Economic Growth and the Role of Human Capital

Byron Ramirez Ph.D.

PUBLISHED:

September 16, 2024

Measuring economic growth allows us to determine whether an economy is expanding, remaining unchanged, or declining. Assessing economic performance, namely economic growth expressed through Gross Domestic Product (GDP), is a common method for evaluating the overall health of an economy. A healthy economy generates jobs and tends to lead to improvements in per capita income and living standards. 


In spite of the COVID-19 pandemic’s adverse effects on productivity, supply chains, and economic output worldwide, the U.S. economy has recovered relatively well during the past couple of years. In 2023, the U.S. economy grew at an average rate of 2.5 percent, indicating modest growth. Although there were some fears of economic decline (and trepidation concerning a potential recession), the U.S. economy has rebounded and created jobs, raising overall economic output. The figure below shows the percent change in real GDP (adjusted for inflation) in the United States during the past six quarters. As we can observe, throughout this time period, the U.S. economy has had positive economic growth.


Source: U.S. Bureau of Economic Analysis


Meanwhile, some countries such as Mexico and India have struggled economically, particularly on a GDP per capita basis. So, one might wonder, why has the U.S. economy been able to recover notwithstanding the difficulties of the COVID-19 pandemic? What has enabled the U.S. to remain economically resilient during these past few years? We will explore this a bit later. But first, let’s discuss how the theories behind economic growth have evolved over time. 


Background on the Study of Economic Growth


Economic growth has been studied for several decades. The economist, Robert Solow, became a prominent scholar on the subject in the 1950s. Solow’s theories proposed the role of accumulation of physical capital and emphasized the importance of technological progress as the ultimate driving force behind sustained economic growth. 


Growth theorists in the 1950s argued that technological progress occurred in an unexplained manner, and thus they placed technological growth outside of their economic model. However, there was a significant shortcoming in assuming that long-run economic growth is largely determined by some unexplained rate of technological progress which, after all, could not be modeled. 


By the 1960s, growth theory was based mainly on the neoclassical model, developed by Ramsey (1928), Solow (1956), and Koopmans (1965), to name a few. The neoclassical model considered individual consumers and firms and assumed that they make rational choices to maximize their utility or profits, and it also presumed perfect information and zero transaction costs. The neoclassical growth model posited that economic growth results from capital accumulation through household savings. Over time, economists would realize that consumers and decision makers in general are not always rational, markets indeed lack perfect information, and transactions between parties certainly yield costs. 


In the 1980s, most of the research conducted by economists centered on “endogenous growth” theories, in which the long–term economic growth rate was largely assumed to be determined by government policies. As such, economists argued that government policies help to motivate businesses to invest in research and development so they can continue to drive innovation.  Several of the economic models that emerged also began to broaden the definition of capital, and included references to human capital (Lucas 1988; Rebelo 1991; Romer 1986). Moreover, another key assumption of the endogenous growth theory is that economic growth is principally the result of internal forces, rather than external ones. 


In the late 1980s and early 1990s, scholarly works began to posit that technological progress generated by the discovery of new ideas was the only way to avoid diminishing returns in the long run. Two professors from the University of Chicago, Paul Romer and Robert Lucas, introduced the notion of “ideas” and of “human capital” as variables that have influence on economic growth. From their research emerged the subfield – the economics of technology. In their ensuing models, the purposive behavior that underlay innovations hinged on the prospect of monopoly profits, which provided individual incentives to carry out costly research (Aghion and Hewitt 1992; Grossman and Helpman 1991; Romer 1990).


Economists’ earlier theories about economic growth had suggested that labor and physical capital and increased productivity from technology are the primary factors that contribute towards economic growth. Over time, however, economists recognized the challenges of achieving economic growth especially as there are diminishing returns to capital and labor, combined with the reality that some countries are not as efficient in their allocation of resources as suggested by the neoclassical growth model.  Consequently, Robert Lucas (1988) and Paul Romer (1994) as well as others (Barro 1997; Rebelo 1991; Sachs and Warner 1997) proceeded to advance ‘Endogenous Growth Theory’ by arguing that economic growth can be driven by human capital, namely by the expansion of skills and knowledge that make workers productive. Thus, they argued that human capital has increasing returns to scale (i.e., the output increases by a larger proportion than the increase in inputs).   


