To build an inclusive innovation-led economy, we need to focus on production

To build an inclusive innovation-led economy, we need to focus on production

Instead of mitigating the downsides of change, we need to transform production, allowing more people to partake in the innovation economy. Learn why via Madeleine Gabriel in our ongoing series.
Madeleine Gabriel
Head of Inclusive Innovation, Nesta
May 14, 2019
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Madeleine Gabriel is Head of Inclusive Innovation at Nesta, a global innovation foundation based in the UK.

What unites Adam Smith and Karl Marx? Both thought that to really understand an economic era, you need to look at its most advanced form of production. And in our own era, the most advanced practices of production can be found in the innovation economy.

Yet these practices aren’t widespread. As political philosopher Roberto Unger argues powerfully in his latest book, they are concentrated in a relatively small number of firms and places. As a result, the innovation economy is stunted—and its benefits limited to a privileged few.

At Nesta, we have been working with Unger to explore possibilities for a more “democratic” innovation-led economy. Unger’s insight—that the challenge is to radically transform access to advanced production practices—leads to some novel ideas as to the directions policy could take, from reforming property rights to revitalizing civil society.

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At its best, the innovation economy gives us all a chance to exercise that most human capability: our imagination. It relies, after all, on our ability to think up things that don’t yet exist.

From mass production to an economy of the imagination

Innovative firms today operate very differently to the most advanced firms of yesteryear. In the age of mass production, we saw a rigid separation between inventors like scientists, technologists, designers, and those who worked on production lines. Most workers had little autonomy and required relatively low levels of education. Products were standardized in order to be produced at scale.

In contrast, the innovation economy prizes creativity, collaboration, and decentralization. We see software firms, for example, creating products with teams dispersed around the world, supported by collaboration tools like Slack and agile project management techniques. When products and services can be constantly adapted and changed, the boundaries between inventors and makers get blurred.

And the relationship between people and machines shifts. Although technological advances allow many more tasks to become automated, they also make it clearer what types of things can only be done by humans. At its best, the innovation economy gives us all a chance to exercise that most human capability: our imagination. It relies, after all, on our ability to think up things that don’t yet exist.

Advanced production practices are restricted to a select few

In advanced countries, mass production eventually spread to almost all parts of the economy. But the same isn’t true in the innovation economy.

Globally, a cadre of frontier firms dominate innovation. Even among the 2000 most R&D-intensive firms in the world, around 70 percent of R&D expenditure and patenting activity takes place in just 250 companies. And in Canada, as in most other advanced economies, productivity in the top 10 percent of firms has drawn further away from the rest, both in manufacturing and in services.

The innovation economy is concentrated not only among a handful of frontier firms, but in a handful of frontier places. For example, in most advanced countries, there are large divergences between highly innovative regions and others. And again, there is evidence that these leading regions are getting more dominant over time, increasing their share of innovative activity while other regions drop back in relative terms. The chart below shows changes over time in the share of innovation economy resources in different OECD regions. In each case, the top 20% of regions increased their share of these resources between 2000 and 2012/13.

Changes in the share of innovation economy resources in OECD regions

Unger argues that the confinement of the innovation economy to a limited number of places and companies is a key driver of economic stagnation—after all, how can we expect economies to grow, if our most advanced production practices don’t spread beyond a small vanguard? It also contributes to high levels of socioeconomic inequality; for one thing, highly productive firms pay more and as they draw away from the majority we see growing disparities in wages. This sense of getting left behind is frequently cited as a reason for growing disenchantment with established institutions, political polarization, and the new wave of populism.

We can’t just redistribute our way to an inclusive innovation economy

As Kenan Fikri has written in another article in this series, the idea that the benefits of the innovation economy will simply “trickle down” to the rest has now been pretty much debunked. Even conservative institutions like the OECD have recognized that the innovation economy is failing to benefit everyone. Richard Florida, well known for championing the role of the creative class in driving economic growth and revitalization, now writes about the problems bound up in winner-take-all urbanism.

