American Enterprise Institute

Webinar — How innovation works: A book event with Matt Ridley

Opening remarks: James Pethokoukis, AEI

Discussion: How innovation works

Participants: James Pethokoukis, AEI Matt Ridley,

4:00–5:00 p.m. Tuesday, May 26, 2020

Event Page: https://www.aei.org/events/webinar-how-innovation-works-a- book-event-with-matt-ridley/

James Pethokoukis: Hi. I’m Jim Pethokoukis, and welcome to my AEI conversation with Matt Ridley. Matt is the award-winning and bestselling author of numerous books, many of which are on my bookshelf here at home, by the way, including “The Evolution of Everything” and “The Rational Optimist.” His new book, the primary focus of our conversation today, is “How Innovation Works and Why It Flourishes in Freedom.” And since 2013, Matt’s also been a member of the House of Lords. Well done. Matt, good to chat with you today.

Matt Ridley: Thanks, Jim. Great to be with you.

James Pethokoukis: I’ve noticed from doing the events in my many podcasts that listeners love when I read. So I’m just going to read a few sentences I’ve cobbled together from your book as lead into my first question.

You write in the book, “Innovation is the most important fact about the modern world, but one of the least well understood. It is the reason that most people today live lives of prosperity and wisdom compared with their ancestors. And the main ingredient and the secret sauce that leads innovation is freedom, freedom to exchange, experiment, imagine, invest, and fail. Liberals have argued since at least the 18th century that freedom needs prosperity, but I would argue that they have never persuasively found a mechanism, that drive chain by which one causes the other. Innovation is that drive chain, that missing link. Innovation is the child of freedom and the parent of prosperity.”

Matt, do you think you’ve written a contrarian book here in 2020? Because there seems to be a growing belief we haven’t innovated since the Apollo Space program, living standards have been stagnant for decades, growth only helps the elite, growth kills the climate, and innovation comes from smart central planners implementing industrial policy in carefully chosen sectors. Is this a contrarian book?

Matt Ridley: Well, it is, if those are your views. Because I say that innovation is the product of free people exchanging ideas freely and that, yes, we are experiencing innovation.

Although I do argue towards the end of the book that we are experiencing something of an innovation famine, particularly here in the Western world. There are areas that we have not been able to get enough innovation going in recently, and the pandemic has rather reminded us of that. You know, we haven’t been able to innovate in diagnostic devices or vaccines as much as we would have liked.

James Pethokoukis: I think if you ask these days, assuming people think that innovation is good — and I’m not sure as many people as you still think innovation is good. When they hear innovation, they think of disruption and job loss and maybe AI run wild. But if you think innovation is good and we need more of it, I’m not sure, getting back to my question, how many people would say, “Well, we just need more freedom.” I think they would say, “Well, we need more government. We need a more powerful innovation-geared state to work its magic on the private sector down and on science.” That seems to be where the energy is right now. I don’t know if you —

Matt Ridley: Yeah. I think you’re right. And, I mean, this is partly because people always have a sort of top-down view of the world, that they think that the world is run by people.

They don’t think of it as being an organic and spontaneous effect of everybody reacting with each other. They assume that if something happens, it’s cause someone ordered it to happen.

And I very much argue that that’s not the case in this book. I very much argue that innovation is something that bubbles up inexorably and inevitably if you allow people the freedom to experiment and try new ideas, and that you can’t, as it was, stop — well, you can’t direct it, and you can’t plan it.

But there is definitely a tendency these days to say that we must decide which innovations we want and which innovations we’re going to get and which innovations we’re going to subsidize from the public funds. And I think that is a dangerous tendency because the history of innovation shows that you can’t do that. I mean, you can’t suddenly make supersonic flights cheap. You know, there are physical limits to things, and you can’t suddenly make a low carbon economy easily. You know, it might be possible over the long run, but it won’t come about instantly.

And, yes, we have been innovating as a society somewhere in the world at any one time. And for goodness sake, if we don’t keep doing so, we will find that prosperity dries up pretty fast.

James Pethokoukis: I think one reason — and I’m sure you remember this — is back in the 1980s, you know, there was a concern, at least in the United States, about, you know, whether Japan was going to be the leading economy of the future. People looked at how Japan, at least, how we thought at the time, how it did innovation and that was through very smart bureaucrats at key agencies. And there were a lot of people back then who said, “You know what? We need to do what they do. Then, who knows? Maybe free enterprise, that was the way to innovate in the past, but now we’re much smarter and we need to have very smart people making decisions in government.”

Didn’t work out so well. I’m not sure that was actually how Japan was innovating. And now today we have a similar situation where now people see China, they see those very fast growth rates. They hear about its huge advances in AI, and they hear it has big ideas for the future that’s going to become the leader in AI and aerospace and just about everything else you can think of. And they think, “Well, now they’ve figured out another model. They seem to be doing great.” Do you think that’s one reason people have been sort of skeptical about sort of the freedom argument? But do they have a point? Has China figured out a different, maybe better way to do innovation?

Matt Ridley: No. I think you’re exactly right. I think people misread Japan in the 1980s. They said, “This has come about because the Ministry of International Trade and Industry, MITI, has specifically singled out sectors which are going to be the future and has invested in them and that’s why Japan is such an innovative country.” And that was always nonsense. Once you looked under the bonnet of what was happening in Japan, it wasn’t because clever bureaucrats were telling people what to invest in and what to invent. It was because small firms, big firms, particularly middle-sized firms, were just going out there and trying new things and were developing new technologies at an extraordinary rate.

