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The Point At Which Socialism And Capitalism Meet Is Where Innovation Happens

Socialism and business may seem like an odd concept, but is essential to innovation success

25Jul

The concept of socialism in the US has become a widely hated term, with capitalism becoming the only real system that people seem to appreciate in any meaningful way. This concentration on capitalism since the 1970s has seen an unprecedented growth in the rewards of many in the 1980s, 90s, and early 2000s. In this time we saw averages grow, peaking in around 1978 and having peaks and troughs in between. Unsurprisingly the biggest single annual drop was between 2007 and 2010, during the financial crash which saw millions losing their homes and millions more losing their jobs. This crash was, in part, caused by the unbridled capitalism and drive for individual wealth over collective achievement within companies. Bernie Madoff alone stole $20 billion in his Ponzi scheme and the sub-prime mortgage crisis was caused firstly through the restriction of regulations under Reagan and Clinton, and then the desire from traders to profit despite knowing they were selling a dud product.

Like capitalism, socialism has several positive aspects too - just look at the NHS in the UK and public schooling as prime examples of how collective actions can have an almost unquantifiable good. Without public education what would the workforce look like today? However, when we think of socialism, we can pinpoint the Soviet Union and North Korea as what can happen. Both saw huge amount of corruption, as well as millions killed through starvation and attempts to protect the leadership of the system. These interpretations of socialism also run counter to what the positives of capitalism bring, with wage increases and the ability to ‘move up’ in society. Also, to put it bluntly, companies need money to function, so taking the approach where social reward is the only ‘payment’ is impossible.

However, the examples above of socialism and capitalism essentially highlight their negatives, whilst the reality is that both have significant positives, and when they can work together in a system, they can create some of the most important world changing innovations we’ve ever seen.

If we boil down both concepts to their absolute base forms, socialism is a system that rewards good work with social achievement, whilst capitalism rewards with capital gain (hence their names). If we approach them from this viewpoint, rather than the highly politicized modern interpretations, then almost every management book of the past 30 years discusses the importance of both working in harmony.

An effective company rewards well and creates a strong sense of community, with those doing great work being rewarded by praise and acceptance from peers in addition to monetary compensation. One of these elements alone is not good enough to keep people at a company - friendships at work, for instance, boosted employee satisfaction by 50% and made people 700% more likely to engage fully with their work according to the ‘State of the American Workplace’ study from Gallup. Companies like Google and Dropbox have put particular emphasis on creating a culture of camaraderie amongst their workforce, something that is becoming increasingly common for companies across the world. Similarly, studies from MSCI have shown that the best paid CEOs often oversee some of the worst performing companies.

Leadership gurus like Simon Sinek, Daniel Pink, and Seth Godin have all made names for themselves preaching the idea of social achievement and acceptance within companies being more important than individual reward. The reason isn’t just because it sounds good, but because it’s true - if you have a team working together towards the same goal, they are more likely to achieve it. Studies from Martin Hoegl and Hans Georg Gemuenden from the University of Washington and Technical University of Berlin found that the greater social cohesion within a team, the more likely the team is to achieve success in an innovative project. It should not come as a surprise to anybody who’s worked in an office that if you treat others in your team well, they are more likely to perform better for you and others.

If we concentrated on profit alone from both an organizational and individual standpoint, the chances of success would be slim as everybody would be out to make as much for themselves as possible, instead creating team cohesion - this is what brings a project success, which in turn brings monetary rewards. It is the very basis of the most innovative projects. The iPhone, for instance, worked because people had a common belief and worked towards it. They did so because they wanted to change the way that people interacted with their phones, which then led to the company doing well, which meant that they individually made more money.

We have recently seen the explosion of big data, which has created an entirely new industry focussed on data analysis and storage, but the foundations of it came from open source platforms like Hadoop. These were created due to teamwork that had very little to do with making money. Reward, at least instant reward, was instead gained through community acceptance and impressing their peers. This foundation then led to further expansion as profit-driven endeavours were built on top, which allowed this open source beginning to become genuinely profitable, with those involved initially on a social level generally making significant material gain.

The marriage of the two ideas is central to innovation success, with those companies concentrating on either social cohesion or profit alone less likely to create something truly great. It seems strange that two ideas that are generally understood to be polar opposites could work together to create something great, but the proof seems to be irrefutable. 

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