What Is Innovation in the New World?

North America was not a wealthy place when Europeans first arrived and started to settle there. But it quickly acquired a strong commercial and entrepreneurial orientation, even as a British colony. Colonists from England, the Netherlands, France, and Spain arrived at various times following Columbus’s voyages and settled in various parts of the new world. Their mission was largely motivated by profit. In Virginia, which encompassed a good portion of the southern seaboard of North America, the British were promoting a fully profit-making venture through the crown-chartered Virginia Company. Another corporation, the Hudson’s Bay Company, operated in the far north, present-day Canada, where it focused on the lucrative fur trade with Native Americans. Even in New England, a region settled by a sect of highly religious protestant dissenters from the Church of England, profits were not absent. Though their program was an almost utopian one of religious communitarianism, these Puritans, as we have seen with other religious orders, were focused on improving the land and making practical use of nature. They founded new towns and bought and sold land to other settlers. Likewise, in the middle colonies of North America, another religious leader, the Quaker William Penn, took the vast grant of land he had been allotted by the King of England, which he called Penn’s Woods, or Pennsylvania, and began to improve it. Penn laid out, in rational, grid-like fashion, his port city of Philadelphia and sold off or gave land to new arrivals, who took that land and started to cultivate grains to sell to the market and ship to other colonies and to England.

This commercial disposition in North America was less a matter of culture, or English origins, or even European heritage than it was a function of conditions and institutions, which propelled the region from humble beginnings to rapid growth and eventually to become the place of innovation by the nineteenth century. In fact, the American story provides an almost natural experiment for isolating those factors that we have identified as crucial for fostering innovation. And it provides a clear contrast to other parts of the world that seemed to have all of the ingredients for success but ended far behind the United States. That is why cultures and societies rise and fall in the innovation game. Get the conditions wrong and your inherited culture, or early advantages or natural resources, won’t save you. The only way to stay ahead is to build a society that allows and promotes continual innovation.

Let’s go back to our model and look at some of those key factors and conditions. We have identified education, a strong financial system, a stable government that protects property rights and provides incentives to innovators, and an openness to ideas and to talented people from elsewhere, often realized through a generous immigration policy. Almost all of those features characterized the northern region of the Americas. And, as we shall see, most of them were absent or stunted in the southern region and the Caribbean. The results were clear. In the long term, whatever the advantages one region started with versus another, it was the conditions, policies, and institutions that determined who came out on top. North America actually lacked some of the immediate sources of profit like precious metals and high-demand commodities that made South America and the Caribbean attractive and economically successful at first. So, its rapid rise to the top of the New World food chain could ONLY be explained by innovation, by developing new products, new industries, successful firms, embracing the adoption of new technologies, and contributing to the continual improvement of those technologies. It was, as we shall see in the next chapter, the very same pattern and process that China has gone through in the late twentieth and early twenty-first centuries.

Now, let’s get one important point out of the way. Both Canada and the United States have some valuable natural resources: timber, iron, copper, coal, oil, precious metals. And they both have large agricultural sectors producing grain and beef and dairy products consumed internally and exported. So, one might think that it is this natural bounty that explains their success. But Argentina also grows wheat and has even more beef production; the same with Brazil and Uruguay. Venezuela and Mexico have lots of oil. And many places in South America and the Caribbean grew rich in the eighteenth and nineteenth centuries on the great sugar boom or, in the case of the Andes, the great silver boom. But no part of South America developed on the trajectory of North America. Indeed, easily acquired mineral wealth, such as New World silver, once again seems to be as much a curse as a blessing. If places do not diversify their economies and become and remain innovative, they quickly exhaust their initial resource advantages. This is an issue we see again and again. Even the mineral wealth of North America required innovative efforts to make nature yield her bounty. There is also an important difference between resources that make the few, an elite, wealthy and those that benefit the many, promoting growth and development across a whole society.