Matt Ridley is a writer, biologist & Rational Optimist. He joins me to talk about his views on science, economics, innovation and how they apply to Bitcoin.
Time zone: Monday 18th May 9am BST, 10 am CEST, 6pm AEST. It will be broadcast on YouTube Live at the link below, and on my twitter periscope @stephanlivera.
Note: During this livestream, we had some slight technical difficulties and Matt’s computer restarted, however if you skip forward a few minutes we get into the interview – the technical difficulties component was edited out for the podcast feed version. So audio only listeners won’t notice any difference.
Matt Ridley Links:
- Website: mattridley.co.uk
- Twitter @mattwridley
- Book: How Innovation Works
Sponsors:
Stephan Livera links:
- Show notes and website
- Follow me on twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera
Podcast Transcript:
Stephan Livera:
So now let me just introduce my guest, Matt Ridley. I’m personally a fan of Matt Ridley. He is he’s known as the rational optimist. He’s an author and he’s a world renowned for his writings on science, the environment and economics. And we’re going to talk about his new book, how innovation works.
Stephan Livera:
Thank you first of all for joining me. I’m a fan of your work. I really enjoyed the rational optimist, the evolution of everything. And now you’re, I’ve had an opportunity to read your new book, how innovation works. So let’s start with a little bit around why did you write this book?
Matt Ridley:
Stephan, thanks so much for having me on the show and it’s great. Great to be with you. I wrote this book because I’ve become more and more intrigued by the subject of innovation. I’ve touched on it in previous books. The Rational Optimist is about innovation to some degree. So is the evolution of everything, but I’ve never tackled the topic head on. And I think in a way it’s still rather mysterious. We think we know how innovation works, but actually when you look at it, we’re not, I’m not sure we do. We understand bits and pieces about innovation, but it’s a slightly mysterious process. It happens to human beings, but not to rabbits or rocks. It happens in a sort of inexorable, inevitable evolutionary way. It’s a sort of incremental phenomenon. And it’s absolutely central to progress in the world.
Matt Ridley:
I mean, there is no other significant cause of human progress. It is innovation that drives down the cost of things. It drives up the quality of things. It drives up lifespan. It drives down child mortality. You know innovation is the central theme of human history really. It explains things like you know, why social media leads us to being bad tempered or whatever, you know. So, you know, even when you get into politics and social life innovation is central to it. So I wanted to dig deep into innovation and tell lots of stories about innovation happening in the world and try and pull general themes out from those stories. That’s what I set out to do in this book.
Stephan Livera:
Fantastic. And it became clear that there were certain environments in which we see more innovation and others in which we don’t see so much innovation. So what environment is conducive to more innovation?
Matt Ridley:
Well, in one word, it’s freedom. That is to say the more you allow people to experiment, to go off in unexpected directions, to try things without having to get permission first. These are the conditions under which people discover new ideas of running the world and develop those into practical propositions. So on a broad geopolitical scale, I argue that repressive regimes and empires are pretty bad at innovation. If you look at the Ottoman empire or the Ming empire in China or even the Roman empire, there’s not a lot of innovation happens in these places, whereas fragmented regimes like the Italian city States or the the low countries, the Netherlands and so on, or modern America which is very much a federal system so that people can move from state to state and find a congenial regime, which is what they did in Europe during the great age of European development and expansion.
Matt Ridley:
And funnily enough, in China too in Song China around a thousand years ago it wasn’t a very well unified or centrally directed Empire. There was a lot of freedom and that’s what led to innovation. So you need freedom. You need places where ideas meet other ideas and have sex with them. That’s the sort of slightly facetious way that I put it. Ideas, meet and mate and produce baby ideas, new ideas, and that tends to be trading hubs. So port cities, places where people are gonna meet other people and come across concepts from elsewhere. So, you know, I talk about this 13th century guy Fibonacci in Italy who brings Indian numerals to Italy. But he does say because he’s a merchant living in North Africa where he’s learning mathematics, mathematics from the Arabs and the Arabs have started using this fantastic decimal system, with zero being a number for the first time. And they picked that up from the Indians who invented it a few hundred years before and so on. So that’s a nice example of how an awful lot of ideas have to be imported in order to meet with other ideas before they can be exported as still fresher ideas.
Stephan Livera:
And another idea that came related to, as you mentioned, freedom being the driving or at least one important factor behind innovation. I think another theme that came through as I was reading your book was this theme of commercialization, that you might have a certain invention, but it doesn’t really become a driving force and change until it is able to be commercialized. Could you expand on that idea?
Matt Ridley:
Yeah. I think this is really important. I try and make the distinction between invention and innovation in the book.
Matt Ridley:
I believe innovation is developing invention to the point where it’s practical, affordable, reliable, and available to lots of people. And that’s much harder work than people think. People think you make the invention, then you sit back and everyone adopts it and you’re on your way to the races. That’s not the way the world works. Nearly always. What’s key is somebody who then puts in many years of hard work to turn an invention to something that people will adopt. A good example, it’s a light bulb. There are some 21 different people who came up with the idea of light bulb in the 1870s but it’s only really Edison who puts in the hours, literally thousands of hours. Using a big team to experiment with different elements of the light bulb. Til he has a product that is reliable, that is liable to last for a long time.
