Where does innovation come from?

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.

Published by

Daniel Lemire

A computer science professor at the University of Quebec (TELUQ).

6 thoughts on “Where does innovation come from?”

  1. Hmm… I’ve been resisting the book for the same reason, me being a pessimist. I did read and enjoy The Red Queen though, so I might read this.

    Does he address the standard problem of the Singularitarians and Collapsonimists, that trying to stay one step ahead via innovation puts you an exponential curve with rapidly shortening “usable lifetimes” for the current innovation before you need the next one? If the exponential technology argument is correct (I think it is), then you kinda have to pick Singularity, Collapse or something else that provides a position on what will happen on the exponential curve.

    Also, what does he mean by trade? Economic trade in the mercantilist sense, or trade in ideas leading to crosspollination etc.?

    So far, not impressed though. You haven’t convinced me to read it. Perhaps if you shared a couple of specific surprising insights from the book that you hadn’t thought of? (I know from other conversations that none of what you’ve posted, or what I’ve put in this comment, is new to you).

  2. @Venkat

    (1) He does not explicitly address the usable lifetimes problem. He does not say that there won’t be any collapse…

    (2) He means trade in the mercantilist sense. But then he says that it is trade that cross-pollinate ideas. So that they are one and the same.

    He says that trade came first, before cities, before civilization. It is trade that differentiates human beings from apes.

    (3) Obviously, I liked the book so much because it supports many of my beliefs.
    This was surprising given the title of the book. In effect, he is not a stoned optimist who thinks that the future will be rosy… the challenges are enormous and things will go bad for sure… but he sees a way out: innovation. Yes, this is something *we* know about… but I am not sure it is so widely known and understood.

    I will add that the book is *well written*. The prose is crafted with care. I don’t know if all his facts are correct, but he is incredibly well documented.

    Surprising things:

    (A) He convinced me that we global warming will probably be a good thing in the end. I made this same point on my blog, but I was a bit careful about it and I got a lot of heat. He goes right at the core of the issue and says that more carbon in the air is good, that more heat where it is cold is great…

    (B) He made my fears about food scarcity evaporate. He also convinced me that “organic food” is insane. He shows that the solution is to go squarely into more and more technologically advanced food production, and he is confident that if we do so, we will have an overabundance of food for a long time. He uses the example of India where people were starving but where now people are well fed due to better seeds. Eventually, you are lead to imagine towers of gardens where artificial light helps grow insane amounts of food.

    (C) Yes, if China and India catch up to the American wealth per capita, we are in trouble *if* they do it the American way… but they won’t because they can’t. So China and India will have to invent drastically new ways of being wealthy. They’ll pack millions of people in incredibly dense cities with lots of food and lots of convenience. There is just no way around it.

  3. @Ao

    Ridley says that organic agriculture uses more space if you take everything into account. His argument is credible. The factory producing chemical fertilizer won’t take up much space. Meanwhile, organic farming will require much land that is not used entirely to produce food.

    He also points out that most of the food we eat (including wheat and rice) is already based on genetically modified crops. And this accounts for a very large fraction of our increased productivity. Going back to heirloom seeds would be suicide.

  4. I do wish that such authors would spend some time studying ecology rather than just neo-classical economics. If they did, they would understand that innovations cannot for long outpace the services the biosphere provides us and that we are well into ecological overshoot. Glib commentary about the failed predictions of Ehrlich is not a substitute for actual argumentation; there is no doubt about the ecological limits we are facing today in the scientific literature. As a result, innovation in the sense we are used to it will be constrained despite our best efforts and so it’s not that we’ll fail due to a lack of ingenuity, but due to accumulated ecological problems from decades of neglect.

    And it sounds like there’s some confusion about both the green revolution and about organic food: the key driver for the success of the green revolution was massive quantities of natural gas based fertilizer. One of the central principles of organic agriculture is to stop using non-renewable resources such as natural gas. Study after study has found that organic agriculture can produce more per acre than industrial agriculture, but it does require more human labor.

  5. I would recommend reading the literature on biointensive and permaculture techniques; the yields can most certainly match or exceed industrial techniques, often by eschewing monocultures. The idea that we can keep using chemical fertilizer and pesticides both made from non-renewable resources is horribly shortsighted. As for the seeds that is more complicated; I do not object to genetically-modified crops in many cases, but they should be grown sustainably.

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