The Influence of Human Capital on the Economy 


For some time now, there has been growing research on the impact of human capital on the economy. A study conducted by the Centre for Economics and Business Research in 2016 indicated that human capital is nearly 2.5 times more valuable to the economy than physical assets such as technology, real estate and inventory. The study also highlighted that for every $1 invested in human capital, $11.39 is added to GDP (CEBR, 2016). This study underscored the important role human capital plays in driving economic growth. When human capital increases in a society, including in areas such as education, science, manufacturing, and management, it leads to increases in innovation, increased productivity, and improved rates of labor force participation, all of which support economic growth.


And so, we come back to the questions: Why has the U.S. economy been able to recover notwithstanding the difficulties of the pandemic? What has enabled the U.S. to remain economically resilient during these past few years? I argue that the United States has been able to withstand the adverse effects of the pandemic due to its sizable stock of human capital. Since the U.S. is a high-income country with a workforce that has relatively high levels of education and health (on average), it tends to develop human capital at a higher rate (relative to other countries), enabling it to contend with economic adversity through innovation driven by knowledge workers. Below is a graph using data from the World Bank which shows the relationship between the Human Capital Index (Note: HCI is comprised of education and health components), and GDP per capita. As we can see from the graph, the United States has a high HCI score (0.7) and a high level of GDP per capita (slightly above USD$60,000). 


Source: Our World in Data, 2024


Key Lessons 


The Human Capital Index, developed by the World Bank, conveys the productivity of the next generation of workers compared to a benchmark of complete education and full health (World Bank, 2024). The HCI measures the knowledge, skills, and health that a child can expect to accumulate during their youth, taking into account factors such as education, health, and survival rates. The index is devised to indicate how improvements in health and education outcomes can lead to considerably greater productivity of the next generation of workers. Higher values indicate higher expected human capital. The United States’ relatively high HCI index score of 0.7 as of the year 2020, indicates that the country had made investments in human capital. A country's HCI score is its distance to the “frontier” of complete education and full health. Based on this index score, a child born in the United States will be 70 percent as productive when she grows up as she could be if she enjoyed complete education and full health.  In other words, the future earnings potential of children born will be 70% of what they could have been with complete education and full health. 


Unlike physical capital, human capital has increasing rates of return. Therefore, economic growth is augmented at a larger rate as human capital accumulates (people acquire more knowledge and skills). If human capital is indeed nearly 2.5 times more valuable to the economy than physical assets, then economies (nations) ought to invest in those areas that support human capital, namely education and health. And if investing $1 in human capital yields an estimated $11.39 to GDP, then countries will benefit greatly from investing in improving the health and education of people. 

Nations that invest in human capital are more adept at developing innovations that improve efficiency, competitiveness, and productivity. Human capital is also a key input in the research sector, which develops and incubates new ideas that support technological progress and innovation. Moreover, investing in education is intricately connected with the development of human capital and economic development (Barro and Lee 1993; Romer 1993). Hence, an increase in the educational attainment level of the population will, in turn, yield knowledge spillover effects which spur innovation across different industries and sectors.  And at the aggregate level, innovation will produce the long-term effect of increasing the economic growth rate. 


Innovation led by human capital (skilled knowledge workers) provides productivity gains that allow firms to expand their size, market reach and profits. Human capital also contributes to the efficiency and effectiveness of organizations within the social and public sectors.  In all, investing in human capital is beneficial to the well-being of the economy and society in general. Enhancing the education and health of people is essential to developing human capital and economic resilience. The acquisition of skills and knowledge enable ‘knowledge workers’ to drive entrepreneurial activities and innovation, proving that human capital is indeed the most important factor to developing a resilient economy and a functioning society. 

References

Aghion, P. and P. Howitt (1992). A Model of Growth through Creative Destruction. Econometrica, 60, 323-351.

Barro, R. (1997). Determinants of economic growth: a cross-country empirical study (2nd ed.). Cambridge, MA: The MIT Press.

