The Entrepreneurial State* is the title of a book by Mariana Mazzucato which goes some way to demolish the myth of business entrepreneurs. Ever since Ronald Regan and Margaret Thatcher’s day, the idea that the state was an impediment to the commercial life of the nation has been almost a fixture. The only good government is a small government and those who can remember those days will remember that privatisation was the name of the game. Governments got in the way of business enterprise and hampered the efforts of entrepreneurs. With their rules and red tape, thrusting wealth creating businesses were stifled by government and were unable to perform or create wealth and jobs for the nation. Governments are hopeless at picking winners and should not even try.
The idea became so entrenched that both Gordon Brown and Tony Blair had to follow in its footsteps and seek to appease the business and City community to get elected – remember the ‘prawn cocktail offensive?’
Today we see the great Silicon Valley enterprises of Apple, Google, Microsoft et al as exemplars of the power of the private sector. Dynamic businesses which have grown like topsy to have massive multi-billion sales and essentially rule the world. If only we could replicate this entrepreneurial and go-getting spirit here. Most of us can remember the late Steve Jobs of Apple coming on the stage in California and demonstrating the latest version of the iPad or other kindred device. Jobs and some of the other tech giants had almost an heroic aura to them. People were in awe of them and their every utterance is treated with great attention.
Only one problem: almost none of it is true. As Mazzucato explains in this widely researched book, the tech giants we are led to so admire have almost done no research and almost all the technologies they now use are the result of public sector research effort and sponsorship. Far from the myth of dynamic innovation by the tech giants, all of the basic research was done in universities or other publicly funded institutions. All the eleven key technologies that make the iPhone and iPad work as they do were as a result of this public research. True it was the need to keep up with the Russians following Sputnik was one powerful influence. But Mazzucato goes through all these key technologies and finds it was this government or defence (defense in the USA) investment which led the way. Even the famous google algorithm was publicly funded.
An example is the touch screen, a key feature of the early devices. This was developed at the University of Delaware funded by the National Science Foundation and the CIA. Similarly with the other elements including the idea of the net which came from the DARPA programme and was known as the Arpanet. Mazzucato makes plain that nothing takes away from the work of Apple to develop these ideas and the effort and ingenuity that went into creating world beating products. But her point is that it was the state which did the risky bit of research and Silicon Valley took over this work and developed the products. This applies to many pharmaceutical products as well.
It is important because there is a popular belief – fostered to some extent by firms themselves – that they are far seeking and investing in the future. There is still the argument ‘private good – public bad’. The reality is that much of this early research is risky and expensive. It can take years from an idea to getting to the development stage with a high risk that it won’t work anyway. Only the government can take these sorts of risks.
She also makes the point that despite the enormous sums of public money that underpin these technologies, the state gets a slim return on the massive profits created. Apple for example is well known for paying very little tax and the US government has seen little return – either directly in tax, or in jobs created (in the USA).
We see some of these ideas today in the steady process of privatising the NHS. The belief that the private sector is more efficient is hard-wired into some politician’s minds and despite many failures by the likes of Virgin, Serco and G4S, the contracts keep flowing.
This is a fascinating book and successfully demolishes the myth of private sector pre-eminence. It shows that the path to successful innovation is a joint enterprise over many years and that the public sector can be just as ‘entrepreneurial’ as the private and in some cases, more so.
Finally, the idea of joint sponsorship and innovation is something the Chinese government is pursuing on a massive scale. The USA on the other hand, with its anti-government rhetoric, is cutting back on the sort of investment which led to the tech supremacy it enjoys today.