Great Leap Forward

Mazzucato: The Entrepreneurial State

I’ve been meaning to write a blog on a book by my friend, Mariana Mazzucato, titled The Entrepreneurial State. It is essential reading for anyone who wants to understand the role played by government in encouraging innovation. For so many years we’ve been sold the notion that our nation’s Undertakers (also called Entrepreneurs or Capitalists) are the lions who drive growth through innovation. Actually, according to her well-documented book, Mariana shows they are nothing but domesticated pussycats, who have to be dragged along by the entrepreneurial State. The State innovates, doing the hard stuff and even guaranteeing markets; the pussycats merely make profits off the State’s initiatives.

And by the way, you can see Mariana doing a Ted Talk, here:

Martin Wolf beat me to the review. Read it here:

As you will see, he argues:

This book has a controversial thesis. But it is basically right. The failure to recognise the role of the government in driving innovation may well be the greatest threat to rising prosperity.

Mazzucato notes that “75 per cent of the new molecular entities [approved by the Food and Drug Administration between 1993 and 2004] trace their research … to publicly funded National Institutes of Health (NIH) labs in the US”. The UK’s Medical Research Council discovered monoclonal antibodies, which are the foundation of biotechnology. Such discoveries are then handed cheaply to private companies that reap huge profits. A perhaps even more potent example is the information and communications revolution. The US National Science Foundation funded the algorithm that drove Google’s search engine. Early funding for Apple came from the US government’s Small Business Investment Company. Moreover, “All the technologies which make the iPhone ‘smart’ are also state-funded … the internet, wireless networks, the global positioning system, microelectronics, touchscreen displays and the latest voice-activated SIRI personal assistant.” Apple put this together, brilliantly. But it was gathering the fruit of seven decades of state-supported innovation. Why is the state’s role so important? The answer lies in the huge uncertainties, time spans and costs associated with fundamental, science based innovation. Private companies cannot and will not bear these costs, partly because they cannot be sure to reap the fruits and partly because these fruits lie so far in the future. Indeed, the more competitive and finance-driven the economy, the less the private sector will be willing to bear such risks. Buying back shares is apparently a far more attractive way of using surplus cash than spending on fundamental innovation. The days of AT&T’s pathbreaking Bell Labs are long gone. In any case, the private sector could not have created the internet or GPS. Only the US military had the resources to do so. Arguably, the most important engines of innovation in the past five decades have been the US Defense Advanced Research Projects Agency and the NIH. Today, if the world is to make fundamental breakthroughs in energy technologies…

Read the rest of Wolf’s review and buy Mariana’s book:

The Entrepreneurial State: Debunking Public vs Private Sector Myths, by Mariana Mazzucato, Anthem Press, RRP£14.99, RRP$18.95

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