Barro, R. J., & Lee, J. W. (1993). International comparisons of educational attainment. Journal of monetary economics, 32(3), 363-394.

Centre for Economics and Business Research. (2016). Korn Ferry Economic Analysis: Human Capital. 

Data Page: Human Capital Index. Our World in Data (2024). Data adapted from World Bank. Retrieved from https://ourworldindata.org/grapher/human-capital-index-in-2020 [online resource]

Grossman, G. M. and E. Helpman (1991). Innovation and Growth in the Global Economy. The MIT Press, Cambridge, MA.

Koopmans, T.C. (1965). On the Concept of Optimal Economic Growth. In: Johansen, J., Ed., The Econometric Approach to Development Planning, North Holland, Amsterdam.

Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 2, 3-42.

Ramsey, F.P. (1928). A Mathematical Theory of Saving. Economic Journal, 38, 543-559.

Rebelo, S. (1991). Long-run policy analysis and long-run growth. Journal of Political Economy. IC, 500-521.

Romer, P. M. (1986). Increasing Returns and Long-run Growth, Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.

Romer, P. M. (1990). Endogenous Growth and Technical Change, Journal of Political Economy, 99, pp. 807-827.

Romer, P. M. (1993). Idea gaps and object gaps in economic development. Journal of Monetary Economics, 32(3), 543-573.

Romer, P. M. (1994). The origins of endogenous growth. The Journal of Economic Perspectives, 3-22.

Sachs, J. D., & Warner, A. M. (1997). Fundamental sources of long-run growth. The American Economic Review, 184-188.

Solow, R. M. (1956). A Contribution to the Theory of Economic Growth, The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.

U.S. Bureau of Economic Analysis. (2024). Gross Domestic Product. Retrieved from: https://www.bea.gov/data/gdp/gross-domestic-product [online resource]

World Bank. (2024) World Bank Group launches Human Capital Index (HCI). Retrieved from: https://timeline.worldbank.org/en/timeline/eventdetail/3336  [online resource]

