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Sunday, September 01, 2013

'The Entrepreneurial State?'

Joshua Gans:

The entrepreneurial state?, by Joshua Gans: In Slate, Marianna Mazzucato argues that it is a myth that entrepreneurs drive innovation. I’ll chalk that up to the Slate sub-editorial title writers because what the article is really saying is the ‘independent’ entrepreneurs do not drive innovation. Instead, in many classic situations the hand of the government was there and it is difficult and probably semantic to say who really drove innovation. It was probably combining the two.

Fair enough but then Mazzucato moves away from looking at evidence to call for changes that would increase the rate of innovation. And that is when she arrives at this:

It is time for the state to get something back for its investments. How? First, this requires an admission that the state does more than just fix market failures—the usual way economists justify state spending. The state has shaped and created markets and, in doing so, taken on great risks. Second, we must ask where the reward is for such risk-taking and admit that it is no longer coming from the tax systems. Third, we must think creatively about how that reward can come back.

There are many ways for this to happen. ...

Recognizing the state as a lead risk-taker, and enabling it to reap a reward, will not only make the innovation system stronger, it will also spread the profits of growth more fairly. This will ensure that education, health, and transportation can benefit from state investments in innovation, instead of just the small number of people who see themselves as wealth creators, while relying increasingly on the courageous, entrepreneurial state.

Now as I understand it, her argument is that what the state needs is to appropriate more of the returns from innovation it funds on its books. However, this is at the same time, that she argued that state success in funding and seeding innovation was precisely because it didn’t have to worry about getting the returns from innovation on its books. In other words, the problem with state-funded innovation is apparently it is not sufficiently like private funded innovation in its return calculus.

Again, for all I know that could be correct but if I were to guess the thing that makes the system work well now is precisely the diversity of goals between the state and private sector coming together to produce innovation rather than that being the problem.

    Posted by on Sunday, September 1, 2013 at 08:46 AM in Economics, Productivity | Permalink  Comments (38)


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