Mariana Mazzucato (2015)
Building the Entrepreneurial State
Author of The Entrepreneurial State.
Debunking the Public vs. Private Myth in
Risk and Innovation (2013)
In Italian Lo stato innovatore (Laterza)
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• An entrepreneurial state must
• “think big”
• welcome, rather than fear, the high risk
and uncertainty across the entire
innovation chain (from basic research to
commercialization)
• carry out experimentation processes
required for organizational learning
• create markets rather than simply fix
them (in presence of market failures)
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BEYOND MARKET FAILURES: What type of risk?
• The Schumpeterian entrepreneur
• Frank Knight concept of entrepreneurship
• Entrepreneurial risk-taking is not just risky, it is highly
'uncertain'.
• Knight (1921) Risk, Uncertainty and Profit distinguished
risk from uncertainty in the following way:
• "The practical difference between the two categories,
risk and uncertainty, is that in the former the
distribution of the outcome in a group of instances is
known... While in the case of uncertainty that is not
true, the reason being in general that it is impossible to
form a group of instances, because the situation dealt
with is in a high degree unique.”
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Keynes J.M. (1936) The General Theory of
Employment, Interest and Money
• "By ‘uncertain’ knowledge, let me explain, I do
not mean merely to distinguish what is known for
certain from what is only probable. The game of
roulette is not subject, in this sense, to
uncertainty...
• The sense in which I am using the term is that in
which the prospect of a European war is
uncertain, or the price of copper and the rate of
interest twenty years hence, or the obsolescence
of a new invention...
• About these matters there is no scientific basis on
which to form any calculable probability
whatever. We simply do not know!"
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• Investment in basic research is a typical
example of market failure (the market alone
would not produce enough basic research, so
the government must intervene; see William
Press’ paper)
• Mission oriented R&D: identification of
specific structures, institutions and incentives
• Being the source of most radical path-breaking
types of innovation, the state has not just
fixed markets but actively create them
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SOME EXAMPLES
• Private companies have mainly invested in less
risky variations of existing drugs, while statefunded labs have invested in the most risky
(uncertain) phases
• Every technology that makes the iPhone “smart”
(Internet, GPS, touch-screen display, …) was
publicly funded directly,
• In the IT revolution, and even in the emerging
clean-tech revolution, government not only
funded the actual technologies, but also provided
early-stage funding to companies that risk-averse
private finance would not, and devised special
tax credits
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Government failures and experimentation
• The state is poor at targeting particular technologies and
“picking winners” because it lacks the capability,
information and incentives. Politicians and bureaucrats are
bad managers lacking the discipline provided by markets
• In order to promote transformation of the economy, the
state must organize itself so that it has the “intelligence” to
think big and formulate ambitious policies
• This does not mean it will always succeed; indeed the
underlying uncertainty in the innovation process means that
the state will often fail
• Institutional structure ensuring that winning policies will
provide enough “rewards” to cover the losses, and that
losses are used as learning cases to improve and renew
future policies
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Risks and rewards from innovation
• Government returns from its risk-taking
investment: higher tax receipts resulting from
higher economic growth
• Are these indirect returns enough?
• Is it right that, in the US, the National Science
Foundation did not reap any financial return from
funding the grant that produced the algorithm
that led to Google’s search engine?
• A government should explore whether it is
possible to own some of the value it has created,
which over time could generate higher value and
reinvested into growth-enhancing activities
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