Competitiveness and a Culture of Creativity
Previously in this series of posts about the New Stack and the competitive advantage of nations, I explored the role of deep and liquid financial markets as well as energy in the context of Investment, Independence, and the 4 I’s.
In this Substack I want to unpack how a culture of creativity empowers a country and its companies to be competitive in today’s economic environment. In a world of constant crisis and increasingly rapid technological change, both a company’s and country’s ability to adapt and adopt to new ways of doing business, new cultural norms, and the capacity to quickly respond to exogenous technological innovations play a critical role in competitiveness.
In the New Stack the culture of creativity falls into the Ideas section of the “4 I’s.”
Embracing Change Is an Unnatural Act
When speaking to groups of executives or government leaders, I often assert that humans hate change. I (sort of) playfully assert that people should not listen to the bu**s*** that comes out of Silicon Valley: “Embrace change! Change is awesome! Change is great!” When Austrian economist Joseph Schumpeter wrote about creative destruction in Capitalism, Socialism, and Democracy, he stated that what gets invented, by definition, seeks to destroy and replace what came before it.
Destruction is a challenging concept for humans to embrace.
Change is hard — humans prefer stability and like to believe that there is an understandable determinism of what will happen in the world. Stability makes it easier to think through plans for business and one’s personal life and also mirrors the conventional wisdom of financial theory around the importance of going “risk off” when economic times are bad and being “risk on” when times are stable.
The challenge is that in a world that is constantly upended by new innovations, how do leaders think about building a company or country that can adapt to rapidly changing times? Cultures that restrict evolution and creativity become increasingly sclerotic — unable to compete against competitors that move with speed and alacrity.
Three Factors that Enable Cultures of Creativity
The phrase “culture of creativity” it is not a reference to the arts. Rather, it describes a willingness to embrace new ways of doing things. When looking at this component of the New Stack, three attributes (amongst others) help foster prolific cultures of creativity: 1) Embracing entrepreneurial systems and behaviors, 2) The acceptance that a company’s becoming big can be more good than bad, and 3) The critical role of a vibrant and well-functioning education system to deliver a highly competitive labor force that graduates creative talent.
Embracing Entrepreneurial Systems and Behaviors
Innovation happens in companies of all sizes — both large and small. While Silicon Valley often lionizes small teams and criticizes large monolithic organizations that don’t change with the times, an entrepreneurial mindset can reside in both large and small organizations. For example, in the case of the former, the speed with which Alphabet has recently been able to recapture its AI competitiveness comes to mind.
As someone who sits on Boards of Directors and Supervisors around the world, I often witness the difference in systems and attitudes towards cultures of creativity. Having been on two Supervisory Boards based in Europe (both currently and in the past), and having consulted for large organizations in Asia, South America, and the Middle East, I have seen very technically strong, capable companies at scale (hundreds of millions or even billions of dollars in annual revenues) struggle with simple things such as granting stock options to employees. In Europe, for example, some countries require companies to hold annual shareholder meetings that must include invitations to all investors and option holders. This can be extremely burdensome for a company — especially if the company has thousands of employees.
I have also witnessed how this regulatory requirement can be used as a reason to limit employee ownership in organizations. This constraint can be both procedural and attitudinal — at its core, some companies and investors do not believe that widespread company ownership by employees is a key facilitator and motivator for driving innovation.
The process of handling how a company fails is also critical. Laws for orderly bankruptcy restructuring/wind downs (or the lack of a uniform code in a region or complexity of laws) can greatly help or inhibit cultures of creativity and building a deep and robust entrepreneurial outlook. How an individual’s personal financial status is impacted by failure can create incentives or impediments to companies exhibiting entrepreneurial behaviors.
Social psychologists have debated for decades about the differences in national cultures towards speed vs. certainty (move fast and break things vs. measure twice and cut once), uncertainty avoidance (attitudes towards risk) and how failure is seen as either a learning opportunity or a stain that marks someone negatively for a long period of time. The pioneering work of Dutch researcher Geert Hofstede explored how a country’s culture influences attitudes towards risk in his book, Culture’s Consequences: International Differences in Work-Related Values. While subsequent research has refined, critiqued, and built upon Hofstede’s work, many of his conclusions match the realities we see in countries around the world, and explain some of the support and friction that comes from attitudes towards entrepreneurial systems.
Getting Big Needs to Be Ok
In a world where market and economic power can aggregate to a few players, either due to market dynamics such as network effect businesses (e.g. social media products such as TikTok and Instagram) or industries with high barriers to entry (e.g. where large amounts of data and capital are required to deploy the compute required to train LLM models), we witness the rise of large organizations that dominate markets — especially in the technology and financial services arenas.
On the one hand, size and scale can lead to a global competitive advantage for a company — scale reinforces success, and bigger companies grow larger over time. This theory of increasing returns to scale, which was pioneered by Brian Arthur at the Santa Fe Institute, has helped explain a variety of market outcomes since its introduction in 1983.
Conversely, economists know that power concentrated into an oligopoly or monopoly can hurt consumers by leading to higher prices of goods due to constrained supply, or the delivery of inferior goods and services due to a lack of competition (just think about your local Department of Motor Vehicles).
