How Innovation Works

A Review of “How Innovation Works” by Matt Ridley

Innovation, according to Matt Ridley, “is the reason most people today live lives of prosperity and wisdom compared with their ancestors”. If this is true, then we should obviously all be keen to learn how to generate more of it.

Matt Ridley is one the best non-fiction writers of his generation. He could be described as England’s Yuval Harari – minus the messianic vegetarianism, and the obsessions with religion and meditation. His latest book is a pleasure to read: he carries his considerable learning with an engagingly light touch. The book’s first seven chapters provide a series of vignettes of how various innovations happened – from agriculture to artificial intelligence. Few readers will fail to be surprised and delighted by at least some of these stories. The last five chapters – roughly the last third of the book – draw out the characteristics of innovation, how to promote it, and how it can go wrong.

The New Optimists

Ridley is a long-standing member of the New Optimists. This is a loosely-connected group of people including Bill Gates, Stephen Pinker, Hans Rosling, Richard Dawkins, Stephen Fry, and Andrew McAfee, who proclaim that the world is a better place today for humans than it has ever been, and that we have the ability to continue making it better – much better.

They do not claim that progress is inevitable, or consistent, and they certainly do not believe that we live in the best of all possible worlds. Indeed Ridley has pointed out elsewhere that the word “optimism” now means the opposite of what it started out meaning in the 18th century, which was the belief that life was already optimal, and therefore could not improve.

The New Optimists attribute this happy state of affairs to improvements in technology, which are fostered by free markets – with varying degrees of state involvement in the economy. Ridley, for instance, observes that during “the ten years from 2008, America’s economy grew by 15 per cent but its energy use fell by 2 per cent. … those who say growth is impossible without using more resources are simply wrong.”

Innovation is not the same as invention

The central argument of the book is that improvements in technology are not driven by inventors, but by innovators. Inventors make substantial discoveries which advance scientific knowledge. Innovators, by contrast, use trial and error to make thousands of little changes to a product or a process which may already be reasonably well established, in order to get it to work at scale, circumvent regulators, and beat competitors. “Samuel Morse did more to shrink the world than anybody before or after him. … Morse’s real achievement, like that of most innovators, was to battle his way through political and practical obstacles.”

Invention is often downstream of innovation: “techniques and processes are developed that work, but the understanding of them comes later.” This is clearly true of agriculture, vaccines, and powered flight, for example.

Innovation has interesting and sometimes surprising characteristics. One is that it is often unclear who deserves the credit. For instance, “who invented the motor car running on an internal-combustion engine? … Ford made it ubiquitous and cheap; Maybach gave it all its familiar features; Levassor provided crucial changes; Daimler got it running properly; Benz made it run on petrol; Otto devised the engine’s cycle; Lenoir made the first crude version.” “Simultaneous invention marks the progress of technology as if there is something ripe about the moment. It does not necessarily imply plagiarism.”

Apparently, twenty-one different people can lay claim to have independently designed or critically improved incandescent light bulbs by the end of the 1870s, mostly independent of each other.

More perspiration than inspiration

This does not mean that innovators deserve no praise – far from it. In 1909, Fritz Haber succeeded in extracting ammonium from air, the first step in an invaluable process for agriculture. The German chemical company BASF assigned Carl Bosch the task of scaling up the process. “The Haber–Bosch story, like so many about innovation, is often told as one of brilliant insight by an academic (Haber) followed by inevitable application by a businessman (Bosch), but this is wrong. Far more ingenuity was needed during Bosch’s perspiration than during Haber’s inspiration.” Innovators are not great men and women because of solitary genius flashes of insight. They are great men and women because they win the race, often in a crowded field, to make a technology work in the real world.

Another casualty of Ridley’s book is the old saying that necessity is the mother of invention. In fact, innovation thrives in the midst of plenty. Post-war Silicon Valley is a blessed location, and the home of the early information revolution. A much earlier revolution, the introduction of agriculture, was also enabled by improvements rather than privation. “People took up farming in at least six different places wholly independent of each other: in the Near East, China, Africa, South America, North and Central America, and New Guinea.” This happened “almost as soon as the climate changed to warmer, wetter and more stable conditions, with higher carbon dioxide levels.”


Ridley stands further toward the libertarian wing of politics than the other New Optimists. (He is also a Brexiteer and a “lukewarmer” – a sceptic about the impacts of climate change. There have been negative anticipatory comments about the book from Remainers and Greens because of that, but it should not deter them from reading it. Apart from a swipe at Greenpeace for allegedly causing over ten million deaths by impeding the introduction of Golden Rice, he downplays these themes, perhaps to avoid shrinking his audience.)

