Umair Haque / Bubblegeneration
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Monday, March 13, 2006


Europe vs Innovation - Counterpoint

I couldn't disagree more with M's post below. It's a good argument, but it misses very real sources of value creation.

In a sense, it's the standard (Milton, not Tom) Friedmanite argument about why Europe "doesn't innovate". Is that really true?

At a simple level, yes. Europe needs structures which create more liquid markets for entrepreneurship, sure. But that's a very small part of the next great economic game, truth be told; and Eurocrats are working to build them, in their own ponderous way.

But to focus solely on entrepreneurship is to miss the bigger picture. I think Europe is poised to be the world's next fountain of innovation; far more so than the US. Here's why.

Europe has two huge capital stocks that no one else in the world does: social and cultural capital. These are the fundamental drivers behind the innovation clusters M talks about

Now, measures like GDP don't capture the value created by these capital stocks because, in Europe, social + cultural capital = creative industries; the goods in these industries are difficult to protect, and so rents are appropriated, most often, by people outside Europe. Europe's challenge, then, is to capture a share of the value it's innovative capacity creates.

Leave aside, for a second, the fact that living in the States is, by any realistic measure of social or cultural value, deeply inferior; leave aside for a second the fact that the Friedmanite argument completely misses the fact that markets can't solve public goods problems like healthcare, and so...welll...Americans die because they're poor and sick.

Let's focus on a more concrete, less emotional argument. The bigger point I want to make is that the Friedmanite argument misses the fact that markets, often, kill culture and the social dead.

Put another way, the simple fact is that the world's cultural innovations are invented in Europe, and diffuse outwards from there. Europe is still the world's media, fashion, art, culture epicenter.

Just think about the wasteland the American "market" for media - really, a collection of monopolistic markets - has created; contrast it with, I don't know, the Beeb, the CBC, RAI, etc. That's a a very important comparison - because those dynamics are the future of all consumer industries.

Consider how many of Hollywood's great actors and directors aren't American. Consider the fact that Hollywood's blockbusters, for the last ten years, have been essentially European (or Japanese) exports. Consider how many great fashion designers are American (no, Ralph Lauren and P Diddy don't count). Consider the fact that reality TV - the present and future of TV - is a European export.

The point is simple: knocking Europe is to completely miss the reason people love to live there.

Yes, M's argument is right in one respect. America is a giant market. But that's all it is - nothing more.

Is that what India and China want to be? Are they willing to pay the price America is paying - a society fraying at the seams? Anti cultures, where the life revolves solely around consumption and production? An economy where the market is chewing up and spitting out every form of capital, in the insatiable quest for near-term returns, and so the center can't hold?

This is a very real economic point. It's not mine alone. In fact, you might be surprised to find out the much of it is found in Zingales and Rajan's phenomenal Saving Capitalism From the Capitalists - two finance profs at the Chicago GSB, the erstwhile high church of market driven innovation.

The point is that Europe is more than a just a market - it has societies and cultures which are deeply distinct (and often in opposition to) the market.

In fact, if you read the tea leaves a little bit, it becomes fairly obvious why this valuable: this is going to be the only real source of advantage in a world of hypercommoditized products - mass produced with little love or emotion in India and China. Who else is going to imbue these products with meaning, create experiences, etc?

Make no mistake. It is this redefinition of consumption that is the next wave of innovation. Engineering and rationalism have their day; the friction has been sucked out of global supply chains. Innovation 2.0 is squarely, fundamentally about social and cultural capital.

America isn't losing it's innovation advantage because it lacks scientists or engineers. By any measure, it still leads the world by an enormous, tremendous margin in scientific output.

America is losing it's innovation advantage for a far more elemental reason - one so simple, and antithetical to markets, Americans can't really see it, much less discuss it. Because America has robbed Peter to pay Paul - mortgaged it's social and cultural capital for less durable, less valuable financial capital - it is less and less able to innovate in a world, where, suddenly, the economic is deeply enmeshed in the social, the cultural - and the creative.

At heart, that's the source of Europe's genius: it is, fundamentally, the most creative place in the world.

-- umair // 6:54 AM // 17 comments


Comments:

Cool insights and valid points : I'll think more and respond later. Meanwhile, let the US and Asian geeks continue to make money even as they are dreaming of dating cool Euro fashionistas :-).
// Blogger Mahashunyam // 1:38 AM
 

"Innovation 2.0 is squarely, fundamentally about social and cultural capital."

YES!! I think he has got it!

I wrote to you about this ages ago, and although I got no reply, I am very glad to see you are writing about it now.

