Book Reviews United States

“The Entrepreneurial State” by Mariana Mazzucato

Marina Mazzucato’s The Entrepreneurial State aims to dispel the harmful myth that innovation is solely the result of entrepreneurial minds working in laissez-faire environments with backing from dynamic venture capitalists, and that the state is a lumbering impediment to revolutionary research and development. Mazzucato contends that this view, put forward by the USA and others, is far from the truth, and using an armoury of examples the author shows that even in the countries that are proponents of this view, the state plays a crucial role in developing the truly revolutionary technologies that are far too risky for private ventures.

The example of the iPhone is used to illustrate the extent to which something held in people’s minds as the pinnacle of laissez-faire Silicon Valley innovation is, in fact, the product of many different government projects: silicon, without which much computing would not be possible, was discovered by government-funded labs; the development of HDDs and CPUs was as a result of NASA and the USAF’s Minuteman II missile program; the multi-touch screen was first developed at CERN and then by the NSA and CIA; the languages used by devices connected to the internet, TCP/IP and HTML, were developed at CERN and DARPA respectively; GPS was developed by the US Department of Defense, with the USAF still developing and maintaining the system currently at the cost of $705 million annually; SIRI was a company born from a collaboration between DARPA and the Stanford Research Institute; and the battery, LCD display, cellular display, and the internet were all the result of publicly funded research and development. In this way, Mazzucato dispels the hegemonic myth of the state as an inhibitor to innovation and instead shows the crucial role it has played in every technological revolution since the Second World War.

Many claim that the government reaps the reward for its investments in the development of these technologies through increased tax receipts; however Mazzucato shows this to not be the case. Due to the global nature of production chains and competition on corporation tax rates between countries, Apple is able to easily avoid paying tax in the countries in which the value is created, instead working profits through several holding companies named after varieties of apples. Therefore the government is unable to recoup its investment, making it unable to sustainably cover the costs of the projects which inevitably fail, due to the high-risk nature of these investments. This perpetuates a view of the government as not being able to pick winners, and of venture capital funds as the true backing behind innovation.

Mazzucato, after showing that venture capital funds are too short-termist and risk-averse to take on projects such as developing new general purpose technologies, then proceeds to suggest some ways in which the government could earn money back on their investment, making these projects sustainable and improving the government’s reputation as a driver of innovation, benefitting the economy as a whole due to more projects and the long-term improvements in productivity that they bring. Mazzucato suggests that governments could retain a stake in the companies that use its technology or that it gives out unconditional loans to, or through the setting up of state investment banks as seen in Brazil and other countries. Furthermore, Mazzucato would like to see the pharmaceutical industry reformed such that big pharma would not be able to profit off buying out the intellectual property of smaller firms spun off from government ventures, and not doing much of their own R&D. Only in these ways, Mazzucato contends, can the ‘parasitic ecosystem’ of socialised risks and privatised rewards be changed for the benefit of the economy.

Although implied in this book, what is lacking is a distinction between government-funded labs with their research done by academics and decisions by a government of where to invest and develop new technologies. Most of the products or technologies mentioned by Mazzucato were developed by academic labs and military organisations, such as DARPA, without political motivations. However, once the government is involved too heavily, political interests can start to show through, and R&D projects can start to be as short-termist as the venture capital funds that Mazzucato derides.

Despite this minor point, Mazzucato’s book does well to dispel the current stigma surrounding the government’s involvement in innovative systems and makes a strong case for the need for reform, not only in the way that the private sector interacts with the public sector but also in the general public’s mindset. The past evidence is so substantial that when considering the current revolution, the Green Industrial Revolution that is discussed in the book, Mazzucato’s case is one that must be considered going forward.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s