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By Root 683 0

can pay people to stumble upon new technologies – satnav and the internet were by-products of other projects – it is hardly the source of most innovation. During the late twentieth century, as companies sewed innovation into their culture and as industrial behemoths repeatedly fell prey to upstarts, most public-sector agencies just trundled on as before, neither trying to become especially innovative them selves, nor dying to make way for new versions of themselves. The idea of a government agency that fears having its mission pinched by another government agency is so peculiar as to be unimaginable. If food retailing in Britain had been left to a National Food Service after the Second World War, one suspects that supermarkets would now be selling slightly better spam at slightly higher prices from behind Formica counters.

Of course, there are some things, like large hadron colliders and moon missions, that no private company would be allowed by its shareholders to provide, but are we so sure that even these would not catch the fancy of a Buffett, a Gates or Mittal if they were not already being paid for by taxpayers? Can you doubt that if NASA had not existed some rich man would by now have spent his fortune on a man-on-the-moon programme for the prestige alone? Public funding crowds out the possibility of knowing an answer to that question. A large study by the Organisation for Economic Co-operation and Development concluded that government spending on R&D has no observable effect on economic growth, despite what governments fondly believe. Indeed it ‘crowds out resources that could be alternatively used by the private sector, including private R&D’. This rather astonishing conclusion has been almost completely ignored by governments.

Exchange!

The perpetual innovation machine that drives the modern economy owes its existence not mainly to science (which is its beneficiary more than its benefactor); nor to money (which is not always a limiting factor); nor to patents (which often get in the way); nor to government (which is bad at innovation). It is not a top-down process at all. Instead, I am going to try now to persuade you that one word will suffice to explain this conundrum: exchange. It is the ever-increasing exchange of ideas that causes the ever-increasing rate of innovation in the modern world.

Go back to that word ‘spillover’. The characteristic feature of a piece of new knowledge, whether practical or esoteric, whether technical or social, is that you can give it away and still keep it. You can light your taper at Jefferson’s candle without darkening him. You cannot give away your bicycle and still ride it. But you can give away the idea of the bicycle and still retain it. As the economist Paul Romer has argued, human progress consists largely in accumulating recipes for rearranging atoms in ways that raise living standards. The recipe for a bicycle, greatly abridged, might read like this: take some iron, chromium and aluminium ore from the earth, some sap from a tropical tree, some oil from beneath the ground, some hide from a cow. Smelt the ores into metals, and cast into various shapes. Vulcanise the sap into rubber and mould into hollow circular rings. Fractionate the oil to make plastic and mould. Set aside to cool. Mould the hide into the shape of a seat. Combine the ingredients in the form of a bicycle, add the startlingly counter-intuitive discovery that things don’t fall over so easily when they are moving forwards, and ride.

Innovators are therefore in the business of sharing. It is the most important thing they do, for unless they share their innovation it can have no benefit for them or for anybody else. And the one activity that got much easier to do after about 1800, and has got dramatically easier recently, is sharing. Travel and communication disseminated information much faster and much further. Newspapers, technical journals and telegraphs spread ideas as fast as they spread gossip. In a recent survey of forty-six major inventions, the time it took for the first competing copy to appear