Now the question is, who has the most social and cultural capital, and how do I invest in them?

Here is a thought exercise... is it the teacher, or is it perhaps the open source programmer? :)
// Anonymous john // 2:45 AM
 

Very good -

Question is - can the europeans be bothered to take advantage of this? Advantages are only good when they are taken advantage of.
// Blogger marks ramblings // 3:28 PM
 

Well, I'm European, so I wanna believe this defence of Euro values against American cultural wasteland. :-)

But ... China and India lacking in culture and creativity? I suspect this is a myth which is about to be exploded. Remember when Japan was all cheap, bad quality engineering and geeks with no creative talent?

I'm reminded of Jared Diamond's explanation as to Europe's historic advantage over China : China was easy to unify into a single political entity, but Europe's geography fragmented it into a diverse, competitive market of local kingdoms and rulers.

It strikes me that with information and communication technology, cheaper transport, international laws, institutions and companies, this geographic cause for Europe's diversity has lost a lot of its force.

European diversity now is mainly due to its language fragmentation and history. But is there really more cultural potential difference between Italy and Ireland, than between Canton and Tibet and Harbin?

Competition between cultural units based on creativity certainly seems to go on at the level of cities (as in Richard Florida's "Creative Class" argument) but can it go on (or be constructively applied) at the level of countries or large trading blocks like the EU or Asia?
// Blogger phil jones // 3:58 PM
 

I don't disagree with your argument regarding creativity and the cultural gap between the US and Europe. Mind you, the US has some culturally diversified cities on par with anything Europe has to offer.

Before I get to the point, it's interesting you mention the CBC alongside the BBC. Do you consider Canada to be Europe in cognito?

Anyways, you say "Consider how many of Hollywood's great actors and directors aren't American. Consider the fact that Hollywood's blockbusters, for the last ten years, have been essentially European (or Japanese) exports. Consider how many great fashion designers are American (no, Ralph Lauren and P Diddy don't count). Consider the fact that reality TV - the present and future of TV - is a European export."

So why do they come to America? Why is reality TV not a true phenomenon until America takes it over? I think the US has always been a cultural wasteland, but it hasn't mattered, because for some reason (call it the american dream, the wide open spaces, etc) foreigners come to the US to put their ideas into practice and make it big. Sure, Europe is culturally superior but big deal. They can sit around drinking tea and talking about Versace all they want, but until Europe drops the 'we're culturally superior' bullshit and mucks around in the world's markets with the rest of us, it will always take a back seat to the US.
// Blogger dhd // 6:28 PM
 

I for one am totally in favor of Europe having the cultural/innovation stockpile. They'll continue to bungle their markets horribly and infight, while we import the best of their innovations for next to nothing and execute on their promise. Keep them coming!
// Anonymous Sebastian // 10:12 PM
 

I agree with the thesis that social and creative capital are critically important for the future, which argues for European strength. But there's a problem: the rules of the international economic system have been set by the centre, the US, based on the needs and interests of financial capital. This system continues to create externalities to the market which damage and deplete social and creative capital at home and abroad.

While these new forms of capital are critical to wealth formation and sustainability in the future, there is a big gap to bridge between here and there. These two forces are already in conflict, but that conflict will become more and more apparent as the neo-classical economics view and the social/creative capital view battle it out both domestically and internationally.

The neo-classical arguments are presently stronger in public policy circles due to historical path dependence among industrialized nations and due to the much more advanced and precise measurements available for understanding financial capital and classical economic modeling as opposed to the quantification of social and creative capital, which is embrionic.
// Anonymous Mark Kuznicki // 1:57 AM
 

A few years ago, when I visited the UN building in NYC, our guide was a Bulgarian. While taking the elevator to an up the building, a Japanese man joked that if all the visitors were Japanese, more people would have fit into the elevator. The Bulgarian guide countered for no understandable reason by saying, "We Europeans are creative."

It seems like *certain* Europeans (not all) want to cling on to an old argument while the US continues to attract the most entreprenerial and creative people from all over the world. Creativity needs to be further qualified by the fields it impacts - science, technology, design, frugality, business practices, arts, etc.

Europe has certainly led the way in design and still does. Europe was also the birthplace of several famous scientists, thinkers and writers in the past centuries. However, Europe no longer leads the world in science, technology or literature.

The argument that the US has inferior culture and social capital is without any basis. The fact is that American culture is enriched by all the cultures the US has embraced. Yes, several actors and directories in Hollywood are from Europe, but they came to America to work with very hard-working and creative Americans, and became Americans themselves.

