Since the end of world war ii stop joining conversation by former defense secretary james mattis. For more Schedule Information at booktv. Org or consult your program guide. Including the evolution of everything and the rational opposite. This new book, primary focus of our conversation today, is the how Innovation Works. He has been a member of the house of lords. Good to chat with you today. Guest thanks, jim. Great to be with you. Host i noticed from doing events and podcasts, listeners love when i read so ill read a few sentences i cobbled together from your book, as a lead any question, i you rate. Innovation is the most important stat missed loose understood. The reason that most people today live lives of pros apart and wisdom compared with ancestor. Theres freedom to change, experiment, imagine, invest and fail. Liberals argued that since at least the 18th century that freedom needs prosperity but it would argue that they have never found the connection by which one causes the other. Innovation is that drive change that missing link, innovation is the child of freedom and the parent of prosperity. Matt do you think you have written a contrarian book near 2020 . Seemed to be a growing belief we have not innovated since the loop par practitioner, growth kills the climate and innovation comes from mart, central machiners implementing industrial policy and carefully chosen sector. Is this a contrarian book . Guest it is if those are your views. Say that innovation is the product of free people exchanging ideas freely and that yes we are experiencing innovation, out though i do argue towards the end of the book we are experiencing something of an innovation famine, particularly in the western world. There are areas that we have not been able to get enough innovation going in recently and the pandemic has reminded us of that. Havent been able to innovate diagnostic devices or vaccines. Host i think if you ask these days, assuming people think that innovation is good, some im not sure as many people as you think innovation is go good they think of disruption and job loss and maybe a. I. Run wild. If you think innovation is good and need more, im not sure getting back to my question, how many people would say, well, we just need more freedom. They would say we need more government. We need a more powerful innovation geared state to work its magic on the private sector and on science. That seems to be where the energy is right now. Guest i think youre right, and i think this is partly because people always have a sort of topdown view of the world. They think that the world is run by people. They dont think of it as being an organic and spontaneous effect of everybody reacting with each. Other they assume if something happens its because someone ordered it to happen and i very much argue thats not the case in this book. Argue that innovation is something that bubbles up if you allow people the freedom to experiment and try new ideas. You cant as it were stop what you cant direct it and you cant plan it. There is definitely a tendency these days so say we must decide which innovations we want and which innovations were going to get and which innovations well subsidize from the public funds because the history of innovation shows you cant do that. Cant suddenly make a super sonic flights cheap. There are physical limits to things. And you cant suddenly make a low Carbon Economy easily. It might be possible over the long run but wont come about instantly, and, yes, we have been innovating as a society, somewhere in the world at any one time, and for goodness sake, if we dont keep doing so, we will find that prosperity dries up pretty fast. Host i think one reason, and im sure you remember that back in the 1980s, there was a concern about the United States about whether afternoon be the leading economy of the future and people looked how japan how we thought its innovation and that was how to very smart bureaucrats, the key agencies and a lot of people back then who said, we need to do what they do. Maybe they do Free Enterprise, that was the way to innovate in the past. Now were much smarter and we need to have very smart people making decisions in government. Didnt work out so well. Not sure that was actually how japan was innovating and now we have a different situation, china has a growth rate, huge advances in a. I. And has big idea for the forward that will become the leader in a. I. And aerospace and Everything Else you can think of. Now they figure out another model. They seem to be doing great. Do you think thats one reason people of skeptical but the freedom argument and do they have a point . Has china figured out a better way to do information . Guest no, i theming youre exactly right. People misread japan in the 1980s. They said this has come about because the ministry of International Trade and industry has singled out sectors which are the future and invested in them. That is nonsense. You look under the bonnot. Firms were just going out there and trying new things. Were developing new technologies at an standard rate. The same mistake is being made about china today i me. It is an innovative country. It has caught up with the United States and some areas has overtaken emin terms of Consumer Electronics and digital behavior and so on. There are some front of the pack stuff happening in japan sorry in china. But the to say thats because its a communist regime with a centrally directed plan to innovate is simply wrong. If you look at what happens in china, yes, it has a very strong monopoliesic and authoritarian political regime, but as long as you dont annoy the communest party, below that level, theres a huge amount of freedom. Its not directing what entrepreneurs do, and in fact an ordinary entrepreneur in china who decides to build a factory to do something new, can do the whole thing in a matter of weeks which would take years in the west to get permission from the various bureaucracies and regulations. In that sense a chinese entrepreneur is freer. That said, china is getting worse in terms of a her to tear yapism and becoming much more of a for a while it was