Corporatism Stifles Innovation

James Hall

For an economy to grow and create actual wealth, innovation is a bedrock component in the development of enhanced prosperity. Prosperity is an intriguing concept. Simply making and accumulating money falls short of establishing a successful economic model. This recent report illustrates a prime example. Facebook stock soars, as company briefly passes IBM in market value. 

By most measures, Facebook is dwarfed by IBM: With about 7,000 employees, ten-year-old Facebook is on track to garner $12 billion in sales this year. The 103-year-old IBM has more than 400,000 workers and sold almost $100 billion of computer hardware and software in 2013.

Is Facebook a shining star of innovation? Or is it the product of a society, which has given up on working towards a successful economy, whereby a prosperous middle class partakes in the engine of continued and shared affluence? Conversely, is IBM an innovated inventor, or is it a dinosaur of a previous era? 

However you answer such questions, Edmund Phelps in an opinion article, Corporatism not capitalism is to blame for inequality argues that tangible innovation is in decline.

Innovation tailed off between 1940 and about 1970, while the top decile’s share of wealth and income began rising in the 1970s.

The causation runs the other way: losses of dynamism have tended to sharpen wealth inequality because it hits workers of modest means more than it hurts the wealthy. Developing new products is labour-intensive. So is producing the capital goods needed to make them. These jobs disappear when innovation stalls.

An explanation of The Rise and Fall of Western Innovation, addresses the plight of economic reality.

It is undeniable that the U.S. economy is not delivering the steadily improving wages and living standards the nation’s residents expect.

Mass Flourishing is meant to be Edmund Phelps’s chef d’oeuvre, the capstone to a half century of research into the sources of national wealth.

A decline in the pace of innovation threatens prosperity, in the U.S. and everywhere else.

The main cause of this decline, according to Phelps, is corporatism—the inevitable tendency of businesses, workers, and other interests to band together to protect what they have. In modern economies, he says, corporations, unions, and other interests turn government into an agency for forestalling change and preserving the status quo.

The noted economic expert and academic Robert J. Shiller, in his article, Why Innovation Is Still Capitalism’s Star, provides a critique of "Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge and Change".

Professor Phelps discerns a troubling trend in many countries, however, even the United States. He is worried about corporatism, a political philosophy in which economic activity is controlled by large interest groups or the government. Once corporatism takes hold in a society, he says, people don’t adequately appreciate the contributions and the travails of individuals who create and innovate. An economy with a corporatist culture can copy and even outgrow others for a while, he says, but, in the end, it will always be left behind. Only an entrepreneurial culture can lead.

Jared Bernstein does not agree as stated in a response to Professor Shiller in 'Does the Government Stifle Innovation? I Don’t See It (To the Contrary…)'.

My points are that a) many important innovations have involved government support somewhere along the way, and b) while one could and should worry about waste in this area, I’ve not seen evidence, nor does Shiller provide any, of stifling....

Well, that viewpoint sure sounds like Obama’s infamous endorsement of a government corporatism model, "If you’ve got a business — you didn’t build that. Somebody else made that happen." 

When examining the way corporate transnational businesses operate in the real world, their lack of internal in-house innovation is notorious. These gigantic corporatist carnivores excel at mergers and acquisitions in the quest of monopolization of markets. In these endeavors, their best friend is government cronyism and favoritism. 

The essay, Blaming Capitalism for Corporatism, makes an important point.

In various ways, corporatism chokes off the dynamism that makes for engaging work, faster economic growth, and greater opportunity and inclusiveness. It maintains lethargic, wasteful, unproductive, and well-connected firms at the expense of dynamic newcomers and outsiders, and favors declared goals such as industrialization, economic development, and national greatness over individuals’ economic freedom and responsibility. Today, airlines, auto manufacturers, agricultural companies, media, investment banks, hedge funds, and much more has at some point been deemed too important to weather the free market on its own, receiving a helping hand from government in the name of the 'public good.'

Here within dwells the essential dilemma, defining the genuine "Public Good". Government often acts according to Mr. Bernstein’s idea of progress, especially in technological terms. Focus on the notion – "economically important" – and the language filter that translates into a benefit for the Corporatocracy matrix. 

While "entrepreneurial culture" will always be essential, many innovations that turned out to be economically important in the US have government fingerprints all over them.

From machine tools, to railroads, transistors, radar, lasers, computing, the internet, GPS, fracking, biotech, nanotech—from the days of the Revolutionary War to today—the federal government has supported innovation often well before private capital would risk the investment.

Corporatism invents methods of greater control and market dominance for select elitist beneficiaries. When government provides seed money to fund research projects, pure science is seldom the objective. As examined in the essay, How Government Did (and Didn’t) Invent the Internet, Harry McCracken writes: (I’m even prepared to believe that if the Internet hadn’t been invented at DARPA, the private sector would have stepped in and done the job. But we’ll never know for sure, since it was invented at DARPA.)

Thus, the paradox most people are unable to see beyond the guise of "so called" progress. Is government involvement, or outright development, of transhumanist futuristic technology a valid form of innovation or is it the terminal scourge of central planning and a controlled economy? Surely, under such a system, the "Mass Flourishing" of sharing the wealth will no longer be an issue among the "useless eaters" designated for extinction.

Original article archived here  

James Hall is a reformed, former political operative. This pundit's formal instruction in History, Philosophy and Political Science served as training for activism, on the staff of several politicians and in many campaigns. A believer in authentic Public Service, independent business interests were pursued in the private sector. Speculation in markets, and international business investments, allowed for extensive travel and a world view for commerce.  Hall is the publisher of BREAKING ALL THE RULES. Contact batr@batr.org   

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