Only innovation can save us

From Matt Ridley. Excerpts:

"Fifty years ago yesterday, a young computer expert called Gordon Moore pointed out that the number of transistors on a silicon chip seemed to be doubling every year or two and that if this went on it would “lead to such wonders as home computers . . . and personal portable communications equipment”.

Today, for the cost of an hour of work on the average wage, you can buy about a trillion times as much computing power as you could when Moore wrote his article. The result has had a huge impact on our standard of living, indeed it is one of the biggest factors behind world economic growth in the past half century.

Back in the 1950s the American economist Robert Solow calculated that 87 per cent of economic growth came not from applying more capital or more labour, but from innovation making people more productive. It’s probably even higher today. New materials, new machines and new ideas to cut costs enable people to spend less time fulfilling more of their needs: that’s what growth means.

Technological change is the chief reason that economic growth for the world as a whole shows no sign of reaching a plateau but keeps marching up at 3-5 per cent a year. Innovation is the main reason the percentage of the world population living in absolute poverty has more than halved in 35 years. And hostility to innovation is one of the reasons for Europe’s current stagnation."

"innovation is a great demolisher of inequality. A century ago, you had to be very rich to own a car or your own home, to have more than three pairs of shoes, to have a spare bedroom, to buy on credit, to have indoor plumbing, to eat chicken regularly, to have a library of books, to be able to watch great acting or great music regularly, to travel abroad. Today all those things are routine for people on modest incomes thanks to the invention of container shipping, fertiliser, better financial services, cheap materials, machine tools, automation, the internet, television, budget airlines and so on.

It’s true that the very rich can now afford a few more things that are beyond the reach of those on modest incomes, but they are mostly luxuries: private planes, grouse moors, tables in the very best restaurants. We would like those on low incomes to have access to better medicines, better schooling, cheaper homes and lower energy bills, and in each case the technology exists to provide these: it’s mainly government policies that get in the way.

Technology is the great equaliser: today some of the poorest African peasants have mobile phones that work as well as Warren Buffett’s — at least for voice calls. In the 1940s, Joseph Schumpeter said that the point of commerce consists “not in providing more silk stocking for queens, but in bringing them within reach of factory girls”.

It was not planning, trade unions, public spending, welfare or tax that made the poor much richer. It was innovation.

But can politicians do anything about innovation? Not directly. It happens to its own inexorable rhythm, unpredictably. Trying to pick winners usually results in picking losers. There was no policy to encourage search engines and social media, but they happened anyway. What’s much more predictable is where they happened: Silicon Valley has had just the right mixture of freedom, skills, permissive law, critical mass of talent and capital to make innovation thrive."