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.


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.

Culture Matters to Entrepreneurship

Culture Matters

All through childhood and adolescence you are a sponge absorbing cultural stimuli. From local billboard advertisements, to school curriculum stylized to your country; from conversations with your parents about the ways of the world to the thousands of local customs that dictate proper behavior in restaurants, queues, airports, homes, and driving on the road.

Culture matters. That’s the title of a compelling set of essays on whether some cultures are better at creating freedom, prosperity, and justice. It is politically incorrect to chalk up massive societal failures in places like Africa to culture — besides, the situation is always more complex than a single factor — but it seems safe to assert that the culture you come up in affects how you think.

In Robin Hanson’s post in praise of international travel, he writes:

our beliefs are severely distorted by our culture and training… We all know that we would have been inclined toward different beliefs had we been raised in different cultures or disciplines. We see consistent differences between folks trained in West vs. East, science vs. humanities, economics vs. sociology, and in different schools of thought of most any discipline.

By the time you’re 18 years-old, I believe a certain vision about how the world works glows in your head. You carry many assumptions. It’s possible to change these assumptions in adulthood — easier now thanks to the knows-no-physical-boundaries internet — but it is still hard, and most people would rather not expend the energy to develop a set of values about the world that are independent from their milieu defaults.

Governments Trying to Promote Entrepreneurship

Now pivot to this: virtually every county’s government is trying to promote entrepreneurship, create a mini-Silicon Valley, “become an IT island,” become a hub for innovation, etc. It makes sense: the data are clear that entrepreneurship is the engine of economic growth.

How should a government do it? As Amar Bhide says in From Poverty to Prosperity, the most important thing is for the basic government functions to work: property rights, provision of roads, water, electricity, etc.

The most common next step is for government to make starting a business as easy as possible, minimize tax and regulatory burdens on business, offer tax incentives, etc. These are all good things and are well within a government’s purview.

Chile has done both these things. By taking care of basic government functions, no small task, it has become a better place to be an entrepreneur than most other developing countries. You need only look at its dysfunctional, corrupt neighbor of Argentina to understand that when a government can’t take care of its own basic functions, nothing else matters. And by offering various tax breaks and incentives and helping VCs get new early-stage funds off the ground, Chile’s government carrots have made many entrepreneurs I know take a careful look.

Chile is 100x better place than Argentina to be an entrepreneur. But it’s still far away from rivaling the U.S. as an environment for entrepreneurs. Because here’s what it lacks more than anything: entrepreneurial culture. And no government program or law can change this overnight.

Lack of Entrepreneurial Culture

Here’s a seemingly trivial example but I think it’s telling: In Chile as in many parts of Europe and Latin America (and maybe elsewhere), kids usually live with their parents until into their late 20’s or until they are married. Think about the attitude that probably accompanies this custom: greater dependence and deference to the central authority figure you’ve had in your life. More significantly, in Chile as in almost everywhere except young America, they have a long history, and with history comes psychological burdens. Being conquered and then re-conquering. Living through a military dictator. This stuff seems to affect everything from a person’s propensity to trust strangers to their willingness to challenge the status quo. It’s harder to invent the future if you’re still debating and processing the past.

In Northern Cyprus government officials told me about the various incentives they were going to roll out to attract entrepreneurs and how they were going to have conferences to encourage young people to think about a career in IT. And I’m sitting there sipping my tea thinking, “How the fuck are you going to get people to want to be entrepreneurs when half your citizens work for the government and get off work at 3 o’clock in the afternoon and the other half feel like they deserve more handouts from Turkey?” It’s not an incentive problem; it’s a mindset problem.

I get emails from Koreans who have read the Korean translation of my book and they tell me that they want to start a company but if they do their family will think they are a failure.

This is the story in so many parts of the world. (China, as always, is complicated — they certainly today have a culture of hustling. Beyond that I can’t say.)

Why I’m Bullish on the U.S.

The single best reason to be long on the future of the U.S. is it has a culture of entrepreneurship. It was born this way. Contra Umair Haque — who thinks “it was the American way of life that ate America. And America’s real bankruptcy is a bankruptcy of the soul” — in fact it’s the American way of life and the American soul that are one of the redeeming and enduring attributes of the country’s DNA in this time of uncertainty. The free wheeling spirit, the self-reliance, the fearlessness, the celebration of youth, the permanent fresh start: these things remain, independent of the meltdown of our governance system.

