Innovation

This essay concerns innovation. As background I will provide a brief summary of the conclusions of the first essay in this “Invisible Hand” series which examined the physical object nature of our money and some of the unfortunate consequences of that nature. I will be concise so this review won’t take long.

All money in history (and pre-history) has been considered to be or to represent physical objects such as a basket of grain, a cow, a coin, or a paper bill. Today most money is in computer accounts and though it zips around the world from account to account at almost the speed of light, it still is treated as if it were a physical object of some sort. Because we treat money as if it were a physical object, anything which is true of physical objects in general will also be true of money. This obvious point is ignored by economists and others who talk and write about money even though it is the most important truth about money. The importance of the physical object nature of money cannot be overstated. What follows are some of the consequences of that physical object nature.

First, money is like other physical objects in that it can be taken from its owner against that owner’s will; by force, fraud, or stealth and it can also be lost or destroyed. This means that you need to suspect almost everyone of trying to get your money by fair means or foul.

Second, money must be amoral because all inanimate physical objects are amoral. Even animals are amoral, in that they have neither an ethical sense nor morality, especially when they are used as commodity money. You can use your physical object money for anything, good or bad.

Third, the money supply is independent of the supply of goods and services for sale because the supply of one physical object is independent of the supply of other objects.

Fourth, money falsely simulates a zero-sum game in monetary transactions because the money gained by one party must be lost by some other party or parties. Money makes us think that other people can gain money at our expense and that we can only gain money at their expense. It makes us treat others as if they were competitors, rivals, opponents, or even enemies.

Fifth, money is almost impossible for a society or nation to control. In every nation that attempts to limit, regulate, or tax trade a black market comes to exist; and organized crime flourishes in all nations.

Sixth, money transactions are two-party interactions. Two-party interaction is inherently unstable because if one party gets an advantage in power such as having more money, the stronger party can use that power to gain still more advantages. This is particularly true of money. The old saying “them as has, gets” is true. Possession of money does make getting more money quite a lot easier. Naturally, the weaker party in such two-party interaction will eventually want to end the interaction. Thus the relationship is unstable.

Keeping that review in mind, let’s consider innovation.

Wikipedia defines innovation as QUOTE “a new idea, device, or process.” UNQUOTE. Now I would consider that new device and that new process to be really new ideas. It obviously is not the physical device itself which is the innovation. If some particular new device is destroyed, the innovation is not destroyed. If some new process is put into operation it is the idea, not the people following the procedures of the process which is the innovation. So what we really have in an innovation is a new idea. Now new ideas are almost always composed of predominantly old ideas and the person credited with some specific new idea may not have been the actual person who first had the thought but that being given, just for convenience in this discussion, we will treat new ideas as if some one person built the whole idea all by herself.

Why, you may ask, is innovation something important to consider when thinking about economies and economic systems? Once upon a time any innovation would be strongly opposed and considered to be immoral, unethical, evil, and foolish. The way our ancestors did things was good enough. They had sort of a “gimme that old time religion” attitude toward everything. This made change in economic matters (and most other aspects of life) so slow that most people never even realized that change was taking place. Look at how long people used tools made of wood, horn, and chipped flint. The “stone age” lasted for many thousands of years. In such cultures and economies the ability to adapt to change and solve the problems presented by the environment was greatly limited. Anthropologists and archeologists have explored the ruins of many such cultures. Some famous ones include Easter Island, Angkor Wat, Machu Picchu, and Stonehenge. Each of these cultures ran into problems they could not solve without changing and they were unable to adapt quickly enough.

With the coming of the industrial revolution sometime in the 17^th century change became rapid enough to notice. In fact, it wasn’t long before change became downright obvious. What brought about this change was technological innovation. That is, new inventions were put to use in new ways. In 1650 the Dutch Republic, recently freed from Spain after a very long revolution, was home to thousands of refugees from other nations. The Dutch innovated with the founding of the East and West India companies, among the first multinational corporations in the world. The Dutch East India Company was the first to issue stock. The islands conquered and run by that company comprise much of what is now Indonesia. The Dutch East India Company created a cartel and gained a government monopoly in order to maintain a high price for spices. This put enough wealth into the operation to reduce the risk of all of the company’s investors. An investor would not be wiped out if a single ship or even several ships were lost. The fleets that set sail for the Spice Islands were then large enough to conquer several of the islands, which gave the Dutch company even more control and profitability. The English were doing something similar with the result that England and Holland fought several wars over commerce. What began as an effort to get spices was soon involved in trading many products with many nations.

