The Rational Optimist_ How Prosperity Evolves - Matt Ridley [129]
Throughout history, though living standards might rise and fall, though population might boom and crash, knowledge was one thing that has showed inexorable upward progress. Fire, once invented, was never forgotten. The wheel came and never left. The bow and arrow has not been disinvented even though it is obsolete except in sport – it is better than ever. How to make a cup of coffee, why insulin cures diabetes and whether continental drift happens – it is a fair bet that somebody will know these things or be able to look them up for as long as there are people on the planet. We may have forgotten a few things along the way: nobody really knows how to use an Acheulean hand axe, and until recently nobody knew how to build a medieval siege catapult known as a trebuchet. (Trial-and-error by a Shropshire squire in the 1980s eventually produced full-scale trebuchets capable of tossing pianos more than 150 yards; only rock bands have since found a profitable application.) But these forgettings are dwarfed by the additions to knowledge. We have accumulated far more knowledge than we have lost. Not even the most determined pessimist would deny that his species collectively adds more and more to the aggregate store of human knowledge as each year passes.
Knowledge is not the same thing as material wealth. It is possible to mint new knowledge and yet do nothing for prosperity. The knowledge of how to fly a man to the moon, now nearly two generations old, has yet to enrich humankind much, urban myths about non-stick frying pans notwithstanding. The knowledge that Fermat’s Last Theorem is true, that quasars are distant galaxies – these may never increase gross domestic product, though contemplating them may enhance the quality of someone’s life. It is also possible to get rich without adding to the store of human knowledge, as many an African dictator, Russian kleptocrat or financial fraudster can tell you.
On the other hand, a piece of new knowledge lies behind every net advance in human economic welfare: the knowledge that electrons could be deputed to carry both energy and information makes possible almost everything I do, from boiling a kettle to sending a text message. The knowledge of how to pack pre-washed salad and save everybody time; the knowledge of how to vaccinate children against polio; the knowledge that insecticide-impregnated mosquito nets can prevent malaria; the knowledge that different-sized paper cups in coffee bars can still have the same-sized lids, saving cost in manufacture and confusion in the shop – a billion such pages of knowledge make up the book of human prosperity.
It was Paul Romer’s great achievement in the 1990s to rescue the discipline of economics from the century-long cul-de-sac into which it had driven by failing to incorporate innovation. From time to time its practitioners had tried to escape into theorems of increasing returns – Mill in the 1840s, Allyn Young in the 1920s, Joseph Schumpeter in the 1940s, Robert Solow in the 1950s – but not until Romer’s ‘new growth theory’ in the 1990s was economics fully back in the real world: a world where perpetual innovation brings brief bursts of profit through temporary monopoly to whoever can commandeer demand for new products or services, and long bursts of growth to everybody else who eventually gets to share the spilled-over idea. Robert Solow had concluded that innovation accounted for growth that could not be explained by an increase in labour, land or capital, but he saw innovation as an external force, a slice of luck that some economies had more of than others – his was Mill’s theory with calculus. Things like climate, geography and political institutions determined the rate of innovation – which is bad luck for land-locked tropical dictatorships – and not much could be done about them. Romer saw that innovation itself was an item of investment, that new, applied knowledge was itself