How Innovation Works: And Why It Flourishes in Freedom

by Matt Ridley

Innovation, then, means finding new ways to apply energy to create improbable things, and see them catch on. It means much more than invention, because the word implies developing an invention to the point where it catches on because it is sufficiently practical, affordable, reliable and ubiquitous to be worth using. The Nobel Prize-winning economist Edmund Phelps defines an innovation as ‘a new method or new product that becomes a new practice somewhere in the world’.

In the ten years since I published The Rational Optimist, arguing unfashionably that the world has been, is, and will go on getting better, not worse, human living standards have grown rapidly higher for nearly everybody. I finished that book as the world was plumbing the depths of a terrible recession, but the years since have been ones of faster economic growth for much of the poor of the world than ever before. The income of the average Ethiopian has doubled in a decade; the number of people living in extreme poverty has dipped below 10 per cent for the first time in history; malaria mortality has plummeted; war has ceased altogether in the western hemisphere and become much rarer in the Old World, too; frugal LED lights have replaced both incandescent and fluorescent bulbs; telephone conversations have essentially become free on Wi-Fi. Some things have got worse, of course, but most trends are positive. All this is due to innovation.

The chief way in which innovation changes our lives is by enabling people to work for each other. As I have argued before, the main theme of human history is that we become steadily more specialized in what we produce, and steadily more diversified in what we consume: we move away from precarious self-sufficiency to safer mutual interdependence. By concentrating on serving other people’s needs for forty hours a week – which we call a job – you can spend the other seventy-two hours (not counting fifty-six hours in bed) drawing upon the services provided to you by other people.

The problem is cost inflation. Nuclear plants have seen their costs relentlessly rising for decades, mostly because of increasing caution about safety. And the industry remains insulated almost entirely from the one known human process that reliably pulls down costs: trial and error. Because error could be so cataclysmic in the case of nuclear power, and because trials are so gigantically costly, nuclear power cannot get trial and error restarted. So we are stuck with an immature and inefficient version of the technology, the pressurized-water reactor, and that is gradually being strangled by the requirements of regulators acting on behalf of worried people reacting to anti-nuclear activists.

Because each power station is so big and expensive, it has proved impossible to drive down the cost by experiment. Even changing the design halfway through construction is impossible because of the immense regulatory thicket that each design must pass through before construction. You must design the thing in advance and stick to that design or go back to square one. This way of doing things would fail to bring down costs and raise performance in any technology. It would leave computer chips at the 1960 stage. We build nuclear power stations like Egyptian pyramids, as one-off projects. Following the Three-Mile Island accident in 1979, and Chernobyl in 1986, activists and the public demanded greater safety standards. They got them. According to one estimate, per unit of power, coal kills nearly 2,000 times as many people as nuclear; bioenergy fifty times; gas forty times; hydro fifteen times; solar five times (people fall off roofs installing panels) and even wind power kills nearly twice as many as nuclear.

Today America is not only the world’s biggest producer of gas; it is also the world’s biggest producer of crude oil, thanks entirely to the shale-fracking revolution. The Permian basin in Texas alone now produces as much oil as the whole of the United States did in 2008, and more than any OPEC country except Iran and Saudi Arabia. America was building huge gas import terminals in the early 2000s; these have now been converted into export terminals. Cheap gas has displaced coal in the country’s electricity sector, reducing its emissions faster than any other country. It has undermined OPEC and Russia, leaving the latter frantically supporting anti-fracking activists to try to defend its markets – with much success in innovation-phobic Europe, where shale exploitation has been largely prevented.

Over the middle decades of the nineteenth century, millions of tonnes of guano were mined in horrific conditions, by mainly Chinese indentured labourers who were little more than slaves, to satisfy the needs of farmers in Britain and other parts of Europe. Ships queued for months to await the chance to load the dusty and foul-smelling cargo. Desperate to get access to guano, the American Congress passed an Act saying that any American who found a guano island in the Pacific could claim it for the United States – which is why so many mid-Pacific atolls belong to America today.

Between 1960 and 2010, the acreage of land needed to produce a given quantity of food has declined by about 65 per cent. Had this not happened, pretty well every acre of forest, wetland and nature reserve in the world would have been cultivated or grazed, and the Amazon rain forest would have been far more severely destroyed. As it is, the acreage of wild land and nature reserves is steadily increasing, while forest cover has stopped declining and in many places is now increasing, so that overall there has been a 7 per cent increase in tree cover since 1982. By the middle of the current century, the world will be feeding nine billion people from a smaller area of land than it fed three billion from in 1950. Moreover, recent studies have concluded that – for a given yield of food – intensive agriculture not only uses less land but produces fewer pollutants, causes less soil loss and consumes less water than organic or extensive systems.

Clearly, the problem was not a lack of inspiration. Instead, what seems to have stopped wheeled suitcases from catching on was mainly the architecture of stations and airports. Porters were numerous and willing, especially for executives. Platforms and concourses were short and close to drop-off points where cars could drive right up. Staircases abounded. Airports were small. More men than women travelled, and they worried about not seeming strong enough to lift bags. Wheels were heavy, easily broken and apparently with a mind of their own. The reluctant suitcase manufacturers may have been slow to catch on, but they were not all wrong. The rapid expansion of air travel in the 1970s and the increasing distance that passengers had to walk created a tipping point when wheeled suitcases came into their own.

Moore’s Law kept on going not just for ten years but for about fifty years, to everybody’s surprise. Yet it probably has now at last run out of steam. The atomic limit is in sight. Transistors have shrunk to less than 100 atoms across, and there are billions on each chip. Since there are now trillions of chips in existence, that means there are billions of trillions of transistors on Planet Earth. They are probably now within an order of magnitude of equalling the number of grains of sand on the planet. Most sand grains, like most microchips, are made largely of silicon, albeit in oxidized form. But whereas sand grains have random – and therefore probable – structures, silicon chips have highly non-random, and therefore improbable, structures.

In 1900, when the average lifespan in the United States was forty-seven, when people started work at fourteen, worked sixty-hour weeks and had no possibility of retirement, the percentage of his lifetime that an average man would spend at work was about 25 per cent: the rest was spent sleeping, at home or as a child. Today that figure is about 10 per cent, because the average person lives to about eighty, spends about half his or her life in education and retirement, spends only a third of each day (8/24) and five-sevenths of each week at work.

Here we see all the characteristic features of opposition to innovation: an appeal to safety; a degree of self-interest among vested interests; and a paranoia among the powerful.

The EU had by now installed the precautionary principle as a guiding light. This superficially sensible idea – that we should worry about unintended consequences of innovation – morphed into a device by which activists prevent life-saving new technologies displacing more dangerous ones. As formally adopted by the European Union in the Lisbon Treaty, the principle holds the new to a higher standard than the old and is essentially a barrier to all innovations, however safe, on behalf of all existing practices, however dangerous. This is because it considers the potential hazards, but not the likely benefits of an innovation, shifting the burden of proof to an innovator to prove that its product will not cause harm, but not allowing that innovator to demonstrate that it might cause good, or might displace a technology that already causes harm. Thus organic farmers are free to use pesticides so long as they were invented in the first half of the twentieth century, even though the ones they do use, such as copper-based compounds, are significantly more harmful than modern ones – and not even ‘organic’ in any reasonable definition.

Demonization of biotechnology led to a vicious circle as far as the companies involved were concerned. The more the activists demanded regulation and caution, the more expensive it became to develop new crops, and the more therefore it became impossible to do so except within large companies. There was thus a strange symbiosis between big industry and its critics.