The power of new combinations

The Nobel Prize winning economist Paul Romer is credited with stimulating what is known as New Growth Theory.  It’s a theory of economic growth that emphasizes increasing returns associated with new knowledge.

This is in contrast to traditional economic models which centre on the notion of diminishing returns.  The so-called law of diminishing returns states that we will get less and less extra output when we add additional doses of an input while holding other inputs fixed. In other words, the marginal product of each unit of input will decline as the amount of that input increases holding all other inputs constant.

Precisely because physical capital is ultimately subject to diminishing returns, Romer argues that the classical suggestion that we can grow rich by accumulating more and more pieces of physical capital was wrong. Instead, he argues economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. He has likened production and growth in an economy to cooking. To create valuable final products, we blend inexpensive ingredients together according to a recipe.

However, growth for him is not simply the result of doing more of the same activity, or of simply scaling the same recipe up. If economic growth could be achieved only by doing more and more of the same kind of cooking, Romer argues that we would in time run out of raw materials and suffer from unacceptable levels of pollution and nuisance that are the inevitable by-products of cooking in the economy.

Instead, he argues that the lesson of human history is that economic growth springs from better recipes, not just from more cooking.

Ultimately, all increases in standards of living can be traced to discoveries of more valuable arrangements for the things in the earth’s crust and atmosphere… No amount of savings and investment, no policy of macroeconomic fine-tuning, no set of tax and spending incentives can generate sustained economic growth unless it is accompanied by the countless large and small discoveries that are required to create more value from a fixed set of natural resources. 

It is this combination, this injection of something new that is for Romer the engine of an idea’s value:

When a useful mixture is discovered… The discovery makes possible the creation of economic value. It lets us combine raw materials of low intrinsic value into mixtures that are far more valuable... In this fundamental sense, ideas make growth and development possible.

The plenitude of possibilities

The wonderful thing is that once one recognises the truth about the nature of ideas being new combinations, the resources at our disposal increase exponentially.

To appreciate the potential for discovery, we need only consider the possibility that an extremely small fraction of the vast number of possible mixtures available to us may be valuable.

To get a sense of the possibilities open to us, consider that a mere 10 building blocks or ingredients gives us 1013 combinations.  Twenty building blocks gives us 1,048,555 combinations. Forty gives us 1,099,511,627,735. And of course each of these new combinations in turn expands the number of building blocks to choose from. It really is exponential.

Of course, not all of these combinations will prove to be successful or desirable. Nonetheless as Brian Arthur reminds us, even if the chances are only one in a million that something useful will result, the possibilities still scale as (2N-N-1)/1,000000. Or approximately 2N-20. The possibilities - for newness, improvement, progress, surprise - are truly vast. In the words of Professor Romer, this is “combinatorial explosion.”

Perhaps a more simple example will suffice. All matter in the universe is constructed from just 92 elements.

Staying open

The chefs Ferran Adria of El Bulli, Heston Blumenthal of the restaurant The Fat Duck, Thomas Keller of the French Laundry and Per Se, and the writer Harold McGee are all at the forefront of what one might call the science of cooking – understanding the nature of ingredients, their interactions, and how cooking  processes work. In 2006 they put forward what they termed ‘the international agenda for great cooking’, and while its focus is food, it could well serve as the agenda and manifesto for anyone in the business of ideas and creativity:

We believe that today and in the future, a commitment to excellence requires openness to all resources that can help us give pleasure and meaning to people through the medium of food. In the past, cooks and their dishes were constrained by many factors: the limited availability of ingredients and ways of transforming them, limited understanding of cooking processes, and the necessarily narrow definitions and expectations embodied in local tradition. Today there are many fewer constraints, and tremendous potential for the progress of our craft. We can choose from the entire planet's ingredients, cooking methods, and traditions, and draw on all of human knowledge, to explore what it is possible to do with food and the experience of eating.

This advocacy of openness to all the world’s resources, methods and traditions and of the drawing upon on all human knowledge is precisely what is at the heart of any creative enterprise, whether in a restaurant, a laboratory, studio, or an advertising agency.

Crucially, we can - whether as individuals or organizations - be purposeful and deliberate in our quest for inspiration, rather than leave it to chance. If we are interested in the broader world around us, if we engage with it actively, if we pursue passions and interests beyond the necessities and demands of the every day, we stand a better chance of developing something new and interesting.

Just as Ferran Adria, Heston Blumenthal, Thomas Keller and Harold McGee advocated an open-ness to all the world’s resources, the adman James Webb Young wrote of this need to be constantly accumulating raw material from the world to bring to bear upon the creation of ideas:

The process is something like that which takes place in the kaleidoscope... It has little pieces of coloured glass in it, and when these are viewed through a prism they reveal all sorts of geometrical patterns. Every turn of its crank shifts these bits of glass into a new relationship and reveals a new pattern. The mathematical possibilities of such new combinations in the kaleidoscope are enormous, and the greater number of pieces of glass in it the greater become the possibilities for new and striking combinations.

Feeding the kaleidoscope, ensuring that we increase the chances of ‘striking combinations’ at every turn is a powerful visualisation of how creativity requires stimulating and sustaining. The more we are open to the raw material that surrounds us, and the new creative possibilities that they carry, the greater the chance of something new arising.

