Mariana Mazzucato
The Entrepreneurial State
Government as radical, patient VC
The iPhone, Mazzucato pointed out, is held up as a classic example of world-changing innovation coming from business.
Yet every feature of the iPhone was created, originally, by multi-decade government-funded research. From DARPA came the microchip, the Internet, the micro hard drive, the DRAM cache, and Siri. From the Department of Defense came GPS, cellular technology, signal compression, and parts of the liquid crystal display and multi-touch screen (joining funding from the CIA, the National Science Foundation, and the Department of Energy, which, by the way, developed the lithium-ion battery.) CERN in Europe created the Web. Steve Jobs’ contribution was to integrate all of them beautifully.
Venture Capitalists (VCs) in business expect a return in 3 to 5 years, and they count on no more than one in ten companies to succeed. The time frame for government research and investment embraces a whole innovation cycle of 15 to 20 years, supporting the full chain from basic research through to viable companies. That means they can develop entire new fields such as space technology, aviation technology, nanotechnology, and, hopefully, Green technology.
But compare the reward structure. Government takes the greater risk with no prospect of great reward, while VCs and businesses take less risk and can reap enormous rewards. “We socialize the risks and privatize the rewards.” Mazzucato proposes mechanisms for the eventual rewards of deep innovation to cycle back into a government “innovation fund”---perhaps by owning equity in the advantaged companies, or retaining a controlling “golden share” of intellectual property rights, or through income-contingent loans (such as are made to students). “After Google made billions in profits, shouldn’t a small percentage have gone back to fund the public agency (National Science Foundation) that funded its algorithm?” In Brazil, China, and Germany, state development banks get direct returns from their investments.
The standard narrative about government in the US is that it stifles innovation, whereas the truth is that it enables innovation at a depth that business cannot reach, and the entire society, including business, gains as a result. “We have to change the way we think about the state,” Mazzucato concludes.
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primer
Since the Enlightenment and its corresponding assumptions of social-technological progress, scholars have debated what political and economic systems best facilitate technological growth.
These days, one of the common assumptions of the technology sector is that the government is fundamentally a limiting force when it comes to innovation. This view is a well-established conservative position since the advent of the Chicago School of Keynesian Economics, but even among progressives, there’s a strong sentiment that the government doesn’t have what it takes to innovate and bring new technologies to the helm. Headlines seem to support this theory: it takes the private sector a fraction of the cost to send rockets to space, new laws banning disruptive technology companies like AirBnb and Uber seem to crop up every week. A cursory glance at this issue would seem to suggest that when it comes to developing new technologies, Thomas Jefferson’s maxim still rings loud and true: That government which governs best, governs least.
Enter Mariana Mazzucato. Currently the RM Phillips chair in the Economics of Innovation at the University of Sussex, she also has a long resume of academic positions at other prestigious universities, including University of Denver, London Business School, Open University, and Bocconi University. Her research focuses on the role of the State in modern capitalism, and her analysis runs counter to the tech communities’ common understanding of how technologies come to market. Mariana Mazzucato’s research shows that many of the technologies that form the backbone of our technological revolutions were the direct result of multi-decade research by the state. Consider the examples of computers, the internet, and GPS–all of these technologies were developed and funded by the government for decades before entering the consumer market, and it’s impossible to imagine an iphone without these technologies.
In his 02011 SALT talk, Geoffrey West noted that the average lifespan of a company is merely 10 years. On such short time scales, it’s hard for companies to invest in technologies that don’t have immediate market potential. It’s not a coincidence that Apple or Google came to fruition under the auspices of a government that heavily invested in these technologies: the computer manufacturer was able to build its first machine by virtue of a $500,000 investment from an obscure government entity, and the search engine’s revolutionary algorithm was developed through research that was funded by the National Science Foundation. When one then considers the network of publicly-funded universities and labs (which developed technologies such as HTML and touchscreens), the mythos of the lone entrepreneur/inventor starts to look incomplete at best.
Mazzucato’s analysis forces us to ponder a rather uncomfortable question: Why do we systematically downplay these long-term investments by the government, and champion the companies that bring these mature technologies to market?