Equality and innovation: soul-mates?

“Innovation will tend to be greater in a society where resources[1] are distributed more equally”. This hypothesis formed in my consciousness today while reading the great economist Sraffa’s 1960 book Production of Commodities by Means of Commodities[2] (more interesting than it sounds!) though don’t ask me how I got from there to here.

First, when equality is greater (and assuming full equality would allow a good degree of plenty for everyone) a larger proportion of the population will have enough resource that they don’t need to spend much of their time and existing resource worrying about ‘getting by’. They will have more flexibility (in terms of financial security, steady income perhaps) to devote effort to novel creative/innovative ventures (whether in business, art, civil society). We see this for example in (what I perceive to be, without any judgement, and without hard empirical backing) the greater average contribution of the middle class to civil society as compared to those on very low incomes (even if culture and not just income is also part of the explanation for that).

Second, and similarly, greater resource equality is likely to translate into a larger proportion of the population being educated/developed as persons to the level where they have a greater capacity to innovate.

Third, carrying an innovation from idea to implementation (or from proof of concept to scale) can require a very large amount of resources. One might imagine obtaining such resources from either i) a small number of (perhaps one) exceptionally wealth individual(s); or ii) a large number of individuals with a little surplus.

Here the impact of (in)equality is more ambiguous. On the one hand, a great inequality might make it more likely that the necessary scale of resources is obtainable from a single individual, so that coordination among many individuals is not required. On the other hand, a single individual has a finite amount attention, and — perhaps more importantly where innovation is concerned — will surely have a narrower range of interests and outlook on the world than exists in society at large.

The decision to commit a large amount of resources will depend on the decision maker(s) ‘buying in’ to the vision of what the innovation could be and the difference it could make. If all decisions regarding investment in innovation were left to a single individual, then many investments of potential interest (and value) to society at large would likely be ignored, for one or both of lack of interest or lack of vision of the individual holding the lion’s share of the resources[3]. Put another way, with a smaller number of individuals making the decisions about resource allocation, the outcome is less likely to be ‘let a thousand flowers bloom’.

Meanwhile the problem of coordinating the wider range of decision-makers (corresponding to a wider spread of resources) is one for which capitalism has provided solutions: the joint-stock company, banks and other markets for the raising of non-equity corporate finance; and co-operatives, building societies and other mutual financial institutions.

Therefore, on balance more equality might better support the financing (pooling of resources for) innovation.

Worth considering what happens as the coordinating institutions scale up. If they also centralise decision-making, and especially if this decision-making is opaque (whether through limited disclosure or simply complexity) and/or of limited accountability to the putative beneficiaries (shareholders, depositors etc.) then the diversity of interest vision that would motivate innovation may be diminished. Which raises the question: do some forms of institution (e.g. cooperatives when structured with subsidiarity as a guiding principle) favour innovation more, all else being equal? But that’s another post…

So back to the hypothesis: “Innovation will tend to be greater in a society where resources are distributed more equally”. The above are of course semi-theoretical musings, without (as yet) historical backing. Perhaps they ruffle your ideological feathers? But do the arguments above make sense?

[1] I’m aware that ‘resources’ is somewhat vague. I’m trying not to get dragged into a political philosophical minefield about different concepts of equality. How about you read in whichever concept you think best supports the argument below?

[2] Probably Pasinetti’s 1981 book Structural Change and Economic Growth from yesterday’s reading was in the mental mix too.

[3] A possible counter-argument might be that the currently wealthier, by selection, are those who have been revealed to make better allocation decisions. There may be a grain of truthful tendency here, but there are also reasons to suppose such a link might be fictional: inheritance of wealth so that the current owners are not necessarily those who accumulated it in the first place; and the way to acquire wealth not being always aligned with innovation, or the social good (which is not always coincident with profit maximisation) — e.g. extraction of economic ‘rents’ from controlling natural resources or sources of market power.

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  1. When we love a thing, and are devoted to it, we will go out of our way to dream of all sorts of plausible reasons it’s a great idea, even if the “thing” loved is a boyfriend who beats us black and blue every now and then.

    I think the most resources distributed to the most people in a free society creates the most innovation. The problem is that it does not create the most equality, depending on how one defines that word.

    Your writing was perhaps too complex for my simple mind, but I didn’t see you address risk, which is a natural part of innovation. In a free society with ample resources one might recover from the failure of an expensive enterprise to innovate. But in a society in which equality is enforced, a recovery may not be possible in one lifetime. Moreover, when the reward for success was not all that great in the first place due to enforced equality, why take the risk? This of course would impact innovation negatively.

    1. @Danny — thanks for picking up on this.

      I am not advocating for enforced equality (at least not in any perfect sense, though if you think a minimum wage is enforcement of a degree of income equality then yes I would advocate that). My point really is that where society IS ALREADY more equal (and all else being equal, which often it will not be when comparing between countries with different levels of inequality) there are reasons to think that this may be more conducive to innovation than when wealth is so concentrated that a large proportion of the population is without assets (other than the low-skilled wage labour they may have to offer) or even deeply in debt.

      I agree that innovation and entrepreneurship typically involves risk-taking and that this requires a return to such responsible risk-taking — both as a matter of incentive and of justice. So even a hypothetical completely equal society would not remain perfectly equal for long. However, when inequality grows persistently in the way that we have been seeing in US/UK in the last few decades, this cannot be a healthy state of affairs, and is unlikely to be wholly (or even primarily) the result of a few heroic innovators now repeating their reward.

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