308: Matt Ridley On Rationalism & Innovation In The Current Environment

Matt Ridley is a British journalist and businessman. He is best known for his writings on science, the environment, and economics, including The Rational Optimist and his new book, How Innovation Works And Why It Flourishes In Freedom. In this conversation, we discuss how prosperity evolves, why optimism is important, the difference between innovation and invention, how innovation is bottoms up, why China has been so innovative, and the future of stateless innovation. =============================== BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. https://www.blockfi.com/pomp =============================== Our second sponsor is choice, a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/podcast?kid=19DN5C =============================== Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at pompletter.com

• 0:00Speaker 00

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off.

• 0:11Speaker 00

  Matt Ridley is a British journalist and businessman. He is best known for his writings on science, the environment, and economics, including The Rational Optimist and his new book, How Innovation Works and Why It Flourishes in Freedom. In this conversation, we discuss how prosperity evolves, why optimism is important, the difference between innovation and invention, how innovation is bottoms up, why China has been so innovative, and the future of stateless innovation. I really enjoyed this conversation with Matt, and I hope you guys do as well. Before we get into this episode though, I want to quickly talk about our sponsors. The first is BlockFi. They've got three products I'm a huge fan of. The first is you can deposit crypto and receive a US dollar loan.

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• 1:41Speaker 00

  and using tax-advantaged dollars to do it too. Absolute game changer. I highly recommend going to check out Choice. I've opened up an account with them and I'm super happy with it. So go in the description and you can click on the link there, or you can go to retirewithchoice.com and check it out. Buying Bitcoin in your retirement account and holding your own private keys, game changer. And then lastly, don't forget that I write a daily letter to over 50,000 investors about business, technology and finance. I break down complex topics into easy to understand language while sharing opinions on various aspects of each industry. You can subscribe at pompletter.com or go in the description and click on the link there. All right, that's it for the sponsors. Let's get into this episode with Matt. I hope you guys enjoy it.

• 2:25Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 2:50Speaker 00

  All right, guys. Bang, bang. Super excited to have Matt here. Thank you for doing this, sir.

• 2:57Speaker 02

  Thank you for having me on the show. It's great to speak to you.

• 2:59Speaker 00

  Absolutely. For those that don't know you, let's just start with your background. Where'd you grow up and what'd you do before you started writing books?

• 3:07Speaker 02

  Well, I grew up exactly where I'm sitting right now, which is in the northeast of England. And I became very keen naturalist as a child, read biology at university, did a PhD, then decided I wanted to become a journalist, moved into writing, was a science editor of The Economist for a long time, and then various other jobs, and then became more and more of a freelance writer, just writing what I felt like, writing books. And alongside that, I've done various other things, some successful, some less successful in business. And currently, about seven years ago, I got myself into the House of Lords in the UK. So I'm a part-time politician

• 3:52Speaker 02

  as well as everything else. But it is very much a part-time job. It's not a full-time thing.

• 3:57Speaker 00

  For those that are not familiar with the House of Lords, you want to explain a little bit about how it works?

• 4:01Speaker 02

  Yeah, well, the UK Parliament has two chambers, just like Congress does, the House of Commons and the House of Lords. The House of Commons is elected and it has the vast majority of the power. It decides what legislation goes through. The House of Lords has the power to delay and revise legislation. And it's mostly appointed, but until 1999, it was mostly hereditary, descended from the original barons who signed the Magna Carta and all that sort of stuff. And in 1999, most of the hereditaries were abolished from the House of Lords, but a small minority remained on the grounds that you couldn't have a wholly appointed house, that would be really undemocratic.

• 4:45Speaker 02

  So these guys are there to guard the Constitution, and I'm one of those. I inherited a title that gave me the chance to run for election to a vacant spot on the House of Lords. So I actually had to win an election. There were 27 candidates and 48 voters.

• 5:01Speaker 00

  How does that happen?

• 5:04Speaker 02

  Well, it's a bit like running for dog catcher in a small town in rural America, I guess.

• 5:11Speaker 00

  Yeah. And I guess, like, what's your take kind of on democracy today, right? You kind of have a unique seat in that you've written some books that touch on various subjects, you know, both historical context and modern day, but then you actually get to go practice it as well. And so maybe kind of talk a little bit about just the change that you've seen over your lifetime and as you sit in that seat today, how you think about kind of political power that that certain representatives have.

• 5:40Speaker 02

  Well, until 10 years ago, I was pretty positive about democracy. More and more countries were becoming democratic, the number of autocracies in the world was shrinking, largely because of the retreat of communism, which had created autocracies all over the world, in Africa and Latin America and other places. And so more and more people were voting for their leaders. Britain, we pretend, were a monarchy with an elected House of Lords, with an appointed House of Lords, but actually were a democracy. The real power lies with the elected House and the Prime Minister. And that system seemed to be working pretty well.

• 6:25Speaker 02

  Now, in a lot of countries, it still is working well. But you have to admit, the last 10 years have not been good for democracy. More and more countries like China and Russia, which seem to be on a path towards a more democratic system, have appointed presidents for life and things like that, which is a bad start. And even in democracies, which are still democracies, like the United States, the conversation is becoming extremely polarized, extremely angry. And an awful lot of power is accruing to the officials appointed by democratic politicians, rather than the democratic politicians themselves.

• 7:08Speaker 02

  And I think a lot of this has to do with the technology of communication. That is to say, just as printing kicked off all sorts of social and political effects, like the Reformation, just like radio had an influence on the rise of the dictators. So I think social media has polarized society, driven us into echo chambers and filter bubbles, and given us some pretty severe tensions within democracies around the world. Let's hope we can resolve them.

• 7:41Speaker 00

  Yeah, it's pretty crazy how 10 years feels like a long time when you're living it, but in the grand scheme of human history, that's nothing, right? And so do you think that that is actually something that can be reversed, the last 10 years? Or do you feel like, once you kind of have that transition or shift, it usually becomes a slippery slope and it's hard to get back on track, if you will?