Unsurprisingly, then, he insists that innovation works best in democratic countries where the state plays a minimal role. He criticises Mariana Mazzucato’s 2014 book, The Entrepreneurial State, “which argues that the main source of innovation has been government support of research and development” by pointing out that this is a recent phenomenon. “It would be strange to argue that innovation could happen without state direction in the nineteenth century, but only with it in the twentieth. … 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.” “Trying to pretend that government is the main actor in this process … is an essentially creationist approach to an essentially evolutionary phenomenon.”

Innovation needs freedom

The book’s conclusion is summarised in these two sentences: “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.”

This is an admirable rallying cry, but freedom is not a straightforward commodity. It can exist where you don’t expect it, and it can be compromised where you do expect it – for instance, by over-zealous application of the precautionary principle.

Ridley has some difficulty explaining the widespread expectation that “in the coming few decades China will innovate on a grander scale and faster than anywhere else.” He suggests it is because although China’s “politics is authoritarian and intolerant … a lot of that happens at a level above the entrepreneur, who is surprisingly free of petty bureaucratic rules and delays, so long as he or she does not annoy the Communist Party, and free to experiment.”

That does not capture the full story. Anyone who has done business in China knows that the party and the state are often closely involved in commerce. A factory in Shenzhen was expanding rapidly. When the owner was asked how he was raising the capital, he replied that the local authority liked him because he created a lot of jobs. They were re-zoning some of his industrial land as residential, which would yield a big profit. This meant the banks would lend freely to him. Innovation, it seems, can thrive in many different kinds of environments.

And there is another invaluable ingredient: competition. As another of the New Optimists, Andrew McAfee put it in his recent book “More From Less”, “Technology gives us new ways to solve old problems, and capitalism provides the incentive for people to invent these new ways and to implement them once they have been invented.”

Ridley argues that innovation is more likely in small companies than in large ones, but in noting the rapid innovation in the supermarket sector, he acknowledges that the primary driver of innovation in the corporate world is not so much size, as the existence of genuine competition.

Misplaced pessimism?

Despite being a paid-up member of the New Optimists, Ridley opines that “it is a cliché to say that innovation is speeding up every year. Like a lot of clichés it is wrong.” His main evidence for this is that vehicles – from cars to airplanes – go no faster now than they did 40 years ago. This is a curious argument. In the various stages of the industrial revolution, innovation focused on different technologies. First came the static steam engines, then canals, then railways. Later on came steel, heavy manufacturing, electricity, and so on. Progress was certainly not continuous across all fronts.

Today, although we are still in the later stages of the industrial revolution, we are also in the early stages of the information revolution. Innovation is proceeding at furious pace in the sharp, pointy end of that revolution – artificial intelligence.

Fortunately, Ridley makes some rather perceptive remarks about AI.

Artificial intelligence and the two singularities

Ridley has a seat in Britain’s House of Lords, and he gives a gracious hat-tip to Lord Tim Clement-Jones, chair of the Lords’ AI Select Committee, which did a great job of taking a number of peers up a steep learning curve on the technology, culminating in an excellent report published in 2018.

It is currently fashionable to sneer at the idea of the technological singularity – the arrival of superintelligence. Ridley does not do this. He notes without sarcasm that “some people, such as James Lovelock in his recent book Novacene, think that [humans might dispense] with the organic component altogether, as the robots take over and we transfer our minds to their computers.”

Economic singularity

Initially, it appears he is less open to the idea of the other singularity, the economic one, which is the arrival of technological unemployment, when machines can do pretty much everything than humans can do for money. “The idea that innovation destroys jobs comes around in every generation. So far it has proved wrong.”

Which is true, so far. Ridley’s evidence that this will remain the case is flawed. He quotes the zombie factoid that ATMs failed to automate away the jobs of bank tellers: “there are more tellers employed today than before cash machines were introduced, and their jobs are more interesting than just counting out cash.” In fact it was US banking deregulation which ignited the growth in bank branches, not the spread of ATMs. The growth in bank branches was a temporary phenomenon, and limited to the USA. Bank tellers are now an endangered species in the West.

For the moment, the safest bet is that artificial intelligence will augment rather than replace people, as automation has done for centuries. … but the day when I settle into the car, tell it where to take me and go to sleep at the wheel is–in my opinion–a fair way off.” We’ll see. Prior to Covid lockdown, Waymo was running a pilot taxi service in which a proportion of clients could do exactly that. It may be a few years before the technology is ready for general release, but not decades.

In fact, Ridley goes on to demonstrate a more imaginative approach to the economic singularity. “Imagine if robots could do literally everything you conceivably wanted done–including back rubs and grape peeling–and could do them all so cheaply you’ve no need to go out to work to earn anything. What exactly is the problem? You can summon up whatever goods or services you want at zero cost. … it’s a useful thought experiment. Work is not an end in itself.” Bravo! Ridley has posited the idea of abundance as the optimal solution to technological unemployment.

TL;DR: Great book. Read it. You’ll be glad you did.

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