Matt Ridley:
You know, he did 5,000 different experiments before he settled on Japanese bamboo is that as the suitable stuff for the filament of the light bulb. There’s a nice story that Charles Townes, the inventor of the laser used to tell about a rabbit and a beaver standing looking at the Hoover dam. And the beaver is saying, no, I didn’t build it, but it is based on an idea of mine. And that’s quite a nice example of the the way the inventor sees the world. He says, well, hang on, I deserve the credit. I had this idea, but actually it’s the people who built the dam who’ve done most of the work since then.
Stephan Livera:
Right. And I think that also ties into this idea of incremental and gradual inventions and changes rather than this kind of oh grand Eureka. And from your prior book, you also touch on this idea of the great man thesis and how actually innovation can happen in a way that’s running counter to that. Why is that?
Matt Ridley:
Yes. I think we, we tend to tell stories about heroic inventors jumping out of the bath and running down the street shouting Eureka or an Apple falling on someone’s head or James Watt watching a kettle boil and thinking, hooray, I’ve invented the steam engine. And in fact, the more you drill into these stories, the more they turn out to be after the fact reinventions of what actually happened. And in fact, it was a much more gradual process, a much more collective process. There’s a nice example in the case of containerization, you know the development of standardized containers for international trade, which is a terribly important innovation, but a pretty low tech one. And the driving force behind it was a guy called Malcolm McLean who was a trucker. And then he sort of saw the point of this and there was a story told that he was, you know, sitting in an interminable queue waiting to load his load onto a ship and he thought that there’s a better way of doing this.
Matt Ridley:
And he there and then had the idea, he said, that story is nonsense. You know, that’s been made up about me and it’s not true. And his biographer said that’s not since, but the biographer also said, I can’t seem to eradicate this story. It’s still out there, that people still think it was a one light bulb moment. In fact, the more you look at innovation, the more gradual and incremental and collective it is, the more it requires different people adding small things to different things. So think of Moore’s law or something like that. A very steady improvement in the effectiveness and price of computing over a long period of time, not, and funnily enough, no great jumps. When you switch from one type of computing to another, when you go from the vacuum tube to the transistor or from the transistor to the integrated circuit, you don’t get a leap in efficiency. You get another incremental little step in improvement. So we’ve been a bit beguiled by a, the famous inventor, the guy we give the patent or the Nobel prize too. The whole concept of it being sudden rather than gradual.
Stephan Livera:
Right. And you also touch on this idea that, well, part of it is there are long stretches of preparation and even for us in the, you know, for my listeners who are Bitcoin enthusiasts, we see it like it was a long journey of prior inventions that had to all come together and Satoshi Nakamoto sort of pulled the pieces together into a working and cohesive thing that we now call Bitcoin. And from reading your book, you also mentioned how sometimes there were wrong turns along the way that people tried along different ways and you just, they fundamentally just had to keep doing essentially a process of trial and error to find something that did work.
Matt Ridley:
Yeah. Now that word error is very important. And again, if you talk to successful innovators, they go on and on about the need for making mistakes. You know, that it’s from your mistakes that you learn. I think it was Edison who said I haven’t failed, I’ve just found 10,000 ways that don’t work. And Jeff Bezos is very good on this. He, after all, has presided over a company that, that achieved a string of pretty disastrous decisions and dead ends and mistakes called Amazon, but in the end was triumphantly successful. And he says, you know, you’ve got to be swinging and missing as well if you’re going to swing and hit at all. You’ve got to keep trying different things until you hit upon something that works. So error is very important. There’s another aspect which I think is very relevant to Bitcoin, which is I call it a Amara’s law because it was first coined by this guy, Roy Amara in the 1960s who was a computer scientist and futurologists and he said, we underestimate the impact of a new technology in the long run, but we overestimate it in the short run.
Matt Ridley:
And I think this is a very profound insight. It applies to almost everything you can think of. So we tended to overplay the impact of the internet in the 1990s we thought it was going to transform commerce much quicker than it did, but by the 2010s, I think it’s fair to say the internet was delivering rather more than we ever expected. Genomics when the human genome was sequenced around the year 2000, it was going to cure cancer overnight. It was going to do this, that and the other. Then pretty well nothing happened except a few court cases based on forensic DNA and things like that. But now genomics is delivering extraordinary things. So these things take 10 to 15 years. It seems before they start to see that acceleration, and that’s that preparation phase you talk about. And I would put Bitcoin quite early on that curve yet I would suggest that it and other crypto areas probably have some disappointing to do before they deliver something pretty spectacular in 10 or 20 years time. Well, I dunno, 10 or 20 years from when, I mean do you measure it from Satoshi Nakamoto’s manifesto. I don’t know.
