“How Innovation Works: And Why It Flourishes in Freedom” is an insightful book in which Matt Ridley explores the world of innovation, arguing that it’s a process that can be encouraged or stifled based on societal and political factors. He argues that innovation flourishes in environments that promote freedom, transparency, and competition. Ridley uses numerous historical and contemporary examples to illustrate how innovation has shaped human society and will continue to do so. Although it’s not solely about creativity, it provides an in-depth exploration of the conditions and processes that give rise to creative breakthroughs and innovations.
Part 1: Understanding Innovation
Ridley starts the book by defining what innovation is. He argues that innovation is not just a single eureka moment but an incremental and collective process that involves lots of trial and error, and often serendipity. It is, in essence, a gradual and iterative process of improving existing concepts, ideas, or technologies. Ridley highlights that innovation is not necessarily about inventing something new but making things better and more efficient.
One of the key themes Ridley introduces is the idea that innovation is a phenomenon of recombination. He postulates that innovation happens when ideas meet, mate, and recombine to form new ideas. The birth of the steam engine, the evolution of the internet, and the creation of the GPS are all the results of this process of recombination.
A significant section of the beginning of the book is dedicated to the history of innovation. Ridley outlines a number of historical inventions — from steam power to vaccination — discussing the conditions that allowed these breakthroughs to happen. He notes the common pattern in these stories: an open and free exchange of ideas, a tolerance for failure, and an environment that encourages experimentation.
In this section, Ridley introduces the idea that “innovation is the child of freedom and the parent of prosperity.” This quote encapsulates Ridley’s belief that environments promoting freedom and openness — economic, political, and intellectual — are the ones where innovation is most likely to thrive. Conversely, innovation leads to increased prosperity by creating more efficient methods of production and new industries.
Ridley references a study that found only about 10% of innovations are patented, meaning a vast majority of new ideas and improvements are informally implemented and aren’t officially recognized or protected. This helps support his assertion that innovation is often a quiet, collective process that happens beyond the spotlight.
“Innovation is not a flash of inspiration but the result of often uneventful, incremental and collective hard work.” Part 2: The Mechanisms of Innovation
The second part of the book delves into the mechanisms of how innovation works. Ridley argues that there are two primary catalysts for innovation: the necessity and the market demand. The saying “necessity is the mother of invention” is well-known, but Ridley adds that market demand often drives necessity. Innovators need to find ways to make their products cheaper, better, and more accessible to capture or expand their market share.
Ridley uses examples such as the invention of the shipping container and the evolution of the online retail giant, Amazon, to demonstrate how market demand can spur innovation. These examples also highlight Ridley’s assertion that innovation is a bottom-up process rather than a top-down one. He emphasizes that innovation often comes from entrepreneurs who understand the market and its needs, not from government-led initiatives.
Ridley also discusses the role of failure in the process of innovation. He maintains that failure is an integral part of innovation, as it provides vital feedback and learning opportunities. The failure of one idea can lead to the success of another, as innovators learn from their mistakes and recombine ideas in different ways.
The second part concludes with Ridley emphasizing the importance of a supportive environment for innovation. He points out that overly restrictive regulations or monopolies can stifle innovation, while competitive markets and freedom of thought can encourage it.
He mentions the historical case of the steam engine, pointing out that its efficiency only improved by 1% per year for several decades after its initial invention. This emphasizes Ridley’s point that impactful innovations often take time to mature and reach their full potential.
“An innovation makes a significant impact when it’s both an invention and a discovery, because it combines a new physical principle with a practical application.” Part 3: The Elements that Influence Innovation
In the third part of “How Innovation Works,” Ridley discusses the factors that influence the process of innovation. He presents an analysis of different aspects like geography, culture, and government policy that can either help or hinder innovation.
Ridley argues that geography can significantly affect innovation. Areas with a high concentration of diverse skills and industries, like cities or certain countries, tend to be hotbeds for innovation. He explains this by citing examples like Silicon Valley in the US for tech innovations, or the cluster of watchmaking companies in Switzerland.
On the cultural front, Ridley suggests that societies that embrace openness, diversity, and tolerance for risk and failure tend to be more innovative. These societies value and promote free thinking, experimentation, and exchange of ideas, essential elements for innovation. Ridley cites the historical example of the Golden Age of Islam or the modern example of Israel’s tech scene to highlight how culture plays a role in fostering innovation.
When it comes to government policy, Ridley has a distinct viewpoint. He argues against the common belief that government funding and intervention are essential for innovation. Ridley believes that innovation thrives in the absence of heavy governmental control. While government can help in setting the stage for innovation by investing in infrastructure, education, and basic research, direct intervention in the innovation process can often stifle creativity and risk-taking.
Ridley highlights research indicating that the most innovative companies are those that are exposed to a diversity of experiences and viewpoints. For instance, firms in multicultural cities are 35% more likely to have high innovation intensity, underscoring his point about the crucial role of diversity in the innovation process.
“Innovation happens in the minds of individuals, yet the myth persists that it is a collective process. Culture, geography, diversity, and even government policy can influence it, but it is individuals who innovate.” Part 4: The Future of Innovation
In the final part of the book, Ridley turns his focus to the future of innovation. He discusses the challenges and opportunities that lie ahead and provides insights on how we can continue to foster an environment that encourages innovation.
Ridley discusses the increasing complexity of the modern world and the difficulties it can pose for innovation. As technologies and systems become more intertwined and complex, it becomes harder to make improvements without causing unexpected consequences. He suggests that this complexity necessitates a more multidisciplinary approach to innovation.
Ridley also touches upon the issue of resistance to innovation. Innovations can disrupt the status quo and encounter resistance from individuals, industries, or societies that have a vested interest in preserving the current state. Ridley argues for the need to manage this resistance effectively to ensure that valuable innovations are not stifled.
On a hopeful note, Ridley discusses the enormous potential for innovation in various sectors like biotechnology, artificial intelligence, and energy. He suggests that these sectors can usher in a new wave of breakthroughs that can solve some of our most pressing challenges, from climate change to disease control.
Ridley concludes the book by re-emphasizing the importance of freedom — economic, political, and intellectual — for fostering innovation. In his view, to make the future of innovation as successful as its past, we need to uphold the principles of freedom, encourage the exchange of ideas, and maintain a culture of experimentation and tolerance for failure.
Ridley cites that the number of new drugs approved per billion dollars spent on R&D has halved every nine years since 1950, a phenomenon known as Eroom’s Law (Moore’s Law spelled backward). This fact demonstrates the challenge that increasing complexity and regulation pose for innovation, even in a field as crucial as pharmaceuticals.
“The world is getting more complicated, which is both good and bad for innovation. We have more tools at our disposal, but it’s harder to make changes without causing unforeseen consequences. Navigating this complexity will be one of the great challenges for future innovators.”
Originally published at https://unearnedwisdom.com on June 27, 2023.
