Will Wilkinson on dynamism and the welfare state

When I started writing about the link between entrepreneurship and the welfare state a couple of years ago, the research I was reporting on seemed to me to contradict a common belief: that economic dynamism was at odds with more expansive government.

But there are more and more signs that the prevailing wisdom is changing. Will Wilkinson had an excellent op-ed in The New York Times, notable in part because of his libertarian leanings. He writes:

Republicans need to recognize finally that secure property rights, openness to global trade and a relatively low regulatory burden are much more important than fiscal policy for innovation, job creation and rising standards of living…

Republicans make a critical mistake, both factual and strategic, when they cast the welfare state as the enemy of prosperity and freedom. Far and away the biggest items in the budgets of advanced countries are “welfare state” social programs, like Social Security, Medicare and Medicaid, which account for nearly half the federal budget…

dynamic, competitive markets drive growth and opportunity through “disruptive innovation,” which necessarily destabilizes industries and displaces workers. The lack of a robust safety net capable of keeping people from becoming collateral damage of routine creative destruction, such as the automation and offshoring of jobs or the closing of local plants, generates anxiety and hostility to the sort of economic policy that produces growth and employment. So not only are sound safety nets popular, but they also increase the public’s tolerance for the dislocations of a dynamic free-market economy.

Other signs of this shift include the Kauffman Foundation, which last year produced a policy digest arguing that expanding social insurance would boost entrepreneurship, and more recently Mark Zuckerberg’s commencement speech, which made this point without explicitly mentioning government.

More broadly, books like Concrete Economics and American Amnesia have argued that strong and aggressive U.S. government deserves credit for the nation’s history of dynamism. (Mariana Mazzucato was well ahead of this curve, as her book The Entrepreneurial State came out in 2013.)

Part of Wilkinson’s point, though, is to distinguish between the redistributive state and the regulatory state. It’s the latter, he argues, that more frequently impedes innovation.

My view is somewhat less pessimistic, and my bottom line in 2015 was:

Even the assumption that bureaucratic “red tape” holds back startups is less obvious than it sounds… What evidence we do have squarely challenges the intuition that it’s government that holds back startups.

But if Wilkinson is going to acknowledge the entrepreneurial benefits of the welfare state, liberals ought to at least consider the possibility that regulations do hamper innovation.

Putting entrepreneurship and innovation aside for a second, it seems clear that the net benefits of regulation vary considerably depending on which ones you’re talking about. The Clean Air Act seems to have had large positive effects. On the other hand, overzealous land use regulations that prohibit building have had large negative effects.

The same is likely true of regulation and entrepreneurship. Plenty of regulations probably aren’t a big impediment; some even help. But plenty of others probably do hold back innovation.

If we can agree about the merits of the welfare state — or at least agree that it’s not a major barrier to innovation and entrepreneurship — perhaps we can start talking about which regulations are worth keeping, and which are in need of reform.

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