Stephan Livera:
Well, I would say, yeah. So, I mean, Satoshi released the white paper in 2008, and the network started in early 2009. So I guess if we’re going on a 15 year rule, let’s say 2024, let’s say approximately that until Bitcoin really reaches that, that kind of level. And I think from your book as well, you mention this point around setting the right level of expectations, right? So at the start we think, Oh my God, it’s going to be amazing. And then it disappoints, but then it sort of climbs back out of that trough. So what are, do you have any other examples of things? That sort of operate on that kind of over overestimate, but then it kind of disappoints and then it kind of, then we set the right expectation on what we think this is really going to do for us?
Matt Ridley:
Yeah. I mean, I think mobile telephony is a very interesting one because it’s clearly been a huge transformation in your and my lifetime. Well maybe you’re not old enough, you’ve grown up with them, but in my lifetime it is. And it’s, and yet if you go back to the late eighties, beginning of the nineties, and you read what people are writing, their expectations of mobile telephony were extraordinarily low. They saw it as remaining expensive, a toy for certain functions, but nothing spectacular. Limited battery life. There might be a million mobile handsets in the world by the year 2000 said the head of Motorola. I think in fact, by then there was something like a hundred million, you know, I mean, he was out by two orders of magnitude. And you know, why is this?
Matt Ridley:
Well, it’s everything coming slowly together until you suddenly reach a critical point where it’s possible to do lots of different things. So actually, you know, even going even further back, electricity is a very good example of a technology that seems to come together in the late 19th century. Light bulbs, etcetera, electric motors, electric generators, all these different things are perfected in a rush of interesting work in the 1870’s, 1880’s, 1890’s, but it’s not until the 1920s that suddenly you’re starting to get all sorts of household devices using electricity are starting to get machinery and in factories running on electricity, et cetera, et cetera. So, we think of innovation as a sort of headlong rush, but quite often it isn’t, quite often it has to take time and gather pace before it gets going.
Matt Ridley:
Again, I think that the whole crypto world, which is not one I know well, I have to say, I wrote a bit about it in the evolution of everything. I didn’t write so much about it in this book is one that is almost bound to have a big impact because it’s almost, it’s gotta be the way in which innovation floats free from the earth and goes up into the cloud. It’s going to be the place where we don’t any longer rely on California’s taxes being right or California’s Pro Innovation Policies being right in order to keep innovation going. Or we don’t have to worry about whether China is being authoritarian or not. Because this can happen in the cloud. Isn’t that the great promise of Bitcoin and crypto? I hope so.
Stephan Livera:
Well, yeah. So for many of us in the Bitcoin world, we see it essentially as a challenge against central banking. And we see it as a challenge against inflation essentially. That’s one of the main ones. And also a challenge against people who want to permission you and stop you from sending your money anywhere around the world that you want to. And so as you were mentioning that a Bitcoin allows people to essentially bypass or sort of do an end run around the censorship that governments and force onto the traditional banking or PayPal and so on where they say, no, this is AML, this is sanctions, you must do X, Y, and Z. Whereas once you are operating in the Bitcoin world, you’re operating in a way where essentially you transact permissionlessly. So I think that for me is where I see a big improvement and also the inflation, like the kind of anti inflationary aspect of being able to hold our value in something that is not going down in value all the time.
Stephan Livera:
And so that’s just another way that people want to, if they wish to save a small portion, they can do that kind of thing. I think another really interesting topic that I saw from your book was this idea that, you know, where does the innovation come from? Does it come from these academics in the universities or does it really come from the tinkerers and practitioners, the people who are really at the coalface. And the sense that I got from your book and also from other books such as Terence Kealey’s work. I got a similar sense that really it’s kind of like tinkerers and practitioners are really the ones who drive things forward and oftentimes scientists and academics, they’re almost the ones explaining after the fact. Although, that’s probably not quite fair, but that was a bit of a flip from the typical common sense. What would you say?
Matt Ridley:
Yes. This is the general view among people who’ve studied innovation hard is and has been for a long time. That is not a linear process. It doesn’t start with academics having bright ideas in universities and then end up with applications, spin outs and a gradual dissemination of something into the world that way. I mean it can happen that way, but it isn’t necessarily linear in that way just as often it’s going the other way that tinkerers, as you say, fiddling with technology and coming up with better ways of doing things and in the process stumbling on general principles that scientists in academia then have to explain. One of, you know, this is obviously true back in the 18th and 19th century.
Matt Ridley:
So Steam engine led to the science of thermodynamics rather than the other way. Right? I think everyone can agree on that, but of course it becomes less true as we come forward and we get a much bigger research and development sector in universities and innovation becomes part of their mission. Yes, of course they’re going to contribute some original ideas that are going to lead to spin outs, but even some of the things that look like they came out of pure research and went into application, sometimes it’s not quite that way. The example I gave is CRISPR, the genome editing process that has been developed within the last 10 years which is a fantastic new technology which comes out of MIT and Berkeley and you know, all the great universities and is now being applied in industry. Fine, simple story, you know, from academia to application.