This was a big change which the people of Western Europe became well aware of. The new trade items from Asia also brought about changes. People were returning from abroad with strange tales of other peoples who did things in unusual ways. The foreign people were considered to be inferior and only semi-human but despite such ignorant contempt, new ideas did manage to trickle in.

So innovation was what got industrialization started in the West, and a lack of innovation on the part of the peoples of Asia and the Spice Islands allowed the Europeans to colonize large parts of Asia and most of the islands in the Indian ocean and Pacific ocean. Today, the official word for most commercial organizations is that innovation is a good thing. This year’s product is better than last year’s products were. In business and the military, we want the latest, greatest innovations. To stop innovating is to lose ground to one’s competitors. We see long lines of people at stores waiting to buy the latest cell phone or other electronic gadget. Innovation is triumphant! Or is it?

This is the point at which the concept of memes becomes important. A meme is an idea that affects behavior and which is replicated or reproduced in the minds of others. A successful joke, for example, gets people to tell the joke once they have heard it. A set of interrelated memes, such as a religion, is called a memeplex. Memeplexes typically have a wide variety of ways of preventing change. Religions may burn heretics, for example. Politicians have been known to use firing squads. But those instances are for extreme cases. Far more common is peer pressure and ridicule in the form of derisive words, laughter, and name-calling. Flame wars on the internet are often conducted in defense of memes by all sides. Refusing work to those who are deviant in some way is common. “I just didn’t like his manner.” “She just wouldn’t fit in around here.” The defense of memes even extends to science. When I was young, many years ago, anyone supporting the theory of continental drift would have been laughed out of any respectable Geology department. It seems that new theories are met with opposition far beyond what the data would support. Within economics, as I would expect many of my readers to be well aware, there are schools of thought. I don’t claim to be an expert on economics nor on the history of economics but one would think that if some school of economic theory had been refuted we would all have heard of it. But though schools of thought in economics come into fashion and influence, are dominant for a while, and then become outdated by new or even by some other old approach, none are ever eliminated as just plain wrong. Sure, it’s easy to find an economist who will say that such and such a school of economics is wrong. It’s even possible to find economists who will say that every other theory of economics except theirs is wrong. But you can’t get consensus. This reluctance to accept change in the memeplexes of science and the economy has a substantial effect on innovation and the rate of change.

There is one particular mechanism having to do with innovation that I would like to bring to your attention in this context. I particularly want to discuss this mechanism because the announced intention of creating this mechanism was to increase innovation. It is supposed to increase the incidence of innovation and encourage inventors and their financial backers. I refer, of course, to the patent. The origins of the patent date back at least to 1450 in Venice where the glass makers were developing new techniques in the manufacture of glass. The idea spread (with the glass makers) to other parts of Europe. The patent was important to the industrial revolution mentioned earlier. The patent carries with it the right to exclude others from the use of the invention for a set time period in exchange for making public the ideas on which the invention is based. So a patent is another form of property right. It can be sold, assigned, transferred, or even mortgaged. If a patent is for an improvement on some other invention which is under patent, that new invention cannot be used without the permission of the first patent’s owner. Thus, being first to patent an idea is very important for its exploitation to maximize profits.

So, am I all set if I have a patent? Does the money just come rolling in? Well, no, not quite. It seems that one must also produce and sell some products to make money with the patent. This is why many inventors sell their patents to corporations that actually produce the product or in some cases; use the patent only to prevent the use of that invention if the corporation has a competing product, sales of which would be harmed by that improved product. There’s also a second problem. The invention idea having been made public through the patent, what’s to prevent other companies from simply using the idea without the permission of the inventor? The only restraint is fear of a civil lawsuit. So if you are a poor person with a good invention and patent, can you afford to go into court against a mega-corporation and its high-class law firms with their experts in the field? Such cases can easily drag on for years while your patent is infringed to the profit of that corporation and your bankruptcy. Just having a patent is not enough.