• 8:04Speaker 02

  I think it's very hard to tell when you're in a historical period, whether it's heading in one direction or is a temporary blip that'll be reversed. And actually, people are terrible at understanding the future, particularly in complex systems like democracies. But my confidence that we will get the democratic show back on the road in most countries is relatively high. Communist regimes managed to last 70 years in some places. North Korea has lasted about that long as well. China didn't last that long as a communist regime. Arguably, it became more democratic, but it still pretended it was communist. Now it's going back.

• 8:49Speaker 02

  So in the grand sweep of history, I do not see...

• 8:54Speaker 02

  The idea of kings, emperors, if you like, coming back, even if there are individuals who managed to achieve that within certain countries like China and Russia for a short period of time. So I'm hopeful, but I'm not as hopeful as I was a few years ago. You're right about that. And when I think back how utopian the internet felt 20 years ago, it is quite shocking. You know, I thought, once we were all able to see every bit of information, we would become more rational and we would see each other's point of view. Instead of which, there is a frightening rise in irrationality, you know, from the anti-vaxxer movement to just people not being interested in learning

• 9:37Speaker 02

  the facts about things. And that does concern me.

• 9:43Speaker 00

  Yeah. And you wrote the book Rational Optimist, obviously, that has become a global bestseller. I've read it and the main takeaway from it was just, hey, like, you can actually benefit from being positive on the future of the world. So it's interesting to hear, maybe not pessimism from you, but a lower degree of optimism when it comes to some of the political stuff. Maybe talk a little bit about like that framework applied to today's society. You know, we live in the safest, most prosperous time in human history, except for if you read headlines, and then it might not feel that way. So kind of how

• 10:24Speaker 00

  do you, after writing the book, think about, you know, kind of current events today and where the world really is?

• 10:32Speaker 02

  Well, setting aside democratic politics for a minute, in every other respect, I think the Rational Optimist was bang on and is completely right. And I still adhere to all its claims, because most of it is about the economic and medical and other prosperities that we are experiencing and have been experiencing. And the processes that have been producing those improvements in our lifespan, our health, our income, our escape from

• 11:03Speaker 02

  Poverty, all these kind of things are continuing. There's no reason to see any diminution. In fact, it has been a spectacular decade in that respect. So compared with 10 years ago, the average Ethiopian now earns twice as much money on average. That's pretty remarkable, and that's true throughout a lot of Africa. Now, when I was publishing The Rational Optimist 10 years ago, people would quite often say to me, yeah, I can see that Asia has made an escape from poverty, but Africa can't possibly follow, can it? I mean, it's bound to stay extremely poor forever. And I would say, no, I don't think so. And I think I'm being proven right on that sort of kind of thing.

• 11:45Speaker 02

  I wrote the book during the Great Recession of the financial crisis of 2008 to 10, and that felt like a possible end of the good times and the beginning of a bad times, and a lot of people told me it was.

• 12:01Speaker 02

  But I said, no, I think we will get the show back on the road. I think we will be able to improve people's living standards in the years ahead. And then along came the Euro crisis, the war in Ukraine, the war in Syria, the Ebola epidemic, you know, everywhere I went in the last decade, there was always a reason for somebody to say to me, you can't still be a rational optimist, given what's happening X around the world. And yet, as I say, this has been an extraordinary decade. There's a really beautiful experiment that Hans Rosling did, who's fellow optimist sadly, who died, but who was one of the pioneers of this kind of thinking, Swedish health economist. And what he did was he asked a thousand people,

• 12:47Speaker 02

  in the last 20 years, has the percentage of the world population that lives in extreme poverty, that's a dollar ninety a day or less, doubled, halved, or stayed the same in those 20 years? And in the US, 65% of people said it has doubled. 5% said it had halved. The 5% were right, the 65% were wrong. That's pretty striking. But what Rosling then did was he said, if I had written those three answers on three bananas... And thrown the three bananas into a cage with a chimpanzee in it. The chimpanzee would have picked up the right answer thirty three percent of the time, not

• 13:29Speaker 02

  five percent of the time. It would have done six times as well as human beings in answering a question about human society. So what's the problem here? The problem is not that we don't know what's going on in the world. It's that we know things that are not true. We're absolutely convinced of things that actually are not true. And that seems to me a growing problem, that largely because of media coverage of negative events, which is always happened, but is becoming more extreme all the time. Lots because of that, we end up with a strong impression that things are going wrong in the world, and we don't

• 14:10Speaker 02

  know that they're going right. Interestingly, when we look at our own lives, we're quite optimistic. And why is that? Because the media doesn't cover your own life.

• 14:22Speaker 00

  And it feels like that media coverage, how much of it is kind of the fake news, disinformation, what I'll call kind of complicit type of coverage versus maybe they're actually just sharing individual stories, and those individual stories give the reader, listener, or watcher the feeling that, oh, this must be everyone else's story, right? There's kind of, you know, a divergence there, in my opinion, of like, some of it is very intentional. That leads to this thought process you're talking about. And then some of it feels like they're just telling the story of the person that's in extreme poverty. And because that's the only story they tell, and they don't balance it with the story of the person

• 15:06Speaker 00

  who got out of extreme poverty, we then think, oh, everyone, you know, may be that way. Does that make sense?

• 15:12Speaker 02

  Yeah. No, I think it's largely a matter of omission, not commission. In other words, I don't think the journalists are going out there saying, I want to tell fibs to the world about how bad things are. What they are doing is responding to Reader interest in negative stories and you can do the experiments. I mean, experiments will be done to say, you know, choose an article to read out because this is an experiment on comprehension and pronunciation. Actually, it isn't. It's a, a, an experiment to see which articles you choose and people choose the negative articles. So, you know, I'm afraid bad news does sell. Good news is no news. If it bleeds, it leads, as they say in the

• 15:56Speaker 02

  journalism industry. So it, it, it's largely a matter of the fact that, you know, just think about, you know, a war torn country that is in the, in the, in the news for year after year after year. Angola, say, or Mozambique in my youth, you know, yet another report from this terrible war where thousands of people are being maimed by landmines and, you know, there's been another attempt at peace talks which has broken down. You know, these kind of things came out of African countries all, all my life sort of thing. The Congo, Nigeria, you know, countries were in the news because things were going badly there.

