How Innovation Works, written by Matt Ridley, came out in 2020 — four years ago, and so it might strike you as strange indeed for me to suddenly write up my thoughts on this book. But it is one of the most popular titles published in recent years on the topic of innovation. And having just finally gotten around to reading it, despite the inordinate amount of time the book spent languishing in a to-read list that in a probably not uncommon phenomenon tends to get longer not shorter, I wanted to write up a short blog post with some things that stuck with me from the book.

One of my primary research interests is the political economy of development, particularly the relationship between political institutions and innovation. A lot of the scholarly work that I read and engage with assumes as its central premise that states can and should be an engine for catch-up industrialization and innovation. It was interesting, then, to find that How Innovation Works is a much more ideological book than I had initially assumed it to be. In effect, Ridley wrote a polemic on how governments cannot and should not be the key drivers of innovation.

Ridley says that he is not claiming that “government is incapable of stimulating innovation, or that everything it does is better done by other actors” (pg. 281), but rather that the idea that government is uniquely suited to promoting innovation is a myth. Instead, Ridley argues, we know relatively little about how innovation actually happens. We do know that innovation is often serendipitous, which is why “liberal economies, with their free-roving experimental opportunities, do so well” (pg. 6). How innovation works, Ridley concludes, is with freedom — hence why innovation can hardly be planned for in advance. No one knows how to cause innovation, he says, “because no one can make people want something” (pg. 360).

That Ridley — until recently a Tory peer in the British House of Lords and a committed Brexiteer — is committed to limited government intervention and the promotion of freedom is not surprising. (I did not know about his political views before buying the book, but you can detect the Euroskepticism pretty readily as you read.) He marshals a wealth of evidence to support his arguments; a large portion of the book is used to chronicle the history of innovation in various industries, to demonstrate a number of key themes: that innovation is gradual, that it is not the product of a lone genius but instead the fruit of teamwork, that it is a result of bottom-up not top-down forces, and so on. Ridley is convincing on one key point: that innovation happens “when ideas have sex” (pg. 251).

But there is one key area that Ridley is either unable to address which weakens his argument. As part of his conclusion, Ridley looks to the future of innovation, and here he cannot ignore the role of China. “In the coming few decades China will innovate on a grander scale and faster than anywhere else,” he writes, “despite the fact that its politics is authoritarian and intolerant” (pg. 369). Ridley explains this massive incongruity between his entire thesis and the empirical reality surprisingly briefly: because the Communist Party allows people to experiment, so long as it does not threaten the CCP’s hold on power, and because Chinese entrepreneurs work from 9 am to 9 pm, six days a week (the infamous 9-9-6 system upheld by Jack Ma).

Surely such a simplistic explanation would not do. Here Ridley is ignoring a wealth of literature on the role of the Chinese government and bureaucracy in promoting first catch-up industrialization and now innovation. Yes, Ridley is correct that bounded freedom is a key ingredient of China’s post-Mao success. Deng Xiaoping and his successors implemented a model of governance that encouraged freedom of experimentation within boundaries — what Ang (2016) calls “directed improvisation” — or the ability to continually adapt experiment and adapt policy in service of national economic goals —which Heilmann (2009) calls “foresighted tinkering”. But there is also research, especially in the years since this book came out, that has demonstrated the role of the Chinese bureaucracy in directly encouraging innovation, such as Gomes and Brink (2023)’s work on the role of the Chinese bureaucracy in encouraging the development of the electric vehicle industry.

I also find that Ridley is probably too dismissive of Mariana Mazzuccato’s The Entrepreneurial State. At one point Ridley argues that the examples Mazzuccato uses in her book are mostly “cases of ‘spillover’ rather than direction”; “nobody has claimed that the government set out deliberately to create a global internet when it funded the Defense Advanced Research Project Agency’s computer networking” (pg. 278). True. But that would strike me as complementary to Ridley’s own arguments: the state is merely acting as another player in the messy, serendipitous world of innovation, and ultimately it is up to individual creativity to place the pieces together and create a new product. And here Ridley seems suddenly and surprisingly dismissive of incremental innovation, which he argues throughout the book is the most common form of innovation. So what if the government only managed to create an internal network, when it ultimately spawned the internet?

Ultimately, Ridley sees states as living fossils that are simply too bureaucratic to play an effective role in promoting innovation. “Parliament is a sociological coelacanth, a living fossil little changed since the political Paleozoic,” Ridley argues. He notes that this is not a bad thing per se, “but it hardly speaks of a society that breeds innovation from government outwards.” If governments are able to innovate, he says, then surely they should apply innovation internally first. (And, again, here he gives China too little thought!) But few people are arguing that it has to be ancient lawmakers in ossified legislatures who are promoting innovation — and as he rightly notes, constant constitutional innovation is probably not a good thing. But government and policy innovation can happen, elsewhere. Here Ridley neglects the literature on designing effective innovation agencies (Breznitz, Oronston and Samford 2018). He spends little time on the role governments can take as the bearer of immense risks. He also ignores virtually the entire developmental state literature, which shows that it is effective bureaucracies — meritocratic, well-connected, autonomous — which are capable of helping to accelerate development.

As a popular read, How Innovation Works is interesting enough, and I certainly learned a lot. But its reach to a general audience is in its own way a little worrying. By impressing upon readers the perception that all governments need to do is get out of the way and innovation will occur, the book depresses support for vital and necessary government policies, especially in developing countries, that are aimed at economic upgrading and restructuring. It is true that innovation is inherently uncertain and states are not always well-equipped to make these bets, as Wong (2011) has shown in the case of Asian biotech. But I would be wary of being as dismissive of the ability of states and policymakers to encourage innovation-driven growth as Ridley is here.