Matt Ridley:
Well, not when you look closer because where did the guys in the universities get it from? They got it from the yogurt industry. The yogurt industry has a problem, which is that it’s bugs the bacteria, which it uses to ferment dairy products tend to get sick when they get sick. It’s viruses that make them sick. So they employed bacteriologists to try and understand how the bacteria can resist these viruses. And one of the things they picked up was a hint from a guy in a university, but working with the salt industry that he’d found weird sequences in bacteria that seemed to have viral sequences embedded in them. And maybe this was part of the virus’ immune system whereby was keeping a library of genomes of viruses to recognize when they turn up and attack, which indeed is what it turned out to be. So we wouldn’t have this without some people trying to solve a simple basic problem in the yogurt industry. Which then gets turned into a much more available product for both agriculture and medicine and in human beings.
Stephan Livera:
And that also is an interesting one because it’s like, I’m just reminded now of another concept from your book, which is that use often proceeds understanding, right? So sometimes, you know, people are just using this thing and they don’t quite understand how all the pieces sort of fit together. But then the academics come back and sort of post facto rationalize how it worked. But at the start, people didn’t actually understand the entire process. Correct?
Matt Ridley:
Yeah, I mean, vaccines are a beautiful example of that. I mean, the idea of inoculating someone with a weak version of a disease to stop them getting a stronger version of the disease goes right back to the 18th century in Britain and America and probably an awful lot further back in China and Arabia and maybe even Africa. And I write in the book about somebody called Lady Montagu who went off to Constantinople as the wife of the British ambassador there and picked up from women in the harems of the ultimate rulers that they were doing this, that they were scratching the skin of their kids to give them smallpox when they were small in the hope that it would protect them against getting a fatal smallpox when they were larger. And she brings this idea back to Britain and promulgates it and persuades the Prince of Wales and others to have their children inoculated as she has her own children and innoculated very bravely.
Matt Ridley:
And many people in the medical establishment tinkerers she’s a complete quack and a dangerous person. And indeed, there are right to these early vaccinators, particularly ones in America. The chap had to lock himself in a room to, prevent being killed by the mob cause he was promulgating this dangerous idea. And sure enough, when you look at some of the medical practices that were around at the time, this one does sound completely bonkers. You know, what do you mean you’re going to give a kid a disease? You know, how dare you suggest such a ludicrous idea. And it’s hundreds of years after this starting with Pasteur that we start to get an inkling of why inoculation or vaccination works. So it’s a very nice example of use preceding understanding by a long way.
Stephan Livera:
Yeah, it’s a very counterintuitive things there. And I think that also ties into another theme I enjoyed reading from your book, which is that innovation is not always socially acceptable. Often times there are times where society pushes back against the innovator. So what are some examples there? And why does society push back against these innovators? Shouldn’t we be lauding their work?
Matt Ridley:
Yeah, I mean we think we’re pro innovation, but actually if you look at the way we react to new ideas, we’re fantastically conservative. You know, oftentimes there’s a, well, hang on, don’t think that’s a good idea reaction. The examples I gave him, the book I give the example of coffee. Coffee is an innovation that comes from Ethiopia into the Arab world in the 1400’s and then into the rest of Europe. And the next couple of hundred years after that and everywhere it’s introduced, there’s a ban on it that the ruler says, I’m banning this stuff. And he usually fails, people like coffee too much. They find a way around the ban and eventually gives up trying to ban it. But even though there’s some pretty strong rules against it, so King Charles the second of England in the 1670s, he bans coffee houses.
Matt Ridley:
Now, two reasons he’s doing this one because he’s being lobbied by the brewery and, and wine industries who don’t like competition. And that’s a common theme. But the other reason is because he’s figured out that people go to coffee shops to have coffee and when they’re in coffee shops, they start talking to each other. And when they talk to each other, they sometimes talk about how the King is not doing a very good job as King. And he doesn’t like that. And he, you know, he says the trouble with coffee shops, people telling lies. It’s fake news that he’s worried about. So this is a very nice example. By the way, the opposition to coffee is dressed up in very strongly sort of medical, pseudo scientific terms. You know, it dries out the lymph nodes, it causes abortions. I don’t know.
Matt Ridley:
You know, there’s sort of all sorts of arguments made against which are spurious. The umbrella was resisted by the people who drove handsome cabs around London saying, you know, hang on a minute, people are going to walk down the street when it’s raining. Instead of getting in one of our cabs, we don’t like that. This is a dangerous instrument. It shouldn’t be allowed, blah, blah, blah. Margarine, it was decades of opposition to Margarine bans on Margarine and remained on the statute in about half of American States, right up until the 1940s entirely because of lobbying by the dairy industry. More recently and more seriously, we’ve seen a whole continent that is to say Europe turn its back on an innovation in this case, genetic modification of crops on wholly spurious grounds, which has done real damage to the environment actually by Europe would have been using far less insecticide now if it had adopted GMO’s as opposed to rejecting them.
Matt Ridley:
So opposition to new technologies, it continues and if anything is stronger now because you are very well funded lobbies against it. Something like a mobile phone gets through this problem because it’s so obviously useful to people as individuals that they don’t want to listen to the scare stories. But there were a lot of scare stories. A lot of people try to tell us that mobile phones, we’re going to fry our brains. If you remember 20, 30 years ago and but on the whole we said, nah, this thing’s too useful. I’m going to take the risk anyway. But if it’s not of an individual use to you, like GMO’s are not, then you don’t really then you’re quite happy to say, okay, let’s ban it.
