• Emilio Singh

Innovation: Capitalist or Socialist?

Introduction

A common criticism of socialism, is that socialism stifles the fundamental essence of innovation that makes capitalism so great. The claim is that, “socialism” stifles innovation of creators and it is this innovation that drives human progress and society. Supposedly, socialism as a system, is either incapable of producing innovation, or not to the degree that is observed in capitalism.

The purpose of this article is to discuss this claim, from two perspectives: innovation under capitalism and innovation under socialism. In particular, it will be demonstrated that in reality, socialist systems are more than capable of promoting innovation towards the scale of advancement of society, and in fact, this is more effective than under largely capitalist systems.

Definitions and Bounds

The first step is of course in definitions. Without establishing definitions, then it is obviously immediately apparent that supporters and detractors of these viewpoints can construct and construe meaning that the author did not intend. So for the case of socialism, this article primarily refers to democratic socialist systems. Systems where socialism is achieved through the collective will of the people, who implement a government that establishes principles of worker ownership of the means of production. There are greater specifics that can be expounded on, but primarily, the salient point is that the socialism is established and maintained without authoritarianism as all forms of authoritarianism are antithetical to inclusive socialism. No private ownership of the means of production is especially important to emphasise in this system. These are the important characteristics that make up socialism and they are chosen both because they represent some of the better ideas about socialism, and because they represent the potential for the most inclusive form of socialism. The critique involving capitalism, will consider capitalism as a system, also with democratic government, but where private ownership of production is central to the society’s functioning. This of course, means that some structural hierarchy of people and value is inherent to this system.


In historical terms, this hierarchy is typically established along racial, religious, national or gender lines. Also importantly, this definition does not assume that the “ideal” version of capitalism is considered, though it will be discussed in practice, because no such version of capitalism has ever existed. This author posits that, based on the examples of history, no such ideal version of capitalism could exist in part because the structural hierarchy inherent to capitalist thinking, cannot be removed from capitalism.


A division of wealth, into class lines, must by necessity have justifications for establishing these classes. These justifications are contrary to the principles of equality, or are derived from pseudo-scientific arguments such as genetic inferiority or other biological arguments that are very much in dispute but beyond the scope of this article. The most common but perhaps least offensive justification is the idea of an inherent but massive “laziness”. OECD data shows that productivity has been consistently rising over the years in countries like the UK which are heavily capitalist [1]. Similar trends are observed in other countries. The claim therefore, that inherent human laziness on a massive scale justifies the capitalist hierarchy, holds less water given that productivity of workers is still rising which cannot solely be attributed to outlier workers who work harder than their fellows.


Therefore, the author contests that no justification for the capitalist hierarchy is valid, and that must be considered when discussing future terms. At this point it also has to be pointed out that the author has a bias towards the method of socialism as a non-predatory method of organising society, since the objective is to remove any hierarchies that preclude the full development of human capacity in practice. The flaws of socialism and this version in particular, deeply depend on the ability of the socialism to maintain democracy. The potential for authoritarianism is not one that is inherent to socialism as all systems can include a rise of fascism, but to democracy and remains a flaw that must be worked on. As demonstrated by the ferocity of the conflict during the Cold War between the US and the USSR, it is very well and possible for an authoritarian socialist regime, to compete with a capitalist system in technological development but it is preferred for the system to be democratic. The last part of this section deals with understanding the idea of innovation. Here is where a great deal of subjectivity will be introduced, unfortunately, because there are different ways to value innovation, and thus, different methods of quantifying innovation will be looked at in the sections that follow.


This article will make the claim that there are different types of innovation and that these types are of different quality. There are innovations that fundamentally improve society as a whole, and then there innovations that provide better consumer goods. An example of the former would be the development of the penicillin, an anti-biotic which changed the nature of medicine. An example of the latter would the development of a variety of smartphone devices. The issue raised here, is that under capitalism, innovations produced in society are tied to the ability of individuals to access those innovations.


Penicillin as a drug, under capitalism, is accessible to those with the means to buy it, as is in the case of the smartphone. Regardless of the necessity of an object or service or idea to the people of a society, capitalism requires that individuals must be able to purchase these objects and services.


Is Capitalism all that Innovative?

