Monday, October 07, 2013

Mariana Mazzucato Stirring Ideas about Incentives

This is going to sound completely heretical to everything Forbes has stood for over 96 years (and The Economist for a few decades longer than that) but here goes: The real innovation engine in the global economy is not the entrepreneurial class blazing capitalist trails through the thicket of government red tape and taxation. 
No. The real engine of innovation is government.
That’s crazy, you say. One Mark Zuckerberg or Steve Jobs is worth ten suits in D.C. or Brussels. If we left investment and risk capital to the state, all we’d get are bad bets such as Solyndra, Fisker Automotive and the Concorde.
Wrong, says economist Mariana Mazzucato, a professor of economics at the University of Sussex. In her new book. The Entrepreneurial State (adapted into a rousing TED talk delivered this week in Edinburgh), Mazzucato argues that long-term, patient government funding is an absolute prerequisite for breakthrough innovation.  
Critics would say that one shouldn’t create direct returns to the state because it is already getting its money back in taxes. But that argument, says Mazzucato, ignores the fact that tax avoidance and evasion are common and only getting worse. Recent research in the U.K. suggests that the country’s tax gap, or income not collected, is 120 billion GBP, roughly the same size as its national deficit.  Forbes at its best
 The only way to make growth ‘fairer’ is for policy makers to have a broader understanding of the role played by the state in the fundamental risk-taking needed for innovation. Entrepreneurial Sate

Beneficiaries of these investments include Apple: “The armed forces pioneered the Internet, GPS positioning and voice-activated ‘virtual assistants.’ They also provided much of the early funding for Silicon Valley. Academic scientists in publicly funded universities and labs developed the touchscreen and the HTML language. An obscure government body even lent Apple $500,000 before it went public.” They also include Google, which received early funding from the National Science Foundation. Pharmaceutical and biotechnology companies benefit from the $30 billion in annual funding for biomedical research from the National Institutes of Health.

A recent article in The Economist, reviewing a new book entitled “The Entrepreneurial State,” by Mariana Mazzucato of Sussex University in England, makes this explicit. And nowhere is this investment activity more influential than the United States, supposedly the cradle of unbridled individual enterprise.