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Jul 9 2020

Matt Ridley: How Innovation

Works, Part 1
Innovation is the child of freedom

29:49

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Naval interviews Matt Ridley, the author of The Red Queen and, recently, How
Innovation Works.

Transcript

Naval: I don’t have heroes, but there are people who I look up to and have learned a
lot from, and Matt Ridley, who is on the line, has got to be near the top of that list.
Growing up, I was a voracious reader, especially of 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 it 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’s 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 and scientific advancement that we’ve had
as human species since we first came across the stone ax 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. I had the pleasure of reading an advance copy over the last
week.

Welcome, Matt. I’m honored to have you here. Do you want to give us a little bit of
your background and how you got into writing about science?

Matt’s Background

Matt: Naval, it’s great to meet you and interesting to hear that story of how you’ve
read so many of my books and got the point of them. It’s wonderful. 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. I was a science editor at The
Economist for a number of years and also served as a political reporter and
correspondent there as well.

I then became a freelance writer. That was when I wrote The Red Queen, 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.

The New Book

Naval: I read this book in preparation for this conversation, so it’s 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 Genome. 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 long-standing misconception I had 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 knew 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 explains  how innovation
works, what helps it works and 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, vs. explaining things to people, vs. building the product?” So 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  for how to foster that environment.

Matt: 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.

Naval: There’s one line that I pulled out from near the end of the book which is this
idea that “innovation is the child of freedom and the parent of prosperity.” 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
parents 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, but that
is the one that stuck out to me.

Matt: Yes, indeed. Your ideas are often triggered by other people’s ideas. You almost
need someone else to tell you what you’re saying. This freedom theme, which ended
up on the cover of the book, was pointed out to me by the first reader of the book, a
very intelligent friend of mine, John Constable, who thinks about things very deeply.

He came back and he said, “Well, 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 that’s probably where that soundbite came from. It was one of the last
rewrites.

Naval: Another theme that is very obvious and profound is that there’s this
conversation that goes on over and over about almost everything in history: 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, with lots
of evidence, that innovation is an evolutionary process, rather than an invention
process. And you call it innovation rather than invention. That seems a deliberate
choice. Tell me about that choice.
Invention vs. Innovation

Matt: I try to 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 up with a prototype of a new device or a new social practice
innovation. Innovation is the business of turning a new device into something
practical, affordable and reliable that people will 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 of persuading other people to adopt it,
too. 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.

Edison said 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 will 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 that Charles Towns, the inventor of the laser, used to tell, of a rabbit and a
beaver looking at the Hoover Dam, and the beaver says 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 innovations: “Come on, I had the idea!” But it’s a huge amount of work and
talent to turn an idea into something practical.

Naval: 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 Kozmo failed back then, but now we have Instacart, Postmates and
DoorDash, which work. We had Pets.com, which crashed, and now we’ve had a 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 innovations stack or
the shoulders that you want to stand on, the giants don’t yet exist, so you’re trying to
bootstrap too much.

Matt: 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.

Naval: This is the misconception about Silicon Valley that you fixed for me. 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 the 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’d 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 the telephone; Newton and Leibniz 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.

“There’s an old quip in Silicon Valley that the reason we

do well is because we operate in the last unregulated

domains.”
When I came to 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. Now I realize it’s an evolutionary process with lots of people looking at it
from different views. Perhaps I am in an innovative industry, but I just can’t see it
because I see the evolutionary process eternally, as opposed to the breakthrough
process.

Individuals vs. Teams

Matt: 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.
Our habit of giving the Nobel Prize or that 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, Norman Borlaug, who developed short-

strawed, high-yielding varieties of wheat in Mexico and then persuaded India and
Pakistan to take them up, and effectively kicked off the Green Revolution, which
drove famine largely extinct on the Indian sub-continent 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, a fairly obscure agronomist who
happened to be at this conference but had seen Orville Vogel growing this stuff in
Oregon and crossing different varieties.

Orville Vogel had gotten these varieties from 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.

If you then jump back to Norman Borlaug and say, “Yes, but he didn’t persuade India
single-handedly. He talked to M.S. 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, a collaborative enterprise and a much more gradual
story than it would be in the normal way of telling it.

Geographic Concentration of Innovation

Naval: This also helps explain why it tends to be geographically concentrated. If it

was a breakthrough by lone individuals, you would 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 with the portfolio
company, who then mentions it to another entrepreneur, and so on.

Matt: 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 Ganges 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, daring each other on to be innovators and experiencing
unique aspects of freedom that allow them to do it. They’re also directly borrowing
technologies. It became clear to me when I was writing about the harbor 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.