A common argument line for the innovation of capitalism, is the “iPhone argument”. It follows that because the iPhone is a product of the capitalist system, and the iPhone or whichever other phone is considered, is considered good, therefore the capitalist system is good. What this means for innovation, is that the iPhone is a product of the innovation of the capitalist system. Is this a statement that really makes sense? The iPhone, and all phones, are the product of a number of particular inventions. Microchips, computing and wireless technology and so one. These technologies all coalesce into the iPhone are products of publicly funded research. What Apple did, was essentially combine all of these publicly available technologies into a consumer product and then sold this product for massive profits. To many, this is an example of innovation. The capitalist system combined a number of technologies, to produce a consumer product that is of great value. This is also what would be considered more of an incremental evolution of a concept rather than a truly fundamental shift. Mobile telephony can be traced back to military trials around the time of the first World War. The iPhone, and its predecessors are not so much a drastic shift in paradigm of mobile telephony, but rather a culmination of the available technologies. This highlights an important component of the capitalist system. Under capitalism, companies are competing for profit. That is their entire motivation for existence, and companies that do not produce profits should not continue to exist by most definitions of capitalism. Of course, in practice, government bailouts and other interventions are usually put into place to keep companies functioning even past the direct profitability of the company. Since these companies exist to produce profit, they naturally will want to do the activities that produce the most profit. One problem with this, is that long term research is an unfavourable activity. It is costly, time consuming, and most importantly, carries uncertainty on whether the research will actually produce anything that can be converted to profit.


Furthermore, if the research is successful, another company can reap this benefit by copying or otherwise co-opting the research for their own ends, deriving all the benefit but paying none or little of the cost. So naturally in many cases, this makes investing heavily in research a losing proposition for companies. So at this point, there are already concerns about the ability of capitalist systems to innovate. Innovation is expensive and uncertain, and has much less immediate profitability compared to the actual task of selling products for example. There is however a solution: patents and intellectual property. These are legal protections awarded to inventors that grant them particular kinds of monopolies as the “reward” for invention. An inventor knows that if they produce something, they can acquire a patent that gives them a protection to exclusively benefit from their invention, usually for a certain amount of time. So this method however, has a couple of implications beyond the simple, “invent because your inventions are protected”. Firstly, legal protections for an invention do not always translate to complete protections.


Companies do have to have an obligation to protect their patents, and this means that other companies can still benefit from their patents even though doing so is illegal. The costs and time involved in these operations do not always mean companies will fight strict patent defences. This is a factor that plays against the motivation to invest in research because it also requires an additional investment to protect those inventions and that again, is less optimal than working with existing technologies or products. This is not always completely true in all cases but it cannot be completely ignored. The wider problem, is that patents create a new problem: monopolies. The use of patent law creates a situation whereby companies compete to establish intellectual monopolies on ideas. Once a company gains a sufficiently large number of patents in an industry, or particularly important or seminal ones, that company can then use their patents to establish a monopoly. Of course, monopolies are the most profitable state for any company, because being the sole producer of anything, precludes any need for competition, and thus maximises profit. In theory, companies can choose to fight for dominance in particular sectors, but in practice, this capacity for monopolies through patents means that companies tend to prefer to establish local monopolies within areas that do not interfere with each other.


Since conflict is expensive, this is a trend that is observed in many industries like food service where a few companies use their patents and products to establish areas of local dominance where they have monopolies but lack for any total monopolies of any one area. What this demonstrates is that the kind of innovation that capitalism produces, is not innovation that is directly beneficial to society. Companies have to direct their efforts towards profits, so research into areas that are hard to make profitable are ignored, and the outcome of this is that consumer goods and services are prioritised. This is innovation in the sense that something becomes innovative through its ability to produce profit. Good ideas that are valuable to society but hard to profit from, like green technology in the face of cheap oil, are ignored or downplayed. We see this most readily in the sluggish response to climate change issues despite ready and apparent evidence of climate change and the unsustainable but highly profitable nature of the oil industry. Green technology is innovative in the sense that it creates a benefit to society that is beyond the ability of monetary value, survival of the species, but not innovative in the sense that it is uncompetitive idea to cheap and established oil and coal methods. An example of this entire system coming to fruition is the development of the revolver. In particular, the revolver existed since the 1818, as a flintlock mechanism [2]. However, similar mechanisms also exist at this time but as a total concept, it does not pervade society due to technical limitations. However in 1885, Rollin White filed a patent for the bored-through cylinder. While seminal to the revolver, a bored through cylinder is simply a metallic cylinder that has the chamber for the round span the length of the cylinder. Rollin invented the bored-through cylinder which is an innovation that would later be sold to a company Smith & Wesson, who would use this as a basis to establish a monopoly on the breech-loading revolver, the first major and fundamentally viable revolver. With this fundamental monopoly on the product of revolvers, Smith & Wesson were able to being to establish a market monopoly. A direct consequence of this is that other companies would attempt to bypass the patent, but the idea was so fundamentally important and useful, none of these ideas would prove to be better than the original and thus they have faded into obscurity.


