Matt Ridley: How Innovation Works, Part 1

I don't have heroes. Heroes is a big word. There are people that I look up to and I've learned a lot from. And Matt Ridley has got to be near the top of that list. Growing up, I was a voracious reader, especially reading science. Matt had a bigger influence on pulling me into science and a love of science than almost any other author. His first book that I read was called Genome. I must have six or seven dog-eared copies of Genome lying around in various boxes. It helped me define what life is, how it works, why it's important, and placed evolution as a binding principle in the center of my worldview. That is a common theme that runs across Matt's books. After that, I read his book, The Red Queen, which laid out the age-old competition between bacteria, viruses, and humans, a topic that's extremely relevant today. I also read his book, The Rational Optimist, which helped me realize that it was rational to be optimistic because of the technological advancement, the scientific advancement that we've had as a human species since we first came across fire, the stone axe, and basic tools. His book, The Origins of Virtue, helped me take a game theoretical framework towards virtues and ethics. His book, The Evolution of Everything, continued that theme towards everything evolving. I'm sad to say I've missed one or two of your books in there, Matt, The Agile Gene. I have to go back and read that one. And most recently, Matt wrote a great book called How Innovation Works, which will be out by the time this podcast is out there. And I had the pleasure of reading an advanced copy over the last week. Welcome, Matt. Honored to have you here. Do you want to give us, in your own words, a little bit of your background and how you got into writing about science? Naval, it's great to meet you and really interesting to hear that story of how you've read so many of my books and got the point of them. I'm someone who's enjoyed writing all my life. I became a professional journalist after a brief career as a scientist. I only got as far as doing a PhD in biology and then decided that I wanted to be a writer instead. So I became a journalist on The Economist magazine. I was science editor there for a number of years and then a political reporter and correspondent there as well. I then became a freelance writer. That was when I wrote The Red Queen after leaving The Economist, which was a book close to the topic I'd been studying as a biologist, that is to say, the evolution of sex. From there on, I've been incredibly lucky because people have given me contracts to write books about things that interest me. At the moment, it's about every five years that I do a book, but I don't do a book until I'm interested enough in a topic. It's a very difficult decision plunging into writing a book on one topic and thereby not doing all the other topics you want to write books about. I read this book in preparation for this conversation. So it suffered from becoming a chore because normally one reads purely for enjoyment at their leisure. And this time it became more about hitting a deadline. That said, this has been your most impactful book for me since Gino. It was very revealing. There are two things about this book that put it in a different class than your previous books for me. One is that it corrected a longstanding misconception I have about how Silicon Valley works. I am steeped in Silicon Valley. I've been here since 1996. I'm an investor in hundreds of companies. I've started close to a dozen companies. I thought I know this game as well as anybody. And your book corrected a serious error that I had in my mind of the framework of how Silicon Valley works. And we can get into that. The second thing about this book is that it was actionable. The first half was this collection of incredible stories about inventors and innovators that would be fun historical reading in its own right. But then the second half was explaining how innovation works and what helps it work, what stops it from working, what creates the conditions for it to work and not work. So I recommend this book for two classes of people. One is innovators and would-be innovators themselves. If you're an entrepreneur in Silicon Valley, Shanghai, or Bangalore, and you're thinking about creating products, whether it's social media, launching rockets, building airplanes or genetic engineering, you need to read this book because it will give you a better view of the history of innovation as well as the future of innovation than any other book that I know of. That context will be incredibly important when you're trying to figure out things like, do I file patents? How important is the role of science? How important is the role of government? How long will it take for my innovation to be adopted? How much can I expect to sink into legal battles versus explaining things to people versus building the product? It's a must read for that category of people. The other category that it's very relevant for is government officials, because to the extent that many of them pay lip service to the idea of building the next Silicon Valley or attracting entrepreneurship, they don't know how. People ask me this all the time, and I give them basic, vague things