Innovation Without Legislation

Since March 2020, it has been hard to read, write, or watch anything without connecting it in some way to COVID-19. The lockdown measures introduced with the aim of ‘flattening the curve’ were unprecedented, as were the resulting economic impacts.

The pandemic touched every aspect of life, and some more than others. Individuals, businesses, and governments were quick to respond, changing their priorities and behaviours to deal with the viral threat. There was a buzz about all the disruption: businesses implemented systems almost overnight to enable employees to work from home, and often with little or no previous experience; tests, treatments and vaccines were being developed and trialled; and (some) governments took a more flexible approach to regulation to enable all these changes. In short, innovation happened at a rapid rate as everyone dealt with the novel coronavirus in whichever way they could.

Innovators make the biggest historical difference.

How Innovation Works
by Matt Ridley
4th Estate, 2020, pp416

This led to a renewed and explicit focus on innovation, which makes Matt Ridley’s latest book How Innovation Works a timely read. Ridley will be well-known to most IPA Members, not just through his numerous other works, but through the C. D. Kemp lecture he delivered at an IPA event in 2013 (still available to watch at the IPA’s YouTube channel). For those less familiar, Ridley is a British journalist of the highest calibre, with a terrific series of publications on science and the environment, and a deep understanding of economics rooted in dynamic social processes. His self-appointed title of the ‘Rational Optimist’ is inspiring and appropriate. A supporter of Brexit, as the 5th Viscount Ridley he is an hereditary peer and aligns his seat in the House of Lords with the Conservative Party.

Ridley’s book is, for the most part, a kind of history of innovation; telling the stories of various innovations in public health, energy, food, and technology. Those stories are threaded together to demonstrate that in all times and places, the factors which lead to innovation are the same. As Ridley explains at the beginning of Chapter 8:

Whether it happened yesterday or two centuries ago, whether it was high technology or low, whether it was a big device or a tiny one, whether real or virtual, whether its impact was disruptive or just helpful, a successful innovation usually follows roughly the same path.

Those predisposed to free markets need only one word to explain this path: freedom. Innovation requires the freedom to discuss problems, the freedom to collaborate on solutions, and the freedom to profit from these solutions.

Ridley takes a much more systematic (if somewhat laborious) route to explaining what should be seen as a basic insight. Perhaps he adopted this painstaking approach mindful of the never-ending challenges once faces in making the case for freedom. At the C. D. Kemp lecture, he reflected on the seminal publication of the IPA, Looking Forward, written by founding Executive Director, Charles Denton “Ref” Kemp and launched (along with the IPA) in 1943, and said:

What a remarkable document it is. It reminded me very much of Hayek’s Road to Serfdom with its far sighted understanding of how misguided central planning would be for human prosperity in the post-war world. And it’s also clear from various things that Kemp writes, that his was still a very unfashionable view at the time. And it took real courage to make the case for free enterprise in the 1940s, just as it takes real courage, or it took real courage to be sceptical about dangerous climate change in the early 2000s.

Matt Ridley delivering the 2013 C.D. Kemp Lecture at the Institute of Public Affairs.

Ridley’s book is split into two parts. The first draws on different historical narratives to demonstrate the similarities between different innovations and how they happened. Many of the narratives are well known, such as that of the Wright brothers, but are placed in the proper context of how the innovation came to be and what followed. As Ridley explains in the case of the Wright brothers,

The Kitty Hawk moment of 1903 [where the Wrights’ first powered flight took place] was bound to stand out, because there was only ever going to be one instant when a powered plane left the ground in controlled conditions, but in truth it was a step in a lengthy evolutionary path that began with strange, usually fatal attempts by eccentrics to leap into the air with big flapping wings.

In the second, much shorter part of the book, Ridley connects the dots between these different episodes and articulates the exact lessons they provide. This second section is largely irrelevant for readers who paid any attention to the first part, who—recognising the common theme of collaboration, for example—understand that collaboration is an important facilitator of innovation. In that sense, it is not vital to read the book in its entirety; a time-poor reader could pick out a few chapters from the first part and still come away with the same insights as one who read the book cover-to-cover.

For those who are only interested in the framework Ridley uses, Chapter 8 provides a summary of the essentials of innovation, complete with various examples from earlier in the book. According to Ridley, innovation is gradual, with “Eureka moments rare if at all present, and often fabricated in hindsight for the sake of providing a simple and interesting tale”. Ridley summarises what has, by now, become evident to most readers: “the deeper you look, the less likely you are to find a moment of sudden breakthrough, rather than a series of small incremental steps”.

Innovation is distinct from invention. While inventors can feel short-changed for not getting the credit they think they deserve, it is the innovators who drive down costs, improve quality, and simplify the product who make the biggest difference in a historical sense.

Innovation is the child of freedom and parent of prosperity.