• 16:39Speaker 02

  And then suddenly you notice one day, you know what? Angola's never in the news these days. And when you notice that, go and look up what's happening in Angola. And it's usually because actually the peace treaty did stick. Economic growth is occurring. The number of people in extreme poverty is declining. Hunger is on the retreat. So it, it really is the fact that the news focus moves away as soon as things start going right. And that seems a pity. Every now and then you get a colour piece saying, you know, actually life's looking up for the average Angolan. Now, I'm, I'm take, pulling that one off the shelf. I don't know if there's peace and light in Angola at the moment, but I suspect it's a heck of a lot better than it was 20 years ago.

• 17:26Speaker 02

  And, and, you know, just the, the statistics bear this out, by the way. Stephen Pinker. You know, has chronicled the decline of violence and warfare. And he points out that we've, I think we've now got either 10 or 11 wars going on in the world. Right. It sounds like a lot. It's the lowest number we've ever had in recorded history. And none of those are happening in the Western Hemisphere. There's not one going on in Latin America, which there was until a few years ago. So that's never happened before. We've never had a whole hemisphere with no war in it.

• 18:02Speaker 02

  So let's, let's appreciate that things aren't as bad as we'd like to think.

• 18:07Speaker 00

  For sure. And then I think part of being like this rational optimist is you kind of have to believe that things will continue to improve, right? That the trend is your friend and it will persist.

• 18:19Speaker 00

  Is there concern that as people are that rational optimist? It then leads them to not take action, right? It's kind of like, hey, this will continue whether I do something or not. And therefore, maybe I don't need to do anything. Or actually, does it have the opposite effect? Which is the inspiration for people to say, I want to be a part of this and go and act and, and continue to push that forward.

• 18:45Speaker 02

  Well, in my new book, How Innovation Works, I tackle this question of where innovation happens and why it happens in certain parts of the world and not others. And basically, innovation, which is the cause of prosperity, only happens because, not, not only, but mostly happens where people are already prosperous and ambitious and rich enough to invest in new ideas. It doesn't happen where people are desperate, where people are frantically in need of innovation to save their children's lives or something like that. You know, Somalia and Zimbabwe have not contributed much to new technologies in the last 20 years. So the idea that necessity is the mother of invention seems to me simply wrong on that level. And therefore.

• 19:31Speaker 02

  Telling people that the world is a fantastic place and you can make it even more fantastic is, I think, a better way to inspire them to be innovators than telling them it's a desperate place and anything you do is futile because we're all doomed. And I speak from personal experience here. When I was young, the environmental movement was just getting going. A lot of pessimism was doing the rounds about the future of the human race. The population explosion was unstoppable, famine was inevitable, lifespan was going to shorten because of all the pesticides in the environment. The deserts were advancing, the rainforest was regeding, the ice age was coming back,

• 20:14Speaker 02

  the ozone layer was shrinking, on and on and on. You know, these gloomy, gloomy stories, and I believed them. And when I was leaving school and at university, I did not think the future could be better than the present. And I thought it would be worse. You know, I thought I was heading into a future where my life was unlikely to be as long as my parents' life, where the pollution would be terrible, where things would just get worse and worse. And it was quite a shock to me, and that's partly why I wrote the book, to realise this wasn't true. People were getting richer and lots of, you know, species were being saved from extinction

• 20:55Speaker 02

  and air was getting cleaner and water was getting cleaner and oil spills were being driven extinct and famine had virtually vanished from the face of the earth in the last decade or two. So partly I'm on an evangelical mission to tell people, young people out there who are hearing from Greta Thunberg and everyone else, that the future is bleak and there's no point in even finishing school because you, you're all going to fry and you will end up cannibals eating each other in a year or two's time. Don't believe this stuff. It isn't necessarily the way to go. And if you think that, you're far more likely to be complacent and fatalistic than if you think all sorts of things are possible.

• 21:40Speaker 00

  Yeah, and what's really interesting, we had Kathy Wood come on, who's a large asset manager. And one of her thesis is that during economic crisis, innovation actually gains market share. Right, there's kind of a deflationary or compressionary aspect there. But can you help us define the difference between invention and innovation? Because I think that's a key piece of the book and also a key aspect that people need to understand. Those two things are not the same.

• 22:09Speaker 02

  Yeah, well, I think Kathy Wood's dead right, actually, that something happens in bad times to sort of clear out the undergrowth and leave space for innovators to come in. The 1930s were a surprisingly inventive decade for technologies, despite being a very bad decade for people's living standards in the US particularly. But yes, you asked about the difference between invention and innovation. And this is a distinction I make very clearly in my book, because I think it's very important. Invention is coming up with a brand new device or idea. And innovation is turning that new device or idea into something that is practical, usable and affordable and available to people on a large scale.

• 22:53Speaker 02

  Now, that might seem like the boring bit. Innovation coming up with the bright new idea is the exciting bit. And that's often the way we think about it. But actually, I think that's wrong. I think the really interesting and difficult stuff is often turning a bright idea into something practical and affordable and useful. And most of the great inventors were actually innovators who knew how to do this. So someone like Thomas Edison wasn't particularly the person who came up with the first light bulb. He was one of 20 people who produced pioneering light bulbs. But he was the one who made the light bulb into a practical and available device that anyone could use with a lot of work. And he talked about the fact that invention

• 23:37Speaker 02

  Is one percent inspiration and ninety nine percent perspiration. And if you think about e-commerce and online commercial activity, online retail and things like that. It's not the invention of the possibility of that. But it's the work of someone like Jeff Bezos, making a huge number of mistakes. But in the end, making getting a huge number of things right as well. Who is in the end, the great innovator, you know, the Amazon is not an invention. But it is an extraordinarily useful innovation that we all use. So my book is very much about innovation as opposed to invention.

