Smart Answers May 28, 2010, 11:29AM EST

Business Innovation 'Made Us Human' and Moves Us Forward

Despite a common perception that humankind is in a period of decline, Matt Ridley argues the reverse. He says progress is accelerating, thanks to entrepreneurs

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In his new book, The Rational Optimist: How Prosperity Evolves, Matt Ridley, a British science journalist (and formerly a director of Northern Rock), argues against the imminent downfall of civilization. He also reaches a surprising conclusion: Innovation and free trade made us human. Ridley talked about why he is bullish on entrepreneurship with Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.

Karen E. Klein: Did entrepreneurship really light the first spark of humanity?

Matt Ridley: My argument in the book is that the key notion for what caused the headlong, tumultuous rush toward things like toothpaste and space shuttles is the invention of exchange.

Academia won't like it one bit, because they don't really approve of commerce. But I think that, because of innovation, life has been getting better much faster than we recognize. It's all going inexorably in the right direction and there's no reason why that can't continue.

You trace the earliest stirrings of entrepreneurship back 120,000 years ago to marine-snail beads being traded 100 miles inland in what's now Algeria. What does that tell us?

I looked at the anthropology. At a certain point, we see a flowering of the human race. But why was it then and there? All the usual explanations, like language, consciousness, imagination, and opposable thumbs, are important, but they come too early. Neanderthals had them and right up until the end they made no cumulative progress.

It suddenly became clear to me the role that trade and exchange play. If two tribes invent two different technologies and then go to war, they've made no real progress. But if they trade those technologies, then the changes become cumulative.

And that accumulation eventually builds up to today?

What is prosperity? It's people working for each other. Louis XIV was rich because he had 498 people waiting to prepare his dinner. We're rich because there are 498 restaurants within an hour's drive. The whole story of economic progress is one of increasingly specialized production and increasingly diversified consumption. Exchange led to specialization and innovation.

Is the human brain hardwired to innovate

No, because up until 100,000 years ago, we didn't innovate. I have an ancient Australian hand ax that is an example of axes that were made to an unvarying design for about 1 million years. It's bizarre to us, today, because we think of things being obsolete almost immediately. But even until 200 years ago, that idea was unusual. The plow didn't change in design during your lifetime if you lived in the Middle Ages.

In fact, aren't most people resistant to change?

Yes. It seems to go almost against human nature rather than in favor of it. Innovation is a sort of inexorable product of exchange. Anthropologists argue that it could be accidental, like trial and error, and that once someone hits upon a good trick, others copy him. So innovation doesn't have to come about because someone is striving to improve something.

In the modern world, obviously we see wonderfully steady improvement. But I'd say that's not a physical law but a strategy, a sense in which innovation is endogenous to the economy. So there's not an inevitability about innovation; it's a proactive process of exchange and commerce.

If entrepreneurs and innovators are so valuable, why aren't they better supported by government and individuals?

It's not surprising that government support and spending goes to those with the loudest megaphone. The size of your vested interest determines how good you are at getting your shovel into the pile. Entrepreneurs are, by definition, a fragmented and diffuse bunch that are never going to be as good at getting corporate welfare.