What do the following have in common: Peter’s question: “Just where are those institutions that harness talent and foster creativity?”; Paul’s complaint that the media and other creative industries prefer nepotism and short-termism to financing creativity; Philip Delves Broughton’s point that management is about dealing with mediocrity rather than talent; and the growing challenge to the racket (pdf) that is academic publishing?
The answer is that all pose what might be the most important question in economics - of how to encourage creativity.
I say this is the most important question because it is the main cause of economic growth. Classical economists from Smith to Mill saw growth as a contest between the law of diminishing returns, which led to stagnation, and innovation, which tended to prolong growth. Even Keynes took a similar view (pdf). He predicted in 1931 that “a point may soon be reached” when consumers would be largely satiated and so a 15-hour working week would be the norm.
When creativity and innovation slow, therefore, growth stops. And we might be at or near this point. The slowdown in productivity growth and capital spending in recent years are both consistent with a slowdown in technical progress. This is not just afflicting old, sclerotic firms; even Apple, the greatest innovator of recent years, is returning cash to shareholders rather than investing it in new ventures.
There’s another fact consistent with this - the massive under-employment that Keynes envisaged is upon us. Not only are there 2.65m unemployed, but there are also 1.4 million part-time employees who’d like to work full-time and 2.32m economically inactive who’d like a job. That gives us 6.37 million who aren’t working as much as they’d like. That’s 15.9% of the working age population. On top of this, I suspect there are lots of self-employed who spend time waiting for the phone to ring; 1.16 million of these are working part-time. And then there are countless full-time employees who are doing routine maintenance, chatting to each other or playing Angry Birds whilst waiting for customers.
All this means there are two questions that should be more important than they are.
1. How do we generate creativity and technical progress? The “leave it to the market” school is inadequate on (at least) two counts. First, it ignores the fact that innovation has positive externalities which mean it will be under-supplied by the market. And second, rests upon an optimism about human ingenuity which might not be fully justified and which is certainly not a necessary feature of free market thinking.
2. If we cannot generate sufficient creativity and growth, what should be done to ensure that the costs of under-employment are more equitably borne? Keynes assumed that such under-employment would be the happy work of a semi-leisured people who were rich enough to meet their basic needs and more. With a new food bank opening every week, this seems too optimistic.
Now, I’m not sure what the answers are here. But I am sure of something - that these are the important questions. And a political class that ignores them and obsesses instead about the price of pasties and the charitable donations of a few hundred people is not fit to govern.