The Entrepreneurial State: Debunking Public vs. Private Sector Myths Paperback – Jun 10 2013
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'Mazzucato argues that long-term, patient government funding is an absolute prerequisite for breakthrough innovation. [...] Even if you disagree with Mazzucato's argument, you should read her book. It will challenge your thinking.' --Bruce Upbin, 'Forbes'
'I am complete persuaded of what ["The Entrepreneurial State"] says about the state needing to lead more coachingly and dramatically. [...] It's a great book, everyone should go out and read it' --Lord Adonis
'Conventional economics offers abstract models; conventional wisdom insists that the answer lies with private entrepreneurship. In this brilliant book, Mariana Mazzucato, a Sussex University professor of economics who specialises in science and technology, argues that the former is useless and the latter incomplete. Yes, innovation depends on bold entrepreneurship. But the entity that takes the boldest risks and achieves the biggest breakthroughs is not the private sector; it is the much-maligned state. [...] 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.' --Martin Wolf, 'Financial Times'
'"The Entrepreneurial State: Debunking Public vs. Private Sector Myths" [...] is a meticulously argued treatise that shows how unwise our conventional wisdom has become.' --Christopher Dickey, 'Newsweek'
'In this trailblazing book on the role of government as both a risk-taking funder of innovation and a market creator, Mariana Mazzucato persuasively argues that the government is a key enabler of technological innovations that drive economic growth. [...] This important book should be read by policymakers, opinion leaders, and others with a stake in funding economic growth.' --' Arnold T. Davis, CFA Institute book review
'Ms. Mazzucato provides a refreshing new take on rather stale debates on the economic role of government. [...] "The Entrepreneurial State" is a forceful reminder that governments have a major role to play in building a highly productive, innovative and sustainable economy.' -- Andrew Jackson, 'Globe and Mail'
'Makes and engaging, persuasive case in favor of the state, and suggests one recommend it not just as an instrument of market repair but also as a prerequisite for future prosperity.' --J. Bhattacharya, 'Choice'
'[P]rovides persuasive evidence that governments deserve more credit than private companies for the development of most important modern technologies.' --Edward Hadas, 'Reuters'
Mazzucato argues that long-term, patient government funding is an absolute prerequisite for breakthrough innovation. [ ] Even if you disagree with Mazzucato s argument, you should read her book. It will challenge your thinking. Bruce Upbin, Forbes "
It is one of the most incisive economic books in years. Jeffery Madrick, New York Review of Books "
Makes and engaging, persuasive case in favor of the state, and suggests one recommend it not just as an instrument of market repair but also as a prerequisite for future prosperity. J. Bhattacharya, Choice "
The Entrepreneurial State: Debunking Public vs. Private Sector Myths [ ] is a meticulously argued treatise that shows how unwise our conventional wisdom has become. Christopher Dickey, Newsweek "
In this trailblazing book on the role of government as both a risk-taking funder of innovation and a market creator, Mariana Mazzucato persuasively argues that the government is a key enabler of technological innovations that drive economic growth. [ ] This important book should be read by policymakers, opinion leaders, and others with a stake in funding economic growth. ' Arnold T. Davis, CFA Institute book review"
[A] meticulously argued treatise that shows how unwise our conventional wisdom has become. Christopher Dickey, Newsweek "
Conventional economics offers abstract models; conventional wisdom insists that the answer lies with private entrepreneurship. In this brilliant book, Mariana Mazzucato [ ] argues that the former is useless and the latter incomplete. Martin Wolf, Financial Times "
[P]rovides persuasive evidence that governments deserve more credit than private companies for the development of most important modern technologies. Edward Hadas, Reuters "
'[A] skillful combination of the history of technology, empirical evidence, and policy analysis [...] the book contains a critical reading of data and arguments that run counter to established views while never falling short of offering constructive solutions.' --Davide Consoli, 'Science'
[H]ands down the most refreshing treatment of the innovation issue to have emerged in a long time. Science and Public Policy "
[A] skillful combination of the history of technology, empirical evidence, and policy analysis [ ] the book contains a critical reading of data and arguments that run counter to established views while never falling short of offering constructive solutions. Davide Consoli, Science "
About the Author
Mariana Mazzucato is RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex. Named one of the three most important thinkers about innovation by the New Republic, she lectures widely and advises the UK government and the European Commission on innovation-led growth.
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of countries who have applied the concept wisely have the results to show for the risk with the rewards.
