Opinion: Let’s not put special taxes on successful innovators

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The rest of us need incentivesLast updated 5 minutes ago Because most of us are not saints, if we want less innovation, taxing the profit from it is certainly the path we should take. Photo by phototechno/Getty ImagesIn 1921, Canadians Frederick Banting and Charles Best discovered insulin and in doing so changed the fates of millions of diabetics. They sold their patent for it for the princely sum of $2. (True, $2 then was the equivalent of $35 now. But still.) Thirty years after Banting and Best, Canadian George Klein perfected the electronic wheelchair and gave away his patent for that breakthrough for nothing. All three researchers could have earned great piles of money but chose not to.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountWhat are we to make of these acts of selflessness, of massive charitable giving? Are the researchers to be applauded? Certainly, yes. Their generosity was admirable and, with or without it, their discoveries made the world not just a little bit better, they made it a lot better, stupendously better. Thanks to them millions of lives were saved, extended and improved.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againAmong the many questions raised by these two episodes is whether we should promote this sort of altruistic behaviour, maybe even to the exclusion of the more ordinary practice in which inventors earn a profit improving our living standards? Or should we go further and penalize inventors who earn vast wealth this way, for example by taxing them heavily?There is more than one way to improve human well-being, of course. Medical breakthroughs are one — that’s obvious. But Henry Ford improved our lives when he made it possible for the middle class, and eventually even the poor, to own a car. Bill Gates benefited humanity, too, by enabling us to better connect with each other electronically.Should we have wished that Ford and Gates had followed the pattern of Banting, Best and Klein? Should we encourage all future innovators to give away the wealth earned from their inventions? Yes and no.The case for “yes” is that if Ford and Gates had kept no profits, the benefits from their inventions would have been more immediate. Instead of the improvers of horseless carriages and typewriters being able to own palaces around the world, these monies would have been diverted into more widespread benefits for the many. That is, the charities they gave to would have done lots of good. (Let’s ignore the fact that both Ford and Gates did give away much of what they earned to charity. Assume instead they had spent them on wine, women and song — or whatever their preferences decreed.)Is there even an argument for not encouraging successful inventors to give it all away? Yes, there is. If the expected or even required pattern became the one blazed by Banting, Best and Klein, fewer people would have an incentive to engage in the sort of research that translates into such discoveries. That cannot help human prosperity. Moreover, innovators who succeeded would have fewer funds with which to try even more innovation. Klein, Banting and Best did attract further research funding, but if they had kept more of the wealth they had earned, they would have been able to take their future research in whatever direction they chose — maybe even to Mars exploration, as today’s most famous innovator is doing.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Beyond encouraging Ford and Gates to give their money away, should we tax them heavily? Should we have taxed Banting, Best and Klein heavily had they made a fortune out of their discoveries, instead of giving them away for free or virtually for free?It seems more than a little ungrateful to reward such prolific contributors to human well-being with severe financial punishment. Even if they had profited to the full extent available, Banting, Best and Klein would still be heroes. They would still have benefitted millions and millions of people immeasurably. It’s a commonplace in the literature on innovation that innovators capture only a little over two cents on every dollar of benefit their inventions create. In effect, they give away 98 cents on the dollar before they themselves collect even a penny.Taxing such heroes would therefore be a paradigm case of injustice. From a pragmatic point of view, too, it would be disastrous: having a negative impact on all other potential scientists and entrepreneurs.The fact that these three Canadian heroes voluntarily gave their entitlements away indicates their incentives were purely non-financial. So taxing them would not have created any disincentive for them. But most people, it seems fair to assume, aren’t so saintly. Especially in fields where you can’t win a Nobel Prize, financial rewards probably do matter. (Banting won the 1923 Nobel, shared with his lab’s director, though not Best. Another sign of his character: he split his share of the prize money with Best.)Because most of us are not saints, if we want less innovation, taxing the profit from it is certainly the path we should take.Walter E. Block is the Harold E. Wirth Eminent Scholar Endowed Chair and professor of economics at Loyola University in New Orleans.We apologize, but this video has failed to load.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.