The Joe Walker Podcast - Inside Humanity's Infinite Improbability Drive - Matt Ridley

Episode Date: August 10, 2020

Matt Ridley is an author, journalist, biologist, and businessman. His books have sold over a million copies.Show notesSelected links •Follow Matt Ridley: Website | Twitter •How Innovation Works, by Matt Ridley •The Origins of Virtue, by Matt Ridley •Zero to One, by Peter Thiel •Born Standing Up, by Steve Martin •The Innovator's Dilemma, by Clayton Christensen •'The Use of Knowledge in Society', essay by Friedrich Hayek •Bad Blood, by John Carreyrou •The Great Stagnation, by Tyler Cowen •The Rise and Fall of American Growth, by Robert GordonTopics discussed •When did Matt first come to understand the disturbing notion of selfish gene theory? 8:55 •How did Matt, a biologist, become so interested in innovation? 16:20 •The infinite improbability drive. 20:30 •What's the difference between innovation and invention? 24:05 •What do most people (wrongly) believe about how innovation works? 25:48 •Why innovation relies on collaboration. 33:53 •Innovation is the child of freedom. But what amount or types of freedom are sufficient to underpin innovation? 40:35 •Why does innovation thrive in fragmented political systems? 46:39 •Does unfettered economic freedom tend irresistibly towards monopolies? 50:37 •Antitrust enforcement: have we been doing enough? 1:02:44 •The relationship between uncertainty and innovation. 1:05:58 •Frauds and visionaries. 1:14:20 •Uncertainty and economics. 1:15:26 •Are we in the midst of a Great Stagnation? 1:26:40 •Can we escape stagnation? 1:40:30See omnystudio.com/listener for privacy information.

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subscription and you get to try Blinkist premium free for seven days. Don't be a dummy. Go to Blinkist.com slash swagman, where you can get 25% off an annual subscription and try Blinkist premium free for seven days. That's blinkers.com slash swagman. You're listening to the Jolly Swagman podcast. Here's your host, Joe Walker. Ladies and gentlemen, boys and girls, swagman and swagettes, welcome back to the show. This episode is an episode about how innovation works. But I want to begin by talking about why innovation matters. History is a bath of blood, wrote William James in his 1906 essay, The Moral Equivalent of War. Modern war is so expensive that we feel trade to be a better avenue to plunder.

But modern man inherits all the innate pugnacity and the love of glory of his ancestors. Showing war's irrationality and horror is of no effect on him. The horrors make the fascination. War is the strong life. It is life in extremis. Civilisation, said Bill Moyers, is but a thin veneer stretched across the passions of the human heart. A by-product of our bloody urges has been the improvement of technology. Since before civil civilization began, our ancestors strove to invent ever more efficient ways of slaughtering their foes.

But equally, technology can obviate our violent instincts. Since so much of human combat boils down to a struggle over vital resources, technology can play the angel of peace by enabling us to escape zero-sum dynamics. In 1798, Thomas Malthus made a grim prediction, possibly the most notorious in the history of science. The power of population, he said, is indefinitely greater than the power in the earth to produce subsistence for man. Malthus prophesied that the human population would grow without limit, but food production would be tethered to the yield of available land. We would eventually run out of food and, to quote Malthus,

premature death must in some shape or other visit the human race. But in 1804, just six years later, European explorer Alexander von Humboldt brought samples of Peruvian guano back home. Its combination of nitrogen and phosphorus worked wonders on European crops, much to the astonishment and delight of their farmers, and soon enough, millions of tons of the stuff were being shipped back from the New World to the Old. Contrary to Malthus' prediction, Europe's population doubled by the end of the century. Just as it looked like the guano was running out, another innovation saved the day, when German chemist Fritz Haber concocted a way to unlock nitrogen from the air itself to produce fertilizer. He was awarded the Nobel Prize in 1919, and it's likely

that two billion people on our planet today would not be alive but for the Haber process. When innovation fails to deliver, the results can be devastating. In the space of 100 terrifying days in 1994, about 800,000 Tutsi were massacred at the hands of the Hutu. Social and political factors are easy to identify as the proximate causes of the Rwandan genocide, but it's hard not to notice that in the years leading up to it, economic growth was stagnant and Rwanda was Africa's most overcrowded nation, with shrinking arable land per capita. At the end of stagnation lies not stasis, but violence. Every moment in business happens only once, wrote entrepreneur and venture capitalist Peter Thiel. And if Thiel is right, then just like Haber found a way to fertilize

wheat and barley, can we find ways to fertilise those most mysterious of crops, the ones that will produce the valuable companies of the future? In this episode, I'm going inside humanity's infinite improbability drive, as he terms it, with Matt Ridley. Matt is a biologist, journalist, businessman and author. He was once a science editor for The Economist. He was once the science editor for The Economist. He was once

the chair of Northern Rock. He has a seat in the House of Lords and his books, including The Red Queen and The Rational Optimist, have sold over a million copies. His latest book is titled How Innovation Works and is the basis for this conversation. So without much further ado, please enjoy this chat with Matt Ridley. Matt Ridley, thank you so much for joining me. Thank you for having me on your show. Matt, the first book of yours that I read was The Origins of Virtue, first published in 1996. I read it in 2017 and that book really shook me up because it was my first introduction

to selfish gene theory. It was only after reading your book that I read the selfish gene and other related literature. And although I no longer think that selfish gene theory represents a complete description of our evolution, Understanding the theory was an important intellectual milestone for me in retrospect. And it was important because it helps you strip back the illusion that surrounds much of life, even social life. And although the reality can be uncomfortable, I think I'd much rather know the truth. In The Selfish Gene, the booker, young Richard Dawkins wrote, quote, We are survival machines, robot vehicles blindly programmed to preserve the selfish molecules known as genes. This is a truth which still fills me with astonishment.

Though I have known it for years, I never seem to get fully used to it, end quote. And in 1994, Randolph Nessie said, quote, The discovery that tendencies to altruism are shaped by benefits to genes is one of the most disturbing in the history of science. When I first grasped it, I slept badly for many nights trying to find some alternative that did not so roughly challenge my sense of good and evil, end quote. Matt, you studied zoology at Oxford, but I imagine you became interested in it before university. Do you remember the moment you first grasped the gene-centered view of evolution?

And do you remember what your emotional reaction to it was? Yes, I do. And there's a very interesting quote, particularly Randy Nessie's. because I arrived at Oxford to study zoology in the fall, the autumn of 1976. And that was exactly when The Self-Esteem was published. And Richard Dawkins was at the zoology department in Oxford. So I think it was in my very first term at Oxford that I read this book. And I've written about my reaction to that book elsewhere in the past because it it hit me like a thunderbolt and in two ways one was simply the

notion that science is an unfinished masterpiece that there are things we don't know as well as things we do know until then school had told me that you know there were all these things we knew about the world and they're called science it hadn't said um look there are mysteries out there that we're still grappling with and Dawkins's book sets out to say look here's an idea about the world that seems to explain a lot and that is very unfinished and that you know that science is not a catalogue of facts it's the search for new mysteries and we're exploring exploring this new mystery so that alone was very exciting to me um the double helix had an even bigger impact in that respect uh around the same time on me um but it was also Dawkins's insistence that we see this world see the world

from the genes point of view because otherwise how do we explain the simple fact that you're nicer to your relatives to your kids particularly than you are to strangers you know i mean you're you know people go to enormous lengths to do incredible kindnesses to their children you think about it that's slightly weird if you think of us just as social beings that do whatever we've been told to do. Why your children? You know, why are you singling them out? You know, why not other people's children or why not old people or whatever it is? You know, why are we so obsessed with being nice to our children? It's quite a weird question when you think about it.