Just because many products are manufactured in China and India does not mean they do not have any love for what they make. If what you said was true, Chinese and Indian workers would not have felt proud about working for multinationals.

The fact is that Europeans have become blind with arrogance and rue their loss of influence over the world after their empires collapsed. English may be the lingua franca of world business, but it was accepted only out of necessity, not for any love for the language.

I wonder when Europeans will shed their superiority complex and live in the *real* world.
// Anonymous Anil // 9:54 PM
 

What utter nonsense! Umair: please go read Tyler Cohen's "In Praise of Commercial Culture" and report back. If you truly believe that living in the States is "deeply inferior" (and yes I see the "social or cultural" qualification), then you either (1) don't understand the US or (2) simply elevate your own particular preferences as having higher value than another set of freely-chosen preferences (that also have plenty of historic, economic and philosophical evidence in their favor). To put it in business terms (since this is a business blog): believing in a myth rather than acknowledging the complex reality is likely to severely hamper your ability to understand and advise on innovation.
// Anonymous Scott Lawton // 1:29 AM
 

I have an Irish wife and spent 2 wonderful years in Europe, and enjoy our summer trips there. But US immigrants came mostly from Europe and did not want to go back. Why? Europe is trying one of the most ambitious integration efforts ever in history with the EU, but cannot assimilate its immigrants. European Governments sink huge amounts in R&D, yet cannot consistly produce entrepreneurs.

We want Europeans to do well. But just pointing our US problems (and lord knows we have many) is not going to help you innovate. In the mean time enjoy St. Patrick's Day. We in the US celebrate that European tradition and have taken it to a new level, gaudy as it might be!
// Blogger Vinnie Mirchandani // 3:29 AM
 

Umair,

I have posted what I hope is a reasoned and thoughful reply on my blog: http://chrisyeh.blogspot.com/2006/03/america-and-europe.html

Essentially, my feeling is that the underlying assumptions you've made are Euro-centric in nature, which leads you to your conclusions.

In fact, I believe that many of your statements--even if not intended in this fashion--could be offensive to members of non-European cultures.

I invite you to take a look, decide if I've been fair in my analysis and criticism, and respond as you see appropriate.

Regardless, I appreciate how you were able to energize me to think and write!
// Blogger Chris // 8:40 AM
 

Umair -- I followed up Chris' post with one of my own: http://ben.casnocha.com/2006/03/america_and_eur.html

Let me know your thoughts. Thanks for posting about this.
// Blogger Ben Casnocha // 5:22 PM
 

Umair,

1. I don't believe any culture could be described as superior or inferior...
2. I'm European, I read American blogs, I watch Japanese anime, I drink Brazilian coffee, I use "made in China" computers, I listen to Australian podcasting...
// Blogger Dimitar Vesselinov // 8:22 AM
 

Is this not a valid list of "blockbusters" over the last 10 years? I make it about 12% European export. Many of the others have a European or 2 in the cast list, but none of them come close to 50% European.
http://en.wikipedia.org/wiki/List_of_highest-grossing_films.

By what index are "most" of the blockbusters European exports? Hell, by what index are "most" of them 50% European?

I'm not sure that the blockbuster live theatre is any better as a reflection of cultural superiority. You see more Labute and Mamet in Europe than you see Europeans in the US, more American stars in the European starring theatrical roles than vice versa, and so on.

Television: Viewingfigures.com suggests that the UK terrestrial top 10, not counting the news (Is 5 news better than CBS?), has a program of interviews with cartoonists and manga artists, a pop performance by Kate Bush, 2 musical talent shows, Snooker, Casualty (a less edgy ER equivalent), an explicit x-files clone, and 3 american slots (charmed, CSI, and Zoolander). In the Nielsen top 20, there is not a single European show. When the Malaysians watch TV3, do you think European TV dominates? Or is this like the fashion issue, where the American designers are insufficiently exclusive? The difference isn't that the X factor (top in the UK ratings board) grosses a lot more money abroad, since it doesn't seem to air anywhere outside the British Isles. So, I'm gathering that the difference is that the dumbed down version of Pop Idol is just a much more culturally creative show than, say, 24, like Versace to P. Diddy?

I recognise the idea that the volk are better off when they're living traditional, wholesome, lives. There's a lot of people to cite to for the idea that we need a third way between communism and capitalism. Solidarismo or something like that? Do you have anything objective that you can cite to for the proposition that Europeans are more productive in cultural industries than Americans? I have a whole bunch of revenue statements that say that they're not.
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