I just finished Rational Optimist by Matt Ridley. Because I am an overly pessimistic individual, I expected to hate the book.
I loved the book.
I should point out where I read the book, because context is important in this case. I was in Berlin. My hotel room was about 50 meters away from Checkpoint Charlie the central point of the cold war. I was within 2 minutes the remains of a train station where thousands of Jews were sent to their death. I was near the remains of the Berlin wall built to prevent people from escaping communists. Berlin could easily be the mecca of pessimists.
Ridley is a very specific optimist: he believes that innovation is an almost unstoppable force. Food and energy shortages? We will invent new ways to produce more food and energy than we need. Effectively, human beings have become better at almost everything: producing goods and food, taking care of each other, learning, sharing and so on.
But he is also a pessimist: he believes that if we stop innovation, we suffer. We must constantly out-innovate our problems. We will soon run out of food, energy and breathable air if we keep doing the same thing at a greater scale. Only by inventing drastically better technologies and organizations can we hope to prosper. Innovation is required for our survival. Civilizations eventually collapse, when they become unable to innovate around their problems.
But where does innovation comes from? Ridley believes it comes from trade, taken in the broadest sense of the term. Traders are people who carry ideas from people to people. They are like bees in that they allow ideas to have sex… Traders allow people to specialize and to focus on perfecting ideas. Without trade, we would all need to be self-sufficient. Condemned to self-sufficiency, we would not have time to improve our methods nor share our ideas. Interdependency makes human beings better.
How do you get more innovation? Do you have your governments entice researchers like myself to pursue “strategic” research? Absolutely not. Governments cannot create innovation. Instead, they should limit the wealth they extract from the economy by remaining small. Other institutions like banks should also be kept in check. In effect, central planning, wherever it comes from, should be avoided as it stops innovation in its tracks.
Hence, civilization comes in as a result of trade, because it can siphon the newly generated wealth. It wasn’t the Jewish traders in the 1930s who drained the wealth out of Germany. With their various enterprises, they were the source of much of the wealth that the state was extracting. They were not the parasites.
Ridley does not have much faith in science as a source of innovation. Most innovation comes through tinkering and trading ideas. Science and law come after the fact to codify what was learned. In effect, science may support innovations and inventions, but it is not the causal agent. What you want is trade and the freedom it brings. I share his vision. After all, Russians had top-notch scientists, but they were still unable to innovate in most practical enterprises.
He sees a cycle, where innovation creates value which is then captured and killed by bureaucrats or obsolete corporations. But innovation always reappears elsewhere. He believes that the best place to be right now is on the Web. One day, governments and corporations will kill Web-based innovations, but by then, a new frontier will have opened.
Ridley predicts the fall of corporations and the rise of bottom-up economics where individuals freely assemble to create value. Apple, Google and Facebook will soon collapse, faster than comparable companies a century ago.
This book also explains why Germany is at least marginally richer than the United Kingdom even though the United Kingdom won the two last great wars and Germany lost. Winning is overrated. Wealth cannot be put into boxes and piled up. Had you confiscated all the computers from 1970s, you would hold a collection hardly more valuable than a single iPad.