We discuss the Stiglitz-Grenwald notion of “Learning Societies in the context of Edmund Phelps’ “Mass Flourishing”:



[1] First, we need to understand that the fundamental question that Western capitalism is struggling with, during these times of economic crises around the world, is this: "how much should Western capitalism accommodate class-based social organization?" For this, we need to first understand Schumpeter's contribution to economic analysis in its proper context.



In David Ricardo's characterization of the market economy, the landlord class continues to become affluent indefinitely, while the labor class is permanently held down at the level of Malthusian subsistence. The capitalist-entrepreneur-manager class does obtain large incomes for a time, through identification of profit opportunities in the market, allocation/investment of resources, and supervision of the production/distribution processes.



In Karl Marx's view, this constantly growing inequality in the distribution of wealth between the landlord, labor and capitalist classes was the root cause of the frequent crises that Western capitalism was subjected to, already in the 19th century. Marx's solution was to abolish private property and profits altogether, in the belief that, for the future, new developments in science and technology would lead to greater wealth creation than would land ownership and the profit motive. Besides, with a labor theory of value that Marx inherited from Ricardo, the precise permanent value of all goods could possibly be ascertained, leaving no role for any uncertainties in the production/distribution processes that need to be compensated for by profits.



Firm belief in the "Scientific Method" made it possible for Marx to envision a class-less society that could continue to gain affluence and wealth. Schumpeter's great insight was that a very special kind of innovation -- created, fostered and exercised by the managerial class -- was what was missing in the Marxian analysis of economic value. As Schumpeter describes in his book, "Capitalism, Socialism and Democracy", Marxists believe that the profit-shares that accrue to capitalist-entrepreneur-managers is nothing but theft.



[2] In the Schumpeterian analysis, the creative/innovative contributions made by the managerial class, within corporate environments, needed a different framework than was provided by the free market mechanism of classical economics. To encourage business organizations to obtain the full benefit of this innovation, some allowance for monopolies should be made. In this way, by accommodating an elite class of capitalist-entrepreneur-managers within the class-less Western society, as suggested by Schumpeter, Western capitalism was able to avoid the collapse that the communist economies could not avoid in the 70s and the 80s.



As Joseph Stiglitz has noted in this article, Robert Solow observed in the 1950s that rising incomes are attributed not so much to capital accumulation. That is, employing more money or better land or more people while following the same methodologies is not what contributes most to economic growth. Instead, the technological progress that happens at the work-place of business organizations, that is achieved by combining the factors of production -- land, labor, capital -- in new and innovative ways to produce more efficiently and to produce new products is, what creates economic wealth.



Kenneth Arrow’s concept of “Learning by Doing” also emphasizes that workers/employees learning to operate, co-ordinate and produce in the industrial/corporate arena is what causes their compensation to be so much higher than agricultural workers. Thus the settings for the creation of economic value in the situations described by Solow and Arrow actually fit well within the Schumpeter’s concept of innovation at the business/professional workplace. Stiglitz-Greenwald notion of “Learning Societies” thus assumes a special class of workers/employees who would be able to upgrade their economic value because they have more access to learning in these industrial workplaces.



[3] Ned Phelps’ concept of “Mass Flourishing” derives from historical examples of cultural renaissance that Western societies have gone through, roughly in parallel to the first, second and third industrial revolution. These societies experienced a sustained increase in real wages and productivity that could not be accounted for by just saying they were reaching economies of scale. Phelps ascribes this sustained increase in the standard of living to indigenous innovation. Though it derives largely from quantifiable improvements made at the professional workplace, it is a little bit more general. It takes into consideration flourishing in the general culture, and it is driven by the ascendancy of modern values – vitalism, individualism and self-expression – over traditional values that emphasize societal needs over the individual’s goals.