Stephan Livera:
Yep. And you also mentioned how sometimes as you were mentioning, incumbents can block the new technologies if they compete with their technology and they’ll say something like, Oh, I think in your book you mentioned trains they were saying early opponents of railways were accusing trains of causing horses to abort their foals. So like the incumbent just sort of leverages their political connection and they keep throwing these random, you know, objections at the wall hoping that something will stick. Right?
Matt Ridley:
Yep.The horse association of America has a huge campaign against tractors and it’s pretty successful. It actually, you know, manages to get whole states not to allow tractors for quite a long time. No, I mean. Look for the person who’s gaining from from opposing a new technology. There’s nearly always a vested interest that one of the more recent examples, which are discussed in the book is vaping, electronic cigarettes. Big opposition to this, both successful in some countries, even though it’s quite clearly much, much safer than smoking and actually quite a good way of weaning people off, a dangerous, onto a less dangerous technology. Nonetheless a big opposition to it. Where’s the opposition coming from? If you track the money you find it nearly always comes from the pharmaceutical industry. Why? Well, because the pharmaceutical industry has very lucrative products that are prescribed called patches and gums. Now, because they’re prescribed, they get well reimbursed for them, et cetera. They don’t want the idea of someone taking it, picking up an electronic cigarette instead of saying this is much more effective than that patch, which didn’t really work for me and I had to keep trying it over and over again. So you know guilty that the pharmaceutical industry is guilty of a very self-interested campaign here and it’s well hidden. You know, you have to dig to find out what’s going on.
Stephan Livera:
And additionally, it’s like innovations can sometimes go through these cycles of banning and unbanning and in different jurisdictions around the world. Is that also, that seems to be a common trend in your research as well? Correct?
Matt Ridley:
Yeah, I think the pattern, either an innovation will gradually win out and the bans get overturned or it dies. You know, so for example fracking you know, shale gas is a extraordinary innovation of the last 20 years that has transformed the energy industry in the United States. Some states have banned it and others have not. It’s having a big effect on the prosperity of those States that allow it. And largely the European countries have rejected it and said it’s a dangerous technology, even though it’s very old technology and it’s just an improved version of it. Will it be possible to overturn those bans? Will we come back round at a future stage and say, actually, we need the natural gas. It’s a lot cleaner than coal.
Matt Ridley:
It’s what we need to make hydrogen from, we want to move to a hydrogen economy and we found ways of capturing the carbon. You know, if these arguments come run, then we’ll need to access these incredible resources of natural gas under countries like the UK. Will we be able to undo the bands we’ve done? I hope so. I mean I think, you know, history teaches that countries like the Ottoman empire banned printing for several centuries cause they worried about people printing books that were not exactly supportive of the regime. And eventually inch by inch they had to give in, but it took several centuries. So resistance to innovation is a huge problem and we live in an age that is not seen as rapid and as effective innovation as we would like to, as we should be seeing except in one area.
Matt Ridley:
And that’s the digital world where as Peter Thiel points out, it’s still largely permission less and the rules were written such as the digital millennium copyright act in the United States, very specifically to encourage innovation in that area. But everywhere else, it’s pretty hard to innovate nowadays. You have to persuade an awful lot of bureaucrats that you’re doing the right thing. They often take a long time to make up their minds. I give the example of medical devices a rather pertinent, one at the moment in the middle of the governed pandemic. Medical devices take years to get licensed. Now for an entrepreneur who’s trying to develop a new diagnostic test for a virus, say years can be fatal. If he has to wait two or three years to get to approval from a medical licensing agency in his country, then he’s probably gone bust in that time. So he doesn’t actually try, he goes off and invents you know, something in crypto instead.
Stephan Livera:
That’s end. Look, I think I see some parallels as well with the whole Bitcoin world here because for example, discussions around a Bitcoin ETF get blocked for reasons where perhaps if it were some other commodity by now it might well have been approved. It’s just that there’s this kind of constant resistance or pushback. Now perhaps that could be a blessing in disguise. In some ways it forces people to innovate along different ways. Maybe they will start self custodying and holding their own Bitcoins, things like that. Another area that’s also related is having society sort of have the, for this new innovation to work and for it to make sense. I think a good example you bring up is the wheels on the luggage idea, luggage bags. Because you might think, Oh, well we should’ve had that long, long time ago. But as you point out, it actually, it wasn’t set up well to have that innovation. Why is that?
Matt Ridley:
Yes. I think this is a really nice point because it’s a useful thought experiment to say which technologies that you have today do you think should have been invented decades before they were, you know, why? Why wasn’t mobile telephony around in the 1940s? Why wasn’t the internet around in the 1960s, you know, you can go through these thought experiments. You nearly always come up thinking, well actually the infrastructure, the subsidiary technologies you need to do, it just weren’t available. It would not have been cheap enough or small enough or portable enough or whatever it might be in those days. And people quite often mentioned wheeled suitcases as a good counter example. You know, why on earth did we have to wait until the 1980s and much later in the case of the roller board, before we had really good wheels on suitcases, suitcases didn’t have wheels.
