Tuesday, April 1, 2014

Is There an Entrepreneurial State? Analysis of "The Entrepreneurial State" by Mariana Mazzucato

I recently saw reviews of Mariana Mazzucato's book "The Entrepreneurial State". For instance, see the review here. In it the author argues that contrary to the usual belief that private industry is innovative and risk taking, it is actually the government which takes the risks and innovates new technologies, with private industry getting a "free ride", exploiting and profiting from the government's efforts.

Having spent 40 years in the technology industry, I found this claim a bit outrageous. I've certainly never worked for a company which took government developed technology and just profited from it. Everyplace I've worked engineers have been hard at work trying to create original or improved products.

So I got a copy of the book and have been studying its arguments. In doing so I found that there are a number of academics making the same argument, an academic "cottage industry" creating the story of an innovative government and risk averse private sector. Since this doesn't match my own experience, I started looking into the book's claims to see how well they stand up to the evidence.

As a result of this investigation, this is the first of what might become several posts examining The Entrepreneurial State and its arguments.

I'll start with an overview of the book's claims:

Like Barack Obama's famous "you didn't build that", The Entrepreneurial State argues that the government has "nurtured almost all of the key technological advances of the last hundred years" (quoting the review above).

In one sense, the book is an argument against the conservative view that all government spending is waste. In this sense the book is correct -- the government has made significant contributions to innovation, especially during the last 100 years. Nothing in my comments is meant to deny government's contributions to innovatoin.

However, the book goes much further, painting a picture of a timid, risk averse private sector. The private sector is presented as almost parasitic, letting the government take all the risks then reaping the rewards. Regarding much of the new technology in the iPhone, the introduction asserts "It was the visible hand of the State which made these innovations happen. Innovation that would not have come about had we waited for the 'market' and business to do it alone" (p. 3). Apple is the example technology company of the book, which is "dependent on the public purse" for its success (p. 11 of the book).

So here is the book's primary thesis: If government were not spending money to create new technologies, innovation would drastically slow down or even stop. Companies would not spend the money for innovative R&D and technological advances would stagnate.

I will attempt to analyze these claims in the book. In particular, especially for innovations which have clearly been driven by the government, I am going to ask a few questions about the book's claims:

  1. If government drove an innovation, was it because the private sector refused to invest in a new technology? Or did the government drive the technology because it was the first to need it or because it had the deep pockets to pay the high initial costs? Would the technology have existed without government investment?
  2. What was the government's role in the innovation? Did it merely fund the underlying science or did it fund development of a practical product? Was the government a deciding factor?
My analysis will focus on electronic and computer technologies. The book also discusses nanotechnology, biotechnology (including drug development), and green energy. Since I'm most familiar with electronic and computer technologies, I'll stick to areas I know and leave it to others to analyze other fields.

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