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The next Silicon Valley?

Innovation efforts tend to focus on economic incentives but new research suggests liberal social policies are just as important

By Keyvan Vakili and Kathy Brewis 25 June 2018

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How do you get people to be more innovative – to create new ideas, products, processes or systems? It’s on every business leader’s mind and it’s what inspires Keyvan Vakili, Assistant Professor of Strategy and Entrepreneurship at London Business School, to research the conditions in which people are most creative.

Previously Dr Vakili has looked at the roles of specialisation and collaboration in the innovation process and how policies such as the implementation of intellectual property rights influence the innovation output of individuals, firms and regions. Now he has turned his attention to how shifts in legalisation on various social issues can affect innovation in the US.

In his paper High on Creativity: the Impact of Social Liberalisation Policies on Innovation, co-authored with Laurina Zhang, Assistant Professor of Strategy and Innovation, Scheller College of Business, Georgia Institute of Technology, Dr Vakili describes the impact on innovation of legislative changes around marijuana, same-sex marriage and abortion.

The researchers analysed a huge data set of patents from 1994—2006. Within that period, six states and the District of Columbia legalised same-sex civil unions or domestic partnerships, 11 states legalised medical marijuana and 34 states passed new restrictions on abortion.

“The US was a good location for the study because different states are able to set their own laws. We also deliberately chose multiple and contrasting policies to ensure our findings were not driven by any specific one,” Dr Vakili explains.

Here’s what they found: the legalisation of same-sex civil unions and domestic partnerships increased state-level patenting (in other words, patenting by all individuals residing in a state) by 6%. The legalisation of medical marijuana increased patenting by 7%. In contrast, each additional law restricting access to abortion reduced patenting by 1%.

To get as close as possible to cause and effect, the researchers interrogated the data with various statistical techniques. They also controlled for a wide range of state-level factors such as past innovation rate, state total expenditure, population, educated population, tax rates, house prices, personal income and the political leanings of the state senate and house. They are confident that their findings are robust.

So what’s behind them? The researchers explored three possibilities. One: inventors are attracted by these more liberal, tolerant places and move to them (the “creative class” theory developed and popularised by Richard Florida and his colleagues). Two: liberal social policies influence people’s attitudes, leading them to collaborate with a more diverse range of people. Three: this diverse interaction leads to inventors sharing resources so it’s easier for them to become entrepreneurs.

Dr Vakili himself is a former entrepreneur with a tech/engineering background – he once founded a videogames production company. He says he has always been curious about the creative process and what actually makes people more likely to innovate. “A lot of policies are around providing economic incentives– such as research and design incentives, tax breaks for entrepreneurs, enforcement of intellectual property rights… Most of the conversation is about the fact that innovation is risky,” he says. Incentives in particular have come under a lot of scrutiny, with some experts suggesting high-reward schemes such as Google’s Founders Awards may be misguided.

“What we’re saying is, yes, those economic conditions are super-important, but then creativity itself is a process. It rarely happens that someone comes up with a new idea purely because they have a financial incentive. Many innovations actually come from us sharing ideas with other people, learning what they’re thinking, gaining knowledge from each other. So we should be looking at the social processes that would facilitate more creative output.”

With regard to marijuana, Dr Vakili says he did briefly consider the simple possibility that the drug itself was fuelling creativity – as indeed many musicians and inventors have claimed (including, famously, Apple co-founder Steve Jobs). But when he put the data through the analysis it was clear that it was the legalisation of the drug rather than its consumption that was making a difference.

“So we started testing a bunch of things,” he says. “First we looked at migration results and we couldn’t find any. That doesn’t mean it’s not happening – we’re not refuting it – but we’re saying that it can’t explain these results. Then we started looking at interactions between people – we can see who they collaborate with on their patents. We can see if they’re collaborating with people they’ve never collaborated with before or if these are repeat collaborations. That was our proxy measure of whom they interact with.

“We also looked at changes in acceptance of behaviour to see if there was this movement of beliefs at state level. In states where 90% of the population were already on board, we shouldn’t really see the [boost in innovation levels] effect – but in states where only 55% of the population approved of marijuana until legislation, we should see an effect. Most of this legislation was passed after a public vote so we had the ratio of what percentage of people voted yes and no.”

The researchers were able to conclude that the increase in innovation they were seeing was not because of consumption or migration. “It’s because people are changing their interaction patterns. They’re interacting with a more diverse population and this increases their creative output.” They also found a positive effect on entrepreneurship.

It makes sense at an instinctive level. The more different ideas you’re exposed to, the more likely it is that previously unconnected ideas might come together in new and interesting ways.

“If you think about creative cities – New York, San Francisco, London – they are very diverse, with people from very different backgrounds who come and work with each other. Yet in most of the organisational research, the idea has been around, say, rotating people between teams.”

Steve Jobs famously designed the Pixar building to have a large atrium and only one set of toilets and a café at ground level to force people to congregate in the same area, knowing that new ideas would come out of unplanned encounters and collaborations. “If a building doesn’t encourage that, you’ll lose a lot of innovation and magic that’s sparked by serendipity,” Jobs said.

“More diverse interactions lead to more and higher quality ideas,” says Dr Vakili. “New ideas don’t come out of thin air. Most innovations are the outcome of combining previously disconnected ideas.” Think of new music genres borrowing from each other, scientists mixing existing ideas into new theories. “For ideas to flow and collide, the people who hold those ideas need to meet, mingle, talk and share.”
The key takeway is that social context can shape inventive collaborations and influence innovation outcomes. What are the implications for individuals, firms and policymakers? Dr Vakili suggests three:

1. Individuals who want to be innovative should consider a region’s social environment when deciding where to work

2. Promoting diversity and inclusive employment in the workplace can influence a firm’s innovation output and competitive advantage

3. Enacting more liberal social policies at a regional or national level can potentially lead to higher creative and innovative performance.

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