Is it cutting-edge technology, strong policies, or access to capital? According to Nobel Prize recipient and renowned macroeconomist Edmund S. Phelps, the answer goes deeper. He argues that true innovation begins with people, particularly their drive to create, explore, and solve problems.¹ Phelps calls this 'economic dynamism': the human will and capacity to innovate.⁴ When curiosity and creativity are nurtured, societies don't just grow, they flourish.
Building on his insights, we can see the four key elements that foster a truly innovative country, insights that also help explain why some nations thrive while others stagnate.
1. Human creativity as a foundation for innovation
Traditional economic models portray individuals as rational agents motivated by self-interest, seeking to maximise their own utility. This perspective, often called Homo Economicus,² reduces human behaviour to predictable, self-serving calculations.
However, Phelps challenges this view in his book Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change. He argues that people are not merely rational calculators but creative beings who find meaning in problem-solving, discovery, and contribution.³ This intrinsic drive, he contends, is the true engine of innovation.³
He further contends that economic systems should be designed to encourage personal initiative and self-expression, rather than merely optimising for efficiency. By fostering environments where individuals are motivated by more than just material gain, societies can cultivate a culture of innovation that drives sustainable economic growth.
2. Meaningful careers that spark innovation
Meaningful work drives intrinsic motivation, boosting employee engagement, creativity, and satisfaction.⁶ Purposeful employment encourages individuals to go beyond assigned tasks, contributing original ideas that benefit both organisations and society.⁴
Beyond the benefits of individual employees, Phelps highlights that when individuals are motivated by curiosity and purpose, innovation tends to emerge organically, not just from R&D departments, but from the ground up.⁴ He notes that economies flourish when people have the freedom to pursue work that challenges and fulfils them, rather than being confined to repetitive or purely transactional roles.⁴
3. Grassroots ideas as catalysts for progress
Innovation often emerges from employees who work closest to the problems they aim to solve. Phelps notes that individuals on the ground, whether factory workers, teachers, or small business owners, often have the most practical insights into what needs to change and how.⁵
Organisations that empower employees to experiment and iterate often see a higher rate of meaningful innovation. Research from Harvard Business Review Analytic Services shows that when leadership entrusts teams with innovating based on their own specific needs, organisations are better positioned to adapt and thrive through disruption.⁷
A lack of entrepreneurial activity can stifle innovation, while a culture that rewards curiosity and risk-taking tends to produce breakthroughs at every level of society.⁵
4. Supportive policies that sustain national innovation
While Phelps places his primary focus on culture and values, real-world experience shows that innovation also depends on structural support. Governments play a key role in creating the conditions under which creativity and enterprise can flourish, through investment in education, research funding, and frameworks that protect intellectual property.
Countries like Finland and South Korea illustrate how supportive policies can foster national innovation. Finland's free, high-quality education system cultivates critical thinking and creativity from an early age,⁸ while South Korea's significant public investment in research and development has helped transform it into one of the world's leading technology economies.⁹
These examples reinforce Phelps's argument: when institutions align with human potential, the results are transformative.
Final thoughts: empowered people, thriving economies
Ultimately, Edmund Phelps reminds us that innovation thrives when people are motivated, curious, and empowered to solve problems. True innovation springs not from top-down directives, but from a society that values human creativity, supports meaningful work, and builds institutions that enable people to contribute fully to economic growth.
For broader perspectives on innovation and economic growth, visit UBS Nobel Perspectives & Economic Views. Our platform provides insights informed by the groundbreaking work of Nobel laureates across economics and beyond.
References
- UBS. Edmund Phelps: How can economic stagnation be stopped? UBS Nobel Perspectives, 2026.
- Chen J.Homo Economicus Explained: Origins, Definition, and Economic Impact. Investopedia, 2026.
- Phelps ES.Mass Flourishing and Economic Dynamism. Finance & Development, 2024.
- Phelps E.Mass Flourishing: An Interview with Edmund Phelps. Profectus Magazine, 2024.
- Zou H-F.
Edmund Phelps on grassroots innovation. The World Bank, 2022. - Adams W, Myles T.The Three Green Flags of Meaningful Work. MIT Sloan Management Review, 2025.
- Harvard Business Review Analytic Services.HBR Analytic Services Research: Empowering Employees to Drive Innovation. Harvard Business Review, 2020.
- Education Finland.Education in Finland: Key to the Nation's Success. Education Finland, 2019.
- Ministry of Science and ICT, Republic of Korea. Major R&D Budget for 2025 Set to Be KRW 24.8 Trillion, the Largest in History. Ministry of Science and ICT, 2024.