Making innovation work

If we want to live in a world that can feed its growing population and lift everybody out of poverty, we must do more with less. In short, we must innovate – yet, all too often, ‘innovation’ is used as a marketing buzzword with no substance behind it. As Matt Ridley points out in How Innovation Works, no one really knows why innovation happens, and most businesses have little or no systematic idea how it occurs. Ridley – who is both a journalist, specializing in science and economics, and a businessman – adopts the economist Edmund Phelps’ definition of innovation: “A new method or new product that becomes a new practice somewhere in the world.” In practice, to count as an innovation, an invention has to be simple and cheap enough to benefit a large number of people.

At school we are taught about brilliant individuals who have ‘eureka moments’, after which the rest is, well, history. Ridley shows this is a misconception. Innovation is a bottom-up, collective activity involving many players, and numerous failed attempts and blind alleys. It is gradual rather than disruptive, involving the combination of different practices and insights to create something new. A good idea is one thing, but making it work in practice requires trial and error. Innovation is similar to evolution: small incremental changes lead, through natural selection, to transformations. Perhaps because of this, we tend to overestimate the impact of an innovation in the short-term and underestimate its effect in the long-term.

So, what do we know about the conditions that favour innovation? It is important that people are free to think, experiment and speculate. Thomas Edison tested over 600 materials to find out which one worked best as the filament in a light bulb. Learning from failure is vital, hence the Silicon Valley slogan, ‘Fail fast, fail often’. It also helps if you
are surrounded by others interested in the same thing. Innovation mostly happens in geographical clusters, like Silicon Valley, or British cities in the Industrial Revolution. As homeworking becomes the norm, we must be careful to nurture opportunities for association and exchange if innovation is to flourish.

There are also conditions that stifle innovation. Over-regulation can kill it off altogether, as in Imperial China, or delay it for decades – the development of mobile phones was held back nearly 40 years by US regulations. This can be tied to what Ridley sees as misuse of the ‘precautionary principle’, the setting of excessively high thresholds for proving that a new product is harmless. Margarine was invented in 1869, but thanks to lobbying by the National Dairy Council, its sale was illegal in two-thirds of American states as late as the 1940s. While safety needs to be ensured, Ridley argues, regulation must not prevent the process of trial and error upon which innovation depends.

He also examines the growing view that intellectual property rights (IPR), previously justified as an incentive to innovation, can do more harm than good. The avoidance of IPR can drive innovation: film studios moved to California to avoid Edison’s patents on the East Coast. Yet today, companies like Apple, Google and Facebook use the threat of IPR lawsuits to maintain their dominance. It is hard to believe such firms need IPR as an incentive to remain in business. First-mover advantage ought to be sufficient reward.

As the Covid-19 pandemic has shown, we all have a stake in making innovation work quickly and efficiently. In the ‘new normal’, businesses are having to innovate just to survive. It would be well if policy-makers and businesses understood better what is needed to allow innovation to flourish.