by Yves Smith, published October 27, 2015
Yves here. Mariana Mazzucato’s recent book, The Entrepreneurial State, makes a bold and well documented case that government has played the key actor in promoting innovation, largely because private interests lack the risk tolerance and long time horizon needed to create foundational technologies. She goes through numerous industries in the US and abroad to make her case. I can give one from Australia: Oz is the leader in viniculture technology, and that’s because it was one of the areas given priority in government funding through CSIRO, the Commonwealth Science and Industrial Research Organization.
By Lynn Parramore, a Senior Research Analyst at the Institute for New Economic Thinking and a Contributing Editor at AlterNet. Originally published at the Institute for New Economic Thinking website
Mariana Mazzucato is Professor in the Economics of Innovation at the Science Policy Research Unit of the University of Sussex. Her widely-acclaimed book, The Entrepreneurial State: debunking public vs. private sector myths, reveals the critical role that we, the taxpayers, play in the creation of the most exciting innovations of our time through publicly-funded investment. (The new U.S. edition hits the shelves October 27th). Mazzucato debunks common myths about how innovation works and shapes a new narrative on how to grow a robust and inclusive economy. Think that iPhone in your pocket is simply a product of Silicon Valley magic? Think again! (Join Mazzucato in New York for a talk and conversation with Time Magazine’s Rana Foroohar and The New School’s Mark Setterfield on October 28: details here). *This interview was originally posted on the blog for the Institute of New Economic Thinking.
Lynn Parramore: We constantly hear that anything to do with government is incompetent and inefficient. Yet as you show, many of the industries and products that make our lives better wouldn’t exist without government-funded research. The whole process of economic growth is hugely interdependent with governmental action. What about something like the iPhone? Is it a product Silicon Valley magic and the genius of Steve Jobs? Or is there more to the story?
Mariana Mazzucato: Economists have recognized that government has a role to play in markets, but only to fix failures, like monopolies, for example. Yet if we look at what governments have done around the world, they have not just stepped in to address failures. They have actually actively shaped and created markets. This is the case in IT, biotech, nanotech and in today’s emerging green economy. Public sector funds have not only supported basic research, but also applied research and even early-stage, high-risk company finance. This is important because most venture capital funds are too short-termist and exit-driven to deal with the highly uncertain and lengthy innovation process.
I often use the iPhone as an example of how governments shape markets, because what makes the iPhone ‘smart’ and not stupid is what you can do with it. And yes, everything you can do with an iPhone was government-funded. From the Internet that allows you to surf the Web, to GPS that lets you use Google Maps, to touch screen display and even the SIRI voice activated system —all of these things were funded by Uncle Sam through the Defense Advanced Research Projects Agency (DARPA), NASA, the Navy, and even the CIA!
These agencies are all ’mission driven’, which matters to their success, including who they are able to hire. The Department of Energy (DoE) was recently run by Steve Chu, a Nobel Prize-winning physicist, who wanted the Advanced Research Projects Agency-Energy (ARPA-E) to do for energy what DARPA did for the Internet. Would he have bothered leaving academia to join the civil service just to ‘fix’ markets? Surely not. That’s boring.
LP: So what Steve Jobs and his team did was not central to the greatness of Apple?
MM: It’s not that Steve Jobs was not a genius—of course he was! But the problem is that the narrative we tell around entrepreneurs like him, Bill Gates or Elon Musk is so unbalanced. We pretend that government at best was important for some infrastructure and basic science behind their empires. We see the new Steve Jobs film, which is based on a 600-page book where not one word mentions any of the public funding behind Apple’s empire. But the real iPhone story — or the story behind biotechnology — reveals a very different narrative in which government-funded research made the most exciting innovations possible. The same could be said of Elon Musk today —Tesla and Space X not only benefit from government-funded basic research through agencies like the DoE and NASA, but they have also, as companies, received high-risk investments by the public sector. Just one example is the $465 million guaranteed loan received by Tesla by the DoE. As recently shown by an LA Times article, the entire Musk empire has received close to $5 billion in direct and indirect support.
Do we hear about that? No. Is that ‘story’ helpful for future innovation? No.
LP: You make the case that if taxpayers fund research responsible for the success of many private sector enterprises, then we deserve something back. What might a fairer system of the distribution of rewards look like? Have any countries done better at this than others?
MM: Government support is not only investing in upstream areas like basic research, but also in downstream areas like applied research and early-stage financing for the companies themselves. This means there are great risks.
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