Regarding my “brief points” post the other night, I had this comment from Boonton to which I promised a response, 

Not quite following your safety net thoughts. Are you saying that Europe innovations more than the US and that’s because the US has a bigger safety net? I’m not really seeing how that is. Or are you saying that the US has a smaller safety net and innovates more than Europe? I think we should differentiate between types of safety nets. Compare unemployment in the US with labor’s relative dominance in Europe. In the US you get fired you get to collect unemployment (usually). In Europe its very hard to get fired. I would argue that the latter type of safety net probably squashes more innovation since once you get a job you’re quite comfortable and businesses don’t want to risk giving someone a job unless they are 100% sure about him. Likewise businesses seek to secure their markets in order to provide for secure employment. Market upstarts and disrupters are hardly welcome in this type of social arrangement.

There are indeed (at least) two types ‘types’ of safety nets at work. One involves companies and employment and the other involves personal safety nets. The EU allows more of both, that is it is harder for companies to fail and for individuals to lose their jobs and at the same time social personal safety nets are much more prevalent, e.g., unemployment, social security, and health care.  There are two points to be made here. One is that in the US as compared to the EU social and cultural differences that encourage the lessening of corporate safety nets are the same impulses that minimize the personal nets as well. The second point to be mad is that the greater levels of productivity and innovation in the US as compared to the EU is supported by the shallower safety nets. The underlying lesson for those (primarily on the left) who keep pushing to increase our personal and corporate safety nets are trying to sail the strait between Scylla and Charybdis. Scylla being the risk (or inevitability) of lower productivity and Charybdis would be the gamble that promises made cannot be sustained by future productivity and growth. The EU has alas it seems run into both. In the following we will concentrate on the arguments and logic over the second, the personal safety net.

The argument of why the two nets are connected is implicitly contained in the argument for why a lack of safety net leads to higher productivity.  In graduate school the advisor of a friend of mine once remarked when asked what makes a good experimentalist, “The trick is not avoiding mistakes, but making your mistakes quickly.” The point being is that innovation in the US is less due to some amazing ability of Americans to innovate but instead that banks don’t keep failing businesses afloat and that companies are don’t keep making the mistake of continuing employment of poor employees as willingly. Yet that doesn’t explain another datum. In Fault Lines, Mr Rajan points out that while the EU and the US publish roughly the same number of academic papers, those published in the US are cited far much more. The academic environments are quite similar, but the individuals in those academic environments are by and large products of their respective cultures. 

Consider two very different indigenous cultures from different environments and the individuals which are products of the same as an illustrative example. Consider those people who are products of a tropical Tahitian paradise and those who are dwell above the arctic circle. Those individuals from an arctic environment must spend a good deal of effort at sustaining subsistence. Diligence, care, and attention to small environmental details are required to acquire food and avoid inclement weather. Conversely little effort is required in a tropical paradise to obtain the minimum required for sustenance. If one were to suggest some metric for measuring diligence, industry, and the ability to endure hardships. Let’s call this measure, as a leading phrase, “virtue”. Then plot our measure of (this) virtue the two societies there might be no (or at best very minimal) overlap. That is to say, the most industrious paradise dweller likely has less virtue than the least virtuous arctic representative. Personal virtue is in a large part a product of environment. 

If this argument doesn’t convince, consider the English succession (and I’d be willing to bet that this is mirrored in the history of ruling families in nations and regions that I don’t know as intimately). Time after time, a king (a “good king”) would rise to power, such as a Henry II. Raised in a school of hard knocks he was a tough and effective ruler. His children had “all the advantages”, which as it turned out ended up to be not quite so advantageous. The point is hardships teach us. Failure is instructive and a motivator. Comfort and the absence of tests leaves one less likely to push. 

The point is that the difference in industry and productivity of the respective academic environments might perhaps be linked to a cultural requirement of a higher level of the same virtue noted above in the US because of its smaller personal safety net.