Innovationism

Wealth is the ability to have things we want. Work creates wealth by turning labor into goods and services. The wealth from labor is a primary focus of socialism. Trade creates more wealth by allocating goods and services to wherever they have the greatest value. Optimizing trade is a primary focus of free market capitalism.

Innovation creates wealth exponentially because it creates knowledge that everybody can use and build upon simultaneously. Compounding innovation creates new types of things, then makes each type cheaper and more abundant. This is the primary focus of innovationism.

King Louis XIV was perhaps the wealthiest person alive in his time. However, by any modern measure he was extremely poor. He had no light switch, no water faucet, no cotton shirt, no vaccine against tetanus, and certainly no mobile phone, a device more than eighty percent of the world’s adults now carry.

Today, not only do many of the poorest people in the world have electricity, water, cotton clothing, vaccines, and phones, but those things are roughly equal quality for the poorest as for the wealthiest people alive. Over time, innovation closes the distance between rich and poor on a thing-by-thing basis.

Remarkably, the wait for new technologies keeps shrinking. It took roughly five hundred years after the printing press for eighty percent of the world to own a printed page. It took about a hundred and fifty years after the light bulb for eighty percent of the world to afford one. Mobile phones took about thirty-five years. The newest tools built on artificial intelligence are on pace to reach that same eighty percent of the world in under five. Each innovation makes the next one easier to build and easier to spread, which provides the compounding that is innovationism’s primary objective.

Innovationism is the political-economic system with the least inequality in the long run. And the long run is getting shorter and shorter.

An innovationist government seeks to maximize prosperity by fostering innovation for the common good. Innovationism is closer to free market capitalism than to socialism, but it does not foreclose a role for a strong government. Below are the principles of innovationist government.

Innovation requires investment of time and money. The most fundamental requirement for investment is basic rule of law: enforceable contracts, courts that cannot be bought, and property that cannot be taken without cause.

One of the strongest incentives to investment in innovation in many (though not all) fields is a well-implemented patent system. A patent gives the inventor or discoverer of new knowledge an exclusive, though temporary, right to monopoly profits from it. That period of monopoly profits is what incents investors to fund years of failure-prone research for the chance of one success. Abraham Lincoln, the only American president to hold a patent, explained the mechanism simply: the patent system “added the fuel of interest to the fire of genius”.

However, patent claims must be precise. A patent scoped beyond the specific invention allows an undeserved tax on already-known technology. Claims must be cheap and fast to challenge, and quick to fall when drafted with too broad a scope.

That speed depends on an efficient court system. The specific rules of procedure are best left to judges (or automated tools for the purpose). One principle should hold regardless of the details: litigants should be compelled to move quickly. This is particularly true for plaintiffs since they have the advantage of choosing when to sue. Court efficiency minimizes the ability to use lawsuits to stall disruptive competitors.

Many investments in innovation take years to pay off. The funders are betting on what the legal and political landscape will be throughout the development period. Erratic changes in laws and policies dissuade investment. A strong, many-member legislature without extreme polarization, a weak executive, and an independent judiciary tend to avoid erratic changes.

Chronic inflation, risk of default on government debt, and fiscal policy that changes unpredictably all shorten the horizon over which entrepreneurs and investors can plan. A government that wants private investment in innovation must be a responsible steward of its own finances.

Taxing is necessary for the proper role of any government in funding services that citizens cannot practically buy individually, such as national defense, courts, and access to shared infrastructure. However, to enable the personal risk-taking of entrepreneurship, an innovationist government also provides an economic safety net. This requires substantial taxation, carefully scoped so the national wealth it creates in the long run more than recoups its cost.

Most important innovations were, at some point, bad-looking investments. Someone has to fund a lot of bad bets to be able to also fund the few that change the world. That requires a large pool of risk-tolerant patient capital. The incentive for that kind of investment is preserved by having low taxes on capital gains from investment in early-stage startup companies. Government should also give founders and investors wide latitude to design creative equity and financing structures.

To ensure that the government eventually shares in the wealth creation it enabled, a high estate tax is appropriate. The tax should apply to wealth domiciled within the country, no matter where the shareholder lives. This avoids jurisdictional arbitrage and keeps a fortune tied to the country that made it possible.

In no case should a government expropriate shares of companies, or tax entrepreneurs on wealth stored in the stock of a company they created. Doing so would create a disincentive to future innovators and harm the entrepreneur’s ability to further build upon the value they have so far created.

Labor income should be taxed at a rate that rises gradually with income. That way people in safe, well-paying jobs contribute to the system that makes entrepreneurs’ risk-taking possible.

