Economy: The case for a bright future

Matt Ridley, author of The Rational Optimist, on how trade drives progress, and why innovation happens not when we plan for it, but when we get out of its way

Optimism is never a hot commodity. And given the events of the past while — the fragile global economic recovery, the oil spill that can’t be stopped in the Gulf of Mexico, the growing military quagmire in Afghanistan — even the sunniest disposition might be forgiven for thinking that things just aren’t going that well here on Earth.

And then there’s Matt Ridley, who believes that the story of humankind is one of more or less constant progress. Not only have things been getting steadily better for centuries, but Ridley also argues that we have very good reasons for thinking that human welfare is going to keep on improving for the foreseeable future. As long as governments don’t step in and muck everything up, that is.

After earning a doctorate in zoology from Oxford, Ridley made his reputation as a science journalist. He worked as an editor at the Economist and wrote a number of bestselling works on evolutionary biology, including The Red Queen: Sex and the Evolution of Human Nature and Genome: An Autobiography of a Species in 23 Chapters. From 2004 to 2007, he was non-executive chairman of the U.K. bank Northern Rock, which perhaps inspired him to take a closer look at the drivers of economic growth. His new book, The Rational Optimist: How Prosperity Evolves, argues that, more than any other factor, what matters to innovation is trade. Applying the pattern of evolutionary theory to economics, he argues that exchange leads to the division of labour, which leads to specialization, and as long as government or some other rent-seeking monopolist doesn’t interfere, growth will occur almost inevitably.

Canadian Business: Would it be fair to characterize your book as a response to Jared Diamond’s Guns, Germs and Steel, as written by Adam Smith? Where Diamond argues that environment is the crucial determinant of development, you argue that it is trade.

Matt Ridley: That is pretty much exactly right. Trade, exchange and specialization is the big story of how humans got rich so far and will go on getting rich. And above all, exchange and specialization explain why we don’t hit diminishing returns, which is what the ecological limits school, from Malthus to Jared Diamond, would say.

In [Diamond’s later book] Collapse, he finds a lot of societies that have collapsed, and what he fails to spot is that the reason why they have collapsed is that they are isolated, not because resources run out. It is very hard to sustain a human technological society in isolation; you need a collective brain, and the bigger collective brain you have access to, the better off you’re going to be, by bringing new technologies into existence, and preventing the loss of old ones.

CB: You have this phrase you use: innovation happens when “ideas have sex.” In Canada and elsewhere, a big locus of debate for both government and business is over “innovation”: what it is, how to invest in it and foster it. But you seem to be arguing that there is nothing rare or mysterious about it. Given a critical mass of humans and open markets, innovation happens as almost a natural process.

MR: We have a tendency to overestimate the grand leaps in innovation at the expense of the small steps. We do that partly because the patent system rewards us for it, and militates against recognizing incremental steps. If you go back to any great discovery — DNA, the steam engine — you discover that the story was far more about perspiration than inspiration. To that extent, the innovation we need to be looking at is often low-tech, often small steps, often happening in small firms not ivory towers, and is often process rather than product, often boring.

But to your general point, I want to point to the inexorable nature of economic growth. Whatever is happening, the wars and the depressions and the dictators that are throwing it off course, whatever the picture you look at, the more global the number, the smoother the line. And whatever is going on, it is bottom-up or crowd-sourced, not ordained from above, and it does look like the inevitable product of people being in the situation where they exchange is that you will get this inching forward of technologies and ideas.

CB: Given your past writing on pure science, especially genetics and evolutionary biology, I was surprised to find that you are quite skeptical of the relationship between pure science and innovation.

MR: I share your surprise! It’s been a change for me too. A big part of that was reading Terrence Kealey’s work. He’s written a book called Sex, Science, and Profits, which is a complete analysis of how technology drives science, and not the other way around.