The same mistake is being made about China today, I believe. It is an innovative country. You can’t deny that it has not just caught up with the United States, but in some areas, has overtaken it in terms of consumer electronics, consumer digital behavior, and so on. There are some, you know, front of the pack stuff happening in Japan — sorry, in China. But to say

that that’s because it’s a Communist regime with a centrally directed plan to innovate is simply wrong.

Because if you look at what happens in China, yes, it has a very strong monopolistic and authoritarian political regime. But as long as you don’t deny the Communist Party, below that level, there is a huge amount of freedom. It is not directing what entrepreneurs do. And, in fact, an ordinary entrepreneur in China who decides to build a factory to do something new can do the whole thing in a matter of weeks, which would take years in the West to get permission from all the various bureaucracies and regulations. So in that sense, a Chinese entrepreneur is freer.

That said, China is getting worse in terms of authoritarianism. It is becoming much more of a dirigiste state. For a while, it was drifting towards democracy. That has been reversed. And I think you will find that the Chinese bureaucrats will think they can direct and control exactly what happens in innovation. And if they do try that, they will kill the goose that lays the golden eggs. And just like Japan, it will no longer be at the front of the pack for very long. So I wouldn’t bet on China being the lead innovative country in the world for a very long time, unless it can democratize and liberate its regime.

James Pethokoukis: Do you think — and this is often an ongoing debate, whether China can, over the long term, be an innovative entrepreneurial state without being much freer? Right now it looks like they’ve managed to do both. They’ve managed to be an authoritarian country with one political party and also be highly innovative. So you think that is not sustainable, that either they’re going to stay authoritarian and become less innovative or if they want to innovative, they’re going to have to be — move slowly toward being a freer, more open democratic nation.

Matt Ridley: In the long run, I think that’s right. I mean, I think China may pull the trick off for a while yet, but I think it is simply not possible — given the role that freedom plays in innovation, as I argue, the ability of the entrepreneur to change his mind, to change direction, to suddenly try one thing and then another, to do a lot of trial and error, to make a lot of mistakes, and in the end to come up with something new and impressive that will change the world. Given the importance of that, I feel that in the long run that is not compatible with a regime that tries to control things from above.

And China has been here before In the Song dynasty, around 1,000 years ago, it was the most innovative place in the world, and it was responsible for a series of extraordinary innovations, printing and all those kinds of things. And these came about because the Song dynasty was not a very centralized regime. It was a fragmented regime in which there was a lot of local autonomy and there was a lot of freedom.

Then the Mongols invaded, and after that came the Ming empire. And the Ming were quite the opposite of the Song. They wanted tight, centralized control of everything. They literally controlled where you could travel, and they needed a report from every merchant on how much stock he held in his warehouse at regular intervals. The mandarins at the center did. This was a recipe for killing innovation. And sure enough, China sank into lack of innovation and eventually extreme poverty over the next few centuries. So the lesson there is that if you run an authoritarian regime and it gets more and more intrusive into the life of ordinary small businessmen, then you will stop innovation. It’s quite easy to do.

James Pethokoukis: I wonder then if we worry too much there about China being a leading technological power, that having an authoritarian country be on the technological frontier, if those just two things aren’t sustainable — and I worry that we’re so worried about it that we figured, “Well, maybe they figured out a different model, and that’s we have to follow.” And because already, at least the United States, there’s more and more talk about industrial policy and, you know, “We need to be picking this.”

I mean, everybody knows AI is the future, so we need to, you know, invest a lot in AI. And everybody knows biotech’s the future, so we have to invest in biotech. And I wonder if that is the lesson. There’s just not a lot of confidence in the United States right now, that that freedom and free enterprise are ultimately the best paths to being a — to being and staying and pushing forward that technological frontier.

Matt Ridley: Yeah. Well, the government, even in the US, has a very poor track record of picking winners. It’s not quite often good at — losers are picking the government to help them. And if you go back to the 1980s when the worry was about Japan, all the emphasis was on having a policy for semiconductor manufacture, for memory manufacturer, in particular. You know, this was going to be absolutely vital to have a strategic interest in keeping memory manufacture onshore. It completely missed the fact that the memory chips were turning into a commodity, and the action was moving to microprocessors and eventually to software.

And if you go back even further, go back to 1903, the US government poured an enormous amount of money, for the time, into a project to develop the first aeroplane. And it was a guy called Samuel Langley who was head of the Smithsonian and a very distinguished astronomer. And he went off in secret and built an enormous machine that was going to leap into the air at first attempt. And he didn’t test the parts of the machine, and he didn’t talk to other people. And it flopped straight into the Potomac when it was launched, and there was a humiliation for the US government.

Ten days later on an island off North Carolina, two bicycle mechanics from Dayton, Ohio, who had done it completely differently — they’d tested all the components separately, again and again and again in gliders and kites and other devices. They had talked to as many people as they could around the world. They’d drawn on what birds do. They’d used wind tunnel experiments, and they’d shared their ideas with as many people as possible. But in front of no crowd at all, they got an aeroplane into the air.

