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Noah Smith

Want More Startups? Build a Better Safety Net

Few people will want to risk it all on opening a business without a strong backstop.
Better with a net.

Better with a net.

Photographer: Joanne Rathe/the boston globe/getty images

Back in 2012, Daron Acemoglu -- an economist I follow and greatly respect -- wrote a paper along with James Robinson and Thierry Verdier claiming to explain why Scandinavian countries are (supposedly) less innovative than the U.S. Acemoglu et al. theorized that Scandinavia embraces “cuddly capitalism” -- a strong safety net that prevents failure -- while the U.S. goes in for “cutthroat capitalism.” The do-or-die nature of the American system, they said, causes people to try a lot harder at innovation than their European counterparts.

Bloggers were quick to point out that the paper’s entire premise was probably wrong. Scandinavia isn’t, in fact, less innovative than the U.S. Acemoglu et al. used patents as their measure of innovation, but the volume of patents is more about intellectual property law than entrepreneurial effort. Broader measures of innovation show that the U.S. and Scandinavian countries are about equal. Acemoglu et al. had constructed an elaborate theory to explain something that probably never existed.