Hayek Lecture 2018: How Many Light Bulbs Does It Take To Change The World?

[Music] [Applause] [Music] you good evening ladies and gentlemen welcome to this the annual IEA Hayek lecture generously sponsored by CQ s one of the great benefits of free-market capitalism is the innovation it encourages within the economic system since the Industrial Revolution and the advent of free market capitalism first in Europe and then increasingly around the world billions have been lifted out of poverty thanks to innovation whether it's using GPS systems to provide addresses to slum dwellers in India mobile phone technology letting farmers in rural Kenya access bank accounts or now biotechnology in farming vastly increasing crop yield and reducing world hunger innovation is integrable integral to our ongoing well-being and for making our lives better we are therefore delighted this evening to be joined by Matt Ridley to deliver this year's lecture Matt otherwise known as by count Ridley is a member of the House of Lords and until recently sat on the Science and Technology Committee he started his career as a journalist working for the Economist as science editor Washington correspondent and American editor and has written regularly for The Times and The Wall Street Journal in a particular key career highlight Matt was also the winner of the is free enterprise award in 2014 after his career in journalism he set out on his own to become a successful businessman and prize-winning author writing amongst others the rational optimist and the evolution of everything both of these books look at the bright side of life and how we have innovated our way into being the richest healthiest and best educated that humanity has ever been his books have sold more than a million copies and have been translated into 31 languages in his book the rational optimist Matt argues that human living standards improved thanks to ideas having sex and his TED talk on the topic has been viewed more than three million times well there I guess that's pretty simple when you come up top of a Google search if anybody types in having sex ideas matt has recently written for our student magazine EA which you should have a copy of in your goodie bags on innovation as the source of most prosperity they'll be speaking tonight on how many lightbulbs physics shake to change the world few people realize that in the same decade many different people independently and separately invented the lightbulb how was it then that a product that had not been invented for many hundreds thousands of years suddenly like London buses 10 or more came along at once Matt will be discussing how innovation happens why it happens when it does and why there is so often so much opposition to it despite it not causing unemployment and being a huge net positive for society ladies and gentlemen please join me to deliver the 27th annual Hayek lecture give a very warm welcome to Matt Ridley thank you mark very not much for that extremely kind introduction it was an enormous picture of me on the screen which afraid having on these slides to replace it with but if anything feel free to ignore it let me begin with the paradox and it does concern the light bulb which is that cliched metaphor for in innovation which was itself an innovation in the 1870s and the paradox is this nobody saw the light bulb coming nobody predicted its invention yet the closer you look at the story of the lightbulb the more inevitable it seems that it was invented when it was Robert Friedel has calculated that there are 21 different people who can play lay claim to having invented the lightbulb more or less independently in the years leading up to its debut and given them two of them have crucial assistance I actually usually cite the number 23 there's Thomas Edison of course who filed his patent in November 1879 but there's also Joseph Swan who demonstrated to an audience of 700 people at the literary and philosophical society in New Castle on the 3rd of February 1879 that he could illuminate a room for a lecture with an evacuated glass bulb containing a carbon filament through which a current passed then there's William Grove Frederick Desmoulins and Warren De La Rue also in Britain and Marcel in Javad in Belgium and Alexander Lord Egan in Russia and Heinrich Goble in Germany and John eugène robert-houdin in France and Henry Woodward and Matthew Evans in Canada and Hiram Maxim and John Starr in America and so on every single one of these people produce published or patented the idea of a glowing electrical filament in a bulb of glass sometimes containing vacuum sometimes nitrogen and all before Edison and they did so more or less independently of each other as Kevin Kelley Kelley has documented this is a common phenomenon called simultaneous invention almost every invention or discovery results in a dispute about who got there first the truth is that the story of the lightbulb far from illustrating the importance of the heroic inventor turns out to tell the opposite story of innovation as a gradual incremental collective yet inescapably inevitable process the light bulb emerged inexorably from the combined technologies of the day it was bound to appear when it did given the progress of other technologies it was ripe yet still nobody saw it coming how can innovation be both inevitable and unpredictable take a more recent example the search engine this is perhaps the most useful new tool of my lifetime I use it pretty well every day I