Can You Change Culture?

Culture is really hard to change. It takes generations of time. There are a million levers you could possibly push and it takes way longer than a politician’s term to see any effects. People have pride in their habits.

So what do you do? I think you try everything, and you also try this: import people from countries who have the cultural attitudes you’re looking to cultivate in your country. Use them as implants. I know the Japanese do this with American consultants: they ship in “crazy Americans” to sit in on business meetings and blow up the enormously inefficient customs that still dominate Japanese business. For example, get right to the point instead of flattering the seniority of all the senior people in the room. Integrate the implants with the youth and hope that the power of example will cause more people to think different.

Inequality and Perceived Social Mobility

The leading presidential candidate in Chile, Sebastian Piñera, has proposed increasing the money the government gives to poor families to pay for school tuition. Like school vouchers in the U.S.

When this issue came up in a recent lecture I attended on Chilean politics, there was audible disapproval from people in the room. A French woman said that such policies create inequality in the education market and lead to greater income inequality in society at large. A Swiss and German nodded vigorously as the French woman spoke.

Europeans tend to focus on inequality. Latin Americans, too. Inequality is one of the top issues being debated right now in the Chilean election season.

Americans, on the other hand, by and large are not very concerned with inequality. Sure, it comes up and people talk about narrowing the gap. But deep down I don't think most policy makers and pundits think it's a core problem in a society. We continue to glorify the rich to a remarkable extent.

Why the contrasting views? It comes down to differing perceptions of how possible it is to go from poor to rich. If you believe there's a high level of social mobility in a society, you're not as bothered by a gap. If you think moving up the ladder is nigh impossible, it is a very big problem indeed, because it means the poor are stuck at the bottom, oftentimes due to rotten luck at birth.

Historically, Latin America has been a place where your last name weighs heavily on your success. "Meritocracy" is not the first word that leaps to mind when thinking about the rich and successful in the region. Europe, too, has a legacy of aristocracy and old money.

The American idea however is about the self-made man; the man who pulls himself up by his bootstraps and in a lifetime goes from very poor to very rich thanks to his own industriousness and imagination. There is a belief held by natives and immigrants alike in Horartio Alger stories. Social mobility in the States is not as great as people think, research suggests, but perception trumps all, right? A national narrative embedded in a culture commands a magnetic pull over everyone.

Bottom Line: How worried you are about inequality is driven in part by how much social mobility you think there is in society. Europeans and Chileans (and probably other Latin Americans) generally worry more than Americans about inequality because they do not perceive their societies as being as meritocratic and as amendable to upward social mobility.

(thanks to Pablo Gonzalez for helping brainstorm this post)


The inequality in Chile is inter-generational. 30-40 year olds are rich, 50-60 year olds are comparatively poor. This is an important distinction. See this paper (in Spanish) by economist Claudio Sapelli for more.

Also, check out Will Wilkinson's self-recommending paper titled Thinking Clearly about Economic Inequality. In the summary he says, "There is little evidence that high levels of income inequality lead down a slippery slope to the destruction of democracy and rule by the rich."

The Ethos of Casualness


America was a start-up created by a dozen or so entrepreneurial people who were rebelling against an aristocratic, overbearing empire. They were scrappy, quick on their feet, smart, hard working as hell, and (mostly) open-minded to whoever could help their improbable cause. Kind of like Silicon Valley start-ups. Except for America's founders the stakes were higher and urgency greater.

When George Washington became the first president of the United States, he rejected regal titles like "His Majesty," taken from the British tradition. Instead he made sure "the titles and trappings were suitably republican and never emulated European royal courts." He said he was to be called "Mr. President."

I believe this relaxation of formalities is a component of Americanism. I'll call it an ethos of casualness. Europe's different. EU passports, for example, list your degrees (Dr., PhD, etc). Or when introducing someone's biography at a European business conference you start with his titles and degrees. I remember the senior journalist Martin Wolf being introduced at the St. Gallen Symposium as first a graduate of LSE, followed by his professional accomplishments. In a start-up environment, by contrast, you don't have time to flatter the status sensibilities of everyone in the room.