like, yeah, you need to have some freedom, you need to have nice weather, you need to have a university system. But this book has an actionable playbook near the end of how to foster that good environment. I'm very encouraged that you think it's practical and actionable? Because that's one thing I wanted to do in this book. Most of my books are on the whole thinking about the world rather than changing the world. But in this case, I wanted to try and zero in on the practicalities of what innovation does involve. There's one line that I pulled out from near the end of the book, which is this idea, you said that innovation is the child of freedom and the parent of prosperity. And I love that line. That's a great tweet right there. Child of freedom as to how do you create innovation? You have a very expansive definition of freedom in there, and the parent of prosperity, why it's important. We can get into both of those, but I thought that was a good summary. I don't know if you meant that to be the summary you wanted, but that is the one that stuck out to me. Yes, indeed. Your own ideas are often triggered by other people's ideas. You need someone else to tell you what you're saying, almost. This freedom theme, which ended up on the cover of the book, was pointed out to me by the first reader of the book. There's a very intelligent friend of mine called John Constable who thinks about things very deeply. He came back and he said, the basic theme is freedom. Have you realized that? And I said, I don't think I have realized that. No. I then rewrote some sections and probably that's where that soundbite came from, was one of the last rewrites. I would say another theme that is very obvious and very profound is that there's conversation that goes on over and over about almost everything in history, which is, is history the product of a few great men and women, a few great accomplishments, a few great moments, a few great battles, a few great inventions that happen to come along? Or is it an inevitable, inexorable, and evolved process? You conclusively lay out lots of evidence that innovation is an evolutionary process rather than invention process. And actually, you call it innovation rather than invention. That seems like a deliberate choice. Tell me about that choice. I try and draw a distinction between invention and innovation. It's not a distinction that is cast in iron, but I think this is the best way to think about it. Invention is the coming out with a prototype of a new device or a new social practice. Innovation is the business of turning a new device into something practical, affordable, and reliable that people want to use and acquire. It's the process of driving down the price. It's the process of driving up the reliability and the efficiency of the device, and it's the process persuading other people to adopt it too. It's Thomas Edison captures this point very well. I don't think he used the word innovation much. He used the word invention, but he is mainly an innovator because he's not necessarily coming up with original ideas. He's taking other people's ideas and turning them into practical propositions. It was he who said that this is a process of 1% inspiration and 99% perspiration. What I'm trying to do in this book is rescue the perspirators from obscurity and slightly relegate the inspirators who always think they deserve the most credit and who sometimes complain about not getting enough reward because it's their original idea. I like to tell the story which Charles Townes used to tell, the inventor of the laser, of a rabbit and a beaver looking at the Hoover Dam. and the beaver is saying to the rabbit, no, I didn't build it, but it's based on an idea of mine. That is how inventors quite often think about innovation. Come on, I had the idea. It's a huge amount of work and talent to turn an idea into something practical. This is something that you learn in Silicon Valley very early on, that ideas are a dime a dozen. Every idea has been floating around. Even a lot of the old ideas that failed weren't necessarily bad ideas. They were just the wrong time. In 1999, for example, we had the dot-com bubble. We had things like Webvan and Cosmos crash, but now we have Instacart and Postmates and DoorDash, which actually work. We had pets.com that crashed. Now we've had the big dog food company bought by Amazon for over half a billion dollars. So these things do work. They just need that right structure of previous innovations to build on top of. And sometimes you're jumping too far ahead. The previous innovation stack, the shoulders that you want to stand on, the giants don't yet exist, So you're trying to bootstrap too much. One of the things I'm doing in this book is slightly downplaying the importance of disruption. Most of the time, innovation is an incremental process. It looks disruptive when you're looking backwards, but at the time, it's surprisingly gradual. The first version of a new technology looks surprisingly like the last version of an old technology. This is the misconception about Silicon Valley that you fixed for me, which is I grew up reading science and scientists, and I originally wanted to be a scientist, but I was never very good. I knew I wasn't going to be a world-class physicist, and