And, of course, the answer is because the people who are nice to their children had more children survive than people who are not nice to their children you know that it's a it's a g it's because the genes um uh got got selected but i want to just also because you mentioned origins of virtue tell you one story about origins of virtue and australia that is quite funny um uh i was good friends at the time i rather lost touch with him now with tim flannery the um climate change guys he later became but in those days he was a uh a writer of books about um extinct kangaroos and um tree kangaroos in papua new guinea and things like that wonderful books and um uh he sent me a i guess it must have been an email in the 1990s just might have been a letter just after the origins of virtue came out and he said um i was reading your book on the metro.

What do you call the metro in Sydney? Anyway. We don't really have one. We call it the train. It's a train. We're reading this book on a train in Sydney. And he was just reading the paragraph where I say, unsolicited acts of kindness to strangers are rare. OK. And then he suddenly he was so engrossed in the book that he realized that he was about to the doors had opened.

It was his stop. He had to get out in a hurry. So he jumped out to train. In doing so, he left the book behind by mistake. And the woman sitting next to him grabbed it jumped out even though this wasn't her stop to return the book to him and if the story gets better because he said to her um uh that's interesting because this book's just told me that unsolicited acts of kindness by strangers don't really happen and you just disproved matt ridley here and she looked at the book and she said um if you like that book tell you what you should read there's this fantastic author whose books i love he's

called tim flannery he said i am tim it was a it was a delightful story tim said i can't tell this story to anyone else because it sounds completely egotistical but um i love that it's a good good tale but i stand by my point which is that most of the favors done to me in life are done by people with a good self-interest in doing the favor. You know, the person who sells me food in the supermarket is doing me a favor, but they're also doing themselves a favor. We don't think of it that way. We think that the only time you should do a favor to someone is when it hurts you to do it, when you've got to go out of your way to help them. And that's clearly not true. You know, there's all, most of the good things that happen

to you happen because it benefits someone else to do those good things to you. So how did a biologist, someone who's interested in the natural world become so fascinated by innovation which is quintessentially artificial yes well the my trajectory has been to go from biology to journalism to writing about science and technology generally to getting more and more interested in technology rather than science in recent years um but i would argue and i made this case in my last book not this current book but the book that came out five years ago which is called the evolution of everything i would argue that there is a direct continuum between evolution and innovation they are both basically doing the same thing and seen from mars a skyscraper and um a um jellyfish are sort of the same thing they are reverse local reversals

of entropy using a using energy they are the creation of improbable order and they are the the doing of this by to make useful structures um out of the atoms and molecules of the world and indeed if you think of a termite's nest and a skyscraper the analogy is of course obvious you know they're making a structure and we're making a structure or a bird's nest or something like that but in a sense it's no different with a body you know the body of a jellyfish is built by the genes of the jellyfish as a way of capturing energy to create order improbable order in the world the body of a skyscraper or a car is the same thing we're creating the order of living in the skyscraper or the order of moving in a car with the use of energy so i think the development of technological innovation is a a sort of direct next step in evolution and in fact when you look

at how innovations come into the world and this is the point i make in the new book particularly they do so through a process of trial and error much more than we tend to think they're not caused by brilliant people having bright ideas in ivory towers they are a process of natural selection trial and error ideas are put out there some survive some don't google glass was a good idea it didn't survive because nobody wanted it the iphone was a good idea that did survive because people did want it there's a process of natural selection going on in how we evolve our our technologies too so the the example i like to give is if you go on an airplane you rather hope that has been intelligently designed to use the anti-evolution expression by an

intelligent designer but hang on a minute that guy didn't start from scratch. He started from a previous airplane design and made some adjustments. And then that one started from a previous one, so on all the way back to Orville and Wilbur Wright. And what happened along the way was that the bad ideas didn't survive. They either crashed or they were uneconomic and the good ideas survived. So in a sense, survival of the fittest has indeed shaped the aeroplane. To take a specific example, 1930s aeroplanes had square windows with corners they discovered through crashes that corners on airplane fuselages windows led to metal fatigue which led to windows blowing out and airplanes crashing so now we all fly in airplanes with windows that don't have corners on them you know they have that slightly

round rounded shape um that's uh a discovery of binaural selection, if you like. Why I was so excited or one of the reasons I was excited to have you on the podcast is I have like a passion for innovation and technology. And the podcast became semi-famous in Australia for being very skeptical of Australia's obsession with housing. And whether or not you brand the Australian housing market a bubble is less interesting to me than the fact that pouring ever-increasing amounts of credit into unproductive assets is sort of the very definition of doing less with more. Whereas in contrast- I agree with that. Yeah, and I guess in contradistinction to that, the definition of technology is about doing more with less.

But in the book, How Innovation Works, you have a nice definition of the process of innovation as being humanity's infinite improbability drive. Can you explain that phrase? Yeah. The phrase, the infinite improbability drive, comes from Douglas Adams' Hitchhiker's Guide to the Galaxy. It's the engine of a particular spaceship called Heart of Gold, which is driven by Zaphod Beeblebrox. And I think Douglas Adams is making the point that improbability is what we're in the business of creating. You don't put together the structure of an iPhone by accident. You know, it comes, it's an improbable structure it couldn't couldn't arise

naturally and so that's what we're in the business of doing with innovation is we're making improbable structures we're making we're rearranging the atoms of the world in different ways to make improbable new structures that are also useful you know they can't just be improbable new structures that are also useful. You know, they can't just be improbable. It is improbable that brick would stand upon brick, you know, to make the wall of a house. That has to be created by someone. But it's even more improbable that a million transistors would enable you to have a video phone call with someone 10,000 miles away. These are incredibly improbable things that have come about. So I do think that it's really

important to see innovation as this thermodynamic process, that you are essentially moving away from thermodynamic equilibrium. You're making something that is not natural and needs energy putting into it to become unnatural and that's why i start the book with energy innovations because i think tapping the energy from heat to do work which was achieved by thomas newcomen in 1712 for the first proper time there are a few precursors you can talk about but basically that's the first really useful steam engine using heat to do work gave us access to a ton of new sources of energy basically fossil fuels for the last 300 years, but also nuclear. And that has fed into making us, giving us a constant wave of innovation over the last 300 years that has happened much more rapidly that we call the Industrial Revolution and its successors. And that looks

like it's unstoppable, at least for the moment. What's the difference between innovation and invention? The way I make a distinction between those two words is that invention is coming up with a new prototype of something, whereas innovation is making it affordable, reliable and available to people um but i like to tell the story of uh charles which charles towns the inventor of the laser tells of a beaver and a rabbit looking at the hoover dam and the beaver says no i didn't build it but it is based on an idea of mine and i think that sort of jokerly captures the distinction between the inventor and the innovator. The innovator has to actually build something that people can use. So someone like Jeff Bezos, who has built Amazon, who has created a huge amount of online retail that we all use, is an innovator. But I don't think he would claim to be an inventor. He didn't invent online retail and he probably didn't invent any of the particular devices like, you know, double click instant ordering or whatever it is that Amazon came up with.