• 24:22Speaker 02

  Both are important, but we misunderstand it if we think that invention is the is is the main thing. You know, if you say, look, it's fine. You've invented the prototype. Great. We don't need to help you anymore. You've missed out on half the story.

• 24:36Speaker 00

  Yeah, and the thing that I think is interesting in the book is that the innovation is bottoms up. Right. Whereas a lot of people, I think, and we're talking about politics earlier, where there's kind of this belief that you can have a tops down planned society. And that will somehow lead to progress. But actually, I think you make the argument of the opposite. So maybe kind of explain that a little bit as to how that bottoms up approach has led to innovation over the course of history.

• 25:05Speaker 02

  Yeah, I mean, I think this is a very important point. Innovation is an evolutionary phenomenon. It it it emerges from the interactions of ordinary people. And we tell the story about a brilliant genius sitting down under a tree and an apple falling on his head or something like that. As if that was the way innovation happens. And occasionally it can happen that way, but ninety percent of the time. It is people tinkering with technologies, trying things, making mistakes, going down blind alleys. And one company trying one thing and another company trying another. And through this sifting of these different attempts, there emerges in a sort of bottom up way.

• 25:47Speaker 02

  Solutions to the problem and it's very incremental, it's very social, it's very evolutionary. So I'm trying to get away from the focus on brilliant individuals who planned a result. Even when you can say this is the person who did it, quite often there's an element of serendipity. That is to say, the person set out to do something and ended up doing something completely different.

• 26:14Speaker 02

  So the ability to change your mind is an important part of innovation. The ability to change course, change direction. So in that sense, we really can't, and we don't see it coming. That's the other thing. We can't see what's around the corner in technology nearly as much as we think we can. If you think about the invention of the search engine. I mean, I write about steam engines to search engines as being a nice sort of bookends of the industrial revolution. Search engines are probably one of the most useful inventions of my lifetime. I use them pretty well every day. I've certainly used it today to look up something.

• 26:56Speaker 02

  And we can't imagine the internet without them. So go back to the 1980s and say, look, we're about to develop this thing called the internet.

• 27:07Speaker 02

  Search is going to be the key thing, and that's how people are going to make money out of it. And that's how people are going to navigate it, et cetera, et cetera. Did people say that? No, they did not. Almost nobody forecast the emergence of search engines, let alone the commercial significance of them. And even the people developing them, like Sergey Brin and Larry Page developing Google. They didn't think they were building a search engine. They thought they were cataloging the internet. So in that sense, you have to think of innovation as something that happens to the world, rather than that clever people impose on the world. And this is part of one of my really big bugbears, which I explored in my book,

• 27:52Speaker 02

  The Evolution of Everything, which is that we're much too creationist, much too top down in the way we think about the world. When, you know, we think that the president runs the country. We think that, you know, God tells you whether to be moral or not, you know, we just don't think of these things as emerging. The famous example, which Frederick Bastiat used to use, was how do you feed a city? How do you make sure there's enough food available in the right place at the right time, so that everybody in London can have lunch? Ten million people eating lunch every day, most of them making up their minds what they're going to eat at the last minute. Is that something that is planned and achieved? It must be extraordinary. If it is, the London Lunch Commissioner must be a very clever person.

• 28:36Speaker 02

  Well, of course, he doesn't exist. It's a bottom-up phenomenon.

• 28:39Speaker 00

  Yeah. And I guess, how do you kind of put somebody like, let's take Elon Musk, for example, right? Who's been involved in various capacities and a number of innovative things, some of which he was the founder, right? Or kind of the equivalent of the inventor. And then some of which, like a Tesla, where somebody else actually came up with the idea, he stepped in. Yes, he has the title of founder, but really he helped kind of commercialize and scale the technology. What I'm interested in for somebody like that is, you can do it once and kind of back into something, you know, get lucky, do whatever you want to call it. To do it over and over and over again appears to be a skill, right?

• 29:22Speaker 00

  Or some sort of experience at play there. And so how does that fit into the framework where those people are very rare, right? So they're definitely the exception in society. But how do you kind of evaluate somebody who can kind of repetitively do that?

• 29:39Speaker 02

  Well, obviously, people who can do that over and over again are extraordinarily talented. And, you know, they, they, they show an ability to, to learn from their experience. That is absolutely vital.

• 29:55Speaker 02

  You know, it's, I mean, someone like Thomas Edison did this again and again and again. He set up an innovation factory, the job of which was to produce innovations. And he made lots of people work for him and work very hard. And he told them to do lots of trial and error experiments. And he got results. And that is certainly a key, you know, result. But it, it, I don't think it comes from a particular spark of genius. I think this is where we go wrong. We tend to look at people like that and think, well, I could never do that because I'm not as clever as Elon Musk or Thomas Edison.

• 30:37Speaker 02

  But actually, the, the secret sauce that these guys bring is hard work, persistence,

• 30:45Speaker 02

  tolerance of failure, ability to learn from their mistakes. I mean, Elon Musk has certainly made mistakes. His, you know, his solar companies got into trouble, et cetera. It's not, the jury's still out on Tesla. I mean, it's hugely dependent on government grants and things like that. And I say in my book that I think his ideas of the hyperloop are probably extremely impractical.

• 31:10Speaker 02

  So, you know, it's not the case that everything they do is brilliant. And I think it's quite important to get away from that, to stop trying to put these people on a pedestal and make them into gods and say that what, you know, they were partly lucky in the right place at the right time, partly persistent, a huge amount of sort of pigheaded obstinacy can be helpful, but not so pigheadedly obstinate that you don't change course when the facts change. That's the other thing. And they were prepared to put in the hours. That's Thomas Edison's remark about perspiration, not inspiration, et cetera. So in a sense, I'm trying to demystify these godlike figures. Now, I do it by telling stories in my book.

• 31:54Speaker 02

  I tell a lot of stories about how innovations came to be. And I often focus on the key individual who was involved. But I'm not trying to make them into the author of it. I'm trying to make them into the

• 32:09Speaker 02

  The the the subject of it almost, the person to whom this phenomenon happened. And I'm also trying to put them in the social context of the other people they relied upon.

