Inequality, Innovation, and Patents

This article explores the relationship between patents, innovation, and inequality, making three contributions. First, it reveals how shifts in patented innovation over the last several decades have contributed to broader social and economic shifts, away from manufacturing-based, domestic, and independent innovation, and towards digital, foreign, and corporate innovation, validating both optimistic accounts of immigration-driven, digital prosperity and pessimistic accounts of the shrinking role of domestic innovators. Second, it offers a framework for understanding the relationship between innovation and inequality that includes both the potentially inequality-increasing impacts of innovation and the potentially inequality-decreasing impacts of innovation and specifies the contribution of intellectual property to these dynamics. To minimize the risk of inequality-driven stagnation and maximize the social benefits of innovation, it argues, more attention should be paid to inclusion in innovation, and on tracking not only the amount but distribution of innovation. Demonstrating the value of this approach, it documents the striking concentration of new patents in the hands of the few, with 53% of new grants in 2016 going to the top 1% of grantees (up from 38% in 1986), an all-time high, as well as the decline in the share of patent filings by small and micro entities from from 33% in 2000 to 28.5% in 2015.