As the organizational and management expert Margaret Wheatley has noted:

To stay viable, open systems maintain a state of non-equilibrium, keeping the system off balances so that it can change and grow. They participate in an active exchange with their world, using what is there for their renewal. Every organism in nature, including us, behaves this way.

Dynamism and life itself depends on interacting with the outside world. Progress, improvement, and growth – don’t simply come from doing more of exactly the same thing. We must look elsewhere for the resources needed to make this happen.

A great advocate and example of this open-minded way working was Louis Pasteur, who made many important discoveries through the practice of diligent observation. In 1851 he famously declared that “in the field of observation, chance only favours the prepared mind.” Indeed accidental discoveries have played a very major role in the search for new drugs,  with no less than 53 serendipitous discoveries having been catalogued in modern drug research.

In an altogether different field, Annie Dillard in her extraordinary book The Writing Life, reminds us that our technical and emotional resources are the limits of what we may accomplish. She cites the painter Paul Klee who maintained that “You adapt yourself to the contents of the paintbox.” Says Dillard:

The painter, in other words, does not fit the paints to the world. He most certainly does not fit the world to himself. He fits himself to the paint. The self is the servant who bears the paintbox and its inherited contents.

We can of course choose how varied our literal or metaphorical paintbox is. The more we invest in it, the more possibilities we have at our disposal. Mastering the technique and craft of our chosen domain is an important first step in developing our paintbox, as is embracing, understanding and appreciating its achievements. But of course we can and must go further. The more we cultivate an interest in what lies outside our domain, the more we open ourselves us to new possibilities, to new and exciting combinations.

Specialising in the investigation of uncertainty and probability, Professor Nassim Taleb has observed that you have to work hard “to let contingency enter your working life”. I'd call it purposeful serendipity.

All that watching of TV, going to the cinema, reading books unrelated to our immediate line enquiry, web surfing, staring out of windows, hanging about drinking tea, eavesdropping on other people’s conversations… all that absorbing, participating and engaging in the outside world has a purpose. Indeed it is a necessity.

The world is open to us, a vast, teeming marketplace filled with a simply bewildering array of ingredients, and we have the freedom to select from it whatever we wish. We just have to be interested, and open our eyes.

As the choreographer Twyla Tharp has put it: “Everything is raw material. Everything is valuable.”

The art of cooking

Cooking and the creation of new recipes provide us then with an altogether more helpful, accurate and more economically relevant metaphor for ideas and the creative process than any “thinking outside the box”.

Cooking is all about relationships. Just as in the composition of music, it requires understanding harmonies and juxtapositions. Any fool can put on an apron and mix two random set of ingredients together, but not any fool can cook. Understanding the relationships between the ingredients and their interactions is crucial, as the food writer McGee notes:

To understand what’s happening within food as we cook it, we need to be familiar with the world of invisibly small molecules and their reactions with each other.

Similarly, Tania Sanchez recognizes the fundamental importance of understanding the ampersand for the creator, reminding us that creating a new perfume isn’t simply a question of throwing together random ingredients. The skill and artists of the perfumer - and one of the reasons why it takes many years to become a successful one - lies in understanding the and:

The breathless claims of fragrance marketing to the contrary, it is just not true that fine ingredients guarantee a great perfume. Imagine chucking a fresh Maine lobster, a wheel of top-notch Camembert, and a pound of artisanal Venezuelan chocolate in a kettle and simmering in Chartreuse until Wednesday. Yummy? It doesn't work for perfume either.

Similarly, for the technology expert James Newcomb for example, providing energy efficiency services requires understanding an enormous number of individual technologies and the ability to successfully combine these technologies. “It’s the skill of a master chef” as he puts it, “Not a grocer’s buyer.”

It’s all very well having ideas, but success requires we have the skills to understand, explore, and imagine the “and”. Because there is an ampersand at the heart of every recipe or idea.

If nothing else, this should serve as a reminder to those untutored in the art and science of cooking, that they should occasionally resist the temptation to meddle. And indeed that they sometimes stay out of the kitchen altogether.

Sources

W. Brian Arthur, The Nature Of Technology: What It Is And How It Works

Annie Dillard, The Writing Life 

Kevin Kelly, ‘The Economics of Ideas’, Wired online, Issue 4.06, June 1996

Hugo Kubinyi, ‘Chance favours the prepared mind – from serendipity to rational drug design’

Harold McGee, McGee on Food and Cooking: An Encyclopedia of Kitchen Science, History, and Culture

Samuelson & Nordhaus, Microeconomics, 17th ed. (McGraw Hill 2001)

Romer, Paul (1992), "Two Strategies for Economic Development: Using Ideas and Producing Ideas, Proceedings of the World Bank Annual Conference on Development Economics, 1992, IBRD/The World Bank, Washington, D.C.

Tania Sanchez, ‘Beauty and the Bees’, in Luca Turin and Tania Sanchez, Perfumes: The Guide

Tania Sanchez, ‘How to connect your nose to your brain’ in Luca Turin and Tania Sanchez, Perfumes: The Guide

Nassim Taleb, The Black Swan: The Impact Of The Highly Improbable 

Twyla Tharp, The Creative Habit: Learn And Use It For Life

Margaret J. Wheatley, Leadership And The New Science: Learning About Organisation From An Orderly Universe