The Pomp Podcast - 308: Matt Ridley On Rationalism & Innovation In The Current Environment

Episode Date: June 4, 2020

Matt Ridley is a British journalist and businessman. He is best known for his writings on science, the environment, and economics, including The Rational Optimist and his new book, How Innovation Works And Why It Flourishes In Freedom. In this conversation, we discuss how prosperity evolves, why optimism is important, the difference between innovation and invention, how innovation is bottoms up, why China has been so innovative, and the future of stateless innovation.  ===============================  BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. https://www.blockfi.com/pomp  ===============================  Our second sponsor is choice, a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/podcast?kid=19DN5C ===============================  Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at pompletter.com

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Matt Ridley is a British journalist and businessman. He is best known for his writings on science, the environment, and economics, including The Rational Optimist and his new book, How Innovation Works and Why It Flourishes in Freedom. In this conversation, we discuss how prosperity evolves, why optimism is important, the difference between innovation and invention, how innovation is bottoms up, why China has been so innovative, and the future of stateless innovation. I really enjoyed this conversation with Matt, and I hope you guys do as well.

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have retirement accounts with dollars in them, but not Bitcoin. I was in that situation too. But now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax advantage dollars to do it too. Absolute game changer. I highly recommend going to check out Choice. I've opened up an account with them and I'm super happy with it. So go in the description and you can click on the link there or you can go to retirewithchoice.com and check it out. Buying

Bitcoin in your retirement account and holding your own private keys, game changer. And then lastly, don't forget that I write a daily letter to over 50,000 investors about business technology and finance. I break down complex topics into easy to understand language while sharing opinions on various aspects of each industry. You can subscribe at pompletter.com or go in the description and click on the link there. All right, that's it for the sponsors. Let's get into this episode with Matt. I hope you guys enjoy it. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital

Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. Super excited to have Matt here. Thank you for doing this, sir. Thank you for having me on the show. It's great to speak to you. Absolutely. For those that don't know you, let's just start with your background. Where'd you grow up and kind of what'd you do before you started writing books? Well, I grew up exactly where I'm sitting right now, which is in the northeast of England. And I became a very keen naturalist as a child, read biology at university, did a PhD,

then decided I wanted to become a journalist, moved into writing, was a science editor of The Economist for a long time, and then various other jobs, and then became more and more of a freelance writer, just writing what I felt like writing books. And alongside that, I've done various other things, some successful, some less successful in business. And currently, about seven years ago, I got myself into the House of Lords in the UK. So I'm a part-time politician as well as everything else, but it is very much a part-time job. It's not a full-time thing. For those that are not familiar with the House of Lords, you want to explain a little bit about how it works? Yeah. Well, the UK Parliament has two

chambers just like congress does the house of commons and the house of lords the house of commons is elected and it has the vast majority of the power um it decides what legislation goes through the house of lords has the power to delay and revise legislation and it's mostly appointed but until 1999 it was mostly hereditary uh descended from the original barons who signed the Magna Carta and all that sort of stuff and in 1999 most of the hereditaries were abolished from the House of Lords but a small minority remained on the grounds that you couldn't have a wholly appointed house that would be really undemocratic so these guys are there to guard the constitution and I'm one of those I inherited a title that gave me the chance to run for election

to a vacant spot on the House of Lords so I actually had to win an election there were 27 candidates and 48 voters. How does that happen? Well, it's a bit like running for dog catcher in a small town in rural America, I guess. Yeah. And I guess, like, what's your take kind of on democracy today, right? You kind of have a unique seat in that you've written some books that touch on various subjects, you know, both historical context and modern day, but then you actually get to go practice it as well. And so maybe kind of talk a little bit about just the change that you've seen over your lifetime. And, and as you sit in that seat today, how you think about, you know, kind of the political power that, that certain representatives have.

Well, until 10 years ago, I was pretty positive about democracy, more and more countries were becoming democratic, the number of autocracies in the world was shrinking, largely because of the retreat of communism, which had created autocracies all over the world in Africa and Latin America and other places. And so more and more people were voting for their leaders. Britain, we pretend, were a monarchy with an appointed House of Lords, but actually were a democracy. The real power lies with the elected House and the Prime Minister. and that system seemed to be working pretty well now in a lot of countries it still is working well but you have to admit the last 10 years have not been good for democracy more and more countries

like china and russia which seem to be on a path towards a more democratic system have appointed presidents for life and things like that which is a bad start and even in democracies which are still democracies, like the United States, the conversation is becoming extremely polarized, extremely angry, and an awful lot of power is accruing to the officials appointed by democratic politicians rather than the democratic politicians themselves. And I think a lot of this has to do with the technology of communication. That is to say, Just as printing kicked off all sorts of social and political effects, like the Reformation, just like radio had an influence on the rise of the dictators. So I think social media has polarized society, driven us into echo chambers and filter bubbles, and given us some pretty severe tensions within democracies around the world. Let's hope we can resolve them. Yeah, it's pretty crazy how 10 years feels like a long time when you're living it, but in the grand scheme of human history, that's nothing, right? And so do you think that that is actually something that can be reversed the last 10 years? Or do you feel like once you kind of have that transition or shift, it usually becomes a slippery slope and it's hard to get back on track, if you will?

