John McDonnell's "socialism with an iPad" speech has triggered an exchange between Zoe Williams and Alberto Mingardi about whether socialism or capitalism best fosters innovation. I fear this focuses too much upon values and forgets Deng Xiaoping's saying: "It doesn't matter whether a cat is white or black, as long as it catches mice."
My problem is that capitalism, as it currently exists, might not be producing as much innovation as we'd like. I say so for five reasons:
1.William Nordhaus has shown that, on average, the payoffs to innovation have been small: Apple is an exception in being able to make big profits from it. This suggests that innovation has come despite the profit motive, not because of it. This might be because, as Zoe says, entrepreneurs have non-financial motivations. Or it might be because they were overconfident about prospective returns.
Whatever the reason, there's a danger that today's capitalists have wised up to Nordhaus's finding and so cut innovation - perhaps because Joseph Schumpeter's prophecy in which the entrepreneur is replaced by "the perfectly bureaucratized giant" is being fulfilled. This might be happening in big pharma, for example. The fact that western economic growth has slowed since the 1970s is consistent with this.
2. What creates an entrepreneur is not character but capital. Blanchflower and Oswald have found (pdf):
Childhood personality measurements and psychological test scores are of almost no help in predicting who runs their own business later in life. It is access to start-up capital that matters.
Inegalitarian capitalism and a dysfunctional financial system, however, might be stifling easy access to capital for some potential entrepreneurs.
3. Intellectual property laws might do more to protect capitalist incumbents than maximize innovation. Boldrin and Levine say:
The evidence is clear that the patent system taken as a whole does not does not play an important role in spurring innovation...its primary effect is to encourage large but stagnant incumbent firms to block innovation and inhibit competition.
Free marketeers might see this as an example of the state blocking innovation. We Marxists see it as evidence of how capitalists capture the state, to the detriment of wider society.
4. Some innovations suffer from a collective action problem: they are more valuable if they are widespread. This is the case for many financial innovations, as the value of assets depends in part upon the existence of liquid markets in them - which might help explain why Shiller's proposals for financial democracy have never caught on. Again, there might therefore be a role for the state - for example, by using QE to stimulate demand for macro markets.
5. Creativity is about making connections. As Steven Johnson has written:
We are often better served by connecting ideas than we are by protecting them....But the truth is, when one looks at innovation in nature and culture, environments that build walls around good ideas tend to be less innovative in the long run than more open-ended environments. (Where good ideas come from, p22)
I fear, however, that hierarchical capitalism builds silos that stifle connections. Being chained to a desk doesn't just kill the human spirit; it kills innovation too.
What I'm trying to do here is agree with both Alberto and Zoe. I agree with Alberto that innovation is best done when it is bottom-up and market-tested to satisfy people's needs. But I sympathize with Zoe when she claims that capitalism does not necessarily maximize innovation, and there is a role for an intelligent state. In fact, one role for the state is to promote more widespread markets. Whether such a state can exist within the confines of a hierarchical capitalist economy is, however, doubtful.