Alexis de Tocqueville and The Future of Democracy: Part II

By Karen Linkletter Ph.D. • June 21, 2025
In Part I of this series, I gave a brief overview of Alexis de Tocqueville’s background and project of evaluating American Democracy in the early 19 th century. In this new installment, I’d like to share de Tocqueville’s observations about the nature of equality in America and how what he saw might help us understand some of the challenges democracies face today. When de Tocqueville visited America in 1830-1831, the young nation was in the process of redefining equality both in social and political terms. As I noted earlier, the election of Andrew Jackson as president coincided with the expansion of suffrage to not just propertied white males, but to virtually all free white men. This was because as time passed from the founding of the nation in 1789, large property holdings were broken up and passed onto heirs (something de Tocqueville himself noted). In the younger frontier states, and even in the original colonies, governance required broader participation of the electorate. When the founders crafted the United States’ Constitution, they did not envision a democracy that involved a citizenry of the majority (and certainly not women or people of color). While de Tocqueville has much to say about the political conditions in America, it is his commentary on the social ramifications of this changing nature of equality that is most fascinating (and, perhaps, particularly instructive for us today). As wealth was distributed from the few to the many, the concept of a wealthy propertied class began to fade away. This development was exacerbated by the growth in early industry in the East (notably textile manufacturing) which fueled a rising middle class in the cities. As de Tocqueville notes, the early landed gentry families had all but disappeared as their children became doctors, merchants, and lawyers, “commingled with the general mass.” As a result, he comments, Americans embraced a “middling standard” with respect to education and social station. We continue to see echoes of this as most Americans today would claim to be “middle class” even though it is statistically impossible for everyone to be in the “middle.” Throughout his Democracy in America, de Tocqueville argues that the democratic obsession with equality has dramatic social and cultural consequences. What de Tocqueville refers to as “equality of condition” is not actual equality, but the belief in its primacy as an organizing principle for society. The concept of a meritocracy, where one rises or falls by one’s own efforts rather than by virtue of birth status or family heritage, was increasingly part of American culture by the 1830s; the concept of the “self-made man” was enshrined in popular culture from Benjamin Franklin’s work through the Horatio Alger stories of the 19 th century. De Tocqueville observed that this insistence on self-making, on individual achievement, rips at the social fabric of relationships and interconnectedness. Individualism leads a person to “sever himself from the mass of his fellows” and leave “society at large to itself” (98). As one can no longer distinguish oneself in society by position or family status, one must now achieve individual success or power in order to ‘be someone’. This is a byproduct of equality of condition, because as de Tocqueville argues, no person really wants to be the same as everyone else. Deep down, no one truly desires absolute equality on a social level. The question is: how does someone achieve, in Drucker’s terms, status and function if the old order of aristocracy and class structure is swept away? That was one of the primary questions that De Tocqueville pondered as he studied the emerging American Democracy of the early 1800s. One of the manifestations of the desire for status and function in a society obsessed with equality of conditions is an increasing focus on material success. De Tocqueville was fascinated by the “restlessness” with which Americans lived in such prosperity. This is one of my favorite passages from Democracy in America: In the United States a man builds a house in which to spend his old age, and he sells it before the roof is on; he plants a garden and lets it just as the trees are coming into bearing; he brings a field into tillage and leaves other men to gather the crops; he embraces a profession and gives it up; he settles in a place, which he soon afterwards leaves to carry his changeable longings elsewhere. If his private affairs leave him any leisure, he instantly plunges into the vortex of politics; and if at the end of a year of unremitting labor he finds he has a few days’ vacation, his eager curiosity whirls him over the vast extent of the United States, and he will travel fifteen hundred miles in a few days to shake off his happiness. Death at length overtakes him, but it is before he is weary of his bootless chase of that complete felicity which forever escapes him. De Tocqueville describes what we have, in various periods of time, called “keeping up with the Joneses” or “keeping pace” – the desire to match or supersede others’ social status and lifestyles. When the old systems of class stratification disappear, economic success often becomes a marker of achievement in democratic societies. This leads to not just consumerism, but also the “disquietude” that De Tocqueville noticed. Nothing is ever good enough, because one is always measuring oneself against the prosperity of neighbors, co-workers, and associates. Time is short, and “anxiety, fear, and regret” occupy the mind as we worry about what we are missing out on and what we haven’t achieved. As we think about current modern democratic societies, we can see how this obsession with equality of condition and its associated pressures on the need for status and function have only become more exaggerated. De Tocqueville’s work paved the way for Drucker’s argument against an “Economic Man”: a promise of equality based on either a capitalist or socialist system. Socioeconomic equality is not only impossible; it runs against human nature. Furthermore, Drucker’s theory of a knowledge society, a society based on education and knowledge as capital, makes this even more complicated. The more educated people not only make more money, but they also wield more influence politically and socially. Drucker saw this as early as the 1950s, but it is more obvious today. Now, democratic societies face the perception of an elite ruling class in government, academia, business, and other institutions. The “us” vs. “them” mentality pits this elite class against “the middle” – the average person who feels neglected and missing out, “weary of his bootless chase.” Because we have embraced equality as a passion, democracies are perceived as failures in their ability to uphold the promise of economic and social equality for all. The result is a global rise in populism, a rage against the elite establishment, and a desire to tear down institutions. We have seen this play out in political developments in Poland, Italy, Germany, and the United States. What is the solution to this predicament? Should we not pursue equality? Drucker made the case that free societies needed to provide avenues for status and function for all of its members, which meant that economic success and educational achievement could not be the only avenues for being part of society. If a portion of society sees itself as outcasts, as unable to ‘be someone’ or contribute meaningfully, they will perceive that democratic institutions have failed them. The only way for democratic societies to function is to uphold some faith in equality of condition for all. Once the belief in fundamental principles is lost, there is little glue to hold societies together. The key is how we define “equality”; as Drucker and de Tocqueville showed us, promises of economic equality are destined for failure. But democratic societies can afford all of its members human dignity and a sense of purpose. In the next installment, I’ll provide some of de Tocqueville’s suggestions for strengthening democratic institutions. Sources Tocqueville, A.D. and Reeve, H. (1835). Democracy in America. London: Saunders and Otley, to 1840.