I think it's very hard to tell when you're in a historical period whether it's heading in one direction or is a temporary blip that'll be reversed and actually people are terrible at understanding the future particularly in in complex systems like democracies but my confidence that we will get the democratic show back on the road in most countries is relatively high um communist regimes managed to last 70 years in some places uh north korea has lasted about that long as well um china didn't last that long as a communist regime arguably it became more democratic but it still pretended it was communist now it's going back so in the grand sweep of history, I do not see the idea of kings, emperors, if you like, coming back, even if there are

individuals who managed to achieve that within certain countries like China and Russia for a short period of time. So I'm hopeful. But I'm not as hopeful as I was a few years ago. You're right about that and when I think back how utopian the internet felt 20 years ago it is quite shocking you know I thought once we were all able to see every bit of information we would become more rational and we would see each other's point of view instead of which there is a frightening rise in irrationality you know from the anti-vaxxer movement to just people not being interested in learning the facts about things. And that does concern me. Yeah. And you wrote the book Rational Optimist, obviously, that has become a global bestseller. I've read it. And the main takeaway

from it was just, hey, like, you can actually benefit from being positive on the future of the world. So it's interesting to hear, maybe not pessimism from you, but a lower degree of optimism when it comes to some of the political stuff, maybe talk a little bit about like that framework applied to today's society. You know, we live in the safest, most prosperous time in human history, except for if you read headlines, and then it may not feel that way. So kind of how do you after writing the book, think about, you know, kind of current events today and where the world really is? Well, setting aside democratic politics for a minute, in every other respect i think the rational optimist was bang on and is completely right and i still adhere to all

its its claims because most of it is about the economic and medical and other prosperities that we are experiencing and have been experiencing and the process of the processes that have been producing those improvements in our lifespan our health our income our escape from poverty all these kind of things are continuing. There's no reason to see any diminution. In fact, it has been a spectacular decade in that respect. So compared with 10 years ago, the average Ethiopian now earns twice as much money on average. That's pretty remarkable. And that's true throughout a lot of Africa. Now, when I was publishing The Rational Optimist 10 years ago, people would quite often say to me, yeah, I can see that Asia has made an escape

from poverty, but Africa can't possibly follow, can it? I mean, it's bound to stay extremely poor forever. And I would say, no, I don't think so. And I think I'm being proven right on that sort of kind of thing. I wrote the book during the Great Recession of the financial crisis of 2008 to 10. And that felt like a possible end of the good times and the beginning of a bad times. And A lot of people told me it was. But I said, no, I think we will get the show back on the road. I think we will be able to improve people's living standards in the years ahead. And then along came the euro crisis, the war in Ukraine, the war in Syria, the Ebola epidemic.

You know, everywhere I went in the last decade, there was always a reason for somebody to say to me, you can't still be a rational optimist, given what's happening X around the world. And yet, as I say, this has been an extraordinary decade. There's a really beautiful experiment that Hans Rosling did, whose fellow optimist, sadly, who died, but who was one of the pioneers of this kind of thinking, Swedish health economist. And what he did was he asked 1,000 people, in the last 20 years, has the percentage of the world population that lives in extreme poverty, that's $1.90 a day or less, doubled, halved, or stayed the same in those 20 years? And in the U.S., 65% of people said it has doubled. 5% said it had halved. The 5% were right.

The 65% were wrong. That's pretty striking. But what Rosling then did was he said, if I had written those three answers on three bananas and thrown the three bananas into a cage with a chimpanzee in it, the chimpanzee would have picked up the right answer 33% of the time, not 5% of the time. It would have done six times as well as human beings in answering a question about human society. So what's the problem here? The problem is not that we don't know what's going on in the world. It's that we know things that are not true. We're absolutely convinced of things that actually are not true. And that seems to me a growing problem that largely because of media coverage of negative events, which is always happened, but is becoming more extreme all the time. Now, just because of that, we end up with a strong impression that things are going wrong in the world, and we don't know that they're going right. Interestingly, when we look at our own lives, we're quite optimistic. And why is that? Because the media doesn't cover your own life.

and it feels like that media coverage um how much of it is uh kind of the fake news disinformation um what i'll call kind of complicit uh type of coverage versus um maybe they're actually just sharing individual stories uh and those individual stories give the reader listener or watcher um the feeling that oh this must be everyone else's story right there's kind of you know, a divergence there, in my opinion, of like, some of it is very intentional, that leads to what this thought process you're talking about. And then some of it feels like they're just telling the story of the person that's in extreme poverty. And because that's the only story they tell, and they don't balance it with the story of the person who got out of extreme poverty,

we then think, oh, everyone, you know, may be that way. Does that make sense? Yeah. No, I think it's largely a matter of omission, not commission. In other words, i don't think um the journalists are going out there saying i want to tell fibs to the world about how bad things are what they are doing is responding to reader interest in negative stories and you can do the experiments i mean experiments we've done to say you know choose an article to read out because this is a experiment on uh comprehension and pronunciation actually it isn't it's a an experiment to see which articles you choose and people choose the negative articles So, you know, I'm afraid bad news does sell. Good news is no news. If it bleeds, it leads, as they say in the journalism industry. So it's largely a matter of the fact that, you know, just think about, you know, a war-torn country that is in the news for year after year after year.