And for about five years, no one believed them. And they went to the US government and said, “Look, we really can give you a fantastic technology to use in the military.” And the US government said, “Uh-Uh. We’ve been there. We’ve burnt our fingers with Mr. Langley.” So the government’s record in this area is not great.

People cite the internet coming out of DARPA, and there is some truth in that. But actually, the internet relied — even in DARPA, it relied on a lot of private-sector input. And even when it came out of DARPA into the outside world, it needed to go through a huge amount of innovational development to turn into what we have now. So giving DARPA the credit for the internet is a bit like giving a beaver the credit for the Hoover Dam.

James Pethokoukis: You mentioned earlier that — toward the end of the book, you do talk about sort of this innovation famine, and innovation desert that’s at least perceived to have

been the case since the early 1970s. At least if you look at official government statistics, there is sort of this downshift in productivity growth, which you think is related to innovation in the early 1970s, and it never really rebounded other than sort of the late 1990s, early 2000s, at least here in the United States. If you look at all the productivity numbers, we didn’t see what we saw in the 1950s and 1960s.

It’s a hotly debated, still debated question. What do you think happened? Why do you think, not just the United States, but a sort of across advanced economies, we saw this downshift in productivity, which perhaps Robert Gordon has written about most famously in his book, “The End of American Growth”? What do you think happened there? The productivity downshifted and never really came back.

Matt Ridley: Well, I don’t think it’s quite that bad. I mean, I hesitate to get into an argument about the statistics, but I think when you take into account, you know, the sizes of households and all these kinds of things, you correct for that. There is still a productivity improvement there. But you’re right, there isn’t as much as one would expect.

Now, we’ve had a period of enormous innovation there. I mean, you’re talking about most of my lifetime there. And we’ve gone from, you know, paper to computers and telephones to mobile phones. There’s been an extraordinary amount of innovation during that period.

But as Peter Thiel put it once, we wanted flying cars, and we got 140 characters. In other words, most of the innovation has ended up being digital, has been ended up being bits rather than atoms. And Thiel makes the argument that the reason for this is because it’s permission- less to go out and start a new business on the internet. To start an e-commerce business, you don’t need to ask anyone’s permission. You just get out there and start doing it.

And the contrast with if you want to devise a new drug or a new medical device or a new way of building a bridge, there’s going to be an enormous amount of regulatory progress that you have to make before you’re allowed to even start. And as a result, we have diverted the energy of entrepreneurs and innovators into digital innovation rather than innovation in atoms and real structures. And we did it — or rather the US did it quite explicitly. The Clinton administration passed a series of measures in the late 1990s that very much were permissive to e-commerce. You know, they deliberately cleared the undergrowth away to make it possible for companies to start building online retail and communications platforms. And that worked really well.

So we’ve diverted our energy, I think, online in the last few decades. And I’m not sure that’s what innovation is going to look like in the next few decades because, you know, we might get back to transport innovation or we might turn to biotechnology innovation as being the big wave coming next.

But I don’t, myself, feel that the America of 2020 is no better than the America of 1970. I just can’t see that argument. The quality of life is extraordinarily better, and people are working shorter hours and living longer lives and eating better food and all these kind of things. So I think we are seeing the fruits of innovation. It’s just, they’re not showing up, particularly in the productivity statistics like they are elsewhere in the world, by the way. I mean, you know, poorer countries are seeing spectacular increases in productivity and in prosperity over the last 10 and 20 years.

James Pethokoukis: That explanation, the one you gave and the one Peter Thiel talks about that we’ve made it harder to do that sort of real-world, you know, working with atoms kind of innovation, you know, due to the regulation not — as someone who loves free enterprise, I love markets. I mean, I love that explanation. In fact, I’d worry that I love that explanation too much. It’s such a comfortable explanation for me. It’s so totally conformed to like my inherent belief system and my biases that I wonder that I love it too much and that I’m missing something.

Could we be missing something else? Might it be that, I don’t know, government’s spending less on investment or something’s happened with schools or that it really isn’t regulation, it’s some other explanation?

Matt Ridley: Yes, of course. And I think if you — I often make the point that we saw incredible changes in transportation in the first half of the 20th century, but almost no changes in communication and computing, and then in the second half of the 20th century, we saw the opposite. We saw very little change in transportation and a huge change in computing.

So I like to show a cartoon published in 1958 of what life would be like in the 21st century, and it’s a shot of a very old-fashioned mailman delivering perfectly ordinary letters, but he’s doing so with a rocket on his back. And that’s exactly the wrong way round in both cases. We’re not using letters much; we’re using emails. But we don’t have rockets on the backs of individuals. So we got the future wrong in that sense and didn’t understand where it was coming from.

Was that because government regulation and interference made it hard to do innovation and transport? No. I don’t think it was. I think it was because we’d hit some kind of physical limits that were hard to breach in terms of the efficiency of moving people and goods around on devices, you know? I mean, a supersonic airliner is possible, but on the whole, it burns too much fuel and isn’t very efficient.

So I think that some of the reasons why innovation shifts from one sector to another are not about the obstruction of bureaucrats or things like that, but some of them definitely are. And, by the way, if you say, we haven’t seen improvements in transport, one of the most spectacular improvements we’ve seen in recent years is actually in transport. It’s just not in speed. It’s in safety.

