November 23, 2012 5:36 pm

Onwards and upwards

In a world without innovation and without expansion, it will be much harder to keep democracy going
An illustration by Shonagh Rae©Shonagh Rae

What do you need to make democracy work in the modern world? That is something many Americans might be asking as they digest the results of the latest $6bn election. From Plato on, there has been no shortage of ideas: an educated population, rule of law and civil society are all key ingredients – and, of course, a reliable system to count votes (ie no hanging chads).

But is another ingredient also required: namely, a healthy pace of economic growth? That is the issue I have been pondering after I attended a debate in Oxford earlier this month with Peter Thiel, the American entrepreneur-turned-investor. In the past decade, Thiel has shot to fame and fortune by creating companies such as PayPal and cannily investing in Facebook. As such, he epitomises the sunnily optimistic, wheatgrass-juice-fuelled culture of Silicon Valley.

But these days Thiel-the-entrepreneur is worried. In particular – and as he wrote in a recent column for the Financial Times, co-authored with Garry Kasparov, the former chess champion – he fears that the pace of innovation in America is slowing down. To be sure, he asserts, the country produced plenty of innovative ideas after the second world war; but in the past 30 years, this creativity has withered, sapped by the financial boom, and the rise of a newly risk-averse culture. “You cannot compare the iPhone 5 with Apollo 5,” he laments. “Innovation has declined.”

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Gillian Tett

Not everyone accepts this gloomy view. On the contrary, during the Oxford debate the American economist Kenneth Rogoff retorted that what has hurt America’s pace of growth was the implosion of the debt bubble – not lack of innovation. And Mark Shuttleworth, another fabulously successful entrepreneur, declared that there was still as much innovation as before – if not more, since “today is an extraordinary time to be a scientist, researcher, explorer, academic and entrepreneur”.

But if you think that Thiel is even half correct, it begs another question: what does this mean for the political culture? For what makes Thiel really concerned about America today is his belief that a world without innovation will also be a place with dramatically slower growth. And without expansion, it will be much harder to keep democracy working, even in America. “Democracy works where voters think that things are getting better,” he argues. “It is an open question whether you can have a democracy in a world with zero sum growth.”

Is this true? Part of me would love to shout “no”. After all, the whole point about democracy is that it is supposed to be capable of making tough decisions in tough times, and formulating trade-offs. If democracy only works in fair weather, then to my mind it is doubtful whether a system should be labelled as a functioning, grown-up “democratic” state at all.

And yet what I find fascinating – and unnerving – about Thiel’s comment is what it may reveal about the underlying political culture in America. For whether you agree with his assertion or not, it does appear – not least from the recent election campaign – that modern American political rhetoric is peculiarly addicted to the presumption of permanent growth.

Those early pioneers founded the country with an optimism that anything could be done, and had precious little sense of resource constraint: if you ran out of land in the east, you just moved west. Ever since then it has almost always been presumed that it is possible to make the economic pie expand, either through conquest, entrepreneurship, immigration – or, more recently, innovation.

This attitude is very different from the cultural vibe seen in a crowded country such as Japan, where there is an overwhelming sense of limitation and constrained resources. And that has a powerful secondary implication: precisely because the Japanese perceive resources as finite, they have developed extensive cultural mechanisms to divide up their economic pie in a manner that maintains social harmony. Sharing pain – and gain – is instinctive.

In America, however, there has hitherto been less cultural imperative to develop ways to share constrained resources. If you think the economic pie will always grow, you do not need to worry as much about how to divide it up. Hence my fascination with Thiel’s point.

Most American politicians continue to insist that their economic pie will grow in the future: it would have been suicidal in the recent election campaign for anyone to mention the word “stagnation” or “zero sum growth”. And for my part, I dearly hope this American political optimism is correct. In theory, a combination of favourable demographics, entrepreneurial zeal and energy resources should indeed give America a growth edge.

But what if Thiel and Kasparov are right about innovation slowing down? Will this strain the political system to breaking point in the years ahead? It is a sobering question, and doubly so in a week when Washington is enmeshed in yet another bout of debilitating gridlock about tackling its debt. It must share out economic pain, in a country where the word is still all but taboo.

gillian.tett@ft.com

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