El Emprendedor, El Emprendimiento, y La Innovación

By Byron Ramirez Ph.D. • June 11, 2025
Cada mañana, Isabel abría su pequeño taller antes del amanecer, aunque nadie aseguraba que llegaría un cliente. No heredó fortuna, solo poseía una idea: reinventar la forma de vestir a su comunidad. Mientras otros dormían, ella soñaba despierta, hilando futuro entre telas. Así comenzó su historia como emprendedora. El emprendedor está motivado por la posibilidad de que sus productos y servicios puedan agregar valor a la sociedad. Pero también está consciente de que, para operar de manera sostenible, necesita generar ganancias. Los emprendedores tienden a reevaluar constantemente sus productos o servicios, mientras examinan el mercado en el que compiten y la forma en que producen y distribuyen sus ofertas. Ellos entienden que, para sobrevivir la intensa rivalidad y competencia que enfrentan, deben encontrar formas de innovar continuamente. La necesidad de competir de manera efectiva conduce a que los emprendedores apuesten por la innovación, ya que esta también facilita la creación de valor. Este es el proceso denominado "destrucción creativa". Joseph Schumpeter acuñó este término para describir el proceso de cambio desordenado, donde las ideas, productos, empresas e industrias enteras son desplazadas por nuevas innovaciones. Schumpeter sostuvo que la principal contribución de los emprendedores a la sociedad es abogar por el cambio y la disrupción, y al hacerlo, ayudan a avanzar a la sociedad. Schumpeter estableció conceptualmente al "emprendedor como innovador", siendo el emprendedor una figura clave en el impulso del desarrollo económico. Schumpeter argumentó que la innovación es un factor crítico del cambio económico. Indicó que el cambio económico gira en torno a la innovación, las actividades emprendedoras y el poder del mercado. Schumpeter afirmó que el poder del mercado originado en la innovación podría proporcionar mejores resultados que la competencia de precios y la ‘mano invisible’. Además, sugirió que la innovación a menudo crea monopolios temporales, permitiendo ganancias anómalas que pronto serían disputadas por imitadores y rivales. Explicó que estos monopolios temporales eran necesarios para proporcionar el incentivo requerido para que otras empresas desarrollaran nuevos productos y procesos. Por consiguiente, el emprendedor introduce cosas nuevas, procesos y perspicacia empresarial con el propósito de transformar innovaciones en bienes económicos. Y el emprendedor está dispuesto a asumir el riesgo asociado con introducir el cambio. Las actividades innovadoras de los emprendedores alimentan un proceso de ‘destrucción creativa’ al causar disturbios constantes en un sistema económico en equilibrio, creando así oportunidades para generar ingresos y beneficios. Por lo tanto, el emprendimiento interrumpe el flujo estacionario del sistema económico y de esta manera inicia y sostiene el proceso de desarrollo económico. Al ajustarse a un nuevo equilibrio, se generan otras innovaciones y más emprendedores entran al sistema económico, introduciendo nuevos productos y servicios, fomentando así el progreso. De manera similar, las empresas emprendedoras participan en la destrucción creativa y así logran captar una parte del mercado al reemplazar empresas que han fracasado en producir productos y servicios valiosos. El proceso de destrucción creativa incentiva a las empresas a desarrollar nuevos productos, servicios y procesos; de lo contrario, no sobrevivirán a largo plazo. El emprendimiento abarca la entrada al mercado de nuevas empresas, pero también respalda el desarrollo de actividades innovadoras en empresas existentes que les permiten crear valor continuo. En este sentido, la innovación puede caracterizarse como el desarrollo de un nuevo producto, servicio o proceso a medida que la empresa emprende nuevas combinaciones de los factores de producción. La innovación es un proceso complejo y dinámico que requiere compromiso, recursos e inversión. Muchas veces, las empresas modifican su modelo de negocio existente, reorganizando la forma en que desarrollan un producto o la manera en que entregan nuevas funcionalidades o servicios a sus clientes. Las modificaciones a un proceso organizacional existente, a un modelo de negocio existente, o incluso a un método de prestación de servicios, son todos ejemplos de cómo se aprovecha la innovación para buscar una mayor efectividad. La innovación puede caracterizarse como el desarrollo de un nuevo proceso o producto (o servicio) que satisface nuevos requerimientos y/o necesidades del mercado existentes. Drucker nos dice: “La innovación debe centrarse en una necesidad específica que satisface, en un resultado final específico que produce.” (Drucker, 1985). La innovación permite que productos, procesos, servicios, tecnologías e ideas más eficaces estén disponibles para los mercados y la sociedad. Como resultado, la innovación es utilizada por la empresa como un medio para satisfacer las necesidades de los consumidores; como una herramienta para competir con otras empresas en un mercado existente; y como un instrumento para ingresar a un nuevo mercado. Por lo tanto, la innovación incrementa conceptualmente la probabilidad de que la empresa logre eficiencia económica a corto plazo, y puede permitirle