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JimS's avatar

I'm not a big fan of capitalism to the extent it leads to massive income disparities if unregulated.

Not surprised that the WSJ doesn't mentioned it. For the WSJ and its readers, capitalism is a given and it's not even worth acknowledging there may be alternative economic systems.

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Keith Sawyer's avatar

Thanks Jim! I agree, it's undeniable that class income disparities have increased in the U.S. I just found the census data showing that from 1967 to today (at the link below). So, what do you think we should do about innovation? The decades since 1967 in the U.S. have undeniably been phenomenal years for innovation, and overall, quality of life has increased for all quintiles, including the lowest ones, even though the disparities between quintiles have increased. The second link below is to a graph showing that even the lowest quintile has experienced a 17 percent increase in real wages (after adjusting for inflation) since 1967.

But economics and politics aren't my expertise, so I'm more interested in, what can we do about creativity and innovation? Maybe we can't avoid the politics. There's some evidence that some of the policies being proposed to reduce income disparities (regulation, guaranteed minimum income, increasing unionization, certain types of redistribution) would risk reducing innovation economy-wide, which would then reduce productivity increases, and this would keep everyone's life exactly the same instead of raising everyone up. I'd hate to think that regulations to even out the income distribution would necessarily reduce societal innovation. What can we do as a country to keep everyone innovating while also reducing income inequality?

https://www.advisorperspectives.com/dshort/updates/2023/09/13/u-s-household-incomes-a-50-year-perspective

https://www.visualcapitalist.com/growth-in-real-wages-over-time-by-income-group-usa-1979-2023/

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Denis F. Cioffi's avatar

You pointed out what was missing from the WSJ article. I believe what was missing from your analysis was any mention of the rising gap between productivity and wages, e.g., https://www.epi.org/productivity-pay-gap/, https://usafacts.org/articles/what-is-labor-productivity-and-how-has-it-changed-in-the-us-over-time/. That's why people are against capitalism as currently practiced: those working to effect the increases in productivity do not benefit proportionately.

I was reminded of the famous silly comment by Michael Dell about high tax rates, "Name one country where that worked." Capitalism works for everyone as long as it's regulated and focused on long-term stability instead of short-term profits. We also need to recognize that some people need assistance, and providing that assistance from the beginning --- maybe to the point of universal basic income ---will make our society stronger and better for everyone.

Billionaires don't get to be billionaires by being concerned about other people and fostering their creative opportunities.

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Keith Sawyer's avatar

Denis, I think you are exactly right. I knew my Substack would be provocative and maybe I made it overly provocative, but at least so far, I haven't gotten any hate mail--only these insightful comments from all of you. So, thank you all! But, see my response to JimS above, with a link to a graph showing that even the lowest quintile has seen an increase in real wages. You used the words "benefit proportionately" and that's exactly what is debatable, although the discussion of what is "proportional" is always political, I think.

So I come back to my question: How can we implement these sorts of government policies without reducing the incentives for innovation that markets provide? For example, I've read some economists saying that the reason why we have high drug prices in the U.S. is because it supports the invention of new drugs, a very expensive process. Almost all of the new pharmaceuticals come from U.S. for-profit companies, not from countries with government healthcare, at least that's my impression, and if we didn't allow those companies to benefit from their innovations, wouldn't we have fewer lifesaving new drugs? I'm not convinced of that argument, but it's the sort of defense of markets that I rarely read in the media. And, try to ask ChatGPT to say something good about capitalism: It's extremely hard to get it to; its first three or four answers are about how bad capitalism is. Then, eventually, it admits that yes, innovation is higher in a market-based economy.

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Chuck Frey's avatar

Thanks for this eye-opening analysis, Keith! Thanks for uncovering the connections between capitalism, creativity and innovation!

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Keith Sawyer's avatar

It's provocative but I think the topic is avoided too often. I read a lot of innovation researchers who are business school professors, and they do great research on fostering innovation. But they never (or rarely) talk about the role of markets in fostering innovation. It's safer to talk about "creating value" and "increasing productivity" when what is also going on is "people losing jobs." Chuck, you are an innovation expert. Wouldn't it be depressing if we thought that innovations led to undesirable societal outcomes? I prefer to point to the graph showing that even the bottom quintile experienced an increase in real wages. But I've always been an optimist!

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Keith Sawyer's avatar

Hey everybody, I changed the subtitle of my post to "The United States has both. Is that a good thing?" I decided that my original subtitle was too uncritical. (It used to be "And that's why 2025 will be a great year for America") What do you think?

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Lindsay D.'s avatar

Hi Keith, I enjoyed your article and the links drawn between markets, productivity, and innovation. I’m curious what you make of this 2% increase in productivity as it relates to education. If US schools have been moving away from progressive notions of creativity in the classroom, how do you think companies learn to innovate? Perhaps this raises questions about the significance of schooling in preparing minds to innovate.