To be sure, although America has let go of the Victorian era more than Europe on the whole, there are exceptions. "I don't understand you Americans: you wear jeans to the opera but insist on wearing clothes at the beach." I.e., Europeans are more casual about nudity.


I like casualness. It maximizes commonality instead of difference. When everyone's name appears the same way on a passport, what they have in common — a name and citizenship — is the focus. If jeans and t-shirt are the attire guidelines, everyone can comply; if Italian suits are the standard, not as much. In this way casualness emphasizes similarity by focusing on a common denominator.


My upbringing stressed casualness and affected the way I think.

First, I grew up in the most casual part of America. There's only one restaurant on the entire west coast which requires men to wear coats. New York City, by contrast, has 13 such restaurants. Clothes are just one part of this, but they stand for a lot: in California you might well see Sergey Brin or Steve Jobs wearing jeans at a nice restaurant, as I have, but you would never see Henry Kravis doing the same in New York. California's billionaires blend in.

Second, at my high school we addressed all of the teachers, including the head of school, by their first name. Several teachers had advanced degrees — we still addressed them orally and in writing by their first name. Head of School, janitor, Chair of Science department, freshman student, security guard: Mike, Jason, Nancy, Jim, Kevin. There also was no dress code. I wore sweat pants to school many days and sometimes my teachers did the same.

Third, I had little interaction with the institutions that usually prize formality. People with religious upbringings get steeped in hierarchies, traditions, protocols, history. Not me. I also had little interaction with high culture (cuisine, fashion, or the arts).

The ethos of casualness came from my country, city, school, family and it's had an impact on how I think. It could explain why I'm skeptical of certain formalities. When someone dresses fancily, I sooner suspect he is trying to signal wealth than that he actually likes the clothes. I harbor related skepticism of people who talk about how much they love sushi or fine art.

As I've gotten older I have begun to selectively emphasize formality (and thus difference) in certain dimensions, such as use of language. But these are the selective overlays on a casual base.

Bottom Line: The ethos of casualness is a component of Americanism. Casualness maximizes similarities over differences. I am a product of this culture — I prefer casualness and I harbor skepticism of certain formalities.

(thanks to Steve Dodson, Chris Yeh, and Dave Jilk for helping brainstorm this post)


Last year I wrote about how weak a hold institutional categories have on my identity, and excerpted widely from an excellent essay titled Identity is That Which is Given.

The Great American Roadtrip

Legendary American travel writer Paul Theroux took a roadtrip through his own country and wrote about it beautifully in this month's Smithsonian magazine. Discovering America by car is not exactly virgin territory journalistically speaking — see Steinbeck, Kerouac — but Theroux still manages to refresh our understanding of this beautiful place.

My favorite sentence is, "Listening to music while driving through a lovely landscape is one of life's great mood enhancers" and my favorite paragraph is his last:

A trip abroad, any trip, ends like a movie—the curtain drops and then you're home, shut off. But this was different from any trip I'd ever taken. In the 3,380 miles I'd driven, in all that wonder, there wasn't a moment when I felt I didn't belong; not a day when I didn't rejoice in the knowledge that I was part of this beauty; not a moment of alienation or danger, no roadblocks, no sign of officialdom, never a second of feeling I was somewhere distant—but always the reassurance that I was home, where I belonged, in the most beautiful country I'd ever seen.

That's high praise coming from a man who's spent 40 years traversing the globe. And of course, I agree.

My 2007 roadtrip — Colorado to Boston to San Francisco — taught me that the American west's beauty continues to be underrated by almost everyone, but especially east coast city dwellers and foreigners who've never heard of Utah (the most beautiful state in the union). That driving can be a flow-inducing activity. That assembling the MP3 playlist for a long drive is half the fun. That every male ought to pee off the side of a deserted highway in the middle of nowhere, and every American ought to dine at a trucker's cafe in Nebraska and order the house pie with a side of milk.


Here is a touching video of school children singing "Pictures of You" by The Cure. Here's a surprisingly poignant video of ordinary moments.