Discussions of the recent tax legislation in Congress has centered around the ability of less corporate tax to spur innovation by corporations. But a recent Harvard Business Review article points out that taxes are not primary determinants of who becomes an innovator. If the U.S. wants to spur innovation, it needs to look at what those determinants are.
Wealth, Education, Role Models Matter
The HBR author cites a National Bureau of Economic Research study published in late 2017, which examined patent records from 1.2 million inventors. (Their tax records were examined also.) What factors were correlated with their innovation?
Surprisingly, family wealth was the leading factor correlated with being an inventor. Families in the top 1% of income were more than 10 times as likely to produce an inventor as families with below median incomes.
Intellectual ability, as measured by early childhood testing, mattered but it was not a determinant of who innovated and who didn’t — it didn’t explain the gaps between innovators and non-innovators. (A similar study in Finland, which had the IQ scores of all participants also, did find that a high score was a determinant of innovation, but also found that wealth and highly educated parents were as well.)
Interestingly, the study did not go on to speculate about why wealth mattered so intensely. But it can be speculated that children whose families had money were free to invent — they had free time, theoretically, unencumbered by a specific economic need to earn a living, and plenty of freedom to pursue an invention.
Other factors that were correlated with creating a culture of invention? Good public services, especially good education in science, technology, engineering, and mathematics (STEM), as well as good health.
One of the most important factors was the existence of role models who had invented and were local. This was true both for boys and for girls: both genders tended more to innovate if they came from an area where inventors of their gender had been known to invent.
The area connection persisted even when innovators had moved from the area. People growing up in Silicon Valley, for example, tended to innovate in tech no matter where they lived as adults.
Education and role models are important.
Implications for the Future
The study has implications for the future of the U.S. as an innovative country. Income matters, but so do public services like education and health and the existence of local role models. In fact, the HBR notes that if women, low income children, and minorities invented at the same rate as wealthy men, the innovation rate would quadruple nationwide.
The fear, of course, is that the tax bill is forecast to have some ability to cause the gap between rich and poor to widen. If it does, people of middle and lower income may have even less chance to innovate.
In societies where innovation is a goal, STEM education and role models are necessities. As much as tax reduction might be a goal, increasing STEM education and the accessibility of role models of both genders is an important step toward increasing innovation in the future.