I have friends who revel in arriving in a place and immediately investigating the neighborhood’s shortcuts, jogging down paths without a destination, wandering down wayward trails just to see where they lead. For those whose thirst for adventure is complemented by a healthy dose of spatial awareness and cognition, discovery is a thrill. Personally, I cannot relate to any of this. Nothing means less to me than the orientation of the sunrise and sunset. Your cardinal points are wasted on me, for I am a person endowed with no sense of direction whatsoever. Throw in any language other than my native fluency in French and English, along with a flailing Spanish, and my demise is guaranteed. Yet, in recent years, I have felt confident enough to explore places where I had never been before without knowing the local official language. In all this, my saving grace has been my iPhone—the powerful pocket-sized computer whose mapping and translating superpowers have convinced me almost no place is out of my reach. I’ll say it: I am a socialist and I love my iPhone.
This confession is music to the ears of the “capitalism made your iPhone” club. Indeed, proponents of capitalism often brandish rapid innovation as if it were an automatic checkmate on collectivist socioeconomic ideologies. To them, modern technology proves not only that capitalism works, but that it is the best system to stimulate innovation. The subtext of their retort is that a socialist economy could never generate technology this advanced. When coupled with a defense of “thought leaders” as obscenely rich as Steve Jobs, Elon Musk, and Jeff Bezos, their argument also contends that concentrating capital and power in the hands of a few billionaires is a small price to pay for the astronomical leaps in innovation from which we all benefit.
Capitalism’s fan base is not wrong that the iPhone, first released in 2007, is a product of America’s fiercely capitalist economy. I will also concede that without the vision of Steve Jobs, Apple’s late CEO and the 110th richest person in the world at his death, there would be no iPhone as we know it (although it is worth noting that the army of engineers and developers whose labor actually produced the iPhone might have come up with an equally wonderful smartphone). Nonetheless, their perspective is deeply misguided. It manages to both underestimate how much capitalism stifles innovation and misunderstand how much the fundamentals of a socialist economy make it the better system for stimulating innovation.
Innovation describes a four-step process that creates or ameliorates a thing or way of doing things. It begins with invention, the design of a device or process that did not previously exist in this form. The invention is then developed, meaning that it is improved with an eye towards eventual scaling, exchange or introduction on a market, and external use by others. At the production stage, the invention is built or reproduced. Finally, the invention is distributed to a wider audience. In our present economy, a minority of the innovation process happens at the individual level, from lonesome inventors and modern Benjamin Franklins who are able to conjure all sorts of contraptions in their garage. The majority, however, results from research and development (R&D) paid for by private firms, and by the public through government agencies, research institutions, and other recipients of federal and state funding.
The profit motive and exclusive proprietary rights are central to capitalist innovation. By law, private firms must prioritize the interest of their shareholders, which tends to be interchangeable with making as much money as possible. Accordingly, investments in any stage of the innovative process must eventually produce profits. To maximize profit, private firms jealously guard the value of their invention through regulations and restrictive contracts. Statutes and regulations help protect their trade secrets. The U.S. Patent and Trademarks Office routinely grants them utility and design patents that “exclude others from making, using, offering for sale, or selling … or importing the invention” for twenty years after the patent is issued. They enforce licensing agreements that can limit the uses and dissemination of all or part of their inventions. To further frustrate efforts to innovate on the back of their inventions, private firms subject their former employees to non-compete agreements that can severely limit them from using their knowledge and skills on competing projects for a period following their departure. Breaches carry dire consequences like expensive lawsuits, big money judgments, and other enormous hassles.
By contrast, the public sector innovates under an academic model instead of for profit. Certainly, earning tenure or an executive position can be lucrative. In some industries, a revolving door gives individuals the opportunity to innovate in both the private and public sectors throughout their careers. However, innovation in this area is less motivated by extracting profit, and more so by signifiers of prestige, career appointments, recognition, publication, project funding, and prizes.
The capitalist model has its perks. At present, private firms raise massive amounts of capital from the government to fund research, but also from banks, private equity, and wealthy donors. This vast amount of capital can prove lucrative for certain classes of workers. Innovative talent might accumulate wealth through generous compensation packages, which play an important role in attracting and retaining them.
Private firms also boast a terrifying nimbleness that allows them to push projects and respond to change faster than government institutions. For instance, firms can turn over staff quickly if their industry in the absence of unions and norms against firing workers at will, other than the standard prohibitions against discriminatory practices. In other words, without the regulatory and administrative constraints that saddle publicly funded projects, private firms can move through the innovative process faster.
