Innovation in International Political Economy

The Entrepreneurial State Debunking Public vs. Private

Sector Myths Mariana Mazzucato

1

As a matter of fact, capitalist economy is not and cannot be stationary. Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure as it exists at any moment.

Joseph Schumpeter (1942 [2003], 13)

The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.

John Maynard Keynes (1926, xxx)

It is a popular error that bureaucracy is less flexible than private enterprise. It may be so in detail, but when large scale adaptations have to be made, central control is far more flexible. It may take two months to get an answer to a letter from a government department, but it takes twenty years for an industry under private enterprise to readjust itself to a fall in demand.

Joan Robinson (1978, 27)

Where were you guys [venture capitalists] in the ’50s and ’60s when all the funding had to be done in the basic science? Most of the discoveries that have fuelled [the industry] were created back then.

Paul Berg, 1980 Nobel Prize in Chemistry winner (quoted in Henderson and Schrage 1984)

2

CONTENTS List of Tables and Figures List of Acronyms Acknowledgements Foreword by Carlota Perez

Introduction: Do Something Different A Discursive Battle

Beyond Fixing Failures

From ‘Crowding In’ to ‘Dynamizing In’

Images Matter

Structure of the Book

Chapter 1: From Crisis Ideology to the Division of Innovative Labour And in the Eurozone

State Picking Winners vs. Losers Picking the State

Beyond Market Failures and System Failures

The Bumpy Risk Landscape

Symbiotic vs. Parasitic Innovation ‘Ecosystems’

Financialization

Chapter 2: Technology, Innovation and Growth Technology and Growth

From Market Failures to System Failures

Myths about Drivers of Innovation and Ineffective Innovation Policy

Myth 1: Innovation is about R&D

Myth 2: Small is Beautiful

Myth 3: Venture Capital is Risk Loving

Myth 4: We Live in a Knowledge Economy – Just Look at all the Patents!

Myth 5: Europe’s Problem is all about Commercialization

Myth 6: Business Investment Requires ‘Less Tax and Red Tape’

Chapter 3: Risk-Taking State: From ‘De-risking’ to ‘Bring It On!’

3

What Type of Risk?

State Leading in Radical (Risky) Innovation

Pharmaceuticals: Radical vs. ‘Me Too’ Drugs

Biotechnology: Public Leader, Private Laggard

The National Institutes of Health: Creating the Wave vs. Surfing It

Chapter 4: The Us Entrepreneurial State The Defense Advanced Research Projects Agency (DARPA)

The Small Business Innovation Research (SBIR) Programme

Orphan Drugs

The National Nanotechnology Initiative

Chapter 5: The State behind the iPhone The ‘State’ of Apple Innovation

Surfing through the Waves of Technological Advancements

From Apple I to the iPad: The State’s very visible hand How State-funded research made possible Apple’s ‘invention’ of the iPod Giant magnetoresistance (GMR), SPINTRONICS programme and hard disk drives Solid-state chemistry and silicon-based semiconductor devices From capacitive sensing to click-wheels

The Birth of the iPod’s Siblings: The iPhone and iPad

From click-wheels to multi-touch screens Internet and HTTP/HTML GPS and SIRI Battery, display and other technologies

Did the US Government ‘Pick’ the iPod?

Fostering an Indigenous Sector

Chapter 6: Pushing vs. Nudging the Green Industrial Revolution Funding a Green Industrial Revolution

National Approaches to Green Economic Development

China’s ‘green’ 5-year plan UK’s start–stop approach to green initiatives

4

United States: An ambiguous approach to green technologies Pros and cons of the US model

Pushing – Not Stalling – Green Development

The Importance of Patient Capital: Public Finance and State Development Banks

Chapter 7: Wind and Solar Power: Government Success Stories and Technology in Crisis

Wind and Solar Power: Growth Powered by Crisis

From the First ‘Wind Rush’ to the Rise of China’s Wind Power Sector

Solar Power Companies and the Origin of Their Technologies

Solar Bankruptcies: Where There’s a Will There’s a Way

Competition, Innovation and Market Size (Who’s Complaining?)

Conclusion: Clean Technology in Crisis

Myth 1: It’s all about R&D Myth 2: Small is beautiful Myth 3: Venture capital is risk loving Building a green innovation ecosystem (symbiotic not parasitic)

Chapter 8: Risks and Rewards: From Rotten Apples to Symbiotic Ecosystems Back to Apple: What Did the US Government Get Back for Its Investments?

Apple’s job-creation myth: Not all jobs are created equally Apple’s love–hate relationship with US tax policies The paradox of miracles in the digital economy: Why does corporate success result in regional economic misery?

Where Are Today’s Bell Labs?

Chapter 9: Socialization of Risk and Privatization of Rewards: Can the Entrepreneurial State Eat Its Cake Too?

The Skewed Reality of Risk and Reward

A New Framework

Direct or Indirect Returns

Chapter 10: Conclusion Appendix Bibliography

5

LIST OF ACRONYMS

AEIC American Energy Innovation Council ARPA-E Advanced Research Projects Agency – Energy (US Department of Energy) ARRA American Recovery and Reinvestment Act ATP Advanced Technology Program BIS Department of Business, Innovation and Skills (UK) BNDES Banco Nacional de Desenvolvimento Econômico e Social (Brazilian Development Bank) CBI Confederation of British Industries CBO Congressional Budget Office (UK) CERN European Organization for Nuclear Research, Geneva DARPA Defense Advanced Research Projects Agency (USA) DECC Department of Energy and Climate Change (UK) DEMOS UK think tank DoD US Department of Defense DoE US Department of Energy DRAM Dynamic random-access memory EC European Commission, Brussels EPA Environmental Protection Agency (USA) EPRI Electric Power Research Institute FDA Food and Drug Administration (USA) FINNOV FINNOV EC FP7 project (www.finnov-fp7.eu) FIT Feed-in tariff GDP Gross domestic product GE General Electric GMR Giant magnetoresistance GPS Global positioning system GPT General purpose technology GW Gigawatt GWEC Global Wind Energy Council HM Treasury Her Majesty’s Treasury (UK) IP Intellectual property IPO Initial public offering on stock market IPR Intellectual property rights MIT Massachusetts Institute of Technology MITI Ministry of International Trade and Industry (Japan) MRC Medical Research Council (UK) MW Megawatt NAS National Academy of Sciences (USA)