The patent is a means of preventing the use of an invention. Companies often do not get a patent on some invention in order to avoid just those problems with preventing others from using the ideas. They find secrecy much more dependable and much less expensive. (Good lawyers cost hundreds of dollars per hour to hire and both sides in a patent case are likely to have several lawyers working long hours.) But regardless of how and why a patent is used, its purpose is to prevent people from using the idea. Does it strike you that preventing the use of an idea can promote innovation? If an idea is not used, how can the rest of the economy adjust and adapt to that innovation? Doesn’t that slow the rate of innovation and change? Look at the rate of technological progress during the 1930s as compared to the rate of progress during World War II. Compare the airplanes flying in 1940 with the jets flying in 1945. Compare the radar of 1939 with the radar of 1945. Compare the 1939 U-boat with the U-boat of 1945. The changes I refer to are pretty obvious and refer to things you might have seen on TV but they are by no means the only such changes and innovations and I didn’t even mention “the A-bomb”, the V1, or the V2.

It is obvious that when the economy of a nation goes all out, as in war, the rate of innovation can be very high indeed. Since the patent existed before, during, and after that war, the patent cannot explain the surge in innovations. One suspects, however, that even during wartime the profit motive may have still been operating. One may also suspect that innovations which might have furthered the war effort were held back or kept secret to give corporation “A” some advantages over corporation “B.” Certainly many U.S. companies during the war did things which harmed our soldiers in order to increase profits. That’s one of the reasons Harry Truman was well known enough to be Roosevelt’s vice-presidential nominee in 1944. Senator Truman had exposed some of the corruption and waste in government contracts with companies producing equipment for the troops. Therefore it is unlikely that patriotism would have prevented companies from hiding innovations in order to boost profits. Think of some company that produces a gadget which it sells to the government for $5000 each. One of the engineers comes up with a different gadget that does the same job better and could be profitably sold for $50 each. Do you really think that company would switch over to the improved product and forego all that income just to save the lives of some soldiers?

So the patent does not really encourage much innovation, it encourages exploitation instead. Take the drug companies for example. There are quite a few medications which are life-saving drugs. That is, each of those medicines is necessary to keep patients alive. If those patients don’t get the drug they will die. So what do the pharmaceutical companies do with the price of those drugs? They charge all the market will bear. Sure, some patients die needlessly because they can’t get enough money to pay for treatment, but the companies have calculated where the “sweet spot” is in the demand curve. If they charge more than that, too few people will buy and if they charge less than that, the increase in sales will still result in less profit. The companies go for the money even though that costs lives. If they have a drug that one must take for the rest of one’s life or needlessly die, the company is hardly going to replace that drug with a far cheaper drug that one takes once and the malady is cured.

Or consider the use of antibiotics. Bacteria evolve to become drug-resistant. So the more a particular antibiotic drug is used, the more likely the bacteria are to acquire immunity to that drug. To maintain the effectiveness of an antibiotic these drugs should be used sparingly. But what has the drug industry done? They have tried to maximize use of those drugs to increase profits, even though such behavior kills many people and destroys the effectiveness of the drugs. That’s why hospitals are often home to so called super-bugs, bacteria that are not affected by antibiotics. The overuse of antibiotics in the hospitals has created an environment in which the only bacteria that survive are those which the drugs cannot kill.

We can see that innovation is not being encouraged in such situations by patents. The limited time the patent applies demands that one sell as much of the product as possible before the patent runs out. The inventor whose idea is being exploited either works for a company or has sold the idea to a company. He’s already gotten his reward whether large or small.

Much of the innovation with regard patents comes in the ways patents can be exploited; so the new ideas are legal tactics by the lawyers, ways of influencing the legislatures, industrial sabotage & spying approaches, and fraud techniques. I am not sure that such innovation really benefits any nation’s economy. It certainly is difficult to see how such innovation improves the living conditions of the general public.