It is also important to have a limit on personal financial liability for business debt. A bankruptcy process that is quick, cheap, and genuinely forgiving of honest failure is necessary to make entrepreneurship financially safe.

Regulation is worth its cost to innovation only when it removes a larger cost elsewhere, which makes restraint the default and regulation the exception. Where innovation demonstrates a tragedy of the commons situation, it is imperative for a government to regulate. But not otherwise.

Laws and regulations should expire on a fixed schedule unless lawmakers or policymakers affirmatively renew them. Otherwise, they protect incumbent businesses from disruption by innovators.

Privacy should be inversely proportional to influence. Lawmakers whose votes affect the lives of millions should have everything they write and every word they speak recorded, transcribed, and published promptly.

Government spending on technical education tends to pay for itself many times over because it widens the pool of people capable of innovating.

The best predictor of whether a country innovates in the future is whether the world’s most talented people move there. An innovationist government welcomes immigration by anyone with demonstrated ability. That necessarily requires a thoughtfully considered and dynamic test of merit.

The national pool of technical talent must also be free to move about. A worker tied to a company because of a non-compete agreement or employer sponsorship cannot carry an idea to the team best able to use it. Like indentured servitude, non-compete contracts should be unenforceable.

Furthermore, a government aiming to raise the rate of innovation should make it easy to fire and lay off employees. Laws that prevent downsizing dissuade firms from hiring the people needed to innovate.

Many of the world’s most valuable technologies started as government projects. Governments have longer horizons than even the most patient private sector investors. A large, sustained commitment to funding basic research, and the universities and institutions that carry it out, lays the groundwork for numerous compounding innovations.

However, governments tend to be poor judges of which idea will be most beneficial. So, in general, government grant-making bodies should choose among the ideas researchers propose rather than propose ideas of their own. There is one clear exception. When government itself is the only realistic buyer of a technology, direction rather than mere selection is appropriate since government alone can specify what to build. Defense and space programs supplied the demand that got satellite navigation and the internet built before either had a civilian customer.

Government purchasing should be adaptive. A government that always buys goods and services on the same terms will keep funding the same old suppliers. Merit-based purchasing, resistant to the pull of personal relationships, gives a new and better supplier a chance at the government’s business. Corruption in procurement is not merely wasteful, it protects incumbents at the expense of innovation.

Some innovations, if left free to propagate, carry risks of catastrophic effects. Those risks are important to address. It is impossible to unlearn knowledge or prevent inventions from being made. People’s individual struggles for prosperity, competition between firms, and competition between nations will inevitably create such innovations and the risks they bring.

A risk of catastrophe, like any other problem, is solvable. An innovationist government provides incentives to invent solutions for the public benefit. Though some might wish otherwise, further innovation is the only rational response in the face of catastrophic risks.

The stronger one’s safety net, the higher one can climb.

Fear of losing financial security prevents some potential innovators from risking their time and attention to commercialize their innovations for consumers’ benefit. Because everybody’s life situation is different, what they need to free their time and attention varies. Some need child care, others need food and rent, others need transportation, and others need project supplies. The best help is not a specific program for each need. The best help is simply money in the innovator’s pocket.

A negative income tax (a guaranteed minimum income available to everybody) is best. It should be adjusted upward for age, disability, and dependents and downward as other income rises. An equal payment to every citizen (UBI) sounds fair, but giving money to people who already have plenty causes price inflation, harming the people who do not.

Because healthcare needs are unpredictable, a shared pool is appropriate. Insurance companies, which necessarily have interests adverse to healthcare providers and patients, require administrative bureaucracy both within insurers and within the healthcare system. It is most efficient for the government to provide basic healthcare services, free of charge, so that entrepreneurs do not need to worry or deal with medical bureaucracy.

Healthcare services would be rationed by government. Provided it is reasonably generous, that is no worse than rationing by private insurers. People complain either way. Everybody should be free to buy supplemental private insurance for additional services if they desire it.

Since housing is most people’s largest expense, and is especially high where opportunities to innovate are densest, it is important that the government refrain from policies that impede the market from providing housing. This means relief from zoning regulations, except where they prevent significant risks of injury or harm. It also means not having rent control, which reduces mobility and raises housing costs for almost everybody.

Every other political and economic tradition offers its own answer for how to make and share things. Innovationism cares about how to make and share kinds of things.

The principles above, of protecting long-horizon bets, funding what markets will not, rewarding merit over incumbency, and giving people a floor to climb from, are all designed to support the compounding of innovation and the prosperity it brings equally to all people.