The Entrepreneurial State – Mariana Mazzucato

Here’s a really challenging book for anyone that believes the state should back off and let the market get on with being entrepreneurial. This has been my viewpoint, but I’ve modified it after going through the book. See below.

It’s an engaging book with a strong message that governments form an essential role in the innovation chain, often displaying true entrepreneurial qualities of vision, investment and risk-taking, and they deserve a proportionate share of rewards. Despite widespread commentary in the popular and economic media  that governments ‘can’t pick winners’ and shouldn’t try to do so, Mazzucato provides lots of evidence that in fact they have often picked, encouraged, prodded and directly supported winning technologies, companies and even products. The author, Mariana Mazzucato, is a distinguished Professor in Economics of Innovation at the Social Policy Research Unit at Sussex University.

From the internet to information & communications technologies (ICT), biotechnology, nano-technology and green technologies; from Apple to Big Pharma; Mazzucato presents numerous case studies and economic research that offer a compelling defence of her central argument. In chapter 5, dedicated to Apple and its leading products, iPod, iPad and iPhone, she traces the history of 12 technologies that are central to these products and shows they were all developed as part of state run projects. Technologies from internet to capacitive screen control, GPS, and many others, originated from government projects around the world, including the UK, Europe, Japan. Inevitably, the majority of the case histories given are from the US, and this is deliberate. Not only are US firms the most prominent among the world’s leading innovators, but also the budget size and number of US government projects are among the world’s largest. But, most importantly, the US is often hailed as a great bastion of free market entrepreneurialism and hands-off government. Yet, Mazzucato’s evidence shows a persistent pattern of ‘stealth’ interventions, i.e. real and effective coordination that is often not publicly promoted.

"The state has not just fixed markets, but actively created them..."

The argument is not just the usual concession that government must play a role in correcting for ‘market failures’, situations where a free market does not give rise to desirable productivity, supply or innovation. Here, the government is viewed as a backstop or resource of last recourse. More recent literature, somewhat incidentally referenced by Mazzucato, goes beyond this and envisages an ecosystem of government, industry and education (the so called ‘triple helix’) that operates as a network of actors, institutions, processes and interactions. In this, the government ‘s principal role is to provide an environment conducive to making innovation flourish, while playing a more active role in some areas such as policy, regulation, research and perhaps brokerage.

Mazzucato goes further. She attributes an active entrepreneurial drive and purpose to the state, which is particularly necessary where the entrepreneurial risk is too high for private investment. Missions like getting a man on the moon, developing a stealth bomber, developing a global satellite-based positioning system all impact directly on a supply chain of researchers, producers, and consumers alike, and leave a trail of entrepreneurial value in their wake!

For me, the key insight is that government entrepreneurship can add real value especially (perhaps only!) when it is mission driven A tangible mission provides the focus, persistence and strategic flexibility that ensure effectiveness. In contrast, ‘picking winners’ is often more theoretical, inflexible, sterile and inefficient.