Therefore we can conclude that the patent is a “mixed blessing.” It may encourage innovation on the part of a few but it also tends to slow and prevent needed changes and adoption of needed inventions. I cite as an example the relationship between the fossil fuel energy industries and the so called “green energy” companies which employ solar, wind, and geo-thermal sources of energy. Clearly the coal, oil, and natural gas energy companies don’t want competition from other sources of energy. They lobby against competition in the legislatures. They emphasize low cost energy by externalizing the costs of using their products. Innovation in the green energy fields is slowed and discouraged as a result. If your competitor has a large subsidy and you have a small subsidy, your competitor can lower prices to the customer below the levels at which you can turn a profit. Thus your financial backers must either be in for the long run at great cost or get out of the business.

Since this series of essays is really about money I hope you have noticed in the discussion of patents the role of our physical object money or POM in the restraint of innovation and innovation adoption. At every turn, the motivation to prevent use of an innovation, to prevent innovation, or to abusively exploit an innovation is a monetary motive. One can gain POM by doing those harmful things.

Now let’s go back to the concept of memes that I referred to earlier. As you can see, the physical object nature of our money does serve to encourage memes which prevent or resist innovation. The examples of memes we referred to first were those directly involved in commercial inventions covered by patents and trade secrets. But memes are present in virtually all aspects of a culture. There are even memes for how to deal with the changing of memes. These special memes are called meta-memes. Now most of the meta-memes in cultures throughout history have been used to prevent any change in memes. The idea that heretics should be burned, for example, was used to prevent change in the religious memeplex. But such meta-memes also exist even among children when they make fun of kids who are different. Gandhi is quoted as saying, “First they ignore you, then they ridicule you, then they fight you, then you win.” What he described is the most common meta-meme sequence for preventing change in memes. The burning of heretics is from the “fight you” phase and the making fun of kids who are different is from the “ridicule you” phase. Most innovations never get past the ignore you phase. It takes a remarkable meme to actually arrive at the “you win” stage.

It turns out that meta-memes which encourage change in memes have been very rare in history. The main meta-meme that has been responsible for the vast bulk of change and innovation in the world is the meta-meme of science. Yes, science actually has norms or rules for not only how to deal with change but also with how to encourage change. Science is a memeplex, a set of related memes. Science has lots of memes. Some of those memes resist change in memes, but a few of the most crucial memes make rapid change inevitable. For example, one meme of science is that evidence can disprove theory and then the theory must be rejected. This meme forces change by eliminating other memes of science. Another meme of science states that phenomena must be explained by a theory or the theory is worthless. A theory such as “the Devil made me do it” does not explain anything because exactly the same sentence could be used to apply to any behavior at all. A third meme of science is that anyone can test any theory for themselves. This is very persuasive to those who doubt the theory. If you think the theory is wrong, you can test it for yourself. If you think the data reported to you are lies, gather the data for yourself.

The application of these and other memes of science has resulted in the rapid development of science in a variety of fields. The findings, discoveries, and innovations of science have been applied with the resulting improvements in technology which have so greatly enhanced our lives. There are few people who would welcome a return to the living conditions of even 100 years ago. Change is visible and desired in certain limited areas of our lives like new video games and cell phones. So we have the concept of progress, of continuing improvement. Businesses today encourage innovation in those narrow fields. Of course, businesses also resist changes and innovation as mentioned earlier not just in the area of patents but even more strongly in the areas of social organization and social relations.

The memes of science have become part of our means of dealing with changes. We do pilot studies, beta tests, trial runs, and market tests. We also have procedures for making changes in some areas. The process for amending the U. S. Constitution, for example, was made a part of that agreement. There was no such provision in the days of the Divine Right of Kings. The law was supposed to be fixed, unchanging, and permanent like the Ten Commandments. Today we expect legislatures to be changing the law in many ways every year. We expect new products to make our lives better and we expect those new products to be safe and an improvement upon previous similar products. We actually expect to be able to mitigate many of the problems associated with natural disasters like tornadoes, earthquakes, and droughts.