Naval: Now it’s gotten to another level where, when you first create an innovation
and 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.

Matt: 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 during 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. Although it looks like an
empire from the outside—a great, big unified country—once you get inside it you find
that California has a quite different regime from other parts. Even this week, Elon
Musk was talking about leaving California and moving to Texas because he’s so upset
with the way they’re treating the end of lockdown. It’s like a 15th Century European
innovator threatening to leave one part of Germany for another part of Germany.
Crypto

Naval: 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 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
semiconductor manufacturing plant in the cloud, but a lot of the initial coordination,
invention, social networking, conversation, design work can happen in the cloud.

There is recent precedent 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. At this point there’s a lot of innovation going on in crypto. We’re now in that
silent under-the-radar phase where great entrepreneurs are building great products that
will be more widely deployed in the next 5 to 10 years. What’s interesting about
crypto is that it’s 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 famously.

“I wouldn’t be surprised if the next Silicon Valley moves

to the cloud.”
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 and anonymous developers. There’s even a Holy Grail of crypto
called autonomous organization, which are these companies that are smart contracts
living in the block chain 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 to a modern code-based system living on a
mathematical, reputation-based, anonymous blockchain.

I wouldn’t be surprised if 10 years from now that the rest of the tech industry is just as
distributed as the crypto industry is today. California and the Bay area will still do
fine. They will still be a hub. I don’t believe that innovators will get priced out of the
Bay area, 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 moved the cloud
rather than to another physical location from which 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 pass 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 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 deregulation
combined with innovators, good weather and a rich society— all of that has to
assemble.

Matt: 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
bush fires eventually are extinguished by some combination of chiefs, priests and
thieves, if you like. 

Naval: I like that: chiefs, priests and thieves. Or, as a wag might say, “Chiefs, priests
and thieves—what’s the difference?”
Political Fragmentation and Innovation

Matt: Right, exactly. So, in Ming China it’s a very, restrictive authoritarian and
interfering political regime that kills the goose that’s laying the golden eggs. In
Abbasid Arabia, not hugely different in the time period—we’re talking about 1100s—
a great, flowering of knowledge and innovation is crushed by a 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 was burning books. I singled that out in a previous book as
a period when it’s possible the world could’ve lost this habit all together. It could’ve
given up on innovation everywhere. The flame would’ve been extinguished.

“What if America does lose its mojo and we have to rely

on China for the world’s innovation engine?”

Fortunately, the Italian city-states kept the flame burning. 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 and 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 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
dictatorial 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 pattern. Europes not great at picking up the pattern 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. 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 this
escape from 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.

Naval: I think the digital innovation can escape into the cloud. Obviously, physical
innovation requires physical infrastructure, and that would depend on the enlightened
city state, a Switzerland type place or Hong Kong. A Singapore or a New Zealand.
But then you have the small-market problem. You don’t have many early adopters of
the technology. 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 some places. For example, we can’t travel
any faster than we used to. Why is that? It’s mostly for regulatory reasons.

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 trials
and then having error and feedback from customers and the economy. All of those
pieces are necessary. You need to have a body of innovators around you, which
means 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
start-ups. You need a friendly environment to start a business. We don’t like people
making errors anymore, so we try to cover the downside risk. But by doing that we’ve
also cut off the upside. Finally, you need the feedback loop from the environment, and
part of that involves a large customer base.

“California doesn’t create entrepreneurs. California

attracts entrepreneurs.”
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 and large markets that are
relatively deregulated. So I think you’re right that 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 because China is not an integration 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, and it will always be limited because of that. Even though
India has a lot of the other elements, it doesn’t have the basic infrastructure to make it
an attractive place to go. Because of its poverty level, India also has 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, 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 speak English; they’re very well educated; there’s a deep respect for STEM—so
India could be one of these hubs. But they would also need immigration and clean,
beautiful places where people want to live. Innovators are going to go live where they
want to live because they’re so productive.

You said something else very interesting: What about people who may create a global
movement to stop innovation? That is very scary and very possible. Take
environmentalism for example. It runs on two tracks today. There’s local
environmentalism that everybody can get behind—clean up my rivers, save the
species, I want trees, forests and parks. 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 refreshing, 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
be able to stop them from innovating. We’re not going to be able 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 Genome. 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. Genome paints a picture of paradise being a garden. This is in our deeply
embedded myths: The paradise that Adam and Eve live in is a garden. They fall from
grace, and they fall out of the garden. 

