My blog post for Free Market Conservatives:
When you think about it, what has happened to human society in the last 300 years is pretty weird. After trundling along with horses and sailboats, slaves and swords, for millennia, we suddenly got steam engines and search engines, and planes and cars and electricity and computers and social media and DNA sequences. We gave ourselves a perpetual motion machine called innovation. The more we innovated, the more innovation became possible.
It’s by far the biggest story of the last three centuries—the main cause of the decline of extreme poverty to unprecedented levels—yet we know curiously little about why it happened, let alone when and where and how it can be made to continue. It certainly did not start as a result of deliberate policy. Even today, beyond throwing money at scientists in the hope they might start businesses, and subsidies at businesses in the hope they might deliver products, we don’t have much of an idea how to encourage innovation at the political level.
What’s more, free-market economists have been in a special muddle about innovation for a long time. The economics profession spent a couple of centuries assuming that markets tend towards equilibria, through the invisible hand. Hence John Stuart Mill and John Maynard Keynes and pretty well everybody else in between assumed that we would see diminishing returns come to dominate human endeavour. But instead we experienced increasing returns, accelerating invention. As the author David Warsh put it in his book Knowledge and the Wealth of Nations (2006) some years ago, economists obsessed about Adam Smith’s invisible hand but forgot about his pin factory, where specialisation led to innovation.
Now, thanks to people like Nobel Prize winner Paul Romer, the penny has finally dropped that there is an effectively infinite number of ways to rearrange the atoms and bits in the world into useful combinations, and that returns can increase forever. At the same time, people have spotted that the societies that do the most innovating are the ones with the most freedom for people to exchange ideas. It was freedom, not state direction, that caused both Victorian Britain and modern California to be hotbeds of innovation. It was state dirigisme that prevented Stalin’s Russia, Mao’s China, Mugabe’s Zimbabwe and to a lesser extent Juncker’s Europe from being similar hotbeds. Necessity is not the mother of invention. Ambition is.
In my forthcoming book How Innovation Works I argue that the state rarely deserves the credit for sparking innovation: “Far more often inventions and discoveries emerge by serendipity and the exchange of ideas, and are pushed, pulled, moulded, transformed and brought to life by people acting as individuals, firms, markets and yes, sometimes public servants. Trying to pretend that government is the main actor in this process, let alone one with directed intentionality, is an essentially creationist approach to an essentially evolutionary phenomenon.”
It’s vital that Boris Johnson’s government grasps the extra freedom we have just won by leaving an empire, to unleash innovation.
To stay updated, follow me on Twitter @mattwridley and Facebook. My new book How Innovation Works is coming May 2020, and is available to pre-order in the UK, US, and Canada.