth, E.J., 43 Hollingsworth, J.R., 43 Holmberg, I., 103 Hordijk, W., 66 Hudik, M., 51, 65, 158 Huntington, S.P., 16

I Ikeda, S., 43 Inglehart, R., 6, 7, 15, 58, 65, 77–79, 82, 83, 87, 103, 157

J Jacobs, J., 12, 16, 122, 135 Jandosova, J., 103 Johansson, B., 15 Jones, E., 119, 135

K Kandil, C.Y., 153

AUTHOR INDEX

Karabegovi´c, A., 135 Kauffman, S., 66 Khassenbekov, Y., 103 Kirkman, B.L., 103 Kirzner, I.M., 48, 56, 64 Klaesson, J., 15 Klasen, S., 104 Klein, P.G., 65 Klein, S.K., 65 Knight, F.H., 48, 53, 54, 56, 64, 65 Knowles, D., 112, 134 Koellinger, P., 66 Koestler, A., 22, 42 Koppl, R., 59, 60, 64–66 Kuhn, T.S., 16 L Lachmann, L.M., 64 Lacombe, D., 135 Langlois, R.N., 65 Leo XIII, 135 Le, T.H., 16 Leung, A., 152 Levin, S., 153 Levy-Carciente, S., 135, 136 Leydesdorff, L., 15 Locke, J., 108, 134 Lopez, G., 102 Lopez, M.H., 102 M Mäntylä, T., 43 Mariana, J. de, 113, 134 Marshall, A., 16, 122, 135 Martin, T.C., 104 Marx, K., 112, 141, 142, 152, 153 Matthiessen, C.W., 135 McCurdy, H.D., 152 McMahon, F., 16, 135 Menger, C., 142, 152 Miguel, E., 102

Minkov, M., 102, 103 Minniti, M., 66 Montanari, L., 135, 136 Morales, O., 103 Mudd, B., 103 Munck, T., 104 Murphy, R., 16 N Newton, K., 104 Niedderer, K., 65 Nilsson, L.-G., 27, 43 Nimkulrat, N., 65 North, D.C., 15, 16 Nozick, R., 153 O Ogilvie, S., 134 Olson, M.J., Jr, 116, 134, 135 O’Toole, R., 135 P Pappus of Alexandria, 24 Pejovich, S., 50, 65 Peregoy, P.L., 30, 43 Pirenne, H., 112, 134 Pius XI, 129, 135 Polanyi, M., 71, 102, 115 Pólya, G., 24, 26, 27, 43 Popper, K., 152 Putnam, R.D., 76, 103 R Redding, S.G., 15 Rosling, H., 152 Rosling, O., 152 Rosling Rönnlund, A., 152 Rothenberg, A., 40, 43 Ruger, W.P., 135 Russell, B., 32, 43

175

176

AUTHOR INDEX

S Sanchez, C., 103 Sandberg, K., 43 Sarravia de la Calle, L., 112, 134 Saxenian, A., 96, 104, 152 Schachner, M., 103 Schade, C., 66 Schaefer, C., 152 Schulz, J., 102–104 Schumpeter, J.A., 3, 15, 43, 48, 56, 64, 149, 153 Schwartz, A.E., 153 Schwarz, A.W., 135 Shakespeare, W., 28, 43 Shcherback, A., 104 Silva, M.S., 104 Silverman, A., 43 Simon, H.A., 52, 65 Simonton, D.K., 43, 145, 147, 152 Sims, M.M., 120, 121, 135 Sirico, R.A., 130, 131, 135 Smith, A., 114, 134 Smith, G.J.W., 39, 43, 114 Sorens, J., 135 Stansel, D., 135 Steel, P., 103 Stewart, I., 30, 43 Strange, W.C., 15 Sutter Schneider, G., 16

T Taras, V., 103 Taylor, J.A., 15, 121, 124, 135

Thurston, R.H., 43 Tiebout, C., 129, 135 Tisdell, C., 152 Torra, J., 135 Triandis, H.C., 70, 71, 102 Tullock, G., 118, 135 U Ulanowicz, R.E., 66 V Valverde, S., 66 Van de Vliert, E., 104 Vásquez, I., 16, 135, 136, 160 von, Böhm-Bawerk, E., 142, 152 von Mises, L., 142, 152 W Wagner, C., 15 Weber, A., 26, 43 Welzel, C., 15, 78, 79, 82, 84–88, 94–97, 100, 103, 104, 160 Whitehead, A.N., 32, 43 Whitman, D.G., 59, 60, 64, 65 Y Yang, X., 16 Z Zelizer, V.A., 65