Today in Covid-19 land, 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.
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Jul 15 2020

Matt Ridley: How Innovation

Works, Part 2
Innovation is the parent of prosperity

30:31

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Naval interviews Matt Ridley, the author of The Red Queen and, recently, How
Innovation Works. Also see Part 1.

Innovation Famine

Matt: I have a chapter towards the end of the book where I complain about the fact
that we are living through an innovation famine, not an innovation feast—particularly
in areas other than digital. One of the reasons for this is the power of the
environmental movement to oppose new technologies, which are often good for the
environment. I detail the case of genetically modified organisms, where you make a
plant insect-resistant and have the capacity to wean agriculture of chemical pesticides.
This has been proven to work and is now being used in India, Brazil and North
America as well—but not in Europe and Africa where an entire technology has
effectively been rejected by the pressure of environmentalists.

My good friend Mark Lynas was one of the most prominent campaigners against this
technology in the 1990s and did a lot of the protesting a lot of the writing about it.
And then he changed his mind and said, “We were doing the wrong thing, but it’s
almost too late.” It’s very hard to see how Europe now changes its minds and adopts
this new technology. The best hope is that with the next technology that comes along,
which is genome editing through things like CRISPR, a lot of the concerns of
environmentalists can be set to one side because this is not a technology that involves
bringing foreign genetic material from other creatures, whatever that means, into
plants. So it’s possible that we can leapfrog into some cleaner technologies there.

The end point must be that the more we innovate, the fewer resources we need, the
less land we need, the more land we can give back to nature, the more we can make
people prosperous, and that results in them cutting their birth rate. It also results in
them planting more trees. There is a possible soft landing for humanity later in this
century, if we do plenty more innovation. We could end up with 8 or 9 billion people
living lives that are much more benign towards the natural environment and that
enable most of us to have greenery around us. 

The COVID pandemic has shown us, quite starkly, that we have not been doing
enough innovation. We’ve not been developing enough vaccines; we’ve not been
finding ways of developing vaccines faster; we’ve not been developing enough
diagnostic devices. When you look at why not, you find that there is 17 to 20 months
of delay to get a license to sell a new diagnostic device. This is enough to deter most
entrepreneurs from even trying to go into that area. I hope one message people take is
that, if we can do more innovation, we will not destroy the planet. It’s quite the
reverse. It’s the safest way of saving the planet. The poorest countries are the ones
seeing the most damage to the environment at the moment.

Naval: One of the things that David Deutsch does in his works that he often talks
about is how anything that is possible or not forbidden by the laws of physics is
possible for us to create through technology and science. As universal explainers,
humans are capable of understanding anything that any being or any theoretical
creatures capable of understanding. All we have to do is figure out how to reconfigure
the existing atoms and particles out there to do what we want within the laws of
physics, which are quite generous and quite broad. In that sense, all failures and all
sins are just ignorance. It’s just the lack of knowledge.

“We are capable of making objects, even our simplest

objects that are beyond the capability of one human

mind to comprehend.”
If we were to speed up the accumulation and application of knowledge through
innovation, we would be able to solve all of humanity’s problems. And we’re always
at the beginning of this infinity, as he says, because there’s an infinite amount of
progress to be made. There’s so far to go that when you look at where we are at any
given point on that curve, infinity stretches out in front of you. I find that extremely
hopeful. But as you point out, we can be our own worst enemies in these cases.

Matt: It’s a very important part of rational optimism that we are not saying the world
is perfect. Quite the reverse. That’s what the word optimism meant when it was coined
by Voltaire: You thought the world was perfect and couldn’t be improved anymore.
That’s not what people like me and David Deutsch are saying. We’re saying there is
an incredible amount of improvement that we haven’t even yet begun to imagine. We
are at the start of a very long run on Broadway, as a species. We’re not towards the
end. We are going to see some amazing novelties in the current century. One of my
beefs with the environmental movement—as you say, not the conservation movement
that deals with local greenery but the planetary one—is that it imagines that we’re not
going to be able to invent very much and, if we do invent things, they will do harm.
That doesn’t feel right to me. We’ve hardly scraped the surface of different ways of
combining and recombining the atoms and elements of the world. Paul Romer talked
about how many different compounds of the minerals in the periodic table could be
made. It’s an astronomical number, and we’ve hardly explored the properties of half
of them. Like you, I’m a fan of fusion energy and I think that could make a huge
difference within our lifetimes. There’s all sorts of things that we’re going to be able
to do in this century to improve humanity but also to make it a livable place.

