There’s a famous Chinese curse “May you live in interesting times” which certainly applies now. It seems that every cornerstone we’ve relied on has slipped, creating instability in all aspects of modern life. As humorist Ogden Nash remarked: “Progress might have been all right once, but it has gone on too long.”
We live in a world where seemingly everyone has a cell phone —and a rifle. Every day we learn of breathtaking scientific discoveries and atrocities straight from the Dark Ages. Thanks to technology images of beheadings travel instantly around the world.
Debates rage over hot button topics widening divisions in society. One is over the merits (or demerits) of the patent system. That’s really a subset of a larger question: does innovation lead to prosperity for most people or does it merely widen the gap between the haves and have not’s?
What, if anything, should be done to correct “income inequality” is a point of contention in our political system. President Obama says that growing income inequality and a lack of upward mobility is “the defining challenge of our time.” Sen. Elizabeth Warren (D-MA) ads: “Trickle down (economics) doesn’t work. Never did.”
Administration critic Dinesh D’Souza sees sinister motives at play: “Their goal is to shift the fulcrum of power in our society away from the entrepreneur and toward a new group, which is an alliance of the political class, the intellectual class, and the media. Those are three camps that feel the same way, have the same skills, and so on. They also have equal resentment against entrepreneurs.”
Not much common ground between these views.
Whether innovation benefits the masses or just the elites has major policy ramifications. If the later, shouldn’t government insure a fair division of the economic pie? And is the patent system critical for economic growth or a tool for the powerful to plunder the helpless?
The International Economy invited “twenty noted observers” to consider Does Innovation Lead to Prosperity for All? Here’s a sample of the replies:
- There is a “modern” sector here with booming profits, successful innovation, global competitiveness, and good jobs, although not enough of them. More and more of the U.S. workforce is being forced into low-wage, low-productivity jobs, or out of the workforce… The jobs carry little training and the workers typically turn over very quickly and gain little experience…The economic forces driving the shift to a dual economy are skill-biased technical change and increased global competition. If these forces continue and there is a steadily expanding pool of marginalized workers, then I would conclude that innovation is not leading to prosperity for all. The answer is not to have less innovation, but to do a better job of taking advantage of it… the list includes restoration of full employment, improving skills and education, and making the United States a more attractive location to produce and manufacture. None are easy to do. Martin Baily, Brookings Institution
- Advances in fields as diverse as nanotechnology, information technology, and global supply chain management hold the promise of unprecedented levels of prosperity for humanity as a whole, but they have led to widely held concerns about the future of the middle class in the West. The past few decades have seen significant improvements in the standard of living of the poorest citizens of the world and solid gains for the planet’s most privileged… Economist Xavier Sala-i-Martin of Columbia University has found that hundreds of millions have been lifted out of extreme poverty over the past half century, and that rates of extreme poverty have been reduced by 50 percent… All of these blessings are driven, one way or another, by innovation. The dangers posed by innovation pale in comparison. What political leaders should do is make the case for progress for the many, while helping those whose futures are suddenly bleaker prepare for as painless a transition as possible. Stan Veuger, American Enterprise Institute
- Technology can be used as a weapon to benefit some groups in society at the expense of others. This has been the case for the last three decades. The wealthy and powerful have used technology to benefit themselves at the expense of most of the public. This is most clearly the case with patent law, as large companies in many industries, most importantly pharmaceuticals, have pushed to get ever stronger and longer patents. As a result, we now spend $360 billion a year on drugs (2 percent of GDP or four times the food stamp budget) that would cost 10-20 percent of this amount in the absence of patent protection. Dean Baker, Center for Economic and Policy Research
- So what’s the key to generating greater levels of empowering innovation? Competition—and the more the better. As economist Joseph Berliner once put it: “… the effect of competition is not only to motivate profit-seeking entrepreneurs to seek yet more profit but to jolt conservative enterprises into adoption of new technology and the search for improved processes and products.” Vibrant economies need plenty of fast-growing startups to generate empowering innovation and to also push incumbents themselves to become more innovative. And if incumbents can’t compete, government needs to let them fail. Free and frequent entry and exit of firms is critical. Government has to make sure tax, regulatory, and spending policy is neither impending the creation of new startups nor giving incumbents an unfair advantage. Some politicians think “innovation policy” means spending taxpayer money on promising young firms favored by bureaucrats. Rather, innovation policy means ensuring that the status quo is continually challenged by upstart rivals and threat of failure. James Pethokoukis, American Enterprise Institute
- In most places and most times, elites prefer to loot and hoard rather than to produce and share. The twenty-first century is no exception. Today’s high-tech civilization is perfectly compatible with parasitic elites of strikingly different kinds—from royal autocrats like the Saudis to African generals who loot their post-colonial countries to China’s kleptocratic communist “princelings.” Even formerly liberal democracies like the United States are increasingly dominated by rentiers of too-big-to-fail finance and tech tycoons who, having once invented something useful, then try to milk super profits indefinitely thanks to government-created intellectual property rents. Michael Lind, New American Frontier
These answers suggest vastly different roles for our government. Historically government largely assumed the role of an umpire in the free enterprise ballgame: making sure that companies sell safe products and play by fundamental rules. Government also funds most of the country’s basic research leaving the risk and expense of commercializing resulting inventions to private sector licensees. This model spurred a resurgence of American innovation, restoring our lead in every field of technology over the past 30 years.
However, some want government to go much further by directly aiding their favorites, combining the roles of umpire and player. The team with the umpire on its side has a significant advantage. But government follows conventional wisdom which rarely spots, or even encourages technologies disrupting the status quo– and often joins the wrong team.
So it was in the international race to develop heavier than air flying machines a century ago. The U.S. government awarded the highly regarded director of the Smithsonian Institution, Dr. Samuel Langley, the then princely sum of $70,000 to develop an airplane. Launched from a catapult in Washington, DC with great fanfare, Langley’s machine plunged straight into the Potomac River “like a handful of mortar.” A few months later two bicycle mechanics from Dayton, Ohio flew the machine they developed in their spare time with $2,000 of their own money at Kitty Hawk, North Carolina. The Wright brothers disdained government funds because of the bureaucratic micromanagement that came with it. Langley blamed his failure on inadequate government funding— still the favored excuse when federal programs flop.
How to create a prosperous economy– and the appropriate role of government– is a pivotal issue of our time. It would seem looking at living standards around the world over the past 50 years that innovation is clearly a good thing for the vast majority. However, that may not be so apparent to more than 92 million now idled from the U.S. workforce. Will they see themselves as victims of exploitation by the powerful deserving ever increasing compensation from the government or temporarily sidelined participants in the most successful economic engine in history who just need a helping hand to get back in the game? This debate hasn’t always ended well:
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the Public Treasury. From that moment on, the majority always votes for the candidate promising the most benefits from the Public Treasury with the result that a democracy always collapses over loose fiscal policy always followed by dictatorship.
~ Alexander Fraser Tyler, The Decline and Fall of the Athenian Republic
But that could never happen here, could it?