Subject Index

A Agglomeration economies, 11, 16, 122–126, 132, 133, 140, 144, 151 Ambiguity, 30, 31, 35 Anglophone, 13, 84, 94, 101

B Bologna, 111 University of, 111, 132 Buddhism, 143

C Central planning, 49, 50, 64, 142, 143, 152 China, 3, 6, 80, 86 Christianity Calvinist, 129 Eastern Church, 74, 110 Lutheran, 113, 129 Protestantism, 89

Roman Catholicism, 13, 73, 75, 80, 84, 101, 111, 140, 158 Western Church, 72, 74, 75, 110, 111, 113, 140 Cohort replacement, 78, 82, 86 Collectivism cultural collectivism, 70 political collectivism, 128, 143 Western, 141, 143 Competence location-specific, 21, 22 sector-specific, 21, 22 tool-specific, 21, 22 Competition, 14, 21, 59, 109, 114, 118, 124, 129, 131 interjurisdictional, 109, 118, 119 market, 59 Confucianism, 143 Constraint, 34, 51, 52, 57, 59, 65, 66, 120, 124, 145 budget, 51, 61 system, 48, 49, 58–61, 64, 117, 119, 122–125, 130, 144

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. E. Andersson, The Future of the Post-industrial Society, Palgrave Studies in Classical Liberalism, https://doi.org/10.1007/978-3-031-46050-0

177

178

SUBJECT INDEX

Creative society, 2, 3, 5, 6, 10, 11, 13, 14, 20, 23, 56, 58, 70, 89, 90, 94, 98, 99, 101, 132, 144, 145, 149–151, 157 D Deep structure, 28, 29 Democracy democratic, 14, 16, 72, 115, 116, 119, 123 liberal, 115 polycentric, 117, 120, 123–125, 130, 131 unitary, 108, 115 Diversifying experiences, 42, 145, 146, 148 Diversity, 12, 30, 41, 57, 82, 122, 128, 130, 145, 146, 152 E East Asia, 79, 80 Economics Austrian, 142 behavioural, 53 institutional, 11, 50 Marxist, 142 mercantilism, 141 protectionism, 3, 143 Enlightenment, 113 Entrepreneurship, 11, 48, 49, 51, 54–56, 58, 63–65, 131, 133, 140, 143, 144, 158 arbitrage, 48 innovative, 63 Equilibrium, 34–37, 48, 49, 56, 59–61 disequilibrium, 35 Europe Eastern, 79, 142 European Core, 99 Medieval, 110, 119, 131

Western, 3, 5, 6, 11, 73, 84, 86, 89, 96, 108, 110, 112

F Five Eyes , 99, 100 France, 9, 73, 75, 85, 89, 99, 141, 160 Freedom index economic, 126, 127 human, 11, 85, 94, 97, 98, 128, 133, 160 overall, 123 Freedom of speech, 51, 78, 80, 114

G Geneva, 133 Germany, 9, 73, 80, 85, 99, 100, 142, 160 Globalization, 6, 57, 58, 89, 91, 94, 96, 98, 99 Gregorian Reform, 111

H Heuristics, 24, 26 Hong Kong, 84, 85, 121, 160 Houston, 127, 128, 133

I India, 6, 85, 119, 148, 160 Individual autonomous, 149 creative, 12, 19, 39, 40, 42, 49, 64, 144, 148 entrepreneurial, 49, 64 Individualism cultural, 2, 13, 70–72, 75–77, 85, 86, 89, 94, 98, 99, 101, 104, 108, 120, 132, 140, 143, 150 methodological, 141

