Innovation For A Successful Future • Austrian Economics Center

The pace of change that we have seen in the last few years has been absolutely unprecedented. Many times people say that whatever era they are living in is one of unprecedented change. But actually, what we are seeing now really does bear out of the idea that things are going to change more rapidly than we have seen ever before. Much of this is going to be due to social media. This is really an upside of social media because what we are experiencing now is the power of many millions of people having their voices heard in a way that has never been heard before. This is market economics. We have got many more people able to participate, able to have an opinion, able to have a voice. It is much less controllable by governments than it has ever been before as well.

I also want to emphasize that this pace of change is not inevitable or not equal as we go through time. If we look at something like transport between 1900 and 1970 we had huge jumps in what happened in transport. We went from the first manned flight to putting a man on the moon. This was an absolutely unprecedented change. What has happened since then to transport? Well, we have had the democratization of transport, surely. But that is all we have had. We haven’t had technological advances coming through. So, sometimes what we see as being inevitable isn’t quite as inevitable at all or isn’t inevitable in every sphere of our lives all the time. It is also important to remember that the pace of change isn’t always inevitably good.

There was a famous phrase by the leader of the Soviet Union at the time, Nikita Khrushchev, saying “We will bury you.” What he was talking about was the idea that the Soviet Union was going to overtake the West. When he said that he quickly backtracked because he realized it was too provocative phrasing and it was not something he really believed in. He just decided that nuclear war was a bad thing and the world was uncertain enough to have it provoking it any further. What he thought was going to happen was that the Soviet Union was going to overtake the West.

If we look at the 1950s, the Soviet Union did make rapid progress. It turns out that if you want to suppress workers’ wages, if you don’t care about the environment, if you don’t have any idea what your input costs are, if you don’t value liberty at all, you can make pretty good progress. In fact, a top-down system appeared to work, at least for a time. But then the world started to change and this top-down system proved to be completely inadequate to what we needed to have happened in the longer term. There is a really valuable lesson here in that what we need to have is a system that by its very nature is flexible, very agile. What kind of system does that? How do we make sure that we have that come through? There are a number of clear lessons we need to be learning in all of this.

First of all, we need free markets. One of the great things about the Free Market Road Show is that we are promoting the system which is going to be giving people the greatest degree of prosperity and control in and of their own lives. These are extraordinarily important things when we are looking at how do we want to progress in the longer term, how do we make those prosperous societies that we all want to live in.

Innovation is going to be the key to the success. But innovation is not something that grows up. If we look at Matt Ridley’s very important book on how innovation works, he stresses, again and again, innovation is not something that you can simply put into forward gear and then it just progresses. You can’t possibly predict where innovation is going to take you. All you can do is make sure that the incentives are correct.

We can turn all the way back to Adam Smith and the Wealth of nations. He said, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” What we need to do is ensure that systems that we put in place work with everybody’s self-interest so that both the producer and the consumer benefit from any of these things.

What are we going to need to do? What are the things in the longer term that need to have happened to make sure that sort of innovation comes through? There are several and we have many of the building blocks of that intellectual property protection, which includes copyright, patents, and brand protection. The more service-oriented economies become, the more the value is created as part through intellectual capital, and the more that these things matter.

Moore’s law is the idea that the computing power doubles roughly every 18 months. That has continued on since the late 1960s and many people have thought that at some point we would hit diminishing returns. At some point we will hit diminishing returns. But it really doesn’t matter at what point we hit diminishing returns in Moore’s law because there is something else that is even more important happening underneath all of this.

If we look for instance at the electricity, that first came about in large amounts in the early 1800s. Originally it was used to power factories and as time went on we found more and more uses for electricity. The same thing is going to happen with computing power – more and more uses for that computing power will be found. It doesn’t matter if that computing power itself starts to show diminishing returns. The uses to which we can put that computing power are going to be continuing to grow for the next century or more. What that means is that societies which are going to be most prosperous are going to be societies that give protection to the people and that give the incentive to the people to create goods and services that all of us want. If we have that, if it is effective, if people trust it, they invest in it. If they don’t trust it, in many cases, they simply go somewhere else. We can see that when lots of times entrepreneurs from around the world, even if they would start at home they simply go somewhere else. That has happened to a lot of parts of Eastern Europe where societies lack the societal structure and the legal structures to help them progress locally, so they have to emigrate. They do so because they have a great vision of what is going to happen in the longer term. We all want those people to be as successful as possible.

Here is where innovation and technology have such a key part to play in the future of the role of health. One of the things we can look at and what technology has done so many times in the past means that we need to bring technology to medicine. What technology has done so many times in the past is really lower our prices. We have seen the prices of computing power, we have seen the price of transport, we have seen in the price of a whole range of issues in our lives absolutely falling through the floor. But that hasn’t happened in medicine. We have to ask ourselves, what is going on here that hasn’t gripped medicine the same way it has affected so many other areas of our societies.