Naval: There’s this spaceship-earth metaphor that a lot of people latch onto

instinctively because it’s seductive. People say the earth is this fragile, precious blue
marble that gives us everything we want, and that when we destroy our home, there’s
no place else left. We can’t get off Spaceship Earth. This treats earth as a zero-sum
game. But upon closer examination, it falls apart. Even earth is hostile to the idea of 7
billion humans living on it. The only way 7 billion humans live on earth is through
innovation through technology and through modifying the environment. The
challenge is how to do it in a sustainable way—and then figure out how to do it on
other planets, and Terraform Mars and the moon to make them livable. It requires a
careful reexamination of this spaceship-earth metaphor, which most people
instinctively believe, but upon examination turns out to be incorrect. 

Matt: You mentioned knowledge as being potentially infinite. It’s very important to

emphasize that knowledge is a distributed and collective phenomenon. I go back to
this wonderful little essay that was written by Leonard Reed in the 1950s called “I
Pencil” in which a pencil works out how it came into existence and discovers that
millions of people contributed to its manufacturer—from people cutting down trees
for the wood to people mining graphite for the lead. The important point is that not
one of them knows how to make a pencil.

We are capable of making objects, even our simplest objects that are beyond the
capability of one human mind to comprehend. It requires lots of human minds to
collaborate, to make them and to accumulate the knowledge of how to invent them as
well. At this point I begin to sound a bit like a Marxist because I start talking about
collective humanity, but it’s a way of rescuing collaboration, cooperation and
partnership from a communist perspective and restoring it to a much more voluntary
end of the political spectrum, if you like.

Naval: Cooperation is the basis for the species. For example, ants and bees look like
hive creatures, but they don’t cooperate across genetic boundaries. We’re the only
creatures that cooperate across genetic boundaries and do long-range planning with
each other. Yuval Noah Harari, he talks about this.

Matt: We know how to cooperate with strangers, and they don’t. 

Naval: If you and I were to belong to any other species—whether dogs or mice or
ants—given how genetically different you and I are and how culturally different you
and I are, if we encountered each other in real life we’d probably attack each other or
fight over the same habitat. We couldn’t cooperate or converse. That is a unique
feature that we should be proud of. You need cooperation, and no one person
understands any of these complex systems. It’s why I laugh when macro economists
build their models trying to figure out where the economy is going to go. The
economy is far too big for any one individual to understand. It’s an emergent,
complex system of billions of actors. So these models, by definition, cherry-pick a
few shaky assumptions and end up miraculously converging and whatever political
bias the macro economists happened to have in the first place.

COVID-19

Matt: That’s one of the problems we’re seeing at the moment with the modeling of
the pandemic. It’s an attempt to understand a bottom-up phenomenon with a top-
down approach. The other way of putting it is to say roughly 10 million people eat
lunch in London on a normal day, but most of them choose what to eat at the last
minute. How is it possible that the right amounts of the right kinds of food are
available, in the right places, at the right time for that to happen? Who is London’s
lunch commissioner? He or she must be unbelievably intelligent. And, of course,
there is no such person. And if there was, it would be an absolute disaster.

Naval: Then we would all be eating Soviet-style glop rations, and half of us would be
starving. There’d be long lines. Unfortunately in 2020, the economists are building
epidemic models and the epidemiologists are running the economy, so we’ve got it
backwards. We’re trapped in a bad situation in which we are not willing to put a value
on a single human life. You’ve put these health officers in charge who didn’t train  or
sign up to run the entire world—and they’re  terrified they’ll be blamed for excess
deaths if they let up too early. It’s very hard to calculate the economic consequences,
so they’re going to keep us locked down for quite a while. I’m intrigued by the
Swedish model, not because it’s necessarily the best one. (The best one would have
been if we had isolated and crushed the curve like Hong Kong and Taiwan did.) But
given that most of the Western countries are large democracies and don’t have the
ability or the willpower to do that, we’re all headed towards a Swedish model one
way or another, whatever that turns out to be.

Matt: Thank goodness for Sweden not locking down because, otherwise, the Western
world would have been able to say, “Well, there is no alternative.” We know there is
an alternative. Though Sweden had a huge amount of voluntary social distancing, the
country didn’t have compulsory lockdowns and hasn’t damage its economy nearly as
badly as countries like Britain and the U.S. Sweden has shown that the most important
measures in getting on top of this pandemic are almost certainly the voluntary ones—
things like not shaking hands, not having large gatherings, staying a safe distance
from each other—not confining everyone to their homes.