SUBJECT INDEX

political, 2, 3, 76, 85, 94, 97, 99, 102, 108, 109, 114, 120, 121, 123, 128, 129, 131–133, 141, 143, 150, 151, 157 Infrastructure, 4, 6, 9, 11, 13, 76, 102, 118, 149 hard, 4 soft, 13, 76 In-group, 70, 73, 75, 78, 81, 82, 84, 98, 101 Innovation entrepreneurial, 10, 56, 64, 144 product, 57, 58 Institutions, 2, 4, 6, 9–11, 13, 14, 59–61, 63, 64, 66, 75, 77, 83, 98, 99, 102, 109, 119–121, 126, 132, 133, 140, 149–151 formal, 4, 9, 11, 58, 64, 95–97, 102, 145, 150 informal, 4 Islam, 143

J Janusian thinking, 40 Japan, 9, 13, 75, 76, 84–86, 102, 140, 147, 160 Judeo-Christian, 108, 131

K Knowledge, 3–8, 11–13, 20–23, 25, 28, 30, 36, 41, 42, 48–51, 59, 61, 62, 64, 71, 77, 84, 89, 94, 101, 115, 116, 122, 131, 132, 142, 146, 149, 151, 158 information and, 4, 20, 49, 64 tacit, 71

L Latin America, 79, 80, 121 Law

179

canon, 111 civil, 111, 120, 132 common, 4, 120, 121, 132 criminal, 120 ecclesiastical, 111 Justinian, 111 religion and, 109 rule by, 121, 143 rule of, 61, 63, 92, 93, 97, 98, 108, 119–121, 140, 142, 143, 150 secular, 111 Liberalism classical, 103, 115, 158 libertarian, 3 London, 12, 113, 133, 143

M Marriage and Family Policy (MFP), 72, 73, 75, 76, 88, 89, 100, 101 Marxism, 141–143 Marxism-Leninism, 109 Marxist socialism, 142 Memory, 27, 28, 158 Middle Ages late, 112, 131, 140 Migration, 101, 121, 122, 125–127, 133, 140, 144, 147, 148, 150 domestic, 127 international, 121

N Nationalism, 109, 130, 151 New York, 2, 4, 10, 12, 13, 124, 133, 143, 148, 151 Nordics Plus Five, 99

P Paradox, 32–34, 42

180

SUBJECT INDEX

R Rationality, 54 Reformation, 75, 88, 89, 101 Regulation, 9, 11, 34, 93, 97, 122, 124, 127, 133, 144, 150 Research & development (R&D), 3, 8 Revolution industrial, 5, 66, 77, 140 logistical, 3, 4, 6, 13 scientific, 113 Rights, 62, 108, 110, 112, 114, 115, 131, 150, 152 human, 121, 131 property, 2, 10, 54, 55, 62, 75, 77, 88, 92, 93, 95, 108, 109, 114, 115, 121, 123, 131, 150 S Scholasticism, 111 Science, 6–14, 29, 30, 32–35, 41, 89, 94, 97–99, 101, 113, 133, 144, 145, 147 Socialism, 109, 130, 142, 143, 151, 152 Spontaneous order, 108, 115, 117, 140, 158 State, 9, 15, 24–26, 29, 35, 36, 48, 49, 54, 58, 59, 61, 63, 71, 73, 79, 80, 103, 108, 114, 121–128, 130, 134, 135, 142, 143, 145, 152 Subsidiarity, 109, 128–131, 134, 146 Surprise, 29, 30, 35, 49, 103 Sweden, 9, 11, 85, 89, 101, 103, 119, 150, 157, 160 Switzerland, 8, 9, 11, 73, 75, 84, 85, 91, 94, 99, 100, 133, 144, 160 T Toleration, 77

Trust, 10, 11, 14, 73, 74, 86, 87, 91, 95–99, 103, 104

U Uncertainty fundamental, 36, 42, 49 Knightian, 48, 54 risk and, 54 United Kingdom (UK), 9, 11, 50, 85, 94, 99, 160 United States (US), 8–11, 13, 80, 82, 84, 85, 92, 99, 121, 126, 128, 133, 140, 147, 148, 150, 152, 153, 160 interstate migration, 9, 121, 133, 140 Utility, 51–54 satisficing, 54 utility maximization, 51

V Values collectivist, 81 emancipative, 78–80 individualistic, 9, 71 materialist, 4, 6, 7, 78 postmaterialist, 7, 78, 86 postmodern, 7 source of, 70, 149

W World Values Survey (WVS), 7, 11, 15, 74, 78, 80, 83, 87, 91, 103, 104

Z Zurich, 94, 133