How Innovation Works: And Why It Flourishes in Freedom

by Matt Ridley

If Google Glass had been a government project, the chances are they would still be ploughing on with it.

he spoke of the ‘unexpected benefit of celebrating failure’. One day, X will perhaps generate something so spectacular that it dwarfs Google itself.

dual-share ownership structure, whereby the founders retain voting control of the company while investors merely get to enjoy the ride. That way the founders can take risks, make long-term bets and ignore at least some of the impatience or caution of their shareholders.

In 2001 Bekker put $32m into Tencent for a 46.5 per cent stake. Seventeen years later that stake was worth $164bn.

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.

Truly, there is likely to be a backlash against any new technology, usually driven partly by vested interests but clothing itself in the precautionary principle.

This later evolved into a system of regulatory approval that was so complicated and time-consuming that it amounted to a de facto ban.

morphed into a device by which activists prevent life-saving new technologies displacing more dangerous ones.

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.

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 caus...

the precautionary principle largely ignores the risks of existing technologies, defying the concept of harm reduction.

The anti-GM movement caught on amongst wealthy people with plentiful, cheap food. It was not pressing and relevant to their lives to increase crop yields. Those who paid the opportunity cost of the prohibition were the sick and starving who had no voice.

More than two-thirds of channels went unused in the 1950s, but broadcasters lobbied to defend their right to this empty territory, if only to stymie competition for the existing oligopoly of licensed television networks.

AT&T was banned from making mobile sets under an anti-trust settlement, though its own research arm, Bell Labs, had invented and conceived cellular. But AT&T was sitting on a comfortable monopoly of landlines and saw no need to compete against itself anyway.

Another example of incumbents who could have innovated but didn’t — to protect their legacy investments

That a telephone company could not see that people wanted to talk to each other is corporate myopia at its most extreme.

On 28 July 1984, thirty-nine years to the day after Mr Jett had said it ‘won’t be difficult’ to launch cellular telephony, America’s first cellular mobile service went live for the opening ceremony of the Los Angeles Olympics. Who says that the pace of change is breathtaking?

But GSM was built for voice, with data as an afterthought, while CDMA was built for data with voice as an add-on.

We use smartphones today not because of government regulators, but despite them.

Whatever else positive GDPR achieves, it will also have created a barrier to entry preventing innovative smaller firms from challenging the big technology companies. As always, regulation favours incumbents.

With real property rights, people will not usually build a house unless they own the land on which it stands; so they will not invent a drug or write a book unless they can own it.

the evidence clearly shows that while intellectual property helps a little, it also hinders, and the net effect is to discourage innovation.

since Napster first made mass file sharing possible in 1999, revenues in the American music industry have fallen steeply, down 75 per cent between 1998 and 2012. Yet the supply of new music albums doubled in twelve years after 1999.

‘Article 13 takes an unprecedented step towards the transformation of the Internet from an open platform for sharing and innovation, into a tool for the automated surveillance and control of its users.’

beyond a certain point stronger patents generate less innovation, because they make it hard to share ideas, and create barriers to entry.

Inventing something gives you a first-mover advantage, which is usually quite enough to get you a substantial reward.

patents tend to favour inventions rather than innovations:

At the moment, he says that anybody with a novel, non-obvious idea gets a twenty-year patent regardless of whether the innovation cost a billion or twenty dollars.

There is simply no sign of a ‘market failure’ in innovation waiting to be rectified by intellectual property, while there is ample evidence that patents and copyrights are actively hindering innovation.

It is entirely appropriate to strip IP protection of its sheep’s clothing and to see it for the wolf it is, a major source of economic stagnation and a tool for unjust enrichment.

We are effectively reinventing the guilds that often monopolized and stifled commerce in the Middle Ages.

In 1937 the number of taxis in Paris was capped at 14,000. In 2007 it was capped at 16,000. Did it occur to anyone that consumer interest in taxis might have grown dramatically over this time period?

Dyson knew this to be rubbish, because it always tests its own machines, in the lab and in actual houses, using real dust, fluff, grit and debris, including dog biscuits and, bizarrely, two different kinds of Cheerio cereals (the best innovators are alert to the variety of human foibles).

Regulatory shenanigans cause harm not just by suppressing entrepreneurial energy but also by misdirecting it.

if the policy background means that the best way to get rich is by building a new device and selling it, then entrepreneurial energy will flow into innovation, but if it is simpler to profit from lobbying government to set the rules up in favour of an existing technology, then all the entrepreneurial energy will go into lobbying.

Both the European Commission and the European Parliament determinedly opposed or hobbled mobile data, vaping, fracking, genetic modification, bagless vacuum cleaners and most recently gene editing, often using dodgy reasoning derived from pressure groups or corporate lobbies for incumbent interests.

would say that we lived in a world in which bits were unregulated and atoms were regulated.’ Software was evolving through ‘permissionless innovation’, while physical technology was tied down in regulation that largely stifled change.

Innovation is one of those things that everybody favours in general, and everybody finds a reason to be against in particular cases.

Far from being welcomed and encouraged, innovators have to struggle against the vested interests of incumbents, the cautious conservatism of human psychology, the profitability of protest, and the barriers to entry erected by patents, regulations, standards and licences.

The main ingredient in the secret sauce that leads to innovation is freedom. Freedom to exchange, experiment, imagine, invest and fail; freedom from expropriation or restriction by chiefs, priests and thieves; freedom on the part of consumers to reward the innovations they like and reject the ones they do not.

I would argue that they have never persuasively found the mechanism, the drive chain, by which one causes the other. Innovation, the infinite improbability drive, is that drive chain, that missing link.

Innovation is the child of freedom, because it is a free, creative attempt to satisfy free...

Innovative societies are free societies, where people are free to express their wishes and seek the satisfaction of those wishes, and where creative minds are free to experiment to find ways to suppl...

neither human wishes nor the means of their satisfaction are easy to anticipate in the detail required;

why innovation is a collective and collaborative business, because one mind knows too little about other minds;

innovation is organic because it must be a response to an authentic and free desire, not what somebody in authority thinks we should want;

My grandparents had the opposite experience from what my generation has seen: big changes in transport and few in communication.

Some people are arguing that we live in an age of innovation crisis: too little, not too much. The Western world, especially since 2009, seems to have forgotten how to expand its economy at any reasonable speed.

Schumpeter’s ‘perennial gale of creative destruction’ has been replaced by the gentle breezes of rent-seeking.

The dead hand of corporate managerialism then finds that it is easier to control markets than to contest them, to plan rather than experiment.

These factors probably explain the declining dynamism of the American economy, and its rising inequality. The rate of new business formation in the United States fell from 12 per cent a year in the late 1980s to 8 per cent in 2010.