Naval: It makes no sense that big box retailers are open, but small businesses are not
allowed to open. Obviously, the best response is a bottoms-up distributed response.
You can beat the virus when individuals all panic, not when the governments panic.
But a single panicked individual can outsmart the virus. Governments don’t know
how to control viruses, but they do know how to control individuals; whereas an
individual can control their own health, safety and viral spread. So we’ve taken an
education problem and turned it into a government top-down control problem.

Matt: The British government is discovering at the moment that it’s quite easy to
scare people and not so easy to unscare them. The draconian introduction of the
lockdown was very effective. It turned out that people were willing to go along with it
and even report on their neighbors. They became surprisingly authoritarian in a
surprisingly short time because they were being given a very scary story. People are
easily frightened about things. but when you come along and say, “Right, scare over,
please come back to work,” half the country is saying, “No, I thought you said it was
scary. We’re not going out yet. And by the way, you’re paying us to stay at home, so
why should I?”

Naval: That’s going to change. The cynical view is that, up to this point, blue collar
people are the ones losing their jobs. So far it hasn’t been the white collar people who
run society and control the media, government, universities, think tanks and modelers.
But when the white collar people start losing their jobs, people say, “Wait a minute.
We need to take the economy into account.”

“Unfortunately in 2020, the economists are building

epidemic models and the epidemiologists are running the

economy.”
As the Swedish experiment is going to show, there’s three different variables you
simultaneously track in your head. It’s very hard for most people to do that. One is, of
course, the infection fatality rate and how many people end up sick or dying. The
second is the economic impact—you have to have some standard way of measuring
and comparing that. And the third is what percentage of the population has built up a
herd immunity, while keeping in mind that herd immunity through a natural spread is
very different from herd immunity through a vaccine. A vaccine is indiscriminately
applied; whereas when a virus naturally spreads, it’ infects the more mobile super-
spreaders as well as the most vulnerable first. So the people who get taken out first
were either the ones who are most likely to spread it or the most likely to die. So
natural herd immunity is the lower threshold than vaccine immediate herd immunity.

Matt: It’s become clear in the U.K., and I think this is largely true in the U.S., that a
huge proportion of the deaths are attributable to acquired infections at hospitals and
care homes. With insufficient early testing, healthcare workers became infected quite
early—which means they became carriers quite early—because sick people were
visiting healthcare facilities. As a result, a very vulnerable population— which not
only had a high death rate but also a high transmission rate because they were
carrying a higher loads of the virus—has seen a very high reproductive rate of the
virus. That doesn’t mean it’s high in the rest of the community. The examples of
Sweden and others show that, for those who are not in that category, it should be
possible to use voluntary measures to suppress this virus and get to herd immunity at
quite low levels of infection.

Naval: We’re going to end up in that scenario regardless, so the question will be:
How much benefit did people get who tried to flatten the curve for longer periods of
time? We’re seeing this experiment at a state-by-state level in the U.S. right now. Of
course, the battle is turning into the narrative and the interpretation of the data that’s
coming out saying, “Oh, well they’re hiding deaths,” “They’re exaggerating this,” or
“They’re not exaggerating that.” When this is all said and done, I don’t know if we
will have the honesty to look back and say, “Well, this is what happened,” because
now in an age of social media, everyone’s trapped in their filter bubble/silo.
Journalists serve all taken sides. Their objective journalism, to the extent that it
existed, has gone out the window. So we may end up living in two different narrative
worlds even once we know what happened.

Filter Bubbles
Matt: It does alarm me the degree to which we have, fragmented into these filter
bubbles and echo chambers. In the book, I speculate that that is a consequence of
technological determinism. Whereas I thought the invention of the Internet would lead
to social media, would lead to us all seeing each other’s points of view, it hasn’t
turned out that way. Social media has proved to be a very divisive medium,as radio
did in the early years of the 20th century when it was a significant tool helping the
rise of dictators. But television did not—it was a medium that pulled us all into the
mushy middle. 

Naval: I absolutely agree. When I read that section of the book, I put it down. By the
way, the thing I love about your book is, every third page I had to put it down and
think about it, which to me is the mark of a good book. I think the faster you can read
a book, the worse the book is. If you can speed-read a book, you shouldn’t. Just put
that book away, it doesn’t deserve to be a book. But when you cover that section, very
briefly I realized: There’s a big idea in here; there’s a book in here. A lesser person
would take these two paragraphs and turn it into a book. But you covered it very
briefly.