cannot imagine life without it and I get frustrated when it's not available as for example when I wanted to reread a book when preparing this lecture and I thought I'll go and use the search engine to find it on my shelves and I couldn't find it but did I or anybody else for see the immense importance of search in the era of the internet did we sit around in the 1980s saying if only we could have search engines no more than people sat around in the 1600s saying if only we could have steam engines yet if Sergey Brin had never met Larry Page we'd still have search engines there were lots of rivals to Google in the 1990s the inventors of the search engine like the inventors of the lightbulb are all entirely dispensable individuals rerun the tape of history without all of them and somebody else would have done it it's my contention that innovation is the most important unsolved problem in all of human society we rely on it but we do not fully understand it we cannot predict it and we cannot direct it it's perhaps worth at this point distinguishing between invention development and commercialization but I'm taking the word innovation to cover any or all of these three stages what is this gonna do with friedrich hayek quite a lot I think in his famous essay on the uses of knowledge in society Hayek made the argument that the knowledge required to make society function is dispersed among ordinary people rather than available centrally and in concentrated form to experts towards the end of that essay he takes Joseph Schumpeter the famous champion of innovation to task he's talking about the fact that we need to determine how best to solve an economic need the problem is thus in no way solved he writes if we can show that all the facts if they were known to a single mind would uniquely determine the solution instead we must show how a solution is produced by the interactions of people each of whom possess only partial knowledge Hayek was also fascinated by evolution and here he is describing the paradox I've just referred to in regard to evolution rather than economics if it were possible to ascertain the particular facts of the past which operated on the selection of particular forms that emerged it would provide a complete explanation of the structure of the existing organisms and similarly if it were possible to ascertain all the particular facts which will operate on them in some future period it ought to enable us to predict future development but of course we will never be able to do either technological innovation like evolution is a bottom-up phenomenon that emerges by trial and error among the ideas of ordinary people not a deus ex machina that descends upon a few brilliant minds were too creationist about this I think we've been telling it wrong for a long time we've singled out heroes and told stories about moments of inspiration that are thoroughly misleading people jumping out of Bath's people being hit on the head by apples people watching the lids of kettles jump and so on who invented the computer the closer you look into it the harder it is to answer that question you could have to decide between the claims of Johnny von Neumann Ali Alan Turing John Mauchly presper eckert Herman goldstine John Vincent are tossing off Howard Aiken Grace Hopper Charles Babbage and ADA lovage to name just a few in a real sense the computer evolved emerged and invented itself who invented the internet everybody and nobody it's the same with the English language nobody invented it and nobody's in charge of it yet it's certainly a man-made thing as the philosopher Adam Ferguson said in 1767 there are things that are the result of human action but not the execution of any human design mostly innovation happens by a sort of recombination among ideas very like the way genetics change happen through recombination of genetic sequences in evolution as Brian Arthur has argued every technology you can think of is a combination of other technologies every idea a combination of other ideas my favorite example of this is the pill camera which takes a picture of your insides it came about but after a conversation between over a garden fence between a gastroenterologist and a guided missile designer this incidentally is why the notion that we will run out of ideas or resources or growth is so wrong as I put it in the rational optimist the wonderful thing about knowledge is that it is genuinely limitless there is not even a theoretical possibility of exhausting the supply of ideas discoveries and inventions this is the biggest cause for my optimism of all it is a beautiful feature of information systems that they are far vaster than the physical systems the combinatorial vastness of the universe of possible ideas Dwarfs the puny universal of physical things as Paul Romer puts it the number of different software programs that can be put on one gigabyte hard disks is 27 million times greater than these number of atoms in the universe it follows that innovation is mostly about perspiration not inspiration as Edison famously said he and his team tried 6,000 different plant materials for the filament of a light bulb before settling on bamboo or to put it another way turning a discovery or an invention into a workable innovation is far harder than having a new idea in the first place perhaps this explains another regularity in the history of technology that we overestimate the impact of an innovation in the short run but we underestimate it in the long run this