42 Innovation
42.1 US vs Scandinavia
Smith on Acemoglu
In 2012, Daron Acemoglu, James Robinson, and Thierry Verdier came out with a paper about the different “varieties of capitalism”. The basic idea was that Scandinavia’s more safety net discouraged entrepreneurship, while America’s relative lack of government support forced people to be risk-takers, and that this explained America’s greater rate of innovation. This is the kind of theory economists tend to like, because it emphasizes tradeoffs, and because it tells a story that allows economists to place themselves in the political center, charting the optimal middle path between the kind-hearted Democrats who want to give out free stuff and the exacting Republicans who want to force people to work for their supper. But other economists and bloggers immediately started noting problems with the thesis — most importantly, the fact that the Nordic countries are generally more innovative than the U.S. by many measures. Those countries are small, so you don’t hear about their innovations as much, but they really punch above their weight. Acemoglu et al. were trying to explain a “fact” that didn’t really exist.