My thinking on it was that the reason is because television had very high production
values and very high distribution costs. You could only afford to get the message out
once or twice. Especially in the old days of television, you didn’t have that many
channels. Therefore, people were getting their news sanitized from the same set of
sources. The bad part is you could be living in a bubble controlled by the elites, by the
government, or by whatever the media wants you to think. But the good news is that
at least you were relatively aligned and there wasn’t this constant low-level civil war
going on inside society. When you get to something like radio or to the extreme social
media, anybody can contribute and create content all the time. Because of that, the
divisiveness is almost a given.

In fact, with radio there was filtering by tuning the channel. But in social media,
you’ve built your own channel. The level of a filter bubble that you can go into is
much deeper and much more tuned to the individual than any previous filter bubble.

Matt: There’s an echo here of what happened with the invention of printing. The
most entrepreneurial printer of the lot and the best published author in Europe was
Martin Luther. And he is using this new technology effectively to cause a social
revolution, and eventually it turns into a series of religious wars. We have been here
before and it wasn’t a pretty sight, if you like.
Naval: It wasn’t. And it’s amazing how much the distribution of media and
information changes the structure of society. You cite Amara’s Law, which talks
about how the effects of innovation are overestimated in the short term and
underestimated the long term. I have absolutely seen that. I’ve seen that in Silicon
Valley over and over, everything from autonomous vehicles to the internet, to mobile
phones, to crypto. 

More Crypto

Matt: Crypto is a good example, and I don’t write enough about crypto. I wish I had
done more. But I do think crypto is a good example of a technology that will continue
to disappoint us for a number of years yet. Although you made some very interesting
remarks about its potential, I suspect that a lot of people will lose their shirt on crypto
plans for quite a while before it starts to deliver that promise—if government ever
allows it to, of course, 

Naval: This is where crypto is going to work a little differently than people might
expect. Amara’s Law generally tends to be that we overestimate 10 years, we
underestimate 20 years. So 15 years is the crossover. But, obviously, as we know,
history doesn’t quite repeat. It can rhyme, but you never get the same result twice
because, if you did, there’d be no new information. It wouldn’t be a complex system
if you could easily predict the next step.

So, first of all, crypto has been around since 2009. That was the original creation of
Bitcoin, so it’s been longer than people think. Also, you mentioned at the end of your
last statement: if states allow it. That is the whole point of crypto. Crypto solves the
coordination problem that normally you could only have solved with a state, but you
solve it without the state. Originally it’s a solution to the Byzantine generals problem.
It’s not clear to me that states can stop it, because if they can, they will. No state
wants an extra-judiciary system in existence, because the control of the money
printing press is the ultimate power. That said, in the last two years since the hype
bubble popped, there have been great entrepreneurs hard at work, and I can now see
the first green shoots coming out of crypto.
I would put them into two categories. One is we’re building a decentralized finance
infrastructure for borrowing, lending, derivatives, trading, custody, all of that stuff.
The things that Wall Street does for 20% of the GDP of the United States will be done
for 1% of the GDP in cryptoland. It’s getting so good that I wouldn’t be surprised if, a
few years from now, you see more Wall Street traders saying, “I want to make a
certain bet.” “I have a certain point of view.” “I want to hedge in a certain way.” Or,
“I want to buy a certain asset, but I can’t do it with the existing financial
infrastructure. I have to convert into Bitcoin or Ethereum and go do that through
decentralized finance.” It’s just technologically far superior, that’s one thing I’m
seeing.

The other thing I’m seeing is, the first applications of crypto come out in file storage
and authentication and identity. These are plumbing infrastructure for Internet
companies being built in the crypto domain. And the crypto versions are superior to
the non-crypto versions because they’re decentralized. They’re no longer under the
control of Apple, Google or Facebook.

Independent developers do not like to live under the control of Apple, Google,
Facebook, Twitter or whoever, because they know they can be de-platformed at any
time. They know that platform operator will capture the majority of the value. They
know if they strike oil, the platform operator will come in and take it over.

We’re going to see crypto-based plumbing laid out, and we’re going to see
decentralized finance lay that out over the next five years. That is where the green
shoots of crypto are coming up. And then, in the following decade, we’re going see
the results of that and they’re gonna be bigger than we can anticipate

Matt: That’s very hopeful, as you say, because it is important to be able to retain our
individual autonomy in this world. And I do, at the moment, feel as if the government
on the one hand and Facebook on the other, is finding ways of constricting my
freedom of expression, thought and argument and, indeed, the facts I have access to.