If you look at the fatalities in commercial passenger jets, they have gone down by some gigantic amount in the last 30 or 40 years per million revenue passenger kilometers. They’ve gone from about 3,000 a year to about 50 a year. You know, that’s an unbelievable change. And in 2018, we had a year with zero fatalities in commercial passenger jets. That’s extraordinary when you think how many were flying around the world in their millions.

So, you know, we are seeing improvements, but they aren’t necessarily showing up in our pocketbook. They are sometimes showing up in other aspects of our lives, I think, like safety.

James Pethokoukis: Whenever I write about this, or I — this issue of innovation and sort of what’s gone wrong in over the past — if we think something’s gone wrong over the past decades, people will start pointing out, “You know, maybe there’s a cultural reason. Maybe we’re just not sort of a future-thinking, future-oriented society.” And they’ll say, “How many

of our films and books portray an optimistic future? Tell a story that that technology can lead to a better future versus a future of a ruined planet or AI taking over the earth or some other, you know, the dystopian scenario.” I mean, if I had to sit down and quickly write out a bunch of optimistic movies, it’d be way easier to write the opposite, where it — all is terrible and we should fear the future.

Matt Ridley: Absolutely. And this is something I’d been complaining about for years, is that, you know, I just cannot remember a Hollywood film in which the future is portrayed positively. There might be some, but I can’t remember one, or in which an integral businessman is portrayed positively. The only kind of businessman who has ever been portrayed positively in Hollywood, as far as I can make out, is an architect for some reason. I guess that’s because he’s not really a businessman; he’s more of an artist.

You know, there are these strange obsessions with dystopian futures, which — and by the way, this is nothing new. You know, fiction has done this ever since “Brave New World.” We’ve always told ourselves that the future is going to be terrible, and the future’s always been fine.

And I — you know, I’m quite passionate about this. When I was 12, 13 years old, the environmental movement was just getting started, and I was very interested in natural history. I was interested in all this, and I became extremely pessimistic about the future because the grownups were telling me, you know, that the oil was running out, the population explosion was unstoppable, farming was inevitable, pesticides were killing us, our life spans were going to shrink, etc., etc. It just went on and on and on.

And I thought, “Well, it’s been nice to be alive, and it’s been great. But now I’m, you know, approaching teenage term. I better work out what I’ll do in the last few years before I die a poisonous death.” And so, when the 1980s came along and my country and others started prospering quite mightily, I was genuinely shocked. It took me by surprise.

So one of the things I try and do today is tell 12-year-old and 14-year-old kids in schools, “They are telling you that you have no future. You know, we’ve stolen your future,” you know, whatever Greta Thunberg says. It’s just not true. You know, even the projections show that we are going to get richer in this century. It’s just we might not get quite so much richer if we have climate change, as if we don’t. That is literally what the models say.

James Pethokoukis: I wonder if it matters. I’m sort of worried it does matter, the stories we tell ourselves. And particularly, people seem to be really worried that AI is about to take all our jobs and we need a robot tax maybe or that we need to somehow slow down technology. Even though we’ve just spent 10 minutes talking that there’s been this downshift, you know, in official statistics, at least per activity and innovation. Yet, at the same time, we’ve sort of never been more worried that everyone — there’ll be three people who will own all the robots, and the rest of us will be living in hovels and on universal basic income or something. So I kind of think it matters. Now, it may have been a way that it did in the past or some reason, the stories we tell ourselves about the future.

Matt Ridley: Well, I think the idea that automation and innovation steals jobs is an old idea that has been around for more than 200 years since the Luddites were smashing textile

machinery in Britain, and it’s been wrong all along. We’ve said throughout this period that automation is going to kill jobs.

In the early 1960s, the US had a presidential commission to look into the inevitable mass unemployment that was going to come about as a result of the introduction of computers into factories. It didn’t happen. We now have more people in employment than ever before — we did before this current crisis, I should say. And that’s because what innovation does is it creates new jobs, new opportunities, and it creates the prosperity with which the consumers buy these new services from other people.

And there will always be things we want other people to do for us if we’re consumers and we can acquire it. But it’s also worth considering, I think, that we are sharing out more leisure. We are working less hard. I mean, if you take someone in the early 20th century when life expectancy was less than 60, there was no such thing as retirement. Most people left school at 14, 15 and went straight into the workforce. The average workweek was about 60 hours. You didn’t get much holiday. They were spending 25 percent of their entire life on the planet at work, not going — the rest was sleeping or eating or weekends or a childhood or something.

Today, less than 10 percent. If somebody lives to 85 and they’re in education or retirement for half of their life, which is quite probable, and they’re working five days a week, 5/7 of every week, and they’re working eight hours every day, so one-third of every day, and they’re taking normal holidays and so on, it’s less than 10 percent of their life that they will spend at work. So for 10 percent of your life, you can earn enough to support your life and to give other people a living.

That is what technology and automation and innovation has done for us, and we’ve shared it pretty equitably. We’ve not gone to the point where a few people are working incredibly hard, and a lot of people are not.

The current worry about automation and artificial intelligence taking jobs is a surprisingly sort of upper-middle-class worry. In other words, that the reason we’re hearing so much about it at the moment is because in the past it was just farm laborers that were losing their jobs or factory workers. Well, now it’s lawyers and doctors for goodness sake who might be automated. That’s really scary.

