Review: Mariana Mazzucato, ‘The Entrepreneurial State’

Harry J Bentham gives his take on Mariana Mazzucato’s The Entrepreneurial State (2013), a book which has influenced Labour’s proposed economic policies in the lead up to the 2017 General Election.

Mariana Mazzucato, author of The Entrepreneurial State. Photo credit: Simon Fraser University, Flickr.

June’s snap election means it is time to be as thoroughly informed as possible with as little reading as possible. In light of this, it is helpful to look at what ideas are influencing Labour’s plans for power. As writer Richard Seymour spotted in his book Corbyn: The Strange Rebirth of Radical Politics (2016), a good place to start is the author Mariana Mazzucato, whose book The Entrepreneurial State (2013) has been especially influential for Labour Shadow Chancellor John McDonnell.

In Corbyn, Seymour described the book’s influence as evidence of how a Corbyn government would be unprecedented in ‘reversing neoliberalism’. For Mazzucato, this would entail the state not shying away from directly planning and funding longer-term technological races like the green energy revolution. Her book is best summed up as follows: ‘do as successful economies do, rather than as they say’.

Mazzucato’s contention is that the state can play ‘an entrepreneurial role’ in national economies, and that admitting this ‘will help inform policies’ (p. 28). Her book is dedicated to ‘debunking public vs private sector myths’. Among such myths, the author argues that patents are not the same as innovation, more research and development spending doesn’t necessarily mean more innovation, and venture capitalists are not quite the risk-takers they claim to be (p. 51-62).

The focus of Mazzucato’s book is on innovation, something usually held aloft as a trophy by market fundamentalists mocking the apparently dull imagination of the state. In her analysis, the state is farsighted, while private companies are myopic; state-led scientists think twenty years ahead and corporate-led designers can only afford to prepare for the next three years (p. 90-91).

In the US, choices to research nanotechnology (p. 92) and renewables were entirely made by state agencies, and had nothing to do with market forces, although they created new markets altogether (p. 162). Such foresight, she argues, is needed to save Britain’s economy. To leave the direction of green energy technology to ‘the market’ ‘only ensures that the energy transition will be put off until fossil fuel prices reach economy-wrecking heights’, writes Mazzucato (p. 146). We have heard repeatedly from right-wing commentators that the state is the ‘enemy of enterprise’, yet in her book, Mazzucato shows this is little more than a ‘point of view’. For all the talk of the ‘revolutionary’ spirit of the private sector, government agencies historically took on ‘the greatest areas of risk and uncertainty’ (p.22, 158).

Mazzucato urges caution against a possible ‘self-fulfilling prophecy’ as follows: we may suspect the government of ‘crowding out’ private companies and undermining competition with ineffectual funding choices, so we may cut this funding. Such sequestration can itself result in the failure of the government to meaningfully contribute to innovation, in turn justifying the past and future cuts (p. 24). She argues that this cycle must be averted by building and legitimising an entrepreneurial state, promoting the image of the state’s effective role in innovation (p. 207-213).

The book offers a strong case for the above, examining how private sector achievements in innovation are often just icing on top of research paid for by states. All the revolutionary technologies making up the iPhone, and by extension all smart phones, are US state achievements (p. 93-119). DARPA’s decentralised model of research and government funding was behind the success of Silicon Valley firms, but corporate-led media ignore this (p. 84-85). ‘Current UK government policy approaches’, Mazzucato writes, misunderstand US economic success, being based on an assumption that the state should only ‘nudge the private sector into action’. In contrast, the US government ‘funded the early radical research and created the necessary networks’ of Silicon Valley in their entirety. This included giving state agencies an objective to facilitate commercial development (p. 89-90).

Much of the analysis in The Entrepreneurial State focuses on the difference between ‘symbiotic’ and ‘parasitic’ relationships between states and firms (p. 30-32). The author writes how private companies held their hands out to the state expecting it to pay for all the infrastructure of the internet, then lobbied for lower taxes, stifling the returns that could assist other companies needing assistance. Or, in Mazzucato’s words, ‘the government’s own pockets, so critical for funding innovation, were being emptied by those who had depended on it for their success’ (p. 26).

The relationship between public and private is ‘parasitic’ for as long as the private sector can ‘leach benefits from a state that it simultaneously refuses to finance’ (p. 30). The relationship is ‘symbiotic’ when the state is allowed to invest creatively in long-term possibilities and futures of innovation without firms rejecting and lobbying against this as ‘crowding out’. A symbiotic relationship also requires the state to get returns from innovation, rather than all returns going towards the private sector. To accomplish this, Mazzucato suggests three options other than tax (p. 186-190). The first is that the state must receive a royalty when its scientific works and discoveries are exploited for profit. The second is that that the state should receive income-contingent loan repayments if a company reaches a certain threshold in profits as a direct result of state funding. Third, state investment banks are suggested as a route for the government to gain additional funding by providing loans.

The state’s lack of advocates, compared to countless private flimflam men, makes it a punch bag for ‘pundits’ and ‘lobbies’ seeking financial gain with disdain for the public good (p.25). Arguably, the fact no-one powerful or wealthy really has a strong personal motive to argue in favour of the state leaves it vulnerable to being attacked by those with private interests. Is anyone to be paid to constantly knock on our doors telling us about the good that was done by government investment into innovation and industry throughout history?

Government PR efforts are often met with derision, seen as propaganda, while corporate propaganda is often seen as inspiring and rebellious. Corporate cronies involved in politics have devoted themselves to their own marketing and window dressing, diminishing the state’s right to commit itself to the common good.

As Mazzucato writes, ‘the state has been behind most technological revolutions and periods of long-run growth’ (p. 29). She says it doesn’t just ‘facilitate’ innovation but plans and oversees it on a grander scale and with farther-reaching results than anyone else (p. 28).  It must act courageously, she suggests, instead of timidly trying to improve the environment for business. She argues that if a state can put a man on the Moon, state funding can solve climate change and shape the society we want, where growth isn’t only smart but inclusive. More pay and decreased burdens for lower earners will result, she suggests (p. 199-201, 207-213), while a strong welfare state can survive (p. 37).

The Entrepreneurial State describes how neoliberalism is contradictory, carried on the stilts of laissez-faire rhetoric and special pleading for government funds, depending on what suits someone’s wallet best at the time. Without taxpayer-provided government funding to foster them and pave their way with gold, the mightiest corporations battling hard against their taxes would be naked and lost.

 

Harry Bentham is a British blogger who has written on global politics, faith, science and futurism for numerous publications. His work has featured on websites including Beliefnet and Press TV. Follow him on Twitter @hjbentham.

You can read more in-depth analysis of Labour’s proposed economic policies here.