Book Notes: How Innovation Works

These are my notes on the book “How Innovation Works” by Matt Ridley. The notes are a combination of direct quotes and my own paraphrasing.

ELI5: Innovation is creating something new that is useful. It is different from invention, which is creating something new that is not necessarily useful. Innovation often happens by accident, and it is always a team effort. It is usually a gradual process that happens over time through trial and error. There can be a lot of resistance to innovation, because people are sometimes afraid of change. The main ingredient in the secret sauce that leads to innovation is freedom.

Innovation is gradual

Eureka moments are rare, possibly non-existent. Man-made technologies evolve from previous tech, and are not invented from scratch. This is a key characteristic of evolutionary systems: the move to the “adjacent possible” step.

If innovation is a gradual, evolutionary process, why is it so often described in terms of revolutions, heroic breakthroughs and sudden enlightenment? Two answers: human nature and the intellectual property system. Very few people have much incentive to argue that invention is gradual.

Innovation is different from invention

Tim Harford: “The most influential technologies are often humble and cheap. Mere affordability often counts for more than the beguiling complexity of an organic robot.”

Fritz Haber’s discovery of how to fix nitrogen was a great innovation. But it was Carl Bosch’s years of hard experiment, overcoming problem after problem and borrowing novel ideas from other industries that eventually led to large scale and a price that society could afford to pay.

Again and again in the history of innovation, it is the people who find ways to drive down the costs and simplify the product who make the biggest difference.

Joseph Shumpeter: “The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.”

Innovation is often serendipitous

It is a well known attribute of innovation: accidental discovery.

Innovation is recombinant

Every technology is a combination of other technologies; every idea a combination of other ideas. “Novel technologies arise by combination of existing technologies and that (therefore) existing technologies beget further technologies.”

Innovation happens when ideas have sex. It occurs where people meet an exchange goods, services and thoughts.

In biology, little mistakes (point mutations) are the fuel of evolution. But Andreas Wagner argues such small steps cannot help organisms cross valleys of disadvantage to find new peaks of advantage. Sudden shifts of whole chunks of DNA, through crossing over, or through so-called mobile genetic elements, are necessary to allow organisms to leap across these valleys. The extreme case is hybridization. Wagner: “Recombination is much more likely to preserve life — up to a thousand times more likely — than random mutation is.” Bacteria can “catapult themselves not just hundreds of miles, but thousands of miles, through a vast genetic landscape, all courtesy of gene transfer.”

Innovation involves trial and error

Most inventors find that they need to keep “just trying” things. Tolerance of error is therefore critical. Playfulness probably helps too. Innovators who just like playing around are more likely to find something unexpected.

Innovation is a team sport

It is always a collaborative phenomenon. This pattern is the rule, not the exception, and it was the flowering of societies, clubs and mechanics’ institutes that gave Britain its lead in the industrial revolution.

Innovation is inexorable

People seem to stumble on the same idea at the same time. Technology is absurdly predictable in retrospect, wholly unpredictable in prospect.

Innovation’s hype cycle

People tend to overestimate the impact of a new technology in the short run, but to underestimate it in the long run.

Innovation prefers fragmented governance

Empires are bad at innovation. As time goes by and the central power ossifies, tech tends to stagnate, elites tend to resist novelty and funds get diverted into luxury, war or corruption.

In the history of China, periods of explosive innovation coincided with decentralized government.

This fragmentation works best when it results in the creation of city states.

Innovation is the mother of science as often as it is the daughter

It is just as often the case that invention is the parent of science: techniques and processes are developed that work, but the understanding of them comes later. Steam engines led to the understanding of thermodynamics, not the other way round. Powered flight preceded almost all aerodynamics.

Innovation does not create unemployment

The idea that innovation destroys jobs comes around in every generation. So far it has proved wrong. Over the past two centuries productivity in agriculture dramatically increased, but farm workers moved to cities and got jobs in manufacturing.

Big companies are bad at innovation

Innovation often comes from outsiders. This is true of individuals as well as organizations.

Big companies are too bureaucratic, have too big a vested interest in the status quo and stop paying attention to the interests, actual and potential, of their customers. Many times only competition can make big companies more innovative.

There can be a lot of resistance to innovation

Innovation is the source of prosperity and yet it is often unpopular.

Coffee shops have been popular places to meet for at least 4 centuries. But coffee has had a long history of bans and prohibitions.

Here we see all the characteristic features of opposition to innovation: an appeal to safety; a degree of self-interest among vested interests; and a paranoia among the powerful. Recent debates about GMO food or social media echo these old coffee wars.

Even intellectual property can stifle innovation.

For example there is no evidence from geography and history that patens are helpful, let alone necessary, in encouraging innovation.

Patents undoubtedly raise the cost of goods. The justification of the patent system is that by slowing down the diffusion of technical progress it ensures that there will be more progress to diffuse. But this does not necessarily happen.

Finally, patents tend to favor inventions rather than innovations: upstream discoveries of principles, rather than downstream adaptation of devices to the market.

Innovation is one of those things that everybody favors in general, and everybody finds a reason to be against in particular cases. Far from being welcomed and encouraged, innovators have to struggle against the vested interest of incumbents, the cautious conservatism of human psychology, the profitability of protest, and the barriers to entry erected by patents, regulations, standards and licenses.

How innovation works

The main ingredient in the secret sauce that leads to innovation is freedom. Freedom to exchange, experiment, imagine, invest and fail; freedom from expropriation or restriction by chiefs, priests and thieves; freedom on the part of consumers to reward the innovations they like and reject the ones they do not.

This reliance on freedom explains why innovation cannot easily be planned, because neither human wishes nor the means of their satisfaction are easy to anticipate in the detail required.

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