Did Democracy in (North) America Help With Innovation?

Over the years many pundits have believed that equal and democratic societies will be more innovative and grow faster than unequal and authoritarian ones. It seems logical. Equality allows more people a chance and prevents an entrenched elite from benefiting themselves at the expense of newcomers and challengers who may have better ideas but lack capital and financing. Equality provides greater scope for entrepreneurship as it draws entrepreneurs from the broad base of the social pyramid, rather than from the small top. And great inequality, where most people own nothing and can barely feed themselves, is liable to leave a huge swath of the population so starved for human and financial capital that they cannot even try. Innovation benefits from having as many people as possible trying to make something new, because you do not know beforehand where the next big breakthrough will come from.

Authoritarian societies are likely to be fearful of innovation, especially if innovations well up from below. Change may challenge the power of the elite, who maintain their position by doling out opportunities and favors to friends and supporters and take kickbacks from the same group—crony capitalism at its finest. They don’t want newcomers upsetting this applecart.

So, it always seemed that democracy, equality, and innovation should go together, but how? What is the mechanism that links them? This is an especially pressing issue now when China, a communist society and a non-democratic one, seems to be moving ahead rapidly on so many technological and economic fronts.

A look at the American experience offers some clues. American had a favorable, perhaps unique combination of political stability, ground in a founding constitution, as well as a strong commitment to democracy and equality of opportunity. While Americans sometimes failed to live up to the ideals—the nation had slavery and suffered a civil war after all—nonetheless it still exhibited the value an open and stable political system can have for innovation.

North America in the colonial period was perhaps the most equalitarian place on earth, more so certainly than its neighbors to the South, including the southern states of America. It was also possibly the most democratic. In fact, it was democratic because it was equal. The economic underpinnings of democracy were its broad distribution of land and resources. Relatively equal incomes and access to resources helped to promote a much more democratic political system. This was not exactly what the founding fathers, who lauded freedom and rights, had in mind. They saw themselves as creating a republic—not a democracy. The well-to-do would provide the leadership and most states after the ratification of the Constitution still restricted voting to those who owned land or demonstrated a certain level of personal wealth.

But with land ownership becoming more and more widely distributed more and more Americans, at least those who were white and male, could vote. This broad base of voters from the non-elite, plus the perpetual need to attract immigrants and labor from abroad, encouraged states to abolish voting restrictions. Immigrants were much more attracted to a nation where they could have a political voice, as well as an economic one. As voting restrictions fell, political participation and the percentage of those voting rose. In 1824 just 26 percent of the eligible population voted in elections, but as property and income qualifications on voting were stripped away, that percentage rose to 56 percent in 1828 and 78 percent by 1840.

Both political parties of the nineteenth century, the Democrats and the Whigs (forerunners of the Republicans) embraced a politics of opportunity. Democratic presidents like Andrew Jackson could start out as landowning frontiersmen, buy more land, and in Jackson’s case, slaves to work his land, and take that experience into the White House. His Democratic Party encouraged land sales to ordinary folks and the giving away of resources, even if those lands and resources were taken from the Native people like the Cherokees, who were forcibly pushed out of the way for white settlers. Jackson also encouraged the formation of banks to mobilize capital, state and local banks, and he abolished control of credit and the money supply by the federally chartered Bank of the United States.

It was a policy that led to a rollicking and dynamic macro economy, including a significant recession in 1837, but also one that brimmed with opportunity for the ambitious speculator as an unchecked stream of money and credit flowed into the hands of western entrepreneurs. The other side of this economic policy was represented by Abraham Lincoln. His origins were even more humble than Jackson’s, though his father owned land and moved west with agricultural opportunity.

Through self-improvement and education Lincoln made himself into a successful lawyer. His Whig, then Republican Party encouraged internal improvements, such as railroad, canal, and other infrastructure projects that connected markets, and the building of schools to promote human capital formation, as well as protective tariffs for America’s infant industries.