The Relationship Between Economic Inequality and Innovation

Economic inequality and innovation are both increasingly important issues in modern economies, affecting both nations’ rates of economic growth and the overall prosperity and well-being of their citizens. High levels of inequality are generally seen to be detrimental for economic growth, in addition to contributing to a host of other social and political problems. Innovation, meanwhile, is recognised to be a cornerstone of the sustainable economic growth and technological advancement of a country. Rising inequality and decreasing rate of innovation have been identified as problems in most Western countries since the early 2000s, but both phenomena have exacerbated a great deal since the economic crisis of 2008. Although both lowering inequality and increasing innovation are on most nations’ economic and political agendas, most countries are doing worryingly little in addressing the issues in real terms. Inequality and innovation have several links between them, and can affect each other through multiple different mechanisms. High degrees of inequality can serve to hamper a country’s rate of innovation through various different means, while innovation can both lower and increase inequality, depending on the circumstances surrounding it. It is extremely important for nations and different supranational agencies to fully understand the nature of both issues, in order to be better equipped to address them. Countries need to also be aware of the different effects both phenomena can have in different circumstances – it seems that both inequality and innovation can generate different results depending on whether they occur in liberal market economies (Anglo-Saxon countries) versus more strategically coordinated market economies (European countries). Overall, it seems that improving the general population’s access to high-quality education, ensuring that a respective society houses necessary support institutions fostering innovation and utilising a suitable amount of wealth redistribution are some of the most important mechanisms in ensuring that inequality is kept in check, and innovation is at its maximal level