James Pethokoukis: This almost puzzles me as this idea that robots are about to take all the jobs at the same time as, I think, in my view, we haven’t had nearly enough innovations. Whatever I read about Europe and European economies, they seem to be desperate to be more innovative. They seem to be desperate to have more technology companies and bigger technology companies. There’s — I don’t know how many white papers I’ve seen about the entrepreneurial deficit, the innovation deficit. And now in this country where we have these big technology companies which seem to be pretty innovative and seem to spend a lot of money on innovation, we sort of have very mixed views about them.

And you mentioned Peter Thiel earlier talking about how maybe because of government, we haven’t had all the innovation we would like. ut some people blame these — they blame Silicon Valley. They say, “Silicon Valley has failed us because they haven’t thought big enough and the reason we, you know, don’t have flying cars is because all they want to do is kind of modify consumer services. So instead of taking a flying car, we got Uber and maybe

Uber is great, but it’s not the flying car.” Is there a problem with Silicon Valley that it just doesn’t dream big enough for whatever reason?

Matt Ridley: Well, I think, seeing from Europe, Silicon Valley has been a spectacular success. And if you’re grumbling over there about the fact that you’ve got Facebook and Amazon and Google in your backyard delivering extraordinary benefits, online shopping, whatever it might be, we would kill for a bit of that in Europe. I mean, Europe has failed to produce a single digital giant to rival Facebook, Amazon, Google, or indeed, their Chinese rivals.

You know, China has produced these kinds of big companies. We can’t do it in Europe. Why? Because we have a very dirigiste and centralized regulatory system that tries to tell tech companies what to do. And we pick fights with big Silicon Valley companies all the time in Europe. We’re constantly trying to take Google a peg or take Facebook down a peg. So it’s not true that we’re desperate — that we’re keen on innovation in Europe, and you’re not in the US. I think that’s a myth.

We talk about it a bit, but then we introduce policies that just don’t get it — don’t get it right. I mean, I write in the book about Britain’s most innovative and successful entrepreneur, who’s called James Dyson. And he invented a bagless vacuum cleaner. And he came up against a new regulation in the which said that, “All vacuum cleaners must be tested as to how much power they use because we’re worried about energy usage, and this must be published and you’re not allowed to use more than a certain amount of power. But all vacuum cleaners must be tested without dust.” And he said, “Well, what’s this all about? What do you mean? How do you test a vacuum cleaner without dust?”

And it turned out that the big German white goods manufacturers who made vacuum cleaners that have bags in them didn’t want the regulations to favor Dyson’s product, which works fine with dust in it. Theirs has to use more power when there’s dust in it. So they’d been designed to increase their power usage when they got half clogged with dust, and they didn’t want to have to reveal this fact. So they had lobbied the European Commission to bring in this regulation, which was quite different to the regulations elsewhere in the world.

So Dyson went to court. The court found against him. Dyson did a Freedom of Information Act to find out who had been lobbying the court. Sure enough, dug up a treasure trove of appalling corporate lobbying. So he appealed; he won his appeal. The regulations were struck down.

By now five years had passed, and the Chinese competitors had caught up. That’s the kind of straitjacket within which European innovators have to work.

And that, by the way, is one of the reasons James Dyson was one of the leaders of the campaign for . He wanted to get us out into a world where we could join the world and use world standards rather than European standards and have a competitive open free-trading system. And that’s what we’re planning to do next year when we’re fully out of the European Union.

James Pethokoukis: Yeah. That story you just told, really to me is a good capsulation.

One of my concerns about this sort of recent enthusiasm, at least in the United States, about industrial policy is that they assume that we’re going to have these, you know, very smart, independent, selfless bureaucrats in the new Department of Innovation or Department of Technology, whatever they want to call it, who will, based purely on their — you know, on their best estimate of the science and technology make these decisions about what technologies to fund or maybe what companies to fund.

But I think the history of politics is that it’s not how it’s going to work. There will be lobbying of the government, and companies that are friendly with the government might get help. And those that aren’t — well, and forget about them making the wrong decisions. I think it’d be harder for them to make the right decisions if they’re trying to make the right decisions, much less if these decisions are being influenced by politics.

Matt Ridley: Yeah. Well, Brink Lindsay and Steve Teles have a very good book called “The Captured Economy,” which is about how things like regulations but also the intellectual property system and things like occupational licensing have created barriers to entry that help incumbent businesses and don’t help insurgent businesses. And that this is an increasing problem in the US, but it’s also an increasing problem in the UK. And, you know, we need to find ways of encouraging small, insurgent businesses to come along because big businesses are not good at innovation.

I’m making this point in the book. You know, if you look about happened to Kodak, they were mugged by digital photography. They actually invented digital photography at one point, but they didn’t like the look of it. It didn’t look very efficient, and they didn’t really want to disturb their monopoly on film, near-monopoly. Likewise, Nokia became the biggest mobile phone company in the world with more R&D than the rest of the industry put together. Enormously successful company. And then it was so invested in voice, that it didn’t see the data revolution coming and didn’t want to know about it. And it was mugged by its competitors, basically, Apple, and it ended up sold for a pittance some years later.

So we need to allow small companies, small entrepreneurs to challenge big ones. That’s the big thing that we need to be able to do. The freedom to go out there and take on these big organizations, which have the ear of government often. And as you say, if there’s a Department of Innovation in Washington, it will very soon be hearing from the big companies and not the small companies if we’re not careful.