And so Terrence has very much changed my mind on this, and I can no longer buy the argument that science drives technology. Clearly, you are going to find examples going on in both directions, but there’s a whole raft of literature trying to explain the steam engine in terms of grand men in powdered wigs in drawing rooms, rather than in terms of grubby men getting their fingers dirty, and I think it is straining too far. I haven’t fallen out of love with science, but I think we are overclaiming the extent to which you put science into one end of the pipe and get technology out of the other. I think it is much more often the other way around. It’s partly the top-down story again. We still can’t get away from the central planning idea, that people sit around and say, “The problem we need to solve is X, and we should sit down to solve it.” Evolution has taught me that genetic mutations don’t work that way, and I don’t think technological innovations do either. So in a sense it has been a disillusioning moment for me with science.

CB: Where does politics fit into the story you are trying to tell? Throughout the book you have quite a lot of negative things to say about the role government has played in retarding innovation over human history.

MR: You’ve nailed me right. There’s not a lot about government in my book. But I don’t regard myself as anti-government; I’m inherently skeptical of the power of monopolies of any kind to pick winners. And looking back at history, the past 200 years and indeed the last 2,000 years, the threat of too much government is greater than the threat of too little government. It is hard for me to even think of an example of a country that suffers from too little government today. Haiti? [The development economist] Paul Romer offers it as an example. Well, I’m not convinced. I love government for when it holds the ring, when it provides a safety net, when it does redistribution, when it solves common pool resources problems, but I’m not convinced it isn’t just as bad as it was in the Ming empire days. That is a story not of warfare but of excessive bureaucracy.

CB: In one chapter, you rail against the pessimists: the academics, the science skeptics, the declinists who see the world as getting worse and worse by the day. And you suggest that this is nothing new, that it has been part of the western tradition for as long as there has been a western tradition? Why is pessimism so popular?

MR: The answer is, I don’t know. I can come up with some explanations, but none of them fully convince me.

Clearly, it is true that it seems wiser. Cautious pessimism is more likely to make you survive than Pollyanna optimism, in a risky world, back in hunter-gatherer days. The second point is that innovation is a relatively new phenomenon, the idea that you and I expect our products to go obsolete. Every time I walk into a computer store, the question is always, what have they improved upon since the last time I was in here? And that’s a completely new experience for humanity. Even 100 years ago you didn’t run into that much innovation unless you were quite rich, and 500 years ago you’d probably live your whole life without coming across a new design for a plow. And so, to a large extent, we just haven’t got used to it.

But none of these get to the heart of the explanation of why it is so sexy, so damned exciting to be apocalyptic. If you’re going to make a film set in 30 or 50 years time, about two men pushing a shopping trolley through a devastated landscape, post-apocalypse, it’s going to be a damn sight better film than a film about two men pushing a shopping trolley through a richly furnished store. But again, it still doesn’t answer the question.

CB: The two big public crises right now are the sub-prime crash and its downstream economic consequences, and the BP spill in the Gulf of Mexico. Economist Richard Thaler has argued that this is a symptom of a very modern problem, where neither the public nor the private sector seems to know what to do about it.

MR: I would put a slightly different slant on it, and instead of saying that neither public nor private sectors seem able to cope, I would say that public opinion doesn’t seem able to cope. I’m terribly struck by the fact that there was an equally big, and certainly longer-lasting spill, in the Gulf in 1979 called the Ixtoc, and I’d never heard of the thing!

The bottom line from it, like from nearly all oil spills, is how quickly the system recovers once it is stopped. I hate saying that, because it makes me sound complacent now, and of course it hasn’t stopped yet. And the thing about oil spills is that they are dreadful for the people in the localities. But I have actually covered a number of oil spills in one way or another over the years, from Exxon Valdez to a couple of British ones in Wales and Shetland, and the story is always the same: the media struggles to find the oiled bird, and when the media is gone you get a complaint from the local people saying that everyone thinks their beaches are ruined when it fact they are fine, six months on. So I have a feeling that it is the public perception that is getting worse. Fifty years ago you could get away with much worse. People didn’t make as much of a fuss.

And that’s no consolation; that’s a good thing! That’s a sign of how much better we’re getting at being intolerant of bad things.