Innovation is serendipitous, and the history of innovation is almost a history of accidental discovery. As Ridley notes, the founders of Yahoo! and Google did not set out to create search engines, the founders of Twitter were trying to create a platform for people to find podcasts, and while trying to develop improved refrigerant fluids Dupont’s Roy Plunkett accidently invented Teflon. Innovation is recombinant, or as Ridley puts it, “Every technology is a combination of other technologies; every idea a combination of other ideas.” That is why innovation occurs where people meet and exchange goods, services and thoughts. Think California, rather than North Korea, or Renaissance Italy, rather than Tierra del Fuego.

Innovation is a process of trial and error. Thomas Edison perfected the lightbulb by testing 6,000 different materials for the filament; a process of perspiration rather than inspiration. As Ridley points out, Edison once said, “I’ve not failed, I’ve just found 10,000 ways that won’t work.”

Innovation is a team sport. Ridley writes that the “myth of the lonely inventor, the solidary genius, is hard to shake”, but innovation is more closely aligned with the kind of collaboration outlined by Leonard Reed in his famous essay ‘I, Pencil’, where knowledge is stored between heads and not inside them.

Innovation is inexorable, or as Ridley puts it, “The state of the underlying technologies had reached the point where they [the innovations] would be bound to appear, no matter who was around.” This brings to light two paradoxes: the first that the individual is seemingly dispensable, and the second that innovation looks predictable. The first is harsh, but “fairly undeniably true of every scientist and inventor who ever lived,” according to Ridley. And the second is not the case as “Technology is absurdly predictable in retrospect, [but] wholly unpredictable in prospect”.

Innovation abides by Amara’s Law, named after a Stanford University computer scientist and long-time head of the Institute for the Future, Roy Amara. The Law states that people tend to overestimate the impacts of a new technology in the short run, but to underestimate it in the long run. Ridley highlights the example of GPS, which began in 1978 with the launch of 24 satellites with the goal of giving soldiers a way of locating themselves for resupply in the field. In the 1980s the program failed and was almost cancelled several times; it appeared to be a failure.

Popular culture places too much emphasis on invention.

Just over 40 years later, GPS has become indispensable to most people around the world. Ridley thinks the cycle today is that the impacts of technology are overestimated 10 years into the future, but underestimated 20 years into the future, with a sweet-spot where we get the 15-year outlook about right.

Innovation prefers fragmented governance, which Ridley demonstrates with reference to printing technology:

Johannes Gutenberg himself had to leave his home city of Mainz and move to Strasbourg to find a regime that would let him get to work. Martin Luther became a wildly successful printing entrepreneur and survived only because of the protection afforded at Wartburg by the Elector Frederick the Wise. William Tyndale published his explosively subversive, and aesthetically beautiful, English translation of the Bible while in hiding in the Low Countries. None of these projects would have been possible in a centrally run empire.

Finally, innovation increasingly means using fewer resources rather than more. Innovation creates efficiencies and economies which allow for more to be produced with fewer resources. For example, standard aluminium cans have shed 72 grams, or 85 per cent of their original weight, since they were first introduced in 1959. Innovation is leading to dematerialisation, which has proved wrong the pessimistic predictions of the 1970s that the world would run out of non-renewable resources.

Having laid out his case studies and framework, Ridley is able at the end to make a critical point about why innovation matters:

This reliance on freedom explains why innovation cannot easily be planned, because neither human wishes nor the means of their satisfaction are easy to anticipate in the detail required; why innovation none the less seems inevitable in retrospect, because the link between desire and satisfaction is only then manifest; why innovation is a collective and collaborative business, because one mind knows too little about other minds; why innovation is organic because it must be a response to an authentic and free desire, not what somebody in authority thinks we should want; why nobody really knows how to cause innovation, because no one can make people want something.

Governments looking to put the pieces back together in 2021 must accept the truth of this. Politicians and policymakers try to engineer society as they see fit, thinking they can induce innovation and prosperity. In fact, their efforts to do so often have the exact opposite result. If 2020 has demonstrated anything, it is that when governments remove the barriers they have erected, giving people their freedoms back, they are enabling a better environment for innovation to take place. Much of this has occurred in the healthcare industry, where—particularly in the UK and US—regulations preventing everything from the implementation of telehealth to nurses working across state lines were repealed to enable the most flexible response to the public health threat posed by COVID-19.

The US-based Competitive Enterprise Institute, realising the benefits of these deregulatory actions during the pandemic, started the #neverneeded campaign. The idea is simply that if rules can be safely wound back to respond to a pandemic, they were probably never needed in the first place. To recreate the level of pre-lockdown prosperity, and much beyond that, politicians and policymakers need to understand this essential principle and act on it.

Innovation cannot be legislated into existence or centrally planned, it is always and everywhere the child of freedom.

Cian Hussey is hosting Tell Us Your Story, a series of interviews with entrepreneurs. It can be found on all the usual Podcast platforms, or at www.ipa.org.au/podcast/tell-us-your-story

This article from the Autumn 2021 edition of the IPA Review is written by IPA Research Fellow, Cian Hussey.