is known after as as Amara's law after Roy amara a 1960s computer pioneer as with all evolutionary systems you cannot easily hurry innovation we cannot invent things before they are ready to be invented bad luck lady Lovelace you were born a century too soon it's surprisingly hard to think of things that could have been invented decades before they actually were even wheeled suitcases came along at about the right time as airports expanded and lightweight wheels came along Moore's law tells us that improvements in performance of computers are regular and predictable yet we could not use that information to jump ahead why not because each step was necessary for the next one innovation moves to the adjacent possible Natura non fake it's Altis said Linnaeus echoing live Nets Nature does not jump and yet I say again it's also surprisingly hard to plan predict or stimulate innovation forcing it to happen is hard Steve Jobs took a gamble on the idea that computers were ready to become consumer goods and he was right but when Elizabeth Holmes tried explicitly to emulate his approach as well as his black turtleneck outfits with blood diagnostic tests assuming that innovation would arrive if she demanded it she ended up presiding over an infamous fraud called fairness and here are two quotations to remind you of just how hopeless experts are at predicting the future of technology Kennels the founder of the Digital Equipment Corporation in the maker of the mini computer said in 1977 there is no reason for any individual to have a computer in his home Paul Krugman Nobel prize-winning economist said in 1998 by 2005 or so it will become clear that the Internet's impact on the economy has been no greater than the fax machines when I was a child the future was going to be all about amazing new forms of transport personal gyrocopters routines space travel supersonic airliners computers hardly got a mention at all and telephones not at all yet I've lived through very little change in transport at all in my lifetime 747s are still flying the Atlantic they were designed in the 1960s by contrast the first half of the 20 century transport changed dramatically communication hardly at all my grandparents were born before the car or the airplane and they died after men landed on the moon but they saw little change in telephones Telegraph's and typewriters during their lives I've had the opposite experience so it's just not true that all innovation is speeding up I have a hunch that the next 50 years or so are not going to be about computers like we're tending to assume today but it's going to be about biotech or maybe transport again or something else now innovation is clearly as Mark said the source of most economic growth but how does innovation cause growth it's surely mostly in terms of time economic growth is the reduction in the time it takes to fulfill a need in my view so to take artificial light as an example again today it takes you about a third of a second of work on the average wage to earn an hour of light from a single LED bulb in 1950 it took your grandparents eight seconds on the average wage then in 1880 with a paraffin lamp is 15 minutes and in 1800 with a tallow candle six hours of work to have one hour of light not very many people could afford artificial lights in those days that reduction leaves you free to spend the extra time earning a different service or a good or relaxing or consuming instead at this point it's worth saying there is no longer even a smidgen of possibility that innovation leads to an overall increase in unemployment to believe that to is to ignore not just the evidence of three centuries but to ignore theory as well it's to think in the zero-sum terms of diminishing returns ever since the first threshing machines on farms people have worried that automation costs jobs instead it creates them by freeing people and capital to seek out new ways for people to employ each other the big theme of human history has been getting more specialized in the way we work so we can get more and more diverse in the way we consume it's a trend that goes into reverse interestingly during periods of impoverishment when people return to self-sufficiency such as after the fall of Rome or even during the Great Depression in America where memoirs are full of stories of families raising chickens and vegetables in the backyard forcing self-sufficiency on people results in poverty as Mao tse-tung vividly vividly demonstrated compared with animals all with subsistence farmers most people can exchange a few hours of highly specialized production which we call a job for a cornucopia of different foods goods experiences in entertainments and travel we work for each other it follows that innovation that does not cut the time cost of acquiring goods and services usually fails I think that is nuclear powers current problem and space Manufacturing's and quite a lot of renewable energies innovations that deliver no new or cheaper services don't spread and less subsidized this is also why inventions are often slow to get going it's not the device or the idea but the falling cost that helps them kick in and change the world Hayek is right that the price is everything innovation is also as much the mother as the daughter of science the steam engine led to thermodynamics not vice-versa social media the mobile phone drones blockchain all a little too academic discoveries it's just not true that most innovation begins with scientific research some