of Personal Incentives in Driving Economic Growth
Karl Marx's worldview emphasizes human social interaction in production and the critical connection between the proletariat and the capitalist. Marx criticizes capitalists for exploiting workers, which he attributed to the extraction of surplus value, leading to injustice and inequality in society. Furthermore, Karl Marx wrote that, “the value of the product is exactly equal to the value of the capital advanced,” 1 This process prevents innovation, as it lowers motivation to stand out and to innovate. Whilst aspects of Marxist ideology are important, and can thrive in smaller communities, by prioritizing an equal distribution of resources, it shows it is not adapted to work in a modern, capitalist world where innovation is vital to driving economic progress.
The Kibbutzim, established in Israel, show an egalitarian society based on Marxist principles. It rejects capitalism, and shows that communism principles can function effectively within small, less restricted communities without any information restriction. The Kibbutz movement sustains through collective responsibility, shared salary, and communal production2. However, the lack of personal incentives led to ‘the Kibbutz crisis’ in 1980.3 At that time Israel offered better opportunities for high-skilled individuals and they often left, resulting in a ‘brain drain’ in the communities; mostly low-skilled individuals, who were attracted by equal-sharing arrangements, remained. This led to an unstable and unsustainable ecosystem inside the Kibbutzim economy. In 2004, Kibbutzim members declared a ‘safety net’ reform, a model which allowed members to keep part of their salary and share the rest with their fellow members.4 This adaptation helped reduce the ‘brain drain’ and helped to improve the members motivation and work ethic.
This shows that whilst some parts of original Kibbutzim ideology are beneficial, they must be adapted to provide enough motivation for the members, and thus the community, to truly flourish. In an economic system where individuals are suppressed to labor power and subject to equal distribution, they are restricted to produce repetitive tasks without external motivation or personal goals.
The equal distribution of labor and revenue can not be enforced if an entity seeks technological advancement, leadership development, and a profit-driven economy. Innovation is essential for a country's economic growth, ensuring technological progress, and increasing efficiency through innovations, capitalist countries can create a promising future. All these factors cause reduction of manual labor in contrast to increased production efficiency and leading to higher annual revenue.
Patents are considered as the primary measure of innovation because they do not only represent human capacity to reinvent but also encourage companies to invest in research and development for exclusive rights which lead to economic profit. The 2024 EPO Annual Report highlights Germany, the US, and Japan as leaders in patent applications, with 25,000 filed that year 5 Germany, the US and Japan, are also 3 of the world's 4 largest economies.6 This clearly shows that patent applications, and thus innovation, are beneficial for a country's economy. Right leadership and competitive environment is an important engine for a prosperous economy.
In the fully developed communist concept, Karl Marx imagined an ideal society where there is no longer need for external and internal motivations and that scarcity would no longer exist. In contrast, modern economies thrive on systems that celebrate innovation and reward ingenuity, showing that progress flourishes where talent is empowered.
1 Karl Marx, Capital: A Critique of Political Economy, Volume I, trans. Samuel Moore and Edward Aveling (London: Lawrence & Wishart, 1974), 134.
2 Ran Abramitzky, Lessons from the Kibbutz on the Equality–Incentives Trade-off, Journal of Economic Perspectives 25, no. 1 (2011): 185–208.
3Ran Abramitzky, Lessons from the Kibbutz on the Equality–Incentives Trade-off, Journal of Economic Perspectives 25, no. 1 (2011): 187.
4 Ran Abramitzky, Lessons from the Kibbutz on the Equality–Incentives Trade-off, Journal of Economic Perspectives 25, no. 1 (2011): 189.
5Germany Trade & Invest. "Germany Leads Record Year for European Patents." Last modified March 10, 2023. https://www.gtai.de/en/invest/business-location-germany/rd-framework/germany-leads-record-year-for-european-pate nts-1746216.
6 World Bank. "GDP (Current US$)." Accessed September 30, 2024. https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?most_recent_value_desc=true.