I wanted to make money, so I pivoted into technology business, which I thought was commercializing science and bringing it to the masses. I came to Silicon Valley thinking that invention was a thing that I read about, where a genius inventor comes up with a new invention and it changes the world. Oliver and Wilbur Wright created the airplane. Samuel Morse created the telegraph. Alexander Graham Bell created a telephone, or Newton and Lee discovered calculus. Without them, we would have been stuck in the dark ages for God knows how long. That was my view of how the world worked. When I came into Silicon Valley, I looked around and I didn't see that happening. I didn't see a single genius inventor creating a single thing that suddenly changed the world. I saw instead lots of people doing lots of tinkering. Somewhere in the back of my head, I adopted this mentality that even though I am in Silicon Valley, and even though it is the engine of innovation for the world today, or seems like it, we're not as innovative as we used to be. We've lost the great people, we've lost the audacious goals, and we don't invent new things. The lone inventor has gone away. Your book showed me that that was a myth, that lone inventor never existed. Innovation is going on all around us right now, especially in the unregulated domains. There's an old quip in Silicon Valley that the reason we do well is because we operate in the last unregulated domains. But it didn't seem to me like there was innovation going on. But now that I realize it's an evolutionary process with lots of people, looking at it from the inside is a different view. Perhaps I am in an innovative industry, but I just can't see it because I see the evolutionary process internally as opposed to the breakthrough process. I'm delighted to hear that that is what you're experiencing because I very much set out to make that point. It's not a case that there was a golden age when individuals invented things, and nowadays it's teams that do it. It was always teams in the sense of collaborators. They weren't necessarily working for the same institution. And our habit of giving the Nobel Prize or the patent to one individual has tended to pull out the great man of history, and put him on a pedestal where he doesn't necessarily deserve to be. He's very important, but he's putting the last stone in the arch, and other people built the rest of the arch. In the book, I describe one of my heroes, and that's Norman Borlaug, who developed these short-strawed, high-yielding varieties of wheat in Mexico, then persuaded India and Pakistan to take them up, and effectively kicked off the Green Revolution, which drove famine largely extinct on the Indian subcontinent and led to India becoming an exporter of food rather than a chronically starving country. But where did he get the idea of these dwarf varieties of wheat, which could handle higher applications of fertilizer and therefore produce greater yields? He got it in a bar in Buenos Aires at a conference from Burton Bales. Burton Bales is a fairly obscure agronomist who happened to be at this conference, but he had seen Orville Vogel growing this stuff in Oregon and crossing different varieties. Orville Vogel had got these varieties from a guy called Cecil Salmon, who'd been on Douglas MacArthur's staff in Tokyo at the end of the war and had visited agricultural stations in Japan and found these dwarf varieties growing. And they had been developed, crossed, hybridized, and bred by Gonjiro Inazuka. And he had got them from somewhere in the Korean peninsula. And at this point, the trail goes cold. And if you then jump back to Norman Borlaug and say, yes, but he didn't persuade India single-handedly. He talked to MS Swaminathan, an Indian geneticist who picked the ball up and did a huge amount of work to persuade his countrymen to take up this technology. So there's a nice example of what looks like a linear chain of people, but in a sense, it's also a team collaborative enterprise and a much more gradual story than it would be in the normal way of telling it. This also helps explain why it tends to be geographically concentrated. If it was a breakthrough by lone individuals, you'd expect innovation to be highly geographically distributed. But it tends to be very geographically concentrated where you're surrounded by other inventors, tinkerers, and thinkers, because you're always building on little bits and pieces. We see that in Silicon Valley, where it's geographically dense and concentrated almost to a level that seems unfair to the rest of the world. One person's idea at a cocktail party goes to the next person at a coffee shop, goes into a prototype, which goes to a VC who talks about it within their portfolio company who then mentioned it to another entrepreneur and so on. I'm amazed by how geographically concentrated innovation is at any one point in history. In the last 50 years, it's been California, but there was a period when it was Victorian Britain. There was a period when it was the Low Countries. There was a period when it was Renaissance Italy. At some point, it was ancient Greece. It was Fujian China for a while. It was probably the Yankees Valley at a different point. Why is the bushfire only burning in one place at one