angola say or mozambique in my youth you know yet another report from this terrible war where thousands of people are being maimed by uh landmines and you know there's been another attempt at peace talks which has broken down you know these kind of things came out of african countries all my life sort of thing the congo nigeria you know countries were in the news because things were going badly there and then suddenly you notice one day you know what angola is never in the news these days and when you notice that go and look up what's happening in angola and it's usually because actually the peace treaty did stick economic growth is occurring the number of people in extreme poverty is declining hunger is on the retreat um so it

really is the fact that the news focus moves away as soon as things start going right and that seems a pity. Every now and then you get a colour piece saying actually life's looking up for the average Angolan. Now I'm pulling that one off the shelf. I don't know

if there's peace and light in Angola at the moment but I suspect it's a heck of a lot better than it was 20 years ago and the statistics bear this out by the way Steven Pinker you know has chronicled the decline of violence and warfare and he points out that we've i think

we've now got either 10 or 11 wars going on in the world right it sounds like a lot it's the lowest number we've ever had in recorded history um and none of those are happening in the western hemisphere there's not one going on in latin america which there was until a few years ago so uh that's never happened before we've never had a whole hemisphere with no war in it um so let's let's appreciate that things aren't as bad as we'd like to think for sure and then i think part of being like this rational optimist is uh you kind of have to believe that uh things will continue to improve right that the trend is your friend and it will uh persist um is there concern that as people are uh that rational optimist it then leads them to uh not take action

It's kind of like, hey, this will continue whether I do something or not, and therefore, maybe I don't need to do anything. Or actually, does it have the opposite effect, which is the inspiration for people to say, I want to be a part of this and go and act and continue to push that forward? Well, in my new book, How Innovation Works, I tackle this question of where innovation happens and why it happens in certain parts of the world and not others. And basically, innovation, which is the cause of prosperity, mostly happens where people are already prosperous and ambitious and rich enough to invest in new ideas. It doesn't happen where people are desperate, where people are frantically in need of innovation to save their children's lives or something like that. you know somalia and zimbabwe have not contributed much to new technologies in the last 20 years so the idea that necessity is the mother of invention seems to me simply wrong on that level and therefore telling people that the world is is is a fantastic place and you can make it even more fantastic is i think a better way to inspire them to be innovators than telling them it's a

desperate place and anything you do is futile because we're all doomed and i speak from personal experience here when i was young the environmental movement was just getting going a lot of pessimism was doing the rounds about the future of the human race the the population explosion was unstoppable famine was inevitable lifespan was going to shorten because of all the pesticides in the environment the deserts were advancing the rainforest was retreating the ice age was coming back the ozone layer was shrinking um on and on and on you know these gloomy gloomy stories and i believed them and when i was leaving school and at university i did not think the future could be better than the present and i thought it would be worse you know i thought i was heading into

a future where my life was unlikely to be as long as my parents life where the pollution would be terrible where things would just get worse and worse and it was quite a shock to me and that's partly why i wrote the book to realize this wasn't true people were getting richer and lots of you know species were being saved from extinction and and air was getting cleaner and water was getting cleaner and oil spills were being driven extinct and famine had virtually vanished from the face of the earth in the last decade or two um so partly i'm on an evangelical mission to tell people young people out there who are hearing from greater tunberg and everyone else that the future is bleak and there's no point in even finishing school because you uh it's you're all going to

fry and you will end up cannibals eating each other in a year or two's time don't believe this stuff it isn't necessarily the way to go and if you think that you're far more likely to be complacent and fatalistic than if you think all sorts of things are possible. Yeah. And what's really interesting, we had Kathy Wood come on, who's a large asset manager. And one of her thesis is that during economic crisis, innovation actually gains market share, right? There's kind of a deflationary or compressionary aspect there. But can you help us define the difference between invention and innovation? Because I think that's a key piece of the book and also a key aspect that people need to understand is that those two

things are not the same. Yeah. Well, I think Cathy Wood's dead right, actually, that something happens in bad times to sort of clear out the undergrowth and leave space for innovators to come in. The 1930s were a surprisingly inventive decade for technologies, despite being a very bad decade for people's living standards in the US particularly. But yes, you asked about the difference between invention and innovation. And this is a distinction I make very clearly in my book, because I think it's very important. Invention is coming up with a brand new device or idea. And innovation is turning that new device or idea into something that is practical, usable, and affordable, and available to people on a large scale. Now, that might seem like the

boring bit. Innovation coming up with the bright new idea is the exciting bit. And that's often the way we think about it. But actually, I think that's wrong. I think the really interesting and difficult stuff is often turning a bright idea into something practical and affordable and useful. And most of the great inventors were actually innovators who knew how to do this. So someone like Thomas Edison wasn't particularly the person who came up with the first light bulb. He was one of 20 people who produced pioneering light bulbs, but he was the one who made the light bulb into a practical and available device that anyone could use with a lot of work. And he talked about the fact that invention is 1% inspiration and 99% perspiration. And if you think about e-commerce

