The state, not the private sector, has had strategic vision for change

In one of her books, “The Entrepreneurial State: Debunking Private vs. Public Myths in Innovation,” Mazzucato offers a contrarian view to the normal depiction of a slow, bureaucratic and risk-averse state: It isn’t only a market regulator and fixer, but “market maker” as well.

“Have you ever asked yourselves why most innovative companies – Apple, Google, Facebook – are coming out the US?” she asked during a TED speech. “Usually when I say this, someone yells: ‘Spotify! That’s Europe.’ But it hasn’t had the impact these other companies have had. I study the relationship between innovation and economic growth and I work with policymakers worldwide, especially in the European Commission, and I can tell you what questions are on the tip of their tongues: ‘Where are the European Googles?’ ‘What is the secret behind the Silicon Valley growth model?’ And what is interesting is that often, even if we’re in the 21st century, we come down to the idea of market versus state.”

What interests Mazzucato the most regarding the subject is the language and narrative that surrounds it. For example, we are often presented with the idea that the private sector is more innovative because it’s able to think out of the box. Think of Steve Jobs’ speech to the 2005 graduating class at Stanford, where he said to be innovative, you’ve got to stay hungry and foolish.

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“However, the public sector is too big,” she said, “and it hasn’t actually allowed things like dynamic venture capital and commercialisation to become as fruitful as it could be. Meanwhile, newspapers are saying the state should just stick to the basics and leave the rest to the revolutionaries. But think of it this way: who actually funded the revolutionary things that comprise the iPhone? Its Internet, GPS systems and the touchscreen display were all state-funded. The GPS was funded by the US military’s Navstar program, Siri was funded by DARPA and the touchscreen display was funded by two public grants by the CIA and the NSF.”

This, she said, is true in numerous sector across the globe. And in almost all examples, the state was doing more than just “fixing market failures”. It was shaping and creating markets. In a way, it was being a venture capitalist.

“There’s huge implications of this,” she said. “By constantly depicting the state as necessary but boring and dangerous, we’ve stunted the possibility to build public-private partnerships in a really dynamic way. What the public sector did in all these examples is take on that risk. It’s actually been the one thinking out of the box. DARPA, which funded the Internet and Siri, actually thought really hard about this, how to welcome failure, because you will fail.”

Furthermore expanding her point on risk, she said: “The Internet was crazy. It really was, and the probability of failure was massive. You had to be completely nuts to do it, and luckily, they were. But what happened to reward? All it gets is the title of Leviathan and bore. The problem is that economists often think tax is a reward. Unfortunately, that’s not true. Apple’s a great example. It got $500,000 and yet we all know it pays very little tax.”

Her idea: for us to rethink a return-generating mechanism that’s much more direct than tax. It can be done – and has on several occasions. Finland funded Nokia, kept equity and made a lot of money. The Brazilian Development Bank, which is providing huge amounts of funds today to clean technology, announced a $56bn program and is retaining equity in its investments.

The state has been dismissed as being a backseat player, concluded Mazzucato, and if it were thought about in a more strategic way then Silicon Valley style growth could be leveraged across the globe.

Meanwhile, innovation is a subject of much debate, though so often fails to deliver. However, dealt with in the right way, innovation could mean the difference between an average and outstanding company performance.

Image: Shutterstock

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