differenting towards democracy. That has been reversed. And i think you will find that the chinese bureaucrats will think they can direct and control exactly what is happening in innovation and if they do try that, they will kill the goose that lays the golden eggs and will not be at the front of the pack very long. I wouldnt bet on china being the lead innovator in the country unless can democratize their regime. Host do you think china can or over the long determine be an innovative entrepreneur state without being much free center right now looks like they managed to do both, managed to be an authoritarian country with one Political Party and be highly innovative. You think that is not sustainable, either they will stay authoritarian and become less innovative or have to move slowly toward being a drastic nation. Guest i think it is simply not possible given the role that freedom plays in innovation as i argue, the ability of the tropic trip the entrepreneur to change his mind, to change direction to suddenly try one thing and another to do a lot of trial and error, make mistakes and come up with something new and impressive that will change the world. Given the importance of that, i feel that in the long run that is not compatible with a regime that try thursday control things from above, and china has been here before. In a thousand years ago it was the most innovative place in world and responsible for extraordinary innovations, prisoning and all those kind of things. These came about because the dynasty was not a very centralized regime, fragmented in which there was a lot of local autonomy and freedom. Then the monthels insayed and then the ming empire and the ming were opposite. They wanted tight, centralized control of everything. They literally controlled where you could travel and they needed a report from every merchant on how much stock he held in this warehouse at regular intervals. The mandarins at the center did. This was a recipe for killing innovation and sure enough china sank into lack of information and e innovation and eventually extreme poverty. The lesson there is if you run an authoritarian regime and gets more intrusive into the life of ordinary small businessmen youll stop innovation. Its easy to do. Host i wonder if we worry too much but china being a leading technological power, having an authoritarian country being the technological front tier, if those who things arent sustainable and i worry that were so worried about it that we figure maybe they figured out a different model and we have to follow and because already the United States theres more and more talk but industrial policy and we need to be picking Everybody Knows a. I. Is the future so we need to invest in a. I. And Everybody Knows biotech is the future so we have to instress in biotech and i wonder if thats the lesson, not a lot of confidence in the United States that freedom and Free Enterprise are the best path to being and staying and pushing forward that technological frontier. Guest well, the government even in the u. S. Has a very pore track record of picking winners. Its good at losers picking the government to help them and if you go back the 1980s when the worry was about japan, all the emphasis was having a policy are so Semi Conductor manufacturing and memory manufacturer. That would be absolutely vital to have a strategic interest in keeping memory manufacture on shore. Completely missed the fact that the memory were turning into enemy hery checks were a commodity and the action was moving to microprocessorses and then software, and if you go back even further, back to 1903 the u. S. Government poured an enormous amount of money for the time into a project to develop the first air plane. A guy named langley built an enormous machine that would even into the air at the first attempt and didnt test the part of the machine and at any time talk to other people it and flopped into the potomac when it was launched and there was humiliation for the u. S. Government. Ten days later on an island off north carolina, two bicycle mechanics from dayton, ohio, who had done it completely differently, tested all the components separately again and again and again, in gliders and kites and other devices, talked to as many people as they could around the world, drawn on what birds do used wind tunnel experimentses, and they shared their ideas with as many people as possible, but in front of no crowd at all, they got an airplane into the air and for about five years no one believed them and they went to the u. S. Government said we really can give you a fantastic technology to use in the military and the u. S. Government said, huhuh. We have been there we burnt or fingers with mr. Langley. So he the governments record in this area is not great. People cite the internet coming out of darpa and theres some truth but the yet relied on a lot of private sector input and even when it came out of darpa it needed to go through a huge amount of innovation and development to turn do what we have now. So its giving darpa the credit for the internet like giving a beaver credit for the hoover dam. Host now mentioned that you talk about this innovation famine, information desert that is perceived to have been the case since the early 1970s. Look at official government statistics, theres this downshift in productivity growth, which related to innovation, in the early 1970s, and it never really rebounded other than the late 1990s, early 2000s in the United States, look at the productivity numbers, didnt see what we saw in the 1950s to 1960s. A very hotly debated, still debated question. What do you think happened . Not just the out but across the advanced economy, we saw a downshift in productivity which perhaps Robert Gordon has written about in this book, the end of american growth, what do you think happened there, that productivity downshifted and never came back. Guest i dont think its quite that bad. I hesitate to get into an argument about the statistics put i think when you take into account the sizes of households and all these kind of things, you correct for that, there is still a productivity