It wasn't the scientists who made the industrial revolution, but humbler, enterprising men with grand ideas. "Nearly all the inventors, even the headliners, were not trained scientists, nor were they even particularly well educated. Watt was the exception, not the rule. Arkwright [who co-invented the water-powered spinning frame] was a wigmaker turned industrialist, not a scientist or engineer." 

A nation's potential to flourish comes first of all from its culture at the grass roots of society. It should be no surprise that Israel displays an exceptionally high degree of economic dynamism, with twice the venture capital investment per capita of the United States and 30 times that of Europe. Between 2002 and 2012, investors paid some $42 billion for 772 Israeli start-ups, and that was before Google bought Waze for $1.3 billion and Mobileye's IPO raised the firm's market capitalisation to $7.8 billion. Israel is poised for a wave of wealth-creation considerably greater than its success of the past decade. It is hard to meet an Israeli who does not have a business plan, and the country's venture capital industry encourages entrepreneurs to compete for seed-capital funding.
 

Many things make Israel prone to innovation. It thrives in a part of the world where first prize is the chance to compete for first prize next year, and second prize is, you're dead. It is a nation of immigrants, and immigrants are innovators, in Palo Alto as well as Haifa. It absorbed nearly a million Russian immigrants during the 1990s, of whom 57,000 had worked as engineers-double the number of engineers in Israel before they arrived. With a population of seven million, Israel is a hothouse for startups. But it is hard to project Israel's unique experience onto much larger economies.

America was the great engine of innovation during the 1980s and 1990s, home to most of the world's cutting-edge technology firms. Between 1980 and 2000, it created 40 million jobs, mostly in startups. But total employment fell slightly between 2000 and 2010, and only regained its pre-recession peak in May 2014. What happened to America's capacity to innovate? The problem, Phelps argues, lies in a shift to what he calls corporatism: the suppression of individual initiative and self-expression in favour of the social concerns now bundled together under the rubric of inequality. Excessive regulation, the taxation of emerging business through Obamacare, and other government-imposed burdens on enterprise stifled America's animal spirits.

Part of the answer lies in slow but insidious change in the character of the technology sector itself. To an increasing extent, America's technology firms are not innovators, but investors in patents whose purpose is to stifle innovation. According to William J. Watkins, Jr, author of Patent Trolls: Predatory Litigation and the Smothering of Innovation (Independent Institute, £10.49), many of America's best-known tech firms have spent more money on acquiring and litigating patents in recent years than they have on research and development. In this view, shortening the tenure of patents is a critically-needed regulatory reform.

America's technology companies today look and act like mature consumer franchises rather than innovators. A simple but robust gauge of their descent into stasis is equity price volatility, finance theory's classic measure of market risk. Innovative firms trade with greater volatility than the overall market, which is to say that they have more upside as well as more downside than mature franchises. That was true of the technology subsector of the S&P 500 Index during the late 1990s and early 2000s: the volatility of this S&P sub-index was typically double that of the overall equity index, just what we would expect to observe.