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This is very well done but will be familiar to almost anyone with a modest knowledge of the history of technology development in the 20th century. A more novel and very interesting aspect of Mazzucato's argument is her sustained criticism of venture capital and general corporate finance policies in relation to technological innovations. This is an effective critique discussing the general theme of public risk and private profits. She also makes a credible argument that the public should get a better return for its tax supported investments in novel technologies, something that could expand the development of new technologies and foster growth.
Minor defects of this book are over-reliance on technical language common among economists and a couple of unclear arguments related to some of the more technical aspects of economics, notably the critique of conventional growth theory. Strongly recommended.
At first sight this appears the way it should be. The government finances technological breakthroughs that are picked up by business. The problem she sees is financing by the government. Governments are pressured to reduce costs and furthermore are accused to be highly inefficient in everything they do. She describes how for example the governments the US, Germany and Denmark invest heavily and effectively in research and development. They act as entrepreneurs taking the highest risks.
She shows that businesses, in the medical electronic and other fields have radically reduced their funding of the more longer term research and development on which breakthroughs depend. Business and venture capitalists are short term orientated. When "innovative" companies are hugely profitable they buy back shares and/or raise dividends but do not invest it in the longer-term future. She presents a lot of statistics to prove this point.
She considers that it is very important for the people at large to recognize the essential role government plays as the fundamental force in innovation. This role goes beyond developing new knowledge. The state in many cases also has to finance the development of a new technology to the point where it is applied and achieve critical mass. The governments is involved in the supply side but in important cases also on the demand side. The government chooses, has to choose, the winners.
The United States is by far the most effective and largest investor in innovation. Many people believe that the free market and entrepreneurs are the driving force in innovation. She refers to this as a "myth" presenting many examples.
Companies in general but especially highly profitable global companies go out of their way to reduce their taxes. Statistics show that these global companies are highly successful on this point. The tax income in addition to being reduced is also not going to the countries that have financed the new technologies that played an important role in generating the profits. She believes it is naive to believe that national governments can enforce tax regulations on global companies and therefore proposes other solutions.
One suggestion is to attach a royalty obligation to a technological innovation. The first buyer, as the public at large financed the innovation, should after a few years of exclusive rights, license other companies to use the innovation. She also refers to government financed development banks that provide financing for the early sages of development. A good example is such a bank in Germany the KfW (www.KFW.de).
She considers the present system as "dysfunctional", where governments take the highest risks and businesses take all the profits being an example where risks are socialized and the profits privatized.
I have worked extensively in this field, both in business and for government. I found this book stimulating to read and recommend it to others. I am however not sure, to what extent, the suggestions can be implemented. I do not doubt the importance and essential role the government plays in financing R&D. That kind of financing and managing, early stage innovation even including the creation of demand can also be seen as a logical task of government. I do agree that it is important that people at large should become more aware of the entrepreneurial role of government in innovation, and the necessity to organize and finance it.
The policy implications if this is true fly in the face of neoliberalism and the constant calls from business esspecially big-pharma for less red tape and lower taxes. These companies beniift from public funding research for their big new products, but are unwilling to pay their share of the bill for the States activities.
The lack of comparison shows up in the area of private research laboratories (Bell Labs, Xerox PARC, etc). The book laments the fact we no longer have these private research labs (around p. 178) yet doesn't try to find the reasons they failed. Perhaps the ever increasing government funding of R&D has contributed. Why should a private company do research when it knows the government can be induced to fund the research and provide it cheaply for development into a product? This is the basis for much of the book's criticism of Pharmaceutical companies. Is there an Entrepreneurial State or have companies found a way to get government to fund their R&D for them (so the Crony Capitalist State)?
A primary thesis of the book is that the State is risk taking while the private sector makes money exploiting State innovations.
If that were true, the Soviet Union would have far outstripped the West and Europe would be a bigger center of innovation than the United States. Instead, chapter 2 must explain why Soviet and European governments are not innovative because they have not properly funded innovation. While the successes of Japan's MITI "picking winners" are highlighted, Japan's failures (e.g. the 5th generation computer project) are ignored. So the Entrepreneurial State appears to be a Goldilocks State, requiring that government involvement be "just right".
Adding to the frustration of reading the book are a number of errors. I found it interesting that most of the errors were assertions which were not supported by footnotes. Instead, these were "common knowledge" type statements. Page 78 asserts Apple introduced the first personal computer in 1976, yet the January 1976 issue of Byte magazine advertises 6 personal computers, none of them Apple. The Apple I computer (1976) was just a circuit board, it was the Apple II in 1977 which was a "real" computer with a case and keyboard, at which time several other companies made equivalent products. Apple's claim to fame is that it survived and prospered, not that it was first or best.
