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Thursday, January 9, 2014

Who Is Really Threatened by Innovation?

Innovation is change you can believe in, but it affects both culture and economics

Innovation, at least in the economic sense, means creating something new and valuable or making something old in a new and more valuable way.

It means making athletic shoes longer-lasting by using polyvinyl chloride instead of natural rubber, or creating a telephone that’s also a camera, an MP3 player, and a handheld computer. Innovation means change that can make waves.

But I think most people generally fear change, or at least big change.

For those living in poor societies, of course, better food, shelter, and education are no doubt welcome. But if they also hold strong beliefs about right and wrong, challenging those beliefs—and the family and social relations that rest upon them—may be much less welcome. Improvements in the general welfare bring along challenges to traditional marriage, religious practice, and conservative attitudes toward women, sex, and work. Significant economic progress entails openness toward strangers and new ideas.

Such changes are both consequences and causes of innovation: Innovation requires economic freedom, but produces extensive trade flows that in turn promote individual liberty.


The economic historian Dierdre McClosky thinks the word “innovation” does a better job than “capitalism” of describing the system of private property and free exchange that emerged in the West during the eighteenth century.

While certainly less plentiful than today, capital during the Middle Ages in Europe was available in the form of cultivated land, churches, livestock, and such. It just didn’t change hands much. For long stretches of time, there would be little or no fundamental change. By around 1500 some people had been liberated enough to begin to pursue their own plans and enterprises, and they started to become respected members of society for doing so. The result was innovation that accumulated over the centuries.

By 1800 innovation began to accelerate tremendously, producing the “hockey stick” of per-capita economic development that upended and revolutionized society. In 1800 most people in the world still lived on the modern equivalent of $3 a day, which had been pretty much the norm since recorded history. (McCloskey’s book is especially good with facts like this one.) Today the average is up to at least 10 times that amount in real terms, and in the more developed countries, it tops $100 a day. And remember, in 1800 there was no electricity, antibiotics, telecommunications, or toilet paper.

Innovation Is Unpredictable

So being an advocate of capitalism means you should also favor innovation. It also means that you must at least tolerate the tremendous cultural changes and uncertainty that are an inevitable part of it. It’s a trade-off many of us seem to feel comfortable making. But not everyone is.

By nature innovation is unpredictable. Nobody knows when or where it will arise and whom it will impact or how it will do so. Innovation is a threat to anyone with a vested interest in the status quo. And let’s face it: That includes pretty much all of us. That’s why introducing political power—organized aggression—into the mix is so dangerous.

The more you personally oppose the big changes that come with innovation, the more you may be tempted to use political power to keep it at bay. But some of us are particularly strongly vested in the status quo and are thus particularly threatened by innovation. I’m thinking of people who hold the reins of political power. Who is in a better position to use (or abuse) political power to protect their interests?

We like to emphasize the economic impact of the commercial and industrial revolutions. That’s perhaps because these are, for the most part, a clear gain to nearly everyone, even those whose businesses and jobs are competed out of existence. Those who were employees become employers, and bankrupt business owners either to go work for them or start new businesses of their own.

But again, the impact of innovation on culture and society has been, if anything, even more astonishing than the economic impact. There’s no way to limit the effect of innovation on social norms and social relations—and not everyone likes it.

Fighting Innovation with Innovation

Another excellent economic historian, Daron Acemoglu, explains how historically people who wielded political power have feared innovation and have done all they could to stamp it out. The same holds true today. Radical, unpredictable change that comes with innovation—what Joseph Schumpeter called “creative destruction”—threatens the tight control essential to keeping political power. The state hates what it can’t control, and it can’t control innovation. When government officials talk about reimagining society or harnessing human energies or regulating unbridled capitalism, what they want is to bring pesky innovators and independent thinkers under their thumb. That is not “innovative governance.”  It is the death of innovation.

Of course, people who have become rich through trade rather than through plunder fear innovation, too, especially when others are doing it and they’re not. It threatens the orderliness and stability of their lives as well. But unless they have access to political power—the authority to jail, to beat, and to kill—there is little beyond peaceful persuasion they can effectively do to stop it. They can fight innovation not by beating or killing but with even more innovation. Innovation stimulates trade and trade generates wealth. Political power stifles innovation or redirects it in unproductive ways. And those who hold fast to particular values may also be tempted to shun persuasion and instead use political power to force people they disagree with to become more like themselves or to make them be quiet or to go away.

But the free market, or “innovationism,” is a system that can only thrive when there’s radical tolerance and criticism of opposing views. So if you can’t literally beat innovators—and of course in a free market you can’t—you’ll just have to join them!

Find a Portuguese translation of this article here.

  • Sanford Ikeda is a Professor and the Coordinator of the Economics Program at Purchase College of the State University of New York and a Visiting Scholar and Research Associate at New York University. He is a member of the FEE Faculty Network.