establecer una posición más competitiva a largo plazo. No obstante, la empresa se enfrenta a limitaciones internas (por ejemplo, el costo de insumos) y limitaciones externas (por ejemplo, la competencia en el mercado) que hacen que sea difícil subsistir. Además, los rendimientos marginales decrecientes influyen en la capacidad de producción de la empresa. La innovación puede considerarse esencial para el éxito de las empresas y para la supervivencia económica a largo plazo. Según algunos académicos, la innovación puede ayudar a mejorar la supervivencia a largo plazo de una empresa, ya que puede mejorar su oferta de línea de productos/servicios al tiempo que le permite establecer una ventaja competitiva sobre otras empresas (Antonelli, 2003; Lundvall, 2007; Porter, 1990; Schumpeter, 1936; Teece y Pisano, 1994). Vale la pena señalar que la empresa que elige innovar lo hace basándose principalmente en la información que tiene sobre las preferencias, deseos y necesidades de los consumidores en su mercado. En otras palabras, la empresa innova porque reconoce la oportunidad y el valor de satisfacer las necesidades y deseos de los consumidores a corto plazo y ve la inversión en innovación como un medio para también posicionarse eficazmente a largo plazo. Drucker nos recuerda: “La innovación sistemática y con propósito comienza con el análisis de las oportunidades” (Drucker, 1985). Y dado que la empresa enfrenta competencia, la innovación se convierte en una vía a través de la cual la empresa puede diferenciar sus productos o servicios. La innovación es la materialización exitosa de una idea útil, donde la idea es comercializada. La innovación también permite a la empresa reconfigurar sus recursos de manera más eficiente, y por lo tanto le permite aumentar su productividad, con la implicación de que esto puede ayudar a aumentar sus ganancias. La innovación ha ayudado a construir empresas y a hacer crecer y desarrollar industrias. Por ejemplo, hace apenas dos décadas, las empresas tenían dificultades para gestionar la gran cantidad de información y datos relacionados con sus interacciones continuas con los clientes. Desde 1999, Salesforce ha revolucionado la forma en que las organizaciones hacen seguimiento de las interacciones con los clientes y gestionan sus datos de ventas. Desde su fundación, Salesforce ha desarrollado múltiples versiones de sus productos, dando lugar a un sofisticado software empresarial basado en la nube que respalda la gestión de relaciones con los clientes (CRM). Las soluciones innovadoras de Salesforce incluyen la automatización de fuerza de ventas, servicio y soporte al cliente, automatización de marketing y comercio digital. Salesforce ha permitido a grandes organizaciones automatizar sus procesos de ventas y marketing y volverse cada vez más eficientes, al tiempo que se convierten en gestores eficaces de los datos e información de los clientes. La innovación no es un proceso lineal. Por el contrario, es un proceso altamente iterativo de reconsiderar muchos factores internos técnicos y operativos, y factores externos, con una interpretación en constante flujo de cómo la empresa podría continuar desarrollando y ofreciendo productos y servicios. La empresa en la que se fomenta la innovación debe apoyar las diversas iteraciones, interacciones y transacciones necesarias para respaldar los esfuerzos de innovación. El emprendedor, que no le teme a la incertidumbre ni al riesgo, es capaz de gestionar este proceso dinámico.  La innovación que aborda una necesidad o deseo del mercado aporta valor a la sociedad. Sin embargo, la innovación requiere que las empresas analicen sistemáticamente las oportunidades que se presentan. Por lo tanto, el emprendedor y la empresa emprendedora deben desarrollar la capacidad de observar y percibir las necesidades cambiantes de las personas. El emprendedor debe entonces centrarse en ofrecer una solución que satisfaga un conjunto específico de necesidades o deseos. Esto implica que la innovación debe ser manejada con propósito. Y también requiere que el emprendedor no solo sea disciplinado, sino que esté dispuesto a invertir en la adquisición de conocimiento que pueda aplicarse productivamente. Tanto el emprendedor como la empresa emprendedora deben reevaluar continuamente sus productos y servicios, analizar el mercado en el que compiten y reconsiderar la forma en que producen y distribuyen sus productos y servicios. Al adoptar la innovación, abogarán por el cambio y la disrupción, y ayudarán a avanzar a la sociedad. Referencias Antonelli, C. (2003). The economics of innovation, new technologies and structural change: studies in global competition series. New York, NY: Routledge. Drucker, P. (1985). Innovation and entrepreneurship: practice and principles. New York, NY: Harper Business. Lundvall, B. Å. (2007). National innovation systems—analytical concept and development tool. Industry and innovation, 14(1), 95-119. Porter, M. E. (1990). The Competitive advantage of nations: creating and sustaining superior performance. New York: Simon and Schuster Inc. Schumpeter, J.A. (1936). The Theory of Economic Development, Second Edition. Cambridge: Harvard University press. Teece, D., & Pisano, G. (1994). The dynamic capabilities of firms: an introduction. Industrial and corporate change, 3(3), 537-556.