• 32:19Speaker 00

  I love that. And so for those that are listening who say, great, I don't have to be some, you know, wonder kid genius in order to to participate in this kind of innovation arc. What can they do to become more innovative, right? As you've kind of studied so many of these stories, are there things that people can actually do to kind of practice or or develop that muscle? Or is this something that is more just trial and error and go try to solve problems? And it'll come to you as you kind of put those hours in?

• 32:54Speaker 02

  Well, I don't really know the answer to that question because I'm not, I'm not in the business of training people in anything and probably would be very bad at it if I was. And I'm not much of an innovator myself, unless you call a book an innovation. But I think one thing that it might be worth passing on is the growth of something called free innovation. So what this refers to, and my friend Andrew Torrance, who's a professor of economics and other things in Kansas, explains, has explored this very much. It's it's the user, the consumer, making adjustments to technologies to make them more

• 33:36Speaker 02

  useful and then sharing them. And so a very nice example of this is a system called Night Scout, which is used by parents to monitor the sugar status of their diabetic kids in school. And essentially, it's about, you know, the the the the real time data being uploaded to a network where parents can can keep an eye on it. And this was entirely built by two or three parents, one of whom did one part of it, one of whom did another part of it, third added a third layer and so on, and changed the name. It, you know, it starts out with it with a gadget

• 34:19Speaker 02

  from a pharmaceutical company, but the the whole superstructure of the sort of the the internet interface with with this device was built by users and is now made available through a foundation to any parent who's in the same situation. The surfboard industry learns a lot from its users, apparently. The users make make adjustments to the shapes and devices on surfboards and feeds these back to the manufacturers. So I think it's and by the way, there's, you know, obviously patents can get in the way of this kind of thing. But shouldn't because actually the law is if you if you do this and you change something and it's your own

• 35:04Speaker 02

  creation, then you can't be stopped from doing it. So it's quite important, I think, to think about the fact that you in the way you adjust and adapt any old device are yourself being an innovator. And all you've got to do is feed that to other people in a small way. And suddenly you're an innovative business person.

• 35:29Speaker 00

  Yeah, super interesting. The title of the book is How Innovation Works and and Why It Flourishes in Freedom. And we started this conversation off talking about maybe a little less optimism when it comes to democracies and things on the political spectrum. How do you see innovation kind of changing if that lack of optimism ends up being warranted, right? So if we head towards a less democratic world, do you think that there is a negative impact on innovation? Or are those two things hopefully insulated from each other over the short period of time?

• 36:07Speaker 02

  Well, authoritarian regimes generally have a poor track record in producing innovations. This is true of, you know, if you think about Nazi Germany not not getting nuclear weapons or all sorts of other technologies. But also it's true of empires, you know, the Ottoman Empire, the Ming Empire in China, gigantic, extremely wealthy agglomerations of thousands of people with free trade going on within them. You'd think these would be perfect places for innovation to happen, but they don't. Why not? Because rules are set from the center by bureaucrats in a way that doesn't give the innovator, the entrepreneur, the freedom to try new things.

• 36:51Speaker 02

  And so the Ming emperors kill the goose that's being laying golden eggs for the Chinese economy, which developed in a much more fragmented time under the Song emperors.

• 37:04Speaker 02

  Imposing truly draconian rules on what a merchant must do and how often he must report back to the centre and whether he's allowed to leave his own village and all this kind of thing. So trying to tell people what they can and can't do ain't good for innovation. You have to allow people freedom, freedom to move around, freedom to invest, freedom to experiment, freedom to make mistakes, freedom to change your mind, all these kind of freedoms. How is it then that China is currently an innovative country? Because it is. There's little doubt that certainly in the digital area, in artificial intelligence, in biotechnology, in other areas, China is making strides into the future, not just

• 37:48Speaker 02

  catching up with the West in the present. And the answer to that, I think, is because for most of the last few decades, China has been a surprisingly free place for entrepreneurs and innovators, so long as they're not trying to do anything in the way of democratic innovation, like start a new political party, for example. So in other words, as long as you don't deny the Communist Party, you can set up a business to do something in China much more quickly and with far fewer permissions than you can in the West. And that's been the secret of their success. Now, whether that can continue under the regime of President Xi, who's president for

• 38:30Speaker 02

  life and who is increasingly keen on controlling every aspect of Chinese society, I have my doubts. I think he is, just like the Ming emperors that preceded him, he is an emperor who is going to kill the goose that lays the golden eggs.

• 38:46Speaker 00

  And I guess part of that is if in China they have this kind of communist authoritarian political regime, but they do have, let's call it, lack of regulation when it comes to innovation, technology and building companies, you could actually argue in the United States to some degree, we have a free democratic political regime, but actually a pretty high degree of Regulation and so would you argue then that that high regulatory bar actually becomes somewhat of a barrier to innovation? Or do you feel like the United States has found maybe some some equilibrium where

• 39:28Speaker 00

  there's enough regulation in general and obviously overgeneralization? There's enough regulation to kind of prevent bad things from happening, but still enough room to allow the innovation to kind of prosper?

• 39:40Speaker 02

  No, I'm very critical of the West, Europe and America in particular, to the degree to which they are stifling innovation, partly with regulation and bureaucracy, as you say, partly also with intellectual property and things like that, and partly with corporate lobbying against for subsidies and for regulations against insurgent innovators. This is becoming an increasing problem. It always has been there as a problem, but I think it's getting worse and worse. And in my view, the real problem that regulators bring is delay. It's not that a regulator says no, it's that he takes an age to say yes.

• 40:22Speaker 02

  So in Europe, both shale gas and genetically modified organisms in agriculture have basically been abolished. I mean, they're not happening. Why not these two new technologies that have brought enormous prosperity in the United States? Not because they've ever been outlawed, but because the permissions you have to get are so uncertain and take so long to get.

