The entrepreneurial state

Entrepreneurial StateProfessor Mariana Mazzucato’s book, the Entrepreneurial State, contains some interesting observations about the role of the state in fostering innovation and hence creating wealth. It is evident that the private sector relies on public sector investment in research for its ideas, frameworks and technologies. The internet is a good example. Many drugs have their origins in publicly-funded laboratories (recent discussions around AstraZeneca and Pfizer have been caught up in this). Google is built on it. And even if the ideas, prototypes, patents do not originate in public research/educational establishments, the minds behind them do. The problem is, it seems, the private sector’s ability to appropriate these public goods for itself.

Professor Mazzucato’s  recent lecture on this topic can be seen here: http://www.sussex.ac.uk/newsandevents/sussexlectures/2014?lecture=116&fmt=youtube; it was one of the best professorial lectures I have witnessed in recent years (notwithstanding Jonathan Chapman’s at the University of Brighton on Sustainable Design, 22 January 2014: http://www.youtube.com/watch?v=iBECx-L55Fg). Mazzucato demonstrates a number of indicators of disingenuousness on the part of knowledge-rich firms. One of the most startling and worrying is buy-backs. Large firms that spend their cash on buying back their own shares rather than investing in research are painted as villains. In the past, the exemplars were Xerox and Bell with their investment programmes that brought us spinouts such as Adobe, 3-Com and Lucent amongst many others in technology.

Buy backs take out investment from the economy. They put the burden on the public sector to do the risky stuff. Firms have become increasingly ‘financialised’. Pfizer, she argues, is just one example. There are many more spanning hi-tech industries across the globe. She explains this around 24 minutes into her lecture.

And so to remedies. Professor Mazzucato argues that states should be able to claw back some of the benefits accruing to firms when they win on the basis of public funding. Professor Mazzucato’s recommendations include: “golden shares of IPR and a national innovation fund”, “income-contingent loans and equity” and “development banks”. Stian Westlake of NESTA, the UK innovation investment fund, by way of critique, notes the following:

  • Essentially, they all involve the government retaining a financial interest in companies that develop innovations based on public funding, with the idea that this money can be recycled to back more radical innovations. As far as I can see there are three problems with this idea: It would be nightmarish to administer It imposes costs on exactly the wrong businesses, creating both a presentational and a practical problem It’s worse than an already existing option – funding innovation from general taxation.

The full debate can be accessed here: http://www.nesta.org.uk/blog/how-not-create-entrepreneurial-state#sthash.eJoHD7wz.dpuf

 

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