Freedom to innovate

In one of my recent posts, I listed specific socioeconomic factors that favor or obstruct corporate innovation. Some of them, such as termination or compensation policies and the way organizations treat their employees, are in full control of the organizations themselves; others, such as labor protection or bankruptcy laws, are specific to a country the organization operates in.

It turns out that other social policies, including those that, at first glance, shouldn’t have any immediate impact on innovation, do affect its rate. In an article, “High on Creativity: The Impact of Social Liberalization Policies on Innovation,” published in the January 2018 issue of the Journal of Strategic Management, Keyvan Vakili and Laurina Zang analyzed the effects of two social liberalization policies, the legalization of same-sex civil unions and domestic partnerships and the legalization of medical marijuana, and one anti-liberalization policy, the passing of abortion restrictions, on the number of U.S. patents filed between 1994 and 2006. During this period, six states and the District of Columbia legalized same-sex civil unions or domestic partnerships, 11 states legalized medical marijuana, and 34 states passed restrictions on abortion.

Vakili and Zang show that the legalization of same-sex civil unions and domestic partnerships increased state-level patenting by 6%, and the legalization of medical marijuana increased patenting by 7%. In contrast, the passing of an additional abortion restriction reduced patenting by about 1% (which roughly translates to about 21 fewer patents per year at the state level).

The authors explain their results by arguing that liberalization policies increase the rate of the innovation output through promoting more openness to diversity of input and opinions. They also speculate that social liberalization policies increase entrepreneurial entry through promoting more diverse social interactions.

To me, the above findings serve as an empirical proof of what I always knew. After all, the two arguably most innovative U.S. states, California and Massachusetts, have traditionally been the leaders of social liberalization: California was the first state to legalize medical marijuana in 1996, and Massachusetts the first state to legalize same-sex marriages in 2004.

Vakili’s and Zang’s findings add to the results of a previous study showing that U.S. state-level employment nondiscrimination acts (ENDAs)—laws that prohibit discrimination based on sexual orientation and gender identity—spur innovation. More specifically, the study found that U.S. public companies headquartered in states that have passed ENDAs experienced an 8% increase in the number of patents (and an 11% increase in their quality) relative to companies headquartered in states that have not.

There is no reason to argue, of course, that the LGBT folks or people smoking weed are intrinsically more innovative. My point is that innovation implies certain level of freedom, be it freedom from fear of failure or freedom from being discriminated for whatever reason. From this point of view, it’s not an accident that all the available lists of “the world’s most innovative countries” (such as, for example, the Global Innovation Index) are dominated by countries with liberal social policies, as judged by their strong labor protection and antidiscrimination laws.

The bottom line is simple: to innovate, one needs freedom. This applies to individuals, organizations, and whole countries.

The image was provided by Tatiana Ivanov

About Eugene Ivanov

Eugene Ivanov is a PMI-certified Innovation Management Consultant who helps organizations increase the efficiency of their internal and external innovation programs.
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