• 40:50Speaker 02

  I mean, I detailed an extraordinary case of a blight resistant potato developed by a German company with genetic modification who applied for a permit. It got approved by the scientific committee, then turned down by the European Commission, et cetera, et cetera, went to the courts, et cetera, et cetera. After eight years of this, the company BASF said, I'm sorry, we can't be bothered with this. We're moving our entire research staff to the United States to get away from this system. This is not helping. So there is huge resistance to innovation.

• 41:36Speaker 02

  There is huge resistance to innovation throughout the

• 41:44Speaker 02

  Western world, and a lot of it does come from government bureaucracies. Some of it also comes from pressure groups, from the likes of Friends of the Earth and Greenpeace, you know, who are well-known to be opposed to many kinds of innovation. So there's an unholy trinity of big companies not wanting competitors in their space, big governments not wanting to give permissions for things, and big pressure groups wanting to exploit people's general fear of the unknown and the future. Those three have indeed given us an innovation famine in the West. I mean, think of medical devices.

• 42:27Speaker 02

  It takes sometimes up to seven years to get approval for a new medical device. Most entrepreneurs can't afford to wait that long, their money runs out. So they're not going to go into developing new medical devices. They're going to go into developing a video game or something like that, where you don't need so much permission. And as a result, we get to a pandemic and we find that we don't have point-of-care, portable, instant DNA tests for viruses, something we could have invented 10 years ago, frankly. And they're not there because we've over-regulated it and driven them out.

• 43:04Speaker 00

  So in the physical world, that's very hard to kind of get around because there's actually physical items. In the software world, though, much easier to kind of do this iterative innovation and experimentation. As you mentioned, there's still a lot of regulatory IP issues and things like that. Now, part of this is, I always go back to the framework of the laws and the books are only as good as the enforcement, right? And so the US and Europe has done a very good job of enforcing these laws, right? And that's kind of why I think you're getting that stifling that you're describing. The difference is now... In today's society, there's this idea of decentralization, right?

• 43:46Speaker 00

  So we've seen that with things like Bitcoin, where it's a decentralized system. There's no leader to call into in front of Congress or call and arrest or do things like that. And so one of the frameworks I've been very interested in is Facebook came out and said, hey, look, we're going to do a digital currency. And immediately Congress freaked out in the United States and called in a bunch of executives and pretty much took them to task and said, no, you're not going to do this. And, you know, why would you do this and all that? I wonder how much, you know, going along this line of thinking of if there is this regulatory regime that ends up being stifling, you know, is decentralization of all sorts of things? Not, not, not just kind of what people would consider cryptocurrencies and things like that,

• 44:31Speaker 00

  but other types of software. Does that become a more important trend? Because actually what it does is it very much mitigates the ability to enforce the rules on the books. Again, not every industry can do this, or if it's physical items and things like that are much harder. But in software specifically, maybe that is, you know, kind of the way that people and innovators can fight back a little bit to continue to push the pace.

• 44:56Speaker 02

  I think that's a really interesting idea, and I think it's a very important concept. And I think blockchain generally enables us to move the next phase of innovation from California or China or wherever things are not being looked after, right? In terms of regulations into the cloud, into a place which is stateless. And once we do that and they really can't get at us for, to prevent innovation, then surely we can, we can do a lot of good. That would be the hope. But of course, you can immediately see by me telling the story in that way, what spooks people and particularly politicians and journalists about their story.

• 45:37Speaker 02

  But because I ended that sentence with the word good, you and I could float off into the ether and do something bad if that happens. And I think the jealousy of states with respect to currencies is as nothing to the way the lawyers are going to react when we say we're going to have a completely different legal system that is not tethered to any territory but is in the sky and it's done through blockchain. The monopolies don't like you doing end runs around them and they fight like tigers to reimpose their monopolies.

• 46:17Speaker 02

  So the jury's still out on whether blockchain can achieve that goal of giving us a sandbox in the sky, if I could call it that, where we can do the experiments that we need to do to produce new technologies and new ideas. Or whether down here on earth governments will rein in these things. I think, you know, I often think one of the most profound things said about innovation was Amara's Law, which I mentioned in the book, which is this guy called Roy Amara, who was a computer scientist and futurologist in California in the 1960s.

• 46:56Speaker 02

  And he said, we underestimate the impact of a new technology in the long run, but we overestimate it in the short run. And this feels to me spot on. You know, when the internet is just starting, we start to have wild ideas about e-commerce replacing retail and replacing everything else. And we invest like crazy in dot coms and then after a few years, everyone says, this isn't really working, actually. It's not made much difference. The world goes on as before and everyone gets very disappointed and you get a dot com bust. And then 10 years later, turns out the dream was right. So I think the same will happen with blockchain.

• 47:39Speaker 02

  In about 10 years' time, if we're having this conversation, we'll be saying, well, didn't really work, did it? You know, all the blockchain ideas, all the crypto ideas, they kind of came to nothing. 10 years after that, we might be having a different conversation, saying, actually, it worked.

• 47:58Speaker 00

  Yeah, and to me, it's very interesting when there's the decentralization kind of from an ownership model. So if you and I want to build something that maybe regulatorily is not possible, they just don't know who to call in to get in trouble, right, or who to shut down, if you will. Like you said, that can be used for good and bad. But the second piece of what you said around having this sandbox in the sky is very interesting, right? And I think if you talk to somebody like, you know, a Jack Dorsey, he's super excited about things like Bitcoin because he sees it as like the native currency for the internet, right? Okay, you know, definitely a good chance that could happen, but also, you know, a high percentage chance that it doesn't. What I'm interested in in kind

• 48:43Speaker 00

  of hearing from you is outside of the currencies, when you start to do this in other areas of innovation in company building, right? Is there a world that you see where actually people say, look, I'm not going to incorporate in England or in Delaware, I'm going to create this thing that exists basically in the ether, right? It's just a software business, and it operates outside of the existing legal frameworks. You know, like you said, governments are going to fight that, but but kind of how does that end up if ultimately people want to do that?