Smith & Wesson would then derive royalties for this monopoly. Firearms technology was limited by this monopolisation of an important idea and while it did encourage people to experiment, the results of these experiments demonstrated that patents of fundamentally important ideas prevent development as a whole. Of course, because of the value of consumer goods, it is also true that companies need not entirely invest into the practice of producer better products in order to sell more of them. Outside of creating monopolies, which companies will do whenever they can, the field of marketing and advertising exists to use psychology to convince people to buy products. Advertising is a tool for convincing people to buy products for a number of reasons, including for reasons other than the material qualities of the products. As advertising becomes more advanced, the trend in the type of advertising is to sell associated qualities of value (status, sex appeal and so on) to sell products regardless of their material value to consumers. In a world full of consumer products, it becomes more difficult to fundamentally compete on products alone; thus advertising, which cultivates innovation to sell products, rather than any inherent innovation to the products themselves, undercuts the value of any innovations that cannot also compete with a sufficient quantity of advertising. These examples try to demonstrate that while capitalist systems are capable of producing new products, even products that can come to change a society, these changes are ultimately still subservient to profit, and thus because profit is the prime motive, actions taken under a capitalist system first serve the interests of profit, and then serve the wider society as a whole, which ultimately stifles innovation that benefits the most number of people.


Does Socialism Stifle Innovation?

The next section deals with the claim that socialist systems stifle innovation. So this section will explore socialist organisation methods and principles that will still promote innovation. The first method is the shared ownership of the means of production. Unlike in capitalist systems, in a socialist system, the workers can in a company or business, operate a shared ownership of the means of production. This is less alienating to them in simply being a cog in a hierarchy to which they are subservient to the owners of the productions. In this shared and cooperative organisation, the worker has a means to argue for changes. If a worker in this system wants to advocate for an innovation to improve their work, then this will have a direct impact on their labour. They can advocate for this with their other workers, and if this innovation genuinely provides improvements, then all workers benefit from this as they do. Their labour collectively becomes easier, and so the original worker can work less or easier to produce the same value and all their other workers can do the same, collectively improving all of their ability to then provide further further innovations of their own and everyone benefits. In a capitalist system, even if a worker suggests an innovation, their idea is going to be co-opted against them. If they are rewarded, it is rewarded in the capitalist way and so they are given a fraction of the value of the innovation with the rest being profit going upwards. It is as likely that they are not going to be directly rewarded; their innovation being owned by their supervisors by way of company contracts. It is also important to understand that innovations do not exist in a vacuum. In a worker co-op, the workers can decide together if some innovation to their labour proposed by one of their number would be of use. It might very well be that this innovation causes harm in other ways, like environmental damage or increasing the health risk to each worker. So while it might improve productivity, it could decrease health and well-being. In a capitalist system, the historical trend for innovations that improve productivity regardless of human health and well-being is the trend; but under socialism, the workers who materially are most affected by these changes, decide collectively to enact them. Secondly, socialism has the technique of the planned economy. Entrepreneurs to allocate their capital to production enterprises, which is as likely to create demand as it is to respond to demand, that make them profit. They will not undertake enterprises without the motivation of profit, regardless of how profitable it ends up being. With the planned economy, society has the necessary power to advocate for their demands to be met. The organising government has access to the collective resources of the society for meeting those needs. In democratic socialism, the people can hold the government to their meeting of their needs through the power of voting. This is a greater specialistion of the fact that government funded research is generally better for actual innovation than privately funded research. Because there are no requirements for profit, researchers are given the freedom to explore all ideas in looking for solutions. External factors like need, such as for vaccines against diseases, provide the necessary motivations for urgency where required. Provided they receive the resources to do so, academics in the government employ can work on whatever problems are presented to society in accordance with their need and the urgency of solutions to problems. Naturally, problems such as energy and climate change, would receive more resources and attention, but this also still means that other research practices, like gender and social studies, philosophy and so on do not get ignored because they are seen as “unprofitable”. The point of this socialist system is to obviate the need for individuals to make choices about leveraging individual resources to problems, but to use collective effort to solve problems that face everyone.


Conclusion

The point of this article, is to present some basic arguments against the idea that capitalism has the sole monopoly on human innovation. Private companies are less better are improving society than they are at improving themselves and this facet, on top of the exploitative nature of capitalism, means that ultimately capitalism will stifle innovation because innovation is ultimately subservient to profit.

References

[1] “Do workers reap the benefits of productivity growth?” Feb 2012. [Online]. Available: http://oecdinsights.org/2012/02/20/ do-workers-reap-the-benefits-of-productivity-growth/

[2] R. Pauly, Firearms: the life story of a technology. Johns Hopkins University Press, 2008.


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