Worse is p. 188, stating that Apple received early stage funding from the SBIR program. The SBIR program wasn't created until 1982 (p. 79, the author was even aware of this fact), 2 years after Apple went public in 1980. In reality, Apple got $500,000 (out of over $1 million in 1978 funding) through the SBIC, a public-private program. Yet this $500,000 investment through a government program apparently makes Apple dependent on the government. In comparison, Apple's profit in 1978 was almost $800,000, far more than the SBIC investment. Since the SBIC adds government money to private venture funds, it looks far more like a "crony capitalism" subsidy for investors than an example of the "Entrepreneurial State".
Other errors appear to have the purpose of collecting as much technology under the State umbrella as possible. Thus the book asserts that the Unix operating system was funded by DARPA as part of the development of the Internet (p. 104, with no citation). In reality, Unix was developed at Bell Labs. I can find no evidence of DARPA funding, the Internet, or ARPANET in early Unix work. For instance, the 1974 paper introducing Unix doesn't mention DARPA, though research papers normally acknowledge their funding sources. However, page 24 appears to put all Bell Labs developments under the State umbrella because it was "highly co-financed by government agency budgets." ATT did receive government funding, it ran Sandia National Laboratory under contract, but this doesn't mean the government funded all or even most Bell Labs research.
In one sense this book is correct -- the State plays a major role in innovation. Given that the State is 1/3 to 1/2 of the economy of developed nations, it would be surprising to find that the State did not play a role in new technologies. The problem in this book is that State involvement is emphasized while private innovation is ignored. From the example of Apple computer, it appears any State involvement counts as the "Innovative State". The fact that some schools bought Apple computers (p. 111) is highlighted as government support, though Apple's earlier donations of computers to schools are never mentioned. This seems more a clever ploy by Apple (to get schools dependent on their computers) than government support for innovation.
This ever present State role in research and development means that one can claim a State role in all new technologies. The integrated circuit was developed privately. Because the US military was the first large buyer of integrated circuits (having little concern with price), the integrated circuit is thus declared a government technology. The microprocessor was also privately invented (Intel for a Japanese calculator maker, Texas Instruments around the same time with a somewhat different product). Page 98 takes these inventions and makes them dependent on the government (with an obligatory error, the Minuteman II could not have used microprocessors since it started being deployed 6 years before Intel's first microprocessor). The book even claims State invention of the automobile because it provided roads, a traditional role of the State for centuries before the automobile (sorry, I can't find the reference).
Other examples of the Entrepreneurial State were actually the Protectionist State. SEMATECH (p. 99) was funded by the US government, but its purpose was to catch up with Japanese semiconductor manufacturing, not create new technologies. Yet this also counts as State innovation.
Throughout the book private innovation is ignored or downplayed. While the Internet did develop out of ARPANET and government funding, there is no mention of private online offerings such as Compuserve, AOL, Prodigy, non-commercial bulletin boards, and UUNET, all of which precede the Internet. Page 22 says "the government even had to support the commercialization of the Internet", ignoring these rapidly growing private predecessors. The language of web pages (HTML) might have been created at a government funded lab, but it was based on earlier text markup languages (SGML, based on IBM's GML). A short investigation of either markup languages or hypertext technology shows incremental development spanning decades by both private and State funded actors.
HTML is an example of the incremental nature of technological development. Take any new technology and there are private and State contributions to the technology. The flaw of The Entrepreneurial State is that it only looks at the State actors, somehow concluding that this makes the technologies (or companies using them) dependent on the State. Thus page 11's assertion that Apple "requires the public purse" because it happens to use technology with some State involvement and sells to the US government. Yet after adding up the State involvement in Apple, it doesn't "require" the public purse any more than all corporations and individuals are part of society and utilize the State. The Entrepreneurial State takes any government involvement and makes this a requirement.
A better statement about innovation is on pages 73-74: "What does seem to be clear, however, is that a necessary precursor for innovation to occur is to have a highly networked economy, with continuous feedback loops established between different individuals and organizations to enable knowledge to be shared and its boundaries to be pushed back." This is certainly a true statement, with both State and private developments contributing to innovation.
The Entrepreneurial State's constant emphasis of State innovation and downplay of private contributions distorts the innovation process. The book rightly criticizes those who argue that government does not help innovation but rather than showing how all innovations depend on previous innovations, and innovation might come from public or private sources, it instead presents an innovative State and parasitic private sector.
So Entrepreneurial State, Protectionist State, Crony Capitalist State, or Goldilocks State? Perhaps "The Ever Present State".
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