So I'm trying to get away from the focus on the inventor and give us more insight into the mind of the innovator and the work of the innovator. Because a lot of it's much more like drudgery um it's much more perspiration than inspiration to use thomas edison's famous um expression that invention is 99 perspiration and one percent inspiration and i think we mostly tell the stories of of invention much more as being about invention than about innovation. So I want to understand how innovation works. But before we talk about that, can you tell me what the common story of innovation is? What do most people believe about the process of innovation? I think most people believe that you design a better mousetrap

in isolation because you're a very clever, unusually clever person, and the world then beats a path to your door and it's all easy. And there are two things wrong with that story. One, you don't have to be clever. I'm trying to get away from the idea that these guys are such heroes that they're gods and that none of us can aspire to be one of them I actually think that if you if you look at what most of the great innovators did they just worked darned hard and they did endless experiments and they didn't give up when something went wrong and they tried again and again there's a lovely phrase that was used about the Wrightight brothers by the man who

took the first photograph of them taking off in roanoke um no not roanoke kitty hawk um north carolina and he said those were the two workingest boys i ever knew they just never stopped working they put in enormously long hours in designing and redesigning their airplanes, in testing them, in consulting other people who had built gliders, etc., etc. So that's the first point that innovators don't have to be heroes. That's wrong with the standard story of innovation. And the second is that it's easy once you've invented the the first prototype everything else follows that's not the case again and again what i came across in the stories was that you had to put an enormous amount of work to turn the idea into something that was actually practical so thomas edison again lots of people invented the light bulb 21 different people have

a good claim to have invented it independently edison is only one of those and he may not even be one of them You know, you could argue that he was just getting the idea from other people But he then put in the legwork To turn it into something that actually worked and particularly the lasted a long time The only light bulbs you switch them on they gave you a bright light for 10 minutes and then they went poof with a huge cloud of smoke and set fire to the room or whatever um whereas edison after a huge number of experiments eventually had a light bulb that could last for weeks if not months if not years um and he did so by going and trying different materials to make the filament of the light bulb

out of his nearest rival joseph swan in northeast england where i live probably had better designs for light bulbs but he didn't do that long hard slog of trying 6 000 different types of plant material before settling on japanese bamboo because the filament made from japanese bamboo lasted a longer time than other filaments so those are the two things wrong with the standard view of of innovation i'm persuaded by your account of innovation that it doesn't happen by some great man who has a eureka moment. But at the same time, I wonder if we want our entrepreneurs or entrepreneurs to be, to believe the other story. And it strikes me that one of the key messages in Peter Thiel's famous treatise, Zero to One, is you are not a lottery ticket.

And he advocates definite optimists who don't iterate according to some lean startup process, but actually envision a better future and then set about the difficult task of creating it from scratch. On the other hand, the Straussian reading of zero to one is perhaps maybe you shouldn't be an entrepreneur because it's really hard. But I wonder whether we want people considering creating something or innovating to believe in the great man's story, even if your account is descriptively true? Well, I think we're never going to get quite away, we're never going to get away from telling stories about heroes, because it's something we just do as people. And it presumably goes back

to something deep in the Stone Age, when the leader of your band, who was better at finding woolly rhinoceroses, or better at defeating the enemy in battle was a bit of a hero and you put him on a bit of a pedestal so we're always going to do that as human beings and i recognize that in this book i sit down and write books about people write stories about people in this book you know each chapter has a whole bunch of stories of innovations that happen and i single out the person whether it's marconi or samuel morse with the radio and the telegraph or the wright brothers or whatever i'm telling the story of people lady mary montague the person who brought vaccination to europe you know i think a really interesting person

but i'm also as i tell those stories i'm saying yeah but note that they built on the work of others or they needed the work of other people to develop their work into something else. And they didn't work alone. And they were part of a network. And to some extent, there's an inevitability about them. That is to say, if Larry Page had never met Sergey Brin, would we have no search engines in our computers would we still be wish standing around saying i wish someone would invent the search engine of course not um that that we now know in retrospect that around 1990 it was inevitable that search engines would get invented and that the person who invented the best one would make a ton of

money and become incredibly famous and be put on a pedestal and called a god and that if it hadn't been larry page and joseph gabriel it'd be someone else um so i really think that that there's something peculiar about the west coast of america which has developed a an incredible industry that has thrown up enormously important new products and processes. And that would have happened with a different cast of characters if Bill Gates and Sergey Brin and Larry Page and Jeff Bezos and Steve Jobs and others had all fallen under a bus when they were five years old. Do you see what I mean? There'd be other people with those names. And if that's true, if they're replaceable, each of those people, then how come they're billionaires? You know, it's sort of weird, isn't it?

This flat, democratic, novel industry sure does throw up a lot of billionaires. that this this old-fashioned sort of deep tribal hero worship habit misleads us i think now your point was in misleading us does it also inspire us do kids grow up and say i want to be ste Steve Jobs? Clearly, yes, that is true. But I think we also, what I'm more worried about is that people keep saying, ah, how do we teach our kids creativity? We didn't teach them creativity. Creativity is this special gift from the gods that some people have and others don't. I think that misleads them and puts people off being entrepreneurs

by making it seem too godlike and therefore out of reach of the ordinary person. Recently, I read Steve Martin's autobiography, Born Standing Up, which is just a charming little book. And there were two lessons that emerged out of the book. He doesn't mention them explicitly in the book, but they kind of run throughout. One is the idea, which you can summarize as be so good they can't ignore you. And he never mentions that idea in those words in the book, but he actually speaks about it in an interview with Charlie Rose when he was promoting the book after it was published. And the second idea, I think, is the importance of belonging to a scene. And it was amazing to read about the people that he was interacting with

in Los Angeles and California more broadly when he was designing his act back in the 70s and the 80s and the creativity that bubbled up from those collaborations and those like serendipitous encounters there are so many stories of you know I think he um he eventually loses one of his girlfriends to Mason Williams um the guy who popularized the classical guitar with the song classical gas and stayed friends with the girlfriend and then became friends with Mason Williams. And there's just all these little interesting encounters in the book. But it very much strikes me that that sort of process of collaboration is also essential to innovation. And obviously, you're very famous for the phrase and the idea of ideas having sex. But just talk a little bit about how collaboration sits and the idea of ideas having sex.

But just talk a little bit about how collaboration sits at the heart of innovation and why we can't innovate unless we can interact and team up with each other. Well, empirically, it's the case that innovation has happened in places where people meet and strangers can meet each other and so on trading places often you know the city states of of italy and so on um it's also been the case that you know immigrants bring new ideas to places etc so you can sort of see this pattern on a broad scale and also cities cities over produce innovations compared to rural areas and again that's because people are meeting and and their ideas are meeting and producing baby ideas and my favorite example of this is the pill camera which takes a picture of your insides if you swallow it and that was an

idea that came about after a conversation over a garden fence between a gastroenterologist and a guided missile designer that's a lovely example of serendipitous conversation but it's surprising how often this happens there's a website called inocentive where firms or organizations can post problems and say we've we've run up against a brick wall here we can't work out how to solve this problem anybody got any ideas if you have and it works we'll reward you and a study of the the problems that have been solved on this website concluded that most of the solutions came from people outside the field, which is interesting and curious and goes right back to, you know, the longitude prize in the 1700s was solved by a clockmaker. We were the British government. The admiralty was expecting the problem of how to

measure longitude to be solved by one of their brilliant astronomers um so they were very reluctant to give this money to a chap from yorkshire who said all you need is a very reliable clock that doesn't lose time on board ship and then you know what time it is in london and from that you can work out how far west you are by measuring how high the sun is where you are at midday, you know, etc. Not how high, but when midday is where you are. So, you know, that that was the first example of serendipitously solving the problem from an unexpected and in this case rather sort of unexciting direction. um teflon kevlar and the post-it note are all examples of things discovered by people looking for something else so that's another case of serendipity um but the collaboration thing is really important who invented the computer right there's not even a name out there that you can throw at me for that and walter isaacson read

a wonderful passage about this in his book the innovators in which he tries to track down who invented the computer and i have another go at the same question and there is no answer because uh you know alan tiering came up with the idea idea of, you know, the concept of a universal computer, but based on the work of other people. But then calculators were already evolving within IBM at the same time. We're talking about 1930s here. And Claude Shannon was the guy who said, hang on, you mean, you know, logic can be actually incorporated into the switches of a device and meanwhile people were actually starting to build things and a very bright guy in germany built something in 1939 unfortunately which you know meant that he wasn't really able to share his ideas with other people um somebody in iowa did something really smart around the same time

