How Innovation Works: And Why It Flourishes in Freedom

by Matt Ridley

I watched them produce disaster.’

In the second half of the twentieth century, the state did become a sponsor of innovation on a large scale, but that is hardly surprising given that it went from spending 10 per cent of national income to 40 per cent in almost all Western countries.

We must beware of down-playing the development of technologies after they are first invented, a huge part of innovation, lest we credit a beaver with the Hoover dam.

America’s government regulations blocked the development of cellular phones for decades, and Europe’s explicit adoption of an industrial policy for 2G networks trapped the continent in a standard that was soon overtaken by America.

is just as often the case that invention is the parent of science: techniques and processes are developed that work, but the understanding of them comes later.

None of the pioneers of vaccination had the foggiest idea how or why it worked.

He saw innovation as deriving from the tinkering of ‘common workmen’ and ‘the ingenuity of the makers of the machines’.

the work that led to the invention of CRISPR gene editing was driven partly by a desire to solve practical problems in the yogurt industry.

we make a mistake if we insist that science is always upstream of technology.

In 1969 the physicist Robert Wilson, testifying to the US Senate about funding for a particle accelerator, was asked if it would contribute to national defence. He replied: ‘it has nothing to do directly with defending our country except to help make it worth defending’.

Frankly, to ask Stephen Hawking to show that research on black holes led to industrial activity, or Francis Crick to justify research on DNA on similar grounds, would have been like asking William Shakespeare or Tom Stoppard to show that their plays contributed to economic growth. They might do, but that is hardly their main point.

For example the Jet Propulsion Laboratory boasts that camera phones, CAT scans, LEDs, athletic shoes, foil blankets, home insulation, wireless headsets and freeze-dried food are all examples of things we would not have without space travel, because at some point in their development somebody in the space programme contributed to their development. That is a non sequitur and a very doubtful claim.

To contribute to human welfare, and therefore catch on without subsidy, an innovation must meet two tests: it must be useful to individuals, and it must save time, energy or money in the accomplishment of some task.

We have gradually got narrower and narrower in what we produce – we call it a job – in order to get more and more varied in what we consume.

most modern people have a less varied job but a much more varied life.

economic advances – from the invention of farming to the mobile internet – have been accompanied by the increased interdependence and co-operation that comes from selling a specialized service and buying everything else: working for each other.

Innovation has enabled both the narrowing of ‘work’ and the broadening of everything else.

The internet brought travel agents to everybody in the form of websites. It brought ‘secretaries’ in the form of word-processing programs complete with spellchecks, formatting and graphics. This is why today, unlike a century ago, a plutocrat is hard to spot in a crowd, as the economist Don Boudreaux has pointed out.

For most people today in Western countries, much of the inequality that exists – though not all – is about luxuries, rather than necessities;

Innovation does not create unemployment

In short, the idea that innovation destroys jobs comes around in every generation. So far it has proved wrong.

Candles were replaced by electric lights, but wick trimmers found other work.

In 2011 President Obama used the bank teller as an example of a job that has disappeared because of cash machines. He was wrong: there are more tellers employed today than before cash machines were introduced, and their jobs are more interesting than just counting out cash.

as Adam Smith pointed out, the purpose of production is consumption; the purpose of work is to earn enough to get the things you want.

Innovation frees people to do the things they really value.

So, yes, on the whole society has decided to use the greater productivity provided by innovation to give everybody a lot more leisure.

again and again the great innovators have come from obscure origins, in unfashionable provinces and without good contacts or education.

Big companies are bad at innovating, because they are too bureaucratic, have too big a vested interest in the status quo and stop paying attention to the interests, actual and potential, of their customers.

for innovation to flourish it is vital to have an economy that encourages or at least allows outsiders, challengers and disruptors to get a foothold.

Richard Stallman’s Free Software Foundation in the 1980s began a rebellion against the proprietary software of big firms and bet on the idea that users could contribute to innovation.

Google’s Android devices. In 2018 IBM announced it would pay about $30bn for an open-source software firm, Redhat. Amazon’s domination of the cloud, through Amazon Web Services, is based entirely on open-source software. Thus the software world is increasingly a place of open, free sharing of innovations, an unfenced prairie.

The ultimate open-source innovation is that done by consumers themselves.

Eric von Hippel of Massachusetts Institute of Technology argues that free innovation by the consumer is a neglected sector of the economy and the assumption that innovation is driven by producer innovation is misleading.

Amen! Watch out…!

tens of millions of consumers spend tens of billions of dollars every year developing or modifying products for their own use. Most do so during their free time and share them freely with others.

Unhindered by doubts about whether an innovation can be profitable, free innovators can explore ideas that companies will not touch. But since they are not after profits, they do not necessarily try hard to tell people about their inventions, so diffusion can be slow.

Torrance and his zoologist colleague Lydia Hopper have pointed out that free innovation by users for their own benefit is the only kind indulged in by non-human animals. That is to say, there are no such things in the non-human world as producers and consumers.

Innovation has wrought such miracles that it is little wonder it sometimes attracts fakers, frauds, faddists and failures, people who promote particular innovations either in the knowledge they are not going to work, or innocently hoping that they will and not succeeding.

Theranos, laudably aimed at giving people pain-free, low-cost proactive healthcare as convenient as a smartphone, on the basis of a tiny drop of blood.

The general view investors, directors, clients and commentators adopted was that somebody else must have checked out that her innovations worked, otherwise she could not possibly have been so successful in raising funds: a rather circular argument.

they were breaking a key rule of innovation, to tackle the most difficult issue first, in case it’s insoluble. Google’s ‘X’ team, which specializes in crazy ‘moonshot’ innovation schemes, calls this the ‘monkey first’: if your project aims to have a monkey recite Shakespeare while on a pedestal, it’s a mistake to invent the pedestal first and leave till later the hard problem of training the monkey to speak.

It pays not to underestimate self-deception and noble-cause corruption: the tendency to believe that a good cause justifies any means.

He argues that a general lesson still needs to be learned: ‘hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry.’

Nokia thought it had time to shift to a world in which mobile was all about software not hardware: it wanted to move smoothly, not suddenly, out of its core business.

Nokia, like Blackberry, failed to see just how revolutionary and popular the iPhone would be, despite what they saw as its obvious limitations.

Innovation, more often than not, eats its own offspring.

If the world rules out all innovation failure as fraud, or takes too cautious an approach, then it will stop innovation in its tracks, as many a country and company have experienced. The central theme of innovation, after all, is trial and error. And error is failure.

‘Our success at Amazon is a function of how many experiments we do per year, per month, per week. Being wrong might hurt you a bit, but being slow will kill you,’

‘If you can increase the number of experiments you try from a hundred to a thousand, you dramatically increase the number of innovations you produce.’

But what Suria saw as ineptitude was actually an appetite for experiment and a tolerance for failure. Among the initiatives that went wrong were always some that went right.

Bezos, like Edison in the nineteenth century, understood that transformative, disruptive innovation is not a matter of making a new toy, but of launching a new business built around the needs and wants of real customers. And to find that holy grail requires a lot of honest failure along the way.