Another advantage of the capitalist model is that profits—potential and actual—provide some measure of how well a company is innovating. Particularly, for the many private firms that sell some of their shares to the public on stock exchanges, prices serve as a form of feedback from investors and the market. Imagine that a publicly-traded retailer announces the imminent launch of an affordable, solar-powered computer that boasts power and speeds to rival Apple’s newest models. In the hours following the press release, the retailer’s stock value triples. A week later, while at a tech conference in the Colorado mountains, the retailer’s CEO lets it slip that the first prototype will actually retail for about four thousand dollars. Unfortunately for the CEO, he was wearing a hot mic. The quote is made public in an article titled “No debt-saddled, environmentally-conscious millennial will shed $4,000 for a computer!” The stock value immediately plummets by two-hundred percent.
The original rise in the retailer’s share value communicates that investors believe in the product as a profitable enterprise, and that they see this type of innovation as a worthwhile pursuit. The drop, on the other hand, suggests that they believe this specific product would be more marketable and therefore more profitable if it were developed for an audience beyond high-end consumers. The turn in the stock value can embolden the retailer—through its management, Board of Directors, or shareholders—to revisit its plan to innovate. It also signals to competitors that their innovation of a similar product could be well received, especially if they can overcome the original product’s weaknesses.
But prioritizing profit is a double-edged sword that can hamper innovation. Owning the proprietary rights allows private firms to block workers—through anti-competitive tools like non-compete agreements, patents, and licenses—who put labor into the innovation process from applying the extensive technical expertise and intimate understanding of the product to improve the innovation substantially. This becomes especially relevant once the workers leave the firm division in which they worked, or leave the firm altogether. Understandably, this lack of control and ownership will cause some workers, however passionate they may be about a project, to be less willing to maximize their contribution to the innovation.
Of course, the so-called nimbleness that allows firms to make drastic changes like mass layoffs is extremely harmful to the workers. This is no fluke. The capitalist economy thrives on a reserve army of labor. Inching closer to full employment makes workers scarcer, which empowers the labor force as a whole to bargain for higher wages and better work conditions. These threaten the firm’s bottom line. So, the capitalist economy is structured to maintain the balance of power towards the owners of capital. Positions that pay well (and less than well) come with the precariousness of at-will employment and disappearing union power. A constant pool of unemployed labor is maintained through layoffs and other tactics like higher interest rates, which the government will compel to help slow growth and thereby hiring. This system harms the potential for innovation, too.
The fear of losing work can dissuade workers from taking risks, experimenting, or speaking up as they identify items that could improve a taken approach—all actions that foster innovation. Meanwhile, thousands of individuals who could be contributing to the innovative process are instead involuntarily un-employed. This model also encourages monopolization, as concentrating market power gives private firms the most control over how much profit they can extract. But squashing competition that could contribute fresh ideas hurts every phase of the innovation process, while giving workers in fewer workplaces space to innovate.
Deferring to profit causes many areas of R&D to go unexplored. Private firms have less reason to invest in innovations likely to be made universally available for free if managers or investors do not see much upside for the firm’s bottom line. In theory, the slack in private research can be picked up by the public sector. In reality, however, decades of austerity measures threaten the public’s ability to underwrite risky and inefficient research. Both the Democratic and Republican parties increasingly adhere to a neoliberal ideology that vilifies “big government,” promotes running government like a business, pretends that government budgets should mirror household budgets or the private firm’s balance sheet, and rams privatization under the guises of so-called public-private partnerships and private subcontractors.
In the United States, public investment in R&D has been trending downward. As documented in a 2014 report from the Information Technology & Innovation Foundation, “[f]rom 2010 to 2013, federal R&D spending fell from $158.8 to $133.2 billion … Between 2003 and 2008, state funding for university research, as a share of GDP, dropped on average by 2 percent. States such as Arizona and Utah saw decreases of 49 percent and 24 percent respectively.” Even if public investment in the least profitable aspect of research suddenly surged, in our current model, the private sector continues to be the primary driver of development, production, and distribution. Where there remains little potential for profit, private firms will be reluctant to advance to the next phases of the innovation process. Public-private projects raise similar concerns. Coordinated efforts can increase private investment by spreading some costs and risk to the public. But to attract private partners in the first place, the public sector has a greater incentive to prioritize R&D projects with more financial upsides.
This is how the quest for profits and tight grip over proprietary rights, both important features of the capitalist model, discourage risk. Innovations are bound for plateauing after a few years, as firms increasingly favor minor aesthetic tweaks and updates over bold ideas while preventing other avenues of innovation from blossoming. At the same time, massive amounts of capital continue to float into the hands of a few. The price of innovating under capitalism is then both decreased innovation and decreased equality. The idea that this approach to innovation must be our best and only option is a delusion.