But you will notice that the meta-memes other than science don’t work nearly as well as the science meta-meme. What we need is a generic, society-wide meta-meme memeplex which will provide memes for dealing with any ideas, no matter what parts of life and human behavior those memes concern. Such a meta-meme would constitute an ethical system… a morality that would automatically and easily adapt to any changes in circumstances. It would be an ethical system that would eliminate bad memes such as those associated with POM. It would be an ethical system which encouraged improvements, progress, and adaptation. In other words, it would encourage innovation.

I suggest that a non-POM would constitute such an ethical system. For example, eliminating bad ideas requires criticism. Criticism must be encouraged and rewarded as it is in the science memeplex but should only apply to existing memes, not for new ideas. There’s no need to criticize ideas which don’t spread and last. New ideas need to be encouraged and tested. Criticism points out where improvements are needed. Testing makes disproof possible. Note that non-POM functions in just such a way. It emphasizes the consequences of actions so if an innovation is not put into effect it is ignored by non-POM. If an innovation is applied and causes harm, only then does non-POM reduce future earnings. With non-POM, money is not needed to try something new. Remember that with POM, you have to have money in order to attempt innovation.

Non-POM is also rather “automatic.” That is, no enforcement is needed. No coercion is applied. Therefore no special interest group can prevent the evaluation of old memes and new memes. Non-POM also applies to all human behavior, not just actions in some narrow category of human behavior. Therefore non-POM is a generic meta-meme and not confined to some narrow category. Finally, non-POM is subject to its own evaluations so it will be able to adapt, adjust, and evolve rapidly just like the other memes and memeplexes to which non-POM would be applied.

Let’s take an example and see how non-POM would work in that case. Since it’s been in the news lately, let’s consider same-sex marriage. In our POM economy, special interest groups on all sides of the issue can attempt to sway the legal system toward one result or another. I have experienced the advertising campaigns for and against a same-sex marriage constitutional amendment in my state. As you know from seeing and reading ads & political campaigns over the years, truth is not emphasized, required, or even checked on. So the innovation of same-sex marriage is influenced by various groups whose motives are unknown to the rest of us. With a non-POM ethical system rather than a POM’s amoral approach, the media would not be for sale. The media’s vested interest, the way the media can earn non-POM is by providing accurate and useful information on topics of concern for the public. Since most people are not contemplating a same-sex marriage, only a small minority would be concerned. (My marriage is none of your business and your marriage is none of my business.) The consequences of such a marriage is of concern to some people, therefore the non-POM system would encourage (or reward) the collecting of data on such marriages and the analysis of such data. These analyses would earn non-POM only if they are valid. Therefore the people doing the data collection and analysis would be motivated to do it well. The media would be motivated to seek confirmation of results rather than going with what would justify the flashiest headline. Spreading misinformation would cost the media money.

Let’s assume that the findings were that same-sex marriage resulted in more harm than good. This information, the conclusions and reasoning behind those conclusions would be made available to the public. Since there is no law with non-POM there would be no legislative action needed. But people would be warned of the probable consequences if they were contemplating same-sex marriage. Likewise, if the findings were that same-sex marriage was of significant benefit, those findings would likewise be made available… and no laws would need to be changed. So in either case, the new idea would be tested and the results made available to those concerned. In this way, the potential meme of same-sex marriages would be either supported or hindered by the non-POM memeplex.

If we look at the situation for economic innovation with non-POM we find that the inventor has much support and a low-to-no-risk situation while the invention is pursued. Information on related inventions would be freely available. There would be no incentive for anyone to repress or prevent the use of any improvement yet there would be an abundance of incentive to apply improvements to all products as soon as they are available. Patents would not be needed. Anyone who adopts your innovation is a prospective income generator for you, whether you ever hear of them or not. Anyone who spreads a good idea is not only rewarded for doing so but generates income for the developer of that idea and everyone who supported that inventor while she created the idea. There would be no trade secrets because such behavior would reduce everyone’s income. The testing of innovations would be a great source of income.

In other words, the rate of innovation and the adoption of innovations would be far greater in a non-POM economy than in a POM economy even of those in the industrialized world.  Also, such adoptions of innovations would result in far less harm and more improvements due to the better testing and coordination of innovations.