Dr Jeff Cornwall

The State as Entrepreneurial Engine?

A reader from Canada passed along a piece written by Mariana Mazzucato titled “The Entrepreneurial State.”  It is an interesting window into the view that the state is the ultimately the most effective driver of economies and innovation.

The author lays out a case for more government involvement in spurring entrepreneurship.  She argues that rather than stepping back and letting entrepreneurs lead us out of this recession — as they have successfully done in almost every past recession and depression — government needs to take hold of the reigns of the economy and make bold decisions about what entrepreneurial frontiers should be next.

Mazzucato labels the belief that free markets are what drives economic growth and that markets work best under conditions of limited government the “largest myth of all.”

As evidence in Chapter 3 of her pamphlet she cites data from the 1970s that compares the “success” of Japan’s planned economy (forget about those “lost decades” that resulted from the government’s bad choices for this planned economy after this time period) with the economic struggles of the Soviet Union during that same time.  An interesting choice of data, indeed!  A planned economy that was about to collapse compared with a communistic economy that was already collapsing.

In Chapter 5 she lays our her agenda.  Although she is speaking specifically to policy for the UK, her message is consistent with many policy makers now making plans for us in Washington.  Here are some of her recommendations:

Rather than giving handouts to small companies in the hope that they will grow it is better to give contracts to young companies that have already demonstrated ambition; it is more effective to commission the technologies that require innovation than hand out subsidies in the hope that innovation will follow.

Government employees know best which specific businesses should be supported. Rather than get out of the way of small business, get them out of the way!

In time, therefore, as the entrepreneurial state is built, it would be more effective to use some of the expenditure on R&D tax credits to directly commission the technological advance in question.

Again, rather than letting market forces pick which innovations that come from private sector R&D are best, we should “commission” (directly pay) R&D that those who work for the state deem to be the most promising.

The UK Government should create a vision whereby the TSB [Technology Strategy Board] can bring together government departments, research councils, local economic partnerships and other public bodies to address specific challenges, such as those around green technology. If the TSB functioned in this way it would demonstrate that the core innovation problem is not one of ‘market failure’ but rather one of ‘network failure’, and show it understands the government’s role in creating and leading those networks.

The best way to reignite the entrepreneurial spirit in the economy?  Put a government agency with expanded power in charge!

Where technological breakthroughs have occurred as a result of targeted state interventions, there is potential for the state, over time, to reap some of the financial rewards, by retaining ownership over a small proportion of the intellectual property created.

After all, “If you’ve got a business—you didn’t build that. Somebody else made that happen.”

I hope and pray that Mazzucato’s vision for an “entrepreneurial state” is not our future.  But, I fear that it might be….

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