Book Review: How Innovation Works

“Innovation is the child of freedom and the parent of prosperity”

I have greatly enjoyed the Matt Ridley books I have read. The Red Queen discussion of how sexual reproduction may have evolved was fascinating. Rational Optimist was great fun and is a hopeful narrative so missing in much of contemporary conversation. (If you haven’t read it like a more accessible Enlightenment Now or a less wide-eyed Abundance.)

I heard Matt Ridley interviewed on Naval’s podcast. I did not expect to agree with all of it, but I knew I had to read it.

Imagine James Burke’s Connections and Steven Johnson’s Where Good Ideas Come From had a baby and sprinkled in a classically liberal political stance.  Then you would have Ridley’s How Innovation Works.  It stands in contrast with Mariana Mazzucato’s work and should be read in combination.

The book has two main sections. The first is a series of stories or case studies.  The second is the conclusions he draws from them and some proposed principles. Rather than taking a research or academic perspective, he’s more of a storyteller who incorporates and references other important works on the subject.

I recommend the book to anyone who is a founder, wants to be a founder or wants to create a startup community. It has a combination of society-level policy choices and cases studies about what to expect as someone attempting to innovate. 

A key point Ridley makes is that innovation is the golden goose – it is the ultimate source of much prosperity and higher quality of life. More people should be interested in how to foster and support it. Our ability to improve is only bound by the laws of physics and our knowledge. So, let’s create more practical knowledge that helps us improve our lives.  (For more about the upper bound being very high, see the book the Beginning of Infinity.)

 

Key themes and points

1. What is Innovation?
   1. Invention is the creation of a new idea/technology.  Innovation is the practical improvement, application and distribution.  In other words, innovation is commercialization or bringing to scale an invention.
   2. Innovation tends to increases specialization in production and varies consumption.
2. The Paradox of Inevitability: Innovation has a certain inevitability based on what is possible given what else is known. It involves recombining existing things  or ideas. (In this he is similar to Steve Johnson’s Adjacent Possible.) Yet, the paradox is that it can be hard to predict beforehand the path of innovation. He is saying that it is more than hindsight bias that makes us think it was obvious but that there is a set of innovations that are possible right now and it is inevitable they will be explored if we allow ourselves.
3. Expect Simultaneous Invention: Given the Adjacent Possible, you should expect simultaneous invention and innovation. He cites many cases from history where inventions were made nearly simultaneously.
4. Trial and Error: There is a lot more trial and error than inspiration. Think Edison’s ~6000 filament materials testing more than Archimedes in the bathtub.
5. Implies Failure: Which means you must accept failure. In the everyday sense of trying more ideas. And in the bigger picture sense of allowing people to move on from business failure.
6. Teams and Networks: Since innovation so often includes recombination, the more ideas and people come together, the more innovation.  Also, innovation is rarely the work of a single genius and given how much trial and error (i.e. work) there is, it takes a team. 
7. Science and R&D: The dominant frame in policy discussions is that the state funds science which allows for invention and innovation based on that fundamental science research.  He argues that innovation is best bottoms-up rather than state funded.  Invention and science drive each other rather than a linear one-way model. This is one of the areas of the book that seems as much political frame as anything.
8. Fertile Soil: – you may not be able to force innovation but you can provide fertile soil which in his mind includes:
   1. Freedom – ability to think and try new things.  
   2. Fragment Governance – helps rather than centralization as can allow for more experimentation.
   3. Threshold Level of Prosperity – Rich areas where high quality of life attracts people and have resources to do things besides the basics. (Perhaps necessity is not the mother of invention.)
   4. Density – references Geoffrey West’s book Scale including how ideas and economic activity per person seems to grow in cities super linearly with increased population.
9. The Nots: he argues that the following are not the way to get more innovation.
   1. Universities – Academic plays some role but he believes rarely are connected with innovation. I would encourage reading Steve Blank’s work on university role in Silicon Valley to form your own opinion.
   2. Patents – Ridley is fairly negative on patents except in a few areas perhaps.
   3. Precautionary Principle – a regulatory regime that requires the new to establish it is lower risk without taking into account the benefits of moving from the status quo does not encourage innovation. He is fairly Anti-EU in a number of places in the book along these lines.
10. More Jobs: He is firmly in the camp that innovation is not a threat to jobs. But if it were, wouldn’t it be nice to have robots do all the work?  Yet he also yes leisure has gone up as a percentage of life span. This part of the book seems weak. Contrast with Rise of the Robots, Race Against The Machine or The War on Normal People.
11. From the Edge: Innovation comes from the edge.  It rarely comes from a full outcast, but it is also rarely comes from an insider.  For example, big companies, the established or the powerful are generally bad at innovation – unless there is competition. I wish he had included more examples about the mitigant of competition as that is an interesting area to explore.
12. Opposition: Innovation is the source of prosperity and yet often unpopular. The discussion of crony capitalism (the returns to lobbying) might provide common ground with Mazzucato’s. There are three main lines of opposition to innovation.
    1. Safety – arguments that there is risk in the new. If we don’t do the work of trial and error then the new doesn’t get the chance to improve and show it can be better than the status quo.
    2. Self-interest – those that would be replaced or are in competition often push back on new entrants.  They may employ safety arguments to strengthen their claims.
    3. Power – the powerful may not be in direct competition to the new thing but often have an overall general interest in protecting status quo.
13. Acceleration: In part because of opposition and in part for where we choose to focus or efforts, innovation is not going at the same rate in all areas.  Further, he seems to be skeptical that innovation is accelerating in very many fields. Compare with acceleration prognosticators like Peter Diamandis or Ray Kurzweil.
14. Predictions are Hard, But Here are Some: he points out it is hard to predict the path of innovation but does go on to make some predictions.
    1. Transportation innovation characterized the first half of the twentieth century.  Then came infotech/communications. The next big wave is bio/life science innovation.
    2. Forecasts Silicon Valley will “sputter on” with headwinds of high-cost and cultural problems.. China will be dynamic for a while before its lack of freedom will become a hindrance. Mentions positively Singapore and Israel. I did not understand how he was weighing freedom, governance and other factors in making these predictions.
    3. Bullish on crypto/blockchain