James Pethokoukis: One other question about China just popped to my head I wanted to ask you. Do you think it is necessary for a country to have some big external threat to sort of wake up a country and figure, “Oh, you know we need to innovate,” whether it’s spending more on research or getting rid of bad regulations. Do we need to have that threat? Or just people end up being, they don’t want to spend the money. Politicians don’t want to spend the money. It’s too long-term thinking or people worry about the disruption of innovation that — and, you know, the space race obviously was greatly driven by the Cold War.

And there’s still, there’s some people who sort of welcome, now that we have China to replace the Soviet Union, then now we have this new external threat and now we can focus on innovating again, thanks to China. Also worry about, you know, obviously war.

I worry about having that kind of external threat. Do we need that, or is there some other way to persuade people that, “Yeah, you know, we need to — innovation needs to sort of be at the

heart of government policy, whether it’s doing more in some areas or in other areas doing a lot less”?

Matt Ridley: I mean, if the reaction to Sputnik is the classic example of a government panicking about its failure to be sufficiently innovative when confronted by a rival that appears to overtaken it in a technology it thought it was leading it. You know, the US government saw Sputnik in the air and thought, “Oh, my goodness, we need to revolutionize the way we do R&D. We need to catch up, etc.” And actually, the response that that came with a lot of military spending and so on didn’t — I mean, it delivered something. It was bound to. But it wasn’t really what changed America.

What changed America was what was bubbling along in, you know, Fairchild Semiconductor and small companies like that in California. Sure, some of them had links to the defense department and Stanford University and so on, but it misreads history to think that it’s because Khrushchev put a satellite into earth orbit that America then took off and became an immensely successful technological leader.

I talked quite a lot in the book about the role that the World War II played in innovation. And I make the case that with the exception of nuclear weapons, which I suspect would not have been developed in the 1940s if it hadn’t been a worry that Germany might be developing them too, with that exception, the other technologies that we often think about having been accelerated by warfare actually weren’t. The computer, antibiotics, the jet engine, these were developed long before the war. And in the case of the computer, well, at least, the ingredient technologies were developed before the war. In the case of the computer that the annus mirabilis, the amazing year when all these ideas come together is 1937.

And then because of the war, the projects all go off into secrecy and they’re not able to talk to each other and actually, all they’re doing is calculating the trajectories of artillery shells or trying to crack enemy codes, and they’re not trying to do anything else. And so, it’s not until the war ends that computing is able to share ideas again and get going again.

So actually, I think the war retarded the development of that technology, whereas we often think of it as accelerating it. So I’m a bit of a skeptic about the idea that geopolitics plays a part in innovation. And the 1930s were a very desperate time for America. Huge unemployment and poverty and misery. And yet it was a time of great innovation, you know, from nylon to radar, or whatever it was. There was all sorts of things developed in that decade. So I don’t myself think that a country needs to feel threatened before it does any innovating.

James Pethokoukis: Do you think that this could be an innovation moment for the United States and other advanced economies because of the pandemic, because of this economic shock that will begin to focus a lot more on making our country more efficient, getting rid of regulations that stop people from innovating? That’s like, I think the positive scenario.

And I also worry about us becoming more risk averse, sort of just, you know, retreating, worrying about foreign competition, worrying about immigrants, worrying about trade. I can kind of see it going both ways. What do you think? Should I be an optimist?

Matt Ridley: I think on balance, I’m an optimist. I think this will turn into a moment when we take seriously the need for innovation. And if you look at what’s happened just in the last

couple of months in terms of stripping away the requirements to take months to approve a new — if not years, to approve a new medical device, all sorts of rules and regs that were extremely slowly implemented, killing entrepreneurship by taking too long over decisions. All sorts of things have changed in that respect. And we’ve seen just how damaged we were by this overregulation of certain things.

So, for example, diagnostic tests, new medical devices taking up to six years to get approval, that has deterred a lot of innovators, and that is the reason we haven’t had ready and waiting for this pandemic, the sort of point of care instant DNA diagnostic machines that frankly we could have invented half a decade ago.

So I do think that we’ve had a wake-up call about the fact that it is not painless to stifle innovation by over-regulation and by slow decisions by bureaucrats. That said, I do also agree with you that we do possibly face the threat of, you know, shutting down the world economy and shutting down world trade, for example.

A trade war would be disastrous because the whole point of trade is so that if somebody produces an innovation somewhere else in the world, you don’t have to say, “Oh, bad luck. I don’t live in that country. I can’t have it.” We don’t say that about neighboring towns. Why should we say that about neighboring countries? So if, for example, the first vaccine is developed, not in America but in another country for this disease, would you really like to feel that it’s just bad luck, Americans are not going to get access to it? Of course not. So if it’s the truth for vaccines, why not for every other innovation?

So I hope that we learn the lesson from this, that we are connected, trade does have to be done equitably, and there are aspects of trade like trading in unhealthy plants, animals, and diseases that we have to be quite careful about. But there are other aspects where we should encourage as much as possible so that we can get access to the ingenuity of people all over the world.