Naval: The government gets to restrict you because it has a monopoly on violence.

People try to hijack the government, because if you can get the government to do your
bidding, you’ve got guys with guns to do your bidding and you run everything. What
cryptography enables is, it’s the first asymmetric advantage for the defender against
the attacker, probably since the castle wall or the moat.
In the history of warfare, the attacker has been gaining huge advantages and the
defender has been losing them since the canon and the gun were invented. That favors
the attacker. Nuclear weapons obviously favor the attacker. Biological weapons favor
the attacker. Airstrikes favor the attacker. Tanks favor the attacker.

Matt: The machine gun favored the defender, funny enough. That’s what made trench
warfare so static.

Naval: That’s a good point. Yes, I missed that one. So crypto the attacker can throw
unlimited compute power at it, but if you’ve done your security correctly, they can’t
break your encryption key, so it favors the defender. And of course, whichever way
the power goes, that’s the way the control, identity and anonymity goes. We’re losing
physical anonymity with camera surveillance, the NSA spying on everybody and
Internet-connected cameras everywhere. Physical privacy is dead.

The government will always know where you are physically, unless you’re going to
do a face change all the time. People talk about the comeback of masks covering it.
No, that won’t cover it—just a slightly better algorithm is required. If another human
can recognize you, eventually the computer will recognize you, because that’s one of
the very easy problems for AI and machine learning.

That said, digital privacy is real. You will be able to create a personal
cryptographically protected identity that goes on the Internet, and you can build a
reputation against it, you can do business against it, you can make friends against it,
and no one will quite know who you are. Sure, the NSA and people sniffing the fiber
lines could potentially unmask you, but if you are sophisticated enough, there are
even ways to get past that.

Automation

That leads us to how governments approach our freedoms. They have a lot of power
over us, and so people like to create narratives to take that power over. One of the
narratives that comes up every 20 years is automation and job loss.
This time it’s AGI, artificial general intelligence, that we’re going to come up with a
technology that advances so quickly that it improves itself faster than we can retrain,
faster than we can create new jobs, and we all get put out of jobs. There’s two pieces
to this. There is the pace of innovation of AI and what AI means. The second piece is
that, this time, it’s different: We’re going to lose our jobs. And I thought you had very
good viewpoints on that.

Matt: We’ve been here before. We’ve expected innovation and automation to destroy
jobs. It never does. It always creates new kinds of opportunities for employment. It
creates the wealth that enables people to employ other people.

It also does create leisure. It does reduce the amount of time we have to work in our
life. We can spend more time in education and retirement. We can have longer
weekends than our grandparents did. To some extent, for the first time the upper-
middle class bourgeois professions are feeling under threat from automation. While
factory workers and farm hands were being automated, they didn’t mind. But now
doctors and lawyers can be displaced by machines, and suddenly we must all panic.
Every time it’s been raised as an urgent issue in the past 50 years, it’s proved to be
wrong. I think it will be this time, too. Of course, there will be local disruptions
caused to employment by different forms of automation and innovation. One can’t
deny that.

Naval: And, in fact, many of these disruptions could not have existed if a previous
generation of automation had been allowed to take place. For example, you can’t lose
your job as a truck driver if trucks didn’t exist. If you had stopped trucks in the first
place, because you were trying to protect people in the railway industry or people who
were carrying things on their backs.

A lot of the economy today is based on luxury goods. As you mentioned in the book,
until I can get all the peeled grapes and massages that I want on demand, there’s still
room for more employment. And we shift what we consider jobs to be. There are
things that we just haven’t figured out how to do yet with automation and robotics.

Matt: If you could reach this theoretical end point where a machine does everything
you could possibly need, then you don’t have a problem.

Naval: Why would you? Work is not good in and of itself. You should just be able to
write books, record podcasts and entertain your fellow monkeys all day long. As you
point out through innovation, a lot of this automation that happens is highly
democratizing. It’s democratic consumption. You also make a good point where it is
the nature of modern civilization to consolidate production through specialization. So
the one person in the world who’s best at anything gets to do that for everybody. But
on the flip side, you democratize consumption, where not everybody can have access
to everything.

Matt: What we tend to do as a species, as we progress, is to become more and more

specialized in what we produce but more and more diversified in what we consume.
That saying I got from a wonderful book called Second Nature, years ago by a man
named Haim Ofek. I wrote to him and said, “This is an interesting insight. Have you
written anything more about it?” He replied, “Well, I think I got that idea from one of
your books.”