Matt Ridley:
And actually I looked into the history of the wheeled suitcase and sure enough, the guy who invents it in the 1970s goes around to all the big luggage manufacturers trying to sell his idea. And most of them say, nah, I don’t really see the point of it. And you think that’s crazy. But then once you think about it, and also by the way, other people had the same experience going right back to the 1920s trying to interest luggage manufacturers in wheels on suitcases and failing. But when you think about it, wheels would have been that much heavier than, you know, they would been made of steel. Not many of them have been less plastic involved that have taken up more space that they’ve have added more weight to the bag and airports were much smaller. You didn’t have to walk nearly as far.
Matt Ridley:
Porters were much more numerous. You just handed your bag to a porter who put it on a cart to wheel it away. So actually I’m not sure that the wheeled suitcase doesn’t arrive too late in history. It probably arrives about the time when all the other supporting technologies are right for you. Just back to something you said earlier about the crypto world and resistance to innovation, I just wanted to make the point that in a sense Bitcoin is taking on the biggest monopolist of the lot, i.e. Government. And if you think it’s difficult to win a battle against big pharma or big tech, wait until you try big government because the jealousy with which governments guard their monopoly on the issuance of money cannot be underestimated. I mean, in my previous book, I wrote about a fascinating episode in the history of money where in the 18th century, Scotland developed instead of a central bank, it had a bunch of competing banks.
Matt Ridley:
And this was partly because of the Jacobite rebellions. They didn’t like a Jacobite controlled bank having too much power. So they set up rivals to it. So a bunch of competing banks between them controlled the currency in a way that wasn’t true in England. And this led to an incredibly innovative and incredibly successful banking system with very little in the way of crashes in Scotland as opposed to England. And it was eventually stamped out by a jealous British government in the 19th century and no, no, no bank of England is going to control your currency. So don’t underestimate the task you’re taking on in Bitcoin in trying to wrest control of a technology from government, which likes to own it.
Stephan Livera:
I think that’s a, that’s a very fair point. I think. Hopefully we see, well, first of all, I think we’re probably at a point in terms of Bitcoin. I think we’re probably not there yet that governments really care about challenging Bitcoin yet, but potentially, I mean, imagine another 5, 10 years time that could happen. But I suppose for me personally, I’m sort of more optimistic on the idea that we’ll see competitive jurisdictions competitive you know, like competitive federalism kind of idea. But it remains to be seen. And I think another while we’re talking about government and government directed innovations as well. In your book, you talk about this concept of, I’m not sure what the correct term, but something like spillover versus directed, where it’s sort of like the government tries to throw some money at science and just take credit for, okay, Oh, the U.S. Government, DARPA did internet, therefore, Oh, look, see we have to thank the, the government for the internet. But that’s not necessarily the case because again, it comes, it comes back to that commercialization and getting a specific benefit. And I think perhaps that’s also similar to the yogurt example, wouldn’t you say?
Matt Ridley:
Yes. I do think that we tend to overestimate the degree to which government is the originator of stuff. Don’t get me wrong. Government is important in the innovation space. And given that it takes 40% of our money off us, it would be a shame if it didn’t spend some of that on innovation. I mean, if it spent it all on other things, that would be a pity. So I’m all for it spending money on research and on development. But we tend to say things like, Ah, you couldn’t have had the iPhone without government spending because all the technologies in the iPhone from GPS to plasma screens, et cetera, all came out of government funded research. And there’s some truth to that. But there’s also an awful lot of nonsense in that because it’s a bit like the beaver saying yeah, I didn’t build the Hoover dam, but it’s based on an idea of mine.
Matt Ridley:
Huge amount of work had to go into turning these basic concepts into things that were practical and useful. And that was all done in private industry. And in the case of things like the touchscreen, you know, this supposedly came out of publicly funded thesis at a university somewhere, but it was an accidental discovery. You know, the government wasn’t saying, please invent touch screens for me. They were just saying, right, here’s a fund by which we fund research into interesting areas to see what you come up with. Well, that’s fine. That’s the way it should be. There’s a tendency these days to say, no government must pick winners must decide who is good at which technologies we need to change in the future. You know, we’re going to throw money at energy research so that we can find the solution to missions, et cetera.
Matt Ridley:
Now, as long as it’s doing it in an open minded way, we don’t really know where the answer’s going to come from, fine. But if it’s doing it in a directed way, then it’s going to fall flat on its face. More often than not. You know, the best example of this comes from the 18th century where government said measuring longitude at sea is a real problem. We’ve just lost a whole fleet on the rocks, off the Scilly Aisles cause they were 200 miles East of where they thought they were because they can’t measure how far East or West they are using the stars the way they can for latitude. Will someone please come up with a solution to this problem? We’ll give you 20,000 pounds if you do. And lots of astronomers scratched their heads and had a go and eventually a humble clockmaker came back and said, here’s the answer.