and got very cross because other people stole some of his ideas there was a very good device built at harvard but it didn't really have the idea of stored programs in it there was a no sorry it didn't have electronic switches whereas there was a very good electronic device built in philadelphia which didn't have stored programs and by the end of the second world war everybody's beginning to realize and von Neumann is the person who really puts it together and says look if we combine the ENIAC with the Mark I and with some of Turing's ideas from the UK we've got these first computers so people often say well without World War II that wouldn't have happened but actually I think that's wrong I think it would have, well, without World War II, that wouldn't have happened. But actually, I think that's wrong. I think it would have happened much faster without World War II because the bright ideas really start in 1937. And if these guys had had more chance to

talk to each other than they had during wartime secrecy, I think it would have developed much faster. So you have to see it as a collective solution to a problem, as a collaborative event. It doesn't make sense to try and tell a single hero story about the invention of the computer. So collaboration relies on the freedom to collaborate, but also freedom of expression, because unless we're free to express our thoughts and ideas the gastroenterologist and the missile engineer can't hear each other's ideas in the first instance and one of the core quotes in your book is that freedom is the parent of innovation but there are many societies which aren't obviously free yet are still innovative,

two examples being Singapore and China, not known for being liberal democracies yet still very innovative societies. So, what amount or what types of freedom are sufficient in order to generate innovation? Right. Well, this is a really good question. And particularly with respect to China, I have an answer which is either, you know, glib and unpersuasive or brilliant, depending on your viewpoint. And that is that China has had spectacular economic freedom while having zero political freedom over the last generation or so um since the compromise under dang xiaoping i mean obviously under mao you had neither economic nor uh political freedom but under

dang xiaoping basically the entrepreneur was free to invent something to build something to sell something to market something and the consumer was free to buy something and they were much freer than people in the west because there was almost none of the detailed structure of regulation on a local level that makes life difficult for entrepreneurs in the West. That is to say, there is nobody saying you need planning permission, you need a wildlife survey before you build your factory, you need to consult Greenpeace and Friends of the Earth as to whether or not what you're going to do is safe, you know, etc., etc. All the sort of stuff that slows down the decision to go ahead and do trial and error as an innovator in the West was lacking in China, actually. So below a certain level, if you're not bothering the Communist Party, and as long as your innovation isn't a new political party, which goes, forget it, you were actually surprisingly free in China. Now, I'm using the past tense there because I think Xi has changed that. I think the last five

years in particular have seen a regime that is now trying to be economically unfree as well as politically unfree. And therefore, China's extraordinary innovation engine, and it is an innovation engine, they're not just catching up with the west they're ahead of the west in all sorts of ways in the use of consumer electronics in nuclear power in biotechnology lots of these things they are forging a new path into the the unknown but i think that's going to come to a shuddering halt because uh essentially the the xi regime is trying to impose detailed uh planning on pretty well everything right down to the local level in a way that his predecessors didn't and there's a very nice parallel here for what happened when the Song dynasty was succeeded by the Ming dynasty with a Mongol interruption of a century so but I'll leave that on one side for the moment

because the Song dynasty was very devolved it was all about letting local businessmen take their own decisions it essentially made businessmen into the regulators of their local economies um gave them no central power but gave them a lot of local power whereas the ming dynasty was the other way around it had mandarins in the capital basically deciding what a merchant could buy or sell where he could travel to on a literally week by week basis and that killed the goose that laid the golden eggs the song dynasty was the dynasty that came up with gunpowder the printing press the compass paper money all these things that were in that were an extraordinary wave of an industrial revolution, if you like, about a thousand years ago. And all that came to a shuddering halt under the

Ming emperors. So I think Ji is Ming and his predecessors were Song. That's a fascinating way to think about it. That's all said from a point of ignorance about China mind you I've only been there a couple of times I don't speak Chinese I read what I can so it's very much an outsider's view

and there may be people on the ground who can put me right on that in some way counterfactually do you think China would have been more innovative if it had the political freedom as well as the economic freedom um yes i do think so although there's part of me that says that if it had become a democracy in 1978 or whenever it was was that uh mao died in 1976 and when the gang of Four was kicked out,

if it had become a full democracy then, by now it would have all the petty rules and regulations that mean that in the West, if you want to invent a new diagnostic device to diagnose the presence of a virus in someone, for example, you have to go through so many hoops to get a license from a medical regulator that it can take up to six years. And as a result, you don't bother. You go and invent a video game instead.

Let's dig into the political side of things a little bit further. So I live in Australia, which is a federation, and you think that innovation works best in places with fragmented political systems. Why is that the case? Well, for roughly the same reason that, well, no, for a very particular reason, which is that innovators shop around to find regimes that are more congenial and that's been the beauty of the united states is that you know california really did have quite significantly different rules from other states which favored entrepreneurship uh for a while it's not particularly like that now in fact now it's kind of gone into reverse. And Elon Musk the other day said, if California goes on being as unreasonable as it is, I'm moving to Texas. And he's not the only one. There's been far more tech entrepreneurs gone from California to Texas than the other way around in recent years. years now in europe at the height of its uh most innovative period sort of 1500 to sort of 1900 say

it was fragmented europe is a very difficult continent to unify um a lot of people have tried to be emperor of europe from augustus to hitler um via you know charles v napoleon etc and um they never manage it for very long because you've got all these peninsulas sticking out you've got a tar some offshore island that tends to back your enemies that's been britain's role as it were to you know to fund the opponents of hitler and napoleon and so on and and to to join them um and you've got all these mountain ranges that cut off some of the peninsulas you know the alps and the pyrenees etc so it's actually very hard and all rivers flow outwards they don't flow through the middle

except for the rhine uh in a way they do in china and so it's actually very hard to turn europe into a country they're having a crack at it now in the european union but we'll see how how long that lasts um but uh as a result you had again and again in the 1500s and onwards you had innovators saying i don't like the regime i'm living under so i'm moving gutenberg the developer of printing uh he moved from mainz to strasbourg or was it the other way around anyway that was the route he took um uh so again and you find these guys shopping around for a congenial regime you know a lot of them move from france to britain in the early industrial revolution um people move from italy to to france etc you know so there's and and then if you look

down on an even more micro level renaissance italy the richest part of the world at the time the most connected by trade the most innovative developing things like the decimal system and zero i write about that in the book um uh what's italy's secret it's not part of the french empire or the hope it's part of it is in the holy roman empire but a lot of it consists of independent city states and the great thing about a city state is that the merchants are running the show um and their interests are paramount and not the interests of some tiresome chap who likes dressing up in funny outfits and starting wars or dressing up in funny outfits and conducting services in churches. You know, the Pope was not exactly an innovator either. So there's Western history in 10 minutes. And to the extent that Australia can keep its federal system and keep Victoria competing with New South Wales for different rules to benefit innovators, it will help it.

So let's comeettered economic freedom tends irresistibly towards monopolies and here we can just use monopoly as a catch-all for monopolies duopolies and oligopolies then the slogan freedom is the parent of innovation, while very inspiring, might actually be a Trojan horse, which in the long run ends up undermining innovation. And we can debate whether unfettered economic freedom does tend irresistibly towards monopoly. But let me just talk about a couple of ways, firstly, in which monopolies undermine innovation. The first, which you do touch on in the book, has to do with the fact that big companies are bad at innovation. And Clayton Christensen wrote a very famous book called

The Innovator's Dilemma, which talks about why big companies are systematically bad at innovation. But his conclusion is that the disruptive innovations tend to be produced by outsiders and entrepreneurs in startups rather than the incumbents. And this is kind of not the same as but related to some of Hayek's ideas. And Matt, a couple of weeks ago, I reread Hayek's essay, The Use of Knowledge in Society. So good. You just savor it like a wine.