and online commercial activity, online retail and things like that. It's not the invention of the possibility of that, but it's the work of someone like Jeff Bezos making a huge number of mistakes, but in the end, getting a huge number of things right as well, who is in the end the great innovator. So Amazon is not an invention, but it is an extraordinarily useful innovation that we all use. So my book is very much about innovation as opposed to invention. Both are important, but we misunderstand it if we think that invention is the main thing. If you say, look, it's fine, you've invented the prototype, great, we don't need to help you anymore, you've missed out on half the story. Yeah. And the thing that I think is interesting in the book is that the innovation is bottoms up, right? Whereas a lot of people, I think, and we're talking about politics earlier, where there's kind of this belief that you can have a top-down plan society, and that will somehow lead to progress. But actually, I think you make the argument of the opposite. So maybe kind of explain that a little bit as to how that bottoms-up approach has led to innovation over the course of history.

yeah i mean this is a very important point innovation is an evolutionary phenomenon it it emerges from the interactions of ordinary people and we tell the story about a brilliant genius sitting down under a tree and an apple falling on his head or something like that as if that was the way innovation uh happens and occasionally it can happen that way but 90% of the time. It is people tinkering with technologies, trying things, making mistakes, going down blind alleys, and one company trying one thing and another company trying another. And through this sifting of these different attempts, there emerges in a sort of bottom-up way solutions to the problem. And it's very incremental. It's very social. It's very evolutionary.

so I'm trying to get away from the focus on brilliant individuals who planned a result even when you can say this is the person who did it quite often there's an element of serendipity that is to say the person set out to do something and ended up doing something completely different so the ability to change your mind is an important part of innovation the ability to change course change direction so in that sense we really can't and we don't see it coming that's the other thing we can't see what's around the corner in technology nearly as much as we think we can if you think about the invention of the search engine I mean I write about steam engines to search engines as being a nice sort of bookends of of the industrial revolution search engines

are probably one of the most useful inventions of my lifetime i use them pretty well every day i've certainly used it today to to look up something um and we can't imagine the internet without them so go back to the 1980s and say look we're about to develop this thing called the internet um search is going to be the key thing and that's how people are going to make money out it and that's how people are going to navigate it etc etc did people say that no they did not almost nobody forecast the emergence of search engines let alone the commercial significance of them and even the people developing them like sergey brin and uh and uh larry page developing google they didn't think they were building a search engine they thought they were cataloging

the internet so so in that sense you have to think of innovation as something that happens to the world rather than that clever people impose on the world and this is part of one of my really big bugbears which i explored in my book the evolution of everything which is that we're much too creationist much too top down in the way we think about the world when you know we think that the president runs the country we think that you know god tells you whether to be moral or not you know we just don't think of these things as emerging the famous example which frederick bastiat used to use was how do you feed a city how do you make sure there's enough food available in the right place at the right time so that everybody in london can have lunch

uh 10 million people eating lunch every day most of them making up their minds what they're going to eat at the last minute um is that something that is planned and achieved it must be extraordinary If it is, the London lunch commissioner must be a very clever person. Well, of course, he doesn't exist. It's a bottom-up phenomenon. Yeah. And I guess how do you kind of put somebody like, let's take Elon Musk, for example, right, who's been involved in various capacities and a number of innovative things, some of

which he was the founder, right, or kind of the equivalent of the inventor, and then some of which, like a Tesla, where somebody else actually came up with the idea. he stepped in. Yes, he has the title of founder, but really he helped kind of commercialize and scale the technology. What I'm interested in for somebody like that is you can do it once and kind of back into something, you know, get lucky, do whatever you want to call it. To do it over and over and over again appears to be a skill, right? Or some sort of experience at play there. And so how does that fit into the framework where those people are very rare, right? So they're definitely of the exception um in society but how do you kind of evaluate um somebody who can kind of

repetitively do that well obviously people who can do that over and over again are extraordinarily talented and you know they they uh they show an ability to to learn from their experience that is absolutely vital um uh you know it's i mean someone like thomas edison did this again and again and again he set up an innovation factory the job of which was to produce innovations and he made lots of people work for him and work very hard and he told them to do lots of trial and error experiments um and he got results and that is certainly um a key uh you know result but it it i don't think it comes from a particular spark of genius i think this is where we go wrong we tend to look at people like that and think well i could never do that because i'm

not as clever as elon musk or thomas edison but actually the the secret sauce that these guys bring is hard work persistence uh tolerance of failure ability to learn from their mistakes Elon Musk has certainly made mistakes. His solar companies got into trouble, etc. The jury's still out on Tesla. I mean, it's hugely dependent on government grants and things like that. And I say in my book that I think his ideas of the Hyperloop are probably extremely impractical. um uh so uh you know it's not the case that everything they do is brilliant and i think it's quite important to get away from that to stop trying to put these people on a pedestal and make them into gods and say that what you know they were partly lucky in the right place at the right time um partly persistent a huge amount of sort of pig-headed obstinacy can be helpful but not so pig-headedly obstinate that you don't change course when the facts change