does but a lot doesn't so growth is the fruit of innovation but what is innovation why does it happen to us and not to rabbits or rocks why does it happen in some places and in some times but not others and when and why did it start when was it in innovation my answer to this last question which I still think is at least half original to the extent that any idea is original is that there came a moment in human history in this history of hominins when for whatever reason they stumbled upon the habit of exchange and that this was the cause of innovation this is of course a bit of a circular argument but bear with me when people began to trade things ideas could meet and mate with the result that a sort of collective brain could form far more powerful than individual brains we know that our ancestors had technology without innovation strange as that sounds Homo erectus made a shoe alien hand axes to roughly the same design all over the world for the best part of a million years with little change the evidence suggests that Neanderthals though much more intelligent than Homo erectus did not experience innovation either unlike modern people they could not switch to other prey if one food source ran out they didn't engage in exchange either they used only local materials for tools whereas even the earliest modern humans often sourced materials from a long way away almost certainly through trade and I think that's no coincidence without exchange you get no innovation in short what triggered innovation was trade and trade is about a hundred thousand years old anthropologists are catching on to this idea in 2011 an important paper from University College London argued that temporary outbreaks of new technology in Paleolithic southern Africa probably have a demographic explanation that is when population density rose it resulted in a spurt of innovation when population density fell it resulted in technological regress and since population does not have this effect on rabbits this this points to exchange and specialization as the causal link Michele Cline and Rob Boyd have since produced evidence from Pacific Islands that technological complexity of pre-contact fishing tackle on any Island correlated with the population size and with the degree of contact with other islands the most remarkable example is the case of Tasmania which became in Island ten thousand years ago as a result of rising sea levels thereafter it's isolated population not only failed to acquire new technologies from the mainland such as the boomerang but actually regressed gradually giving up bone tools altogether Jo Henrik argues that this shows that technology because of specialization is a collective not an individual phenomenon its knowledge that's held in the cloud and of course the evidence from the modern world overwhelmingly supports the link between trade or exchange and innovation my friend Paul Romer deservedly got the Nobel Prize this year for his attempt to tackle the question of how to explain technological change and here I think it's necessary to dip into economic theory David Walsh in his fascinating history of economics entitled knowledge and the wealth of nations which was the book I couldn't find on my shelf makes the argument that there lurks a contradiction in Adam Smith that is rumbled underground largely ignored for more than two centuries Smith's invisible hand drives markets towards perfect equilibrium implying diminishing or flat returns Smith's pin factory by contrast implies disruptive discovery through specialization and the division of labor which implies the opposite of diminishing returns increasing returns one implies negative feedback the other positive feedback so which is it in the years that followed Smith economists such as Ricardo mill Jevons warith Marshall and Keynes largely ignored increasing returns and the pin Factory they focused on the invisible hand more or less explicitly expecting growth to slow as equilibrium was approached here's Walsh on John Stuart Mill for example mill did not ignore technical progress together but he didn't try to explain it either at least not in economic terms he simply assumed that it would continue for at least a while longer yet the reverse of diminishing returns kept happening growth kept accelerating and still specialization and growth of knowledge never became a central concern of economics from time to time the paradox would burst to the surface to be explained by magical thinking such as Marshalls spillover externalities which Walsh describes as a clever device to reconcile increasing returns with the assumption of invisible hand perfect competition and still make the mathematics come out right the person who surfaced the issue most bluntly was Alan Young in 1928 who argued that Smith had missed the point what went on inside the pin Factory was only part of the story of the division of labor the invention of new tools and machinery and new materials and designs involved the division of labor as well Joseph Schumpeter also tried to bring knowledge and technology to the forefront saying that to do economics without it was like playing Hamlet without the prince and he was adamant that growth was potentially infinite writing it is one of the safest predictions that in the calculable future we shall live in an embarrassed to recess of both foodstuffs and raw materials giving all the rein to expansion of total output that we shall know what to do with but because Schumpeter tended to write