But what’s the solution? Often, the discussion focuses on redistribution: sharing the “fruits” of growth more widely, for example by making sure everyone has access to education and healthcare, or by compensating the “losers” of the new economy, for example through universal basic income. In the United States, Democratic presidential candidate Elizabeth Warren has grabbed headlines by proposing a new wealth tax, an idea that also made waves at Davos early in 2019.

But while tax-and-transfer policies are necessary to create inclusive innovation-led economies, we argue they are not sufficient. And arguably, an agenda that focuses just on redistribution accepts the exclusion of a huge swathe of people from benefiting as producers, not just consumers, of innovation.

Instead of focusing mainly on mitigating the downsides of change, we argue that instead we need to transform production, allowing vastly more people to be makers and shapers of the innovation economy. This is likely to require action on many fronts, going well beyond what’s traditionally thought of as innovation policy.

Creating an inclusive innovation economy by transforming production

Instead of focusing mainly on mitigating the downsides of change, we argue that instead we need to transform production, allowing vastly more people to be makers and shapers of the innovation economy. This is likely to require action on many fronts, going well beyond what’s traditionally thought of as innovation policy.

A first priority is to “democratize” the innovation economy—opening up access to capital, capabilities and other productive resources. This implies, for instance, that policymakers should focus not just on supporting the technological frontier, but helping innovations to diffuse throughout the economy, building firms’ ability to absorb and make use of new knowledge, technologies, and practices. Finance needs to prioritize the needs of SMEs, social enterprises, and cooperatives. And property rights will need to change, to allow more people to make use of key resources like data and knowledge. We need, for example, new models of data ownership, a reversal of the trend towards extending the length of copyright protection, and experimentation with different terms for patents to counter rent-seeking behaviour amongst dominant firms.

While analysts don’t agree on exactly how many jobs will be lost and created through automation and AI, they all agree that the effect will be disruptive. So a second priority for action is to equip people to navigate a rapidly changing economy with confidence.

As many have recognized, this requires raising levels of education. However, we shouldn’t think of this solely in terms of feeding the pipeline of skills, churning out more scientists and software engineers. The character of education also needs to change, putting a greater focus on critical thinking and imagination. If we expect that skills will need to be constantly updated, then we need to take lifelong learning much more seriously. Rather than expecting individuals to take all the responsibility for upskilling themselves—a task that those with higher skills levels and incomes find far easier to do—we should see adult education as a shared societal responsibility. This might involve, for example, introducing new rights and resources that allow people to take time out to retrain or give them individual budgets to spend on learning throughout life.

And as a third priority, we need to shift the balance of power and democratic control in the innovation economy. One of the problems we face is that visions of the future are created by a relatively small group of people: entrepreneurs and politicians. The stories we tell about the future reinforce the idea that technology has a predetermined path and all we can do is mitigate its downsides. But of course in reality, the path of technology is shaped by decisions that people make, and we need many more people involved in these decisions. This means reinvigorating democratic institutions and investing in civil society and associative life.

Small steps in a radical direction

How do we achieve radical economic reform? Unger argues that big changes can emerge from piecemeal steps. A far-reaching agenda doesn’t have to be enacted all at once. And in fact we can see initiatives, policies, and institutions around the world that embody some of the ideas described above. The UK government is experimenting with a new scheme to diffuse technologies to the long tail of less productive businesses. In a number of countries, there is a growing movement exploring data trusts to govern data in a more transparent, democratic way, including from Nesta, Canada’s Centre for International Governance Innovation, and Element AI. Canada has recently announced the Canada Training Benefit, a suite of initiatives to help adults retrain, which will include an individual training credit, access to income support during time taken out to retrain, and a new right to request training leave.

But small experiments won’t add up to big change without a new vision. We need to tell new stories about possibilities for reform. Rather than limiting ourselves to mitigating negative consequences of change, we need a story about how to take control and shape an innovation economy that truly allows mass participation: a new vision for production.

For media enquiries, please contact Coralie D’Souza, Director of Communications, Events + Community Relations at the Brookfield Institute for Innovation + Entrepreneurship.

Madeleine Gabriel
Head of Inclusive Innovation, Nesta
May 14, 2019
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