James Pethokoukis: Why do innovators innovate? There’s a lot of discussion lately about these very wealthy entrepreneurs, whether it’s, you know, Jeff Bezos or Elon Musk or the guys at Google saying, “Sure, they’re innovators, and they’ve created these companies which seem to be providing very valuable services to many people. But you know what? They didn’t need to become multibillionaires. They didn’t even need to become billionaires. They would be just fine if they were a lot less wealthy and if we had big wealth taxes. It really wouldn’t affect the amount of innovation in United States.”

When you look at innovators, do you think that’s true based on your experience? And just more broadly, why do people start companies? Why do they invent? Why do they innovate? To become trillionaires?

Matt Ridley: Human beings are ambitious, and the ones who make a small success want to make a big success, and the ones who make a big success want to make an even bigger success and so on. I think that’s in the nature of human beings. And if you look at people like Thomas Edison or Jeff Bezos, even you find certain common themes.

One of them is relentless ambition, extremely hard work, but another is a tolerance for failure. And I think that’s a key ingredient because Edison was constantly trying things that didn’t work, and he knew that trial and error was the way he was going to solve most of his

problems. So when he was looking for a material to use for the filament of a light bulb, the 20 other people around the world who had also invented light bulbs independently, all tried one or two materials and then said, “I’ve found one that’s good enough.” Edison kept going. He kept trying different things. He tried over 5,000 different types of plant material until he settled on a particular kind of Japanese bamboo that made a particularly good filament so that his light bulb lasted longer than other people’s.

That’s what marks the great entrepreneur act from other people. And I’ve talked to Jeff Bezos about this, and it’s very clear that he regards trial and error as a key ingredient. He wants to make mistakes. And by Jove, he did make mistakes. If you look at the history of Amazon, it’s a series of disasters, but a series of successes as well and, eventually, a very big success. You know, he’s on record as saying, “If you’re not trying lots of different things, then you’re not going to succeed.”

So the role of trial and error is a crucial ingredient in these people’s lives. Just keep trying things, and you will eventually succeed. Don’t expect to get it right first time, and don’t be discouraged by a failure.

James Pethokoukis: Yet I see, at least today, people sort of exalt in the failure of entrepreneurs if they’re already wealthy. I think of Elon Musk who tomorrow, hopefully, his SpaceX will launch two Americans into orbit for the first time in American soil since 2011. Except when it doesn’t work, when one of his — when there’s a problem with his, you know, autonomous cars, where there’s the problem with one of his space launches, a lot of people just — they love it. I mean, you’re not an American, but speaking, you know, about the United States, do you see that in the United Kingdom as well, where they’re just — some people just — they want to see that failure?

Matt Ridley: It’s far worse over here. Anyone who succeeds in the UK is automatically targeted by the media and everyone else. They’re longing to find the feet of clay in a successful person. In America, you have it lucky — you know, the entrepreneurs, they have it easy. Yeah, sure, Elon Musk gets a few brickbats thrown at him. Try living in the UK, and he would find our media far worse over here. So I think it’s a general problem around the world that we resent success. But it can be pretty bad in some countries.

And yeah, I’m not pretending we should feel sorry for these guys. They have got billions, so they don’t deserve — we don’t need to waste our sympathy on them. But it would be nice if, occasionally, a country like yours or mine regarded, you know, a good old-fashioned engineer who builds up a business as a hero, instead of someone who’s, you know, good at singing a song or good at fighting a war or, you know, all these sort of 14th-century things that we worship instead. You know, the real heroes of the world are people who did innovations.

And by the way, it isn’t always about money and gain. I mean, my favorite story in the whole of my book is about the mosquito net impregnated with insecticide, which has changed the face of malaria control spectacularly, reversed an increase in malaria, turned it into a decrease. It’s saved millions of lives. It’s an incredibly simple, low-tech technology.

I tracked down where it came from. I didn’t know who’d invented it. Turns out the key experiment was in Burkina Faso in 1983 when a bunch of French and Vietnamese and Burkina Farsen scientists did a lot of very controlled, carefully controlled experiments to see

whether a mosquito net prevented mosquitoes biting you, to see whether adding insecticide made any difference, and to see where the tearing holes in the net made any difference. And it turned out that a impregnated net is very, very good at deterring mosquitoes, even if it’s got holes in it.

And so, eventually, the Gates Foundation picked up on this and has promulgated this simple, low-tech solution around the world. Billions of nets have been distributed. They have saved millions of lives. Nobody’s made a penny out of it. It’s a wonderful story. So let’s hear it for the innovators. They do change the world for the better.

James Pethokoukis: You mentioned Edison. I wonder — and I’m guessing it’s not very much — how much time is spent in the typical American school, maybe it’s the same way in Great Britain, talking about how we got from there to here, how we got from most advanced economies to people making $2 a day to getting where we are.

I think, you ask most people, they would say, “Well, it was, I don’t know, maybe or we discovered oil, or maybe we exploited through colonization. We took the wealth of other countries or something.” Sort of that story broadly is not understood, much less the key people played a role. You mentioned Edison or the other great inventors and entrepreneurs throughout history.

Matt Ridley: I feel this is terribly important. I think we teach far too little about the history of technology, about the history of invention. We used to. We don’t anymore. And I mean, that’s part of the motivation for writing this book, one of the things I wanted to do was just write down a lot of stories, you know, the story of the Wright Brothers, the story of Thomas Edison’s.

James Pethokoukis: Great ones. A lot of great ones.