• 49:20Speaker 02

  Well, I think this will happen increasingly. I think you'll see much more in the way of wholly decentralized organizations with no nerve center. After all, the internet is like that already itself. If you wanted to bomb the internet, where would you start? You know, if you wanted to shut down, if you want to switch off the internet, where would you go? Which continent would you start on, etc.? You know, it's already, in a sense, very much like that. And to some extent, this has always been true. The knowledge of how to run the world has existed in a cloud, not not sort of down here on Earth.

• 50:00Speaker 02

  And I do think that we will head more and more in that direction. And I sort of hope we do, because I think I think that there are really exciting possibilities there about getting people in different nations. And why should you be tied to the rules of one place? Why should you not move around? After all, this echoes what

• 50:22Speaker 02

  Inventors did in the past. So one of the reasons Europe stole a march on the rest of the world in the 1500s to 1900s era was because it was fragmented politically. It was not an empire. You can't unify Europe. It's got too many peninsulas sticking out, too many mountain ranges in the wrong place. It's, you know, Charles V tried it, Napoleon tried it, Augustus tried it, Hitler tried it, and they never pulled it off for very long. And it's got islands offshore which can act as aircraft carriers for your enemy, Britain being the best example of that. So it's very hard to unify Europe. It remains

• 51:06Speaker 02

  fragmented politically. There's another attempt going on at the moment to unify it under one kind of rules called the European Union. That has resulted in a rebellion by the UK saying, no, we don't think that's the right way to operate. We'd prefer to have mutual recognition. If your rules are good and our rules are good, that's fine. But we don't have to have the same rule in Bulgaria as we do in northern Scotland. So, and what that resulted in was entrepreneurs shopping around for a regime they liked. So someone like Gutenberg, you know, moved from one area to another in order to find a regime

• 51:47Speaker 02

  that was congenial for him to develop printing. So that's a sort of down-to-earth example of the kind of thing that I think we can create virtually with the help of technologies like crypto and so on. And as you say, to decentralize these things, to move away from the myth that, you know, that there's a headquarters and that there's one person in charge. One parallel with this, I think, is the idea of a decentralized company itself.

• 52:20Speaker 02

  The idea that a company doesn't need a chief executive or a senior management team is really weird to us these days, but it shouldn't be weird. There's no reason you can't do it. There are some very nice examples, actually, of companies that have gone down that route. There's a tomato processing company that's extremely successful in Northern California that has no chief executive. Everybody kind of negotiates their salary with each other. It's a, you know, it's, it's basically a collective of self-employed people, as it were. It can be done. So I think if I don't sound too much like a sort of peace and love hippie in saying so, I think there's a future there.

• 53:03Speaker 00

  Yeah. And I guess as part of that, when, when you start to decentralize the corporation, you start to decentralize, decentralize the processes. Ultimately, what you really are doing is you're almost taking the governor off of innovation. Right? Because now what you're actually saying is regardless of if you're in the authoritarian regimes of China, or you're in the democratic regimes of the United States and England, you now get into this weird world of it doesn't actually matter what the laws on the books are, or the, the rules that they have implemented, or who is the president, or, or, you know, kind of in charge. You really are just opening it up and saying, you as humans, what do you want to build? Right?

• 53:46Speaker 00

  And to me, it sounds like kind of that's your whole argument here. Right? Is it doesn't have to be just freedom from a, from a political sense. It's actually the freedom to experiment, the freedom to be in it.

• 53:57Speaker 02

  Correct.

• 53:58Speaker 00

  That's what leads to innovation.

• 54:00Speaker 02

  And it's so important, I think, to always switch your focus to the consumer, not the producer, because that's the person who's really in charge. You know, the decision as to whether or not a technology is a good technology is taken by consumers. It's not taken by producers or governments. Good example of this is light bulbs. Actually, light bulbs tell almost every story you want to tell. But you know, for hundreds of years, well, for 150 years, we had the incandescent light bulb and it got better and better. But it used quite a lot of electricity and then along came Philips and said, we've invented compact fluorescent light bulbs. They cost a lot more to make, so we're going to have to sell them for more. So people don't want to buy them. And they don't really warm up very quickly. So you have to wait a bit when you go into a room before it gets light.

• 54:45Speaker 02

  And their color is not quite right, but they use so much less electricity that we would like you, the government, to ban our competition so that people have to buy our light bulbs. That's essentially what happened. And all around the world, governments did this at the behest of corporate lobbying and they basically banned incandescent light bulbs and forced us all to go out and buy compact fluorescent bulbs. And consumers didn't like it. These things were difficult to get rid of. They were toxic, et cetera, et cetera. They didn't last as long as they were told. Within a few years, along came the light emitting diode, the LEDs, which naturally displaced both other technologies very quickly. So I'm sure you have LEDs in your house. Most people do nowadays.

• 55:29Speaker 02

  They use far less electricity than either of the other technologies. They can give you very good light very instantaneously. Yes, they're still fairly expensive, but their saving on electricity is so huge that they pay for themselves. We shouldn't have gone down the compact fluorescent route at the behest of governments. We should have let consumers be in charge of this process. And they would probably have brought the light emitting diodes forward. We'd probably have had them five years earlier.

• 55:56Speaker 00

  Yeah, it's so interesting how we know this stuff, right? I mean, literally you wrote a book on it. And yet there is the human nature of wanting to, you know, have control, right? When it comes from the leadership side. But before we go to wrap up, I'd love to just kind of hear your perspective. You've got this really interesting understanding of how innovation works and kind of this rational optimist viewpoint of the world. But then you do sit in a in a political seat. And so kind of how you, when you go to work every day, like, how do you balance those three things, understanding also that like, you can't just wave a magic wand and make

• 56:38Speaker 00

  all the decisions, right? So like, kind of, how do you just mentally balance what many people, I think, would say are two very opposing ways?

• 56:50Speaker 02

  Yeah, no, it is a really good question. And compared with the decisions innovations and entrepreneurs can take in the real world, getting a decision through a political system is an absolute nightmare. And it's very rarely goes smoothly. It very rarely goes quickly. It very rarely gets ended up settled on rational as opposed to irrational grounds. It's tremendously frustrating. And there are times when I wonder why I bang my head against that brick wall. Those who say, look, all innovation starts with the government. It funds science. It's where it comes from, etc. Wrong for lots of reasons.

