Martin Wolf: A much-maligned engine of innovation:
In this brilliant book, Mariana Mazzucato… argues that… [while] innovation depends on bold entrepreneurship. But the entity that takes the boldest risks and achieves the biggest breakthroughs is not the private sector; it is the much-maligned state. Mazzucato notes that “75 per cent of the new molecular entities [approved by the Food and Drug Administration between 1993 and 2004] trace their research ...to publicly funded National Institutes of Health (NIH) labs in the US”…. A perhaps even more potent example is the information and communications revolution…. “All the technologies which make the iPhone ‘smart’ are also state-funded… the internet, wireless networks, the global positioning system, microelectronics, touchscreen displays and the latest voice-activated SIRI personal assistant.”… Why is the state’s role so important? The answer lies in the huge uncertainties, time spans and costs associated with fundamental, science-based innovation. Private companies cannot and will not bear these costs, partly because they cannot be sure to reap the fruits and partly because these fruits lie so far in the future. Indeed, the more competitive and finance-driven the economy, the less the private sector will be willing to bear such risks…. The days of AT&T’s path-breaking Bell Labs are long gone. In any case, the private sector could not have created the internet or GPS. Only the US military had the resources to do so. Arguably, the most important engines of innovation in the past five decades have been the US Defense Advanced Research Projects Agency and the NIH.
Mazzucato loves puncturing myths about risk-loving venture capital and risk-avoiding bureaucrats. Does it matter that the role of the state has been written out of the story? She argues that it does. First, policy makers increasingly believe the myth that the state is only an obstacle, thereby depriving innovation of support and humanity of its best prospects for prosperity…. Second, government has also increasingly accepted that it funds the risks, while the private sector reaps the rewards. What is emerging, then, is not a truly symbiotic ecosystem of innovation, but a parasitic one…. This book… is basically right. The failure to recognise the role of the government in driving innovation may well be the greatest threat to rising prosperity.