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Marriage equality supporters in 2006 probably had no idea the law they advocated would spur innovation. Darren McCollester/Getty Images News via Getty Images

When states pass social liberalization laws, they create regional advantages for innovation

What conditions lead to world-changing innovation? It’s an important question for business and government leaders.

Contrary to the traditional notion of the solitary scientist, new products, services and technologies are rarely conceived by a single person. Instead, they’re developed and refined through feedback from colleagues, end users and collaborators. So it’s not surprising that characteristics of the social context can influence innovation.

But how can you create the social context that facilitates innovation?

My collaborator and I zeroed in on the idea of looking at social liberalization policies – laws like those that prohibit discrimination based on sexual orientation, for instance – as a measure for a more open and diverse social environment. We found that states that implemented socially liberal laws significantly increased patenting – and anti-liberalization policies reduced it.

Measuring the effect of social context

As a proxy for openness to diversity and different ideas, my colleague and I focused on two policies: legalization of same-sex civil unions and legalization of medicinal marijuana. We also looked at one type of policy we termed “anti-liberalization”: abortion restrictions. The staggered implementation of these laws state by state between 1994 and 2006 let us examine their effects on the rate and direction of innovation.

When policymakers at the regional and national level enact these kinds of policies, it’s often with the goal of influencing the social and political environment. Michigan, for example, is reviewing the impact of civil rights laws on economic productivity. They may be unaware, though, of the potential impact on innovation, an aspect that’s largely been left out of the discussion.

We found that the legalization of same-sex civil unions and domestic partnerships increased state-level patenting by 6%. The legalization of medical marijuana increased patenting by 7%.

In contrast, the passing of each additional abortion restriction reduced patenting by about 1%.

Marchers calling for restrictions on abortion rights in 1995 likely wouldn’t anticipate the impact on innovation. Mark Reinstein/Corbis Historical via Getty Images

There are a couple of thorny challenges when it comes to assessing the relationship between the policies and innovation. For instance, could the same factor be behind both the passage of the law and also the changes we observed in patenting? The staggered implementation of these laws state by state allowed us to compare states with different levels of openness to diversity while controlling for time-varying state-level factors that may separately influence innovation, like education, R&D spending and other economic conditions and political orientation.

The possibility of reverse causality is another concern. Were states with higher patenting rates more likely to implement socially liberal policies in the first place? Are we simply capturing a continuation of trends that started before these laws were passed? We ruled this option out because when we looked at state-level patenting rates before and after policy changes, we found no evidence of increased patenting before the implementation of the two socially liberal policies.

Along with other statistical tests we performed on the data, these factors gave us confidence that it’s the policies themselves driving changes in sentiment, which are reflected in increased innovation.

Understanding the underlying mechanisms that drive these findings is important for both executives and policymakers who want to tap into the benefits of innovation to facilitate regional growth. We explored three potential explanations of why innovation increases with social liberalization.

Mobility, entrepreneurship and attitude

Maybe socially liberal regions tend to attract more inventors. The creative class theory argues that inventors prefer to work and live in regions with more tolerance and openness to diversity. As a result of this theory, states like Michigan have developed “Cool Cities Initiatives” that aim to revitalize neighborhoods through more green spaces and community gathering venues to attract well-educated individuals and creative types.

But based on the net flow of inventors in and out of states that implemented socially liberal policies, we found no evidence that these laws attract top inventors to a region.

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The second possibility is that socially liberal policies can lead more people to take a shot at entrepreneurship by promoting more diverse social interactions and better access to resources. Given that entrepreneurship requires assembling resources and talent, it’s not surprising that building diverse networks could be vital for starting a business.

Using the number of new firms patenting as a proxy for entrepreneurship, we found preliminary evidence suggesting that liberalization policies are indeed associated with more entry into entrepreneurship.

We found the strongest support, though, for a third mechanism, which draws on the idea that social liberalization policies can influence individuals’ attitudes toward openness and diversity. In turn, this leads to more diverse interactions, including collaborations among inventors. More diverse teams tend to produce better outcomes as a result of more creative problem-solving.

Inventors living in states with liberalized policies had greater collaboration diversity; they tended to form more new collaborative ties, and their collaborators had wider and more diverse knowledge bases. The patents that resulted from these more diverse collaborations were more novel. And they were of measurably higher impact, as they are more likely to be among the top 10% of most highly cited patents.

Diversity of perspectives around the table is a valuable ingredient for innovation. 10'000 Hours/DigitalVision via Getty Images

Innovation springs from the social context

The big takeaway for firms is that the social context can shape inventive collaborations, and thus influence innovation outcomes.

While firms traditionally make location decisions based on the human capital in a region, they should also consider a region’s social environment. Indeed, the broader social context is rumored to have been a factor in why Georgia did not score Amazon’s HQ2 location.

In addition, our research suggests that corporate social responsibility practices that promote diversity and inclusion in the workplace help set the stage for greater innovative productivity. Managers who want to create competitive advantages for businesses should keep these policies in mind.

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