Yeah, you're quite right. We should all reread it every five years. Yeah, and every time you read it, you get something else from it. But there's a nice passage which I'll quote in the essay, quote, planning in the specific sense in which the term is used in contemporary controversy necessarily means central planning, direction of the whole economic system according to one unified plan. Competition, on the other hand, means decentralized planning by many separate persons.

The halfway house between the two, about which many people talk, but which few like when they see it, is the delegation of planning to organized industries, or in other words, monopoly. Which of these systems is likely to be more efficient depends mainly on the question under which of them we can expect that fully use will be made of the existing knowledge. And this in turn depends on whether we are more likely to succeed in putting at the disposal of a single central authority all the knowledge which ought to be used but which is initially dispersed among many different individuals or in conveying to the individual such additional knowledge as they need in order to enable them to fit their plans

with those of others end quote the the other way i guess monopoly undermines innovation is to do with lewis brandeis' idea that we can either have democracy in this country, speaking about America in the early 20th century, or we can have wealth, great wealth concentrated in the hands of a few, but we can't have both. And the logic here is that monopoly and big companies almost by definition have great wealth and they're therefore able to influence the political process and lobby in order to entrench their incumbency. And one interesting way they do that is actually by arguing in favour of regulation because regulation represents

a fixed ongoing cost which the incumbents can afford, but which is very burdensome to the new entrants. And I think in this way, we can almost think about regulation as like chemotherapy, in the sense that chemotherapy is like a poison, which kills the cancerous cells, is also horrible to the healthy cells. Regulation is very like chemotherapy in that sense from the perspective of incumbents in that it represents a huge burden on the new entrance, but it's something that they can afford to live with, which in the long run is actually in their interests. That metaphor comes from my friend Jonathan Tepper, who wrote a great book called the myth of capitalism so i can't say it's it's original um but to bring that to a head to the extent that market freedom tends toward monopoly then freedom per se isn't the parent of innovation do free markets lead irresistibly to monopoly

here's why i'm not wholly well i i agree with everything you've said but i'm not wholly convinced that that it's a problem caused by freedom uh uh and i think you put it beautifully but let's just go back to this point about regulation helping incumbents uh or incumbents lobbying for regulation because they know that on the whole they they raise barriers to entry this is absolutely true and beautiful example in recent years the gdpr that the european union brought in the general data protection regulation which was essentially a very bureaucratic thing that every online business has to go through to make sure that it doesn't keep your details

without your permission. And that's why you have to, you know, accept cookies every time you go on a website in the EU these days. That has clearly benefited the incumbents. The rate, the percentage of advertising revenue going to the big boys like Google and Apple and so on has increased directly as a result. GDPR, we can see that as clearly as anything. So there is no doubt that this happens, that crony capitalism is a real problem that big companies demand regulation of the kind that actually acts as a barrier to entry and in particular is a disincentive to innovation if we could solve that problem then i don't think freedom would lead to monopoly for the reason that clay christiansen gave which is that big companies by definition become bad at innovation and don't see the technology coming that's going to blow them out the water um uh so

kodak is a beautiful example of this a company that was extremely comfortable in a duopoly in film kodak and fuji pretty well dominated the world market in photographic film i think very close to it anyway they had a mega monopoly and they were um i suppose innovative in terms of new types of film but uh they didn't see digital photography coming or rather in kodak's case they did see it, but they couldn't be bothered to disrupt their own business. They didn't want to cannibalize their own company. They actually invented a form of digital photography before anyone else, but they rejected it as it's never going to be good enough. And anyway, how would we survive? Because we sell film, you know, so they so they and you know within a few short years bang

kodak is gone you know i don't know anybody who uses film in a camera now and the we got a fantastic innovation in digital photography which we all use to an extraordinary level so kodak's monopoly power didn't prevent that happening and you can tell a similar story about nokia um which was an incredibly innovative company that became the dominant mobile phone company in the world but it forgot to prepare for data it thought it was the future was all about voice and it had such a big vested interest in voice that it didn't want to eat its own young, as it were. And so it wasn't ready to make the switch. And, you know, Nokia ended up being broken up and sold for some derisory sum of money, whereas it had been 80 percent of the value of the mobile phone market at one point or something

like that um so i i you know if do we really think that if you if you could wave a magic wand and prevent rockefeller carnegie bezos and jobs from lobbying government that they would take their monopoly to the point where they would crush all innovation i don't think so i'd take their monopoly they would take their monopolies to the point where they um became complacent and somebody else came along from outside and knocked them off their perch um what's wrong is their power to appeal to the really big really uh annoying monopoly which is the government um you know if anything's a monopoly it's the government it has a monopoly on military force it has a monopoly on coercion it has a monopoly on tax it you know my country it monopolizes

health and education uh pretty well um so that that's the monopoly we need to be worried about and it's the least free of them all it's the one that uses coercion so i don't myself think that freedom is the source of the problem here and i think to worry about the freedom of a startup to grow into a big company as being a problem is a relatively minor problem compared with other ones. Yeah, there is one counter argument to the Clayton Christensen view, which has emerged in recent decades. And that is the phenomenon of the big tech companies actually buying up startup competitors and then just letting those companies die. Yes.

Which is disturbing to me. Yeah, I agree with you. I agree with you there. And I don't like that. But then again again they can be quite bad at it i mean i recount in the book how amazon which is a company i greatly admire by the way uh on the whole you know i think it's done far more good than harm there are things there are things to criticize but you know um amazon went wild in the 1990s buying dot-coms.

They all went fut. They all failed. And it was a disastrous move. It was one of Amazon's big failures. And the point I was making at that point in the book was that Amazon got a lot wrong. You can tell the story of Amazon as a string of terrible failures ending in a triumphant success. And so with luck, they will be making mistakes as they overpay smaller tech companies that uh that then don't go right and meanwhile the entrepreneur who founded the tech company and sold it for far more than he knew it was worth to the big tech company goes off

and starts another one and they have to either buy him out again or let him go this time so i suspect there are ways around this um what what i'm done what you and i are dancing around here is how worried should we be about big tech um and i have to say looking at the power that twitter or facebook have over what is or isn't acceptable speech does worry me greatly and worries me a lot more than it would have done 10 years ago when I was still pretty utopian in my view of the internet and social media. So you may have a point there. Yeah, and I guess on that point, do we need better antitrust enforcement in the United States? Yes, I think that, I mean, on the whole, I'm a fan of the Reagan principle, Reagan era principle, that you shouldn't go antitrust against big companies if they are lowering the price for competitors i mean you know if if if a if a if a company is dominating a market and by drastically cutting

the price of something i think it's called the consumer welfare test. That's the one. Thank you. Then what's the problem? Now, to some extent, I buy the argument that we need to move a little bit away from that because we're seeing other problems coming from monopolies but i'm just i'm just so worried by the the risk that so many people love bringing in regulation and it will have unintended consequences uh that if you do too much trust so-called trust busting and you just end up um uh asphyxiating your entrepreneurial economy, then you'll have done more harm than good. So I worry about the unintended consequences of being too zealous in trust-busting, but I think you're right.

The one form of regulation I like is trying to break up monopolies. Yeah, that's where I think we agree. In terms of the big tech companies, or at least the social media giants, one of the problems with the consumer welfare test is that it says, well, you know, these platforms are free. They add a lot of value to people. What's the big deal? Let them do what they're doing.