You mention that a lot of productivity "comes from making the economy more logical, more sensible, and more efficient." Would further integration of creative, innovative, and entrepreneurial learning in K-12 schools amount to even greater productivity and labor market efficiency down the road?

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Keith Sawyer's avatar

Well, you know that I have a strong interest in educating for creativity, including in my 2019 book THE CREATIVE CLASSROOM, so thank you for that question! You're right, I failed to mention that an important method for increasing a society's productivity is to increase the potential to contribute for everyone. I believe that economists, and everyone else, believe that more education increases societal innovation. But I don't know if there's any data--I mean hard, quantitative data--that shows that one or another pedagogy increases societal productivity more than the other pedagogies. I personally (and professionally) believe that research-based pedagogies lead to greater creativity for adults and that these pedagogies increase productivity more than the bad pedagogy I call "instructionism." But I myself haven't searched for macroeconomic data on that. Do you know of any such studies?

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Tim's avatar

I am a free market guy who believes (and has observed by studying history) that capitalism outperforms all other systems. Is capitalism perfect? Nope. But the alternatives are far worse. Humans are not perfect, and capitalism does the best job of correcting for human imperfections. I've traveled a lot. Actually, more than a lot. So, I have seen first hand how the different systems work (don't work). Heck, I was in Russia six months after the fall/collapse. I also spent thirty years reading and thinking about different systems. Sorry that so many people are hostile to free market ideology. People will attack you for the views you expressed, even though you are correct. Thanks for your bravery.

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Keith Sawyer's avatar

It's funny how people recoil when I use the word "capitalism." Tim, I agree with you, and with JimS: of course, it is flawed; it results in an unequal distribution of wealth. If you've been through college, you will be familiar with the criticisms. But I wouldn't be surprised if you never learned of any benefits during your four years in college; I didn't. I'm a professor in a School of Education, where everyone takes it as gospel that capitalism is evil, racist, white supremacist, you name it. They don't simply think it's a bad economic system; they think it's an immoral affront to human nature. Wait a second, that sounds familiar...Oh, right, that was Karl Marx, who I read in graduate school, but that professor also assigned Adam Smith--thank you, Professor Moishe Postpone, the brilliant neo-Marxist Habermas scholar (he also assigned Habermas). Rest in Peace

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Kai Wang's avatar

Thanks for sharing. It is an interesting analysis. I think it is obvious China is a capitalist society, with some state-owned companies.

Fact:

China has the world's 2nd largest venture capital industry. The industry literally has "capital" in its name.

If you still think China is going to lose because it is not embracing capitalism, I don't know what to say. No wonder China is closing the gap so quickly and America is still dreaming.

China is embracing capitalism so much that it draws a lot of criticism of treating workers poorly and paying low wages, although both aspects are improving over the years.

Many people treat authoritarian government as a symbol of communism, as if capitalist society cannot exist under an authoritarian regime.

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Keith Sawyer's avatar

Kai, Welcome to this Substack and thank you for posting! I went to your Substack "about" page and it says that you are a published expert in creativity and innovation and you have a Ph.D. in technology management. I wanted to learn more about your research, and you've had a Substack for ten months, but you don't have any Substack posts yet. So then I looked and found a list of your publications on Google Scholar. I looked at a couple, and you are an interesting scholar! I also found your YouTube channel with several interesting videos. So, again, welcome to my Substack! If you're based in the U.S., you probably already know that what I say in my post about China's economy is conventional wisdom in the U.S. foreign policy establishment--I didn't just make this up on my own.

Anyway, I didn't mean to get in an argument about China! What I'm more interested in is creativity, and you are a creativity expert, so I'd like to know what you think: What is China doing to foster innovation in the economy? If there are such policies, they are not reported in the U.S. discussion about China's economy. And also, what do you think that China could do better? If you were hired as a consultant by the Chinese government, what changes would you recommend?

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Kai Wang's avatar

Thank you for being so welcoming! Like many people in the field, I know well that you are an established and respected scholar!

This discussion can be a very long post, please let me try to be succinct. In my opinion:

What China Does Well

Pro-Business, Pro-Tech Government:

China has a highly pro-business, pro-technology government that actively promotes forward-thinking industrial policies. Many local governments provide generous tax incentives and land grants to attract high-tech companies. The government maintains a consistent and strategic focus on key industries such as electric vehicles, solar energy, and AI. Due to its authoritarian structure, the government can implement industry policies without requiring popular support or engaging in lengthy debates.

World-Class Infrastructure:

This includes advanced transportation networks, efficient logistics systems, and widespread adoption of mobile payment technologies.

