Entrepreneurs and the entrepreneurial state

I spent the last half of 2012 living in the US during the Presidential Election. It was on the campaign trail in Virginia in July 2012, when President Obama famously declared  that “if you’ve got a business, you didn’t build that. Somebody else made that happen.” Naturally enough, Mitt Romney pounced: “To say that Steve Jobs didn’t build Apple, that Henry Ford didn’t build Ford Motor, that Papa John didn’t build Papa John Pizza, that Ray Kroc didn’t build McDonald’s, that Bill Gates didn’t build Microsoft is not just foolishness, it is insulting to every entrepreneur,” Mr. Romney said. However, the debate is instructive. It raises a long-standing discussion regarding social structures and the role of agency. Are individual entrepreneurs solely responsible for their success – or failure? What role does public policy play in determining entrepreneurial success?

A recent article by Mariana Mazzucato entitled ‘”The Entrepreneurial State”: Apple Didn’t Build Your iPhone; Your Taxes Did’ has raised these issues again. Mazzucato argues that  businesses are typically timid, they don’t invest until they can clearly see new technological and market opportunities. In her book, The Entrepreneurial State: Debunking Public vs Private Sector Myths (Anthem Press), she  presents evidence that shows that such opportunities come when large sums of public money are spent directly on high risk (and high cost) technological “missions”.

These missions are expensive precisely because the government does much more than just solve market failures. It intervenes in both basic and applied research and even provides early stage seed finance to private companies.

Martin Wolf in a FT review of Mazzucato’s book asks, Why is the state’s role so important? The answer, he says, 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.

The Economist “quibbles” with Mazzucato by correctly pointing out that governments have a checkered history in supporting innovation – “pouring money down ratholes”. While this does not deny the importance of coming to a better understanding how governments can improve the way they do this work, it also doesn’t remove the evidence of success. As the Economist’s review concludes: “a well-run state is a vital part of a successful innovation system”.

Obama’s arguement was an important political one:

“The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires… So we say to ourselves, ever since the founding of this country, you know what, there are some things we do better together. That’s how we funded the G.I. Bill. That’s how we created the middle class. That’s how we built the Golden Gate Bridge or the Hoover Dam. That’s how we invented the Internet. That’s how we sent a man to the moon. We rise or fall together as one nation and as one people, and that’s the reason I’m running for President — because I still believe in that idea. You’re not on your own, we’re in this together.”

In her book, Mazzucato provides some compelling evidence on the role of state that goes beyond the political. She argues for a rebalancing of our understanding of the roles the public and private sectors play in the innovation process:

When building innovation “eco-systems,” then, it is important to make sure the role of business is symbiotic, not parasitic. That means, if we want to rebalance the economy, we need to rebalance the story we tell about who the innovators really are.