But then are they really free? because the cost is you're giving them your data for free that that's that's sort of the cost but that isn't really captured by the consumer welfare test i agree um yeah and we haven't we haven't resolved that in my view and i and it's not something i wrestle with in this book and i'd probably need to to read more of your stuff and other people's stuff before I fully satisfied myself that I had a mature view. Yeah, I'm happy to send you some references,

but I think, I guess my view is kind of summarized by G.K. Chesserton's quip that the problem with capitalism isn't that we have too much of it, but too little of it. And the more competition, the better. Yeah. Spot on. No, I completely agree with that. Yeah. Yeah. And yeah. Matt, I want to talk to you about the connection between innovation and uncertainty. And if we kind of continue with this idea that freedom is the parent of innovation, I perhaps want to rephrase that and say that it's the uncertainty that freedom gives rise to that's the parent of innovation.

And what I mean by that is Frank Knight had this famous insight that profit was the entrepreneur's reward for diving headlong into uncertainty. And our ability to freely express our ideas, to associate, to collaborate, to challenge shibboleths, to explore unconventional, even dangerous ideas, that primordial soup from which innovation arises is also a recipe for uncertainty. And as I mentioned to you before we started recording, I've been speaking with Mervyn King recently. He has a new book out with John Kay called Radical Uncertainty.

But let me just quote a neat passage from their book, which summarizes both Knight and Keynes on the connection between innovation and entrepreneurship on the one hand and uncertainty on the other. So here's King and Kay, quote, for both Knight and Keynes, recognition of the pervasive nature of radical uncertainty was essential to an understanding of how a capitalist economy worked. Knight believed that it was radical uncertainty that created profit opportunities for entrepreneurs and that it was their skill and luck in navigating radical uncertainty which drove technical and economic progress. 15 years before the general theory, Keynes had published a treatise on probability, and an appreciation of his evolving views on risk and uncertainty is necessary in interpreting his later work. But in the general theory, he re-expressed Knight's thinking with characteristic literary flourish.

This is Keynes. If the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but the mathematical expectation, enterprise will fade and die, end quote. What do you think about that idea, the connection between both innovation and uncertainty in one direction, but also in the other direction? I think that's a really important thought and insight, and I hadn't really thought it through much until now, except to say that I, I mean, I think the way I talk about it is failure. That is to say the key ingredient of a lot of entrepreneurs a an entrepreneurial economy would be to make failing

too expensive um to you know if you send every uh everybody to jail just because their business um fails you you're going to send in the wrong incentives to entrepreneurs because an awful lot of the great innovators set out to do things that either did fail first time second time maybe even third time and it was only at the fourth attempt that they that they managed to succeed um or that you know before you started on it might well fail uh you know i mean the wright brothers had no reason to know for sure that it was possible to build a powered airplane you know it might not be possible with the materials of the time and the engines of the time to be able to do it and jolly nearly wasn't possible you know i mean it was they had to make an incredibly lightweight um machine um to get off the ground at all so i i think the we underestimate the degree to which innovators when they set out to do something are extremely uncertain about whether they will succeed

you know marconi saying do you know what i don't think we need a wire i think i can send you a message through the air because i've read this paper by a guy called hertz and he says there are electromagnetic waves in the air and if we could modulate them and then pick up the modulations on that hillside over there I could hear what you're saying I mean bonkers idea it's crazy of course it's gonna fail it's just mad idea uncertainty HUD is almost two week away of talking about it likewise harbor and Bosch I write about you know the fixation of nitrogen to make fertilizer an incredibly important innovation that required enormous industrial expenditure um and they you know bosch picks it up when uh basically harbour has proved that in principle with a catalyst and the right amount of heat and pressure,

you can make methane and nitrogen from the air react to make nitrates or ammonia. But Bosch then realizes that there's just no way you can operate at these pressures and temperatures with known materials um and if you do the thing's bound to blow up so he builds a whole series of experimental devices behind brick walls so that they don't kill people when they blow up and they do blow up a lot and he discovers that hydrogen reacts with steel to make it to fatigue it you know so the metal keeps failing so he has to go to lots of other industries and the whole thing costs an absolute fortune and he's bet the company on it and um borrowed more money than anyone ever before and you know as i

say again uncertainties are sort of mild way of putting it for these guys so i think i think that's that's an important insight and i rather wish i'd used that way that word uncertainty more because just as the whole point of politics is taking decisions under uncertainty you know we had to take decisions about the coronavirus before we knew enough about it. So enterprise is also about taking decisions under uncertainty. You don't know if your device will work and then you don't know if it'll sell. And you can go a little bit too far in this direction and end up with people who are convinced they can build perpetual motion machines and the example i give in the book is of a team at google x that said they could make fuel out of water um well i think they're trying to repeal the second law of thermodynamics and they eventually came to that conclusion after five years and a million dollars you know but fine you know it's worth a try um that's one of the laws you can't repeal

is the second law of thermodynamics so um you know so there are clearly clearly examples of and and theranos is a very interesting example because you can't fault elizabeth holmes for saying why on earth should we put up with this stodgy oligopoly of companies that do blood testing surely we can miniaturize this so you need a smaller amount of blood um uh but she gets carried away with her own rhetoric with it with the whole um uh uh what's the um that Steve Jobs used? Yeah, fake it till you make it, you know, which a lot of people in the software industry could do

and they got away with because Moore's law would deliver. You know, the great thing about Moore's law is that transistors get more reliable as well as cheaper the smaller you make them. You know, that's not true of microfluidics in sampling blood as Elizabeth Holmes found out to her cost. But instead of admitting that she was failing, she then appears to have more and more covered up her tracks

to the point where the thing became, well, put it this way, she's in court later this year. Yeah, reflecting on the Elizabeth Holmes story and John Carreyrou's great book, Bad Blood, I started- Marvelous book. Like, marvelous book, yeah. And I started thinking about this idea that maybe many entrepreneurs are simultaneously visionaries and frauds, and it's like a schrodinger's cat kind of situation and the the entrepreneurs who turn out to be successful are seen in retrospect as visionaries whereas the ones who fail are therefore seen as frauds because there is a lot of um a lot of fake it till you make it a lot of over promise over deliver in silicon valley but i guess the problem

for homes was that she was working on an infamously intractable problem rather than designing some new piece of software. Yeah, yeah, yeah. No, I think there's truth in that. And as I say, Jobs could get away with faking until he made it because that technology kept delivering more reliability and more cost reduction as it moved forward. Just to come back to Frank Knight's very pregnant insight

that without uncertainty there wouldn't be enterprise. And in that sense, it's not so much freedom that gives rise to innovation, but freedom gives rise to uncertainty, which gives rise to innovation. Yep. I'm not sure that adds a whole lot more to your thesis, but it does have interesting implications for the economics profession. And in their book, Radical Uncertainty,

Mervyn King and John Kay make quite a devastating critique of neoclassical economics as it's been practiced over the decades since. Frank Ramsey won the argument against Keynes and introduced subjective probabilities, which were a godsend to economist's models, that we could treat people as if they assigned probabilities to different events but the point that kane king make is that economic laws insofar as we can call anything in the economy a law aren't the same as the physical laws of the universe in the most important sense that they're not stationary, which is to say that the laws of the economy are constantly shifting. And one of the key reasons for that is technological change. not so much like sending you know a voyager probe out into space where scientists know exactly where

and when it's going to land at a certain point in time because the laws of the universe are stationary but it's more like heraclitus's river which is never the same twice and that got me thinking especially when you were talking about m China, which turned its back on the world, lost its interest in tinkering and innovation. Whether economic forecast might have been a good job, a good business back in Ming China because the laws of the economy were more stationary because nothing was really changing. But I guess that presupposes that technology is the only or the most important source of non-stationarity in economic life, but you also have reflexivity and then chaotic but non-technological fads and fashions, which I suppose could also be sources of non-stationarity i was very influenced by david walsh's book uh knowledge and the wealth of nations which is quite quite an old book now but i haven't read it it's basically about what i was trying to explain paul romer um if you like

because what walsh sets up at the beginning is that Adam Smith said two completely different things. One, he said that the invisible hand tends to find an equilibrium result that benefits both parties. And the other, he said that in the pin factory, the division of labor leads to more efficiency. One is essentially saying we move away from equilibrium, and the other is saying we move towards equilibrium. One is talking about diminishing returns, and one is talking about increasing returns. And he says the economics profession then spent 200 years not grappling with this paradox of which of these two is true.

