Putting the creativity back in creative capitalism

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.

Yet more on fiduciary obligation

I’m planning a further post about the notion of ‘creative capitalism’, but before I get on to it, I thought it might be useful to clear up some of the confusion surrounding the alternative view, that managers have a ‘fiduciary obligation’ to act solely in the interests of shareholders, reflected in debate here, at Crooked Timber (including this great post by Dsquared) and at the Creative Capitalism blog.

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Bris Science next Monday, City Hall at 6:30 will be on a subject much debated here, “Wolf in a sheep’s labcoat: pseudoscience in the 20th century” by Mike McRae of CSIRO. I’m double-booked but I still hope to make it along.

The Centre for Policy Development is holding a debate between Janet Albrechtsen and Greens MP Lee Rhiannon on the subject of political donations (no donation required to attend). 13 August, 6pm, Customs House Sydney. RSVP here

Back to the future

According to all political commentators I’ve read, the Liberals have achieved a triumph in policy formulation on climate change, reverting to the policy they put at the last election, where climate change was a central issue. It’s a while ago now, but can anyone remember how that turned out for them?

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Starbucks on the way out

Since I’ve previously commented quite a few times about Starbucks, I thought I should note this news. It’s a pity for those who will lose their jobs in a softening labour market, but not really a surprise.

Update A letter in the Fin Review makes the point that Starbucks suffered in competition with Gloria Jeans (for non-Oz readers, a truly horrible food court coffee chain, closely associated with one of our less appealing churches), because GJ is a franchise operation, with most franchisees being small enough to avoid payroll tax, while Starbucks were company-owned and had to pay. If the coming tax review could get rid of payroll tax, it would be a huge boon.

Two cheers for Labor

The euphoric honeymoon period for the Rudd government may be behind us, but we still get regular reminders that we made the right choice as a nation last November. Today’s news includes two such reminders
* The end of the brutal policy of mandatory detention, introduced by the Hawke-Keating government and hardened repeatedly by the Howard government (notable participants who deserve continued obloquy include Philip Ruddock, Peter Reith and Amanda Vanstone)
* The intervention by Peter Garrett to protect remaining cassowary habitat near Mission Beach

The Opposition’s response on mandatory detention, as on almost every issue that has come up for debate since the election, is a reminder that they need a long spell out of government. On current performances, I’d say that they won’t be a credible alternative until everyone who held office under Howard has left the political scene.

A tale of two lakes

As inflows to the Murray–Darling system continue at record lows, conflict over water is intensifying. The management of both Menindee Lakes in Western NSW and Lakes Alexandrina and Albert in SA has been subject to severe criticism. Currently two of the Menindee Lakes contain nearly 600 GL of water (under current rules, this keeps them under NSW control). South Australia is calling for a release of water to prevent severe damage to the lower Murray, including the SA lakes and the Coorong. But lobbyists for the NSW irrigation sector, like Jennifer Marohasy, are arguing that the barrages preventing sea water inflow to the SA lakes, (themselves a response to flow reductions caused by the initial development of irrigation upstream), should be removed.

There’s little value in assessing these competing claims in isolation. It’s becoming increasingly clear that the current leisurely schedule for achieving a sustainable allocation of water rights is untenable. The Australian government needs to act to bring allocations into line with sustainable levels, and accelerate the repurchase of water rights from irrigators.