… is from page 373 of Matt Ridley’s marvelous new (2020) book, How Innovation Works: And Why It Flourishes in Freedom; it’s the first line of the book’s final paragraph:
Innovation is the child of freedom and the parent of prosperity.
DBx: Innovation cannot be planned. Further, innovation necessarily disrupts plans.
If existing plans are many and competing, adjusted to each other with market prices reflecting resource scarcities and consumer preferences, innovation in one part of the economy ripples through causing changes in prices. The feasibility of some plans is enhanced while other plans must be significantly altered or even abandoned. But because there is no overall plan for the economy, there is no need for an overhaul of one giant plan.
Importantly, no one in a free market has the right to prevent innovation simply because some particular innovation will disrupt his or her plan.
To the extent that government imposes a plan on the economy or any significant sector of it, government’s tendency will be to stifle innovation. Government officials, after all, are no more able to foresee the details of the future than are we ordinary mortals. And so innovation will disrupt their plan.
An advocate of government planning can easily say that government would respond to innovation just as do entrepreneurs and consumers in the private market – namely, by changing its plan. But unlike private-market actors, government officials have the power to coercively prevent innovation or to suppress its introduction. In this way, government officials categorically differ from private-market actors, who have no such power (except when government acts on their behalf).
If government officials respond to innovation in much the same way as do private-market actors, the government’s plan doesn’t serve the purpose that it is meant to serve. The whole idea of industrial policy is to use government power to override market forces in the determination of patterns of production and consumption.
Advocates of planning can continue saying things – saying that government officials will accommodate innovations that further the purpose of the plan and will reject only those innovations that are likely to obstruct fulfillment the plan’s purposes. Saying such things is easy for word peddlers who imagine and write eloquently about what god-like creatures might do with other people’s money and property.
But an economy in which innovation plays a role is by nature open-ended. Its future cannot be foreseen in any detail. There is simply no way for government officials to know that innovation X will disrupt the government’s plan and that innovation Y will not. Remember: industrial-policy advocates regard as a feature, not a bug, of such government planning that it ultimately can and will override the information conveyed by market prices.
Able to spend other people’s money, government officials are simply too likely to reject innovations that threaten to disrupt their plans. Government officials are not entrepreneurs skilled at satisfying voluntarily expressed demands; they are politicians and commissars skilled at, in the case of politicians, winning elections, and in the case of bureaucrats, following orders. And in both cases these officials are in the habit of telling other people what to do rather than, as is the habit of entrepreneurs, asking other people what they want.