Matt Ridley:
You just have really good clocks on ships and as long as they don’t mind being swayed around by the waves, et cetera. As long as the clock can keep time, then you can tell what the time is in London and what the time is where you are. And that will tell you how far West or East you are. His name was John Harrison and the government said, we’re not going to give you the money. No, no, no. This money is for astronomers and mathematicians and you know, people who wear wigs, not humble clockmakers like you. But of course he was absolutely right. That is exactly how you measure longitude. And they did eventually have to give him the prize. So serendipity is really important here. A lot of the best ideas come from unexpected directions.
Stephan Livera:
That’s so fascinating. And another really cool topic I’d love to talk about is this whole fakers, you know, frauds, right? You’ve got this whole Elizabeth Holmes, Theranos kind of idea but at the same time, then you’ve got other examples where some people really did fake it until they made it. And they really did do that. So how do you think about that and how do you sort of, how do you sort the wheat from the chaff? How do you know who’s like really gonna make it and who’s just a complete faker?
Matt Ridley:
It’s really, it’s a really good question. And one that I know I’ve talked to people in Silicon Valley who said ah you know, all the wise Silicon Valley people knew that Sarah knows was, was nonsense. Well, I’m not so sure about that. An awful lot of money got raised. One extreme. You’ve got people genuinely fraudulently faking things. So I write about fake bomb detectors that were, you know, pretended to have quantum technology in them. They just had bits of cardboard in them. You know, these guys were lying and killing people. At the other extreme you’ve got Steve Jobs saying, I’m going to invent something in a few years time. And he jolly well does, but he doesn’t at the time. He knows the announcement, know how he’s going to get there, that’s faking it till you make it.
Matt Ridley:
In between you’ve got people hoping to do a Steve Jobs and failing. And that’s where I think fairness comes in because Jobs had Moore’s law working for him. That is to say things got cheaper and more effective, more reliable as they got smaller. That’s the weird thing about transistors. The smaller you make them, the more reliable they are. And that’s, you know, the story of the modern world in one go in a way. Elizabeth Holmes banks on the same thing happening to microfluidics. That is to say the processing of small samples of blood. She’s going to make it smaller and smaller and it’s gonna be just as reliable, if not more reliable. And of course the opposite is true. The smaller you make a sample, the easier it is to get a false result in that kind of area.
Matt Ridley:
So faking it till you make it doesn’t work for her. And then there are others, the vaporware stories where people thought they were going to be able to fake it till they make it. There was a multi purpose games console that was constantly advertised and re advertised at a certain point in the early two thousands and ended up never happening, you know they’re on the borderline between fraud and just failure. But frauds fakes failures and fads all go together. I mean, the fat end. You’ve got Gwyneth Paltrow’s saying all sorts of weird stuff about what you can do with products to make your body healthier based on some mumbo jumbo about traditional Chinese beliefs. There’s maybe an element of truth to some of them but there isn’t to others, you know, so the market sniffs out the mistakes in the end but not before quite a lot of people make quite a lot of money in some cases.
Stephan Livera:
Well, look, I think that really rings true, especially in the quote unquote crypto space in especially in 2017 where as I’m sure you’re aware and many listeners are aware there were a lot of scam projects in the space.
Stephan Livera:
For me as a caution, I normally advise listeners to really stay with Bitcoin only because we know Bitcoin works and it really is an innovation that you can control and you can use people who talk about ‘crypto’, some of them essentially, some of them essentially were basically charlatan types who were sort of promising and promising and promising, but never really delivering because they didn’t actually have a real product there. But yeah. So I think we will see, as you said, the market sort of proves it out over time and figures out who is lying and who was genuine. And one thing that I think is also very relevant today in this whole Corona virus crisis and so on. And people are talking about, okay, how are we going to get out of this? In your book you mentioned this idea of the innovation famine. That’s if society is too restrictive or if it’s too closed off. Right. And so even now there’s some discussion and you know, some what you might call saber rattling or whatever of people not wanting to trade with China. But I think there’s probably a good caution there for listeners that in your book you mentioned that those societies that closed themselves off to trade were also very poor from an innovation standpoint. So why was that?
Matt Ridley:
Yeah, that’s unbelievably true. It’s because the bigger your trading network, the more ideas you’re going to come across and the more you’re going to be able to put different ideas together. Human ingenuity is a collective phenomenon. It’s a cloud phenomenon. It always has been always, but for a very long time. Actually, there’s an Australian story that tells us very clearly, which is the story of Tasmania, which became an Island about 10,000 years ago when rising sea levels cut it off from the mainland of Australia. And the Bass Strait is quite a wide piece of sea. So the people who lived on Tasmania during that 10,000 years until contact with Western sailors were isolated. There were only about 4,000 people on the Island. Most of that time. They had the technologies that all Australians had before the cutoff, but obviously they didn’t get access to anything invented after that.