That's the other thing. And they were prepared to put in the hours. That's Thomas Edison's remark about perspiration, not inspiration, etc. So in a sense, I'm trying to demystify these godlike figures. Now, I do it by telling stories in my book. I tell a lot of stories about how innovations came to be. And I often focus on the key individual who was involved. But I'm not trying to make them into the author of it. I'm trying to make them into the subject of it almost, the person to whom this phenomenon happened. And I'm also trying to put them in the social context of the other people they relied upon. I love that. And so for those that are listening who say, great, I don't have to be some wonder kid genius in order to participate in this kind

of innovation arc, what can they do to become more innovative, right? As you've kind of studied so many of these stories, are there things that people can actually do to kind of practice or develop that muscle? Or is this something that is more just trial and error and go try to solve problems and it'll come to you as you kind of put those hours in? Well, I don't really know the answer that question because i'm not uh i'm not in the business of training people in anything and probably would be very bad at it if i was and i'm not much of an innovator myself unless you call a book an innovation um but i think one thing that it might be worth passing on is the growth of something called free innovation um so uh what this refers to and and my friend andrew torrence

who's a professor of economics and other things in kansas um explains has explored this very much it's it's the user the consumer making adjustments to technologies uh to make them more useful and then sharing them and uh so a very nice example of this is a system called night scout which is used by parents to monitor the um sugar status of their diabetic kids in school um and essentially it's about you know the the the the real-time data being uploaded to a network where parents can can keep an eye on it and this was entirely built by two or three parents one of whom did one part of it one of whom did another part of it third added a third layer and so on and changed the name um uh it what you know it starts out with it with a gadget from a pharmaceutical company

but the the whole superstructure of the sort of uh the the internet interface with with this device was built by users and is now made available through a foundation to any parent who's in the same situation the surfboard industry learns a lot from its users apparently the users make make adjustments to the shapes and uh devices on surfboards and feeds these back to the manufacturers so i think it's and and by the way there's you know obviously patents can get in the way of this kind of thing um but shouldn't because actually the law is if you if you do this and you change something and it's your own uh creation then you can't be stopped from doing it so So it's quite important, I think, to think about the fact that you, in the way you adjust and adapt any old device, are yourself being an innovator.

And all you've got to do is feed that to other people in a small way, and suddenly you're an innovative business person. Yeah, super interesting. The title of the book is How Innovation Works and Why It Flourishes in Freedom. and we started this conversation off talking about maybe a little less optimism when it comes to democracies and things on the political spectrum. How do you see innovation kind of changing if that lack of optimism ends up being warranted, right? So if we head towards a less democratic world, do you think that there is a negative impact on innovation or are those two things, hopefully insulated from each other over the short period of time?

Well, authoritarian regimes generally have a poor track record in producing innovations. This is true of, you know, if you think about Nazi Germany, not getting nuclear weapons or all sorts of other technologies, but also it's true of empires, you know, the Ottoman Empire, the Ming Empire in China. Gigantic, extremely wealthy agglomerations of thousands of people with free trade going on within them. You'd think these would be perfect places for innovation to happen, but they don't. Why not? Because rules are set from the center by bureaucrats in a way that doesn't give the innovator, the entrepreneur, the freedom to try new things. And so the Ming emperors kill the goose that's been laying golden eggs for the chinese economy which developed in a

much more fragmented time under the song emperors by imposing truly draconian rules on what a merchant must do and how often he must report back to the center and whether he's allowed to leave his own village and all this kind of thing so trying to tell people what they can and can't do ain't good for innovation you have to allow people freedom freedom to move around freedom to invest freedom to experiment freedom to make mistakes freedom to change your mind all these kind of freedoms how is it then that china is currently an innovative country because it is there's little doubt that certainly in the digital area in artificial intelligence in biotechnology in other areas, China is making strides into the future, not just catching up with the West in

the present. And the answer to that, I think, is because for most of the last few decades, China has been a surprisingly free place for entrepreneurs and innovators, so long as they're not trying to do anything in the way of democratic innovation, like start a new political party, for example. So in other words, as long as you don't deny the Communist Party, you can set up a business to do something in China much more quickly and with far fewer permissions than you can in the West. And that's been the secret of their success. Now, whether that can continue under the regime of President Xi, who's president for life and who is increasingly keen on controlling every aspect of Chinese society, I have my doubts. I think he is just like the Ming emperors that

preceded him. He is an emperor who is going to kill the goose that lays the golden eggs. And I guess part of that is if in China, they have this kind of communist authoritarian political regime, but they do have, let's call it lack of regulation when it comes to innovation technology, and building companies, you could actually argue in the United States, to some degree, we have a free democratic political regime, but actually a pretty high degree of regulation. And so would you argue then that that high regulatory bar actually becomes somewhat of a barrier to innovation? Or do you feel like the United States has found maybe some equilibrium where there's enough regulation in general, and obviously overgeneralization, there's enough

regulation to kind of prevent bad things from happening, but still enough room to allow the innovation to kind of prosper. No, I'm very critical of the West, Europe and America in particular, to the degree to which they are stifling innovation, partly with regulation and bureaucracy, as you say, partly also with intellectual property and things like that, And partly with corporate lobbying for subsidies and for regulations against insurgent innovators. This is becoming an increasing problem. It always has been there as a problem, but I think it's getting worse and worse. And in my view, the real problem that regulators bring is delay.