Do we get increasing returns or do we get diminishing returns? They kind of went with diminishing returns. People like David Ricardo and John Stuart Mill, you know, basically think that this industrial revolution lark is bound to run out of steam sooner or later. Keynes eventually comes to a similar conclusion too. And, you know worries that innovation is drying up. Schumpeter doesn't but he and Solow basically end up saying yeah there's the reason we don't get diminishing returns is because of innovation right but where does innovation come

from well it's just manna from heaven it just happens don't know why don't know when don't know where but it just happens so we'll just add it as a fudge factor into our equations and paul romer is saying no we need this to be endogenous we need innovation to be a product of what we do as well as an input to what we do um uh we need to explain why it is that people invest in producing innovation um and i mean paul is a friend and i i think he's a genius and i'm thrilled he got the nobel prize at last but i wish he'd sit down and write a really good book for the layman about what he means um because i think he's only half there. You know, I mean, I think we still don't have a good answer to that question of why the – I mean, essentially we can't – innovation doesn't go neatly into the mathematical models

that economists love. And even with Paulul roma's insights it hasn't quite got in there enough uh and it's and either it needs to or that or we need to wean them off mathematical models i think that's saying something similar to what you're saying and what um uh and what k and king are saying to some extent yeah i think so and i think like roma also has some other ideas which are different to what they're saying but i think equally important to this question of innovation um to do with like concepts and the fact that you can't just go back to 3000 BC and to, to North America and South America and shout at the people there, you know, do what the Aztecs and the Incas did because they just have no context. And so, so these, these like concepts that we accumulate as our civilizational intellectual

capital are also hugely important to this gradual process of innovation. Yeah. Yeah. Now, I'm sure that's true. a phenomenon which i grapple with in the book which is why you can't jump ahead why you have to invent x before you can invent y and the the way i put it is once gordon moore had identified moore's law that every 18 months we were going to halve the cost of computing basically because of the shrinkage of transistors why couldn't we say well why do it why wait 18 months why don't we do it now why don't we um if that means we're in 20 years time we're going to reduce the cost of

computing to x well why don't we just go and do it now why have we got to wait till 20 years to do it and um the answer to that seems to be that you have to you have to develop adjacent possible in the words of stuart kaufman um uh you don't evolution does this too it can't it can't say i'd love to have a wing to fly with um i'll just go and invent a wing you have to invent the intermediate stages that get you a wing um and um it still doesn't feel like it quite makes sense why we couldn't cheat moore's law but and moore's law was expected to last 10 or 20 years that's what moore said well in fact it lasted 50 and i quote in the book the the nice uh jape that somebody i think at ibm or might have been at microsoft said which was that um uh there's a law that the end of moore's law will be predicted

every 18 months by someone so so this this sort of um the way in which you have to march through the phases to get to your end result in innovation, I'm linking this back to your point about concepts. You know, you can't invent the light bulb until you've got reliable electricity. You can't invent electricity until you've understood, you know, various other things. And you can't invent those things until you've got a concept of physics or whatever it might be. And the same on a sort of more social side, which I think is what you're more referring to you know the limited company couldn't have happened without the without previous kinds of companies which couldn't have happened without chartered monopolies which couldn't have happened without um hanseatic merchants developing things which couldn't have happened without medieval guilds which couldn't have happened without medieval guilds, which couldn't have happened without, I don't know, something in Roman era. Yeah.

Innovation is path dependent. Yes. That's all I'm saying, really. Yeah. I think it's a penetrating glimpse of the obvious, but it's a very important idea, especially thinking forward as well, because, and this is sort of what I want to come to. I'm just going to pick you up on that wonderful phrase. I want that, I want you to,

can I quote you on that on my paperback, my book? A penetrating glimpse of the obvious. That phrase is not original to me, unfortunately. Another phrase that I've stolen tonight. Yeah, it's a phrase of Tom Hughes QC, who was Australia's Attorney General at one point. He's the father-in-law of Malcolm Turnbull, former Australian Prime Minister and guest of the podcast.

Great phrase. I'm going to write it down. Penetrating glimpse of the obvious um i mean your pm keating used to come up with some very pithy ones didn't he too i think australia is a great phrase makers generally yeah keating is unsurpassed in that category but speaking of path dependency a lot of people have a very pessimistic view of where we are in terms of innovation right now and think that we're in the midst of a great stagnation somewhere around 1973 productivity growth started to stagnate in the west tyler cowan has a famous chart which plots real GDP per capita, which

continues to increase, versus median male income, which starts to flatline. Robert Gordon has his famous book, The Rise and Fall of American Growth, where he makes the case persuasively as well. Other leading thinkers like Peter Thiel say that while we've seen a lot of innovation in the world of bits, we haven't seen as much in the world of atoms. And the famous slogan for his founder's fund is we were promised flying cars and instead we got 142 characters. that you could take a photo of a classroom back in the 1970s and a photo of a classroom today, put them side by side, subtract the screens from the photo of the classroom today, and the two photos would look virtually indistinguishable. And I guess my question to you, Matt, is do you subscribe to the view that we are in the midst

of a technological stagnation? To some extent, yes. I've moved towards that view. I was never completely convinced by either Gordon or Cowan on that issue, partly because I thought they weren't taking into account the extraordinary improvements in the cost of things in the availability of things so that you know how much further your wage went but also the non-wage payments that people were getting you know the the health benefits the retirement benefits etc etc so to some extent we were taking the dividend of innovation over the last 30 years not in wages certainly not in hourly wages necessarily uh but in um you know uh longer years in retirement and um and also i think there's something awry in the issue of divorce and family size.

So median family income is shown to be static by some of these guys, but actually family size has shrunk. So median per capita income hasn't gone down to the same extent. And then also a lot of women have joined the workforce as well. Yeah. Well, yes, exactly, and that's a big one. But where I do agree with them, and particularly with Peter Thiel, is that I don't think we've done nearly as much innovation

as we could in the last generation, particularly in material things. I come back to this point about a medical device. It's so difficult to get a medical device licensed, a new device licensed, partly because of pressure from incumbents, partly because of worries about safety, but also partly because of just empire building by bureaucrats um that you uh you really have diverted entrepreneurial energy into um bits not atoms to some extent with that sort of thing um and uh we are experiencing an innovation famine in the west. If you look at Europe's inability to generate digital giants to rival Amazon and Google and Facebook, if you look at the turnover of companies in the indices, both in America and in Europe, it's slowed right down.