Naval: It’s funny because I have a tweet about that exact topic that goes back a few
years, and I have no idea where I got that from. It might’ve been from one of your
books. It might’ve been from David Deutsch. It might’ve been some random thing, I
don’t even know.

Matt: You have said things to me today about things you’ve got from my books that
are fresh to me, as if you’ve made this point, as it were, we each put ideas into the
public realm, we pick them up, we changed them slightly, we give them back to each
other—that’s the nature of intelligent conversation.

Great Man Theory

Naval: This ties back into the great man or great woman theory of history. After
reading your book, I had to think about that a little bit because I had subconsciously
subscribed 70-80% to the great man theory of history and 20-30% to the evolutionary
theory of history.  And in hindsight, that was probably a flawed balance.

One reconciliation that I came up with is that it does take great people to move the
world forward, but it doesn’t necessarily take that specific great person. Although we
needed Edison to create the light bulb, there were 21 other people creating the light
bulb at around the same time. We needed one of those 21 people to be the innovator
to drive it forward.

So it’s not that there’s one individual at any given time who can do anything, but
there is a set of special individuals and any one of them in the right situation will
suffice—or any set of them will suffice. That’s the conclusion that I came to.

Matt: Whereas Leonardo DaVinci did not have to worry about somebody else
painting the Mona Lisa before he did, there’s something particularly challenging,
brilliant and clever about being the first person to develop a practical light bulb.

If you’re in a race, it’s even more impressive that you do it. To some extent, the fact
that it’s not a unique achievement is even more impressive.

Naval: I had a mild case of Gell-Mann Amnesia within your book, if you remember
that framework. Gell-Mann Amnesia says that, you believe everything you read in the
newspapers, then when it gets to a topic that you’re intimately familiar with, you
realize it’s nonsense. Or it doesn’t quite apply, yet you continue believing everything
else that they write about. 

I’m not blaming you. You did a great job. But there was a dissonance where you
proved your point by showing that we tend to over lionize and remember a few
inventors as being the creators when it’s much more of a team and distributed process.
You were giving examples of inventors and people who get credit throughout history.
Then later in the book, you talk about Facebook as an innovator, Airbnb as an
innovator, and you mentioned the founders, Brian Chesky and Mark Zuckerberg.

But anyone who’s been in Silicon Valley for a while knows that before there was
Facebook, there was Myspace and before there was Myspace, there was Friendster.
Poor Jonathan Abrams, who created Friendster, is left as the beaver looking at the
dam and saying, “Whose dam?” It’s the same with Airbnb: There was VRBO,
HomeAway and a bunch of vacation rental sites before that, although Airbnb did
pioneer the individual room breakup.

But there was Couchsurfing, there was Craigslist and a whole bunch of others.
Unfortunately, history is written by the victors. And in this case, the victors don’t
even have to write history; it’s everyone around them who’s writing history. There’s
availability bias: They see the victor, so to the victor go the spoils and the credit.
Matt: That’s absolutely right, and I stand corrected on both of those. You couldn’t be
more right.

The Book

Naval: Matt, you have this new book out, How Innovation Works. It’s a must-read for
entrepreneurs and government officials who want to either be innovative themselves
or foster innovation in their geography or society. Frankly, if you were an
entrepreneur, self-styled inventor or innovator, this is probably the cheapest, fastest
education you can get on the history and future of innovation. I highly recommend it.
I’m going to leave with a quote that I like from the book that summarizes what
innovation is and where it’s fostered. It has a very optimistic and correct view of how
it operates. That quote is: “Innovation is the child of freedom because it is a free and
creative attempt to satisfy freely expressed human desires.” That’s a powerful quote
for me. It tells me that innovation requires freedom. It’s creative, and we’re satisfying
what people want to do, as opposed to what they’re told or forced to do.

So thank you, Matt, for helping me figure out evolution. I highly

recommend Genome as well, to figure out the rational basis behind ethics and the
origin of virtue. You helped make me an optimist in a rational way through your
famous Rational Optimist, and you drive home the point of the evolution of
innovation and how to foster it in How Innovation Works. It’s been a pleasure.

Matt: Naval, thank you for the incredible insights that you’ve given me today, for
your fantastic, kind remarks and for the fact that you said this book should be read by
people who do innovation, because I’m a bit of a fraud. I’m not an innovator; I’ve not
invented anything; I’ve not built a business; I’m not an entrepreneur. I’m a writer. So
I’m greatly honored that you think the book is a practical use to people, as well as
being an interesting tour of the ideas behind this mysterious concept of human
innovation.
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