time? The key to this is understanding the ecosystem in which these innovative people operate, because they're not only getting ideas from each other and daring each other on to be innovators and experiencing some unique aspects of freedom to allow them to do it, but they're also directly borrowing technologies. It became clear to me when I was writing about the harbour process, which fixes nitrogen from the air, a very important process for good and evil in terms of making explosives, but also in terms of making fertilizer, that it couldn't have happened without all the other industries around it in Germany that were producing the high quality metals and chemicals that were necessary for this process. The same will be true in Silicon Valley. One idea won't work without the neighboring company producing devices and programs that are necessary in developing your idea. Now it's gotten to another level where when you first create an innovation, when you launch a new product, you need customers. The early adopter customers tend to be other innovative companies. In Silicon Valley, we have a critical mass of thousands of innovative companies that will adopt products from each other. So you not only find your innovator base and your talent base in one place, but you also find your customer base in one place. That network effect ends up being very tight. And of course, the local politicians exploit it with high taxes and low services, constantly attacking and blaming technology for all evils. But it works for them because this has turned into the golden goose. It's the oil reservoir that will always be gushing so they can get away with a lot. Until it no longer is gushing. One of the patterns of innovators is that they move. They move from uncongenial regimes to congenial ones. The secret of Europe when it was at its most innovative was that it was fragmented politically. It's very hard to unify Europe because of all the mountain ranges and peninsulas. So you end up with lots of different countries. A lot of the innovative people like Gutenberg, the pioneer of printing, had to move from his hometown to another town to find a regime that would allow him. The same is true, I reckon, of China in the Song Dynasty, which is the period when it was most innovative. It was a surprisingly decentralized empire at the time, and it was possible for people to move around and escape from local rule that wasn't promising. America is the exception that seems to prove this rule, because although it looks like an empire from the outside, a great big unified country, once you get inside it, you find that California has quite different regime from other parts. Even this week, Elon Musk was talking about leaving California because he's so upset with the way they're treating the end of lockdown and moving to Texas, like a 15th century European innovator threatening to leave one part of Germany for another part of Germany. For a long time, I had thought, despite the poor political governance, California was impregnable, It had too much of a network effect. The lock was too strong. But now I can see the cracks. This pandemic, of course, is accelerating things, forcing people to work remotely. Twitter recently announced they're going to go to fully remote. Many of the companies that I've been involved with are wondering, should we even go back to having an office? I wouldn't be surprised if the next Silicon Valley moves to the cloud. That would be an incredibly good thing for all of humanity because then we could distribute it. Obviously, some things can't move to the cloud. You can't have a manufacturing plant in the cloud. But the initial coordination, invention, social networking, conversation, design work, a lot of that can happen in the cloud. There is recent precedence for this. I don't know how much you've been tracking the crypto revolution, but crypto obviously went through its big hype cycle a few years ago. But at this point, there's a lot of innovation going on in crypto. We're now sort of in that silent, under the radar phase where great entrepreneurs are actually building great products that will be more widely deployed in the next five to 10 years. What's interesting about crypto is it is truly geographically distributed. Some of the biggest innovators in crypto are scattered all around the world. More than half of my crypto investments are outside of the Bay Area, which is not true of any other class of investment that I do. Many of the top crypto innovators are anonymous, like Satoshi Nakamoto most famously. Crypto companies raise money in public in plain sight by issuing tokens so they're not locked into the Sand Hill Road venture capital model. The crypto system is starting with finance, but is laying the foundation for future companies to be built completely distributed with potentially anonymous contributors, anonymous funding, anonymous cash, anonymous developers. there's even a holy grail in crypto called a distributed autonomous organization, which are these companies that are smart contracts living in the blockchain, completely extra sovereign outside of the state, able to engage in contract laws, contract enforcement, payments, dividends, investment, equity, debt, payouts, reputations, and reconstructing the corporation, but