in words rather than formulae he was largely ignored then along comes Robert Solow in 1957 with his startling conclusion that the extra that extra land labor and capital can explain just 15% of growth the rest the residual must be changing technology since he arrives at this conclusion using maths at last his colleagues take notice but in sellers model innovation is an external factor a sort of manner from heaven as Walsh puts it like the map of Africa the solo model of the sources of growth consists of bold outlines with little interior detail and most of the interesting action deliberately left out incidentally for me washes book was an eye-opener how on earth could economists have for so long continued to ignore innovation the preeminent fact of the past two centuries for that matter how could politicians ignore innovation today I sit in the House of Lords admittedly an institution that has defied much innovation for many centuries but which purports to tackle the big issues of the country yet I can count on the fingers of one hand the times we've debated how to encourage innovation how to regulate it we discuss it slightly more often it was Roma in 1990 who made growth endogenous who saw that innovation was itself a product that knowledge is both an input and an output of the economy and that the key to characteristic of new knowledge is that it is both non rival that is to say lots of people can share it without using it up and partially excludable that is to say whoever gets hold of it first can make money exploiting it at least for a while knowledge is expensive to produce but then can pay for itself as Walsh put it people cooked up the new instructions in the hopes of making money then either kept secret some aspects of them patented them or used the advantage of their newfound knowledge to keep going forward to create still more no new knowledge this is a key insight and in my view it undermines the view on the left that knowledge is a public good that can only be paid for by the state and the view on the right that government needs to grant explicit monopolies in the form of patents and copyrights set up correctly society will generate new knowledge within networks or markets Terence Keeley has gone further arguing that the evidence strongly suggests that private interests will invest in research and that government doing so instead on the assumption of a market failure ends up crowding out such investment this is not a debate I want to join here except to say that whether you encourage research by grants prizes tax breaks or deregulation you almost certainly do help innovation picking winners however in the public sector is a mistake governments of champion certain new technologies throughout my lifetime and frankly the record is pretty dismal Concorde advanced gas reactors interactive television virtual reality villages wind turbines biofuels the list of losers is long I have a feeling that graphene and electric cars may join that list in due course the list of winners that government missed out on is just as long the internet mobile phones social media vaping shale gas we're back to the unpredictability of technological change I think the recipe for encouraging innovation is terribly simple seek out and destroy barriers that get in its way because they're always huge vested interests ranged against innovation as Frederick Erickson and Bjorn Weigel have pointed out in their book the innovation illusion big companies and big public agencies do their best to protect their rent seeking opportunities they strive to stifle innovation in any way they can let me give you two recent examples Sir James Dyson invented the bat the bagless vacuum cleaner the German vacuum industry lobbied Brussels for the power consumption of vacuum cleaners which were to be regulated to prevent global warming to be tested in the absence of dust because if there is dust around the German devices work less well last week Dyson won its case in court but it took five years second example the pharmaceutical Lobby pharmaceutical industry Lobby hard in Brussels and Washington mainly for the regulation and restriction of vaping devices electronic cigarettes to protect their just their prescribed patches and gums as the late clusters jhummer chronicled in his book innovation in its enemies in the past hansom cab operators in London furiously denounced the introduction of the umbrella marjorine invented in France in 1869 was subject to a decades-long smear campaign blamed professor Juma for the pun not me from the American dairy industry there never was a more deliberate and outrageous swindle than this bogus butter business thundered the New York Dairy Commission by the early 1940s two-thirds of American states had banned yellow margarine all together on spurious health grounds the National Health Service is another big business that is notorious as Sir John Bell has recently argued for its resistance to innovation it is one of the last health services in the Western world to adopt proton beam therapy for cancer ran docs the leading producer of blood Diagnostics based on proteins in the world is based in the United Kingdom in Northern Ireland it sells to 145 countries but it struggles to get a foothold in the NHS science too is full of barriers to innovation such as peer review and its tendency to punish new ideas that diverge from a cosy consensus consider a very recent article detailing the long struggle that Robert Meyer had to get his hypothesis