Entrepreneurial State

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= Report and book

Report

* Report: THE ENTREPRENEURIAL STATE. Mariana Mazzucato. Demos, 2011

URL = http://www.demos.co.uk/files/Entrepreneurial_State_-_web.pdf


Summary

"The first insight, described in chapter 3, is that networks and connections really matter. This is not a surprise to those involved in the growing discipline of complexity and behavioural economics, but it is a fact that does not yet lie at the heart of UK economic policy. We understand that there is value in a cluster, and we support the building of business incubation units in science parks, but we do not fully accept the responsibility of government continually to foster horizontal links between existing institutions in order to create a flat structured national system of innovation in every discipline.

The second insight is that even where the network exists, it takes a nimble, interventionist, knowledge-hungry state to catalyse them into action. If it is in the public interest for innovation to occur, there is a role for the public sector to require it to happen, rather than sitting back and hoping it will happen of its own accord provided the conditions are right. Countries playing economic catch-up are able to do this relatively easily by having government strategies that copy what has happened elsewhere in the world. At the frontiers of knowledge, the role of government is harder to comprehend. This pamphlet draws on the experience of the USA in particular to show that innovation is far more likely to happen when it is commissioned via a multitude of contracts for particular advances or technological solutions, rather than by — for example — providing tax credits for general research and development, or badgering the banks to lend more to certain parts of the economy. This is not so much nudge as necessity. And scale matters. The political danger is that in an era where governments — and to a degree the public — believe the state has got too big, any talk of an interventionist approach in growth policy will be intellectually filed under the same heading as the failed policies of the 1970s. But this is not about hand-outs to unproductive national champions, nor is it Keynesian demand management. It is about looking at what works and making it work for the UK.

The complexity economist W Brian Arthur in his recent book The Nature of Technology talks about technology in a functional way as a means to a purpose, and about innovation as the combination and Darwinian-style evolution of complementary technologies.

Radical change occurs when a new underlying principle is invoked in order to solve the technological problem being considered when more conventional solutions have failed.

We hope that this pamphlet will, in its own way, provoke a radical change in the understanding of the role that government can play in economic policy." (http://www.demos.co.uk/files/Entrepreneurial_State_-_web.pdf)


Book

  • Book: The Entrepreneurial State: Debunking Public vs. Private Sector. by Mariana Mazzucato.


Discussion

Mariana Mazzucato:

"Three key implications arise from this analysis.

First, it is of course not enough to talk about the ‘entrepreneurial State’; one must build it— paying attention to concrete institutions and organizations in government that are able to create long-run growth strategies and ‘welcome’ the inevitable failure that this will entail. Indeed, it is not a coincidence that the weakest countries in the Eurozone are precisely those that have low spending in areas that seem costly today, but which bring growth in the future: areas like R& D and human capital formation. Yet we are told they are countries that spent too much. And while ‘governance’ is often used as a reason to impose market reforms, in reality governance should also be about how to bring expertise together and create willingness to invest in high-growth, high-risk areas. As anyone who has worked in the private sector knows, there are plenty of ‘bureaucratic’ and inertial businesses. There is nothing in the DNA of the public sector that makes it less innovative than the private sector. But equally, encouraging innovation and creativity in public sector institutions requires thinking about organizational dynamics. Instead, by dismissing the ability of the public sector to be an innovative force from within, most thinkers about strategic management and organizational change have focused more on the private sector, leaving the public sector to simply focus on ‘creating the conditions’ for innovation to happen in the ‘revolutionary’ private sector. And, as discussed above, this has created a self-fulfilling prophecy, where the smartest young graduates think that it will be more exciting and fun to work at Goldman Sachs or Google rather than a State investment bank or a ministry for innovation. The only way to rebalance this problem is to upgrade, not downgrade, the status of government— and the words and the images used to describe it.

There are important implications for the Eurozone crisis. The conditions being imposed on the weakest countries, via the ‘fiscal compact’, should be conditions not about reducing the public sector across the board, but conditions that increase the incentives for governments to spend on key areas like education and R& D, and also to transform the public sector from within so that it is more strategic, meritocratic and dynamic. While this might sound difficult, it is no less difficult than imposing the austerity that is undermining the weaker countries’ socioeconomic structure and future competitiveness.

Second, if the State is being asked to engage in the world of uncertainty, with the inevitable wins and losses (which also characterize private venture capital), then it is only right that when the wins arrive (the upside) there is also a return to cover the losses (the downside). That is, while the State should not expect a financial return for its spending on public goods like education and healthcare, the State’s high-risk investments should be thought of differently, and allowed to reap a direct return precisely because the failure rate is so high. Successful ‘winning’ State investments should be able to cash in so as to cover losses when they arise, as well as fund the investments of the future— still unpredictable today. While the privatization of gains and socialization of losses in the financial sector have been recognized as economically inefficient and socially unjust, the same asymmetry that occurs in the real economy, both for new-technology firms and for more mature firms that need external investment in turnaround, has remained unnoticed. A clearer risk– reward relationship will not only increase government revenue— during a time in which public sector budgets are under strain— but also allow taxpayers to see a clearer reward from their investments and hence help increase the political support needed for making investments that lead to long-run future growth.

Third, by focusing on the role that the State plays along the bumpy risk landscape, acting actively and courageously rather than just ‘de-risking’ the private sector and correcting ‘market failures’, the analysis provided here has the potential to better inform policies that are directed towards other actors in the ‘ecosystem’ of innovation. This is important because, as outlined earlier, part and parcel of undermining the role of the State has been the ‘hyping’ up of the role of other actors— from SMEs to venture capital and shareholders. Thus, acknowledging the different roles played in the ecosystem— over time and along the bumpy risk landscape— will make it more difficult for overhyped economic actors that have captured the public imagination to argue for handouts and subsidies. The Appendix contains a list of government savings (using the UK as an example) that could arise by approaching the ‘ecosystem’ in a more realistic way— with policies based on what we know about the different actors, rather than the associated myths.

We live in an era in which the State is being cut back. Public services are being outsourced, State budgets are being slashed and fear rather than courage is determining many national strategies. Much of this change is being done in the name of rendering markets more competitive, more dynamic. The Entrepreneurial State is an open call to change the way we talk about the State, its role in the economy and the images and ideas we use to describe that role. Only then can we begin to build the kind of society we want to live in, and want our children to live in, in a manner that pushes aside false myths about the State and recognizes how it can, when mission driven and organized in a dynamic way, solve problems as complex as putting a man on the moon and solving climate change. And we need the courage to insist— through both vision and specific policy instruments— that the growth that ensues from the underlying investments be not only ‘smart’, but also ‘inclusive’." (http://evonomics.com/economist-debunks-huge-free-market-governments/)