modernizing it from the Magna Carta days, you know, back in the 1600s, to a modern code-based, living on the blockchain, mathematical, reputation-based anonymous system. I wouldn't be surprised if 10 years from now that the rest of the tech industry is just as distributed as the crypto industries today. California and the Bay Area will still do fine. There will still be a hub. I don't believe that innovators are going to get priced out of the Bay Area just because innovators are the highest earners in history. They're the most leveraged people. They're leveraged through code, capital, media, labor, intelligence. They can create more than everybody else on a per capita basis. So they can always afford to live wherever they want to live. They won't be forced out by prices, but they may be forced out by regulations. They may be forced out by not being able to go to work because the government forbids them. They may be forced out because the place is no longer attractive to live. If they are forced out, it would be amazing for everybody if they've moved to the cloud rather than to another physical location from where we may be displaced. In the examples that you gave, they're punctuated. In between each one of them, there's 50, 100, 200 years that passes where there is no place to innovate. Therefore, the rate of innovation collapses. So if innovation is the flower of a well-tended garden, if you have to uproot those flowers and shift them, there is a huge deadweight loss to all of society when for decades or perhaps even centuries, we have to wait for another garden to emerge and for people to coalesce there for this right magic soup of regulation combined with innovators, combined with good weather, combined with rich society, all of that has to assemble. Thank you very much for that, because that has filled in a gap in my understanding in one go. I've always been interested in the fact that these innovation bushfires eventually are extinguished, usually by some combination of chiefs, priests, and thieves, if you like. I like that, chiefs, priests, and thieves. Or as a wag might say, chiefs, priests, and thieves, what's the difference? You're right, exactly. So in Ming China, it's a very restrictive authoritarian and interfering political regime that kills the ghost that's laying the golden eggs. In Abbasid Arabia, not hugely different in the time period, we're talking about the 1100s, a great flowering of knowledge and innovation is crushed by the religious fundamentalist revival when Islam goes from being a very open-minded to a very closed-minded structure. Something similar is happening in Paris around the same time, Bernard of Clairvaux burning books. There's a period when it's possible the world could have lost this habit altogether. It could have given up on innovation everywhere. The flame had been extinguished. Fortunately, the Italian city-states kept the flame burning. And I write about Fibonacci, the Italian merchant who brings Indian numerals from North Africa back to Italy, and they spread around the world. It's lucky that somewhere keeps the show on the road at each stage in history, but it's not accidental. These are people escaping the other regime and starting it again. But I did worry that in the old days, there was always somewhere else to go. In this global world, you could imagine a sufficiently benighted cult taking over the entire world and saying, no, we don't want learning, innovation, and technology. We want to stop everything. It's very unlikely. But what if America really does lose its mojo and we have to rely on China for the world's innovation engine? China is not a free place. It's a politically tutorial regime, albeit there's a certain amount of freedom for entrepreneurs below the level of politics. If that's our only hope, it's not a great prospect. Maybe India can pick up the baton. Europe's not great at picking up the baton at the moment. It's not a very innovative continent. It's trying to centralize all its decision-making through the European Union. But India has done this before. It was probably the first place to start all this going and is a place of free thought and a lot of spontaneous order, a lot of spontaneous disorder too. Maybe that's the place. But you've given me another prospect, which is that actually this can escape the chiefs, priests, and thieves into the cloud where it can be out of their reach for at least long enough until they work out how to reach it. I think the digital innovation can escape into the cloud. Obviously, physical innovation requires physical infrastructure, and for that would depend on the enlightened city-state, a Switzerland-type place or a Singapore or a New Zealand. But then you have the small market problem. You don't have many early adopters of the technology. So although you can build a prototype, you can't deploy it in volume. I do think physical innovation is in trouble. And you talk about this in the book, the speed of innovation has been very low in places like, for example, speed. We can't travel any faster than we used to. And why is that? It's mostly regulatory reasons. And it's because one underlying theme running this whole book is innovation is a process of evolution. Like any process of evolution, it requires trial and