Matt Ridley:
Like the boomerang for example, was invented after 10,000 years ago. It never made it to Tasmania. So you’re, you’re not relying on these networks to bring you ideas from a long way away, which is a hugely important part of, of human culture. In fact, in the Tasmanian case, they actually go backwards. They actually dropped certain technologies that they had to start with. They stopped making bone tools at certain point, for example, they stopped making fishing tackle. And the reason for this seems to be that you need a large enough population to have the specialized skills to keep certain technologies alive. It’s not because their mental capacity is changing. It’s because of the collective effect as I put it. If you put a a hundred very clever people in the room they’ll do worse than if you put a hundred, sorry, people at a hundred people to one side, but they can’t talk to each other.
Matt Ridley:
They will achieve less than if you put a hundred stupid people together and tell them to talk to each other. That’s how we achieve things, is by sharing our ideas. And that’s where international trade is important. And we must cut ourselves off from China in particular because it is now the most innovative society on earth. If you look at what they’re doing with consumer electronics and you know, just payments and things, it’s way ahead of what other countries and continents are doing. Albeit it’s not very innovative in areas like democracy. You know, I’m not here to defend it and we do have serious issues about how to deal with what China hasn’t shown in its openness during this pandemic. And indeed our reliance on it. And as you say, I think the pandemic shows that we haven’t been doing enough innovation, not that we’ve been doing too much.
Matt Ridley:
You know, we worry when a precautionary way, but when new technology is doing as harm, whether it’s Bitcoin or the internet, what the effect is having on social media and politics or genetic modification, what it might do, et cetera, et cetera. All the environmental impacts of new technologies, we worry and worry about that. And we weren’t looking at the fact that vaccine development is still an incredibly slow, laborious and difficult process that the pharmaceutical industry has largely neglected it because it can’t make money out of it. Cause if the vaccine works, it does itself out of business in short order. The world health organization has done very little to advance vaccine development. And that as a result, we’re now facing a delay of a year or two, which is not that different from how long it took to make vaccines 30, 40, 50 years ago. That’s shocking. That’s terrifying. You know, it’s the one way we know to stop these pandemics. We know there are huge risks. The world health organization said in 2015, the greatest threat to human health in the 21st century is climate change. That’s the organization charged with stopping pandemics. It was looking in the wrong direction. I’m afraid the climate change needs worrying about other organizations should worry about it, but the World Health Organization should have been spending more attention I think on pandemics.
Stephan Livera:
Right. And perhaps in your book you also mentioned how sometimes the red tape of these mature societies ends up with this scenario where you’ve got these rich consultants who are doing impact assessments on a new runway for the London Heathrow airport where while other countries are just getting on with their innovation and they’re just building and they’re creating new innovations that they can then become more prosperous with.
Matt Ridley:
Well, I do think speed of decision by bureaucrats, much more important than whether they say yes or no. Well maybe not much more important, but it is more important because what kills entrepreneurs is not that the regulators eventually say yes. They often don’t eventually say yes. I mean, both shale gas and GMOs are in theory allowed in Europe. It’s just you know, when BASF invented the genetically modified potato, it took them 8 years to get a clear decision out of the European commission, by which time they’d lost interest and they’d moved their research team to America. It’s not the bureaucrat saying no, it’s the bureaucrats taking an age to say yes, that is often the problem. If you talk to innovators and entrepreneurs. It doesn’t matter. You know, by all means say no, just say it quickly, get the decision out there.
Matt Ridley:
A new runway is not an innovation, but we’ve been arguing about a new runway for Heathrow airport for something like 30 years and each time we think we’re getting there, we say, well, it’s not quite a long time since we did a survey to see whether there are any bats or newts living there. Let’s do the surveys again. Yeah but we can’t do them at the moment cause it’s winter time. So we’ll have to wait until summer when the bats and newts are active, you know, it’s unbelievable how many excuses officialdom can come up with for not taking a decision. And there’s no downside to delaying a decision for a bureaucrat. In fact, it’s quite often some upside because it enables you to pass the buck to your successor.
Stephan Livera:
Right. And I think, I guess perhaps that’s one area where Bitcoin as in the ideal sense, it’s permissionless, it’s meant to be that you can just set up and you can create a Bitcoin business and earn Bitcoin online and nobody can stop you. There’s no government bureaucrat who lay that on you. So perhaps that’s a lesson for the listeners as well. So look, I think we’re just coming to time, so I don’t want to go over onto your time, but perhaps if you wanted to just tell the listeners let’s just call that where the listeners can find your book. So just for listeners follow Matt on Twitter. His handle is @mattwridley and I’ve just got onscreen now the website from HarperCollins, which shows How Innovation Works. So Matt, where would you like listeners to find you a follow up? Find your book?
Matt Ridley:
My website is rationaloptimist.com. As you say, that’s my Twitter handle. The book is available in the U.S. Right now from tomorrow. It’s not available in the UK and Australia until late June. But that’s because I’ve written an afterword that is included in the book about the pandemic. So it’s worth waiting perhaps for that. Thanks so much, Stephan, for having me on the show.
Stephan Livera:
Fantastic. Well, look, I think that’s pretty much going to do it for us. So listeners, you can find my material stephanlivera.com. Otherwise, that’s it from us. Thanks. And we’ll see you in the citadels.