home | books

The Entrepreneurial State
Debunking Public vs Private Sector Myths

The book's author: Mariana Mazzucato

Fareed Zakaria calls it "a fascinating book." Mazzucato told Zakaria on CNN (broadcast 3 Jan 2016)

So the story is basically that every technology that actually makes an iPhone smart and not stupid was actually publicly funded. So the Internet, GPS, touch screen display, even Siri, the voice activated system which never works for me, but apparently it's a great thing, were all funded by different types of public sector institutions in the U.S.

Zakaria continued:

But you're turning on its head everything that people think about government, which is that government can't pick winners and losers, gets it all wrong.

Mazzucato:

Right.

Zakaria:

And yet you're saying the historical record shows that the government actually has picked lots of winners.

Mazzucato:

Yes, absolutely. So, again, all those technologies were picked, the biotechnology sector itself was picked. The National Institutes of Health, since the 1930s have spent something like $900 billion on the technology that basically formed that industry. And again, private companies, of course, were important, but they basically surfed that wave and we've got plenty of surfers out there, we just don't have that wave, for example, today, in the green tech industry.

Mariana Mazzucato (PhD) is a professor of Economics and Innovation at the Science Policy Research Unit at the University of Sussex – in Britain. She is a US citizen and a citizen of Italy. She describes the main point of her book as "innovation-led growth" and the need "to understand the important roles that both the public and private sectors can play."

A blurb on the back cover from the New York Times adds:

The goal, as expressed by Professor Mazzucato, is not for taxpayer-provided research to spare the private sector from risks, but for government and the private sector to take risks together and enjoy the rewards as one.

A favorable comment at Amazon books:

I'm writing this the day after the third Republican presidential debate. I doubt any of the candidates read The Entrepreneurial State, but they should have. This book debunks plenty of myths, most notably that keeping government "out" of the economy is the best way to stimulate growth in three key ways.

An article by John Thornhill in the prestigious Financial Times (14 Aug 2015), published in London, describes his conversation with her:

We turn to Europe, which she believes is learning all the wrong lessons from Silicon Valley's success. Governments have rashly asked business what they should do to promote growth. Encourage venture capital, cut taxes and red tape, comes the reply. In many cases, Mazzucato argues, this amounts to no more than corporate welfare. "The irony, if not the tragedy, of what we have today is that not only do we not understand the Silicon Valley story correctly but we are also increasing the risk of free- riding, which worsens inequality," she says. "Businesses invest only where they really see future technological and market opportunities. If you bring their tax to zero, you've just made them richer, they will golf more. They will not invest."

She herself is determined to bust some prevailing economic "myths" and change the way we think and talk about the roles of the public and private sectors in our age of austerity. This has provoked controversy, not just among US venture capitalists but also rightwing commentators, and the tech, pharmaceuticals and life science industries. "They hate me with a vengeance," she whispers.

In the Entrepreneurial State she describes as dogma the view that "austerity will necessarily (and sufficiently) bring back growth." And she complains of government pockets, "so critical for funding innovation," being emptied by those who had depended on it for their success.

In her conversation with Zakaria she responded to a question about Israel, saying:

So through their public venture capital fund called Iasmo (ph), they actually retain royalties. So, again, they can get a bit of the upside to cover the inevitable downside as well as the next round. Whereas in this country [the United States] we think that means socialism.

About government and the private sector taking risks together, Mazzucato describes Japan benefitting from a relatively independent government bureaucracy promoting "a close business-government relationship, whereby government support, protection and discipline resulted in a private elite willing to take on risky enterprises." She mentions that Japan In the 1970s was spending 2.5 percent of its GDP on Research and Development, while the Soviet Union was spending 4 percent. "Yet Japan eventually grew much faster than the Soviet Union because R&D funding was spread across a wider variety of economic sectors, not just those focused on the military and space as was the case in the Soviet Union."

A warning to oversimplifiers: She writes that "The emphasis on the State as an entrepreneurial agent is not of course meant to deny the existence of private sector entrepreneurial activity." She answers with detail the complaint about governments trying to pick winners. And note in her conversation with John Thornhill in the Financial Times her disdain for corporate welfare.

Her chapter titles:

1. From Crisis Ideology to the Division of Innovative Labour

2. Technology, Innovation and Growth

3. Risk-Taking State: From 'De-risking' to Bring It On!"

4. The US Entrepreneurial State

5. The State behind the iPhone

6. Pushing vs. Nudging the Green Industrial Revolution

7. Wind and Solar Power: Government Success Stories and Technology in Crisis

8. Risks and Rewards: from Rotten Apples to Symbiotic Ecosystems

9. Socialization of Risk and Privatization of Rewards: Can the Entrepreneurial State Eat Its Cake Too?

10. Conclusion

Dr. Mazzucato has a website at marianamazzucato.com.

Copyright © 2016 by Frank E. Smitha. All rights reserved.