Owners Against Innovation

Every owner of a business will tell you he is in favor of innovation. His material interest says otherwise.

When a new technology appears in a competitive industry, every firm must adopt it or be destroyed. The machines are expensive. The retooling is disruptive. And once every competitor has bought the same equipment, the advantage vanishes. What remains is the cost. Productivity rises, prices fall, and the gains flow not to the firms that invested but to the supplier of the technology and, over time, to the consumer. The individual capitalist who innovated ends up with higher costs and lower margins. The manufacturers of the looms prospered. The mill-owners who bought them competed one another into ruin.

Warren Buffett understood this before Silicon Valley existed as an idea. He avoided technology stocks for decades, not because he could not understand them but because he did. A textile mill that buys new looms gains a temporary reprieve before its competitors buy the same looms, after which everyone produces more cloth at lower prices and the advantage is gone. Buffett wanted to own the loom-maker, or better yet, something no loom could disrupt. He bought Coca-Cola and See's Candies. Products whose value no machine could replicate. What he wanted was a monopoly. What every capitalist wants is a monopoly.

The automobile industry understands this with a clarity the technology sector still refuses to admit. For a century the major manufacturers spent more on advertising than on engineering. The internal combustion engine of 2023 operates on the same principle as the one Karl Benz patented in 1886. Where improvement happened it was imposed from outside: emissions standards, safety regulations, fuel economy requirements. The manufacturers fought every one of them.

When Tesla proved that electric vehicles could be desirable, the established manufacturers did not rush to compete. BMW lobbied the German government to weaken charging infrastructure requirements. Volkswagen paired public commitments to electrification with private lobbying against the timelines that would have made those commitments real. Studies appeared questioning the environmental benefits of electric vehicles, funded by petroleum and automotive interests, promoted by journalists who did not disclose who was paying. Politicians received not just donations but draft legislation, written by industry lawyers, designed to slow the transition to the pace that protected existing capital.

This is the ordinary behavior of firms defending their position. The factory owner who spent billions on combustion tooling has a rational interest in making sure that tooling is not rendered worthless by a battery.

Workers share the same interest, for different reasons. Innovation in production usually means fewer workers are needed. When it does not mean displacement it means deskilling: the complex craft broken into repetitive tasks that cheaper labor can perform. Or it means the opposite, a system so complex that longer training and higher stakes make the worker more anxious and no better paid. The Luddites who smashed the power looms in 1811 understood their situation with perfect accuracy.

Shareholders resist innovation because it costs money, takes time, and may not work. A company that announces a major research program is announcing that profits will decline for years before they might increase. The share price falls. It rises when the same company announces cost cuts and buybacks. The stock market rewards extraction from the present, not investment in the future.

So no one wants innovation. The owner does not want it. The worker does not want it. The shareholder does not want it. Everyone wants a monopoly, a position where you are left alone, where no competitor forces you to invest and no technology renders your product obsolete. Yet the system produces innovation relentlessly, because any firm that stops is destroyed by one that does not. Innovation under capitalism is not the product of genius or ambition. It is the product of fear.

For society the result is, on balance, beneficial, and has been for two centuries. A working-class family in Vienna today has clean water on demand, electric light, refrigeration, and a device in the pocket that contains most of recorded human knowledge. Compare this to washing clothes in the river, which took the better part of a day, or sending a letter by a messenger on horseback, which took weeks. The washing machine gave back the day. The telephone gave back the weeks.

But no one experiences progress as progress. The mental trajectory is always the same. The new thing appears and everyone knows it is a useless toy. The iPhone was too expensive, too fragile, and nobody needed the internet in their pocket. Within five years everyone had one. Within ten the entire infrastructure of daily life had reorganized around it: banking, navigation, communication, commerce. Now it would be impossible to take it away, though the people who cannot live without it still insist they do not really need it. The adjustment is so fast it erases the memory of what came before.

When progress is harmful, the fault is usually that it was not fast enough. The transition from fossil fuels to renewable energy is the clearest case. A certain amount of carbon in the atmosphere does not matter. But without sufficiently rapid innovation in energy production, transport, and storage, the scale of emissions becomes catastrophic. The problem is not that someone invented a better way to generate electricity. The problem is that the better way did not arrive soon enough, and that the owners of the worse way spent decades making sure it would not.

And then the consolidation. New technology requires heavy investment. As competitors adopt it and prices fall, margins compress. To maintain the same profit at lower margins, firms must grow. They need scale. But in most markets scale is close to a zero-sum game: one firm's expansion is another's contraction. The industry that started with dozens of competitors ends with three or four. The survivors, having eliminated the competition that drove innovation in the first place, are now free to behave as monopolists. Prices rise again. Research investment falls. The cycle that technology was supposed to break reasserts itself at a higher level of concentration.

This is not a failure of markets. It is what markets do. The owners who resisted innovation at every step end up, if they survive, in the monopoly position they wanted from the beginning. The ones who did not survive are gone, their capital absorbed, their workers dispersed. And the consistent winner across the entire process is never the innovator, never the firm forced to buy the new technology, but the one that sold it. The loom-maker, not the mill-owner. Nvidia, not the companies that buy its chips. In every technological transition, the supplier of the means of production captures the largest share of the value produced by the transition itself.