It's not that a regulator says no, it's that he takes an age to say yes. So in Europe, both shale gas and genetically modified organisms in agriculture have basically been abolished. I mean, they're not happening. Why not these two new technologies that have brought enormous prosperity in the United States? Not because they've ever been outlawed, but because the permissions you have to get are so uncertain and take so long to get. um i mean i detail an extraordinary case of a of a blight resistant potato developed by a german company with genetic modification who applied for a permit it got approved by the scientific committee then turned down by the european commission etc etc went to the courts etc etc after eight years of this the company bay asf said i'm sorry we can't be bothered with this we're moving our entire research staff to the united states to get away from this system

this is not helping so um there is huge resistance to innovation um there is huge resistance to innovation um uh throughout the um uh uh western world and a lot of it does come from government bureaucracies some of it also comes from pressure groups from the likes of friends of the earth and greenpeace you know who are well known to be opposed to many kinds of innovation. So there's an unholy trinity of big companies not wanting competitors in their space, big governments not wanting to give permissions for things, and big pressure groups wanting to exploit people's general fear of the unknown and the future. Those three have indeed given us an innovation famine in the West. I mean,

think of medical devices it takes sometimes up to seven years to get approval for a new medical device most entrepreneurs can't afford to wait that long their money runs out so they're not going to go into developing new medical devices they're going to go into developing a video game or something like that where you don't need so much permission and as a result we get to a pandemic and we find that we don't have point of care portable instant dna tests for viruses something we could have invented 10 years ago, frankly, and they're not there because we've overregulated it and driven them out. So in the physical world, that's very hard to kind of get around because it's actually physical items. In the software world, though, much easier to kind of do this

iterative innovation and experimentation. As you mentioned, there's still a lot of regulatory IP issues and things like that. Now, part of this is, I always go back to the framework of the laws in the books are only as good as the enforcement. And so the US and Europe has done a very good job of enforcing these laws. And that's kind of why I think you're getting that stifling that you're describing. The difference is now in today's society, there's this idea of decentralization. So we've seen that with things like Bitcoin, where it's a decentralized system. There's no leader to call into in front of Congress or call and arrest or do things like that. And so one of the frameworks I've been very interested in is Facebook came out and said, hey, look, we're going to do a digital currency.

And immediately Congress freaked out in the United States and called in a bunch of executives and pretty much took them to task and said, no, you're not going to do this. And why would you do this and all that? I wonder how much going along this line of thinking of if there is this regulatory regime that ends up being stifling, is decentralization of all sorts of things, not just kind of what people would consider cryptocurrencies and things like that, but other types of software, does that become a more important trend? because actually what it does is it very much mitigates the ability to enforce the rules on the books. Again, not every industry can do this, whereas physical items and things like that are much harder. But in software specifically, maybe that is kind of the way

that people and innovators can fight back a little bit to continue to push the pace. I think that's a really interesting idea, and I think it's a very important concept. And I think blockchain generally enables us to move the next phase of innovation from California or China or wherever things are not being looked after right in terms of regulations into the cloud, into a place which is stateless.

And once we do that, and they really can't get at us to prevent innovation, then surely we can do a lot of good. That would be the hope. But, of course, you can immediately see by me telling the story in that way what spooks people and particularly politicians and journalists about their story. But because I ended that sentence with the word good, you and I could float off into the ether and do something bad if that happens. And I think the jealousy of states with respect to currencies is as nothing to the way the lawyers are going to react when we say we're going to have a completely different

legal system that is not tethered to any territory but is in this in the sky and it's done through blockchain um uh the the the you know monopolies don't like you doing end runs around them and they fight like tigers to reimpose their monopolies so the jury's still out on whether blockchain can achieve that goal of giving us a sandbox in the sky if i could call it that where we can do the experiments that we need to do to produce new technologies and new ideas or whether down here on earth governments will rein in these things i think you know i i often think one of the most profound things said about innovation was amara's law which i mentioned in the book which is this guy called roy amara who was a computer scientist and futurologist in california in the

1960s uh and he said we underestimate the impact of a new technology in the long run but we overestimate it in the short run and this feels to me spot on you know when the internet is just starting we start to have wild ideas about e-commerce replacing retail and replacing everything else and um and we invest like crazy in dot coms and then after a few years every year everyone says this isn't really working actually it's not made much difference the world goes on as before and everyone gets very disappointed and you get a dot-com bust and then 10 years later turns out the dream was right so i think the same will happen with blockchain i in about 10 years time if we're having this conversation we'll be saying well didn't really work did it you know

all the blockchain ideas all the crypto ideas they they kind of came to nothing 10 years after that we might be having a different conversation saying actually it worked yeah and and to me it's very interesting when um you know there's the decentralization uh kind of from an ownership model so uh if you and i want to build something that maybe regulatorily um is not possible uh they just don't know who to call in to get in trouble right or who to shut down if you will So like you said, that can be used for good and bad. But the second piece of what you said around having the sandbox in the sky is very interesting, right? And I think if you talk to somebody like, you know, a Jack Dorsey, he's super excited about things like Bitcoin because he sees it as like the native currency for the Internet, right?