Look at the age of entrepreneurs, of startup founders. It's gone up, not down. If you look at the degree to which big companies are sort of using the globalized system and the regulatory systems in various places to create barriers to entry, we aren't living in a golden era of innovation. And to some extent, the perpetual innovation in software that has kept us interested for the last 20 years has disguised the fact that we haven't been able to develop new nuclear power designs. We haven't been able to press on with biotechnology as fast

as we would etc etc so some of the stuff that really could make a difference i mean take vaccines these are rather a point at the moment you know it would be nice if vaccine development was a little faster and more um uh efficient uh it's pretty shocking to me and actually was a surprise to me earlier this year how long it takes to develop a vaccine still and i mean i quoted a a um the head of a sort of global vaccine alliance in in new york a year ago before the pandemic saying it's a disgrace that we haven't made more progress in the development of vaccines. They're still very uncertain. They often don't work. They sometimes take 5, 10, 15 years,

sometimes never achieve it at all. I write in the book about two remarkable women who developed the whooping cough vaccine in the 1930s in the United States in the middle of the Depression in their spare time, and they took four years over it over it well that would be pretty good going today um isn't that a bit shocking you know and and to their credit the Gates Foundation and the Wellcome Trust put their heads together about four years ago and said this is an issue you know when the next pandemic comes we're not ready to go with vaccines we ought to have much more work going on in peacetime on potential vaccines so that we know which buttons to press um when a when a pandemic starts and although it'll still take months to test them we'll be much quicker off the mark so they started

this thing called the coalition for epidemic preparedness innovation sepi it only started work in 2017 it hadn't achieved much by 2020 if they'd started that 10 years earlier or if governments which have most of the money after all had started this 10 years earlier then surely we'd be in a better position today so to that extent yes we are experiencing the innovation famine. Outside digital and electronics, we aren't innovating particularly fast these days at all. That seems to me a worry and a pity. We're probably relying on the Chinese to have a go at it at the moment. They're becoming less free. Who else is going to pick up the baton?

Will India do it? Well, they've got all sorts of infrastructure corruption and efficiency issues as a as a economy but they've got some very bright people who do incredible stuff so maybe they will i don't know um the it's an issue i wrestle with towards the end of the book and i find frederick erickson's work on this and bring lindsey's work on this both very interesting lindsey talks about the degree to which intellectual property is stifling innovation. Yeah, and I think that's seriously worth talking about. And this matters, and it matters because if we are experiencing an innovation famine,

for one, as Peter Thiel argues, if we're not growing the overall economic pie we just start to fight over our share of that pie and stagnation leads inevitably to violence and conflict and teals of the view that all the conflict we see today whether it's our fake culture wars or being lied to by media and the politicians, can ultimately be traced back in one way or another to this great stagnation. But also, given the power of compounding, if we settle for suboptimal economic growth, eventually that means that our descendants live lives which are not as good as they could have been if we'd done better. And given enough time, you know, it's the difference between being a United States and a Venezuela. So, solving this problem really matters. And if you accept that we

are in a great stagnation, and obviously there's a big debate about that which which you've um touched on in your answer matt and and it depends very much on how you actually measure gdp um and there are a lot of problems with that but if you do accept the view that we are in a great stagnation or at least we could be doing better um solving that problem is really important and i wonder whether like given the path dependency of innovation like maybe we're just at a point in history where the adjacent possibilities are just really difficult um you know like science is hard maybe we're just at a bit of a sticking point and once we break through things are going to get easier again yes and no i mean i talk in the book about how back in the 1950s we'd had 50 years of incredible changes in

transport and we thought the future was all was had 50 years of incredible changes in transport and we thought the future was all was going to be about incredible changes of transport but we'd had very little change in communication uh and in fact the next 50 years were about communication not transport and transport was thoroughly disappointing over the last 50 years um and i say the reason for that is not really because bureaucrats are getting in the way of us inventing supersonic planes and things. There may be a bit of that. It's not really because, you know, friends of the Earth say they don't like sonic booms, so we can't have Concorde. It's because we're up against diminishing returns, because if you want routine space space travel it's going to be very expensive

and there's not much to do there if you want supersonic planes it's going to be incredibly expensive and um uh you know it it disproportionately expensive to go twice as fast um so we are up against physical limits in in developing new forms of transport. And we flail around looking for electric vehicles or hyperloops or things like that, which I think are probably not that exciting or promising, if you like. Meanwhile, we get on and make planes unbelievably safe and we have seen incredible progress in airline safety over the last 50 years and in affordability you know the budget airline and so on so you know i don't want to knock all transportation but i do think you're right that there we may be hitting limits where we're not hitting limits though is clearly in nuclear fission and probably not yet well let's leave

nuclear fusion out of it for the moment but you know we could design much safer reactors that are much more efficient and that have much less chance of going wrong but produce electricity much cheaper we know that we can do this on on in powerpoint projectors we can't do it in real life because every new design must be built uh to exactly the program that you get approved by the regulator at the start which cuts you off from the trial and error process that you need to do where you want to adjust your designs halfway through because of what you're learning about it um and so and it's far too expensive to get a new design um approved so basically we're not doing modular small uh inherently safe molten salt reactors all these kind of things that we could do likewise biotechnology in agriculture um yes we've made insect resistant cotton and corn

and soybeans um and they are incredible they've they've cut down on the use of chemicals they've done less damage to the environment they've been cheaper they've been more efficient they're poisoning fewer people you know they're just great results these and we could do you know take golden rice you know this vitamin a enhanced rice that would get urban kids who are dying at a horrifying rate of vitamin a deficiency and ingo potricus 20 years ago said i can solve this problem i can put vitamin a precursor genes in rice and get keep everything else the same and we know it's quite safe and we can grow this rice and it'll be fine and he succeeded beyond his wildest dreams but greenpeace set out to stop him and they have sued and prosecuted and protested

at every stage um and said things like well why don't you give them spinach instead? Well, that's like Marie Antoinette saying that, you know, let them eat cake. So that is not a case where innovation has been stymied by physical limits. It's a case where we have deliberately allowed certain sections of society to force us to turn back, turn our back on life-saving beneficial innovations. So if in some sectors we're reaching the limit or we've picked all the low-hanging fruit, and in other sectors we're our own worst enemy, what gives you rational optimism that will exit this technological plateau and reach a new summit by, say, 2050 to pick an arbitrary year? Because imagine being on the other side of this argument and wanting to stop innovation.

You would find it quite depressing. In you know in the end people love these things in the end it happens you know we we whack a mole we stop them there we stop them there and then eventually they escape and they get a product into the market and everybody loves it um uh you know And I think that somewhere in the world, somebody will do the kinds of innovations in nuclear power or biotechnology that I've just talked about. And eventually the world will say, you know what, that works. Why are we being so stupid about it? Why don't we have that here too it's taking longer than i would like particularly in europe and in on the question of biotechnology where they're now trying to make possible to do gene editing which is a even safer technology um but um i i'm more worried about one part of the

world turning its back on this than the world as a whole turning its back on this yes we have seen whole civilizations turn their back on innovation you know the arabian enlightenment came to a shuddering halt because of basically religious pressures something similar happened in china, as we discussed earlier. You know, the Christian takeover of the Roman Empire basically led to an endarkenment, in my view. There are others who don't agree with me on that, but I think they've got motivated reasoning going on in their mind. So could that happen on a global scale? In the last few months, it's felt a little like that might be possible.

You know, we might entire civilization might become irrational about certain things. But I find it hard to believe that that would be the case so much you know this even if it has to be a sort of secret society of enlightenment thinkers operating on the web in the cloud surely we can keep enough of the show on the road to keep it going i was uh i was trying to give you a nice optimistic sort of the show on the road to keep it going. I was trying to give you a nice optimistic sort of layup and you slam dunked it. So, Matt Ridley, thank you so much for your time. It's been a pleasure to speak with you. I've really enjoyed the conversation.

Thank you very much indeed. Thank you so much for listening. I hope you enjoyed that conversation as much as I did. For show notes and links to everything we discussed, go to my website, www.josephnoelwalker.com. That's my full name, J-O-S-E-P-H-N-O-E-L-W-A-L-K-E-R.com. You can also find me on Twitter. My handle is at josephnwalker. Until next time, thank you so much for listening ciao