error. Innovation happens by taking the body of innovators that surround you one step further, engaging in lots of trial and having error and feedback from customers in the economy. All of those pieces are necessary. You need to have a body of innovators around you, which means that there has to be a place where they can all gather, whether it's online or offline. There has to be the ability to take lots of tries. You need venture capital, you need startups, you need a friendly environment to start a business. And then error. We don't like people making error anymore. So we try to cover the downside risk. But by doing that, we also cut off the upside. And then finally, you need that feedback loop from the environment. And part of that involves a large customer base. So I'm optimistic that we can do this in the digital domain. I can see that happening in crypto, for example, but I'm a little pessimistic in the physical domain, which is unfortunate because a lot of the big problems of humanity that we have to solve, like the energy problem, getting nuclear fusion working at large scale, or the transportation problem, moving people around quickly with hypersonic jets, or even some of the biotech problems, these require physical infrastructure, large markets, and relatively deregulated environments. So I think you're right. We're down to India and China, and neither of those is ideal, China is not going to be a place where the next Jew fleeing the Nazis is going to go to because China is not an immigration destination. It doesn't attract the best and brightest. California doesn't create entrepreneurs. California attracts entrepreneurs. China is not going to be an attractor. Because of that, it will always be very limited. India, even though it has a lot of the other elements, doesn't have the basic infrastructure that make it an attractive place to go to, and because of its poverty level, does have a very anti-innovation culture. Innovators in India often survive by keeping their heads down. You can see this in how India banned crypto. Hopefully that'll get overturned, but they can do things like that. Early on, something got listed on eBay India that wasn't supposed to be listed, so they just rounded up the local eBay managers and threw them in jail. The history of India fostering innovation recently has not been great. That said, there is a flowering going on right now in places like Bangalore and Mumbai and Delhi. Hopefully, as India gets richer and is run by a more competent government, we're going to see them step out of the way and allow India to become an innovation hub. The market there is large enough. They're poor enough that they could welcome it. They're English-speaking. They're very well-educated. There's a deep respect for STEM. So India could be one of these hubs. But they would also have to then have immigration and places that are clean and beautiful and nice where people want to live. Because innovators are going to go live where they want to live because they're so productive. You also said something else very interesting. What about people who may create a global movement to stop innovation? That is very scary and very possible. If you look at environmentalism, environmentalism runs on two tracks today. There's the local environmentalism, which everybody can get behind. Clean up my rivers. Save the species. I want trees, forests, and parks. And everybody likes that. Then it gets mixed into this global command and control environmentalism, which says you must stop progress. You must stop innovation. You must stop everything because you're destroying the environment. One of the things that you talk about in your book is how the world is reforesting, how innovation allows us to do more with less, and how we've become much more efficient as a society. We're not going to be able to stop India and China from growing. We're not going to stop them from innovating. We're not going to stop them from modernizing. we can do what Elon Musk does. He says, let me give them solar powered electric cars and rockets as quickly as possible so they can jump through the wasteful phase of innovation where there's a lot of environmental destruction and get to the part where we can all afford clean rivers, beautiful forests, nice parks, and other species in our environment. By the way, I credit this to Gino. The book paints a picture of utopia, not in the sense of a top-down human enforced platonic sense of this is how the world should be run, but in how the natural world is designed and operates and our role in it as an intelligent cooperative ape to fit into that environment. Genome paints a picture of paradise being a garden. Every human knows that. And it's even in our deeply embedded myths. And Adam and Eve, paradise is a garden. They fall from grace. They fall out of the garden. Where do you want to be living? In your little apartment in New York City or a little flat in London? Or do you want to be sitting in a beautiful garden out in the sunshine? Humans inherently want a clean and beautiful environment, but that movement gets hacked by top-down command and control mechanisms by chiefs, priests, and thieves who can then squander our existing resources as well as squash innovation, which prevents us from moving forward.