<ul><li>Big companies are bad at innovating because they are too bureaucratic, have too big a vested interest in the status quo and stop paying attention to the interests, actual and potential, of their customers. </li><li>Thus for innovation to flourish it is vital to have an economy that encourages or at least allows outsiders, challengers and disruptors to get a foothold. </li></ul>

2.2 Big Companies Are Bad At Innovation

<ul><li>The main ingredient that leads to innovation is freedom. Freedom to exchange, experiment, imagine, invest and fail. Freedom for the consumers to reward the innovations they like. Not freedom in the lawless sense, just the general idea that if something is not specifically prohibited, then the assumption should be that it must be allowed.</li><li>Freedom is why innovation cannot be easily planned because neither human wishes nor the means of their satisfaction are easy to anticipate. This is why nobody really knows how to cause innovation because no one can make people want something.</li></ul>

4. How Innovation Works 

<ul><li>Innovation is the turning of an idea or invention into a workable, affordable device that actually delivers benefits to people. </li><li>Innovation is often serendipitous: Serendipity is an accidental discovery that is beneficial in some way. It is a well-known attribute of innovation. Post-it notes, genetic fingerprinting, and Kevlar(used in bulletproof jackets) are some examples of serendipitous innovations.</li></ul>

1.1 Innovation V/S Invention, And Serendipity 

<ul><li>Every idea is a combination of other ideas. Innovation happens when ideas have sex. It occurs where people meet and exchange goods, services and thoughts. The inventors of motor cars did not have to invent wheels or steel. </li><li>Most inventors find that they need to keep "just trying" things. Tolerance of error is therefore critical. An element of playfulness helps, too. Innovators who just like playing around are more likely to find something unexpected. </li><li>Innovation always requires collaboration and sharing. Even the simplest object is beyond the capacity of any one human being to understand. </li></ul>

1.2 Innovation Relies On Recombination, Chance And Collaboration

<ul><li>Innovation is nearly always a gradual thing. Eureka moments are rare and possibly non-existent. </li><li>It is because of human nature and the intellectual property system that innovation is often described as heroic breakthroughs. It is all too easy and tempting for whoever makes a breakthrough to magnify its importance, forget about rivals and predecessors, and ignore successors who make the breakthrough into a practical proposition. </li><li>Nationalism makes the problem worse. The importing of a new idea gets confused with the inventing of a new idea. </li></ul>

1. Innovation Essentials: Innovation is Gradual 

Ideas are like rabbits. You get a couple and a learn how to handle them, and pretty soon you have a dozen.

<ul><li>The justification for intellectual property- patents and copyright is that it is necessary to encourage investment and innovation. The trouble is, the evidence clearly shows that while intellectual property helps a little, it also hinders and the net effect is to discourage innovation. </li><li>A further problem is that patents undoubtedly raise the cost of goods. This slows down the development and spread of innovation. </li><li>Finally, patents tend to favour inventions rather than innovations: upstream discoveries of principles, rather than a downstream adaptation of devices to the market. </li></ul>

3. Resistance To Innovation: Intellectual Property 

<ul><li>The invention of the light bulb was independently achieved by 21 people. There may be conscious competition between these but it was impossible for light bulbs not to be invented in the 1870s. 2 paradoxes arise:</li></ul><ol><li>The individual seems dispensable. If Edison wasn't born, the world still would have light bulbs. But this is precisely what makes such achievements remarkable: any of the billions of rivals could have won, but only some emerged.</li><li>This makes innovation look predictable, yet it isn't. It is obvious that search engines would be the biggest fruit of the internet. But no one saw it coming.</li></ol>

1.4 Innovation is Inevitable

<ul>
<li>Amara's law states that people tend to overestimate the impact of new technology in the short run and underestimate it in the long run. Gene editing, GPS and AI are some examples where Amara's hype cycle is observed. It could also be playing a role in the story of crypto.</li>
<li>The bigger the cities get, the more productive and efficient they become, in terms of their use of energy to create improbability. It is always possible to raise living standards further by lowering the amount of a resource that is used to produce a given output. Growth is therefore indefinitely "sustainable".</li>
</ul>

1.3 Innovation's Hype Cycle, And Increasing Efficiency

It is believed that the main source of innovation has been the government support of research, and that government should therefore adopt an industrial policy of directed innovation. This is a myth.While it is not impossible that governments can aim for, create and perfect an innovation, it doesn't happen very often. Far more inventions and discoveries emerge by serendipity and the exchange of ideas.

2. Economics of Innovation: Innovation Is A Bottum-Up Phenomenon

<ul><li>The ability of Western economies to generate innovation has become weaker. Incomes appear to be stagnating and opportunities for social mobility drying up. The cause is not too much innovation, but too little. The West may still do new things in science and arts but is slowing down in innovating products. </li><li>China's innovation engine,however, has fired up. Their speed could be explained by work. Willingness to put in the hours, to experiment and play. But they have authoritarian restraints, which hinder innovation. Perhaps India or Brazil will pick up the challenge and keep innovation happening. </li></ul>

4.1 An Innovation Famine

<ul><li>There is a widely held belief that science leads to technology, which leads to innovation. While this can happen sometimes, it is just as often the case that invention is the parent of science: techniques and processes that work are developed, but the understanding of them comes later. </li><li>Examples: Steam engines led to the understanding of thermodynamics, powered flight of aerodynamics, and animal breeding of genetics. </li></ul>

2.1 Innovation And Science 

We wanted flying cars; instead we got 140 characters.

Liberty is the parent of science and of virtue, and a nation will be great in both in proportion as it is free.

When a new invention is first propounded in the beginning every man objects and the poor inventor runs the gauntloop of all petulant wits.

'Ridley is spot-on when it comes to the vital ingredients for success' Sir James Dyson Building on his bestseller The Rational Optimist, Matt Ridley chronicles the history of innovation, and how we need to change our thinking on the subject. Innovation is the main event of the modern age, the reason we experience both dramatic improvements in our living standards and unsettling changes in our society. It is innovation that will shape the twenty-first century. Yet innovation remains a mysterious process, poorly understood by policy makers and businessmen alike. Matt Ridley argues that we need to see innovation as an incremental, bottom-up, fortuitous process that happens as a direct result of the human habit of exchange, rather than an orderly, top-down process developing according to a plan. Innovation is crucially different from invention, because it is the turning of inventions into things of practical and affordable use to people. It speeds up in some sectors and slows down in others. It is always a collective, collaborative phenomenon, involving trial and error, not a matter of lonely genius. It still cannot be modelled properly by economists, but it can easily be discouraged by politicians. Far from there being too much innovation, we may be on the brink of an innovation famine. Ridley derives these and other lessons from the lively stories of scores of innovations - from steam engines to search engines - how they started and why they succeeded or failed.

PETER THEIL

How Innovation Works: Serendipity, Energy and the Saving of Time

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