So Why Doesn’t the Private Sector Appreciate This?
The next time you use your smartphone, think of this: every feature that makes it ‘smart’ was initially created by the government. It’s true: taxpayers funded the research and development. The internet, GPS, the touch-screen display, even the voice-activated Siri – all of these were innovations created from US state-funded programs.
Google itself began thanks to a grant from the government: the US National Science Foundation financed the design of the Google search algorithm.
These are just a few of the many examples marshalled by economist Mariana Mazzucato in her thought-provoking 2013 book, The Entrepreneurial State, and in her TED talk at TEDGlobal 2013 (above).
The New Republic named Mazzucato one of the ‘most important innovation thinkers’ today.
Her book and work are a grand attempt to debunk the myth that the State is just a bloated bureaucracy and that all the praise should go to a so-called heroic, risk-taking private sector. She has examined case after case where the groundbreaking innovation came about thanks to the state, not the private sector. Private companies came in only after the hard work was done.
To continue the smartphone example, she shows how the major innovations were in fact “all government-funded. … the Internet was funded by DARPA, the U.S. Department of Defense [the ‘Defense Advanced Research Projects Agency’]. GPS was funded by the military’s Navstar program. Even Siri was actually funded by DARPA. The touchscreen display was funded by two public grants by the CIA and the NSF”.
The main upshot is that we have created a false understanding of the role of the state in innovation. The “narrative that we’ve always been told is the state is important for the basics, but not really providing that sort of high-risk, revolutionary thinking out of the box.” So the popular narrative, particularly at election time, is that government is wasteful, inefficient, and certainly not an innovator.
But that government-bashing has a huge cost. In fact, “in all these sectors, from funding the Internet to doing the spending … the envisioning, the strategic vision … it was actually coming within the state.”
So Mazzucato argues that we need to change the narrative. We need to “really think again this juxtaposition, because it actually has massive, massive implications beyond innovation policy.”
We are paying a huge price for this false narrative, because “what we actually need are public-private partnerships.” The huge risk is that “by constantly depicting the state part as necessary but actually … dangerous kind of Leviathan … we’ve actually really stunted the possibility to build these public-private partnerships.”
The further price we’re paying is that the government bashing is hurting the state itself and only helps the rich get richer.
Mazzucato says this is “the biggest implication, and this has huge implications beyond innovation. If the state is more than just a market fixer, if it actually is a market shaper, and in doing that has had to take on this massive risk … where’s the reward for the state of having taken on these massive risks”?
She argues that we’ve messed up the risk-reward equation. Instead of ensuring a proper return on investment back to state coffers, the rewards go to the private companies who cash in on the initial innovations, reap the profits, and then unleash their tax gurus to find ways to pay zero tax.
There’s a smarter way, Mazzucato argues. The smart governments are learning to think different. Countries like Finland are not just funding new research, but they are making sure to take equity positions that will share in eventual rewards. In a word, they’re mastering how to think like an innovator, in the true entrepreneurial sense of the word.
Imagine, she says, if “the U.S. government thought about this” and had created an innovation fund where “even just .05 percent of the profits from what the Internet produced had come back to that innovation fund.” There “would be so much more money to spend today.”
Indeed, the US government might not be in quite so much debt. Such a strategy just might even have helped the US achieve balanced budgets during the last two decades.
As Mazzucato says, there are a lot of self-fulfilling prophecies going on here. By failing to pursue policies like these, the US government is in a dismal financial state, and this has only helped create more government-bashing that in turn leads to policies that further rob the state of funds. A classic vicious circle if there ever was one.