Alexis de Tocqueville and The Future of Democracy: Part I

By Karen Linkletter Ph.D. • May 13, 2025
In today’s political environment, particularly in the United States, there is much discussion about the future of democracy. Globally, traditional democratic forms of government are being called into question. Is democracy no longer effective in its ability to represent “the people”? Have democratic governments been hijacked by elite, moneyed interests? Are our institutions no longer effective and in need of some kind of reset or reinvention? The increasing appeal of authoritarian regimes, driven by populist anger, has been the subject of the work of many political scientists and observers (Silver and Fetterolf, 2024, Praet, 2024, Rhodes, 2022). Nearly 200 years ago, Alexis de Tocqueville (1805-1859) sought to understand the essence of democracy. His motivations and observations can perhaps be instructive to us today as we wrestle with the nature of democracy in the modern era. Alexis de Tocqueville was a member of the French aristocracy in the era immediately following the French Revolution. The revolution, which began in 1789, featured the rejection of the monarchy through violent spectacle, including public beheadings via the newly developed guillotine. Alexis’s father was part of the French government and was briefly imprisoned during the Reign of Terror. Nevertheless, he was sympathetic to the revolutionary cause. In fact, many members of the aristocracy in de Tocqueville’s France understood the motivations behind the revolution and sought to ensure that subsequent governments addressed the extreme economic disparities that were exposed by the violent events of the Reign of Terror. Alexis was educated in the aristocratic tradition, studying political philosophy and theory, history, and law. He was well-versed in the Enlightenment philosophy that influenced the framers of the American Constitution, particularly Montesquieu. Montesquieu argued for separation of powers in governance, which derived from his belief in the human capacity not only for greatness, but also for corruption. This tension between virtue and vice, which Montesquieu saw as a universal condition of humankind throughout time, required guardrails to slow down or inhibit abuse of power. Following the establishment of the French Consulate in 1799, Napoleon rose to lead the French Empire in 1804. After his defeat in the Battle of Waterloo, France restored the monarchy to Charles X. However, this was a constitutional monarchy rather than one based on the rights of heredity. In 1830, France overthrew King Charles X of the House of Bourbon, growing critical of his broken promises for economic relief from taxation to pay off the debt of the Napoleonic Wars. Charles was replaced by his cousin, Louis Philippe, of the House of Orleans. Louis Philippe sought to reform the monarchy, recognizing freedoms such as voting rights. Referred to as the “Citizen King”, he would be one of the last kings to represent France. In essence, France was beginning to understand the inevitable: the past world of a hereditary monarch claiming absolute authority was over, and the constitutional monarchy seemingly could not deliver on the promises of egalitarianism made in 1789. But what would the new form of governance look like? This was not clear. Even though the country had a reformist government, constitutional monarchy still retained elite status/class distinctions to maintain social order.  