Innovation Centredness, Nordic Socialism, and Prosperity: A Conflicting Non-operable Nexus for America

It is true that the Nordic version of Socialism, which differs significantly from versions of socialism in countries, such as France, Italy, and Spain is designed for maximization of welfare of citizenry, and maximization of prosperity. The first and most important benefit of Nordic socialism?

The mere fact that a person who chooses to become a woodworker or a plumber is guaranteed a reasonable compensation, this because such services are essential to well being of society, is an ennobling thought, as such beneficial for mindfulness of citizens and residents of Nordic countries.

If there exists a profession without which neither of a firm nor a society can function effectively or efficiently, how exactly can it be argued that such a profession, such as ‘full time cashier’ at McDonalds, does not deserve a reasonable compensation?

Can McDonalds be effective and/or efficient without register cashiers?

If a capitalist society considers that capitalism always must have a human face, the sort of mindfulness that is facilitated by compensation structures, which obtain in Nordic countries, is not inimical to capitalism, in fact, in the formal theoretical literature of Finance (Stiglitz 1972, Jensen and Long 1972, Leland 1974, Baron 1979, and Obrimah 2019) is, rather unequivocally, an important component of what is termed, Pareto optimal Capitalism (references for enumerated citations available in Obrimah 2019, which is referenced at end of this post).

While initial models of Pareto optimal Capitalism have been rather abstract, as such difficult to implement in practice, more recent models, which are discussed and summarized in Obrimah (2019b), incorporate pragmatic improvements that, with cooperation of the private sector, and regulators, have capacity for transitioning of valuation rubrics within firms and stock markets from hedonistic ‘shareholders only’ rubrics to Pareto optimal rubrics.

Criticisms of implementation of Capitalism in the USA revolve around what has been a Hedonistic ‘Shareholders only’ version of Capitalism, as opposed to the Pareto optimal version of Capitalism that is recommended in formal theoretical literature of Finance.

While the Nordic version of Socialism fosters prosperity, mindfulness, and quality of life, it’s success cannot be dissociated from the fact that, while Nordic Socialism does not foster entrepreneurship and innovation, in presence of production of new innovations in countries, such as the United States, Nordic countries always are able to adopt whatever new innovations they need, whatever new innovations are consistent with their specific version of Socialism.

Given the state is arbiter of markets and adopter of new innovations in Nordic countries, with outcome individuals do not have to exercise much of personal initiative for facilitation of arrival at new innovations, Nordic countries safely can afford to practice free college education.

Suppose that the USA transitions to the Nordic version of Socialism, with outcome some years out, the drive for excellence in research, drive for entrepreneurship, and drive for new innovations dies out. In this scenario, each of Nordic countries and the USA become dependent on China for new innovations.

Well then, what exactly is the point of a trade war with China if, eventually, each of the USA and Nordic Countries are to become dependent on China for new innovations?

Outside of Asia or China, does anyone anywhere in the world, Russia inclusive, desire a world economy within which China is the only source of meaningful new innovations?

Make no mistake, Socialism will destroy drive for excellence in research, drive for entrepreneurship, and drive for innovation in the United States.

It is well established that countries such as France, Spain, and Italy are not quite so innovative or entrepreneurial, precisely because incentives for innovation are lacking in their socialist structures.

Someone may argue that, with private universities continuing to recruit the best and brightest in the USA, that innovation within the USA really will not falter. Well, a study by Gompers et al. (2016), a study whose first author is a reputable faculty at Harvard Business School finds that whenever venture capitalists affiliate only on basis of some status, such as alumni of Ivy League or Private Universities, their performance deteriorates.

This, perhaps is because, thinking alike, and lacking in diversity of perspectives, every new innovation they finance mirrors the last one. If we assume that the proportion of a specific type of innovation that can be constituted to be high quality innovations are a minority, every additional innovation within such a class of innovations that is financed is predicted to be a lower quality innovation, resulting in a deterministic intertemporal decline to portfolio performance of venture capitalists.

This, of course is the whole ‘Facebook buys Instagram and molds it after it’s image phenomenon’. That way, people are less likely to imagine what exactly could be different from Facebook.

Add to this creation of a class based society — the innovators who pay for College and become owners of capital, and the serfs who desire free college education who do not have a right to demand some minimum level of pay, after all education came free — and Free College Education creates exactly what Democrats are supposed to care the most about ameliorating, which is, emergence of a class based society.

Domiciling of innovation in private universities will create exactly what has become the bane of innovation in the United States, namely, replication of exactly the same sorts of innovations over and over and over again, this because incumbent firms care only about protection of their economic rents.

How exactly does creation of a class based society via introduction of Free College Education fit into Democratic Ideals?

While the Law of Comparative Advantage has, in recent times, and in context of wanton outsourcing of manufacturing been abused, it is a robust theory that undergirds interactions between countries.

Within context of comparative advantage, at the present time, there exist two main nodes for new innovations in the world, the USA and China. While differences in ideologies for living of life may prevent the two from ever thinking they could be allies, there exist rubrics that can mitigate competition that is detrimental to welfare of people in the two countries, and welfare of the world economy. That, however, is substance for an entirely different post and discussion.

In economics, and in context of existence of markets, always, a monopoly is, relative to imperfect competition, an outcome to be avoided. If the USA transitions to socialism, this exactly will be the outcome in the world economy, that is, transition from imperfect competition between the USA and China to a monopoly on innovation that is gifted to China.

The laws of Financial Economics declare it is foolhardy for the USA, Nordic Countries, and all countries outside of China, for America to transition to any form of Socialism.

True essence of capitalism is presence of rubrics that encourage people to innovate, and laws that protect people’s rights to enjoyment of economic profits or rents from their innovations.

The problem that has transpired in the United States is specification of those economic rents; that is, the assertion, to wit, the desire to generate a return of 20%, a desire that necessitates paying of poor compensation to labor, can be validated, in presence of the fact that a return of 18%, which guarantees a decent return on capital for shareholders, enables payment of decent compensation to labor. This sort of hedonistic capitalism resides at heart of whittling down of the Middle Class and Upper Middle Class in America.

The problem with America is not Capitalism, rather is Hedonistic interpretations and implementations of Capitalism.

If researchers, the private sector, and regulators work together for development of new rubrics for valuations both within firms and markets, rubrics that are premised on Pareto optimality of interactions between different economic agents, the transition from Hedonism to Pareto optimality of interactions within firms and markets is sufficient for pulling back of the USA from the brink of a tethering over the ledge, a tethering that, were it to transpire, makes for a shattering at foot of the Cliff.

Only maintenance of the right form of Capitalism in the USA has any power for saving each of the USA, and the rest of the world.

Obrimah, O.A. 2019. Unexpected, Yet True, Value Maximization Is a Rational Behavioral, as Opposed to Rational Expectations Valuation Rubric. SSRN (Elsevier) Online Journal: http://dx.doi.org/10.2139/ssrn.3484299.

Obrimah, O.A. 2019b. Rescuing Rational Expectations from Undeserved Ridicule. SSRN (Elsevier) Online Journal: http://dx.doi.org/10.2139/ssrn.3493043.

Gompers, P.A., Mukharlyamov, V., & Xuan, Y., 2016. The Cost of Friendship. Journal of Financial Economics 119, 626–644.