Competitive Education and Enterprising Culture:

China's education system produces a highly skilled workforce, and its culture encourages entrepreneurial endeavors.

Openness to Foreign Businesses and Scholars:

Despite certain regulations, Chinese society is generally welcoming to foreign businesses and academic collaboration.

None of these factors are secret; they are simply underreported in English-language media.

What Could Be Better

Education System:

The system is overly focused on standardized testing, often at the expense of creativity and holistic learning.

Respect for Authority:

There is excessive deference to authority figures, whether political or technical, which can stifle critical thinking and innovation.

Materialism:

Chinese society tends to place a strong emphasis on material wealth and consumerism.

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Keith Sawyer's avatar

Thank you for your kind and collegial reply. You're right, none of this is a secret. I would say that all of this is well-reported in the U.S. media, at least the highbrow, highly educated media (like Foreign Affairs magazine or the Economist) although there are different perspectives. There are many discussions of the issues you address, but in many cases, you can find fairly sophisticated contrasting viewpoints that are grounded in facts and data. So, there's no question that there are different analyses of the business situation in China that are held by equally-informed experts. For example, in the U.S., it is perceived that China's openness to foreign businesses has declined in recent years. Western businesses and investors have been pulling out or reducing their investments. If these moves are based on a false impression about China's openness, then the Chinese government may need to take some concrete actions to change that perception. Another issue is the IP situation; this has been a big concern in the West for decades and we haven't seen the Chinese government respond to these concerns with concrete actions. But now, I realize that our discussion is getting pretty far removed from creativity, even though I think that you and I would have a great discussion if we continued! But I'll try to stay focused on creativity and innovation. Actually, I believe that intellectual property laws are very much related to creativity research, so perhaps that's something we could talk about more. Maybe I should write a Substack about patent law and its impact on creativity. In the future, if I say something about China that you think is wrong, I hope you will comment and let me know.

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Kai Wang's avatar

Thank you for your detailed and friendly response! Yes. In general, creativity probably interests us more than politics.

If I may though, I am not sure that the West is viewing China as it is. Most people don't read Foreign Affairs or the Economist and other media or politicians tend to paint China in one stereotypical way or another (such as communism or dictatorship or genocidal or IP-stealing), rarely seeing China as complex, rapidly changing, friendly yet assertive, open yet stubbornly rooted in its own culture, promising yet full of problems, deeply traditional yet forward-looking, authoritarian and oppressive yet (largely) responsible socially and economically, with a lot of economic freedom and drive, as it is.

With regard to Intellectual Property, Yes, I heard a lot of complaints: probably justified in most cases. However, people seem to forget that barely 4 decades ago, China was a poor country with zero idea of what "intellectual property law" meant. Therefore, while I understand the complaints, I don't think all the IP violations are necessarily malicious: it could also be cultural difference. I guess IP issues also exist in other countries with non-Western culture. That being said, China certainly should do better.

Recently, China is becoming more authoritarian and less open, partially due to its leaders, partially due to the trade war and export control started by US and the resulting distrust , partially due to the COVID pandemic. It is not a good thing, but the reasons are complicated. If someone tries to take their perspectives, the analysis would be more nuanced.

I certainly could be biased, so please don't take this as a fervent debate. I look forward to your post about IP laws. And yes, I'd be happy to comment on what I may know about. Thank you!

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Keith Sawyer's avatar

Thank you again for your collegial reply. I think you're right that the average citizen is not so educated about China, and instead, has impressions that are probably not well-grounded. It's probably the same in China regarding the United States. So it's certainly possible for the media, and for politicians, to sway the population by creating or endorsing certain narratives. That's true in all counties, of course. So, we can stay focused on creativity research. I believe that all human beings have the same potential for creativity, and that includes both U.S. and Chinese citizens, absolutely. I also tend to believe that there are particular organizational forms that are more likely to foster innovation in a company and a society. But that's not psychology so much as sociology and economics, and I have to admit, that's not my expertise. I do know a little bit about IP and different IP regimes and their differential potential to impact innovation. It's a fascinating topic! If I were starting my career again, maybe I would become an IP lawyer. But I still like psychological inquiry the best.

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Tim's avatar

I have worked in the creativity and innovation sectors for three decades. I know many of the gurus (globally) first hand. China has used a lot of Edward de Bono's thinking tools. I know, because I was asked to go there to do the training. China also uses a lot of TRIZ. Check of the TRIZ conferences. I recommend Keith's book Zig Zag if you want some quick wins to become more creative. If you want to understand creativity better, read Keith's other books.

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Keith Sawyer's avatar

Tim, i would love to hear more about your work in China because I am uninformed about creativity training there. Kai might also know some of your collaborators. Many of my books have been translated into Chinese, including ZIG ZAG, but I don't know if they are well-known there

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