As I see it, four ingredients are key to kindling innovation. First, there must be problems requiring solutions (an easy one to meet). Second, there must be capital and resources available to invent, develop, produce, and distribute the innovative product. There must also be actual human beings available to participate in every phase of the innovation process. And fourth, at least some of these human beings must be have the creativity and motivation to participate in the innovation process. The question isn’t really whether a socialist economy can provide these four ingredients at all (it can) but rather, whether it can innovate better than a capitalist economy (it can).
This confession is music to the ears of the “capitalism made your iPhone” club. Indeed, proponents of capitalism often brandish rapid innovation as if it were an automatic checkmate on collectivist socioeconomic ideologies. To them, modern technology proves not only that capitalism works, but that it is the best system to stimulate innovation. The subtext of their retort is that a socialist economy could never generate technology this advanced. When coupled with a defense of “thought leaders” as obscenely rich as Steve Jobs, Elon Musk, and Jeff Bezos, their argument also contends that concentrating capital and power in the hands of a few billionaires is a small price to pay for the astronomical leaps in innovation from which we all benefit.
Capitalism’s fan base is not wrong that the iPhone, first released in 2007, is a product of America’s fiercely capitalist economy. I will also concede that without the vision of Steve Jobs, Apple’s late CEO and the 110th richest person in the world at his death, there would be no iPhone as we know it (although it is worth noting that the army of engineers and developers whose labor actually produced the iPhone might have come up with an equally wonderful smartphone). Nonetheless, their perspective is deeply misguided. It manages to both underestimate how much capitalism stifles innovation and misunderstand how much the fundamentals of a socialist economy make it the better system for stimulating innovation.Innovation describes a four-step process that creates or ameliorates a thing or way of doing things. It begins with invention, the design of a device or process that did not previously exist in this form. The invention is then developed, meaning that it is improved with an eye towards eventual scaling, exchange or introduction on a market, and external use by others. At the production stage, the invention is built or reproduced. Finally, the invention is distributed to a wider audience. In our present economy, a minority of the innovation process happens at the individual level, from lonesome inventors and modern Benjamin Franklins who are able to conjure all sorts of contraptions in their garage. The majority, however, results from research and development (R&D) paid for by private firms, and by the public through government agencies, research institutions, and other recipients of federal and state funding.
The profit motive and exclusive proprietary rights are central to capitalist innovation. By law, private firms must prioritize the interest of their shareholders, which tends to be interchangeable with making as much money as possible. Accordingly, investments in any stage of the innovative process must eventually produce profits. To maximize profit, private firms jealously guard the value of their invention through regulations and restrictive contracts. Statutes and regulations help protect their trade secrets. The U.S. Patent and Trademarks Office routinely grants them utility and design patents that “exclude others from making, using, offering for sale, or selling … or importing the invention” for twenty years after the patent is issued. They enforce licensing agreements that can limit the uses and dissemination of all or part of their inventions. To further frustrate efforts to innovate on the back of their inventions, private firms subject their former employees to non-compete agreements that can severely limit them from using their knowledge and skills on competing projects for a period following their departure. Breaches carry dire consequences like expensive lawsuits, big money judgments, and other enormous hassles.
By contrast, the public sector innovates under an academic model instead of for profit. Certainly, earning tenure or an executive position can be lucrative. In some industries, a revolving door gives individuals the opportunity to innovate in both the private and public sectors throughout their careers. However, innovation in this area is less motivated by extracting profit, and more so by signifiers of prestige, career appointments, recognition, publication, project funding, and prizes.
The capitalist model has its perks. At present, private firms raise massive amounts of capital from the government to fund research, but also from banks, private equity, and wealthy donors. This vast amount of capital can prove lucrative for certain classes of workers. Innovative talent might accumulate wealth through generous compensation packages, which play an important role in attracting and retaining them.
Private firms also boast a terrifying nimbleness that allows them to push projects and respond to change faster than government institutions. For instance, firms can turn over staff quickly if their industry in the absence of unions and norms against firing workers at will, other than the standard prohibitions against discriminatory practices. In other words, without the regulatory and administrative constraints that saddle publicly funded projects, private firms can move through the innovative process faster.
Another advantage of the capitalist model is that profits—potential and actual—provide some measure of how well a company is innovating. Particularly, for the many private firms that sell some of their shares to the public on stock exchanges, prices serve as a form of feedback from investors and the market. Imagine that a publicly-traded retailer announces the imminent launch of an affordable, solar-powered computer that boasts power and speeds to rival Apple’s newest models. In the hours following the press release, the retailer’s stock value triples. A week later, while at a tech conference in the Colorado mountains, the retailer’s CEO lets it slip that the first prototype will actually retail for about four thousand dollars. Unfortunately for the CEO, he was wearing a hot mic. The quote is made public in an article titled “No debt-saddled, environmentally-conscious millennial will shed $4,000 for a computer!” The stock value immediately plummets by two-hundred percent.