Okay, you know, definitely a good chance that could happen, but also, you know, a high percentage chance that it doesn't. What I'm interested in hearing from you is outside of the currencies, when you start to do this in other areas of innovation in company building, is there a world that you see where actually people say, look, I'm not going to incorporate in England or in Delaware. I'm going to create this thing that exists basically in the ether, right? It's just a software business and it operates outside of the existing legal frameworks. You know, like you said, governments are going to fight that, but, but kind of how does that end up if, if ultimately people want to do that? Well, I think this will happen increasingly.

I think you'll see much more in the way of wholly decentralized organizations with no nerve center after all the the internet is like that already itself uh if you wanted to bomb the internet where would you start you know if you wanted to shut down then if you want to switch off the internet where would you go which continent would you start on etc you know it's already in a sense um uh very much like that and to some extent this has always been true the Knowledge of how to run the world has existed in a cloud, not sort of down here on Earth. And I do think that we will head more and more in that direction. And I sort of hope we do, because I think that there are really exciting possibilities there about getting people in different nations.

And why should you be tied to the rules of one place? Why should you not move around? After all, this echoes what inventors did in the past. So one of the reasons Europe stole a march on the rest of the world in the 1500s to 1900s era was because it was fragmented politically. It was not an empire. You can't unify Europe. It's got too many peninsulas sticking out, too many mountain ranges in the wrong place. um uh it's you know charles v tried it napoleon tried it augustus tried it um hitler tried it

and they never pulled it off for very long um and it's got islands offshore which can act as aircraft carriers for your enemy britain being the best example of that um so it's very hard to unify europe it remains fragmented politically there's another attempt going on at the moment to unify it under one kind of rules called the european union that has resulted in a rebellion by the uk saying no we don't think that's the right way to operate we'd prefer to have mutual recognition if your rules are good and our rules are good that's fine but we don't have to have the same rule in bulgaria as we do in northern scotland um uh so uh and and what that resulted in was entrepreneurs shopping around for a regime they liked.

So someone like Gutenberg moved from one area to another in order to find a regime that was congenial for him to develop printing. So that's a sort of down-to-earth example of the kind of thing that I think we can create virtually with the help of technologies like crypto and so on. And as you say, to decentralize these things, to move away from the myth that there's a headquarters and there's one person in charge. One parallel with this, I think, is the idea of a decentralized company itself. The idea that a company doesn't need a chief executive or a senior management team is really weird to us these days, but it shouldn't be weird.

There's no reason you can't do it. There are some very nice examples, actually, of companies that have gone down that route. There's a tomato processing company that's extremely successful in Milton, California, that has no chief executive. Everybody kind of negotiates their salary with each other. It's basically a collective of self-employed people, as it were. It can be done. So I think if I don't sound too much like a sort of peace and love hippie in saying so, I think there's a future there. Yeah. And I guess as part of that, when you start to decentralize the corporation, you start to decentralize the processes, ultimately what you really are doing is you're almost taking the governor off of innovation, right? Because now what you're actually saying is, regardless of if you're in the authoritarian regimes of China, or you're in the democratic regimes of the United States and England, you now get into this weird world of it doesn't actually matter what the laws on the books are, or the rules that they have implemented, or who is the president or, you know, kind of in charge, you really are just opening it up and saying, you as humans, what do you want to build, right? And to me, it sounds like kind of that's your whole argument here, right? It doesn't have to be just freedom from a political sense. It's actually the freedom to experiment, the freedom to be in it.

That's what leads to innovation. And it's so important, I think, to always switch your focus to the consumer, not the producer, because that's the person who's really in charge. You know, the decision as to whether or not a technology is a good technology is taken by consumers. It's not taken by producers or governments. good example of this is light bulbs um actually light bulbs tell almost every story you want to tell but you know for hundreds of years well for 150 years we had the incandescent light bulb and it got better and better but it used quite a lot of electricity and then along came phillips and said we've invented compact fluorescent light bulbs they cost a lot more to make so we're going

to have to sell them for more so people don't want to buy them and they don't really warm warm up very quickly so you have to wait a bit when you go into a room before it gets light and the color's not quite right but uh they use so much less electricity that we would like you the government to ban our competition so that people have to buy our light bulbs that's essentially what happened and all around the world the governments did this at the behest of corporate lobbying and they basically banned incandescent light bulbs and forced us all to go out and buy compact fluorescent bulbs and consumers didn't like it these things were difficult to get rid of they were toxic etc etc they didn't last as long as they were told within a few years along came the light emitting

diode the leds which naturally displaced both other technologies very quickly so i'm sure you have leds in your house most people do nowadays they use far less electricity than either of the other technologies they can give you very good light very instantaneously um yes they're still fairly expensive but their saving on electricity is so huge that they pay for themselves we shouldn't have gone down the compact fluorescent route at the behest of governments we should have let consumers be in charge of this process and they would probably have brought the light emitting diodes forward we'd probably have had them five years earlier yeah it's so interesting how uh we know this stuff right i mean literally you wrote a book on it and uh yet there is um uh the human