A consequence of increasing returns to scale is that profits and wealth can aggregate into a few hands. When this happens, how does society feel about it? The global rise of populism (consider the recent statements of United States Congresswoman Alexandria Ocasio Cortez about there being no ethical billionaires) and discussions of income inequality are based upon the behaviors and perceived “fairness” of this aggregation of wealth and power.
Not surprisingly, Jeff Bezos and others have argued that this line of thinking is wrong and that economic theory does not support the notion that success should be either limited or punished.
For a foundational discussion of the tradeoffs of these two perspectives, I recommend Chapter 13: Modes of Capitalism in Alan Greenspan’s book, The Age of Turbulence. Regardless of your political persuasion and/or your opinions on Greenspan, he did a great job of discussing the various tradeoffs of the more wide-open form of American capitalism vs. the constricted European or Japanese models. I appreciate that Greenspan’s analysis was provided without judgement and readily discussed the plusses and minuses of various modalities.
Leaders must also consider what it means if other countries are more willing to allow size and power to aggregate to companies. Do leaders limit the culture of creativity of a country’s companies and thus risk the economic well-being of their workers and citizens by limiting growth? Is regulation the right answer (Europe)? Are tariffs the solution (the United States)? Is prohibiting outside companies from doing business in the country the best solution (China’s approach towards US tech companies)?
A Vibrant and Functioning Education System
A culture of creativity requires a highly functioning and well-developed labor force to drive innovation and build successful companies. Students not only need to be proficient in basic academic skills, but they must also have an adaptability and resourcefulness to address rapidly changing times.
On the former, the The Programme for International Student Assessment (PISA) measures the reading, mathematics, and science competencies of 15-year-old students across a variety of countries. A handful of countries from Asia dominate the top rankings, followed by a group of European countries, Canada, Australia, and the United States.
Source: https://worldpopulationreview.com/country-rankings/pisa-scores-by-country
Issues around educational funding, parental involvement, and continued teacher training contribute to the ongoing success of a country’s educational system.
At the university level, where entrepreneurship often takes root, we see not only concentration of research and capital in the United States’ institutions of higher learning (via government and alumni support), but also in the number of new companies that get started from these institutions:
Now, education systems on their own don’t create cultures of creativity. But they contribute deeply to cultures of creativity and Ideas.
One of the great things about teaching at the Stanford Graduate School of Business is the wide variety of pedagogies we can use in the classroom. The faculty employ Socratic methods of debate (often instantiated with the use of case studies), deliver lectures of research and original content, and design experiential learning so that students discover knowledge via hands-on assignments.
When I use the Socratic method, my international students (whether I am teaching MBAs, Executive Education, or my consulting clients) often talk about how different this mode of learning is versus the education systems in their home countries. These students and leaders express how their learning was previously built largely around long lectures and limited interactions between students and faculty during class sessions. The pedagogical options force my students (and me) to be quick to react and adapt to different modes of learning and teaching. These various methods force a creativity on both the transmission and reception of the lessons.
High quality education also attracts top-quality labor to a country. I like to posit that teaching at Stanford is like teaching at the United Nations — men and women from all over the world fill our classrooms. This is a distinct competitive advantage for a country.
In the United States there are approximately 1.2 million international students enrolled in higher education, who contribute ~$43 billion in annual economic value and support 356,000 jobs. While the United Kingdom and Canada come close to the United States in the number of international students (1 million and 750,000 respectively), the economic value to those countries is lower than in the United States. Recent efforts to restrict foreign student enrollment in those countries has been tied to an attempt to increase housing affordability for local citizens. This, of course, brings a tradeoff in the number of companies being started in those countries, and the number of jobs that are supported in each country by international students.
By some reports, nearly 66% of Silicon Valley tech workers are foreign-born. This has been a huge benefit for the United States.
The CEOs of Alphabet, Microsoft, Nvidia, Adobe, Tesla and SpaceX, AMD, Uber and Palo Alto Networks are all led by foreign-born leaders.
Key Takeaways
What does all of this mean for today’s business and political leaders?
A culture of creativity requires embracing and implementing an entrepreneurial outlook and policies that enable quick responses to changing times. The ability to easily create incentives for employees via stock ownership, and laws that make innovation both possible and attractive are critical for encouraging risk taking. How a country embraces entrepreneurial systems and behaviors is a key component of competitiveness in today’s rapidly evolving world.
Size matters in today’s economy. The broad argument of limiting company size and wealth aggregation comes with tradeoffs. While leaders need to be aware of how concentration of wealth and power can lead to exploitation, vilification of size in and of itself ignores the basis of competitive advantage in today’s world of global technology and financial competition. A simplistic reductive argument of “big is bad” ignores the implications and consequences of policies that limit size. The reality is more nuanced, and the tradeoffs are real.
Vibrant and well-functioning education systems are a source of competitive advantage and cultures of creativity. If a country is going to remain competitive and at the forefront of a culture of creativity, an education system that graduates qualified and adaptable talent for the modern world and attracts top students from around the globe brings huge economic advantages for a nation. Underestimating the positive role that education brings to cultures of creativity is done at the expense of a country and its citizens.
The components of the New Stack are intertwined.