When you think about it, what has happened to human society in the last 300 years is pretty weird. After trundling along with horses and sailboats, slaves and swords, for millennia, we suddenly got steam engines and search engines, and planes and cars and electricity and computers and social media and DNA sequences. We gave ourselves a perpetual motion machine called innovation. The more we innovated, the more innovation became possible.
It’s by far the biggest story of the last three centuries—the main cause of the decline of extreme poverty to unprecedented levels—yet we know curiously little about why it happened, let alone when and where and how it can be made to continue. It certainly did not start as a result of deliberate policy. Even today, beyond throwing money at scientists in the hope they might start businesses, and subsidies at businesses in the hope they might deliver products, we don’t have much of an idea how to encourage innovation at the political level.
What’s more, economists have been in a special muddle about innovation for a long time. The economics profession spent a couple of centuries assuming that markets tend towards equilibria, through the invisible hand. Hence John Stuart Mill and John Maynard Keynes and pretty well everybody else in between assumed that we would see diminishing returns come to dominate human endeavor. But instead we experienced increasing returns, accelerating invention. As the author David Warsh put it in his book Knowledge and the Wealth of Nations (2006) some years ago, economists obsessed about Adam Smith’s invisible hand but forgot about his pin factory, where specialization led to innovation.
Now, thanks to people like Nobel Prize winner Paul Romer, the penny has finally dropped that there is an effectively infinite number of ways to rearrange the atoms and bits in the world into useful combinations, and that returns can increase forever. At the same time, people have spotted that the societies that do the most innovating are the ones with the most freedom for people to exchange ideas. It was freedom, not state direction, that caused both Victorian Britain and modern California to be hotbeds of innovation. It was state dirigisme that prevented Stalin’s Russia, Mao’s China, Mugabe’s Zimbabwe and to a lesser extent Jean-Claude Juncker’s European Union from being similar hotbeds. Necessity is not the mother of invention. Ambition is.
In my new book How Innovation Works I argue that the state rarely deserves the credit for sparking innovation, in public health and elsewhere: “Far more often inventions and discoveries emerge by serendipity and the exchange of ideas, and are pushed, pulled, moulded, transformed and brought to life by people acting as individuals, firms, markets and yes, sometimes public servants. Trying to pretend that government is the main actor in this process, let alone one with directed intentionality, is an essentially creationist approach to an essentially evolutionary phenomenon.”
In a year marred by economic collapse and the worst pandemic in a century, it is more important than ever that we remember this lesson. Top-down, state organizations from the Chinese Communist Party to the World Health Organization to the Food and Drug Administration to Public Health England have repeatedly misled the public and strangled the experimentation and technological innovation needed to react to the COVID-19 outbreak, or to address the economic consequences of the pandemic.
From testing, to cures, to developing a vaccine, to creative and practical methods of physical distancing, the solution to the current crises is more innovation, not less. That means more freedom, not less.
How Innovation Works was released this week.
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