When a prominent financier in northern California raised an astonishing $1 billion in the summer of 2009 for investments in risky “green technologies,” Silicon Valley reminded the world that, in the arena of innovation at least, geography is destiny.

Until the Industrial Revolution, real income for individuals and nations was essentially flat. Over much of the globe, the living standard of, say, a farmer in 1750 would not differ greatly from that of his great-grandparent. Since the start of the 19th century, in some parts of the world this has changed. Growth and income for some nations has risen dramatically, but for others it is still flat. Why? One answer is that new technologies made possible the creation, accumulation, and dissemination of ever greater wealth. A deeper answer is that some cultures embraced knowledge and change, and thus emerged as the fertile soil in which innovators could take risks, pursue their dreams, and, not coincidentally, enrich their fellow citizens. Are the nations that lag bogged down by tradition, stultifying central control, or a culture of bureaucratic impediments?

Innovation is today the most important driver of economic growth. It relies upon a social climate supporting entrepreneurship within a culture of economic and intellectual freedom. Wise policymakers understand the need to encourage this kind of “innovation ecosystem.