Edmund S. Phelps writes,

My thesis is that the degree of dynamism in a nation’s economy hinges on its development of some key economic institutions – company law and corporate governance, the population’s preparation for business life, the development of financial instruments such as the stock market and so forth. Such general institutions as the rule of law and provision of enough personal and national security to safeguard earning, saving and investing are needed for any market economy, even market socialism; they are insufficient for dynamism.

The way I would put it is that a dynamic economy needs to be able to reward success and to discard failure. If an eager entrepreneur cannot succeed and an incumbent firm cannot fail, then dynamism will be inhibited.

For Discussion. What institutional traits make the U.S. economy more dynamic than many European economies?