How Innovation Works: And Why It Flourishes in Freedom

by Matt Ridley

Liberty is the parent of science and of virtue, and a nation will be great in both in proportion as it is free. THOMAS JEFFERSON

innovation is nearly always a gradual, not a sudden thing.

with the help of big dollops of hindsight and long stretches of preparation, not to mention multiple wrong turns along the way.

This is a key characteristic of evolutionary systems: the move to the ‘adjacent possible’ step.

The genius of the Wright brothers was precisely that they realized they were in an incremental, iterative process and did not expect to build a flying machine at the first attempt.

Most people want to think they have more control over their lives than is objectively the case: the idea of decisive and discontinuous human agency is both flattering and comforting.

He calls this the ‘toilet-paper principle’ after a simple but vital technology that we take for granted.

but it is not only big industrial innovations that this rule applies to. Again and again in the history of innovation, it is the people who find ways to drive down the costs and simplify the product who make the biggest difference.

Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.

This is what critics lose in their obsession with inequality—they see the present vulgarity of queens and oligarchs while ignoring the millions rising from abject destitution

He took it from a Persian fairy tale, ‘The Three Princes of Serendip’, in which, as Walpole put it in a letter, the clever princes were ‘always making discoveries, by accidents and sagacity, of things which they were not in quest of’.

Neither the founders of Yahoo! nor those of Google set out in search of search engines.

‘Some inventions,’ said Kwolek, ‘result from unexpected events and the ability to recognize these and use them to advantage.’

Every technology is a combination of other technologies; every idea a combination of other ideas.

Innovation happens, as I put it a decade ago, when ideas have sex. It occurs where people meet and exchange goods, services and thoughts. This explains why innovation happens in places where trade and exchange are frequent and not in isolated or underpopulated places: California rather than North Korea,

Humphry Davy once said ‘the most important of my discoveries has been suggested to me by my failures’.

‘I’ve not failed,’ he once said. ‘I’ve just found 10,000 ways that won’t work.’

An element of playfulness probably helps, too. Innovators who just like playing around are more likely to find something unexpected. Alexander

If error is a key part of innovation, then one of America’s greatest advantages has come from its relatively benign attitude to business failure.

‘fail fast and fail often’

Amid this vast team of collaborating people, not one person knows how to make a pencil. The knowledge is stored between heads, not inside them.

he or she is standing on the shoulders of others at the start, and relying on yet others later on.

This pattern is the rule, not the exception, and it was the flowering of societies, clubs and mechanics’ institutes that gave Britain its lead in the Industrial Revolution.

Simultaneous invention is more the rule than the exception. Many ideas for technology just seem to be ripe, and ready to fall from the tree.

How incredible to be the one human being among billions who first sees the possibility of a new device, a new mechanism, a new idea.

Technology is absurdly predictable in retrospect, wholly unpredictable in prospect.

Sometimes, as the Swedish author Hjalmar Söderberg put it, you have to be an expert in order not to understand certain things.

Amara’s Law states that people tend to overestimate the impact of a new technology in the short run, but to underestimate it in the long run.

until the invention is turned into a practical, reliable, affordable innovation, over many years, its promise remains unfulfilled.

Blockchain promises to bring smart contracts that cut out middlemen, enhance trustworthiness and reduce transaction costs. But there is no way it can do so overnight in the complex ecosystem of the service economy.

Why would consumers not shift to a currency available to a third of the world population and not subject to the inflationary temptations and tax greed of politicians?

Though they have wealthy and educated elites, imperial regimes tend to preside over gradual declines in inventiveness, which contribute to their eventual undoing.

As time goes by and the central power ossifies, technology tends to stagnate, elites tend to resist novelty and funds get diverted into luxury, war or corruption, rather than enterprise.

The fact that Europe was politically fragmented at the time played a large role in making sure that printing caught on.

Far from being a monolithic imperium, the states were for most of the nineteenth and twentieth centuries a laboratory of different rules, taxes, policies and habits, with entrepreneurs moving freely to whichever state most suited their project.

the infrastructure scales at a sublinear rate, but the socio-economic products of a city scale at a superlinear rate.

Innovation increasingly means using fewer resources rather than more

growth can take place through doing more with less.

the main engine of economic growth is not from using more resources, but from using innovation to do more with less:

the surprising and unexpected fact that the American economy has begun ‘dematerializing’: using not just less stuff per unit of output, but less stuff altogether.

In the ten years from 2008, America’s economy grew by 15 per cent but its energy use fell by 2 per cent.

many sectors the economy is now exhausting the Jevons paradox and beginning to bank the savings.

innovation was itself a product of increased specialization,

increasing returns were potentially infinite: ‘It is one of the safest predictions that in the calculable future we shall live in an embarras de richesse of both foodstuffs and raw materials, giving all the rein to expansion of total output that we shall know what to do with.’

one or two troublesome souls, on peering out of their economists’ eyries, noted that in the real world there did seem to be some privately funded research happening – quite a lot of it actually.

His crucial argument was that a characteristic feature of new knowledge is that it is non-rival, meaning that people can share it without using it up; but it is also partially excludable, meaning that whoever gets hold of it first can make money exploiting it, at least for a while.

Knowledge is both a public good and a temporarily private one. Knowledge is expensive to produce, but can sometimes pay for itself.

At the time almost the entire state budget of Britain was spent on defence and servicing the debt incurred in war, with effectively none on innovation, let alone in a mission-oriented way. Yet railways transformed people’s lives.

It would be strange to argue that innovation could happen without state direction in the nineteenth century, but only with it in the twentieth.

The same is true of America, which became the most advanced and innovative country in the world in the early decades of the twentieth century without significant public subsidy for research and development of any kind before 1940.

the government heavily subsidized Samuel Langley’s spectacular failure to make a powered plane, while wholly neglecting the Wright brothers’ spectacular succ...