Expanding the pool of inventors and entrepreneurs beyond selection along racial, gendered, and class lines

Introducing the Stone Centre Working Group on Economic Dynamism and Distributive Justice

A dynamic economy hinges on people’s ability to harness our expanding knowledge, take risk, and innovate. In recent decades, such dynamism has been hampered by growing inequality in wealth distribution, and people’s increased insecurity about expected future income.

‍

When this happens, the pool of potential innovators shrinks to those that are less risk averse - a minority of the population. This is how ‘innovation clubs’ are born, which aren’t only characterised by issues of wealth distribution or access to credit, but also ethnic minority exclusions, and geographical locations.

‍

Is it possible to give greater economic decision-making power to the less wealthy so as to promote a more dynamic economy?

‍

It is with this question on the agenda that the Stone Centre at UCL convened the Stone Centre at UCL Working Group on Economic Dynamism and Distributive Justice. The Working Group met in December 2022 and brought together experts that could shed light on this question from a variety of disciplines:

• Philippe Aghion (Harvard University), David Autor (MIT), Jan Eeckhout (UPF), Zoe Hitzig (Harvard University), John Van Reenen (LSE), Sam Bowles (Santa Fe Institute) and Wendy Carlin (UCL) for economics
• Petra Moser (NYU) for economic history
• Amy Kapczynski (Yale) for law
• Luis Bettencourt (University of Chicago) for ecology and evolution

The Stone Centre Working Group on Economic Dynamism and Distributive Justice. From left to right: Sam Bowles, Petra Moser, John Van Reenen, David Autor, Wendy Carlin, Luis Bettencourt, Philippe Aghion, Zoe Hitzig, Linda Wu, Jan Eeckhout, Alessandro Guarnieri, Thomas Lazarowicz, Amy Kapczynski.

‍

Stone Scholar and UCL Economics PhD student Linda Wu joined the working group during its first meeting. She explains why it's important to expand the pool of inventors and entrepreneurs.

‍

Expanding the pool of inventors and entrepreneurs beyond selection along racial, gendered, and class lines

The question of how to diversify and broaden the pool of inventors and innovators was one of several topics covered by the Stone Working Group on Economic Dynamism and Distributive Justice, when they met in December 2022. Over two days of intensive discussion, the group brought together senior and junior researchers across several disciplines to consider emerging research questions around fostering innovation and productivity without it leading to a corresponding increase in wealth concentration and economic inequality.  

In sessions led by economic historian, Petra Moser (NYU), and economist, John van Reenen (LSE), the discussion looked at underrepresentation among inventors and entrepreneurs across race, gender and class. Reference was made to Jo Anderson, who helped Cyrus McCormick develop the prototype of the grain reaper, and Josephine Cochrane, who invented dish washers, as rare examples of people of colour or women who are documented in the history of invention. But far from an historic phenomenon, recent data presented at the working group shows patterns of underrepresentation remain stubbornly persistent. Addressing this persistence is important, not only for inherent reasons of equity and justice, but  also because making the pool of innovators more accessible and diverse is critical for economic dynamism and productivity growth.

Left, Jo Anderson. Right, Josephine Cochrane.

‍

Selective pool of innovators and entrepreneurs

Moser draws on historical data from American Men of Science and demonstrates how gender, racial and parental income are strong determinants in the likelihood of becoming an innovator in the U.S. She focuses on the underrepresentation of women in science, more specifically on the ‘motherhood penalty’ experienced by female scientists. This is characterized by a reduction in publication rates when a female scientist becomes a mother and the subsequent lower probability, or delay, in getting tenure, with the associated implications for reduced earning potential and benefits.

‍

Similarly, the phenomenon of restricted entry to innovation applies in Van Reenen’s more recent American entrepreneurship data. This shows entrepreneurship rates are lower for females, non-whites, and people with lower parental income. Even when someone from an underrepresented group does make it through the entry barrier to become an entrepreneur, their returns are significantly lower.

‍

Loss of growth from the ‘missing’ innovators and entrepreneurs

Van Reenen asserts that the problem of having a selective pool of innovators and entrepreneurs is not only an issue of inequality but of inefficiency. If we believe that talent is equally distributed across the population, then the fact that some people are favored while some are not results in talent misallocation. A classic illustration is the work of Hsieh et al (2019) in which they estimate that productivity growth in the U.S. could have been 20-40% higher between 1960 and 2010 if there was no racial and gender discrimination.

‍

Creating a more inclusive pool of potential innovators and entrepreneurs

Both Moser and Van Reenen suggest exposure is key to creating a more inclusive pool of potential innovators and entrepreneurs but from different angles. Drawing on the example of firms that were forced to hire women during WWII, Moser shows these firms shifted their attitudes towards women and became more open to employing and collaborating with them. Van Reenen, on the other hand, emphasizes self-perception, notably through the role model effect. His evidence indicates that a member of a minority is more likely to become an entrepreneur if he/she is exposed to an entrepreneur in early childhood.  

The two arguments underscore the twofold nature of belief formation. Whether one can overcome the entry barriers and get into the pool hinges on the extent they believe they belong in the pool; the other hinges on the beliefs of the people who are already in the pool. In terms of mechanisms to challenge entrenched patterns of underrepresentation, financial support is a factor, and government interventions can enhance exposure of both sides. There is, however, the need to generate further research and evidence to strengthen the case for investment and identify what types of exposure have most impact.

‍

References

• Chetty, R., Van Reenen, J., Zidar, O., and Zwick, E. (2022), America’s Missing Entrepreneurs. Working paper.
• Ciasullo, L., Moser, P., and Smith, K. (2022), Did the Forced Entry of Women during WWII Improve Gender Equity in Science? Working paper.
• Kim, S.D., and Moser, P. (2022), Women in Science: Lessons From the Baby Boom. Working paper.
• Hsieh, C.-T., Hurst, E., Jones, C.I. and Klenow, P.J. (2019), The Allocation of Talent and U.S. Economic Growth. Econometrica, 87: 1439-1474.