Free Riding on the Innovation That Emerges from America

It's no accident that the lion's share of innovation, world-changing entrepreneurship, patents, pharmaceutical drugs, etc. today emerge from the United States. In America are a unique set of factors that do not exist elsewhere. It assimilates immigrants better than anywhere. There is a relatively low regulatory burden on business. Lower marginal tax rates. More flexible bankruptcy laws. There are flexible labor laws, allowing entrepreneurs to hire and fire at will. There's a culture of risk taking and entrepreneurship. Smaller government, more free markets, more private sector. The result: Google, Pfizer, Ford, Apple, many others.

The American model that produces such innovation does come with significant costs. It is a more cutthroat society. There's more inequality than in Europe. There are bigger winners and bigger losers. There is not as much a safety net if you're out of work or are born with a bad number. It's easier to lose your job. There's a workaholic culture. An obsession with success and self-improvement. Perhaps lower levels of happiness.

For these reasons, I don't blame Europeans who rather enjoy the French way of life and choose to live, say, in the beautiful Loire Valley. And not just that: the Frenchman in Loire Valley gets to use Google! Dell! Microsoft!

In the age of ideas and internet, every individual can take advantage of innovations that originate from anywhere. Ideas know no boundaries.

Just as European nation-states free ride on the American defense shield, allowing them to invest less in military defense than they otherwise would, so too can European individuals free ride on the entrepreneurship that emerges from the American model.

So I'm confused when Europeans criticize the American model and hope for its abolition or transformation into a European-like welfare state. The rational, self-interested view of a European who loves the European model should be, I live in Europe, enjoy the fruits of a stronger welfare state, see only low levels of inequality, access widely available healthcare, enjoy pretty good free universities, AND can use all the innovation that comes out of America.

The varying models of liberal democracies around the world — for example, the different ways to organize the interplay between government and the private sector — serve a valuable experimental purpose. Europeans are lucky to be able to sample from their own menu, and America's. As consumers, they get the best of both.

Bottom Line: If you're a European citizen who enjoys and supports the European economic / social model, you should still be supporting the American model as it stands because it produces lots of innovation you benefit from. If the American model becomes the European model, innovation decreases, and everybody loses.

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Counter-argument 1: The American model is increasingly resembling the European model and there's no evidence in a slowdown of innovation. However, the trend is a mixed bag. The overall size of government has increased and the most recent healthcare bill is European-esque. But the Clinton welfare reform in '94 or the Bush tax rates the last 10 years are still distinctly "American model" policies.

Counter-argument 2: It's not the "American model" of economic policies that allows innovation to flourish, it is rather its entrepreneurial culture, a culture that operates somewhat orthogonally to policy.

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