The original rise in the retailer’s share value communicates that investors believe in the product as a profitable enterprise, and that they see this type of innovation as a worthwhile pursuit. The drop, on the other hand, suggests that they believe this specific product would be more marketable and therefore more profitable if it were developed for an audience beyond high-end consumers. The turn in the stock value can embolden the retailer—through its management, Board of Directors, or shareholders—to revisit its plan to innovate. It also signals to competitors that their innovation of a similar product could be well received, especially if they can overcome the original product’s weaknesses.
But prioritizing profit is a double-edged sword that can hamper innovation. Owning the proprietary rights allows private firms to block workers—through anti-competitive tools like non-compete agreements, patents, and licenses—who put labor into the innovation process from applying the extensive technical expertise and intimate understanding of the product to improve the innovation substantially. This becomes especially relevant once the workers leave the firm division in which they worked, or leave the firm altogether. Understandably, this lack of control and ownership will cause some workers, however passionate they may be about a project, to be less willing to maximize their contribution to the innovation.
Of course, the so-called nimbleness that allows firms to make drastic changes like mass layoffs is extremely harmful to the workers. This is no fluke. The capitalist economy thrives on a reserve army of labor. Inching closer to full employment makes workers scarcer, which empowers the labor force as a whole to bargain for higher wages and better work conditions. These threaten the firm’s bottom line. So, the capitalist economy is structured to maintain the balance of power towards the owners of capital. Positions that pay well (and less than well) come with the precariousness of at-will employment and disappearing union power. A constant pool of unemployed labor is maintained through layoffs and other tactics like higher interest rates, which the government will compel to help slow growth and thereby hiring. This system harms the potential for innovation, too.
The fear of losing work can dissuade workers from taking risks, experimenting, or speaking up as they identify items that could improve a taken approach—all actions that foster innovation. Meanwhile, thousands of individuals who could be contributing to the innovative process are instead involuntarily un-employed. This model also encourages monopolization, as concentrating market power gives private firms the most control over how much profit they can extract. But squashing competition that could contribute fresh ideas hurts every phase of the innovation process, while giving workers in fewer workplaces space to innovate.
Deferring to profit causes many areas of R&D to go unexplored. Private firms have less reason to invest in innovations likely to be made universally available for free if managers or investors do not see much upside for the firm’s bottom line. In theory, the slack in private research can be picked up by the public sector. In reality, however, decades of austerity measures threaten the public’s ability to underwrite risky and inefficient research. Both the Democratic and Republican parties increasingly adhere to a neoliberal ideology that vilifies “big government,” promotes running government like a business, pretends that government budgets should mirror household budgets or the private firm’s balance sheet, and rams privatization under the guises of so-called public-private partnerships and private subcontractors.
In the United States, public investment in R&D has been trending downward. As documented in a 2014 report from the Information Technology & Innovation Foundation, “[f]rom 2010 to 2013, federal R&D spending fell from $158.8 to $133.2 billion … Between 2003 and 2008, state funding for university research, as a share of GDP, dropped on average by 2 percent. States such as Arizona and Utah saw decreases of 49 percent and 24 percent respectively.” Even if public investment in the least profitable aspect of research suddenly surged, in our current model, the private sector continues to be the primary driver of development, production, and distribution. Where there remains little potential for profit, private firms will be reluctant to advance to the next phases of the innovation process. Public-private projects raise similar concerns. Coordinated efforts can increase private investment by spreading some costs and risk to the public. But to attract private partners in the first place, the public sector has a greater incentive to prioritize R&D projects with more financial upsides.
This is how the quest for profits and tight grip over proprietary rights, both important features of the capitalist model, discourage risk. Innovations are bound for plateauing after a few years, as firms increasingly favor minor aesthetic tweaks and updates over bold ideas while preventing other avenues of innovation from blossoming. At the same time, massive amounts of capital continue to float into the hands of a few. The price of innovating under capitalism is then both decreased innovation and decreased equality. The idea that this approach to innovation must be our best and only option is a delusion.
As I see it, four ingredients are key to kindling innovation. First, there must be problems requiring solutions (an easy one to meet). Second, there must be capital and resources available to invent, develop, produce, and distribute the innovative product. There must also be actual human beings available to participate in every phase of the innovation process. And fourth, at least some of these human beings must be have the creativity and motivation to participate in the innovation process. The question isn’t really whether a socialist economy can provide these four ingredients at all (it can) but rather, whether it can innovate better than a capitalist economy (it can).
by Vanessa Bee, Current Affairs | Read more:
Image: uncredited
