Home > Economics - General, Intellectual 'property' > Putting the creativity back in creative capitalism

Putting the creativity back in creative capitalism

July 31st, 2008

Although the conversation here takes place under the banner of ‘creative capitalism’ there has been relatively little discussion of creativity in the ordinary sense of the term. Yet the relationship between creativity and capitalism has rarely been more complex and interesting than it is today.

The central technical innovation of the past twenty years or so has been the rise of the Internet, and particularly the various incarnations of the World Wide Web. Without the Internet and the Web it is unlikely that we would have seen any significant recovery from the productivity growth slowdown of the 1970s and 1980s.

Yet neither the Internet nor the Web was a product of the market economy, and even now the relationship between market incentives and the social contribution made by Internet-related activities is tenuous at best.

Both the Internet and the Web developed as non-commercial activities, outstripping or absorbing a variety of commercial competitors (Genie, Delphi, AOL and so on) before being opened up to commercial use in the mid-1990s. And even since large-scale commercial involvement began, most of the exciting innovation continues to come from noncommercial users (blogs and wikis, for example) or from non-commercial content producers (YouTube, Flickr and so on). By contrast, heavily funded commercial innovations such as push technology and portals have failed or declined into insignificance.

The dominant driver of the Internet economy is not profit-seeking innovation but individual and collective creativity. Creativity is, and always has been, driven by a wide range of motives, some altruistic and others, like the desire to display superior skill, rather less so. Trying to tie all of these motives to direct monetary rewards is futile and, if pushed too far, counterproductive (More on this from me and Dan Hunter here, with discussion here and here).

Of course, corporations still have a large role to play in the economy of the Internet. A company like Google, for example, provides services that cannot easily be replicated by users acting either individually or collectively. But Google depends crucially and directly on the content created by users and more generally on the goodwill of the Internet community.

If these assets were lost, Google would be vulnerable to displacement; Microsoft’s loss of its seemingly unassailable dominance of both personal computing and the Internet software market is an illustration. Google’s slogan ‘don’t be evil’ and its sensitivity to criticism, for example over its compliance with Chinese censorship laws, illustrates the point. Equally, so do the many products Google creates and gives away, with no obvious path to future profit.

So, more than in the past, it makes sense for corporations to cultivate diffuse goodwill, rather than focusing solely on profit, perhaps modified by the need to buy off powerful interests. In the context of an economy where creative collaboration is central, this can’t be done through a neat separation of targets and instruments, with a charitable PR-oriented effort bolted on to a profit-maximising corporation.

Extending all of this to the challenge of helping poor countries develop creates further challenges. Companies will need to do more than bring corporate expertise to bear on the problem. They will also need to mobilise contributions of skills and resources from outside the company. If such contributors are not to feel exploited and abused, the project can’t be directly tied to the goal of profit maximisation. All this may yet be a bridge too far.

Richard Posner recognises much of this but argues that corporate managers should instead adopt a hypocritical pose of general concern until they have secured a userbase large enough to be locked in, then exploit it to maximise profits. There are a several problems here. First, sincerity is not as easy to fake as all that, particularly in an organisation where you can’t let everyone in on the joke. Second, setting up a monopoly by stealth, then extracting the maximum rent is a trick that can be pulled off at most once. Finally, if the managers of a company are chosen to be capable of successfully conning the public in the interests of shareholders, why would anyone expect them to forgo the chance to enrich themselves at shareholders’ expense.

  1. TerjeP (say tay-a)
    July 31st, 2008 at 18:57 | #1

    You seem to have an assumption that capitalism is synonymous with corporations making money. I suppose the term has many varied interpretations but this one would seems somewhat simplistic to me.

  2. melanie
    August 1st, 2008 at 00:20 | #2

    Although your critique of Posner is probably right, it is nonetheless true that a lot of creators of free websites have gone on to cash in by selling out after they’ve created a user base that is large enough to attract capital. Then the people who create the content can be faced with ads, censorship, demands for money or whatever. Livejournal is a case in point. The censorship started when the creator sold out to a company called Six Apart and they decided to ban nipples from public view (creating a storm from the breastfeeding groups), then their search engine refused to search for people with an interest in ‘genocide’ and a bunch of other terms including ‘twopence’! (or maybe this was after the Russians took it over). Then they abolished free blogs and so on. Their active user base has diminished considerably. I think something like this happened to Flikr as well.

