Matt Ridley is one of my favorite authors, and he just published a section from his forthcoming book: How Innovation Works: And Why It Flourishes in Freedom:
“Throughout the economy, with the exception of the digital industry, the West is experiencing an innovation famine. The Austrian economist Joseph Schumpeter’s “perennial gale of creative destruction” has been replaced by the gentle breezes of rent-seeking. Two recent books argue that big companies in cozy cahoots with big government increasingly shy away from change, sheltered against competition by regulation and intellectual property rights. In “The Captured Economy” (2017), Brink Lindsey and Steven M. Teles make the case that to the extent that incomes have been stagnating and opportunities for social mobility drying up, the cause is not too much innovation but too little. In “The Innovation Illusion” (2016), Fredrik Erixon and Bjorn Weigel argue that Western economies have “developed a near obsession with precautions that simply cannot be married to a culture of experimentation.”
Innovation relies upon freedom to experiment and try new things, which requires sensible regulation that is permissive, encouraging and quick to give decisions. By far the surest way to rediscover rapid economic growth when the pandemic is over will be to study the regulatory delays and hurdles that have now been hastily swept aside to help innovators in medical devices and therapies, and to see whether such reforms could be applied to other parts of the economy too.
There is nothing new about resistance to innovation. In 1662, William Petty, a pioneering economist, medical professor and land speculator, lamented that “the poor inventor runs the gauntloop of all petulant wits,” with everybody trying to stop him from succeeding. At the time, King Charles II, lobbied by the brewing industry, was trying to ban a novel drink called coffee because it caused fake news. “As for coffee, tea and chocolate,” the king pronounced, “I know no good they do; only the places where they are sold are convenient for persons to meet in, sit half day and discourse with all companies that come in of State matters, talking of news and broaching of lies.”
Hansom cab operators in London furiously denounced the introduction of the umbrella for offering shelter to rain-soaked pedestrians. Musicians’ unions delayed the playing of recorded music on the radio. The Horse Association of America for many years fought a rear-guard action against the tractor, and the natural-ice harvesting industry frightened people with scares about the safety of refrigerators. You may laugh, but the same happens today: Incumbent vested interests, overcautious regulators, opportunistic activists and rent-seeking patent holders combine to oppose or delay almost every innovation.
Surprisingly, there is no good evidence that patents are helpful, let alone necessary, in encouraging innovation. A 2002 study by Josh Lerner, an economist at Harvard Business School, looked at 177 cases of strengthened patent policy in 60 countries over more than a century, finding that “these policy changes did not spur innovation.” James Watt, Samuel Morse, Guglielmo Marconi, the Wright brothers and many others wasted the best years of their lives in court defending their intellectual property, when they might have been busy developing new devices. The expiration of patents often results in a burst of innovation, as with 3-D printing, where the recent lapse of three key patents has resulted in notable improvements in quality and a drop in price.
Thomas Edison understood better than anybody that trial and error is the key to turning an invention into a useful innovation. In developing the nickel-iron battery, his employees undertook 50,000 experiments. Developing a new technology, he famously said, is 1% inspiration and 99% perspiration. Jeff Bezos makes the same point: “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.” It turns out that continuous tinkering to develop and refine a better product is much more important than protecting what you’ve already created.
Once started, innovation is so inexorable it looks inevitable: 21 different people had the idea of the lightbulb independently. Many people besides the Google founders came up with search engines in the 1990s. Yet, paradoxically, innovation is impossible to predict. [Def. of a Black Swan]
Given this unpredictability, politicians should rethink the incentives for innovation. One option is to expand the use of prizes, to replace reliance on grants, subsidies and patents. Britain’s famous Longitude Prize, offered in 1714 for accurately measuring longitude at sea, elicited a solution from an unexpected direction: accurate and robust clocks made by a humble clockmaker, John Harrison. Similar serendipity happens today. One study of the online problem-sharing forum known as Innocentive, where organizations can reward crowdsourced solutions to problems that baffle them, found that “the further the focal problem was from the solvers’ field of expertise, the more likely they were to solve it.” Teflon, Kevlar and the Post-it Note are all examples of useful things developed by people looking for something completely different.
Dealing with Covid-19 has forcibly reminded governments of the value of innovation. But if we are to get faster vaccines and treatments—and better still, more innovation across all fields in the future—then innovators need to be freed from the shackles that hold them back.”
I chose these punchy excerpts from today’s WSJ (it filled the entire page C1).
Discussing these ideas with Ridley in 2012 at a Gruter retreat, I wrote: “Innovation is critical to economic growth, progress, and the fate of the planet. Yet, it seems so random. But patterns emerge in the aggregate, and planners and politicians may be able to promote innovation and growth despite the overall inscrutability of this complex system. To tap the wisdom of crowds, we should shift the locus of learning from products to process.”
And for a sense of Ridley’s range of interests, his book Nature Via Nurture provides a wonderful synthesis of phylogenetic inertia, nested genetic promoter feedback loops, bisexual bonobo sisterhoods, and the arrested development of domesticated animals. =)
And classic Ridley “Innovation = ideas having sex” at TED.
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