about Alzheimer's and viruses taken seriously or the even longer struggle that Moyers mentor Barry Marshall had a generation ago to get the bacterial causes of stomach ulcers considered Marshall got the Nobel Prize eventually but it was uphill work The Economist Alexander Tabarrok has shown that by increasing research costs and delaying drug introductions in the US the FDA quite plausibly costs more lives than it saved brig Lindsay and Steve tellers in their new book the captured economy argue that intellectual property occupational licensing and government favoritism also do much to keep innovators out patents and copyrights originally intended to encourage innovation have become often ways of defending monopolies against disruption it is bonkers that thanks to lobbying from the Disney Corporation my heirs can earn very small royalties from my books till seventy years after my death they should get a job instead then there is the precautionary principle this superficially sensible idea that we should worry about unintended consequences of innovation has morphed into a device by which activists prevent life-saving new technologies getting started even when these are demonstrably safer and better than existing technologies the precautionary principle as adopted by the EU in the lisbon treaty holds the new to a higher standard than the old ecig arete have to test their vapor for far more chemicals than cigarettes have to it ignores the risk of existing technologies defying the concept of harm reduction indeed it essentially argues that you should never do anything for the first time Cass Sunstein has argued that when taken to an extreme the precautionary principle is largely meaningless because both action and inaction creates some risks to health leaving little reason to choose between the two the asymmetric nature of the precautionary principle is this in an imperfect world standing in the way of an innovation that might do good is to cause harm it's a verb it's a version of Frederic Bastiat argument about the seen and the unseen hostility to innovation in the European Commission and Parliament by the way is the biggest reason I vote did leave in 2016 having seen the Commission and Parliament set their faces against vaping against fracking against genetic modification against bagless vacuum cleaners often on the most spurious grounds and often at the behest of corporate lobbies for incumbent interests having seen the way the EU placed obstacles in the way of digital startups leaving Europe in the slow lane of the digital revolution and with no digital Giants to rival Google Facebook or Amazon having watched the EU entrenching an extreme version of the precautionary principle in the Lisbon Treaty itself I am really worried that this continent won't be able to grow fast in the future in 2016 business Europe produced a long list of cases in which EU regulation had affected innovation the list includes two cases where regulation stimulated innovation waste policies and sustainable mobility but far more where it hampered change by introducing legal uncertainty inconsistency with other regulations technology prescriptive rules burdensome packaging requirements high compliance costs or excessive precaution for example the EU medical devices directive has undoubtedly increased the cost and reduced the supply of new medical devices what Britain needs to adopt in my view in the wake of brexit is the innovation principle to balance the precautionary principle this innovation principle was proposed by the European Risk forum in essence it says examine every policy for the impact it could have on innovation and if you find evidence that the policy is going to impede it then rethink it 22 chief executives from some of the world's more innovative companies signed a letter to John Claude Yunker in 2014 asking him to adopt the innovation principle and the dutch Prime Minister Mark Rutte er endorsed it during his country's presidency of the year of the EU in 2016 unfortunately it fell on deaf ears and nothing has been heard of it since so my message is that because innovation is a bottom-up evolutionary process deriving from dispersed knowledge instead of messing around trying to find a magic way to create innovation government should focus on removing the things that stop it as long ago as 1679 William petty one of the pioneers of economics pointed out in his treatise on taxes and contributions that when a new invention is first propounded in the beginning everyman objects and the poor inventor runs the gauntlet of all petulant widths everyman finding his several floor no man approving it and lesson mended according to his own device now not one of a hundred outlives this torture and those that do are at length so changed by the various contrivances of others but not any one man can pretend to the invention of the whole nor well agree about their respective share in the parts today this is more true than ever innovation is a mysterious and underappreciated process that we discuss to rarely hamper too much and value too little thank you very much [Music] [Applause] you [Music]

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Keywords: Matt Ridley, Hayek Lecture, IEA, Institute of Economic Affairs, Innovation, Talk

Id: kc37sGaMvSo

Length: 39min 25sec (2365 seconds)

Published: Tue Nov 20 2018

Reddit Comments

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The indroduction of even one new light bulb changes the world to some degree.