Entrepreneurial State: Not an Oxymoron

The Entrepreneurial State. That’s the seemingly contradictory title of Mariana Mazzucato’s book. Yes, it’s about the government as an entrepreneur! The opposite of the bureaucratic, bumbling institution that we think of it is as…

 

A clarification first. Here’s what she is and is not saying:

“The important thing for Government is not to do things which individuals are doing already, and to them a little better or a little worse, but to do those things which at present are not done at all.”

Rather, she is talking of the State creating new technologies from scratch, by making high risk investments as well as using other tools at its disposal:

“Whether the State is making an investment in the Internet or clean energy… it can do so on a scale and with tools not available to businesses (i.e., taxation, regulation).”

 

Why can’t/won’t the private sector do that instead? Because:

“Real innovation can take decades.”

And the private sector is way too impatient, way too short-term’ish:

“(In) an emerging sector like biotech or green tech… a short-term bias is damaging to the scientific exploration process, which requires longer time horizons and tolerance of failure.”

Which is why, she says:

“Time after time it has been public rather than privately funded venture capital that has taken the most risks.”

Of course, not all attempts by the State succeed:

“For every Internet, there are many Concordes…”

 

Wait a minute. Don’t those fabled venture capitalists (VC’s) invest in unknown/unproven startups? Yes, but only in limited areas:

“Venture capital funds tend to be concentrated in areas of high potential growth, low technological complexity and low capital intensity, since the latter raises the cost significantly.”

VC’s come in only after the heavy lifting is already done. They never create a new technology; at best, they enable a new technology to create/take over a market.

 

Not convinced yet of the role of the State? Then consider this:

“The current absence in the US of corporate labs like Xerox PARC (which led to the graphical user interface technology that led to both Apple’s and Microsoft’s operating systems) and Bell Labs… is one of the reasons why the US innovation machine is under threat.”

And:

“The fact that top pharma companies are spending a decreasing amount of funds in R&D at the same time that the State is spending more.”

 

The entire book was an eye-opener. I’d never thought of things that way.