Greater equality in society drives innovation and progress

Prosperity drives innovation, just consider the spread of railways in Europe, the invention of the television, or Starlink – all are products of wealthy societies. However, such innovations are often driven by the deep pockets of a few, very wealthy individuals, and our understanding of innovation remains rooted, often unthinkingly, in the idea that the prospect of unequal rewards is the main factor motivating profit-seeking entrepreneurs.

But is this correct? A new working paper from Dr Craig Berry, Head of Policy and Associate Professor of Economic Policy at UCL Institute for Innovation and Public Purpose (IIPP) and Dr Nick O’Donovan, Head of Policy and Impact, Future Economies Research Centre, Manchester Metropolitan University, presents evidence that in fact, more equal societies are often more innovative.

In Entrepreneurial egalitarianism: How inequality and insecurity stifle innovation, and what we can do about it, Dr Berry and Dr O’Donovan show that economic insecurity inhibits the development of innovation capabilities, both through its psychological effects, and through the lack of access to resources to support innovation.

Inequality can inhibit innovation amongst the highly paid and the poorest groups alike, because the limited safety net in the event of failure deters risk-taking. Innovators have further to fall if the risks they take do not pay off.

Many economists view redistribution of wealth through taxation and spending policies as disincentivising innovation, when in fact, redistribution can encourage innovative activity. The authors write that they do not seek to “adjudicate on the ethical merits of egalitarianism” but to show how greater equality can support innovation and how inequality can impede it.

Dr Berry and Dr O’Donovan make the case in the paper for strengthening and redesigning social security systems and public services in order to better support innovation processes. Introducing a universal basic income (UBI), for example, would provide a platform of financial security, allowing more people to innovate, and perhaps allow more people to choose jobs suited to their skills, rather than choosing a job based on its salary, so they could develop those skills and learn new ones. Anther policy option would be a minimum income guarantee (MIG), available to those without an income or an insufficient income, which could be made available to people retraining, or starting a business or social enterprise, again, providing financial security to enable risk-taking. High-quality public services like healthcare reassure innovators that they can take on risk without putting themselves and their families at risk. Tackling social division in education and housing would help to spread entrepreneurial aspiration more widely, broadening access to potential role models, investors and customers.

IIPP Head of Policy Dr Craig Berry says: “We know innovation drives productivity growth, but do we know enough about what drives innovation to design an effective suite of policy interventions? The assumptions underpinning the economics of innovation – that profit drives entrepreneurship, and that inequality therefore motivates innovation – are preventing us from acknowledging that more equal societies tend to be more innovative, and exploring why that might be the case. Economic insecurity prevents the development of innovation capacities, and the financial implications of failure demotivate potential innovators across the income distribution. To better support innovation, we need to think more creatively about the role of social policy, including income guarantees, public services expansion, and tackling segregation in housing and education.”