Matt Ridley: Stories of vaccination. Stories of failure, as well as stories of success, but, you know, stories about people tinkering with machines and coming up with better machines. And I think they’re much more interesting than stories about people winning battles or stories about people falling in love. Yeah. Those are fun too. I like reading those kind of books as well, but, you know, how many books are there about that kind of stuff compared with the stuff that really changed the world, which is invention and technology?

James Pethokoukis: You were talking — yeah, sometimes you’ll talk to, you know, 12- year-olds, 13-year-olds, 14-year-olds. Can you think of a story that — you know, maybe they’ve heard of medicine. Is there a story, “Boy, you should know this story, I bet you haven’t heard it”?

Matt Ridley: Yeah. I tell the story in the book of a rather remarkable woman called Lady Mary Pierrepont, who was a sort of — she was a rich literary person in early 1700s, London, but she went off to Constantinople as the wife of the ambassador there.

And while she was there, she got to know women, who in the Ottoman Empire, in hirings, and she discovered that they were deliberately giving their kids very small doses of smallpox from people who had recovered from the disease. And she had very, very nearly died of smallpox herself, and she was terrified that her children would die of smallpox. So she brought these habits called engrafting back to Britain and tried to persuade people that this

was a good thing to do. She engrafted her own children, inoculated them. Vaccinated, we’d call it today. And she was almost killed by the mob. She was savaged by the medical establishment, “This irresponsible dangerous experiment. How dare an ignorant woman bring this idea back?” Etc.

Something similar happened in North America around the same time. Zabdiel Boylston got the notion of vaccination from Carlton Mader, and he set out to vaccinate 300 people in Boston. And the mob went after him, and he had to hide for 14 days in a closet, otherwise he would have been killed. But, in fact, he was saving lives on a grand scale. So I think that’s a good story to tell people, to remind them that innovation is often unpopular but is often very, very important.

James Pethokoukis: This is now the policy advice portion of our conversation, where I ask you since every — boy, forget about world leaders later, you know, states and cities, they all want more innovation. They all want their cities to be innovation hubs. What policy advice would you give to international leaders about being more innovative? Is the deregulation, is it spending, you know, a trillion new dollars on R&D? Any policy advice.

Matt Ridley: Well, I’ve actually argued that one of the things we should be doing is buying out patents because patents tend to get in the way of innovation rather than helping it. And you see when they expire, the 3D printing patents expired recently. There was a fervent ferment of new innovation as a result. So buying out patents prematurely, I’d love to see patents reformed, so they’re less easy to get and they do less harm.

But I also think that governments should try prizes more. Governments can dangle a prize in front of a problem and lure people into trying to tackle it. And that way you’re not specifying which team you’re backing, you’ll only afterwards decide who shall win the prize by reaching the goal that you’ve set. And the price doesn’t have to be a lump sum; it can be a future contract.

So the Gates Foundation, again, has done this quite well in recent years when it offered a huge reward for the first companies that could produce a vaccine against pneumococcus, which is getting a lot of children in the developing world. But it wasn’t a lump sum. It was essentially a contract to produce the virus at a certain price so that they could be rewarded for doing so. So I think that’s an imaginative way of doing things.

And if I was government, instead of giving grants and subsidies to people to do specific things, having sat through committees, deciding what they should be giving grants for, I think I would set up a prize. Like the UK has actually set one up for antimicrobial resistance. Anyone who can find a good solution to this will get a large reward at the end.

So that’s something that we could try, which is much less specific in trying to pick a technology. It’s more agnostic about how people are going to reach these rewards.

James Pethokoukis: And finally, I wonder if you could do something that Hollywood has failed to do. I wonder if you could tell me about an optimistic future, 20, 30 years from now, which when people hear about it, they’ll think, “Well, that’s a future I would like to live in. I hope I make it. I would love my children to grow up in that future.” What could that future look like if we continue to push forward the technological frontier?

Matt Ridley: Well, in 30 years’ time, I’ll be 92 years old, and I fully expect to be living quite comfortably in probably an old person’s home, but with much better technology to help me do that than is available today and much better medicine. And I hope to be on a senolytic drug, which will have slowed down, not just the symptoms of my aging, but the cause of my aging so that I won’t be deteriorating fast, although I will expect to die before I’m 100. I’m not expecting life extension to go much beyond that.

But at the same time, I’m a keen naturalist and I will fully expect — in fact, I’m confident that by then we will have larger national parks, less of the planet devoted to growing food. Agriculture’s footprint will have shrunk. It’s shrinking at the moment. We’ll have more forests, we’ll have more wildlife, we’ll have saved, not only many of the species that are going extinct, but brought them back to abundance.

In my own life, I’ve seen humpback whales go from 5,000 in the 1960s to 80,000 alive today all because of technological improvement in things like agriculture, but also in conservation. Because the other thing I want to see when I’m 92 years old is that we’ve used editing to bring back some of the extinct species that have gone extinct. And I’d like to see flocks of passenger pigeons flying around in North America. Again, we could do that with gene editing, I think, by then. So ask me back, please, James in 2050, and see if I’m right.

James Pethokoukis: Matt, thanks for having a conversation. Again, the new book, which I’m going to put put right in front of my face here, Matt Ridley, “How Innovation Works and Why It Flourishes in Freedom.” Thanks a lot.

Matt Ridley: Thanks.