improvement there, but youre right there isnt as much as one would expect. Now, we have had a period of enormous innovation. Youre talking about most of my lifetime, and we have again from paper to computers and telephones to mobile phones and an draft amount of innovation during that period, but as peter teal put it once, we wanted flying cars and we got 140 characters. Most of the innovation has ended up being digital, ended up being bits rather than atoms, and teal makes the argument the reason for this is because its permissionless to start a new business on the internet. To start an ecommerce about you dont need to ask anyones permission, you just start doing it and the contrast with if you wanted to make a new drug or medical device or new way of building a bridge, theres going to be an enormous amount of regulatory progress you have to make before you can start. As a result, we have diverted the energy of entrepreneurs and innovators into Digital Innovation rather than innovation in atoms and rail structures. We did it the u. S. Did it quite explicitly. The clinton administration, passed a seize of measure in the late 1990s that very muchre permissive to ecommerce. Deliberately cleared the undergrowth away to make it possible for companies to Start BuildingOnline Retail and communications platforms. And that work really well. So, we have diverted our energy i think online in the last few decades, and im not sure that is what innovation will look like in the next few decades, because we might get back to transport innovation or turn to biotechnology innovation asing at the big wave coming next. I dont myself feel that the america of 2020 is no better than the america of 1970. I just cant see that argument. The quality of life is extraordinarily better, and people are working shorter hours and living longer lives and eating better food and all these kind of things. So, i think we are seeing the fruits of innovation. Its just theyre not showing up particularly in the productivity statistics like they are elsewhere in the world, by the way. Poorer countries are seek spectacular increases in productivity, and in prosperity over the last 10 good 20 years. Host that explanation, the one you gave, the one peter teal talks about, we made it harder to too that sort of real world, working with atoms kind of innovation, as one who loves Free Enterprise and loves markets i love that explanation. In fact i love that explanation to too much. Its such a comfortable explanation for me. So totally cop form tuesday my inherit belief system and my biases i wonder i love it too much and im missing something. Could we be missing somethings else . Might it be that Government Spending less on investment, something happened with schools or it really isnt regulation. Its some other explanation . Guest yes, of course. I think if you i often make the point that we saw incredible changes in transportation in the first half of the 20th 20th century, but almost no changes in communication, and computing and then the necked half of the 20th century we saw opposite, very little change in transportation and a huge change in computing; so, i like to show a cartoon published in 1958 of what life would be like in the 21st century, and it is a shot of a very oldfashioned mailman delivering perfectly order letter but doing so with a rocket on his back and thats exactly the wrong way around. Were not using hers much, were using emails and dont have rockets on the backs of individuals. So we got the future wrong in that sense, and didnt understand where it was coming from. Was that because government regulation and interference made it hard to do innovation in transport . No, i dont think it was if think it was because we hit some kind of physical limits that were hard to preach breach in terms of eferntive so i moving people around. Super sonic airliner is possible but it burns too much fuel and isnt very efficient. So, i think that some of the reasons why innovation shifts from one sector another are not about the obstruction of bureaucrats or things like that, but some of them definitely are. By the way, if you say we havent seen improvements in transport, one of the most spectacular improves we have seen is actually in transport. Its just not in speed. Its in safety. If you look at the fatalities in commercial passenger jets, they have again down by some gigantic amount in the lost 3040 years. Per revenue per million revenue passenger kilometers theyve gone from 3,000 a year to about 50 a year. Thats an unbelievable change, and in 2018, we had a year with zero fatalities in commercial passenger jets. That is extraordinary. When you think how many were flying around the world in the millions. So, we are seeing improvements but they arent necessarily showing up in our pocketbook. Theyre sometimes showing up in other aspects of our lives i think. Like safety. Host whenever i write about this or i this issue of innovation, what has gone wrong over the past if we think something has gone wrong over the past decade. People start pointing out, maybe theres a cultural reason. Maybe were not a future think, future oriented society. How many of our filmsand books portray an optimistic future. Tale story that technology can lead to a Better Future versus a future of a ruined planet or a. I. Taking over the earth, or some other tive stonen see anywhere. You i had to write optimistic movies would be way easier to write the opposite, its all terrible and we should fear the future. Guest absolutely. This is something ive been complaining about for years. I just cant remember a hollywood film in which the future is portrayed positively. Might be some but i cant remember one. Or in which an businessman is portrayed positively. The only kind of businessman who is ever portrayed positively in hollywood as far as i can make out is an architect, i fess hes not a businessman, more of an artist. These strange obsessions with tis tonan dystopia futures and we have always told ourselves the future will be terrible and the future has always been fine. Im quite passionate about this. When i was 12 or 13 years old, with the Env