Alexis de Tocqueville was 25 when Louis Philippe was installed as the Citizen King in the July Revolution of 1830. Believing that democracy would inevitably come to France, de Tocqueville wanted to study that form of government. What did it look like? How could it be a stable form of government? Because the United States of America was the earliest experiment in democracy, de Tocqueville petitioned the king to travel to America to study that country. In particular, de Tocqueville convinced the king to let him study the American penitentiary movement. One of the areas of reform pursued in France was prison reform (prisons in France were notoriously horrible). At the time, America was in the middle of its own reform movement, including the penitentiary system of prison reform. The concept of a penitentiary was brand new. The idea behind it was that, instead of rotting in prison forever, you would be reformed and released back into society if you were truly sorry, or penitent for, your crimes. De Tocqueville visited America in 1831-1832. In addition to prison reform, he witnessed many remarkable developments in American democracy. It was President Andrew Jackson’s first term, which involved substantial political upheaval in America. Jackson was the first President elected “of the people.” He was not a Virginian or New England “blue blood,” like all the presidents before him had been. Jackson was from the frontier, and had built his name on a military career, most notably in the War of 1812 at the Battle of New Orleans. Jackson’s election coincided with the expansion of suffrage to most white males regardless of their property ownership. Jackson was understandably a controversial President; his election gave birth to the Whig party as a political alternative. His fight against the Bank of the U.S. placed him at odds with a rapidly developing commercial middle class. During de Tocqueville’s visit, Americans were participating in a growing reform culture. Abolition, or anti-slavery, was building steam in the nation. William Lloyd Garrison published his first issue of The Liberator, an important abolitionist newspaper that de Tocqueville read. There were religious revivals, known as the Second Great Awakening, and urban reform movements targeting prostitution, temperance, and of course, prison reform, the purported reason for de Tocqueville’s visit. The discovery of gold on Cherokee land in Georgia in 1828 snowballed into the event eventually known as the Trail of Tears, the forced removal of thousands of Native Americans from their ancestral lands. Jackson’s 1830 Indian Removal Act made such events legal, and de Tocqueville personally witnessed the removal of the Chocktaw tribe. On a lighter note, this was also a time of incredible technological development. Railroad development and land speculation was beginning, McCormick had just patented his reaper, and de Tocqueville saw the newly opened Erie Canal. While de Tocqueville studied the nature of America’s young democracy nearly 200 years ago, we can leverage his observations with our own experience of facing a changing world where the nature of democracy is being questioned globally. The move towards increasing authoritarianism and populist movements calls into question whether democracy is government by the people or by the elite. Can de Tocqueville’s observations help us assess how we might keep democracies intact or make them more effective? In our next installment, I’ll look at de Tocqueville’s specific observations regarding democracy – particularly those related to the nature of equality. Sources Montesquieu, Charles de Secondat, baron de (1949). The spirit of the laws. New York: Hafner Pub. Co. Praet, J. (2024). Bringing authoritarianism into the limelight: the implications for populist radical right ideology. Journal of Political Ideologies, 1-23. Rhodes, B. (2022). After the Fall: The Rise of Authoritarianism in the World We’ve Made. Random House. Silver, L. and Fetterolf, J. (2024). Who likes authoritarianism, and how do they want to change their government? Pew Research Center, February 28. https://www.pewresearch.org/short-reads/2024/02/28/who-likes-authoritarianism-and-how-do-they-want-to-change-their-government/ Tocqueville, A.D. and Reeve, H. (1835). Democracy in America. London: Saunders and Otley, to 1840.
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