  3. BilB
    August 1st, 2008 at 12:03 | #3

    Corporations are lousey at finding new directions. Most really fresh approaches come from individuals (microsoft, google, you tube) with a spark of an idea that they struggle with and drive forward, and then in most cases die for lack of economic strength. This process, when engaged in by a corporation, is immensely expensive, and has as much success probability as the individual effort.

    In my experience as a product developer and innovator corporations are very insular when it comes to new ideas, and this is very surprising considering that they are the ones who ultimately profit in the largest way from commercially solid products. The fear for them is opening up a floodgate to cookey inventors who can waste a lot of time.

    The way around this is for business to engage in a general dialogue to examine “directions”, which in the so doing creates a more coordinated pattern of thinking. For example the current world focus on alternative energy is producing as spectacular array of energy related products. And the uptake of these products is equally strong, simply because every ones thinking is on the same page.

    My suggestion towards creative capitalism is for business to spend a small amount of effort in promoting, and to some degree supporting, progressive and innovative thinking. Altruism can have a positive commercial return.

  4. O6
    August 1st, 2008 at 12:28 | #4

    PrQ: ‘Both the Internet and the Web developed as non-commercial activities.’
    As I recall, one came from big physics in the public sector (CERN), the other from the US Department of Defense (DARPANET). Now we have Minister Carr telling us too much research funding is easy to get hold of (ARC success rate 20%: would 5% be good?) and we’re not focussed enough on doing useful things. Public sector research is as under threat as ever, and the private sector is looking sick. Sitting here in the public sector, I’m going to try to continue to be creative and let Schumpeter take care of himself.

  5. swio
    August 2nd, 2008 at 10:20 | #5

    “There are a several problems here. First, sincerity is not as easy to fake as all that, particularly in an organisation where you can’t let everyone in on the joke.”

    Its particularly hard to fake in the internet era. Users expectations of access to information are very high these days. Holding back anything is suspicious. In open source projects almost literally nothing is secret. User’s are also likely to be as well or even better informed about the fundamental technical aspects than a new products originators.

  6. Chris Warren
    August 5th, 2008 at 22:28 | #6

    People often like to put nice sounding words next to “capitalism”. Why wouldn’t anyone want creativity?

    But capitalism is the problem, and creative capitalism is more likely to be a reactionary concentration of current powers than a progressive redistribution that expands participatory or economic democracy.

    It was the capitalist creativity that (since the 1920′s) created the huge debts and exponential trends than have led to today’s unhappy impasse.

    The NYTimes Sunday edition 20 July, (using Federal Reserve household debt data) contained an excellent expose of this issue. The creativity consisted of the invention of new forms of debt from hire purchase to home mortgage to credit cards, home equity loans, tuition loans, as each has piled up more debt on old.

    Those who talk about creative capitalism do not even define capitalism. It is the creation of artificial levels of profit by expropriation of value from others. Abolishing unions would be a creative way for capitalism to boost profits. Cutting taxes on business would be another.

    So sign me up to creative economics – sans capos.

  7. BilB
    August 6th, 2008 at 06:36 | #7

    ChrisW hints to an important limitation of business philanthropy. Whenever an individual, business, or organisation uses their resources to alleviate the disadvantage of another, this usually relieves performance pressure from some other entity, usually government. And an expectation of continuity is established. A good example would be “tipping”. In the US the (generous) giving of tips has become an essential part of incomes, relieving wages pressure from employers. A key problem with this sort of activity is that it is usually highly selective with very poor overall effect, and the end result is all too often a general loss to the community as a whole. Highly profiled acts of generosity can create a public perception that a problem is solved, when in fact the problem is deepened. This sort of manipulation is very commonly seen in Africa and America.

    The institutionalisation of this effect can be seen in a litigation oriented health/medical/accident system where restitution for poor medical (and accident) outcomes can only be achieved through litigation. This approach is extremely selective in its returns to the public.

    Another area where captialism can distort to the point of failure is in education. Again, a capitalistic entanglement leads to very selective support. Business only wants to carry that part of a system from which it can profit in the short term, and this support cannot be relied upon for consistency over time or for extent.

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