 

What doesn’t he talk about?

1. Externalities: there is not much talk about the negative externalities created by innovation. He does touch on the More from Less and the dematerialization of our economy as hopeful positive externality but could spend more time on negative externalities of innovation.
2. Incentives: the book implies that people want to innovate for its own sake and that there may not have to be big rewards. For example, he believes that patents are not necessary to incentivize innovation. He also covers public health and agricultural innovation where the innovator did not receive financial rewards. Perhaps I missed it but a larger exploration of how innovation and incentives related would be fascinating.
3. Value Capture: He seems less concerned with who captures the value of innovation. Peter Thiel’s Zero to One, is explicit that the amount of value an innovation creates and the percentage of that value captured by the innovator or entirely different things. For a big picture book with policymakers as part of the audience, a discussion of how the spoils of innovation should be divided or even how they historically have been divided would be welcomed.

 

Other notes:

1. War and Space: A few times in the book, he mentions cases where wartime or focus and funding did not in fact push a innovation forward faster than it would have gone. He weaves a story of counter-factual where those innovations were actually slowed down by war. He also suggests that the space program which claims to have spun-off many innovations deserves no great credit as any well-funded effort would have similar effects. I’m left not convinced on these points and would appreciate other perspectives.
2. Fraud and Theranos: he has an interesting section reminding people that openness to innovation often attracts or can enable fraud.  The line between well meaning hope of figuring something out and planning fraud is not such an easy one to draw. In the fraud category, he talks about Theranos among others. He calls it a “darling of Silicon Valley”.  While they did get a lot of attention, the impression I got from reading Bad Blood was that no professional healthcare investors did invest. In that sense, professionals got it right.  (BTW, why isn’t there more fraud? Perhaps because VCs keep it quiet as they worry it makes them look bad, too?)

 

Please read the book. And then let’s discuss!