• 57:32Speaker 02

  But one of the reasons they're wrong is then why doesn't government innovate faster? You know, if innovation is coming out of government, you'd think government would constantly be spinning out these new technologies. Look, the Department of Health has invented this thing. Would the rest of the world like to take it on? It's called an iPhone. You know, that doesn't happen. I describe the British Parliament as a, in the book, as a sociological Selicanth, you know, a living fossil from the political Paleozoic. You know, we pretend like we're still in sort of 18th century England in our procedures. And the very phrases we use, there's some good things about that.

• 58:17Speaker 02

  It keeps us polite and we do respect the traditions and we make it very hard to change the constitution of a country for good reason. You know, you don't want to go around suddenly abolishing due process in the courts or something like that. So, but it is, I am, in my day job.

• 58:44Speaker 02

  Operating in a system that experiences very little innovation. This has been brought home in the last few weeks by by an attempt to turn Parliament into a virtual thing, which has been not entirely successful, shall we say.

• 58:58Speaker 00

  The the remote work for politicians, I have heard from multiple people now, is is an experiment that probably will not be continued once we're all allowed out.

• 59:08Speaker 02

  I think I think that's right. I mean, in some ways, people were thinking this is the breakthrough, and we'll have remote voting and things like this. But actually, it's it's it's not very satisfactory.

• 59:18Speaker 00

  For sure. I I end these conversation with the same two questions, and then you get to ask me one to finish up. The first one is, what's the most important book that you've ever read, other than one of your own?

• 59:32Speaker 02

  I'll probably say The Selfish Gene by Richard Dawkins, because I read it at deformative age, when I just arrived at Oxford to read zoology, and I discovered that he was going to be one of my teachers, and he just produced this extraordinary book, which which taught me that science was about the unknown, not about the known. It was about the mystery of the world. It wasn't about cataloguing facts. And that, to me, was an incredibly important lesson.

• 1:00:02Speaker 00

  How important do you think it was that you read it at that time? You mentioned that that what that's like a key piece of it, you think?

• 1:00:09Speaker 02

  Yes, I I think the books that really stick in your mind are the ones that you read at turning points in your life and relatively early in your life. I mean, these days, I can read a book, love it, and two years later, not remember a darn thing about it and have to go back and reread it to work out what it said. So whereas the stuff I read 30 years ago is still there in the back of my head.

• 1:00:37Speaker 00

  Yeah, that's that's pretty cool. And the second question is a more fun one, which is aliens believer or non believer?

• 1:00:46Speaker 02

  Oh, it's so difficult. I've wrestled with this, and I'm fascinated by it with the Fermi paradox. Where are they? You know, if if there's so many galaxies out there, and so many stars in each galaxy, and so many planets around each star, that, you know, the numbers are ridiculous, then it's simply impossible to believe we're the only ones here. And I still think that.

• 1:01:09Speaker 00

  Yeah.

• 1:01:10Speaker 02

  So, yes, I'm a believer.

• 1:01:12Speaker 00

  I tend to.

• 1:01:13Speaker 02

  They won't necessarily be intelligent aliens, but there's life elsewhere in the universe of that. I'm as sure as I can be.

• 1:01:21Speaker 00

  Yeah, I tend to follow the exact same logic. The, uh, the big question is, um, are they so far that our technology can't, uh, just can't detect them or find them, uh, or the lately I've heard a number of people make the argument, well, it could just be there on a different time scale, right? So they were here, it was 500 years ago, right? Or, or they're a million years from now. Uh, and when you start to get into, uh, the, uh, the multi-dimensional analysis of, uh, of time, I, I bow out and say, look, math says that there's a high likelihood. That's good enough for me.

• 1:01:58Speaker 00

  What one question do you have for me to, uh, to wrap it up?

• 1:02:02Speaker 02

  Um, what's the best book you've read last year?

• 1:02:05Speaker 00

  Ooh, last year, um, the best book.

• 1:02:10Speaker 02

  It's a very unfair question because it's hard to remember these things, isn't it?

• 1:02:13Speaker 00

  Uh, that's literally what I'm going through is first I have to identify which one's the last year versus another one. Um, you know, last year probably was, um, Edward Snowden's book. I, I would put up.

• 1:02:24Speaker 02

  Oh, yes.

• 1:02:26Speaker 00

  Uh, I forget the name of, uh, of the book, but basically hi- his, um, it's kind of one of these books where he has half of, uh, the book really dedicated to kind of his story and kind of, you know, the, the events he went through. And then the other half really was kind of a, a statement as to his principles and where he thought the world was going and, and his analysis. Uh, and I found it, um, I think one fascinating because it puts some humanity behind a story that kind of, you know, really captured the attention of people around the globe for, you know, a number of months. Uh, but also too, that there's some, uh, very, um, kind of important structural issues that he looks at everything from surveillance to, um, kind of the data collection and, and really talks about the relationship between government and its citizens and kind of, you know, when those relationships

• 1:03:11Speaker 00

  go well, what happens when they go bad? Um, and so I just really enjoyed that one specifically.

• 1:03:18Speaker 00

  Where can we send people to pick up how innovation works? And then also to learn more about you or connect with you if they'd like to.

• 1:03:27Speaker 02

  Okay, well, my book, How Innovation Works, is available in all good bookstores, including online ones such as Amazon. And it's been available for a couple of weeks now in the US. And it's available in the UK from the week after next. So it should be available worldwide at some point.

• 1:03:47Speaker 00

  Awesome. And then if people wanted to get in contact with you.

• 1:03:50Speaker 02

  If they want to get in contact with me, my website, rationaloptimist.com, is the best way to find me.

• 1:03:58Speaker 00

  Awesome. Well, Matt, listen, I appreciate you taking the time to do this. You've written a number of awesome books. And I tend to think that the work you're doing is very important for people to go consume. So hopefully, we'll get some people over there and we'll have this again in the future.

• 1:04:14Speaker 02

  Thank you, Anthony. I really enjoyed it.