From start to finish of this superb book, I want Mariana Mazzucato
to be right. In The Entrepreneurial State, Mazzucato suggests that the state
has had a much more powerful role in stimulating innovation that the dominant
narrative admits. The state pushes the key breakthroughs; private firms enter
the game quite late (though they often capture an inordinate amount of the
social gains from innovation).
Mazzucato’s book is timely (indeed, it has had a
considerable impact in Brussels), as countries shift away from austerity
policies and look towards Keynesian-style spending to get their economies
moving. Keynes famously suggested burying a treasure in an abandoned mine as a
make-work project (his point, of course, was not to endorse pointless exercise;
rather, he meant to show that pure make-work could act as a stimulus).
Mazzucato argues countries can improve on Keynes by spending on state
entrepreneurship. In a best-case outcome, state-sponsored innovation will shock
the economy back to expansion and will lead to frontier-shifting welfare gains.
And maybe it would - if the political class could be
convinced by Mazzucato’s account of the hidden state-centric nature of
innovation. Her recent historic examples involve pharmaceuticals and
information technologies. The private drug development narrative is
deliberately cultivated by Big Pharma: bold firms undertake massive R&D in
their laboratories, to be rewarded (in the event of success) by patent
monopolies. Big Pharma asks to be ‘left alone’ by the State: no tort liability
and quick market approvals are the best policies. In fact, Mazzucato observes,
it is the state that undertakes the greatest risks in developing new approaches
and active agents, through public funding (such as NIH grants in the United
States) of medical research. Left to their own devices, Big Pharma would
undertake little research; indeed, the current trend among large pharmaceutical
firms is to reduce R&D expenditure and to look to smaller,
research-oriented firms to do later-stage development work, then in-licensing
or acquiring fairly proven projects. But without the substrate of state-funded
science, even this system would grind to a half.
Mazzucato’s capstone chapter The State Behind the iPhone is
devoted to Apple. She, as others do, marvels at Apple’s success: the company
that repeatedly created product categories that never existed and changed the
way we live our lives. But more was at work than the magic (and design
sensibility) of Steve Jobs. Mazzucato documents how Apple is the beneficiary of
a stream of technologies developed with government funding. These include the
internet itself (what would an iPhone or an iPad be without it?), as well as
the core electronics, hard drives, touch sensitivities, batteries, GPS and
artificial intelligence (SIRI, are you listening?)
Indeed, Apple is (comparatively speaking) a company with
rather modest R&D spending, though this may simply be an artifact of its
outsized success. Mazzucato depicts Jobs as a junk collector, picking up odd
technological bits (originally developed through various DOD and other federal
programs) and cobbling them together into killer consumer products. While not
minimizing Jobs’ creativity, Mazzucato convincingly makes the case that we
would not have had these products were it not for extensive government
involvement in innovation. Indeed, she calls on the government to “stay
foolish” in priming technological development in new fields, such as green- and
nanotechnologies.
Mazzucato’s Apple study predates the company’s current
embarrassments involving tax strategies - but she makes the point that Apple
may ‘owe’ the state more than do other companies, due to the state-sponsored
origins of Apple’s technologies and its enormous profits built on them.
Mazzucato seeks to correct our understanding of the source
of innovation. We shouldn't read her as denying the valuable contribution of
private firms in technological development; her point is that the state has had
an underappreciated role as well. She doesn't hesitate to make state-based
innovation a prescription, however; she calls for a continuing state commitment
to the “green industrial revolution.”
Mazzucato doesn’t promise a successful outcome to state
entrepreneurship: there may be many Solyndras out there, technological or
organizational dead-ends. But the state should, she argues, cause to happen
what “otherwise would not have” (again quoting Keynes). There are identifiable
unaddressed needs (orphan diseases, sustainable energy) where reliance on the
private sector is a recipe for inaction.
Mazzucato employs a sliding notion of risk in her work. She
observes (correctly) that venture capital firms are much more risk-adverse than
their reputation suggests - and that their short- and medium-term horizons are
not suited for transformative innovation that plays out (with stops, starts and
many blind alleys) over decades. She uses the language of risk and reward to
suggest a proper state role - but missed innovation opportunities are not
instances of market failure. Perhaps the better argument for state
entrepreneurship is that the state should do it because it can.
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