nature of wanting to um you know have control right when it comes from the the the leadership side uh but before we go to wrap up i'd love to just kind of hear um okay your perspective you've got this really interesting uh understanding of how innovation works and and um and kind of this rational optimist viewpoint of the world uh but then you do sit in a in a political seat and so kind of how you when you go to work every day like how do you balance um those three things uh understanding also that like you can't just wave a magic wand and make all the decisions right so like kind of how do you um just mentally balance uh what many people i think would say are two uh very opposing um ways yeah no it's a really good question and uh compared with

the decisions innovations and entrepreneurs can take in the real world getting a decision through a political system is an absolute nightmare um and it's very rarely the right goes smoothly it very rarely goes quickly it very rarely gets ended up settled on rational as opposed to irrational grounds uh it's tremendously frustrating uh and there are times when i wonder why i why i bang my head against that brick wall those who say look all innovation starts with the government it funds science it's where it comes from etc are wrong for lots of reasons but uh one of the reasons they're wrong is then why doesn't uh government innovate faster you know if innovation is coming out of government you'd think government would

constantly be spinning out these new technologies look the department of health has invented this thing would the rest of the world like to take it on it's called an iphone you know that doesn't happen i describe um the british parliament as a in the book as a sociological coelacanth you know a living fossil from the political um uh paleozoic you know it we we we pretend like we're still in sort of 18th century england uh in our procedures uh and the very phrases we use now there's some good things about that it keeps us um polite and uh we we do respect the traditions and we make it very hard to change the constitution of a country for good reason you know you don't want to go around suddenly abolishing due process in the courts or something like that um uh so uh but it

It is, I am in my day job operating in a system that experiences very little innovation. And this has been brought home in the last few weeks by an attempt to turn parliament into a virtual thing, which has been not entirely successful, shall we say. The remote work for politicians I have heard from multiple people now is an experiment that probably will not be continued once we're all allowed out. I think that's right. I mean, in some ways, people were thinking this is the breakthrough when we'll have remote voting and things like this. But actually, it's not very satisfactory. For sure. I end these conversation with the same two questions, and then you get to ask me one to

finish up. The first one is, what's the most important book that you've ever read other than one of your own i'll probably say the selfish gene by richard dawkins because i read it a deformative age when i just arrived at oxford to read zoology and i discovered that he was going to be one of my teachers and he just produced this extraordinary book which which taught me that science was about the unknown not about the known it was about the mystery of the world it wasn't about cataloging facts and that to me was an incredibly important lesson how important do you think it was that you read it at that time right you mentioned that that what that's like a key piece of it you think yes i i think the books that really um stick in your

mind are the ones that you read at turning points in your life and relatively early in your life i mean these days i can read a book love it and two years later not remember a darn thing about it and have to go back and reread it to work out what it said um so uh whereas the stuff i read 30 years ago uh is is still there in the back of my head yeah that's uh that's pretty cool uh and the second question is a more fun one which is uh aliens believer or non-believer oh it's so difficult i've wrestled with this and i'm fascinated by it with the fermi paradox where are they you know if if there's so many galaxies out there and so many stars in each galaxy and so many planets around each star that you know the numbers are ridiculous then it's simply impossible to

believe we're the only ones here and i still think that yeah so yes i'm a i'm a believer i tend to not they won't necessarily be uh intelligent aliens but there's there's life felt throughout the universe of that i'm as sure as i can be yeah i tend to follow the exact same logic the uh the big question is um are they so far that uh our technology can't uh just can't detect them or find them uh or the lately i've heard a number of people make the argument well it could just be there on a different time scale right so they were here it was 500 years ago right or or they don't be here a million years from now uh and when you start to get into uh the uh the multidimensional analysis of time, I bow out and say, look, math says that there's a high likelihood

that's good enough for me. What one question do you have for me to wrap it up? What's the best book you've read last year? Ooh, last year. The best book... It's a very unfair question because it's hard to remember these things, isn't it? And that's literally what I'm going through is first I have to identify which one's the last year versus another film. You know, last year probably was Edward Snowden's book, I would put up. Oh, yes. I forget the name of the book, but basically it's kind of one of these books where he has half of the book really dedicated to kind of his story and kind of the events he went through.

And then the other half really was kind of a statement as to his principles and where he thought the world was going and his analysis. And I found it, I think, one, fascinating because it put some humanity behind a story that kind of really captured the attention of people around the globe for a number of months. But also, too, there's some very kind of important structural issues that he looks at everything from surveillance to kind of the data collection and really talks about the relationship between government and its citizens and kind of when those relationships go well, what happens when they go bad. And so I just really enjoyed that one specifically. where um where can we send people to uh to pick up how innovation works um and then also to uh to learn more about you or connect with you if they'd like to okay well my book how innovation works is available in all good bookstores including online ones such as amazon uh and uh it's been available for a couple of weeks now

in the u.s and it's available in the uk from the week after next so um uh should be available worldwide at some point. Awesome. And then if people want to get in contact with you? If they want to get in contact with me, my website, rationaloptimist.com is the best way to find me. Awesome. Well, Matt, listen, I appreciate you taking the time to do this. You've written a number of awesome books and I tend to think that the work you're doing is very important for people to go consume. So hopefully we'll get some people over there and we'll have to do this again in the future. Thank you, Anthony. I really enjoyed it.